just asking questions

Harvard Has Too Much Money to Have So Few Students

Scott Galloway on elite universities’ unethical obsession with exclusivity and prestige.

Students and visitors mingle in Harvard Yard. Photo: Pat Greenhouse/Boston Globe via Getty Images
Students and visitors mingle in Harvard Yard. Photo: Pat Greenhouse/Boston Globe via Getty Images

Harvard University’s recent announcement that its already enormous endowment fund grew a whole lot larger has reignited a long-running debate around whether universities educating a few thousand students should have endowments that rival the GDPs of many nations. Earlier this month, the organization that oversees the university’s endowment announced a record $11 billion return for the fiscal year ending in June 2021 — boosting the school’s endowment to more than $53 billion. And Harvard isn’t the only elite school enjoying an endowment bonanza; its 33.6 percent return was outperformed by endowments at other Ivies, MIT, and public universities like UVA, Michigan, and UNC.

Scott Galloway, co-host of New York Magazine’s Pivot podcast, thinks that the latest windfall for elite universities is further evidence that higher education is due for disruption. Intelligencer spoke to Galloway about Big Tech’s role in that disruption, how elite universities operate an economy of scarcity, and the sheer enormity of Harvard’s endowment.

Why should the general public care if Harvard is sitting on a $50 billion endowment? 
Typically, we think of universities as the tip of the spear of our society. They’re at the frontier of our scientific exploration and liberal thought. We have the best universities in the world. Every president since Dwight Eisenhower has gone to college. They say something about our national priorities, what we’re researching and what we value. But now you have endowments that are the size of the GDP of Central American nations. People have a difficult time wrapping their arms around these numbers. If you stacked Harvard’s endowment right now in $100 bills toward the sky, it would get to 190,000 feet. If it has the same return next year, the Virgin Galactic rocket could have trouble clearing that stack. You’re talking about a stack of $100 bills that is going to reach the Kármán line soon, and it’s all for an institution that lets in 1,400 kids. Sure, Harvard is a private institution and that is private property and it’s their right to grow the endowment 30 to 50 percent a year while growing its freshman incoming class -0.17 percent (Harvard let in fewer freshmen this year than last year). But should it have nonprofit status? Does its mission align with what we expect the mission of nonprofits to be? Is Harvard really living up to its mission to improve the world? Harvard, when faced with these questions, has now decided it is a research university. But if you go to its Wikipedia page, it seems pretty clear that for nearly 400 years, Harvard positioned itself as a place that educates tomorrow’s leaders. I guess they’ve decided we just don’t need that many leaders. The universities have morphed from the greatest upward lubricant in history to the enforcer of an emerging caste system in America.

I think a lot of people would argue that the Ivy League has always done that. 
It’s a fair point. The Ivy League is a little bit like Big Tech — we keep waiting for their better angels to show up. It’s fun to rail on Ivies because they’re private; they can do whatever they want. We can try to shame them, but it’s ineffective and a waste of breath. Where you move the needle here is with our various public-university systems. We scale Google and Salesforce at 20 to 60 percent a year, but we just find it impossible to scale our public universities at greater than 1 or 2 percent a year? We need to use technology, small and big tech. The great public universities have become drunk on luxury, too. Admissions go down while tuition goes up and the schools add to their administrative bloat with “centers on leadership and sustainability” and deans and administrators who are exploding their own compensation.

More broadly speaking, universities are supposed to be one of the agents of churn. How do we get more people up and down the income ladder? The U.S. not only believes in upward mobility, we used to believe in downward mobility. That is one of the core tenets of capitalism; you can’t have winners without punishing losers. Now, once your family is rich, we’ve decided it’s going to be impossible for you to be a loser, whether it’s an increase in the limits on estate taxes, legacy admissions, or the tutoring industrial complex. They’re still equally transformative. You’re less likely to have a heart attack or get divorced, and you’re much more likely to be wealthy, if you go to an elite university. But we’ve decided that opportunity is really going to be accessible to two cohorts: the children of rich people and the freakishly remarkable who peak at age 17. The children of rich people are 77 times more likely to get into an elite university. A third of elite universities have more kids in the top one percent than the bottom 60 percent. That problem taps into the consensual hallucination that parents have with each other and their children — that their kid is remarkable. I can mathematically prove that 99 percent of our children are not in the top one percent. Like everything that is happening in our economy, it is becoming a winner-take-most phenomena.

The real culprit here is the intransigent obsession with exclusivity and prestige. Elite universities and their leaders have decided they want to be Birkin bags, not public servants. It’s outrageous to think that we can scale Google and Facebook at 25 and 40 percent, but we can’t scale our great universities at greater than one percent. Me and my colleagues have become drunk on exclusivity. It’s a natural tendency that once you have a degree, or once you have a faculty position, to decide the right strategy is to pull up the drawbridge behind you. It’s like owning something that is increasingly scarce. Once you buy the works of an artist, you kind of hope he or she dies. This obsession with luxury and exclusivity continues this trend of income inequality. Harvard could double the size of its freshman class and not sacrifice any quality. If you’re sitting on an endowment that’s the GDP of a Central American nation, why wouldn’t ya?

There are indications that things are changing at elite schools. Harvard, while still very white, is more diverse now than it was. Amherst announced it was dropping its admissions advantage for children of alumni. Are there regulatory fixes that could expedite these changes? Some have suggested requiring schools to spend 8 percent of their endowment annually, or earmarking a set percentage on tuition. 
It’s easy to socially engineer or be generous with other people’s money. But you’re right: On many levels, they have made progress. They are getting more diverse and Harvard actually has pretty good income diversity as well. They’ve also made a lot of progress on financial aid; any kid who gets into one of these programs will have no problem getting financial aid. The issue is, do we want a Hunger Games at the age of 17? It’s great that those 1,900 kids are diverse, but the operative term there is that it’s 1,900 kids. If I came up with a pharmaceutical that could literally save the lives of tens of thousands of people but I decided there was more prestige in only having 1,900 doses of it manufactured every year, isn’t that unethical? There’s nothing getting in Harvard’s way — they have the resources and they’d have no erosion of their brand. This is like the best hospital in the world having the capacity to take more people and change their lives, and they’ve decided not to. So, yeah, they’re more diverse, but the question is why do they have the medicine cabinet under lock and key?

I’m guilty of perpetuating the problem. I consulted in the ’90s for my alma mater, Haas School of Business. I said, “Our strategy should be to make us the smallest program in the top 20. We could be more selective, which helped us in the rankings. We can have outstanding students, which can create more interest from corporate recruiters and create this upward cycle for students wanting to apply.” It was absolutely the wrong line of thinking. It was the right thing for Haas, but it was the wrong thing for society. Everybody loves the idea of exclusivity, once they’re across the border or once they’re into the screening. We need to change that. It all comes down to this: What is our definition of America? Do we identify the top one percent and turn them into billionaires? Or do we identify the top 30 percent and turn them into millionaires? I think we’ve decided we want more billionaires.

Now that you’ve admitted to helping to perpetuate the problem, how do we correct it?
I’ve kind of written off the Ivy League. The truth is that together, Florida State and Ohio State graduate more students than the Ivy League combined. We have to come up with a grand bargain with public universities — where two-thirds of our kids end up — and it looks something like this: Government says we’ll increase your funding, but you need to dramatically increase your efficiencies and lower your cost per student with a mix of Big Tech and more fiscal discipline around some of the ridiculous expenditures. No more administrative bloat — “centers on leadership and sustainability” and deans and administrators with exploded compensation — and UCLA can’t be the Mandarin Oriental Brentwood anymore. We’re going to need schools to double the number of admitted students in ten years on an increasing budget of 50 percent, not 100 percent.

Some public universities are course-correcting. University of California just announced they want to increase freshmen seats across the UC system by 20,000, the equivalent of a campus, by 2030. They see the economy needs more well-trained employees and realize it’s their job to take good kids and give them remarkable opportunities, not just to identify remarkable kids.
In the Varsity Blues scandal, the parents’ crime wasn’t fraud or bribing the universities; their crime was that they tried to do it for $500,000 and not $5 million. If they had been willing to give USC $5 million, they could have called the director of development, they would have had a ribbon cutting, they would have etched their names into the side of a building, and their kids would have gotten in. Some public universities, I think led by the University of California, have said, “Enough is enough — we need to dramatically expand the number of seats.”

You mentioned Big Tech. Let’s go back to your prediction about the coming disruption in higher education, the marriage of elite universities and Big Tech. Have you seen any indicators of, or any movement towards, more online learning in my higher ed? 
Yeah, I see it. I think for the first time, universities see online learning as a tangible threat. In my online start-up, Section4, we’ve tried to hire the 1984 Olympics dream team of faculty. Just in the last three months, we’ve had a lot of universities try to pull back their online products. These institutions that felt they were unassailable all of a sudden feel vulnerable.

There are people who used Napster because they didn’t want to buy the album, or they use Spotify now to listen to two or three songs. There are a lot of people out there who want to take a few classes on supply chain or statistics, but aren’t in a position to go to graduate school. You may hear very well-publicized stories of a woman working her way through graduate school raising kids, but if you’re a single mom, realistically, you just can’t drop a quarter of a million dollars to spend two years in Charlottesville or Ann Arbor. However, taking a Great Course online with testing and cohort learning is a possibility.

How does NYU feel about Section4? 
They’ve been supportive, but it helps that I gave them equity in my last start-up, which ended up being worth quite a bit, and they are going to be equity holders in Section4. We also have good partnerships with other universities, too. But there’s no doubt about it, the dynamic has changed.

*Correction: This story has been updated to clarify that every president since Dwight Eisenhower attended college.

Harvard Has Too Much Money to Have So Few Students