William D. Cohan on Wall Street and Main Street.Tags:
But will it turn out to be a Pyrrhic victory if they get in?
At the elite, private institutions the odds of admission are long — a mere 7.2 percent of Harvard’s more than 30,000 applicants were accepted a year ago — and the cost for those not receiving financial aid is incredibly high. This year, tuition and fees at Harvard are close to $52,000, including room and board, a price that has increased at about 5 percent annually during the past 20 years, well above the estimated 2.8 percent annualized increase in the consumer-price index, one gauge of inflation. As far as tuition increases go, Harvard’s arc is a pretty typical one.
Generally speaking, in order to pay just Harvard’s tuition, someone would have to earn more than $100,000 in annual pre-tax compensation. Then there are all the other family expenses — among them, gasoline, the mortgage, food and medical expenses. Multiply all that by four, and then by other children, and very quickly the numbers get astronomical.
Which leads to a fundamental question: Despite the obvious appeal of being in such an intellectually rich environment and the chance to learn for learning’s sake, is the much-sought-after four-year education at the nation’s elite colleges and universities even worth it anymore?
Increasingly, the anecdotal evidence against spending such outlandishly high sums of money is looking more and more persuasive even as the demand for the seats — and the price people are willing to pay for them — continues to increase.
For evidence, one need look no further than to the founders of many of our most-admired, world-class technology companies, many of whom dropped out of college to pursue their dreams.
Bill Gates, one of the two founders of Microsoft and now the world’s second-richest person, famously dropped out of Harvard after about two years. Larry Ellison, the founder of Oracle — the software behemoth —and the world’s fifth richest person, first dropped out of the University of Illinois and then dropped out of the University of Chicago before starting his business career. Perhaps the most admired corporate executive in the country — Steve Jobs, the founder of Apple and Pixar, a billionaire in his own right and the largest individual shareholder in The Walt Disney Company — also is a college dropout. He left Reed College after six months, hung around campus for another 18 months and then with Steve Wozniak — a Berkeley dropout who completed his degree later —started Apple.
The message these men sent to the market does not seem to be lost on the latest generation of technology entrepreneurs. Mark Zuckerberg, the founder of Facebook and the world’s richest twentysomething, also left Harvard after one year to pursue his creation with ardor (a point made to much dramatic effect by the movie “The Social Network.”) Jack Dorsey, one of the founders of Twitter, first left the University of Missouri, at Rolla, and then NYU, before beginning his journey to the land of 140 characters. David Karp, the 24-year-old founder of Tumblr, the latest social-networking craze, may have them all beat: He dropped out of the Bronx High School of Science after his first year.
Do these individual narratives amount to a hill of beans? Or are they just evidence that the best and brightest among us will always find a way to achieve their inevitable level of excellence, with or without the benefit of a traditional education? (Malcolm Gladwell, any thoughts?) And there is no question that higher education, or a degree from a top college or university, is linked to earnings potential. According to the latest available statistics from the Department of Education, the median salary of male college graduates between the ages of 25 and 34 in this country was $55,000 in 2008 and has been rising slightly over time. On the other hand, the median annual compensation for male high-school graduates in 2008 was $32,000, down considerably from $44,200 in 1980. That’s a wide discrepancy, which only increases as people get older and rise into senior corporate jobs.
For most people — if they can afford it, or are fortunate enough to get financial aid — a college degree has historically been a solid investment. Whether the calculus still holds in a shrinking job market when the cost of that education is $52,000 a year, and rising steadily, remains to be seen. One lesson to be learned from the recent uprisings in the Middle East, especially in Egypt, is that a long-suffering group of highly educated but underemployed people can be the catalyst for long overdue societal change. Why should we be immune from feeling the ripple effects of what occurred in Tahrir Square?
One of the favorite old saws on Wall Street is that the business was changed forever — and not for the better — by the influx of MBAs that flooded the place in waves, beginning in the 1970s. What once was a relatively benign business of raising capital for clients or providing them with helpful mergers and acquisition advice has been transformed forever by calculating MBAs, who first cleverly contrived the idea that Wall Street firms themselves could go public — thus providing firms access to vast amounts of other people’s money to replace the finite amount of partners’ capital — and then, with the unlimited capital, began designing all sorts of crazy products that ratcheted up exponentially the complexity of, as well as the risk in, the global financial markets. We all know the consequences of those decisions.
Could it be possible that higher education these days is not only a poor investment but also is leading to major fissures in the social compact between those who run Wall Street and the rest of us? During the 46 years between 1930 and 1976 only two men ran Goldman Sachs: Sidney Weinberg and Gus Levy. Many people look back fondly on their stewardship of the firm as a time when the private Goldman did first-class business in a first-class way, and became one of the most feared, mysterious and admired companies in the world. The two men couldn’t have been more different, of course: Weinberg, the investment banker, was a tiny elf from Brooklyn; Levy, a formidable trader, was a stately Southerner from New Orleans.
Essentially, the two men had only two things in common. Along with being effective leaders, Weinberg never had any formal education beyond P.S. 13, a junior-high school in Brooklyn. As for Levy, he dropped out of Tulane after one semester before heading north.
