The need for new capital in higher education and major areas where the interests of the business and higher education communities are aligned are considered. Higher education is a major employer and makes a large contribution to the gross national product. Human capital has become the accepted term for referring to the contribution of education, advances in knowledge, and research and development to economic growth. The funding, performance, and utilization of research and development links industry and higher education directly in capital investment in knowledge. Universities and colleges (and their associated federally-funded research and development centers) perform 50 percent of the basic research, 15 percent of the applied research, and 2 percent of the development work in the United States. Higher education is beginning the 1980s with a seriously eroded capital base in that: expansion of educational facilities has slowed down, but buildings and equipment need to be renewed; equipment used in teaching and research at colleges is much older than that used in industry; faculty are losing purchasing power faster than professional workers generally; and financial reserves are being drawn down faster than they are being replenished. Recommendations include: advocating greater national support for research and development; supporting enhanced tax incentives to donors to promote voluntary contributions to colleges; and undertaking a major baseline study of the capital stock of higher education, its location, condition, and utilization, and its adequacy for meeting U.S. educational needs in the 1980s. A bibliography is appended. (SW)