Foundations, endowments and higher education: Europe ruminates while the USA stratifies

The role of university endowment funds in supporting higher education institutions varies significantly across space and time. Some higher education systems make no use of them, nor do they plan on doing so, while others are grappling with the socio-cultural, legal and political hurdles preventing their emergence as tangible material forces.

uwfound.jpgOver the course of the last six years, following a move to the United States (I’m based at the University of Wisconsin-Madison, est., 1848) I’ve had a crash course on the socio-cultural foundations of endowment funds. It is this dimension that is amongst the most significant yet intangible force facilitating the development of endowments. I’ve acquired insights on this issue via guiding some visitors from Europe (including people involved in the Bologna Process, as well as from the European Commission) to the University of Wisconsin-Madison’s Foundation (pictured above), and simply by living and working in this context (an unplanned ethnography, if you will). The UW Foundation, which is the 46th largest in the US, has an endowment worth $1,645,250,000 (at the end of 2007). Note, though, that it is a separate endowment from the University’s autonomous technology transfer office (WARF) which has its own $1.5 billion endowment, and the UW Trust Funds (worth $450 million) that support all 26 campuses in the UW System.

During tours through the UW Foundation offices at 1848 University Avenue, which employs approximately 130 people, we witnessed a veritable machine in motion: counselors guiding dialogue between prospective donors and options for targeted initiatives; strategists working out the aggregate demographics of alumni base transformations; analysts working with integrated data bases that can identify thousands of data points including the occupations (including employers) of individual alumni, the value of their houses, and the ideal time (in terms of career and generational transition) to court them for large-scale donations; and a large room with computers and headsets where an additional 110 students (paid on an hourly basis, with free pizza on Friday nights) work from approximately 3:00 pm on so as to call alumni spread across the country while they are home at the end of the working day, but before they start winding down for bedtime.

Institutionalization aside, I’ve also witnessed the construction of a family-like university-alumni relationship such that the university, via the provision of a high quality (usually) education, generates a lasting social relationship with individuals. Apart from in the classroom, this also occurs via the establishment and maintenance of carefully crafted places where lasting memories of a positive nature can be created (such as the lake-side student union and Bascom Hill), events (including sporting events) which are often associated with planned spectacles (e.g., see the 49 second video clip below) that spark memorable experiences,

and the saturation of students’ senses with visual icons – in Madison’s case numerous trademarked logos, and the beloved starburst chairs that are placed on the lake-side student union. These places, events, and icons are seared into the memories of all alumni, with subtle but equally effective reinforcement provided by their inclusion in the free alumni magazines that get mailed out on a regular basis.

uwchair.jpgUpon reflection, the Canadians on campus, and visiting Europeans, view the construction of such a propulsive system with both fascination and a touch of unease. The brazenness of the effort to construct ‘family’, and then the application of advanced data bases to mine these relations to acquire financial gifts, can seem a touch too strategic and material in orientation. But when I meet alumni while parking cars at my son’s school playing field (a fundraiser that takes advantage of the fact that the 82,000 seat university football stadium is a mere three blocks away), I engage in direct conversations regarding, and observations of, that intangible alumni feeling. To be sure it is overtly strategic in some ways, but these people also feel like they are ‘giving back’: they are, in their minds, honouring the institution that played such a fundamental role in reshaping their lives, in connecting them to lasting friends (and often romantic partners), and marking their transition to adulthood. Of course they are also, via their donations, supporting subsequent cohorts of students. And the effects on the university are striking, with the John and Tashia Morgridge-funded Institutes of Discovery but one of the more striking examples. Indeed one group of alumni even donated $85 million in 2007 to ensure that the Business School is not named after any one person for the next 20 years; a surreal donation, in some ways, given the present logic of the system. In short, while the structural context is clearly a factor, it is the intangible socio-cultural dimensions that play a fundamentally important role in facilitating this development process.

nytendowment.jpgWhile universities in many parts of the world begin to grapple with socio-cultural, legal, and ideological dimensions of foundations, and endowment bases, it is also worth taking into account the emerging effects these endowments have in aggregate. Recently released data by the National Association of College and Business Officers (NACUBO) in the US identifies a clear private/public schism, and it is this schism that is the topic of discussion in today’s New York Times. As the NYT article notes:

The result is that America’s already stratified system of higher education is becoming ever more so, and the chasm is creating all sorts of tensions as the less wealthy colleges try to compete. Even state universities are going into fund-raising overdrive and trying to increase endowments to catch up.

The wealthiest colleges can tap their endowments to give substantial financial aid to families earning $180,000 or more. They can lure star professors with high salaries and hard-to-get apartments. They are starting sophisticated new research laboratories, expanding their campuses and putting up architecturally notable buildings….

Higher education has always been stratified, but the disparities were never as large as today. In the early 1990s, endowment income represented a small part of revenues at most colleges and universities. In 1990 Harvard’s endowment was $4.4 billion.

The last decade brought a sea change, as sophisticated money managers hired by the universities moved their portfolios into hedge funds, private equities and other high-performing investments, and endowments skyrocketed.

Some of the effects of the hastening stratification are evident even in my own relatively well-endowed university, where high quality departments (e.g., Political Science) have been raided by private Ivy League universities, leading to the departure of about ¼ of all of the professors in the last three years. Business Week also has two related stories (‘The dangerous wealth of the Ivy League‘ and ‘Educational excellence, without Ivy‘) regarding the effects of this stratification process.

Many European universities are in the early stages of establishing foundations and building up endowments, though most really have no idea how to do so. This said one emerging trend is to acquire gifts via firms (i.e., not high ‘net worth’ individuals), which will inevitably fuel the relative growth of business schools (unless these monies are taxed for the benefit of all assuming the business school is not stand-alone). Yet the development process is fraught with unresolved debates: is this a good idea?; is this a workable idea?; how does one overcome the socio-cultural barriers to the idea of donating money when ‘already’ paying via the tax system?; how can the European Higher Education Area (EHEA) compete (assuming it wants to) with the US without endowments, or at least substantially enhanced and concentrated funding of select universities?; etc. It is also noteworthy that key institutions, including the European University Association (EUA) and the European Commission, have yet to acquire accurate and systematic data about what endowments (if any) exist within individual European universities (though not for lack of trying). And at a broader scale the OECD has not conducted any serious research on this issue; a somewhat surprising fact given the policy relevance of the phenomenon.

So as Europe ruminates (or perhaps equivocates), it does make me wonder if this not too significant of an issue, and a debate, to be left to individual European countries (with the UK the most active), European universities, and European politicians, to grapple with. In short, why is there no systematic analysis and coordinated discussion?

Kris Olds

3 thoughts on “Foundations, endowments and higher education: Europe ruminates while the USA stratifies

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