The Real Value of Endowments

Two weeks ago this column concluded by exhorting Columbia’s leaders to inject some verve and vigor into the institution’s endeavors. But you’d be kidding yourself if you thought enthusiasm alone could get us very far. We also need the practical capacity to make things happen, the ability to make investments in the material world—buildings have to be built, infrastructure has to be installed, people have to be fed. More importantly, we need money for the capabilities it gives us to expand, grow, and flourish.

Philosophically, it might seem odd to baldly claim that “we need money.” Money can seem mystical sometimes. Human beings need food, clothing, shelter, and culture, but money—especially unbacked by a gold standard—is just paper that has no special significance other than what we assign to it. Money is an abstraction, but it makes the exchange of material goods and services far more effective and efficient, enabling people to perform the tasks any organized structure requires, human societies among them, if it is to endure. At the most basic level, it’s about counteracting entropy.

In short, money matters. Cash on hand allows Columbia to buy new boilers if they break, wireless routers if more are needed, and kitchen appliances for dorms; to pay for electricity, water, and the salaries of the many people who keep the place running from day to day.

Despite the philosophical difficulties, from a more practical perspective, the need for material purchases such as the above seems obvious. But what’s less obvious is the way surplus cash on hand creates breathing room for Columbia (or institutions like it) to enact programs that benefit the quality of life of its students. Shortness of funds creates a psychology of want and scarcity among the inhabitants of an institution like our own that impinges in sometimes unnoticeable, but definitely not unfelt, ways. You can see that psychology playing out at Columbia—from the constant budgetary constraints imposed on clubs and student groups, to the deteriorating infrastructure that pops up in odd and unexpected places around campus. It’s no accident that the Varsity Show last year, titled “Insufficient Funds,” lampooned the Activities Board at Columbia for being greedy and miserly. There’s a sense of want in our collective psychology.

But at the same time, we feel a contrary impulse—$6 billion is a huge sum—what could Columbia possibly want with more?

Well, plenty. Here’s an example. A friend of mine was complaining to me the other day about how easy it is for Yale students to obtain funding for an extracurricular research project. Why, oh why, he said, can’t we do that here?

The final answer? The comparative sizes of our endowments. Columbia’s $6 billion endowment doesn’t go very far when Columbia’s annual operating budget, according to the “Giving to Columbia” Web site, is about $2.5 billion, and the University is situated in the city with one of the highest costs of living in the United States. Yale’s endowment, meanwhile, is $18 billion, three times ours in a place where the cost of living is about 25 percent less. A large endowment provides precisely the sort of “breathing room” I’m taking about above, room to fund new activities like undergraduate research, or to divert new funds to such projects because current expenses are already covered.

Endowments are crucial. That’s why alumni relations, community-building, and an undergraduate focus—all things I’ve discussed in previous columns—are so important to Columbia’s long-term success. It’s also why Columbia, producer of so many alums who work in finance, banking, investment management, and the like, ought to recruit some of its own. For much of the 20th century, Columbia’s endowment was largely invested in real estate, a vehicle that offered less growth potential than, for example, stocks. The power of compounded growth over decades and centuries, the time-frames that institutions like Columbia are looking at, is immense. And compounding every minuscule increase in average percentage growth leads to a tremendous increase in final returns. In Columbia’s case, since there are no final returns, there is no theoretical (rather than practical) upper limit to growth. Columbia also needs to make more concrete arrangements with other nations. Bollinger’s travels are a great start, but in the meantime, Yale, for example, has sent a delegation of students to China.

Please do not mistake me. Columbia is a great institution. This column is aimed at making it more so. And just as endowments are crucial, so too are an understanding of and appreciation for the culture and heritage of Columbia—it’s a peculiar but vibrant one. A look at Columbia’s culture, radical activism and all, and what role it might play in building our “New Columbia,” is coming next time.

Mark Holden is a Columbia College junior majoring in political science and philosophy. If It Ain’t Broke... runs alternate weeks. Opinion@columbiaspectator.com