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Introduction to "Financialization"


Introduction

Higher education in the U.S. is in a state of crisis. We see evidence of this crisis in huge cuts in funding for public schools, skyrocketing costs of attendance at both private and public schools, and increases in student debt burdens. These interrelated trends are connected to the shift in the role of finance in our economy. Finance is no longer channeling our collective investments to productive uses. Instead, it’s using society’s resources to enrich itself at the cost of students, taxpayers, and communities. But, how did we get to this point?  

The story of finance in the economy is an old and simple one- the finance sector grows and protects the savings of individuals and institutions, and pools them together to lend and invest in productive causes. Yet, in the early 70’s, in pursuit of ever greater profits beyond the scope of everyday lending operations, banks began to push the scope of finance- building complex debt obligations, mortgage backed securities, interest rate swaps, and many riskier financial tools. As a result, the finance sector ballooned and began to occupy an increasingly central role in our economy. Its newfound power over our economy led many corporations to focus on compensating shareholders and investors, rather than workers,  vastly slowing down innovation, productivity, and job growth. In the process, wages fell drastically, jobs were lost, and our economy stopped working for everyone.  Overall, the focus of economic activity shifted away from the production of goods and services to the financial sector. Finance became the new “American State Religion”(Davis, 2009)Today, finance accounts for 25 percent of all corporate profits in the United States, but it only creates 4 percent of the jobs in the economy. And, contrary to its supposed role in the economy channeling investment to productive use, only about 15 percent of the money entering the financial sector, ever leaves it.

Institutions of Higher Education have not been immune to the financial sector’s increased power. Wall Street has preyed on the financial crisis that Universities across the country are experiencing, advancing their priorities in a manner that ensures greater financial profits at the expense of students, faculty, and campus workers. The questionable endowment investments of colleges along, or the proliferation of risky derivatives like interest rate swaps as examples, stem from the same causes– the absence of effective structures of transparency and accountability to check the concentration of power on college campuses. Instead, financiers and their associates are exercising an oversized influence on campus: they hold decision-making power in all aspects including tuition costs, construction budgets, salaries, faculty hiring, endowment investments and much more. Our Financialization of Higher Education Report (See below), for example, found just one financial tool- interest rate swaps- that had cost 19 schools a combined $2.7 Billion. In the process, higher education now looks more like a pay to play system than one that was designed to ensure access and equity for all. From city governments to water suppliers to our schools and beyond, the financial sector continues to skim profits from society’s resources and build greater wealth for itself. 

The Roosevelt Networks has been looking at the pernicious effects that Financialization has had on higher education, including increases in overall borrowing by colleges and universities, increases in the cost of interest payments on debt on a per-student basis, and a concentration of endowment assets at a small group of the wealthiest institutions—a form of concentration of wealth. 

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Why

Often, the conversations on the Financialization of the economy and higher ed have been focused at the national, rather than local level. As a result, these conversations have often been divorced from some of the key progressive economic conversations on campuses including wage/benefit structures for on campus staff, reliance on adjunct faculty, student tuition increases, student representation on Board of Trustees and more. In response, we must find ways to leverage our financialization research and organizing to build a more inclusive economic vision for our campuses. By analyzing the revenue and spending patters of our Universities, and mapping key University leadership, we can tell an alternate story of the financial priorities and decisions of our Universities from that being told by our administrations. By joining with fellow stakeholders on campus, we hope to build and join coalitions that can leverage such research and analysis to push for the types of progressive changes on campus that we support. 

Knowledge

You may want to start your exploration of the financialization of higher education with the Urban Institute’s Guide on College Affordability. While this guide won't offer specific data on any individual school, it will help you expand your understanding of how schools are funded - through subsidies, appropriations, and endowments, as well as tuition. It also helps explain the many expenses which students face, and how decreasing government support has increased these expenses and forced students to find other ways to fill this gap.  All in all the guide offers you a fuller understanding of the financing structure of modern college education.

Resources

  • IPEDS - Allows you to view large amounts of financial data for your school, such as endowment size, construction costs, government appropriations, and investment income. IPEDS is helpful for both public and private schools.

  • Guidestar - Through Guidestar you’ll be able to find information such as number of voting and non voting members, investment income, fundraising fees, and employee salaries, and information on the school’s investments and bonds, among other things. Public, private or both?

  • EMMA - Electronic Municipal Markets Access contains information on all Municipal Bonds, therefore whether your school is a public or private institution, you will be able to find information such as which banks underwrite your school's bonds, how much the return or expected return on the bonds are, and the date on which the bonds will mature

  • NACUBO - Contains information on university endowments, such as average endowment size and yearly return, as well as the specific endowment size and year over year change in endowment size for hundreds of individual schools.

  • Moody’s - Rates the creditworthiness of schools based on the bonds that they offer. A Moody’s rating can be a good indicator of the overall financial health of a university or college.

Example

Check out Roosevelt's analysis of Financialization at Universities across the nation: