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Disaster Capitalism University
In advance of the March 4 statewide student-worker-faculty strike, this detailed study of the political economy of the military-industrial-academic-media complex examines how the University of California is being run as a $19 billion dollar speculative bubble with ample opportunities for enormous growth through “volatility.” The UC's alpha Regents specialize in leveraged buyouts and privatization of publicly traded companies, and they have long practiced this same basic business philosophy on the university.
Originally published in the Anderson Valley Advertiser, February 17 (part 2 of a four-part series):
This past July, following the California State Legislature's decision to strip $813 million from the University of California's Fiscal Year 2009-10 budget, the UC's 26-member Board of Regents voted to declare “a state of financial emergency.” Such a “state of emergency,” the university's official by-laws state, should accompany an “imminent and substantial deficiency in available university financial resources.”
The Regents also voted to grant special “emergency powers” to UC President Mark G. Yudof. Yudof promptly marshaled his new and vaguely defined authority to lay off hundreds of workers, impose pay cuts and furloughs on remaining university staff, and propose a 32 percent increase in student fees which the Regents approved in November.
At the same meeting, Regents Chairman Russell Gould announced the formation of a new UC Commission on the Future. Its de facto function has been to further the privatization of the university. Notably, Gould is one of California's most prominent financiers, a man who served as vice chairman of Wachovia Bank during its growth as one of the leading subprime mortgage lenders in the United States. He and Yudof serve as the commission's co-chairmen. In Gould's words, the commission's task is "nothing short of re-imagining" the University of California.
In her 2007 book The Shock Doctrine, journalist Naomi Klein describes the rise of a political and economic system she calls “disaster capitalism,” under which the preferred method of reshaping the world in the interest of multinational corporations is to systematically exploit the state of fear and disorientation that accompanies moments of great shock and crisis. Among the main prototypes Klein offers for this insidious form of economic and social engineering are Augusto Pinochet's Chilean regime, installed by the CIA in 1973, along with the US invasion and occupation of Iraq and the US government response to the crisis of Hurricane Katrina. During these disastrous moments, leaders typically invoke "states of emergency" and heap special powers on themselves to ram through unpopular and unnecessary measures.
The function of a rhetorical emphasis on emergencies and disasters, Klein notes, is to legitimate actions that would normally be rejected by the vast majority of the population. “Economic shock therapy,” a term frequently used by the International Monetary Fund to describe large-scale privatization of publicly owned assets, is the inevitable course that results from this strategy. While the phenomenon Klein describes has far greater longevity and much deeper roots than her book indicates, she nevertheless provides a useful framework for examining the unraveling of large institutions across all sectors of global capitalism.
The State of California's political elites and business leaders have taken to using this language of crisis now whenever discussing the UC. In the past few decades, state funding of the university has suffered steady erosion. The UC now receives more funding than ever from private corporations and the federal government (the latter being in most instances pretty much the same as the former). Its various revenue streams range from student fees to several billion dollars in medical hospital revenue to private grants and donations, to its own hedge fund-like investments portfolio, to atomic bomb dollars from the Department of Energy.
Thus, despite the state budget cuts, the UC's overall revenue reached an all-time high of $19.42 billion in the 2009-10 academic year, and the Regents' claim that the UC faces an “imminent and substantial” funding deficit is inaccurate, to say the least. According to both the university's own financial documents and Moody's bond rating agency, the university had access to over $8.3 billion in unrestricted investment funds it was holding in reserve at the time.
The university has undergone a neo-liberal-style “structural adjustment” at the behest of the UC Regents, and this transformation has been accelerated during Yudof's tenure as president. Under the leadership of California's economic elite, the UC has become the leading prototype for a "disaster capitalist university."
Since the mid-1990s, administrative salaries have absorbed a dramatically increasing share of the university's overall budget. According to a study by UC Berkeley Professor Emeritus of Physics Charles Schwartz, the number of UC administrative positions increased by an almost unbelievable 118 percent from 1996 to 2006, as compared with a 34 percent increase in faculty positions and 33 percent increase in students over the same period. As a result, there are currently 3,600 UC employees who make more than $200,000 a year, many of them through administrative positions.
An even more damning revelation was made public this past October when UC Santa Cruz Professor Bob Meister published his scathing analysis of the UC administration's use of student tuition dollars as collateral for construction bond debts. In addition to his PhD in economics, Meister serves as Chairman of the Council of University Faculties – essentially, a faculty union with representatives on all 10 of the university's campuses. He knows what he's talking about. According to the Regents' own data and policy documents, the primary use of student fee revenue since 2004 has been as collateral for bonds to fund campus construction projects. In this "modified credit swap," students are forced to take out "subprime" student loans, often charging six percent interest, so the university can borrow money at a reduced rate to construct new facilities like – to take one example -- the Blum Center for Developing Economies at UC Berkeley, which UC Regent Richard C. Blum's own construction company, URS Corporation, was contracted by the university to build.
And those subprime student loans? They're often owned by big banks like Wachovia and other financial outfits that many of the UC Regents and their business partners are shareholders or executives of. So the whole cycle begins and ends with massive public and student debts, both of which increase as the Regents partake in further undermining the tax base while looting the public sector, again ratcheting up the crisis rhetoric.
UC Los Angeles instructor Bob Samuels has observed that “Moody's even slipped into its bond rating for the UC system the need for the [UC] to restrain labor costs, increase student fees, diversify revenue streams, feed the money-making sectors, and resist the further unionization of its employees,” Samuels concludes that, “like the International Monetary Fund (IMF) or World Bank, the bond raters tie access to credit to the dismantling of the public sector and the adoption of neo-liberal ideology.”
To understand fully why the University of California's internal finances are being subjected to “economic shock therapy,” much like a Third World debtor nation under the thumb of the IMF, it's necessary to know a bit about the history and function of the university's power structure. Although it is nominally a public institution, the UC is not owned and governed by the State of California. Rather, it is the UC Regents who call all the shots. The Board of Regents is a corporate entity formed in 1879 for the explicit purpose of thwarting a populist social movement of small farmers who demanded that the the university become more responsive to their needs.
"During a tumultuous decade in California history," historian John Aubrey Douglass has written, "many saw the new University of California as serving the interests of the upper classes, focusing on classical 'gentlemanly training' and replicating the Yankee private institutions of the East. The detractors of the university demanded that, as an instrument of social and economic development, the university primarily serve the training and research needs of agriculture and industry, the stated 'leading objective' of the institution under statutory law."
During the California constitutional convention of that year, a clique of mostly San Francisco-based financiers and industrialists managed to defeat the democratic demands of farmers and small business owners. The crowning achievement of this elitist coup was the establishment of the UC Board of Regents, a corporate entity that owns and operates the university. To maintain their power against all opposition the Regents gave themselves twelve year tenures that are explicitly meant to insulate them from any political pressures. The UC thus became what Douglass calls "a fourth branch of state government."
Since then, the leading sectors of the California economy have self-appointed individuals who represent their economic interests on the Board. The Regents mold UC policies in broad ways that benefit capital's leading monopoly sectors. The current going price for an appointment – probably the most prestigious one at the governor's disposal, it should be noted – seems to be $50,000, bare minimum. Give the Gov. this sum, and you too could be a Regent.
Until relatively recently this meant that Regents would promote policies designed to build cutting edge economic sectors in and around the UC campuses, but they'd make sure to throw some of the university's gravy to less sexy and profitable sectors of the economy. In recent years, the Board of Regents has become dominated by financiers, however. As with the economy at large, these wizards of hedge funds, credit markets, venture capital, real estate speculation, and all the other games played with billion dollar pots of money, have begun to run the university itself as a $19 billion dollar speculative bubble with ample opportunities for enormous growth through “volatility.” These new alpha Regents specialize in leveraged buyouts and privatization of publicly traded companies, and they have long practiced this same basic business philosophy on the university.
The most prominent among this cadre has been Richard Blum. As we detailed in last week's AVA, Blum's five-decade career as a finance capitalist has been distinguished by the levels of skill and panache he has applied to the time-honored task of siphoning off public money into one's own corporate coffers, as well as those of one's financial and political allies. Blum, who is married to US Senator Dianne Feinstein, is one of the leading power-brokers in the Democratic Party within both California and the United States.
Notably, it was Blum who virtually hand-picked President Yudof for UC President, having chaired the selection committee that oversaw Yudof's appointment. At a March 2008 press conference heralding the Yudof hiring, the San Francisco Chronicle noted that Blum seemed “visibly ecstatic.” In April, the Chronicle quoted Blum again, saying of Yudof, "we disagree on almost nothing. If I were giving Mark a grade, I would give him an A-plus.”
Another prime example of the university's “investors' club” (the title of an upcoming series by investigative reporter Peter Byrne) is Gerald Parsky, a San Diego venture capitalist who reportedly commutes daily by jet to Los Angeles. As a Republican Party powerhouse, Parsky was so influential during his 1996-2008 tenure on the Regents that the American Federation of State, County, and Municipal Employees (AFSCME) dubbed a particularly influential faction of the Board “The Parsky Clique.” In addition to being president of Los Angeles-based Aurora Capital, recent additions to Parsky's resume include acting as senior economic advisor to John McCain presidential campaign and as chairman of the Schwarzenegger administration's Commission on the 21st Century Economy. Just as Parsky helped steer the UC toward ever-greater privatization throughout his tenure as a Regent, his commission issued a series of recommendations on reforming the state's tax and revenue system in a manner more favorable to big business, even prompting some observers to label the Parsky Commission's proposals “California's Shock Doctrine.”
Current Regents Chairman Russell Gould is another financier and California Republican Party heavy. In addition to his role at Wachovia Bank, he served as California Director of Finance in the Pete Wilson administration in the 1990s. After that, he served a stint as assets managers of the $5.5 billion J. Paul Getty Trust Fund, a charitable organization founded with money from the Getty oil fortune. The Gettys are neighbors of one Richard Blum and Dianne Feinstein in San Francisco's uber-bourgeoise Pacific Heights neighborhood, where Mr. and Mrs. DiFi purchased a $16.5 million palatial estate in 2005.
(As an aside, the Getty Trust was run in those years by one Barry Munitz, former chancellor of the California State University System. From 1984 to 1991, Munitz was vice president of Maxaam Corporation under Charles Hurwitz, as the company clear-cut the lands and livelihoods of California North Coast residents. Munitz has since been a leading force behind shaping the California Business Roundtable's public education policy agenda, which strongly favors neo-liberal privatization.)
Another Regent, Paul Wachter, acts as Gov. Schwarzengger's personal financial adviser. Regent George Marcus is a lead organizer of The Real Estate Roundtable, the main political voice of real estate capital in the United States. Regent Judith Hopkinson, whose tenure recently ended, is a retired executive of Ameriquest Capital Corporation, a big mortgage company that is partly responsible for precipitating the current economic crisis: Ameriquest lent billions in sub-prime loans to families across the US knowing full well they would have trouble making payments down the line as rates increased. And the list goes on.
One of the primary enterprises Richard Blum has presided over in recent
years is the real estate corporation CB Richard Ellis. With projects in
nearly 100 countries, CBRE is the largest brokerage firm on the planet.
In a notable example of how Blum's own particular business interests have
become increasingly enmeshed with those of the university, during the
course of his tenure as a Regent, CBRE has contracted with at least eight
of the UC's 10 campuses over the past decade. Most often, the company has
consulted with these campuses to produce glossy reports highlighting the
beneficial economic impacts on the immediate regions that host them, as
well as that of California in general. The UC's San Francisco, Davis,
Berkeley, San Diego, and Riverside campuses have all paid CBRE to produce
precisely these kinds of economic development treatises.
Each of these CBRE reports marshals a wide range of statistical data to
promote a particular vision of the UC's role in California's larger
economy and society. While paying occasional lip service to the UC's
contributions to “the richness of California culture,” the reports
overwhelmingly emphasize the UC's role in fostering high-tech business
enterprise, premised on a decidedly Reagan-esque view of the inherent
superiority of top-down economic spending. The core purpose of UC San
Diego, according to one CBRE report, is to fuel “the expansion of the
skilled labor pool for high-tech businesses and biotech businesses in San
Diego.” UC Irvine is “an economic engine powering prosperity” owing to
its various big business spin-offs and the high-tech start-up companies
founded by its faculty.
The implicit conclusion is that the university's complete subordination to
monopoly capital is the primary reason for its existence, and that
anything the UC could do for biotech, aerospace, real estate, and finance
capital, it should do. In this way, the shift to privatization of the
university's finances, including student fees that are redirected to pay
for campus construction projects, goes hand-in-hand with the efforts of
state and business elites to render the university a wholesale servant of
California's neo-liberal economic machinery. Under this model, State
funding is seen as akin to "local matching funds," sweetening the overall
pot for the real investors, the main purpose being not to make the
university affordable for students, but rather to expand the university's
physical footprint and build fancy new research centers that will create
all manner of techno-gadgetry to inflate the next bubble.
The UC Regents, in other words, have come to conceive of UC campuses
almost entirely as incubators for a constellation of mini-Silicon Valleys:
alliances of venture capitalists, real estate speculators, and high-tech
entrepreneurs writ large upon large and overlapping swaths of California.
It stands to reason that the UC's leadership would be enamored of the
region of the United States that is home to more millionaires per capita
than anywhere else in the country, but which has also seen one of the sharpest declines in real wages among its working class. Silicon Valley also leads the way with the most temporary workers per capita, the highest level of economic inequity between genders, and the greatest concentration of toxic Superfund sites in the United States. Neo-liberalism in a nutshell.
Even so, the Regents and UC's executives have long spoken in excited tones about spreading the model. The UC's newest campus, UC Merced, was sold entirely on the premise that it would produce a critical mass of biotechnologists, nanotechnologists, engineers, and other wizards of the ruling high-tech religion that mythically creates economic booms that lift all boats. Currently, though, the Central Valley is experiencing some of the greatest levels of unemployment and highest home foreclosure rates in the country. UC Santa Cruz, traditionally the arts and humanities campus of the UC system, was transformed during this era into what some administrators happily called the "Silicon Beach." Much like with the global neo-liberal economy it has done so much to advance, the great majority who don't already possess ample resources are left under this model to fend for themselves.
As student fees continue to skyrocket, it is well to keep in mind that Blum is a part owner of a pair of for-profit education companies. Blum Capital Partners owns a large stake in Career Education Corporation, the world's second largest private “diploma mill” corporation, which runs more than one hundred for-profit schools across the country, while also making tens of millions of dollars in sub-prime loans to its students. Blum Capital also owns a 19 percent stake in ITT Educational Services, Inc., another for-profit school that makes millions off student loan debt. Blum, the UC Board of Regents' resident siphoner-in-chief of public funds, purchased more than 220,000 new shares in the firm soon after the UC Regents approved the University of California's latest fee increase this past November.
If the UC is prioritizing various toxic combinations of science and industry at the expense of most students, then what are those projects? Examples abound. In June 2006, the UC announced an agreement with the world's second largest oil company, British Petroleum, whereby it will receive half a billion dollars per year over 10 years, principally for research into genetically modified elephant grass and other transgenic plants that are candidates to produce alcohol for non-fossil car fuel. The project is housed as a facility on campus called the Energy Biosciences Institute (EBI). In keeping with the "public-private partnership" funding model that currently prevails, the State of California put up "matching funds" in the form of $73 million in construction bonds to help smooth the way for the EBI's landing on the Berkeley campus.
This is one of UC Berkeley's largest current applied research programs, and it naturally comes straight from the disaster capitalist playbook. The project is justified under the pretense of helping to solve two major crises - global climate change and its twin bogeyman, oil depletion. In reality, biofuel monoculture has become perhaps the leading cause of dispossession of small farmers in the Global South, as well as the destruction of important ecosystems such as the Amazon Basin rain forest. “If the governments promoting biofuels do not reverse their policies,” journalist George Monbiot has warned, “the humanitarian impact will be greater than that of the Iraq war. Millions will be displaced, hundreds of millions more could go hungry.”
Berkeley's biofuels institute will only further enable multi-national corporations to penetrate, reorganize, poison and despoil the lands, livelihoods, and psyches of Amazon Basin and other cultures. The net impact of the EBI on the environment – that is, the actually existing ecosystems of South America, Indonesia, et al. – will be decidedly negative. On the day of the contract signing, then-UC President Robert Dynes heralded it as “a great day for Mother Earth.”
Both Dynes and Lawrence Berkeley National Laboratory Director Stephen Chu, now duly installed as the Obama administration's secretary of energy, referred to this project as a “new manhattan project.” It was a fitting designation, although the original Manhattan Project never quite ended, and it has only gained ground under a president who sold the world on “hope” and “change.” The UC continues to co-manage the Los Alamos and Lawrence Livermore nuclear weapons compounds, which have designed every nuclear weapon in the US arsenal dating from the annihilation of Hiroshima and Nagasaki, as part of for-profit partnerships with the world's largest construction and engineering firm, Bechtel Corporation. The UC-Bechtel contracts are worth as much as $80 billion in revenue over the course of their 20 year lifespans, a hefty chunk of change when you're concerned with your bond ratings.
On February 1, the Obama administration unveiled a budget in which both of the UC's weapons labs would receive a massive funding “surge.” The proposed funding increase of 23 percent at Los Alamos would be the facility's largest since 1944. Much of that funding is for a new factory to produce plutonium bomb cores, the explosive triggers of modern thermo-nuclear warheads, for the expressed purpose of outfitting the first new nukes to be developed since the end of the Cold War. The investments are sold as the need to “maintain the US nuclear deterrent” in a time of rapidly escalating threats, allegedly, from Iran, North Korea, and potentially even nuclear-armed terrorists.
Again, crisis begets opportunity if you're properly positioned in the most privileged circles, so it's fitting that one of the two junior partners in the UC-Bechtel management team should be Richard Blum's now-former company, URS Corporation. At the time Blum became a Regent, URS already had a $125 million contract to perform construction and engineering at Los Alamos. It was a natural extension of his general business philosophy that Blum would have been eying wholesale ownership of the weapons lab at the time.
That in mind, perhaps a little Q & A is in order. Which entities now run the Los Alamos and Lawrence Livermore weapons labs? The University of California, Bechtel, and URS Corporation, along with a couple of other junior partners. Which UC Regent had a lucrative financial partnership with the Bechtel family, via a $3.5 billion medical technology supplies company named Kinetic Concepts, that precedes the UC-Bechtel weapons lab partnership by eight years? Richard Blum. Who was URS Corporation's primary financier and vice president for three decades? Richard Blum. Which UC Regent was among a select group of policy wonks who participated in a nuclear weapons policy conference in Oslo, Norway, in 2007, organized largely by a long-time Bechtel executive, George Shultz, who has been instrumental to securing the weapons labs' recent funding increases? We won't even bother answering that last question – this exercise has become entirely rhetorical.
From its inception, the University of California has been an institution inherently bound up with the course of American empire. It was the 18th century British philosopher George Berkeley's poem “America: A Prophesy” that inspired the university's early trustees to adopt him as their flagship campus' namesake. The poem's final stanza perfectly captured their vision of the university's larger social role, that of intellectual hub for ever-expanding American capitalism, which was itself to herald an end-of-history liberal utopia. Notably, the same stanza also helped occasion the idea of “Manifest Destiny,” the widely held belief in the mid-19th century that a Protestant God had divinely ordained the United States to expand westward to conquer and subdue the American Indians and the “wilderness” they inhabited.
“Westward the course of empire takes its way;
The first four Acts already past;
A fifth shall close the Drama with the day;
Time's noblest offspring is the last."
The poem's last line provides a fitting epithet for the university, as for so many institutions instrumental to the era of US economic dominance now passing in a financial meltdown. These days, the course of global capitalist empire is one of precipitous flux and decline. The UC's particular difficulties are a microcosm of wider economic and ecological difficulties facing virtually all large-scale organizations during this time of deepening crisis for capitalism generally, and for California with its status as primary exemplar of American culture and politics specifically. California's decline is best symbolized in the personas of the elite finance capitalists who now control the world's factories, mines, forests, firms, and universities - men whose cannibalistic search for ever-expanding profits has led them to destroy the social and ecological underpinnings of the entire economy. Another obvious cause for decay is American imperial overreach, which has been hastened by a pair of exorbitant military occupations.
While the aggressive and opportunistic plans of the UC Regents and their hatchet man, President Yudof, are the most immediate cause of the university's rapid descent, it is this larger context that demands greatest attention from students, faculty, workers, and the people of California. It is highly improbable that the UC and institutions like it will ever return to an idyllic era of reliable state financial support. There will never again be low fees, an ever-expanding roster of PhDs, or increasing and diverse student enrollments. The UC is an unsustainable institution that developed as part of a wildly unsustainable period of American economic expansion. We are now in an iteration of the world capitalist economy's unraveling, and as an integral part of this economy, the university is coming undone right along with it.
But resistance is never futile. In the third part of this ongoing four-part series for the Anderson Valley Advertiser, we will weigh in on the spirited movement to oppose what the UC's leaders have in store for the university ("Occupy Everything!").