Academia: Abigail Disney, Endowments, and "Intergenerational Equity"
Thursday's Child Has Far To Go
Time to talk a bit about endowments and institutional wealth in American higher education.
I’m a little surprised and disappointed how little public discussion has arisen in response to Abigail Disney’s important Atlantic article about how she was trained from young adulthood by an army of advisors and relatives to protect and grow the wealth she inherited from her grandfather, Roy Disney. She builds on ProPublica’s important story about how the wealthiest Americans almost entirely avoid paying taxes by using a wide variety of technically legal strategies (which in turn is really just a nationally specific version of what we learned via the release of the “Panama Papers” some years ago).
Disney describes the life of the truly ultra-rich and how they are increasingly able to keep their fortunes growing steadily across generations. In Disney’s account, people in this top tier of wealth are only barely connected to the society around them: they travel, live and work free of any of the burdens, obligations or problems that everyone else has to cope with. They may indulge in philanthropic giving, but Disney observes that in her own family and perhaps others, there’s pressure not to do too much, as it is a bit declasse — and likely would end up in the hands of the unworthy poor somehow anyway.
In some sense, though, what Disney is talking about does apply to a much wider group of individuals and institutions, and that’s the increased importance in 2021 of income derived from an accumulated investment principal. For some upper-middle class professionals (like me), that’s a planned income for retirement built up over years of work—an approach to living in retirement that is different than the older style of earning a pension and that is not merely about spending down a lump sum of savings over the course of the last few decades of life. TIAA-CREF, Vanguard, etc., have made many of us into (rather minimal) members of the asset class and our future financial survival tied into the fortunes of the stock market and other investment vehicles.
It’s not just individuals, however. It’s also any US-based non-profit but especially colleges and universities that had an endowment of any meaningful size by the 1970s, precisely when the economy took a sharp turn towards globalization and financialization. Those endowments were originally imagined as rainy-day funds that would provide security against an emergency or an unanticipated need until that point where, if invested well, they began to grow in real value quite rapidly.
It’s been a bit like the situation of people who happened to own residential property in coastal or near-coastal Southern California or the Bay Area in the late 1960s and early 1970s. The value of those assets appreciated so rapidly and at such a scale that this meant that anyone who was in the right place at the right time became wealthy by the standards of almost any other part of the United States. (Though if they wanted to stay in California, not so much, which is part of what fueled the tax revolt that led to Proposition 13.) As people on the lucky side of that historical divide filtered out of California to other places they liked in the U.S. West, they drove property values up there as well.
In the case of university endowments, if you happened to miss the boat—if you didn’t have any endowment to speak of, or your endowment was mismanaged in the critical earlier years either by being invested badly or being withheld from investment out of an abundance of caution—then your institution entered the late 1980s and early 1990s with a serious financial problem. Much as Californians started boosting prices elsewhere, institutions that had seen major appreciation in the value of their endowments started being able to use a percentage of the growth in their annual value as a major source of revenue in their operating budgets. That in turn fueled a kind of “arms race” between wealthy private institutions that the less wealthy have been forced to keep up with, thus straining their budgets further. This all happened at the point where labor markets became more and more credentialized, where the B.A. started to be an almost essential degree for any kind of entry-level white-collar job, making college more and more important.
This is a familiar history and it’s been pretty thoroughly dissected over the years. What I want to talk about here is where it goes next. That’s where I think Abigail Disney’s article becomes important. On the other side of this history, we’ve got a significant number of universities and colleges that are tuition-dependent, with small endowment revenues. They’re in trouble now and it’s going to get worse in the decade ahead. We have a smaller number of universities and colleges that are extraordinarily wealthy, and a few, like Harvard, that are effectively in the same kind of ultra-wealthy stratosphere as the individuals Disney writes about.
For the most part, they put the ever-greater amount of endowment income available to them to good use, in service to their mission. Many use it to discount tuition on a graduated scale all the way down to nothing for families below a particular income level (“financial aid” as a term I think continues to create misconceptions about what exactly is going on here). Many use it to provide a wider and wider array of services and support to their students. Many use it to provide better facilities, to grow their faculty modestly and pay them better than they were paid prior to the 1980s.
But at the same time, many of the wealthiest institutions use the same language of austerity, scarcity and risk management that has become common everywhere in a neoliberal age, talking mostly about the limitations of their budgets and the need to show caution. Students and faculty often see that as cynicism or manipulation, but I think instead it is an accurate rendering of what happens to an asset class. I’m fairly certain that inside Abigail Disney’s world, many people also talk about how careful they must be, how much their wealth is exposed to danger, about how to avoid at all costs exposure to liability and untoward risk. They stop thinking about what they value, what they want, about the freedoms of wealth, and start thinking about how to keep accumulating by further protecting themselves from the world beyond.
The primary goal of current asset classes in the US (and elsewhere) is now the perpetual growth of their asset at the same historically extraordinary rates that it grew between 1975 and 2021 onward into the indefinite future. Rather than celebrate having won Powerball, current asset holders are determined to win it again and again and to do what it takes to change the conditions of winning Powerball to make it possible to continue to win. Living as the asset permits one to do becomes a secondary consideration, an afterthought.
So what you hear inside wealthy colleges and universities is rather like the phrase we hear occasionally from our Board of Managers at Swarthmore: that their mission with regard to the endowment is to continue to grow it as they have to date in order to preserve intergenerational equity.
I’m almost alone among my colleagues in my skepticism towards conventional arguments about socially responsible investment of the endowment, particularly fossil fuel divestment. I don’t want to reprise that skepticism too much—I risk becoming a crank—but if an asset manager wants to say “Look, the purpose of an asset isn’t to be an instrument for political expression”, perhaps simply on the grounds of it being nearly impossible to satisfy all the competing demands that would be put on such a manager, I’m willing to credit that point. I also think that frankly if you want to use investment for greater sociopolitical impact, it’s not the stocks that you sell that are important, it’s the direct investments you make in companies and organizations that you believe will be transformative—and it’s changing the way you spend what you’ve got operationally. Anyway, that’s another debate for another time.
What seems less creditable in defense of professional management of assets unimpeded by other priorities is the invocation of “intergenerational equity”, because hiding behind it is something very similar to what Abigail Disney is criticizing. The simple proposition inside the phrase is basically “pay it forward”: the donors who established and contributed to an endowment before you were a student, faculty member or administrator made it possible for you to study and work under the highly favorable material conditions of the present.
Intergenerational equity is a real thing—and usually we have to consider it in terms of its opposite, inequity. Climate change is intergenerational inequity—our descendants will bear the burdens of the costs we refused to pay. Debt, if it’s passed on, is intergenerational inequity.
But equity across generations does not mean “in the future, our descendants will be proportionally still richer than we were”. That’s what Abigail Disney is saying has happened to extreme wealth in the US: all the structures of progressive taxation, including estate taxes, that were intended to make it hard for such wealth to become proportionately bigger and bigger in every generation of inheritance, have been thoroughly corrupted.
At wealthy colleges and universities, insisting that intergenerational equity means that the endowment must appreciate at rates like those of the last half-century and that revenue derived from the endowment must be kept low in order to facilitate that growth means that in effect those institutions are arguing that students fifty years from now should have a proportionately greater amount of endowment wealth per student to benefit their studies.
That thought partly is buoyed up by a sense that certain costs have also gone up far above inflation—energy costs, health care costs, compensation, costs of regulatory compliance—and the assumption that this will continue indefinitely as well. But even if they did, if the assets grow proportionately even faster as they have, the intergenerational picture is still that at the end of the day, tomorrow’s students at the wealthiest institutions will have even more extraordinary material conditions and affordances.
There’s just something basically wrong about that proposition. It takes little note of what it will be like to be that much more wealthy in a society that is otherwise much less so—or even in a group of peer institutions that become that much more wealthy while many others cease to exist or operate at the margins of precarity.
If intergenerational equity is the goal, the time has come to hold the assets steady in relative value and to focus exclusively on spending the revenues they produce wisely, well and generously within and beyond the borders and walls of an institution. To live as wealth should allow, without the meanness of austerity or the anxieties of scarcity—but most of all, without being driven by the thought that above all else the wealth must grow still greater.
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Image credit: "Scrooge McDuck. 127/366" by Mr Munnings on Tour is licensed under CC BY-NC-ND 2.0