I'll begin by offering my greetings to the assembled faculty and my thanks to Craig Henriquez and the Executive Committee of the Academic Council for making the annual faculty meeting a special occasion. This is a chance to celebrate our community and honor those who have done our common work supremely well. It's also an occasion to take the long view of our situation and think how to prepare ourselves for road ahead.
I'll introduce this subject with two thoughts. First, universities are among the most durable institutions the world has ever seen. They have survived wars, revolutions, economic booms and busts, and many cycles of cultural transformation. Clark Kerr once pointed out that of the eighty-five institutions in continuous existence since 1520 under the same name in the same place performing the same function, seventy are universities. But paradoxically, higher education in the form we know is not an ancient but a comparatively recent creation, an artifact of the post-World War Two years.
Let me remind you of some facts. The number of students who went beyond high school in the US was around 250,000 in 1900 and only 350,000 in 1910 but already 1,500,000 by 1940, over 4 million by 1960 and over 12 million by 1980 a number that grew somewhat less rapidly to 15,700,000 in 2000, and is around 18 million today. In other words, within the lifetime of living men and women, higher education changed from a relatively rare experience open to the privileged or those headed for a few learned professions to the more broadly distributed opportunity and career prerequisite that it forms today.
Similarly, it's only since the 1940s that the federal government has become a major investor in university research, stimulating the growth of the research facilities, roles and relationships we take for granted now. Federally funded research and development at American universities and colleges totaled perhaps $5 million in 1940. In the postwar and Cold War years it expanded rapidly, to $405 million in 1960 and $4 billion in 1980. It reached $17 billion in 2000 and $31 billion in the year just past.
A third set of figures show that another form of support is of even more recent origin, at least on its modern scale. I refer to philanthropic giving and its compounding through institutional investment. Giving to all American colleges and universities totaled around $330 million in 1940 and $800 million in 1960, but over $4 billion in 1980, and then watch how the number takes off $23 billion in the year 2000, and $31 billion in 2008. As market growth and shrewd investment amplified the accumulated funds, endowments and endowment spending grew in similarly unprecedented ways. The total endowments for the top 120 institutions of higher education came to $7 billion in 1960 and around $20 billion in 1980. It reached $193 billion in 2000, after the economic explosion of the 1990s, then soared to $400 billion in 2008 in the runup that followed the dot.com bust.
As this short course in higher ed finances highlights, a confluence of fairly recent developments has created both the daily reality and the social role of universities as we know them. These developments made universities the source of a highly trained workforce, with major economic results. Lawrence Katz and Claudia Golden refer to the 20th century as the "human capital century" in recognition that that time's economic expansions derived not from industrial production but from new industries fueled by a better educated public. Concomitantly, the second change converted the university into a key engine of research discovery, with all that has meant for economic dynamism and quality of life.
The third development created deepened support and a base for expansion for every phase of the university's teaching and research. Total giving to Duke totaled $20 million in 1972, the first year for which there are institutional records, and $27 million in 1980, but $303 million in 2000 and $380 million in 2008. Duke's endowment, worth around $60 million in 1960 and only $110 million in 1980, reached $3.2 billion by the year 2000 and $6.1 billion in 2008. You know what this growth has created: endowments for professorships and financial aid, the building of technology infrastructure and the rebuilding of the library, new lab space for engineering and the natural sciences and new buildings for every school, plus the enrichment of every aspect of campus experience, from new academic and extracurricular programs to the campus-wide revitalization of the arts. We are meeting in the Nasher Museum, a prime example of the enrichment brought to universities by modern wealth creation and modern philanthropy.
In sum, the university we know is derived far more than we usually recognize from the peculiar economic history of recent decades. In the last eighteen months we have been reminded that historical returns do not guarantee future performance, just as the fine print warned. So where are we now? Past the worst of the economic downturn, but facing mixed and uncertain prospects: with GDP growth at 5.7% last quarter and financial markets apparently rebounding (Duke's endowment earned an 8.5% return for the year 2009), but with credit still obstructed, many deep in debt, and unemployment stuck at high levels. (Lawrence Summers has termed the current state "an economic recovery and a human recession.") The market for schools like us has never been stronger (Duke saw a 33% increase in undergraduate applications in the past two years), but the steady income growth we got used to in recent years is unlikely to return anytime soon. Giving to Duke and other universities, well down in 2009, begins to revive, but no one can confidently predict the rate of recovery. The government upped research funding in the stimulus bill and the federal budget submitted last week, but no one knows what the massive overhang of government debt will mean for the long term.
Put them all together and these facts raise the question that faces us now: if modern universities are in part products of a historically contingent prosperity, what will it mean if that growth proves unsustainable or, at best, uncertain?
We can see the possibilities, and some are scary. They are far less daunting at a well-off private university like Duke than at some public institutions. I was in California last week and heard the anguish of UC colleagues over massive budget cuts, 30%-plus tuition hikes, and the indignity of faculty furloughs. In the 20th century, California built the most extraordinary public university system ever created, with its blend of outstanding research campuses and mass educational opportunity. We are about to learn how compatible those will prove with massive shortfalls in public support.
In truth, we do not yet know what this time will prove to mean for the history of knowledge- and of opportunity-creation. Much is at stake on the question whether, in days of scarce resources, this country will correctly weigh the value investment in higher education will return in economic development and the development of human potential and the cost of investments short-sightedly withheld. But without minimizing our dependence on factors outside our control, I would note that we are not absolutely dependent on such factors. Even in slow-growth days a university's ability to perform its mission is partly in its own hands, through the choices it makes and the way it deploys its resources.
Last February I explained how Duke would approach its economic challenge. First, we are not free to ignore the reality of reduced funding from key sources, particularly the endowment. Through a careful university-wide exercise we are walking our way back to a sustainable budget, and we are well along with this task. Last year there was no salary increase for Duke faculty and staff earning $50,000 or more, a collective sacrifice that averted $18 million in added annual costs and protected around 200 jobs. This year we remain optimistic that we will have funds to allocate to compensation, but since we need to shoulder rising costs for the excellent benefits Duke employees enjoy, any pay increase will continue to be modest. To speak of cuts in expenditure, over 450 jobs have been eliminated through voluntary retirement programs and the tight control of vacancies and overtime. Efficiencies in campus-wide operations things like changing our thermostats, a coordinated system for purchasing computers, or the conversion of the phone system to voice-over IP will lead to many further millions in savings. Taken together, steps already enacted or identified have cut more than $50 million from Duke's budget, and, if luck holds and prudence continues, averted the need for sizeable system-wide layoffs.
So to repeat: first, we are committed to managing to a sustainable income. As a second principle, Duke elected to effect these reductions gradually, over three years rather than through abrupt cuts. Third, Duke enlisted broad participation in the decision-making process. In our system, schools and major units have the responsibility to live within their means, but within that constraint, are free to decide what choices make best local sense. In consequence, while no part of Duke has escaped a measure of pain, we have avoided across-the-board cuts and one-size-fits-all solutions.
Fourth and most crucially, even as we reduce, we are determined to preserve Duke's forward movement. We will continue to support the many activities we engage in but at the margin we are also making choices, investing resources in strategic priorities.
First on this list is students. You have heard me argue that making Duke education accessible to the most outstanding students is not a value among others but the prerequisite for everything else we do. Selfishly and in the short term, we have an interest in attracting the students who will engage Duke most fully and stimulate us to the highest degree. Less selfishly and longer term, universities perform their social mission through the students they produce: by drawing high talent, expanding its horizons and deepening its understandings, and sending it forth to do all the things for which our world needs intelligent, constructive force. Since high talent is found in all social origins, the university has an obligation to make this experience open to all who are suitably qualified, not just the well-to-do. For these reasons, we must ensure that this time of economic downturn a time when the needs of many families has increased will see no downturn in educational opportunity at Duke. As we tighten our belts elsewhere, we are committed to meeting our undergraduates' full need for financial aid. Our successfully completed Financial Aid Initiative raised $300 million for permanent support of aid in every school.
The other essential ingredient of the university is the faculty. The profundity and creativity of faculty intelligence is what makes great teaching and research discovery happen; and to remain vital, the faculty needs to be both supported and renewed. Hiring new colleagues brings the university fresh energy and new thinking that stimulates us all. If new faculty were not to be hired for some period, the university would miss whole cohorts of talent and lose an ongoing invigoration.
For these reasons, when the administration proposed and the trustees approved a plan for managing the downturn last winter, resources were explicitly committed for continued faculty hiring. Within the constraints of the day, this is the time to build faculty excellence, not freeze it. Having met the additions to our ranks at my reception for new faculty last fall, I can testify to the opportunity we are currently seizing. I'd add that within the plan, funds were also explicitly committed to diversity efforts in faculty hiring. Drawing talent from all sources is as important for building a great faculty as for the student body. Equal opportunity is not a luxury to be afforded in bull markets alone.
Third, Duke is committed to making continuing strategic investments in academic programs. This is not the first downturn I have seen hit the academy. The most damaging consequence I have observed came as budget cuts gave rise to a sullen protectionism: the wish, while reluctantly acceding to inevitable reductions, to lock in every surviving resource in its current form. The sentiment is understandable, but the cumulative results can be quite stultifying, since they freeze in place one moment's status quo. The school that fares best in hard times will be the one that strikes the best balance between supporting established fields and retaining the means for innovation.
Duke's 2001 strategic plan Building on Excellence guided a set of investments that made major differences across the campus and in this university's stature around the world. Our current strategic plan puts similarly important choices before us now. The plan identifies three areas that are increasingly critical to what our society needs universities to deliver. Duke is a leader in all three and we are committed to build on these strengths. The first is interdisciplinary: developing fields of discovery arising at intersections of familiar disciplines and building education that equips students to grasp the multiple dimensions of complex problems. The second is international: opening points of contact with top talent around the world and giving faculty and students deepened understanding of the global dimensions of every issue. The third is engagement with contemporary challenges. We are committed to connecting the intellectual work that can only be done in universities with the work of real-world problem solving, in areas from health care and environmental change to energy and education, and to developing new educational models that put real-world engagement in a reciprocally enriching relation to academic study an emerging hallmark of Duke education.
I could list the recently-launched programs that advance these goals but with your permission I'll tell a story instead and since I have so many, perhaps you will allow me two. The president gets to invite himself everywhere in the university to see what's going on. Let me share the experience of two visits from the past month. In early January, I went to see the work our colleagues are doing in one of our seven new interdisciplinary institutes, the Duke Institute for Brain Sciences. It was extraordinarily exciting. In the course of three hours, I heard from faculty at the forefront in answering questions like, what is the biochemical process by which the mind constructs a representation of the world? What is the biological basis of the fact that some people become addicted to the same substance that others can use (as we say) "socially?" Can we establish a biological basis for the fact that some of us make risk-laden decisions one way, and some another and if so, what would that teach about the framing of policy choices? Then I went to a lab where a colleague and his graduate students imaged how the neurons in a bird's brain changed when the bird heard a song it would subsequently imitate: the process at the root of all teaching and learning. I ended the day watching a brain displayed via dissection to the first-year medical class.
Now, here was a place where fundamental discoveries were being freshly made about the most basic questions, by faculty drawn together across several schools and departments, thanks to a strategic investment by this institution. Several of the faculty had arrived this very year, thanks to the provision for strategic hiring that I just mentioned. And the intellectual community thus created ran freely across academic ranks and ages. Graduate students were active partners in the work of discovery, and undergraduates were as well: the creation of DIBS and its attendant faculty hiring has permitted the launch of the new Neuroscience major, which already has 59 majors, all with access to front-line research experience. I have met students who told me they came to Duke for the experiences available here in neuroscience. Now, that's a great reason to pick a college and great evidence of how the university can add life and depth even when markets are down.
The week after my visit to DIBS I went to China to complete negotiations on the new programs Duke's academic council and trustees approved in December. Kunshan, the city next to Shanghai, and the city with the highest per capita income and the highest concentration of high-tech industry in China, has identified its need to build outstanding higher education in order to sustain its vision of development. Kunshan has selected Duke as their partner for this venture, dedicating a large parcel of land for our purposes and offering to build buildings to our specifications. Duke's presence in Kunshan would be led by our business school, which will teach finance and management skills in heavy demand in this region. But we anticipate that those would be quickly followed by an array of other Duke programs that address other major Chinese needs: programs in public policy, environmental policy and science, and global health, and eventually potential hybrid programs in health, management, engineering, environment, and other fields. Through this presence, we would use Duke's strengths in cross-disciplinary, problem-based research and teaching to build human capital in a country with deep need for that expertise. And as the number of Duke faculty grows who have spent time in China and gained understanding of the fastest developing society in the world, students in Duke in Durham will benefit as well. At the groundbreaking in Kunshan, it did not seem far-fetched to think that Duke is doing in the Yangtze River Delta in 2010 what it did on the West Campus in the 1920s: building the means to both deepen our education and broaden the performance of our social mission.
Earlier that same week, the members of our party got another glimpse on Duke's strategic evolution by visiting The Dandelion School, a residential school for middle-school children in an industrial suburb of Beijing. The Dandelion School is a response to the internal migration from the rural countryside to new economy cities that has brought four million people to Beijing alone in recent years, including children suffering from many forms of displacement and disconnection. The school's aim is to build them a home and the educational base for positive developments in later life.
A Duke professor of cultural anthropology, Ralph Litzinger, studies contemporary Chinese migration and has worked with the school. Through him, a link was created to DukeEngage, the civic engagement program that is currently sending 350 undergraduate students a year around this country and around the world, with Duke support, to learn something of human life outside the bubble of selective American schools and careers; to learn how their classroom education equips them to help with real world challenges; and equally valuably, to find out what more they need to learn to actually grasp their world and be effective in dealing with its challenges. With Professor Litzinger as their mentor, eight or nine DukeEngage students have interned at Dandelion School in each recent summer, and when we went, we visited a Dukie who was spending a whole year there as a resident English instructor: Sarah Smith, a Duke sophomore, an International Comparative Studies major who has studied Chinese at Duke. Having witnessed her teach, I can glowingly testify to the joy in education that she and her colleagues are creating in a place of deprivation. I'm confident that she herself will know more, and her education will mean more throughout her life, because she had this opportunity to combine academic and experiential education, at Duke and halfway around the world, in the way she did.
Now, put the case that we had decided not to create or sustain innovations like DukeEngage, or our new China ventures, or Brain Sciences, the Kenan Institute for Ethics, Global Health, and the other interdisciplinary institutes. Much would remain, but something essential would now be missing: the force of serious innovation, our willingness to envision new ways to perform our fundamental mission. Even in a season of tightened belts, that ongoing work is a necessity, not a luxury. So we will protect resources for such programmatic innovations even as we move to a reduced budget base.
At the end of the day, I am quite optimistic about how Duke will come through our current challenges. If my optimism needs support, I find it in the history of this place. One of its most striking lessons is that Duke did not better itself in good times alone. It did especially well in hard times by having the courage to try new things the things it deemed essential to build a great center of learning. The backwoods schoolhouse that grew into Trinity College was founded in 1838, the year after the Panic of 1837. Trinity College moved to Durham and began its modern life in 1894, the year after the Panic of 1893. Mr. Duke gave the gift to convert the college into this university during the roaring ‘20s but it was in 1930, after the start of the Great Depression, that Duke opened its medical school, having decided it was essential for a great university to have one. And Terry Sanford started what became the Sanford Institute in the stagflationary 1970s not because money was plentiful, but because he had the idea that the practical policymaking domain and academic fields like economics, statistics, political science and ethics would both be enriched through closer contact. This fall we celebrated this experiment's extraordinary success by promoting the Institute to the Sanford School of Public Policy.
Colleagues, now it's our turn to show we can make this university greater even as we meet the strictures of this time. There's no avoiding facing up to current financial facts, but we can do better than simply hunkering down. I am grateful for the maturity this faculty has shown in stepping up to our own real-world problem, and still more for your good cheer, your ambition and your imagination. If we recognize our power to continue to make this place, I'm confident Duke's best days are still ahead.