Your college needs you, Mr Moneybags

US graduates are eager donors to their old universities. Is this the answer to Britain's funding cri

In the state-of-the-art Hugh McColl Building at the University of North Carolina, home to the Kenan-Flagler School of Business, nearly every item is named after someone, from the bricks on the pathway as you enter the building to the seats in the auditorium. Students can win Luce scholarships (sponsored by the Henry R Luce Foundation) and they may be taught by Douglas A Shackelford, who holds the Meade H Willis Distinguished Professorship, and Valarie Zeithaml, the Roy and Alice H Richards Bicentennial Professor of Marketing.

To British eyes, this American penchant for conspicuous donation looks decidedly non-U. And yet the United States spends 2.7 per cent of its GDP, mostly private money, on higher education, while Britain spends 1 per cent, mostly in state subsidies. Harvard has an endowment of roughly $19bn, Yale $11bn and Princeton $9bn, while Oxford has about £2bn ($3.5bn). It isn't enough.

The consequence is that our world-class but cash-starved universities are falling behind their American counterparts. Average funding per student fell by 36 per cent between 1989 and 1997. The government estimates that our universities have an investment backlog of £8bn. Buildings are crumbling, academics are migrating across the Atlantic and reputations are in decline. The government's proposed solution is to make all except the poorest students pay £1,125 per year towards the standard cost of tuition, and to allow the best universities to charge an additional maximum of £1,875 annually. Students will begin to pay these fees after graduating as soon as they earn more than £20,000.

A cynic might point out that the future students who will shoulder this burden will not be a constituency at the next election, unlike their parents, or the general taxpayer who would pick up the bill under alternative plans offered by the Conservatives or the Lib Dems. On the other hand, those who benefit from university education should pay for it. Graduates also earn on average 17 per cent more than non-graduates. Those who go to the best universities should probably pay more.

Yet today's middle-aged graduates have got off lightly. Most received free tuition when they went to university. Many also got plump maintenance grants, paid for out of taxes from plumbers and milkmen as well as businessmen and lawyers. Most now earn comfortable salaries which, since the Thatcherite reforms of the 1980s, have been lightly taxed. Their children are far more likely to go to university than those of their working-class peers and, under the proposed legislation, affluent parents will not be forced to contribute to the cost of their children's tuition.

In contrast, middle-class Americans begin saving to send their children to college before they have started at kindergarten. Parents probably paid high fees for their own college education. Yet many Americans also give substantial donations to their alma mater. More than half the graduates of Dartmouth College, New Hampshire, give money every year. This is repeated across the US. In Britain, universities are cagey about the proportion of graduates who donate money, but John Quelch, who used to be dean of the London Business School, estimates that even the most successful Oxbridge college receives donations from only 12 per cent of its alumni. Redbrick universities get less, and the newest universities receive a vanishingly tiny amount.

Donations to universities are part of a broader tradition of American philanthropy. In an essay now known as "The Gospel of Wealth" (1889), Andrew Carnegie asserted that "the man who dies rich dies disgraced". Carnegie, Rockefeller and Ford were emulated by W K Kellogg, Eli Lilly and David Packard, and today Bill Gates, Ted Turner and George Soros, in using their vast fortunes to found charitable trusts. Nineteenth-century Britain also had its philanthropists, such as the Fry and Wills families, which made their fortunes in chocolate and tobacco and endowed Bristol University after it was set up in 1876.

American giving is not restricted to the super-rich. John D Rockefeller gave away a biblical "tithe" (10 per cent of his income) even when he worked as a clerk in Cleveland. According to the Johns Hopkins Comparative Nonprofit Sector Project, Americans voluntarily gave $212bn to charity in 2001. Even discounting the $80bn that went to religious organisations, this represents 1 per cent of GDP, almost twice what is given in the UK.

Americans also pay relatively low taxes. But Cathy Pharoah, research director at the Charities Aid Foundation, an international NGO that provides financial services to charities and their supporters, argues: "Low tax in itself won't encourage people to give. It needs to be combined with an attitude to what tax is for and to the role of government." In the US, a distrust of government is accompanied by an awareness that many causes depend on subsidies. Pharoah describes it as a belief that "people have a duty in a low-tax era to give something back". Although the well-off in Britain pay a lower rate of tax than under, say, Labour in the 1970s, their attitude to donating money remains unchanged.

Ian Coxon, editor of the Sunday Times Rich List, believes that "the British approach to wealth is the antithesis of the American approach. People are more discreet and less keen to talk about it. Most Americans are not shy about talking about their value, and they probably exaggerate. Not many British people exaggerate." This view is backed by Pat Thorne, a director of the company which produces WealthWatch, a magazine that monitors the very rich. She told me: "The British are very much more secretive about what they earn and what they give away, whereas it is the American way to be proud of the money you give."

Dr Terri Apter, a social psychologist at Newnham College, Cambridge, believes that "students going to university in Britain feel they are learning to be contributors to society and so they shouldn't have to pay . . . There is a blindness to the actual cost, and that has arisen from students having a history of having their fees and maintenance paid for them." By contrast, "Americans know how much it does cost, and how difficult it is for students, and they see universities more as institutions that have a lot to do and can't do it without help."

But "if you don't ask, you don't get", as Ron Gray, director of alumni relations at the University of Warwick, puts it. Warwick employs a team of students to phone graduates in search of contributions. Such fundraising machines are tiny compared with the elaborate operations in place at Ivy League colleges. There, donations are encouraged by the strong social networks fostered among alumni, and it is a point of pride that each class reunion raises more than the previous one. One Harvard graduate recently got so fed up with being asked for money that he wrote to the college announcing his death in order to escape the calls. Gray acknowledges that British universities are only just beginning to ask for donations.

But philanthropy has its pitfalls. The money donated may not have been raised ethic- ally: GKN, an arms manufacturer, recently endowed a chair in engineering at Cambridge. Benefactors may also distort university policy. There are professorships where a representative of the company that endows the chair sits on the board that chooses the professor. Benefactors may expect their children to receive preferential consideration if they apply to the university. Ivy League colleges acknowledge that the children of donors are more likely to be admitted. The cash thus raised may fund poorer undergraduates but Professor Gillian Evans, who sits on a committee at Cambridge University to examine the ethics of benefaction, argues that "the end doesn't justify the means".

Evans also points out that "It is far easier to get money for something glamorous. Donors want to put their name on something prestigious, so you can get a lot of money for libraries but not much for guttering." Similarly, the alumni of business schools can be more generous than equally grateful but less well-off philosophy graduates. And a Cambridge graduate can probably give more than one from the University of Hardly-on-the-Map.

Britain is not going to turn into a nation of philanthropists, and donations will not solve the funding crisis. Even in the US, gifts are only a subsidy to the main sources of funding. The days of free higher education for all comers are undoubtedly over. But perhaps those who enjoyed that luxury in the past could afford to be a bit more generous in giving money to struggling universities and to today's indebted students.