During one of my visits to the residence halls, a student, in a discussion of the University's finances, asked me, somewhat accusingly: "Hasn't the University become just a business?"
At first, I was a bit taken aback. For one thing, being a business is certainly not a bad thing, as Adam Smith taught us when he stressed that the individual's pursuit of his own interest frequently promotes that of the society.
And universities undeniably and unavoidably have considerable business aspects. Stanford's overall annual budget (without its medical clinics) is about $1.5 billion. Government regulation has made accountants perhaps the fastest-growing segment of the University. Students and the general public have urged universities to become more "businesslike." We have done so, among other things, cutting costs, restraining price increases and working on ever-better "products" and improved services. We also see a lot of competition with other universities for resources, faculty and students.
In what matters most, however, Stanford is not a business. An institution that turns away many more paying customers than it accepts, that charges less than its product costs and that balances its books only with the help of gifts hardly meets the most rudimentary business expectations concerning profit maximization. I cannot stress enough how frequently people ignore the fact that but for gifts from alumni, parents and friends, we would have to reduce the quality of the enterprise, double tuition or incur deficits to be paid out of endowment until Jane and Leland Stanford's dream went up in smoke.
The phrase "double tuition," by the way, is not careless exaggeration. The report of the federal government's National Commission on the Cost of Higher Education points out that nowhere does tuition cover the full cost of education and that there is "a general subsidy that goes to all students, regardless of what institution they attend or whether they receive financial aid." At Stanford, our conservative calculation is that tuition covers no more than 60 percent of the costs the University incurs to educate an undergraduate. Every student, even those paying the full tuition price, is significantly subsidized.
Fifty-nine percent of our undergraduates receive a further subsidy in the form of need-based financial aid provided by Stanford. This year, we will give more than $40 million in such aid from Stanford's own funds. This stems from our need-blind admission policy -- students are admitted without regard for the ability to pay. That, in turn, comes from our commitment to Jane Stanford's wish to "resist the tendency to the stratification of society, by keeping open an avenue whereby the deserving and exceptional may rise through their own efforts from the lowest to the highest station in life." In keeping with that, Stanford admits students from high-, low- and middle-income families in a distribution that has remained consistent over the last 10 years. We are one of only a very few private universities that remain fully committed to need-blind admission.
Whether it is financial aid or Stanford Introductory Studies (Freshman Seminars, Sophomore Dialogues and Seminars, and Sophomore College), much of the cost of current Stanford students' education is covered by their predecessors. These loyal alumni have felt and presently feel a moral obligation to help succeeding generations obtain the benefits that come from the pursuit of knowledge. Stanford is flourishing because of this continuing commitment of alumni, friends, faculty, students, trustees and parents. In their turn, our current students will be called on one day to display the same sense of commitment to future generations.
There are those who believe that universities have become "a special interest group more interested in dollars than truth and beauty," as someone wrote in the Wall Street Journal recently. Alas, they ignore the elementary fact that even truth does not fall like manna from heaven. Knowledge must be pursued, and that pursuit has a price, especially when you want the high quality that makes the best American universities world leaders and that immeasurably contributes to our country's position in the world. Among Stanford's contributions to the public welfare is educating first-rate students who, having been engaged in the search to know, are able to assume leadership roles in industry, business, government and universities themselves.
Thus, my answer to my dormitory interlocutor is:
"Appearances and superficial media commentary to the contrary, in most important ways, the University is a public service. Indeed, participation in a university is one of the most elevated, noble, honorable forms of public service that I know. In founding this University, Jane and Leland Stanford stated that they sought 'to promote the public welfare' through 'a university of high degree,' and the education it would offer so that students 'will become thereby of greater service to the public.' "
Next issue, I shall explore with you how the University promotes the public welfare by increasing students' knowledge, the faculty's knowledge and society's knowledge.
