Big Red Bear Market

According to Robert Massa of Dickson College, “What we’ve done in higher education is let our dreams and aspirations dictate our cost structure.” Due to the financial crisis, this prodigal era of “dreams and aspirations” may finally be over.

This past Tuesday, Cornell implemented a hiring pause, a delay on new construction, and other cost-saving measures. The contract colleges are especially hard hit. According to a dean in the ILR School, administrators — rather than tenured faculty — may have to teach some classes, while existing faculty may be allotted fewer teaching assistants.

In many ways, President Skorton’s response echoes measures carried out by President Livingston Farrand during the Great Depression. Salaries of professors were cut, allotments for instructors and assistants were reduced, and construction was halted. Although tuition did not rise, scholarships were slashed and enrollment dipped sharply.

This strategy of attrition proved successful. Despite unemployment in double digits, Cornell’s endowment doubled and the value of Cornell’s assets trebled. However, there were some tradeoffs. According to a 1930 Time magazine article: “Cornell vitality has ebbed. What new ideas American education has today come elsewhere than from Cornell … Once it did draw serious young men in search of a thorough, modern education. Now it has little to offer. Its teachers, sadly underpaid, are at best average.” Cornell’s “success” during the Great Depression was largely due “to the labors of its trustees, anonymous to most students, frequently contemned by the faculty.”

I wonder if Ezra Cornell would have understood. He was a businessman, after all, a telegraph tycoon. But in addition to being a shrewd businessman, Ez was also man of “dreams and aspiration.” You may not know it from the number of Range Rovers that almost run you over every day, but Cornell was founded for the poor. Ez created this institution to “prove highly beneficial to the poor young men and the poor young women of our country.” Accordingly, Cornell co-founder Andrew Dickson White promised that the price of Cornell would be set “at the lowest rates of expense consistent with its welfare and efficiency.”

Despite this promise, tuition at Cornell has grown much faster than inflation over the last forty years. At the same time, our endowment has ballooned, historically outperforming leading market indicators like the S&P 500 by a significant margin. This may not be surprising considering Cornell had money invested in oil companies in Darfur until two years ago. At least the children in Darfur starved for a reason: According to the “Campaign for Cornell” website, without such a large endowment “the university would be forced to [cut] expenses, [raise] tuition, or both.” (Wait, why does tuition keep rising every year then, and why are we cutting expenses now?)

It is true that Cornell brings up the rear in Ivy League endowments. According to a 2005 Sun article, “Endowment Grows” (the article describes how our endowment grew only a mere 13.5 percent), Economics Professor and Cornell Trustee Ron Ehrenberg gives us a reason why Cornell lags behind: “Cornell admits and enrolls many more lower-income families than our competitors … and they have less family wealth to contribute to the University.”

In addition to being dragged down by poor folks, our endowment is struggling due to market conditions. We are currently in a bear market, where the value of investments is falling along with investor optimism. And this bear market is big — investments are in the red all over the place. A Big, Red, Bear Market! How fitting!

Just like during the Great Depression, the current financial crisis could be an opportunity for Cornell to jump ahead on the Forbes list of wealthiest universities. Although the financial crisis just started a few weeks ago, everybody is in a panic, and we need to take advantage. Dear President Skorton, I present to you Cornell’s opportunity to boost our endowment amidst the financial crisis of the business world:

First, make a press statement in vague Fed-speak. Make veiled implications that we need more donations, but at the same time, ensure investors that their money won’t be wasted on employees or students. Mention that we will do this via a hiring freeze and other cuts.

A few weeks later, begin slashing wages and workers (especially those with limited bargaining power, such as the non-union ones). People will say that it must be done. Fill those positions with Federal Work Study (FWS) jobs — after all, you don’t have to pay benefits. Your predecessor, President Farrand, did just this. Under the National Youth Administration Student Aid Program, he put students to work in janitorial toil, like cleaning the carpenter shop and classrooms, and carrying out the “general maintenance of walks, lawns, streets and gorges.”

Don’t say you are cutting financial aid, but play some accounting games. Raise tuition by more than aid. Make every scholarship an “internal scholarship,” i.e. you call it a scholarship but really it just takes away grant money you would have given anyway. I’m sure the trustees know all the tricks.

Because Cornell is so expensive and times are bad, students (especially those in the midle class) are probably going to come up short when their Cornell e-Bill arrives (Be sure to “apply payment as soon as possible to avoid any finance charges.”)

On one hand, this will self-select out some of the poor. For many others, there are student loans. After all, isn’t getting into debt part of the American dream? We live in a society where many families spend more than they earn, and the average household carries eighteen grand in debt, not including their mortgage. We might as well add to the manure pile.

One problem with this, of course, is that debt today must be paid back tomorrow. This limits what students can do for graduate school, or the kind of job they take when they graduate. If you have tons of loans to pay off, this basically forces you to accept a job in the private sector over government or non-profits, or the union-busting consulting firm over community organizing. Fortunately, the price of your soul isn’t factored into the endowment; otherwise Cornell would be running at a loss.

I believe “our dreams and aspirations” should dictate our cost structure. Dreams and aspirations are the reason Ezra Cornell donated his life’s fortune, and why donors give money to Cornell today. Is the ultimate goal to double our endowment, as the “Campaign for Cornell” seeks, or is it to assure that we make it through the financial crisis and beyond, with the souls of our students, and their institution, intact?

Dmitri Koustas is a senior in the School of Industrial and Labor Relations. Contact him at dkoustas@cornellsun.com [6]. The Bull Market appears alternate Thursdays.