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Leveraging the power of higher education

By MARK ZUPAN - 5/13/2011

When evaluating our educational system, Americans rate kindergarten first, followed closely by higher education. Elementary school lags significantly, and high school ranks last. These relative assessments correlate perfectly with the extent of private-sector involvement on the supply side-involvement promoting competitiveness and quality outcomes.
 
While we should worry about underperforming elementary and secondary schools, our colleges and universities provide good reason to be bullish about our country's long-run prospects.
 
A college education doubles and graduate school triples lifetime earnings. The average college produces 1,000 undergraduates annually at average starting salaries of $50,000-$50 million in first-year earning power alone. Moreover, the real value of the human capital grows over time. A reasonable estimate is that each of America's 1,500 private four-year colleges produces an average $500 million in value annually in terms of graduates' lifetime earnings.
 
Colleges and universities are durable and adaptable idea factories pivotal to developing the human capital that is 75 percent of our national net worth. Our high-growth industries are disproportionately located in the shadow of prominent research universities-Silicon Valley, the Research Triangle and Route 128, to name a few. Higher education also is one of our largest exports. International student enrollments have increased 30 percent since 2000.

Philanthropic venture capital
Over the last century, the largest philanthropic investments have consistently gone to higher education. George Eastman, despite never attending college, gave a record amount to the University of Rochester, Rochester Institute of Technology, Massachusetts Institute of Technology and historically black colleges. He believed that education was valuable to his high-tech firm and the solution to "virtually all of society's problems."
 
Similarly, Jane and Leland Stanford had modest Upstate New York origins and never attended college. Yet the tragic loss of their only child from typhoid inspired them to establish the Leland Stanford Junior University for the benefit of the children of California and, ultimately, the broader world.
 
The returns Eastman and the Stanfords realized through these philanthropic investments dwarf those earned through their respective photographic and railroad ventures. Today's biggest donors are betting on similarly significant returns. The five largest private philanthropic gifts in 2010 all targeted higher education.

Unlocking higher education's value
Although higher education's returns have been significant, the future holds even greater potential. Chancellor Holden Thorp and entrepreneurship professor Buck Goldstein of the University of North Carolina at Chapel Hill describe in "Engines of Innovation" how universities are seeking to better promote entrepreneurship and harness its attendant value. For example, Harvard University tried to expel Facebook founder Mark Zuckerberg for crashing its IT system and earned only limited gains from what is now a $50 billion-plus business. By contrast, Stanford University earned $350 million from selling Google stock in 2004-05-an amount rivaling, in real terms, Jane and Leland Stanford's founding gift.
 
A key step forward will involve greater reliance on equity stakes in campus-nurtured ventures versus the traditional royalty-based approach toward knowledge commercialization. Equity stakes provide more ownership and upside.
 
At the Simon Graduate School of Business, two members of the MBA graduating class of 2011-James Brown and Chris Sturgill, and their company Aught9-have developed a software program that aggregates social media sites, creating a one-stop shop for contacts and exponentially increasing networking opportunities. Thanks to an alum's generous investment, their idea has become a growing company in which the Simon School ultimately will have an equity stake. Because of that prospective stake, we are working hard to integrate the company's innovation into our student development and alumni outreach activities. We feel much more like owners with real "skin in the game" than under the traditional royalty-based approach.

Making miracles possible
My parents immigrated to America with only suitcases. Yet the scholarship offered to my mother to pursue a chemistry doctorate at the University of Rochester opened up a world of possibilities for our family.
 
Now serving as the Simon School dean, I see similar magic daily. It is clear in meetings with alums, more than half of whom 10 years out launch entrepreneurial ventures ranging from MySpace to Paetec Holding Corp., a locally born and bred telecommunications company making the Fortune 1000 only 11 years after its founding.
 
The magic is palpable when Indian and Pakistani MBAs make joint presentations about what they have in common and, at a dinner at our home, when a Chinese student remarks to a Taiwanese classmate, "I just visited Taipei, and I love Taiwanese food!" With all the debate raging about China and the role it will play in the future, nothing prepared me for the answer given by a prospective student from China when I asked about her professional dreams: She wants to build coeducational schools in Afghanistan.
 
George Eastman had it exactly right about education's power to solve most of the tough problems we face. Because of our world-class idea factories, Americans have cause for optimism. Our job now is to make them ever more productive engines of innovation and socioeconomic advancement.

Mark Zupan is dean of the Simon Graduate School of Business at the University of Rochester.5/13/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail service@rbj.net.