An Interview with MIT Corporation Chairman John Reed

MIT Corporation Chairman John Reed

The following interview by the Faculty Newsletter (FNL) of MIT Corporation Chairman John Reed (JR) was held on January 15, 2014.

FNL: What are the primary issues with which the Corporation is concerned?

JR: There are two big issues that we’ve been engaged with, and I think engaged is the right word. First are finances. I think we now have a plan that will get us out to 2030. It’s a plan that imagines we’ll get the finances on a more stable basis, and will deal with the financial needs and maintenance issues we have.

The other thing is MITx, which we all see as opening all sorts of opportunities, but bringing with it change. Everybody always worries about change. I think the Corporation is representative of the broader community but they are older than the current students. They all value, and maybe even put on a pedestal, their MIT education.

FNL: So they’re loyal alumni.

JR: Yes, they’re loyal alums and they’re here because they greatly value the Institute. And so, when you talk about changing it in such a dramatic way, they’re very engaged. And you will hear voices representing everything from the revolutionary who sees this as just absolutely changing everything, and welcomes that, to those who say, uhh, I wonder.

So I think [MIT President] Rafael [Reif] and the administration probably find that useful. We did have Corporation members participate on the task force that just made its report [Institute-wide Task Force on the Future of MIT Education]. And it will be brought up at the March Corporation meeting. We did discuss it at the last Executive Committee meeting, but it’s a discussion – there aren’t any actions. You asked in your written questions about the economics of MITx.

FNL: We’ve heard a variety of ways different departments are dealing with the financial question. One department head had a private pot of cash and said, all right, I’ll just pay for those people developing the courses.

JR: We have funded it, and are continuing to fund it. Obviously students who were admitted here, paid tuition to be here, and make use of MITx – you’re not going to charge them extra for that. But, to the extent that we’re broadcasting it globally, we all understand that this might create a new source of revenue. But no one knows quite how to do that yet.

There are all sorts of ideas floating around. You could try to charge students, you could try to charge employers who might be very happy to have lists of students in their geography who happen to have completed a series of MITx courses. There is some Executive Education potential. In other words, there are companies who have asked us to create courses for them, and one could imagine charging for that kind of thing.

Because you know, let’s face it, if the aerospace industry all of a sudden asked Course 16 if they could put together a series of things to refresh their engineers, they would be quite prepared to pay for it. And by the way, for companies, it would be cheap as dirt, because if you had to physically send somebody here, the company would not only have to continue paying them, they would have to provide for their housing, and they would also lose their productivity at the home office.

When I was in the private sector, we used to send people to Sloan [School of Management] for the Executive Education. It was wildly expensive, because you had to pay the person’s salary, you had to move him and his family and find housing and so forth and so on, and you lost his work at the office. So, you know, it was an expensive deal. But it was worthwhile, because you were able to retool people at a point in their career where that retooling could be very useful.

So, there are all sorts of opportunities, and we understand that. And undoubtedly, over the next five or 10 years, we’ll experiment with different models. On the other hand, there’s nothing we do here at the Institute that earns a return.

You know, the kids pay something in the area of half of the cost of their education – the graduate students pay even less – and so the idea that all of a sudden MITx should be a profit center, where everything else we do is a loss center, doesn’t make any sense.

We’re in the business of educating people, not making profits. We should look for revenue where revenue opportunities exist, but we don’t refuse to let somebody attend MIT because they can’t pay the tuition; we provide them with student aid that allows them to come, and that’s deeply embedded in the values of the Institute. And were not going to treat MITx any differently.

FNL: Well that’s a very important point.

JR: There are different potential financial models, and I think the faculty has clearly indicated that they don’t want a Coursera model. I don’t think that would fit with MIT. The Corporation and the Executive Committee understand and embrace that. If we were a profit-making institution, we’d close our doors. That’s not what we’re here for. I mean, we’re here to educate and to let research move the frontiers of our knowledge.

FNL: Related to that, it seems that there would need to be some fundamental change in responsibilities for faculty, because we’ve seen that an enormous amount of work and time goes into creating these online courses, so faculty teaching loads would have to be altered, etc. Do you anticipate that new faculty may be hired or an increased budget within departments to compensate for the time needed to work on MITx?

JR: You know, that’s all part of the administration’s problem, this is not something we would get into at the Executive Committee or in the Corporation.

The answer is obviously we’re going to have to provide the resources, time as well as money, to create these MITx initiatives. The real question is, how frequently are you going to update these things? Because it’s just like core curriculum –some courses are updated pretty routinely. But I doubt that 18.01 is much different today than it was when I was here.

And you know, 8.01, 8.02, some of the core courses probably haven’t been updated in a long time. And I would imagine that that would be true of MITx as well, where some of the courses will remain the same but others will be constantly updated.

FNL: Is there part of the Corporation that’s specifically concerned with MITx or edX?

JR: No, we don’t organize ourselves that way. We have no Corporation committees, with the exception of participating on the Visiting Committees. A typical Visiting Committee has 15 members; five are Corporation members, five are alums, and five are academics.

There is a Visiting Committee on undergraduate education, which undoubtedly will go deeply into MITx. We have a Visiting Committee on student life, and to the extent that some of this education begins to work its way into the dormitories through the Internet, it will attract the attention of that committee.

And so, we will have Visiting Committees, but we do not subdivide the Corporation itself. We could, if there was something wildly important, we could create a special committee to look into it, but we haven’t to this point.

And mind you, this is something that Rafael is really heading and he is very inclusive. He creates these large task forces to do the work, and then he shares it with the whole community. And so my guess is that this is going to be an endeavor that captures all voices.

Also, some of the alums are very jealous of their MIT degree. If you leave here and become an academic that’s one thing – you went to MIT, but people are still going to look at the papers you publish, and the letters you get from colleagues, to establish your reputation.

But there are a lot of people who go into the private sector when they graduate, say they went to MIT, are treated differently because they are thought to be a little brighter, or a little more analytical, or what have you. So you can be sure that the alums who are very much part of the Corporation care very much about the brand, if you will. They’re not going to want to see it eroded.

Another thing is most of us believe that there’s something very special about the MIT culture, sort of like the Marines. I’m not a Marine, but I’m told that the Marines sort of feel that there’s something that pulls them all together. And I think the Corporation is quite sensitive of the need to maintain that unique MIT culture.

FNL: It’s been pointed out that through digital education technology we’re likely to discover thousands and thousands of incredibly talented people that we had no way of knowing existed. So the question is, if we’re finding these people, should we expand the residential population, now that we have a new mechanism for discovering academically worthy candidates? Has the discussion in the Corporation gotten that far?

JR: It hasn’t gotten that far, but we have invited people who we found through MITx to come to the campus, and I believe there are two people here now who were invited in that way. We don’t lack for qualified applicants, as you know. The question is scale and scope. The scope I think is a separate issue, that’s an intellectual issue of what fields do you cover, and what fields don’t you, but the scale issue is an interesting one.

And MITx might allow us to fiddle around with the scale issue. We all know that we turn down probably two candidates for every one that we accept, all of whom would be quite qualified. And if we open the door for international applicants totally, which as you know, we do not on the undergraduate level, most people believe that there are a fair number of international applicants who would be fully qualified, and could be added to the community.

FNL: Is there pressure for that?

JR: No, but there is discussion of it always. I think pressure is the wrong word. There is a fundamental issue here – we want to educate everybody if we can. On the other hand, we are an American institution, and we do enjoy a tax benefit that the American system gives us. And so, it’s a little hard to totally ignore the fact that we’re 501(c)(3), and that permits us tax benefits that come from the American people.

So there is some sense that we should be constrained a little bit, in terms of internationals. Being need-blind, which we are, and which we hold to be very important, if we open the doors to the whole world it raises an important financial issue. Taking round numbers, it costs roughly $150 million a year out of discretionary funds for student support. That’s the equivalent of $3 billion from the endowment. And so we’re substantially supporting free admission, so to speak.

Still MITx is going to open the door. But there’s probably a limit to our scale that would be defined by our culture. You know, if the undergraduate population were five times larger than it is now, would we in fact still be MIT?

I think we’re going to run out of scale for cultural reasons, sooner than we will for applicant reasons. And so I don’t personally see MITx as a way of expanding the applicant pool, although there could be some outliers who are clearly different and worth grabbing.

But the point is, there are, within the group that we accept, a set of people who just seem to be unusually capable. Maybe MITx could expand that pool. And you’ll find some people who are just spectacularly interesting, but I don’t think that’s a driving force. That’s just a byproduct.

FNL: So part of the issue is protecting the MIT name. And the most commonly held idea is if you passed the class you’d get a certificate, which I believe would hold a lot of weight. If you had two equal candidates for a position, and one had a certificate from MIT . . .

JR: Well, that’s the discussion, and I think the faculty is as concerned as the trustees. I don’t think there are any differences between us.

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FNL: Before we leave the international sphere, we had a question about MIT’s international collaborations, such as the Skolkovo Institute in Russia, the Singapore-MIT Alliance for Research and Technology, and others.

JR: I think Rafael wrote a piece for you on the rules of engagement associated with our international activity. And here is a case where, as we lose people who are engaged internationally, we do replace them. We create a spot, so that we’re not short people here in Cambridge to teach, because somebody happens to be in Singapore, for example. As well there are explicit attempts to make sure we’re not exporting talent.

This started before I was chairman. It’s really this whole issue of globalization. It takes on many, many different aspects. One part of it is that many emerging countries are back where we were in 1861, and they have a need for the “MITs” in the same way that the United States did in 1861.

The knowledge and training are going to be essential to the evolution of these countries. Take Brazil, for example. It has a pretty decent aviation industry competitor in the form of Embraer, and I’m told that the intellectual origins of that activity stem from a working relationship that MIT had with a technical institute in Sao Paulo. I’m not positive that that’s true, but you could go over to Course 16 and ask and they’ll tell you about it.

FNL: I always wondered where they got the expertise!

JR: But the point is, there are many countries around the world for whom the role of an MIT is just as important as it was in our industrialization period. So we get a lot of requests for a variety of technological and intellectual assistance.

The other side of the coin is there are a lot of highly competent academics around the world. That’s really just fairly recent. The post-World War II period was truly unique in this area for America. The United States was unusually favored in the sense that we hadn’t been damaged, we probably had been strengthened by the war, while the rest of the world was pretty well devastated.

And during that period of time, not surprisingly, many academics chose to pursue their careers in the United States. And if you look at the faculty of all the major research universities in the country, they’re populated by a large percentage of people who were born elsewhere, but who emigrated to the U.S, because this is where intellectual activities took place.

That’s no longer true. You can be a serious academic in Europe today and find opportunities to pursue your professional life that are just as good as those you might find in the United States. And that will become increasingly more true, for example, even in China.

And so while MIT depends tremendously on having an exceptionally able faculty, we can’t count on having everybody in the world wanting to come to Cambridge 02139 to spend their life. And so, maybe institutionalizing collaborations in places that have pockets of talent makes some sense.

If you go to any private sector company and ask where they locate their research, they’ll say we go where the talent is. And the reason we have a lot of research labs in the pharmaceutical business being built around this campus is the talent is here, and they want to be here to do their research, and to recruit the people who will be the researchers, and so forth and so on.

So there are packets of talent around the world. If you’re writing software, for example, I’m told that you might consider going to St. Petersburg, because there’s a big pool of highly trained and apparently very competent people in that domain. And so there is some tendency, if MIT wants to continue to attract the best and the brightest faculty, to expand our collaborations to pockets of talent that would not necessarily have come here. There are a lot of forces that move us in that direction.

Unlike many American schools, MIT has made no effort to take our undergraduate education overseas. We’re not like NYU, for example, which has created a campus overseas and then allows their students to study there. We do have MISTI [MIT Science and Technology Initiatives] which gives our students an opportunity to get some international flavor. Obviously we want our students to be aware that there is a world outside of the United States.

FNL: And they’ve done a nice job. But are there any plans for new international collaborations?

JR: To the best of my knowledge, there are no big new initiatives being proposed. Although neither the Executive Committee nor the Corporation would be the initiator. The administration comes to us and says we would like to do XYZ, and are you guys OK with it? It’s very much an administration-driven effort.

As for Skolkovo, I believe it came out of an approach from the Russians, who were trying to see if we could replicate the sort of environment that exists here. And by the way, it involves industrial companies as well as academic institutions. It’s sort of an enclave. And I think it’s struggling a little bit, but that’s not surprising. I think the first 10 or 15 years of MIT were not smooth and easy, either.

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FNL: One of the issues that has been of concern to a pretty good set of faculty is the plan to build commercial office buildings in the East Campus. We believe that came as quite a surprise to most faculty. And it’s not clear to us how open the discussion has been. Certainly it’s been very controlled inside MIT, but prior to it becoming common knowledge was it under discussion in Corporation, or approved, or what?

JR: I think it’s been well discussed at the Corporation level. I’ve been on the MITIMCo [MIT Investment Management Company] board on and off for many years. When I became chairman, I became a member of the board again, ex officio.

MIT has always been an acquirer of real estate in Cambridge. We have always had a clear delineation of the sort of space that could be useful for academic purposes, and could be part of the campus. Then there’s other space in Cambridge that only would have a distant value to us.

MITIMCo only has dealt with this second category of space. In other words, the space that MITIMCo owns is part of our portfolio, and is developed for financial reasons, not for academic reasons. Those properties are acquisitions that were made that are outside of the envelope that was identified as being for short- or medium-term academic purposes.

The whole development of Tech Square is probably the biggest such example. It’s not far from campus, but it never was seen to be a natural sort of expansion of academic space. And we pay taxes on the commercial space; it doesn’t get the benefit of being an academic enterprise.

Kendall Square was never seen as a place for academic expansion. Yet nearby we built the new Sloan School building because that was academic space.

Now if we had looked at it from a financial point of view, we should have built the Sloan building on the West Campus, because their current location would be economically valuable. But it always was in the academic envelope; it never was part of MITIMCo. And therefore it was developed academically.

So what’s happened here, is we now have MITIMCo developing things that actually touch the campus. And the faculty responded by saying, whoa, what’s going on here? There are a number of faculty who live in Cambridge, and hence participate in the discussion at the Cambridge level. But it’s been quite open. We’ve had academic committees looking at this and they’re even redoing the design. I think there are four new design proposals, and all of this has been reported to the Corporation. No one has ever asked the Corporation to make a decision as to what should or shouldn’t be academic – we’re not in any position to do that.

FNL: But the East Campus is indeed part of the campus. If you build commercial office buildings within the 501(c)(3) campus, that’s not a trivial change.

JR: True, but the land that they’re talking about developing was held by MITIMCo, not for academic purposes. Now you could change your mind and say, let’s move this parcel into Pool C, which is where they would hold land for academic purposes, and take it out of MITIMCo.

When you do that, you have to make sure that you take it out of MITIMCo at full value, because if MITIMCo has something that’s worth $100 million, you can’t transfer it to MIT for $50 million, because that’s basically taking money from the endowment.

And you know, the City of Cambridge is of a mixed mind. They love us and they hate us. They’d miss us horribly if we weren’t here. But on the other hand, they’d much prefer we built low-cost housing and gave up everything else.

And I’m sure that Cambridge knows exactly how much land we own, because they have the records. But I doubt that they know what our needs are. For example, there’s a big lab that’s going up right here on Mass Ave, I believe it’s Novartis, and we gave them a 40-year lease, but then it reverts to us, with the building and everything else. And that’s simply because the administration decided that we’re not going to use that land for 40 years, but you know it may not be bad to have it back again, at that time.

100 Memorial Drive is going to come back to us very shortly. And that’s going to be interesting, because 100 Memorial Drive is right on the East Campus. I don’t personally know whether it’s in MITIMCo or Pool C. I would guess Pool C. And I’m sure that will open up a lively debate with the City.

FNL: One of the things about the Faculty Newsletter is that our editorial board is the only committee of the Institute that’s elected entirely by the faculty with no administration oversight. It’s not like all the other committees that are joint administration/faculty committees. So, we have a little more independence.

And people come to us when they have issues where they’d be unable or uncomfortable going through more regular channels – a department chair, a dean, etc.

JR: So you act kind of as a conduit.

FNL: Exactly. We don’t have any specific authority, but we’ll suggest writing an article or a letter, or perhaps raise the issue anonymously in an editorial. This happens particularly with concerns by junior faculty, postdocs, and graduate students – those who feel at risk by being too public.

So one thing that we know very, very clearly, is that there’s been quite a high level of angst among graduate students for many years about the problem of housing. And the grad students feel that their views are not given serious attention.

JR: They have certainly caught the administration's attention. A report on the subject has just been released. Let me tell you my point of view on this question of graduate student housing. But note it's my point of view. The administration will decide what to do.

I was a grad student here and I did live off campus. I also left graduate school with a level of debt that was equal to my starting salary. 100% of my starting salary. So, I understand that you could be poor and may have to live off campus.

But most of the issue is economic. We subsidize dorms, in round numbers, $10-12,000 per year/per bed. The question is very simple. We have limited resources, we have a budget, and we currently are spending about $150 million a year from the budget, not from endowed funds, to support students.

The bulk, by the way, being grad students. Grad students are more expensive. We also have more endowed funds for undergraduate support, and much less for grad support. But anyway, so you know, $10,000 a student.

So if you go to the faculty and ask do you want to house another thousand students, hundred students, you choose a number, but the money is going to come out of our discretionary funds, and do you want to have flexibility in the budget or do you want to have student housing, that’s the economic question.

There’s also a social issue which says by the time you’re a grad student, should you be old enough to go out and find an apartment to live in and live like the rest of America lives? Or are we going to say, since you’re a student, which we all assign value to, we’ll protect you from the realities of life? So, that’s a social question. And you know, depending on one’s age, you’ll get different points of view.

FNL: Well, I respectfully say that that’s a social question from your point of view.

JR: Yes.

FNL: But from someone who runs a research lab and competes nationally for research funds, and has to publish or perish, when you have graduate students who spend two hours a day commuting, it’s not a social issue. It’s a fundamental inefficiency.

JR: It is an inefficiency, but most of the world wastes that time going to and from work. So there are choices you have to make. Now, I’m not making that argument, but there are two arguments. One is pure money. The other is social/cultural.

From the financial viewpoint, we have to recognize that we’re not going to get more money in the endowment because we decide to build dorms. So, we’re talking about how we allocate our resources. Do you want to hit the budget, our discretionary funds? You tell me how many graduate beds you want to build. A thousand? I mean, there are at least a thousand students who claim they’d rather live on campus.

And you know, it’s $10-12,000 per bed/per year that won’t be available for other uses. No one can say MIT’s hoarding money, that we have money and we’re failing to use it. I mean, we have two-and-a-half billion dollars of deferred maintenance. And you know, there are people who say we’re failing to get new, young professors because of the current condition of our buildings.

FNL: What else would you use that money for?

JR: What’s the marginal use of the money?

FNL: For many of us, the graduate students are the most valuable resource that MIT offers the nation. Graduate students and postdocs. So, I can understand that they’re expensive, but it’s not clear to me there’s a better way of investing $12,000.

JR: Well, that’s the question, if you believe that, but then what are we going to take it from? We have a constrained budget. The thing we’ve chosen not to do, presumably because it’s the least important, is maintenance. And so, we have $2.4 billion in deferred maintenance. And we have buildings that are in pretty crummy shape, and we get complaints that you can’t attract young faculty because of the condition of our labs and things of that sort. What we’ve done is we’ve failed to maintain the campus, and I think we’ve reached the point where we now think it’s having an impact on our ability to attract students and faculty, and therefore we’re trying to rectify it.

We are going to rebuild the freshman chemistry lab after 50 years of not having done so. We’re going to build a nano facility, because we have a lot of people whose research requires more clean space than we currently have available. These are the things that we’d have to push back on if we wanted to subsidize graduate student living conditions.

It might be cheaper for us to pay the grad students more money because the cost of renting places that are closer to campus probably is cheaper than the cost to us to build new space. Probably. But the point is you could simply up the stipend $5,000 a year and maybe the grad students would feel better. I don’t know.

Obviously we could say that we’re going to provide 100% space for everybody who’s admitted as a student here, and it’s simply a cost issue.

But the point is, everything we do here loses money.

FNL: What about the overhead on research funds? What fraction of that is the total operating cost?

JR: It’s been $127 million as I recall and we treat that as revenue for research, we don’t treat it as an offset. In other words, research doesn’t cover its costs, either. In our estimate, research dollars cover about 80% of the cost.

FNL: So expanding the research endeavor doesn’t solve the problem.

JR: It would if we were private sector research. So, take the Energy Initiative, for example. That is significantly funded by the private sector, and they’ll pay us greater overhead. We charge them differently.

FNL: Right, gotcha.

JR: But, you know, I don’t blame the government. They’re a monopoly funder and so they can exercise monopoly power, and the taxpayers are on their back about the budget. And so, the last thing they want to be accused of is being overly generous with NIH grants and so forth. And they’ve gotten pretty tight.

There was a period of time when things were different. We even have a dorm that was built, I think, by the Department of Defense and given to us. There was a time when money flowed much more easily. But it doesn’t now. And there was an article that appeared in the Newsletter about graduate student dorms, in which there was a throwaway sentence that we have the money in the endowment, but that was just an uninformed comment.

We have $11 billion in the endowment, but we also have to fund the shortfall between expenses and revenue. And saying we have the money in the endowment is just wrong. You know, what we need in the endowment is approximately four to five billion more than we have. If we had an additional four to five billion, instead of 11 billion, say 15 billion, then the earnings on the endowment would allow us to catch up with the deferred maintenance, give us needed flexibility, and certainly look at new living space. But we’re not there.

So as far as graduate student housing goes, there it is. If you were an economist only, and you didn’t care, you’d increase their stipend and not build the dorms. The administration will balance all those issues and decide. We will see.

FNL: Well thank you. And thank you for your time today.

JR: It was good to see you, as always. You should always feel welcomed.

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