The New Prudent Man: Financial-Academic Capitalism and Inequality in Higher Education

Part of the Higher Education Dynamics book series (HEDY, volume 45)


For over one hundred years university endowments in the United States had been managed according to the common law “prudent man” principle that imposed the relatively conservative fiduciary responsibility for capital preservation upon university trustees. Beginning in the 1970s the prudent man concept was re-imagined to call for the maximization of return on endowment holdings and increased attention to long-term capital accumulation. This chapter shows how the transformation of the prudent man principle coincided with restructuring in the broader political economy and especially the globalization of finance. It is argued that endowment management is now a form of financial-academic capitalism in which universities engage in market activities to generate profit in order to secure advantage over competitor institutions by amassing wealth, which is in turn associated with prestige and field status. This advantage is reinforced by historical positional and taxation policy. Wealth and status advantages result in inequality, and I argue that endowment management is one contributing factor to the steep and persistent stratification that characterizes higher education in the U.S. Institutional inequality presents implications for social opportunity and equity. The chapter concludes with policy recommendations related to institutional wealth management.


Endowment management University stratification Academic capitalism United States The prudent man standard 


  1. Arnold, C. (2006). Yale’s money guru shares wisdom with masses. NPR. Retrieved from
  2. Bastedo, M. N. (2012). Organizing higher education: A manifesto. In M. N. Bastedo (Ed.), Organizing higher education: Managing colleges for a new era (pp. 3–17). Baltimore: The Johns Hopkins University Press.Google Scholar
  3. Bastedo, M. N., & Jaquette, O. (2011). Running in place: Low-income students and the dynamics of higher education stratification. Educational Evaluation and Policy Analysis, 33(3), 318–339.CrossRefGoogle Scholar
  4. Bourdieu, P. (1988). Homo academicus. Palo Alto: Stanford University Press.Google Scholar
  5. Bowen, H. (1980). The costs of higher education: How much do colleges and universities spend per student and how much should they spend? San Francisco: Jossey-Bass Publishers.Google Scholar
  6. Carnevale, A. P., Rose, S. J., & Cheah, B. (2011). The college payoff: Education, occupations. Washington, DC: Lifetime Earnings. Georgetown University Center on Education and the Workforce.Google Scholar
  7. Clark, B. R. (1972). The organizational saga in higher education. Administrative Science Quarterly, 17(2), 178–184.CrossRefGoogle Scholar
  8. Davis, G. F. (2009). Managed by the markets: How finance re-shaped America. Oxford: Oxford University Press.Google Scholar
  9. Dee, J. (2014). Organization, administration, and leadership: Addressing the relevance gap in higher education research. A Community of Higher Education Scholars.
  10. Ehrenberg, R. G., & Smith, C. L. (2003). The sources and uses of annual giving at selective research universities and liberal arts colleges. Economics of Education Review, 22, 223–235.CrossRefGoogle Scholar
  11. Eichengreen, B. (1996). Globalizing capital: A history of the International Monetary System. Princeton: Princeton University Press.Google Scholar
  12. Fligstein, N., & McAdam, D. (2011). Toward a general theory of strategic action fields. Sociological Theory, 29(1), 1–26.CrossRefGoogle Scholar
  13. Ford Foundation. (1969). Managing educational endowments. New York: Author.Google Scholar
  14. Harvey, D. (2007). A brief history of neoliberalism. Oxford: Oxford University Press.Google Scholar
  15. Helliner, E. (1994). States and the reemergence of global finance: From Bretton Woods to the 1990s. Ithaca: Cornell University Press.Google Scholar
  16. Humphreys, J. (2010). Educational endowments and the financial crisis: Social costs and systematic risks in the Shadow Banking System. A study of six New England Schools. Boston: Tellus Institute.Google Scholar
  17. Karen, D. (2002). Changes in access to higher education in the United States: 1980–1992. Sociology of Education, 75(3), 191–210.CrossRefGoogle Scholar
  18. Kezar, A. J., & Eckel, P. D. (2002). The effect of institutional culture on change strategies in higher education: Universal principles or culturally responsive concepts? The Journal of Higher Education, 73(4), 435–460.CrossRefGoogle Scholar
  19. Kochard, L., & Ritteriser, C. (2008). Foundation and endowment investing: Philosophies and strategies of top investors and institutions. New York: John Wiley and Sons.Google Scholar
  20. Lerner, J., Schoar, A., & Wang, J. (2008). Secrets of the academy: The drivers of university endowment success (No. w14341). Cambridge, MA: National Bureau of Economic Research.Google Scholar
  21. Marginson, S. (2006). Dynamics of national and global competition in higher education. Higher Education, 52(1), 1–39.CrossRefGoogle Scholar
  22. Marginson, S. (2011). Higher education in East Asia and Singapore: Rise of the Confucian model. Higher Education, 61(5), 587–611.CrossRefGoogle Scholar
  23. Marginson, S., & Cantwell, B. (2014). Vertical stratification and segmentation. Working paper, Dynamics of High Participation Societies Working Group.Google Scholar
  24. Massy, W. F. (1990). Endowment: Perspectives, policies & management. Washington, DC: Association of Governing Boards of Universities and Colleges.Google Scholar
  25. Mathies, C., & Slaughter, S. (2013). University trustees as channels between academe and industry: Toward an understanding of the executive science network. Research Policy, 42(6), 1286–1300.CrossRefGoogle Scholar
  26. McMahon, W. W. (2000). Education and development: Measuring the social benefits. Oxford/New York: Oxford University Press.Google Scholar
  27. Morphew, C. C., & Huisman, J. (2002). Using institutional theory to reframe research on academic drift. Higher Education in Europe, 27(4), 491–506.CrossRefGoogle Scholar
  28. NACUBO. (2013). Endowment survey, 2012. New York: NACUBO.Google Scholar
  29. Nelson, L. (2011). ‘Hoarding assets’? Inside higher education.
  30. Piketty, T. (2014). Capital in the twenty-first century. Cambridge MA: Harvard University Press.CrossRefGoogle Scholar
  31. Posselt, J. R., Jaquette, O., Bielby, R., & Bastedo, M. N. (2012). Access without equity longitudinal analyses of institutional stratification by race and ethnicity, 1972–2004. American Educational Research Journal, 49(6), 1074–1111.CrossRefGoogle Scholar
  32. Pusser, B., & Marginson, S. (2013). University rankings in critical perspective. The Journal of Higher Education, 84(4), 544–568.CrossRefGoogle Scholar
  33. Pusser, B., Slaughter, S., & Thomas, S. L. (2006). Playing the board game: An empirical analysis of university trustee and corporate board interlocks. The Journal of Higher Education, 77(5), 747–775.CrossRefGoogle Scholar
  34. Ruggie, J. G. (1982). International regimes, transactions, and change: Embedded liberalism in the postwar economic order. International Organization, 36, 379–415.CrossRefGoogle Scholar
  35. Slaughter, S. (1990). The higher learning and high technology: The dynamics of higher education policy. Albany: SUNY University Press.Google Scholar
  36. Slaughter, S., & Leslie, L. (1997). Academic capitalism. Baltimore: Johns Hopkins University Press.Google Scholar
  37. Slaughter, S., & Rhoades, G. (2004). Academic capitalism and the new economy: Markets, state, and higher education. Baltimore: The Johns Hopkins University Press.Google Scholar
  38. Slaughter, S., Thomas, S. L., Johnson, D. R., & Barringer, S. N. (2014). Institutional conflict of interest: The role of interlocking directorates in the scientific relationships between universities and the corporate sector. The Journal of Higher Education, 85(1), 1–35.CrossRefGoogle Scholar
  39. Swensen, D. F. (2009). Pioneering portfolio management: An unconventional approach to institutional investment, fully revised and updated. New York: Simon and Schuster.Google Scholar
  40. Tierney, W. G. (1988). Organizational culture in higher education: Defining the essentials. The Journal of Higher Education, 59(1), 2–21.CrossRefGoogle Scholar
  41. UNESCO. (2014). UNESCO Institute of Statistics.
  42. Vedder, R. (2014). Cut off Harvard to save America. Bloomberg View.
  43. Waldeck, S. E. (2009). The coming showdown over endowments: Enlisting the donors. Fordham Law Review, 77, 1795–1836.Google Scholar
  44. Weisbrod, B. A. (2009). The nonprofit economy. Cambridge, MA: Harvard University Press.Google Scholar
  45. Winston, G. C. (1999). Subsidies, hierarchy and peers: The awkward economics of higher education. The Journal of Economic Perspectives, 13(1), 13–36.CrossRefGoogle Scholar
  46. Zhang, L. (2005). Do measures of college quality matter? The effect of college quality on graduates’ earnings. The Review of Higher Education, 28(4), 571–596.CrossRefGoogle Scholar

Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.Michigan State University, Erickson HallEast LansingUSA

Personalised recommendations