Your money - Chapter 8 of Michael Parker's book about why New Zealand needs a great university

By Michael Parker*

[This is Chapter 8 of the book, The Pine Tree Paradox. Links to the previous chapters are at the bottom of this page.]

Every other chapter in this book begins with a pithy quote and a non sequitur. Naked secretaries, sailing on the Hauraki Gulf, tennis courts on secluded islands, erudite libertarians, throw-back politicians ... anything, it would seem, but the topic at hand.

Not this chapter. This chapter begins on the same topic on which it finishes: money.

This direct approach is required because there is a simple truth that runs through my argument and it needs to be stated simply: we have an opportunity to reverse the gap between New Zealand and the top half of the OECD that has emerged over the last 50 years in terms of income levels and good social statistics.

However, to close that gap, some personal sacrifice is required.

The process of transition from an agricultural economy to an innovation economy will take decades. The window to begin is open to us for only a limited time.

The New Zealand government is unable to address this opportunity.

That places the onus on New Zealand residents and citizens around the world.

And the sacrifice does not fall equally among the four million people living in New Zealand and the Diaspora of one million or more New Zealanders living outside the country. The sacrifice is required largely from those who can afford to bear it.

The process of building a great university to anchor an Innovation Cycle will be eye-poppingly expensive.

At the end of 2008, there were 32 universities in the U.S. with endowments of greater than US$2 billion and, of those, six universities had endowments of greater than US$10 billion. It is these universities with whom we will be competing for faculty, for students, for rankings and for prizes. Therefore, we will need an endowment measured in the billions.

Building an endowment of US$2 billion or more will take decades. And the same funding stream used to build the endowment will be required to fund expansion of the university facilities beyond the original university complex and to subsidise any losses in the first years of the university’s operation.

As a rough rule of thumb, assuming an annual US$50 million contribution to the university, an annual capital spending level funded by the endowment equal to 50% of annual contributions and a rate of return on investments of 8%, at the end of thirty years, the implied endowment would be almost US$3 billion, together with a fully-funded capital budget over the entire period of US$750 million.

That kind of endowment would place the university within reach of the world’s great research universities. Note that none of these figures are discounted to reflect present value.

As with all financial matters, timing is important. We have decades to build this fund, but - given the nature of compound interest - the most important dollar we raise is the first one.

Therefore, we have to start now.

The politician’s instinct here is to say something comforting: It won’t have to come out of your pocket. We will levy a tax on foreigners entering New Zealand in order to fund that $100 million. Or we will just borrow the money.

That won’t work. The government is simply not suited to fund the Enterprise over the long term.

Besides, this is a fundamental change in the way our economy works and the quality of life that we are able to provide our children. We cannot simply push the cost onto future generations or onto foreigners.

The chances of a single wealthy benefactor to emerge - a Stanford, a Carnegie, a Vanderbilt - and pay for the whole thing are vanishingly small.

Instead, a group of New Zealanders numbering somewhere between one thousand and one million have to make the decision that this is an important goal. And then that group will have to fund the Enterprise privately. To begin, what is required is a core of New Zealand citizens or residents who will contribute something like US$10,000 annually to an endowment to build the university.

A donation of US$10,000 by 5,000 people equates to US$50 million annually. That puts us on course for a US$3 billion endowment and a US$750 million worth of capital projects by 2040.

There will, of course, be smaller donations - starting with the supermarket sausage sizzles. And there will be larger contributions over time - starting with a contribution from the New Zealand government to build the complex. But fundamentally, the Enterprise requires a steady diet of contributions from wealthy New Zealanders all around the world who believe in this opportunity.

We need to identify a network of 5,000 New Zealanders both here and around the world who believe in the Enterprise, have benefited from their New Zealand university education, and are in a position to make an annual donation to the university of US$10,000.

The “Ask”

If you spend any time with great fundraisers, you will discover that there are a variety of approaches to getting people to give you money for worthy causes: invoking the virtue of the cause, the opportunity to belong, the chance to show off and even old-fashioned altruism. There are also many different personalities that are drawn to the business of fundraising: the true believer, the salesman, the networker.

But successful fundraisers all have two things in common. First, they love the “ask”. They love the chance to get in front of the potential donor, explain the cause, set out the opportunity, communicate the benefit and ask for the money.

Second, successful fundraisers never use guilt or obligation. Fundraisers cannot build relationships based on guilt. At best, guilt will result in a single donation in order to make the fundraiser go away. It will not form the basis of an ongoing relationship. To form such a relationship, the donor has to be excited about the project and the chance to make it happen. And that is exactly what the Enterprise can offer.

The nature of the New Zealand Diaspora means that we have a great number of wealthy New Zealanders educated here, but living and working outside of New Zealand, who have benefited from the New Zealand education system and a New Zealand lifestyle that is slowly crumbling away.

For New Zealanders living overseas, the image of New Zealand as something approaching a snow-capped, tropical paradise is an incredible positive. There is a tremendous amount of goodwill towards New Zealand and New Zealanders internationally.

New Zealanders living and working overseas benefit from that. Some New Zealanders’ accents have even been known to grow stronger the more time spent outside of New Zealand, their turn of phrase a little more “mate-y”, their knowledge of their home country improved, and their interest in rugby and sailing increased in order to capitalise on the goodwill of foreigners towards New Zealand.

A New Zealander living overseas who graduated from university before 1992 paid for virtually none of her university education, as student loans and the “user-pays” philosophy was not introduced into the tertiary education system until 1992. As New Zealand income taxes are levied on residents, not citizens, that individual is today making no financial contribution to New Zealand other than what she spends when at home on holiday.

A New Zealander educated at university in New Zealand and now working overseas who graduated from university in 1992 or later paid for only a fraction of his university education himself and left university with a student debt equal to perhaps 20% of what his American co-workers may have incurred.

After repaying that New Zealand student loan, that individual is today making no financial contribution to New Zealand other than what he spends when at home on holiday.

For these people, the fact that they have received the benefits of growing up and being educated in New Zealand, without making any direct financial contribution to New Zealand is not a matter of personal pride. But there is a practical question involved: where would these ex-pat New Zealanders send their money in order to address this imbalance?

If you want to stay connected to New Zealand as an expatriate, your options are limited to buying an All Blacks jersey, taking a really long flight home every year for a holiday or purchasing a flat or beach house somewhere in New Zealand and installing tenants. The latter phenomenon may explain, in part, the dismal rental yields in New Zealand—but it is hardly a constructive form of participation in the development of the nation.

In fact, forget the expatriates. What is a New Zealand resident frustrated by the long-term decline in our economic standing and the implications of this decline on our social statistics to do?

Our politicians offer no answers.

The interesting thing about a monotonic 50-year economic decline is that the issue ceases to be political. Over the last 50 years, we have had interventionists, monetarists, corporatists, socialists, libertarians, farmers, bankers and academics in charge of the Treasury benches and none of them have been able to reverse this decline. The received history seems to be that nothing can be done to change our economic fortunes.

The most corrosive part of this decline is that, as a country, we do not seem to expect to reverse the decline.

We would certainly celebrate if it happened - but it does not seem to be the basis upon which we rate our politicians. The issue has ceased to be political because politicians have demonstrated themselves incapable of doing anything about it. And so they worry about other things. And all the while, South Korea, Hungary, Portugal and the Czech Republic are sneaking up on us on the OECD’s league table.

This is what the Enterprise can offer: through an annual contribution and participation within the community of other like-minded people, New Zealanders can take a meaningful and active step towards changing the way New Zealand is developing economically. At the core of the Enterprise will be a community of New Zealanders who want something more for the country than tourism and peaches.

Your Money

This chapter ends the same way it begins: money. To change the trajectory of New Zealand’s economic future, a transition from agriculture to innovation is required. That transition requires an Innovation Cycle. An Innovation Cycle requires a great research university. A great research university will have to be privately funded. And that means you.

It means you taking an active stake in the future of the country. The genesis of this book was my inability to reconcile the difference between the way that foreigners see New Zealand and the way that New Zealanders view their country.

The difference is that New Zealanders look past the scenery. We recognise that the economic trajectory of the country is not positive and we recognise the implications of this deterioration. No political party or private think-tank has formulated a coherent response to this issue and therefore the problem exists off to the side in New Zealand political discussion.

The Innovation Cycle is that response. Building the Innovation Cycle gives the country a path forward and it gives New Zealanders - wherever they are in the world - a means of positively shaping the future of their country.

This requires money.

Specifically, it requires your money.

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This is the ninth part of a serialisation of the book, The Pine Tree Paradox. It will be published online here in eleven parts.
The Introduction is here »
Chapter 1 is here »
Chapter 2 is here »
Chapter 3 is here »
Chapter 4 is here »
Chapter 5 is here »
Chapter 6 is here »
Chapter 7 is here »

If you would like to buy a copy of the full book, you can do so by credit card here » (Visa or Mastercard only.)

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Michael Parker is an equity analyst living in Hong Kong. Originally from Wellington, he has spent the last decade in San Francisco, New York and - on good days - Waiheke. He has a law degree and bachelor of commerce from the University of Otago and an MBA from NYU. You can contact him here »

Used with permission. © Michael Parker. This book was originally published in 2010.

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