The Politics of Money
"HARVARD AND MONEY," a thin green booklet released yesterday by the Committee on Governance, touches all the bases but home. It gives shrewd insights into resource allocation at Harvard, exposes the stalemates, lays out the fiscal alternatives in the most elegant committee prose since the Wilson Report, but refuses to suggest solutions. The progress of the document has been slow. Its authors, Professors Francis M. Bator and Graham T. Allison, even now insist that they have only drafted a preliminary paper-"to fix an agenda" for debating possible guidelines for portfolio and budget analysis in the dark fiscal days ahead. The Austin Committee on Corporate Enterprise, appointed by President Pusey last April during the GM proxy fight, has done that much less work. But Harvard urgently demands a full and immediate discussion of these topics. By remaining so noncommittal, by shying off from premature conclusions, by proposing on the one hand and rejecting on the other, the new memorandum will make very few waves indeed. What the University needs is not so much a primer of issues but a list of possible approaches once the issues have been given.
The memorandum does make one strong point, "If you want to identify a theme," Graham Allison said this week, "it is the problem of machinery to insure well reasoned decisions which all the constituents of the University will regard as legitimate." He quoted from the report: "'Solutions' that do not specify the machinery of choice and implementation rarely solve any problem. More often, they beg it." Such radical talk-at least from a committee-indicates that controversies like Campaign GM should be met not with philosophical but with pragmatic political innovations. "It's almost impossible to find any guidelines for corporate virtuousness," Allison said. "Yet the Treasurer and the Corporation make such judgments every day. At least in the case of front-page news like proxy votes, there's no obvious strategy that avoids conflict. Not even symbolic neutrality, because an abstention is just considered a mild support of management."
Unfortunately, this promising theme-the alternative machinery for managing Harvard's budget and portfolio-is gingerly broached and often quite airily dismissed. Had the memorandum tried to detail one new way for voting the proxy or reviewing the portfolio, it would have necessarily clarified the case for institutional reform. The GM proxy issue could have provided this opportunity. In a confused meeting last spring, the Faculty argued that the University had some moral responsibility for the 100 or so corporations which made up the $1 billion portfolio. Apparently ignoring this commotion, the Corporation voted as the Treasurer Mr. Bennett directed.
The history of Campaign GM at Harvard was more debacle than debate, for it was very unclear what institutional procedures the reformers should use to present their case. There was no place for the debate to center. The Corporation, as always, remained insulated from this kind of grass-roots politics. The Treasurer was talking only to his friends on the Board of Directors at GM. The Faculty of Arts and Sciences had no authority at all, and when it finally did pipe up, alienated the other faculties in the University. The Faculty also proved too unwieldy to state a coherent rationale for their vote. The alumni were unable to respond, except in a haphazard poll taken by the Harvard Bulletin which had little effect. The Committee of Students and Community Relations (CSCR) probably studied the issue in the most detail, but the Corporation serenely ignored its existence.
The substantive problems of social conscience will never yield up "clear guidelines"-though academics will always wish for the impossible-but one can at least hope for an easily accessible public tribunal to handle future wranglings. A committee independent of the Corporation which has the power to vote the proxy and to recommend dropping sundry items from the portfolio would more efficiently channel the political energies of the community. The committee could be triggered to respond whenever the political heat reached a certain intensity. It would consult directly with the Corporation on a case-by-case basis, and even if the Corporation had the right to overrule it, some communication would have taken place. The membership of these groups poses the most awkward question of constitutional mechanics. No small committee can represent all the estates of the University, but it can often react with sensitivity to their concerns.
Some critics have considered the symbolic protest embodied in Campaign GM and other proxy fights to be a futile and clumsy type or melodrama. The guidelines can become a hopeless morass, as they did last year at Princeton. The Malkiel Report tried to evaluate the school's investments in companies operating in South Africa. This Princeton effort illustrates the complexity of drawing up moral criteria to judge the different ranges of financial involvement in South Africa. Directly or indirectly, the committee found, almost every company in the portfolio was contaminated-companies which had affiliates or subsidiaries operating in South Africa became the focus of a compromise criterion. But this particular standard overlooked some companies which did a great deal of trading in South Africa without having either a sales subsidiary or an affiliate. And so the exercise went on, provoking a kind of exasperated Pyrrhonism in the end. The Malkiel Report finally recommended that Princeton hold onto its "immoral" portfolio and compensate black people with "programs... to influence long run change in race relations." The Harvard committee should confine itself to more tractable issues, like proxy fights. Whatever the specific decision, it should avoid these complicated mass indictments of American industry.
AS THE Governance Committee stresses, the furor over social conscience and corporate responsibility is raging at just the time that the University is beginning to fear its own fiscal collapse a few years hence. Most readers will find the quantitative data in the report more useful than the conceptual background. A table of operating income and expenses records the historic shift in the financial base of the University. Half of the operating budget depends not on the billion-dollar endowment but on annual gifts and government contracts-if this outside money dried up, it would be very hard times indeed.
This year's budget threatens to climb over $200 million, six times the figure in 1949. With an annual cost per student increase of 75 per cent, "merely standing still would force Harvard to double its budget by 1980," but in the meantime the competition with public universities for faculty and students grows increasingly severe.
In the last twenty years the surge of federal funds from 2 per cent to 37 per cent of the budget has fueled the expansion of Harvard. Federal money, however, is subject to wild swings and when a School counts on its continuance, it can be brutally disappointed. The memorandum cheerily suggests that Harvard, at least, will probably be the last of the private universities to fall, Columbia's $11 million deficit this year suggests that it is nearly through as a private university. Yale, which had been spending out of its capital gains in the bullmarket days, has now lost great chunks of its operating income as stocks fall and prices rise. The market value of Harvard's own portfolio-2/3 in equities, 1/3 in bond and other debt securities-dropped 18 per cent this last year, even though the income yield recalled a new high. The University has chosen less risky stocks like IBM and Middle South Utilities and financed much of its endowment increase through drives for new capital.
Yet Harvard too went into deficit for the first time in fifteen years, even as tuition in the College and GSAS jumped from $2000 to $2400. Whenever new sources of income like the tuition hike are used up so rapidly, one knows that the crunch is coming. As the dour Mr. Bennett recently noted:
For example, we have $75 million worth of construction going on now in the University. We have the money to pay for building the buildings, but we have about zero new endowment on hand to help fund their operating and maintenance costs in the future.
ANY NEW schemes of social philanthropy and community investment seem doomed to founder in this dismal fiscal climate. But that is true only if ETOB ("every tub on its own bottom") remains the principal rule of allocation. By failing to assault vigorously the principle of ETOB, the memorandum inevitably stacked the arguments to support the status quo. ETOB really means that the deans and their faculties run roughshod over a relatively powerless administration, helpless to set priorities or to weigh alternative expenditures. Harvard must clearly have a systematic procedure for simultaneously appraising all possible options for raising and spending money. If the President and Fellows reassumed these functions which they have decentralized to the various schools, they might be better equipped to execute University-wide projects that might, for example, compensate their Cambridge neighbors for the abuses of the Schools.
All this implies a more sophisticated allocation and consensus among the Harvard estates at the highest corporate level. If this broader, budgetary consensus included students and Faculty, items like Cambridge housing might compete more favorably with the more foolhardy kinds of building that the Schools now undertake so blithely. But without the classical model of Harvard organized around the collective tubs, the new Big Ivy becomes an accountant's nightmare. The Committee on Governance seems a little aghast at the prospect of trying to weigh Faculty salaries against scholarships and financial aid. Fortunately, these two items do not compete directly with each other but alongside a host of other projects: a burgeoning administrative staff, research categories, building programs, and even the House system.
It would be an awesome challenge to rank priorities-indeed, an impossible challenge with the present administrative structure. The Committee might well have thought harder about an alternative scheme to ETOB, rather than coyly tossing the problem to its readers. ETOB is not so much a policy as an abdication of policy. The Committee itself states that no regime is right simply because it is self-supporting. Yet so long as it holds sacred the right of each constituent in the University to spend money in whatever way it pleases, no serious restructuring is possible.
More important, the canon that those who care about an activity ought to raise money for it disintegrates rapidly in depression years. Even in the booming '60s, the Corporation had to come to the rescue of the Ed School, whose alumni generally proved too impecunious to save it. The financial crisis may soon force the University to choose between proportional cutbacks in every department or even outright elimination of one of the Schools. "I wouldn't bet my life," said one Faculty source, "that the School of Education will be here five years from now." One hopes that the Corporation will have dismantled ETOB before it takes such a step.
THE Committee on Governance obviously believed that students would rate philanthropic investments as the most desirable form of community aid. But, in fact, many students argue that a policy of outright gift would be both more flexible and beneficial than social investment in "deserving enterprises," which at best means only one form or another of black capitalism. Otherwise, it must assume that small business is the favorite charity of undergraduates. These philanthropic investment categories can be used by the Corporation to fudge how much money it really does spend on charity.
Almost every socially beneficial capital venture could be financed through private capital outlays or amortized out of the existing budget. By placing all such decisions in the operating budget, one might better evaluate the tradeoffs between existing charities like Phillips Brooks House and new projects like day-care centers. At the same time, it seems evident that the State Street money managers of Harvard University are not psychically prepared to uncover small-business investment opportunities that do exist in Roxbury-or for that matter, in Cambridge or Manhattan.
Out of pure self-interest, students might well believe the most pressing of Harvard charities to be the much threatened scholarship program. The financial squeeze at Harvard has almost multiplied the tuition and menaced the socio-economic mix, since hard times have begun to affect more college ambitions. The Admissions Office will fight to maintain a stable number of scholarships, but backsliding seems likely. The bulk of scholarship money increasingly comes out of the FAS budget, which has started to run frightening deficits of its own. Some of the Faculty are campaigning to eliminate all scholarships in favor of loans. Dean Peterson would reportedly keep an undergraduate's debt under $4000, a somewhat more manageable sum than the $16,000 proposed by others. But even this aspiring loan program would take more funds. The open-admissions policy which allows Harvard to encourage applicants without regard to financial background will soon expire unless students (and, yes, even alumni) organize to claim their rights in the budgetary process. Assuming no increase in fixed student costs, the Admissions budget requires an additional $240,000 next year.
THOUGH it provides little new information, "Harvard and Money" gives a comprehensive introduction to the politics of University finance. But it sidesteps most controversy, and the overwhelming array of questions tends to subdue the reader to a humble silence rather than rouse him to debate. The memorandum does demonstrate that rated on fiscal and political clout, the administration is feeble and the faculties potent. In addition, the "raw power of the alumni" identifies them as the sleeping dragons outside the everyday bounds of fiscal politics. As the Committee observes, the literal implementation of "power to the people" would make them the final arbiters of Harvard's money. The immediate exigencies of the financial crunch, tragically, will now conservative them even more.
The Committee promises a sequel to this report, but this seems uncertain. Had the preliminary report come out a year ago, the Committee might have had enough feedback by now to help guide the new president. As it is, he will probably consult his own commissions and appoint some new successor to the overworked and flagging Committee on Governance.