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Is 2009 Harvard’s annus horribilis?

Is 2009 Harvard’s annus horribilis? The first spring bulbs may be yet to bloom around the world’s richest university, and the answer would seem to be “yes.” Just when America’s oldest seat of learning might have gloated at the sight of more Harvard faculty filling senior White House posts than at any other time, the institution has been put in a position it neither knows nor likes: under the glare of the media spotlight, it has been forced to eat humble pie.

The firestorm peaked last week amid claims that Lawrence Summers — the former treasury secretary entrusted to resuscitate the U.S. economy by President Obama — was mostly to blame for Harvard’s fall in fortunes. By investing much of the university’s endowment in exotic financial portfolios during his five-year presidency, Mr. Summers had overseen huge losses, critics alleged. “His job is to use his financial genius to save the nation from economic disaster,” said Forbes magazine. “Let’s hope we don’t see a repeat of some of the decisions that were made when he was president of Harvard.”

The row is the latest in a series of tribulations to hit Harvard since Drew Faust, its first female president, was forced to acknowledge gargantuan financial losses last December. In four months, she said, the university’s endowment — at $39.9b the envy of ivory towers around the world — had contracted by $8b. Worse still, the losses were expected to increase to 30 per cent by the end of the academic year, “before subtracting the additional $1.4b that will go toward current operations.”

Last month Ms Drew, who succeeded Mr. Summers in 2007, issued an even more dire prognosis. In a 2,000-word letter to faculty, students, staff, alumni and friends, she announced a freeze on faculty salaries, higher tuition fees and an instantly applicable early retirement scheme for as many as 1,600 staff.

“Every morning’s headlines, every day’s conversations remind us that we remain in the midst of an economic downturn unlike any in decades,” the letter said. “Uncertainty sometimes seems our only certainty. But what has become clear is that we are living through much more than a bump in the road ... Such a significant decrease presents us with difficult trade-offs — all the more so when our other major revenue sources are also under strain.”

The endowment supported more than a third of Harvard’s annual operating budget. As a result of the crisis, the amount extracted from it to support activities across the university “is approximately 50 per cent higher than it was when the endowment was last at the value we expect as of next June 30. Tinkering around the edges will not be enough,” Ms Drew said.

The credit crunch had forced a reconsideration “of the pace and scale” of Harvard’s physical growth — a crushing blow for an institution that has always placed emphasis on its empire expanding. While the foundations of a science complex would continue to be dug, the rest of the construction would have to be put on hold, the president announced in a move that has fuelled tensions among residents in Boston. A massive project that has been in the pipeline for decades, the new complex would not only have doubled the size of the university’s campus but also extended its reach across the Charles river into the residential neighbourhood of Allston.

Fearing that the university will allow the deserted properties it has acquired in the area to decay further, enraged residents have draped banners from empty Harvard-owned buildings stating: “It’s time for resistance!” “There was a lot of hope that the science centre would bring some life back into the neighbourhood,” said Paul Berkeley, who heads the Allston Civic Association. Last week, the university’s admissions office announced it would be abolishing visits to the college by potential students following a dramatic 50 per cent cut in its 2010 travel budget.

Harvard is not alone in seeing its financial reserves plunge. Other Ivy League colleges — including Stanford, whose president and provost recently volunteered to cut their salaries by 10% — have announced tuition fee hikes. A study conducted by the independent Commonfund Institute, published last week, revealed that the endowments of 629 higher education establishments across the U.S. had dropped by an average 24 per cent from July to December.

But in Harvard’s case it is the magnitude of the losses that has caused surprise. Up until 2007, the endowment was posting gains of up to 20% a year. Along Harvard’s corridors of power there has long been immense pride in the university’s ability to turn its endowment into gold. Academics acknowledge that such alchemy underpins its extraordinary resources: Harvard has the biggest library system in the world. For those who have decamped from Britain (a not inconsiderable number) there is also the knowledge that it nourishes the non-stop flow of stars, showmen, spymasters, generals, politicians, literati and other luminaries who pass through Harvard on any given day.

For Harvard’s ever-competitive professoriate, it is a talent that has made their institution stand out from the likes of Oxford and Cambridge. Whether that sentiment will continue in the current climate remains to be seen. While staff morale remains high at Harvard, some senior faculty members — not least staff from the stem cell group due to have moved into new labs at the science complex — are reportedly considering moving on.

Recently, Ms Drew said she was prepared to take on “whatever hand she was dealt.” Harvard’s mission was not only about making money; it was also about contributing to informed debate and ensuring that the “‘power of ideas’ has the fullest impact on the ‘ideas of power.’”

“It’s been an unexpected year,” she told reporters in Boston. But, like a marriage, she was committed to her presidency “for richer or poorer, for better or worse.”

(Helena Smith is a former Nieman fellow at Harvard.)

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