The Globe Slags Harvard
Posted on October 24th, 2009 in Uncategorized | 25 Comments »
…in an editorial titled “It’s a University, Not a Hedge Fund.”
The school’s recent troubles show that Wall Street traders aren’t the only ones who were done in by an excess of cleverness; so, too, were Harvard money managers who emulated them. The university should rethink its strategy. When Harvard stumbles, the pain radiates throughout Greater Boston.
Fair enough. But a couple of other points.
First, for a while there I’m not so sure it was clear whether Harvard was a university or a hedge fund. To explain: Over the course of this decade, as vast wealth seemed to consume and define Harvard, the university was engaging in what one might call a battle for its soul.
Was it a university which created a massive financial infrastructure in order to fund and broaden its mission of education and scholarship?
Or was it a combination corporation/investment bank which made massive amounts of money, some of which funded education and scholarship, some of which went to line the pockets of those making the money and running the university?
Point two has to do with the Corporation—the secretive and borderline competent group (just going by results here, sorry) that constitutes the power behind the university’s throne.
The Secret Seven continue to defy calls for greater transparency and accountability. Can anyone do anything about it?
25 Responses
10/24/2009 12:00 pm
The Globe has generally been very generous to Harvard. It is worrisome to see them publish this very critical editorial.
Maybe it reflects the growing number of politicians and businessmen in Bosto who are pissed at the University because of the chill on the plans for Alston. There are too many who know of all the concessions the University was given, in rezoning permits for instance, in the expectation that in the end Harvard’s investments in the development of the urban infrastructure will payff. Menino in particular is very upset.
This editorial is a sign of tough times to come in gown-town relations.
RB, you argue that the problem is with the competency of theseven dwarfs. Aren’t these challenges rather indicative of incompetence among those who manage the University on a day to day basis? Also, you posit that these problems happened because there were some people taking care of themselves at the expense of the University. That’s a more sinister accusation than simply assuming that there are too many people managing the University, tripping over each other, who are doing the best they can, which as you say is borderline competent.
10/24/2009 12:07 pm
It would be preferable for Harvard to find an amicable resolution to the growing tension with Boston than to have a slew of lawsuits over Allston:
http://www.projo.com/opinion/contributors/content/CT_harvard20_09-20-09_LDFONFN_v15.3f8a744.html
Strange that President Obama was in town yesterday and spent his time praising MIT, but not a moment at Harvard just ten minutes away. Wonder whether politicians are beginning to distance themselves from Harvard.
10/24/2009 2:39 pm
Another member of the administration appears to distance himself from HU. Harvard graduate Arne Duncan, secretary of education. In a talk last week Duncan took on Education Schools, highlighting as exceptionally good Columbia and Stanford, but not Harvard —where, until recently, Duncan sat on the visiting committee. Strange.
http://www.time.com/time/nation/article/0,8599,1931810,00.html?cnn=yes&imw=Y
10/24/2009 2:47 pm
Duncan gave the speech at Teachers College, how could he not say there they were wonderful?
http://www.bloomberg.com/apps/news?pid=20601103&sid=ayT4OZbBWUyc
But it was bizarre that he did not acknowledge Harvard given his ties with the place.
10/24/2009 3:30 pm
Duncan may be listening too closely to Arthur Levine, former president of Teachers College. Levine just wrote a report on education schools and the Secretary’s comments mirror it.
http://suse-step.stanford.edu/FrontPgFiles_otherSupportingDocs/Educating_Teachers_Report_ArtLevine.pdf
Levine is a strange bird. He left Harvard after he was denied tenure there. No surprise that he may be unfriendly.
Another person advising the secretary is Stanford professor Linda Darling-Hammond. She was once picked to serve as Dean of Education at Harvard and, at the last minute, turned them down -after she had accepted.
These may be the true reasons Duncan is citing Columbia and Stanford as exemplary, and not mentioning Harvard. Or, perhaps he just did not like the way in which he was portrayed in a recent Harvard publication:
http://www.gse.harvard.edu/news_events/ed/index.html
10/24/2009 4:27 pm
Duncan is far to close to Harvard even to be mentioning it, much less praising it, in speeches he gives as Secretary. Conflict of interest, plain and simple, and he would be pilloried if he did it.
In any corporation, if the management is incompetent, the directors are supposed to figure it out and fix the problem, either by redirecting the management or replacing it. It is, I think, a sign of the fact that the Corporation deep down didn’t think it should have had to move Summers out that after he left, it didn’t investigate how big a mess he had created, letting that come out only later.
The fiscal mess was ultimately created not by bad investing but by unsustainable spending. The speculations seem to have been designed to pay bills that were running up faster than the growth in the endowment would permit, even when the endowment was growing at a dizzying pace. People don’t gamble with the grocery money to get rich- they gamble with the grocery money to cover, hopefully without anyone noticing, debts they have accumulated through extravagant spending.
Consider this account from January 2006:
A uniform message about the Faculty’s anticipated budget deficit flows out of University Hall these days. As Dean of the Faculty William C. Kirby put it last week, “If we were in financial difficulty, people would know.”
The Faculty of Arts and Sciences (FAS) will spend tens of millions more than its annual income in the coming years. The budget deficit is projected to top $40 million this fiscal year and could double before it gets smaller. … Given the stellar growth of the endowment in recent years coupled with needs in the life sciences and a push to grow the Faculty, top deans and professors say the looming deficits represent a wise and overdue use of Harvard’s billions. “It wouldn’t have been responsible [to] delay that any longer,” said Olshan Professor of Economics John Y. Campbell, also a member of the committee. …
… the resources committee and the FAS financial staff “talked through” whether to borrow annually or withdraw a lump sum and chose the latter, Campbell said, because they expected the endowment to grow faster than the interest rate on debt. University President Lawrence H. Summers told the Faculty at its meeting last week that the Corporation—the University’s highest governing body—has approved the decapitalization “in recognition of what is by the FAS an extraordinary period of growth.”
What did the Corporation know, and what was it thinking? Did it approve the debt swaps and the investment in the endowment of the operating account?
10/24/2009 4:45 pm
These are excellent questions Harry. Unfortunately there is no practical way to reduce the power of the Corporation at Harvard. At best, they could be asked to make their minutes public -or public to the overseers- or find some other way to hold them accountable. But it is a self-appointed body of seven and will continue to be so for the next 400 years.
10/24/2009 6:41 pm
I hope the Corporation is paying attention to Shore’s statement to the Crimson that the University may issue additional debt for capital expenditures in the near future. A billion or so of new debt could give rise to $40-$50 million of annual interest charges. Unlike a manufacturing company, for example, the University will not generate any revenues from the application of the funds. It is rather more likely that capital expenditures will result in additional expenditures to support whatever facilities are being created. The new debt may actually lead to an painful amount of further budget tightening to pay the interest and related facilities maintenance costs. This was essentially the trap Knowles and Summers created by running ahead of the fundraisers in the North Yard.
10/24/2009 9:05 pm
Thanks Pioneer13. It seems that the creative types who decided to fund the out of control budget with speculative investments on the operating budget have found another clever way to maintain the status quo: let future Harvard students and donors pay for their present lack of discipline.
If what you say is true, and the new debt will only generate more debt it seems that what we are seing is another way of spending down the endowment. A reverse mortgage of sorts.
What makes you think the Corporation would be oppose to this? They seem to have been quite agreable to the recent financial maneuvers.
10/24/2009 9:11 pm
Why can’t the endowment be spent? I thought it was there to fund university needs at times of need. What would happen if 2 billion a year is spent for the next 10 years? That would still leave 15 billion in the endowment, quite a bit, no? About three times the levels of the endowment in the early 1990s.
This global recession will not last forever. Ten years is a doomsday scenario, more than likely it will be over in five years, that’s only 10 billion spent.
10/24/2009 9:30 pm
This interview, published in Der Spiegel only four months ago, gains a new significance in light of recent events at Harvard.
http://www.spiegel.de/international/world/0,1518,630164,00.html
In the interview, the president talks of savings in hotels and meals for visitors, who will give the same scintillating lecture if they stay in a modest hotel.
What changes are being made to the forthcoming trip of the president and her entourage to South Africa to adjust to the new fiscal realities of the institution? how is this trip consistent of the new frugality?
10/24/2009 10:03 pm
I believe the going rate at the Westcliff is $450 a night, that is without taxes or meals. Say $1000 a night.
Times a party of 80, times 5 nights, plus meals, plus reception rooms, plus first class air tickets.
I reckon one million.
10/25/2009 6:12 am
One million on a trip to accomplish what?
10/25/2009 8:34 pm
This defies logic, that a hedge fund would pay so much for financial advice to someone who made such poor decisions with the Harvard funds
http://www.nytimes.com/2009/04/06/business/06summers.html
10/26/2009 6:55 am
Do I smell diversion?
10/26/2009 8:05 am
Back to the earliest comments — the Allston/Harvard concessions are exactly backwards. It was Menino’s folks in Allston that delayed the building, attempting to squeeze ever more out of Harvard in concessions not that Harvard got concession from Boston. If they hadn’t dragged Harvard through the planning process for years on end, buildings would exist there now. Menino and gang believed that once something was approved, that would be end of their chance to extract more and more money from the University. Then the economy closed down the process.
10/26/2009 6:32 pm
Menino is a crook. He is running the worst public school system in the country. The Boston Public Schools are in a short list of dismally performing districts in the state -the commissioner’s districts. This has not been announced yet because of the election. Why doesn’t Flaherty call Menino on this?
10/26/2009 8:04 pm
An open letter
In the Name of False Necessity”
On Harvard’s Financial Crisis
By PATRICE HIGONNET
To Michael D. Smith,
Dean of the Faculty of Arts and Sciences
October 20 2009
Dear Professor Smith:
I read with great interest as I am sure we all did your letter regarding Harvard’s finances. It’s a long document, many parts of which only a professional accountant could truly understand.
It reveals what could not be concealed. It could therefore have been at once much longer in some of its parts and in others, a good deal more short and plain. You make three basic and simple points:
1. The first is that this financial crisis is nobody’s fault, really. Mssrs. Mr Summers and Rubin are never mentioned. The message is instead that other universities did even more poorly than ours, that we did the best a reasonable person could do, and so on. In brief, who did what to bring us to this juncture in our affairs is all water under the bridge. We move on.
2. The second is that the situation is now under control. Other people may be suffering, but basically, we are not doing that badly. None of us, after all, have been fired, and especially not in University Hall. We should be prudent, of course, but we should not be too alarmed. Things are OK. So, here again, then, we move on.
But the third point of your message – which has to do with the presence of an absence - is the one that interests me most: nary a word do I find in your report about the 275 people who were dismissed from our staff, 77 in connection to the Faculty of Arts and Sciences. There too, is it your point that we should move on? I read your unwritten message to be that we have our problems, and that they have theirs: am I really mistaken in thinking this?
I was profoundly disturbed by these dismissals, as were many other members of the teaching staff. (It would incidentally have been nice if we had been able to discuss such a move on the Faculty floor.) As I see it, the implication of your silence on this issue has to be that although we are, by your own count, still worth 26 billion dollars, we could not find the money to keep on our payroll these employees who have served us well. And this in a society where unemployment often means the end of medical coverage, and even for some, homelessness, a sad reward incidentally for those of them who had faith in the reckless message of Mssrs Summers and Rubin, both of whom, incidentally, we might well want to censure for their strikingly incompetent management of our fortunes, our investments, and especially, our expenses.
Your silence here is eloquent: what it tells us is that the world’s richest educational institution, upon reflection, decided that it could not afford to keep its weakest members afloat. This is for me immensely discouraging. Your reasoning (i.e: “these cuts were painful, of course, but necessary”) would perhaps have been wise if you were running some banal firm. Or bank. But you are not. In my view, your message is inappropriate coming as it does from for someone who is in charge of the world’s leading - and richest -educational institution, a university on a hill as it were, and a flagship for academic life world over.
I do not know what President Lowell did about our monies during the 1929 depression because that is not what now matters about his years at Harvard. But his approval of the violently contested execution of Sacco and Vanzetti does still matter, as do homosexuals driven to suicide. I know that the years of Mr. Conant’s presidency marked the beginning of Harvard as a world University, for which we are all grateful; but I also remember his endorsement of the decision to destroy – many would say murder – not once, but twice tens of thousands of Japanese civilians by atomic war. By contrast, what Mr. Conant did with Harvard’s wealth, few people today know or care.
World historical issues for a world historical institution like ours are not about millions or even billions. What will be remembered of your deanship is not the figures of your report, but the pain which in the name of false necessity you chose to impose on our community’s least influential members. This is not a matter of life and death, obviously – I hope so in any case - but it is of some consequence
When we emerge from this crisis, and have forgotten the arrogance, self-indulgence, and recklessness of our former managers, what will still matter is not the dry facts of your report, but its hidden spirit. What we will all recall it is that in a moment of manageable crisis, Harvard University chose to become a cruel employer without much regard to those like myself who want to find it “sans peur et sans reproche.”
In an age that prizes human rights and socially responsible employers, your decision will be remembered as a sad and unworthy moment in the historical annals of our University. It’s not the present that should hold your attention: it is our future and above all else, our past, checkered at times but quite glorious also.
Your report should have two additional paragraphs. I urge you to add them as a footnote to your pages. The first would provide us with a precise figure: it would be a statement regarding the exact amount of money that we secured by inflicting woeful pain on the University’s staff, together with your justification of that decision. Had we kept them on, how far now would we be below our current 26 billion mark? A calculation made by exact tenth of one percentage point would be welcome.
And the second would be an assurance that no further dismissals will be made. Many other universities as you know have somehow managed to be more generous than we have been. Harvard must set the highest moral standards as well as highest intellectual standards for our nation. In this difficult time, in which so many Americans are suffering the consequences of irresponsible fiscal policies, Harvard really should do better. It is our silence that has allowed its former handlers to go forth, cynically, into the wider world. This is the moment also for our university to show America and the world that the riches of a great educational institution cannot be measured only in dollars and cents, in millions or billions. This is the moment for Harvard to show that true responsibility in a fiscal crisis means sheltering loyal and vulnerable by-standers instead of absolving the powerful. Such a move would be widely hailed.
Patrice Higonnet is Robert Walton Goelet Professor of French History at Harvard. He has written major works on the French and American Revolutions and on 19th and 20th century Political History.
10/26/2009 9:26 pm
Many thanks to FAS professor for posting Prof. Higonnet’s letter, and merci mille fois to Prof. Higonnet for writing it. The spirit of May 1968 lives on.
10/26/2009 9:35 pm
Professor Higonnet has the ‘cojones’ that most Harvard faculty lack. He also has a spine and a sense of how the atrocities of history are as much the product of cowardly bystanders as anything else.
Bravo cher Professeur!
10/26/2009 9:40 pm
So the logic of Dean Smith makes eminent sense. He fires 300 people, and then discovers a 60 million surplus in his budget. Vive les imbeciles qui samusent avec Verite sans Lumiere!
10/26/2009 9:45 pm
Some Crimson writers have brains, heart and humor:
http://www.thecrimson.com/article.aspx?ref=529633
Others may be patiently waiting for directions.
10/26/2009 9:56 pm
If Professor has cojones then Crimson staff writer S. Park has brains. The figures reported in the article are extravagant. Is it truly possible that Hyman’s salary went up 19% in a year?
“President Drew G. Faust’s total compensation, up $17,009 since Larry Summer’s final year: $775,043
Provost Steven E. Hyman’s total compensation, up $90,446 from previous year: $570,265
Number of employees laid off in June 2009: 275
Amount of raises and bonuses to be accrued by faculty and non-union workers in 2010: $0
Voluntary pay cut of Stanford’s top administrators this year, including the President and Provost: 10%
Increase in Provost Hyman’s salary from previous year: 19%
Drop in payroll for teaching staff this year: $2 million
Number of sections reduced due to a drop in hiring for TAs/TFs: 450
Target class size for sections this year, up from last year’s average of 13: 18
Minimum fine, up from $75, for all lost library books and materials in the Harvard College Library, which includes Widener, Lamont, and Houghton. A new $10 “non-refundable billing fee” will also be added per item: $100 “
10/26/2009 10:01 pm
are these idiots stealing the silverware while the castle is on fire?
‘Let them eat cake ma cherie, and let’s give each other another little raise while we are at it. The seven blind mice are petrified as the house of cards falls down’
10/27/2009 5:16 am
Many thanks, FAS Professor, for posting Patrice Higgonet’s letter. It makes some truly important points. Like Anonymous 9:40 p.m., I too was surprised to read in yesterday’s Crimson that Dean Smith has now discovered a $58.6 million surplus in FAS unrestricted funds. This may indeed be largely the result of two generous donations, but why couldn’t at least a portion of it be used to remedy some of the reductions that have been made in the name of “necessity”?