The Synthetic University: How Higher Education Can Benefit from Shared Solutions and Save Itself
James L. Shulman
272 pages, Princeton University Press, 2023
Can mission-driven and market-supported intermediary organizations offer a realistic means of addressing the cost problem in higher education? In The Synthetic University: How Higher Education Can Benefit from Shared Solutions and Save Itself, I explain why colleges are so resistant to change and present illuminating case studies of mission-driven, market-supported entrepreneurial organizations, like the student tracking infrastructure of the National Student Clearinghouse or the ambitious effort of classics professors to create a shared trans-institutional department. Mixing theory with lessons drawn from my own experience, I demonstrate how these organizations can overcome institutional resistance to collective action, as well as how to finance the organizations that can synthesize these much-needed solutions.
This section is excerpted from my chapter about how to finance enterprising systems-changing intermediaries in higher education. In sustainable forestry, the agreement upon system-wide goals has enabled varied organizations to play their respective roles, but in higher education, the absence of shared goals hampers the capitalization of synthetic service providers.—James Shulman
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I have proposed that individual specialized firms can potentially provide mission-driven and market-supported services that can forge synthetic bonds with the local culture and practices of individual colleges and universities. Through an understanding how to fit in and respond to local needs, these firms can overcome the barriers that individuals and individual institutions consciously and unconsciously construct to repel outside solutions. But having explored the question of whether there are any real models for financing this kind of change, especially on a large scale, we reach a place of being daunted. We’ve seen that the price of higher education to students and families is problematic and bemoaned, but it isn’t seen as a problem to be coherently addressed. Instead, there seems to be either a general acceptance of ever-increasing cost and the subsequent increase in price to students and/or a growing anger toward and disengagement from higher education. Without a coherent sense of the need to coordinate an effort to address the cost problem, individual entrepreneurs, investors, and firms have not been convened to find their places of collaboration, to differentiate their places in a system, or to work together on needed shared infrastructure. In general, we have seen only scattered experiments for merging purpose and capitalization. Philanthropy, a financing system that some people assume to be a coherent way of building mission-driven organizations, lives by hard-to-define and idiosyncratic measures of impact and has few forces acting on the individual investor {stet}to incentivize the provision of growth equity or even long-term commitment. That’s no one’s fault; the reward system within philanthropy is based on a cultural capital with different terms of exchange. The other realm, traditional market investing, works within a system that has undertaken only the most exploratory experiments in accommodating and taking account of socially desirable impact.
Many individuals in both of these realms are trying to square the circle. Increasing numbers of philanthropists recognize that their grant funds are thoroughly insufficient to address society’s challenges, and among the traditional capitalists are plenty of people who know that the market doesn’t have a mechanism for providing much-needed public goods. Reconciling these very different systems is tricky enough when considering problems in developing markets; in these realms, capital holders like the idea of having philanthropists or impact investors de-risk their own deployment of capital in search of returns. But in areas that are already populated by regular market investors and where market-based competition is assumed to be the law of the land, asserting a place for impact investment runs into challenges. Even if society is depending on sectors such as education, healthcare, or journalism, the integration of mission-driven and market-driven goals is cloudy at best. There are some success stories, though. The Multiple Myeloma Research Foundation finds passion-driven investors who are willing to take risks on novel pharmaceuticals that might fight the disease; Lumina puts resources to work in for-profit firms that might help students navigate the credentials gauntlet. The key question remains, however: What must happen for intermediary institutions that can compatibly help institutions of higher education to be seen as good causes, worthy of mission-driven investment?
Harvard Business School professor Josh Lerner and his colleagues have charted how sustainable forestry provides an example of an aligning of interests that can work. Defining and differentiating organizational roles and aims begins, as we have seen, with a shared goal—in this case, the preservation of Earth’s atmosphere. It also begins with an understanding that the project is too big for philanthropy and government alone.
Although the need is great and the cause is urgent, if left to their different guiding standards philanthropists and market investors with interests in forestry have no means of reconciling their particular goals since “changes in the rate of timber harvesting frequently affect sustainability goals and financial returns in opposite ways.”1 A piece of the puzzle fell into place in the 1980s and 1990s as innovative investors, including Yale’s David Swenson and Jeremy Grantham, founder of Grantham, Mayo, & van Otterloo, identified timber as an investment vehicle that seemed capable of providing consistent returns with a low correlation with other types of assets. Many types of investments all rise and fall at the same time (as markets around the world or different sectors of the economy are often closely correlated to one another). For a time in the 1990s, early investors in timber benefited from very strong returns that were less directly related to the movements of prices in other investment vehicles. As other investors caught on to this strategy and crowded in, timber returns declined. But the idea that forestry can play a useful role as an investment approach for long-term investors was established and continues.
At the same time, climate change became an increasingly urgent focus of conservation-minded philanthropists. Andrew Baxter et al. document how these market-driven and mission-driven players found enough common ground to begin to develop the intermediary organizations (including rating agencies, pooled fund structures, and analysts) to make investment in forestry possible, because “large pools of capital almost by definition must write large checks.” They document a “green bond” created by The Conservation Fund’s (TCF’s) Working Forest Fund. Faced with the opportunity to purchase extensive tracts of land before they fell into private logging hands and lacking the capital to fully fund the purchases, TCF set out to find a vehicle that could both sustain their work and maintain their mission. After exploring various models, including traditional philanthropy, program-related investments, private equity funding, and bank loans, the organization settled on issuing a bond with return expectations set between the low rates that conservation funds generally produce and the higher rates that the market usually requires.2
Two other lessons emerged from the TCF case, both related to the work that has to happen to bring such a hybrid system into being. The first came (as Baxter et al. note) in how and why TCF chose to issue a bond to the open market rather than work with a small group of banks to devise a private placement loan: “One key goal of the fundraising process for TCF was the market education: ideally, if this offering was successful, it would build visibility for future offerings by both the forest conservation industry broadly as well as TCF itself. A private debt offering marketed to a handful of institutions would not accomplish that goal.”3
The other lesson related to the human capital involved. Selling the concept relied on TCF’s organizational leaders being able to understand and then sell the story in the different languages of the conservation world and the investment world. “This combination of skills is certainly not commonplace,” Baxter et al. note. “But such pioneers can have enormous positive spillovers in legitimizing an asset class.”4
In forging such a financing solution, institutional entrepreneurs (like the ones we recognized as being capable of synthesizing change in the landscape of colleges and universities) are needed; they play the role of systems entrepreneurs in the new myth creation, the mythopoesis, of new financing structures. But they can’t do it alone. There has to be belief in the need for a system with collective goals in higher education, as there is in the conservation of forests and the advancement of treatments for cancer. We have to ask, though: Is there any reason to believe that there can be a mission-driven financing system when the cause at stake is increasingly thought of as a personal good—or even a luxury item? Preserving healthy forests has a reputation as a public good. Because higher education has increasingly been seen (and defended itself) as a vehicle for personal advancement, are there models in which impact investment has been utilized in arenas that might not have the same level of public support of environmental causes or cancer research?
If those who conduct medical research can be awakened to the importance of listening to what patients want and need, can those who care about higher education work together to recognize that the consequential choices that higher education faces? Are there ways of aligning a mutualist system instead of only trying to strengthen the individual walls of 3,500 colleges and universities?
Throughout this chapter, I’ve advocated for a delicately balanced new model for funding these mission and market-compatible synthetic ventures—blending philanthropy, socially minded investors, and the traditional free-market solutions. But one can’t make maps when there aren’t roads or even rules of the road. We need to agree on a shared purpose, convene those who have a role to play in achieving it, listen to those whom the system is hurting and think about what in turn hurts the system, align the players in the cast, and then chart reasonable and realistic financial models and paths forward. But we have to agree that creating this type of system and the concomitant opportunities for capitalization of worthy ventures matters, and we haven’t yet done that in any serious way.