How rich is Yale?

A really interesting section here from Gordon Lafer’s 2003 piece, “Land and labor in the post-industrial university town: remaking social geography” (which Zach suggested to me):

The common sense definition of “non-profit” is an organization whose income just barely covers its expenses. The designation of universities as non-profit institutions encourages one to think of them as organizations that are modest by nature. Even a school like Yale, which is obviously well endowed, is often imagined to be operating close to the margin, devoting whatever income it generates to the provision of high-quality education and leaving just a small cushion between the university’s costs and its revenues. The truth is that Yale pursues an active policy of accumulating surplus wealth, and that by 1996, its annual earnings exceeded its operating costs by nearly $1 billion.

At the end of the 1995-96 school year, Yale’s assets totaled $6.3 billion, including an endowment of just under $5 billion. Its endowment made Yale the second richest school in the country, surpassed only by Harvard. Moreover, the university enjoyed a phenomenal run of success in the 1990s. In 1995–96, while employees were on strike, the endowment earned a return of 25.7%, or just over $1 billion. Nor were the mid-1990s freakishly good years. Rather, they continued a long-term trend of exceptional performance by the university’s investments. With some ups and downs, the endowment grew steadily and impressively for 25 years. In the five years leading up to the 1996 strike, Yale’s endowment earned an average return of 16.7%, the highest in the Ivy League.

One way to make sense of the university’s financial standing is to consider where Yale would fit in the corporate economy were it not classified as non-profit. The surprising truth is that, by almost any measure, Yale’s wealth places it among the largest corporations in the country. Depending on which measure is used, Yale would rank between 250 and 300 in the Fortune 500 listing. Ranked by total assets, the most conservative measure in 1995 placed Yale squarely among the corporate giants, ahead of such well-established firms as Turner Broadcasting, General Dynamics and Nike.

Since the university strictly limits how much of the endowment’s earnings are devoted to educational expenses, it generates large annual surpluses. In 1995–96, for example, the endowment earned a total return of just over $1 billion; but only $171 million of this went into the school’s operating budget. An additional $159 million should be considered the level of reinvestment necessary to maintain the real value of the endowment against inflation. This means that Yale netted nearly $700 million, after all expenses and after accounting for inflation. In common sense terms, then, Yale made a profit of nearly $2 million per day. Far from operating at the margin, the university had reached the point where it could easily afford to charge zero tuition to its students, improve the wages and benefits of its employees, and pay full taxes on its local property, and still see the endowment grow well ahead of the rate of inflation. (pp. 97-98)

It seems to me that there are several rather memorable things here, so if you don’t mind, I will repeat some of Lafer’s findings for emphasis.

  1. It appears that the richest universities have accumulated wealth far beyond what their administrators need or desire to spend on research or education. (Though admittedly, this year isn’t looking so great for university economies, and it must be said that these huge accumulations of surplus wealth have probably helped save rich private universities from making cuts on the scale of, say, those at the University of California.)
  2. These universities are economically at the scale of the world’s largest corporations (ahead of Nike!). I don’t know about you, but I just find that striking.
  3. Finally, it seems to me that our concepts of the university need to be reformulated to take this massive concentration of wealth into account — and also to account for the organizational poverty and resource deprivation that characterizes so many less prestigious, often public universities. A really materialist theory of universities, whatever that might mean, would have to think more carefully about the relationship between universities and capital – though, as Zach and I agreed in my last post’s comments, this would involve avoiding simplistic views in which universities just “are” (or “have become”) corporations. Lafer doesn’t stress this point, but it’s obvious that a wealthy private university like Yale, for all its wealth, is not accumulating wealth in the same way as a private corporation. For-profit corporations are seldom the recipients of multi-million-dollar philanthropic donations. For-profit corporations typically sell commodities, while a university degree is arguably not exactly (or not only) a commodity – not that this has prevented the growth of private for-profit universities, of course. At the same time, the university is far older than the modern shareholder-owned corporation, a fact which is (I suspect) not entirely without conceptual significance. On this point, it’s noteworthy that the branches of these private universities that are responsible for the endowments are remarkably separate from the academic parts of the organization; there are separate, seemingly rather independent endowment managers who, e.g. at Harvard, made as much as $35 million in a year. In fact, there is historical resistance to having input from the rest of the university on the management of the endowment; at the University of Chicago, for instance, a 40-year-old policy explicitly underwrites a near-total separation between academic debate and management of university property. This says a lot about the university as loosely coupled systems (a concept which also signals some major problems for any overly-monolithic theory of universities).

But I guess rather than speculate further about the relationship between universities and the business world, it would be better to read some of Christopher Newfield’s work, which I haven’t done yet. Coming up soon here: some results of a little reading group I’m putting together on the comparative, international workings of neoliberalism in national university systems.

3 thoughts on “How rich is Yale?

  1. I’m pretty surprised by this information, especially the part where Yale is compared to Fortune 500 companies. On the one hand, it seems ludicrous, but at the same time, it’s worth noting (as you do) that there may be legitimate purposes for universities to accumulate this kind of wealth, such as protecting against future economic turmoil.

    It’s also worth mentioning that Yale has had over 300 years to accumulate $6+ billion, and that universities don’t reinvest and expand at the same rate as large corporations. Nike has only been in “the game” for what, 40 or 45 years?

    Wait, Wikipedia is telling me that Yale’s endowment is now at a staggering $22.6 billion.

    Wikipedia is also telling me that more than 40% of Yale students receive need-based financial assistance from the university, and that the average scholarship (most of which do not have to be paid back) is worth $26,900.

    So maybe Yale isn’t the poster child for greedy universities that can afford to offer aid, but decide not to. Nevertheless, such poster children do exist, and it really is kind of staggering how much money they pull in.

  2. The current aid package is the result of two things: jockeying with Harvard for the top of the rankings, and wave of student protest and organizing over the last decade culminating in a February 2005 student occupation of the university’s financial aid office. While its aid package has improved dramatically since then, it remains a posterchild for so many other neoliberal ills – privatizing and profiting from federally funded research, union busting graduate students and hospital workers, neocolonial urban expansion, deeply problematic investment practices, etc.

    As for the current endowment, it had reached 23 billion before the financial crisis, but has now fallen to somewhere around 16 billion dollars, prompting many financial commentators to denounce “the Yale method” and its guru, CIO David Swenson.

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