Monday, May 7, 2012

HARVARD | Glomming onto Stanford-MIT Model–Splendor in the Glass

Professor Kit Parker and Dean Youngme Moon
Engage NYC Alumni on Innovation
In New York City last week to celebrate Harvard's 375th year and reconnect with alumni was Drew Gilpin Faust, Harvard’s 28th President and its first woman president.

Alumni came to the Allen Room at Jazz at Lincoln Center, on the 5th and 6th floors of the Time-Warner building at Columbus Circle.

The huge room is surreal, with the backdrop of New York City arrayed through two full floors of walls of glass squares–an exterior flat wall and an interior curved one.  As the evening rolled on like a play in a Greek amphitheater, the lighting darkened and added to the entertainment value of the event.

Walter Isaacson was President Faust’s interviewer. He served up a few appropriate puffball questions and then fielded sharper questions from alumni, who wrote on 4x6 cards at each seat with a little golf pencil. A flock of serious people patrolled the stepped aisles of the room and carried the questions to Mr. Isaacson. The same people later carried radio microphones up and down the steps for the second part of the program, on innovation, which was the meat of the evening.

President Faust announced an "80 percent yield" for the entering freshman class of the fall of 2012, i.e., the number of applicants who accepted a place at Harvard College divided by the number invited to attend. This 80 percent figure is the highest Harvard figure since 1971, and my recollection is that Harvard's yield is the highest of any university. Huzzah!

President Faust explained Harvard's high yield rate by giving examples of the current emphasis on teaching at Harvard. The University is attempting to reward good teachers with the same kinds of recognition that accompany significant research.  Good idea!

Isaacson then read out the first alumni question, asking about the status of the Science Center at Allston, and the cognoscenti leaned forward to hear her response. President Faust answered by referring to the impact of the global financial meltdown on the size of the University's endowment.
My Comment: The scaling back of the Science Center is a reflection of the decline of the Harvard Endowment by 30 percent or $11 billion in fiscal 2009, as predicted earlier in Vanity Fair.  In the prior 18 years, the Endowment grew more than sevenfold. Jack Meyer, former First Deputy Comptroller and investment manager for the New York City Comptroller, quintupled the Endowment during his tenure. Key Harvard officials were apparently unhappy in 2004 that Meyer and key staff earned eight-figure compensation for their good performance. President Larry Summers, with support from Robert Rubin on the Harvard Corporation, argued that Meyer was unnecessarily aggressive. Meyer and some key staff quit in early 2005 and set up a private hedge fund that did extremely well during the next five years, outperforming its benchmarks by 8 percentage points a year. President Summers did less well, resigning in mid-2006 following a well-publicized dispute with women faculty; the next president of Harvard was its first woman. To maintain its budget in light of the Endowment's 30 percent slide in 2009, the University took on $6 billion new debt, with a reported annual service cost of more than $500 million. Some ambitious plans, notably for the Allston Science Center, were shelved.  The endowment recovered 21.2 percent of its value in the last two years, but is still $5 billion below where it was in 2008.
A new plan for the Center is being refined, reports President Faust. It will encourage both a greater concentration of scientific talent in the science center and will establish designated locations for nearby private businesses to create spaces for commercializing new ideas–more like Stanford and MIT.

To underscore the message, the rest of the formal program was devoted to a discussion of innovation. The Dean of the Harvard Business School in charge of the MBA program, Youngme Moon, began the discussion. She is a short and slender (see photo at top) graduate of Yale (a few gasps were heard) and Stanford, and previously taught at MIT. She was counter-balanced physically by a beefy engineering professor with a background in the U.S. Army, Kit Parker. They engaged aggressively with the audience on where good ideas come from and the culture of competition. Having contrasted innovative companies like Apple and Nike with not-very-innovative enterprises like the US Postal Service, the two took pains to establish that Harvard was in the former category.

Their underlying thesis is that a university has the job of being a fountainhead of innovation. Individuals put out ideas and then through debate they see how their ideas compete with others in a marketplace of ideas. The discussion then circled back to what kind of students Harvard wants to admit and develop. Answer: It wants students ready to try new things, and it wants to encourage them to do so, which means making it okay to fail. No more looking the other way as students stay in their comfort zone to be sure of keeping all their grades at the A level. Harvard wants students to graduate having tried new things. Harvard wants to be a place where one can "put out ideas and let them compete and it is okay to have ideas fail and start over, letting the bad ideas go."
My Comment: The idea of a marketplace for ideas is ancient, at least as old as the Socratic Method. It was explicitly promoted by John Milton, John Stuart Mill and Thomas Jefferson, whose writings are resurrected when universities want to defend academic freedom and tenure. But Harvard is saying more than that professors should be  free to speak their minds–it wants students and faculty to develop ideas that will be marketable. The marketplace is not just a testing of ideas for soundness, but for actual dollarization of thinking. So Harvard becomes a kind of factory for new ideas, with venture capitalists lurking nearby to pump money into the best ideas. The venture-capital industry happens to have been pioneered by a government agency, the Small Business Administration, through its Small Business Investment Company program. It also works in the nonprofit field as the heart of social entrepreneurship initiatives. But rewards for risk-taking depend on timing and universities are not always the best place to commercialize ideas. Neither Bill Gates nor Mark Zuckerberg continued to hang around Harvard after they decided they had a good idea they could build into a fortune.
After all that we repaired to a post-discussion cocktail party with a parade of servers with small hors-d'oeuvres artistically arranged on elegant glass plates. The biggest risks seem to have been taken by the servers, who had to walk up and down stairs and then face hungry Harvard alumni competing to nab and wolf down the small delicacies. A good innovation for the Allen Room would be a dumb-waiter.
Postscript: After I wrote this I belatedly picked up my April 30, 2012 issue of The New Yorker and read the story by Ken Auletta on Stanford's close ties to business - "Get Rich U." The subtitle is: "There are no walls between Stanford and Silicon Valley. Should there be?" Auletta looks at the other side of the Stanford coin. Stanford faculty not in engineering or computer science told him they felt the humanities are neglected. They wonder about the harnessing of Stanford to student and faculty greed. What happened to the contemplative tradition? When the proposal to open up a New York City campus of Stanford came along, the dissidents questioned excessive focus on applied science. Auletta's story does not note a key fact in the competition among Stanford, Cornell and NYU. Along the way a Cornell alumnus pledged a $250 million gift to the Roosevelt Island campus if Cornell won the bidding. That must have skewed the decision-making, since the campus will be hugely expensive and New York City's contribution is limited to the land and some infrastructure. One person who has seen all three proposals believes that NYU's was the best of all. Once Stanford had withdrawn, the Mayor provided NYU with a substantial consolation prize in the form of space and resources in Brooklyn to help NYU realize its proposal in conjunction with NYU Poly (formerly known as Brooklyn Poly). Although Auletta criticizes the Mayor for giving Stanford a hard time in the final weeks of the competition, the Cornell gift was a game-changer. The Mayor's support of both the Cornell and NYU proposals may turn out to be brilliant. Business Week just came out with a riposte to Auletta, arguing that in the face of competition from China and India, we need more Stanfords. But what is properly a top economic priority for New York City and a valid focus for Cornell and NYU may not necessarily be totally compelling for Harvard. The trade of birthright for soup was a good deal for Isaac's father Jacob, but a bad one for Esau. It's at least worth a little more discussion, which is what alumni reunions are good for besides increasing alumni giving.

Wednesday, May 2, 2012

JOBS | March Metros Index–93.8 and 73.1, Slower Growth

Metro Jobs in March showed a diffusion index of 93.8 for unemployment and 73.1 for payroll jobs. The BLS reported the numbers today:
Unemployment rates were lower in March than a year earlier in 342 of the 372 metropolitan areas, higher in 16 areas, and unchanged in 14 areas.... [Also,] 267 metropolitan areas reported over-the-year increases in nonfarm payroll employment, 96 reported decreases, and 9 had no change. The national unemployment rate in March was 8.4 percent, not seasonally adjusted, down from 9.2 percent a year earlier.
The trouble with this method of reporting is that the monthly data come in clusters of three. A diffusion index provides a single number showing how metros have done. Using the same weights as the Conference Board, the numbers that get better get a 1 and the numbers that get worse get a zero; the number of unchanged metros get a 0.5. That makes for an unemployment diffusion index of (342+7)/372 = 93.8 percent of metros showed a favorable direction.

But the corresponding index for nonfarm payroll jobs would be (267+4.5)/372 = 73.0 percent. In other words, in 73.0 percent of metros, payroll jobs showed a favorable direction (they grew). This doesn't sound so encouraging. Job growth is too slow.  

It makes a difference how the numbers are presented. If a single number fairly reports multiple numbers without much loss of information from the aggregation, the public is better off. Better public understanding of the data makes for better policies.