Financialization as a Double-Edged Sword for Universities

Full remarks from my Berkeley and Stanford talks on defending universities.

Below are my full remarks from talks I gave last week at Berkeley and Stanford. I was fortunate to have a breadth of conversations with social scientists and university leaders, courtesy of Stanford’s Center for Advanced Studies in the Behavioral Sciences which hosts faculty fellows from around the globe. I’ll write more soon about what I learned. For now, I’ll only share that I found there is even more university resistance happening, particularly in the form of litigation, than you can see in media accounts. A key challenge may be how to make this resistance more visible and unified.

My next lecture will be at University of Chicago on Thursday May 15th. The Chicago talk will be shared online (details forthcoming). Reply to this if you’d like information to attend.

-Charlie

Financialization as a Double-Edged Sword for Universities

How does financialization affect the prospects for universities to overcome the new authoritarian threat. I argue that university financialization has both created both vulnerabilities and resources for universities.

But what is the threat? And what in the immediate would defeat it?

To me, the primary threat is Trump’s broader authoritarian power grab through the suppression of free speech and the rule of law. He explicitly wants to suppress the institutions that are the primary sources of dissent in a free society: independent journalism, the legal profession, and universities. And he aims to exercise his power over and above the rule of law in defiance of the courts.

This figure reports results from a New York Times Poll published last week. Note the broad public opposition to three modes of Trump’s attacks on universities:

• 54% oppose eliminating government programs enacted by congress

• 63% oppose deporting legal migrants, even those who have protested Israel,

• And 76% oppose ignoring Supreme Court rulings.

• I haven’t seen this polled, but I suspect it is also very unpopular to terminate, for example, cancer research funding to universities. [Update: this Washington Post poll shows 77% oppose cuts to medical research funding. 70% oppose increased federal involvement in how private universities operate.]

Authoritarian power is consolidated when civil society organizations, like say Columbia University or the biggest law firms, make settlements to forfeit the rights and free speech of their own members. Similarly, authoritarian power is strengthened when courts avoid making rulings that they think the authoritarian might defy.

Inversely, authoritarian power is undermined when civil society organizations like say, Harvard or the University of California, refuse to cede the rights of their members. Relatedly, Trump’s power is undermined even when his authoritarian actions are delayed by litigation, injunctions, and legal warfare.

Put another way, it becomes a liability for Trump to “flood the zone” with lawless presidential actions when every action is met with resistance and litigation that floods the media with stories about how the President is breaking the law, attacking civil liberties, and attacking your health.

And as cautious judges see broad public opposition to Trump’s defiance of their rulings, they may become more confident to issue further rulings against Trump.

Similarly, major university leaders whispered only a month ago that it was best to keep their heads down. But then came outrage from faculty and students across university communities at Columbia’s capitulation. And then, even more importantly, came Harvard’s refusal to cede its rights to Trump. And so more than 500 of these same university leaders, including every Ivy League President and UC Chancellor, signed an open letter last week saying they will not accept “undue government intrusion in the lives of those who learn, live, and work on our campuses.”

So we’re seeing how successful resistance can be contagious. And this resistance is helping the broader public to see the authoritarian force behind all of Trump’s attacks on free speech and the rule of law. This same Times poll found 59% of respondents thought Trump’s 2^nd term could be described well with the word “scary.”

Ok, you say, but what about financialization?

As I said before, financialization has created both vulnerabilities and resources for universities to face Trump’s authoritarian threat:

• On the one hand, financialization has increased inequalities involving universities that fuel broad public resentment.

• On the other hand, financialization has provided elite schools with massive financial resources for university autonomy. It has also provided elite schools with embedding social ties to that connect them to powerful potential allies.

I won’t detail it today, but the rise of student debt is one financialized inequality that has fueled broad public resentment. As you can see on this slide, forgiving student debts is more popular as an executive action than any action taken by Trump.

For today, I’m only going to talk about resentment and resources involving endowments.

This figure from my book illustrates the unequal rise of endowments. It shows that private university endowments in the top 1 percent for value grew from the low billions in the 1970s to $20 billion by 2016. As you can see, growth was substantially less even in the top 1 percent of public universities and top 5 percent of private universities.

But this slide actually understates the inequality in endowment growth. Endowment inequality has been compounded by limited undergraduate enrollment growth at the wealthiest private schools. Princeton, which to its credit has played an admirable role in resisting Trump, is the most extreme case. Princeton has less than 9,000 undergraduate and graduate students. In spending the normal 5% of its endowment on university operations, Princeton now annually spends more than $180,000 per student from its endowment to support university operations every year. This is up from $10,000 inflation adjusted dollars per student in the 1970s.

In contrast, enrollment has grown substantially at public universities since the 1970s. One of my mentors, former Goldman Policy School Dean Henry Brady, has pointed out that UC Berkeley alone has enrolled more low-income students than the entire Ivy league combined. So while endowment values have grown substantially at the University of California, to over $40 billion across the system, these endowments are stretched much farther to serve nearly 300,000 students. [note, around $6,700 per student endow spend, not to mention operating a hospital system]

[SLIDE 4]

The result is this, elite endowments have become a double-edged word:

• On the one hand, they are both a symbol and a real mechanism of inequality in higher education. They fuel resentment towards toward all universities, not just wealthy private schools. This is because in the media and public imagination, all college is Harvard with its hoarded billions. Trump and J.D. Vance are self-serving and disingenuous when they say they want to tax wealthy endowments because elite schools don’t serve America. But wealthy universities have made us all vulnerable – it is not incorrect to say that elite private universities have hoarded their endowments.

• On the other hand, endowments are a major resource for university autonomy from a hostile authoritarian president. But they are only such a resource for a few schools. This is probably part of why Princeton and Harvard were the first to draw the line.

So that’s the double-edged sword of endowments.

In another related way, financialization has constructed embedding ties to elites that are both a risk and a potential resource for defending the university. Albina Gibadullina and I just published an article related to this in Socio-Economic Review. In our article, we theorize university boards as one particularly important type of parallel social organization that embeds economic elites in social ties to one another.

This figure from the paper shows that tech executives and financiers have grown their relative wealth and make up an increased share of the 400 richest Americans. These big tech and big finance oligarchs have been important supporter of Trump along with big law, which I think of as a sort of junior partner in this axis of oligarchy.

But financiers have especially taken more seats on university boards.

You can see that in the next figure.

On the left, we’ve plotted the average share of university board seats going to private equity and hedge fund managers at the top 30 private universities. On the right, we plot the average share of board seats going to all other types of financiers.

Our paper shows that financiers have come to dominate these boards for two reasons. One reason is that private equity and hedge fund billionaires are Ivy League alumni at much higher rates than other billionaires, including tech billionaires. The other reason is that the social ties and private information exchanged through university board positions are particularly valuable to private equity and hedge fund managers who invest and trade based on private information to beat public markets. Our paper shows that investment returns go up at private equity firms net of other factors after one of their partners gains a top university trustee position.

The implications are twofold for university resistance. First, many elite universities are vulnerable because their governing boards and top donors are now dominated by financial oligarchs who often support or at least accommodate Trump. It may not be a coincidence that 46% of Columbia’s trustees are from big finance, a higher rate than for all but 5 of the top private universities. In contrast, just 23% of the Harvard board and 35% of the Princeton board are from finance. Interestingly, the New York Times reported that the only board opponent of Harvard’s decision to resist is the KKR private equity manager Joe Bae who was recently appointed to the board to improve its “viewpoint diversity.”

The flip side of this vulnerability is that a financier becomes susceptible to campus community pressure when they join the board or recruit all of their analysts from a handful of elite schools. We may be seeing some of this boomerang in the reports that Trump actually wants out of his fight with Harvard.

I’ll close with a few thoughts on what is to be done.

First, I think elite schools, including UC, should leverage their endowments and their elite ties to both defend themselves and fight for the freedoms of all Americans. I think they can do this in a few ways.

The most obvious thing is you can use the endowment to keep the lights on while you we speak out assertively and litigate against cuts.

I also think endowments could be used more expansively to litigate everything. I’ve heard from some major university leaders that this is already happening behind the scenes to some extent. But I think we need a more public coordinated legal campaign of challenges to Trump’s illegal actions on a scale so large and intense that it paralyzes his administration with stories of his lawlessness. This would make Trump’s “flood the zone” strategy a liability for him rather than an asset.

I also think that students and faculty can be more assertive in doing what we do best, learning and teaching at a bigger scale about Trump’s threats and the powerful forces around him. This could produce viral media on Trump’s lawlessness for broad audiences or lay the ground work for mass assemblies on campus like those that were organized around Occupy Wall Street and Black Lives Matter.

Some of this learning and teaching could weave together a vision for both freedom of speech and freedom from the fear that most Americans reported in the New York Times poll I showed earlier. Freedom from fear is interesting as an idea that universities can uniquely speak to as both bulwarks of free speech and central providers of biomedical research and healthcare.

Threats to healthcare have been shown to generate more intense fear than any other destructive right wing policy. And we’ve seen Trump’s vulnerability to this in the turmoil this week over his “big beautiful bill”, the reconciliation package he plans to pass his to gut both universities and healthcare. To succeeds, the bill would need to hold every Republican in the House where the party has just a 2 person majority.

In the longer term, I think universities need to deleverage their financier ties and endowment hoarding. This would start with balancing university boards with more non-elites, including the UC Regents where we haven’t had a union leader or someone like Dolores Huerta on the board for over 25 years.

Deleveraging endowment hoarding would involve policy changes that reflect some of the rhetoric that elite schools have been using to rebrand themselves as serving the broader public. For this, we need a plan for the day after Trump. Damage has already been done to our institutions. When we rebuild them, we shouldn’t just recreate them with the same flaws and vulnerabilities. We should rebuild them better. Depending on the university, this could begin with expanding undergraduate enrollment, increasing affordability, or both.

Bonus figure: % of Forbes 400 members with top university BAs. Patterns are the same for MBAs.