Maybe I'm wrong, but does University gain more profit from a class of 2000 students? If so, could it be the case that your friend does not sell himself at a market price for the teaching position? Probably there's another place which pays more for similar teaching.
There's no blame at all, sometimes people like to sell their time mostly not for money, but for emotions, that's completely understandable.
But I can also see an argument that more advanced classes in later years (eg Advanced AI) are at least as valuable for the university compared to earlier subjects. They might have smaller class sizes, but if the subject material is more difficult, it'd be harder to find sufficiently knowledgable teachers. And the availability of classes like that (arguably) sets good schools apart from bad ones.
Its certainly a difficult problem. But it sounds like they aren't solving it well, and I think they're slowly driving out one of their best teachers.
In other words, malicious intent the whole way down. Though I'm sure it feels good to blame the faceless "bureaucracy" and leave it at that...that way no one has to take responsibility.
Its possible we're using different definitions though. Malicious intent sounds to me like "I am glad you are underpaid because I enjoy your misery". Or "You might be suffering but I don't care." I can count on one hand the number of people I've heard about in the workplace who are like that.
On the other hand, go talk to people near the top of any medium-to-large org chart. You'll find a mountain of people who feel like they're overwhelmed by the minutia of the company's day to day concerns, and they don't have time to do strategic leadership. That they aren't meeting the demands their role is placing on them. Or they're failing the people below them in the org chart due to their own vague mediocrity.
I don't think hating people in this position helps. Your scorn isn't going to magically make them better at their jobs. I see it as a symptom of our crappy organisation structures failing at larger sizes. We habitually centralize power into the hands of a few people. And then the people at the top of the org chart are overwhelmed by choice and indecision. And the people at the bottom are knowledgable but powerless, and are structurally forbidden from solving their own problems. (Or, sadly, people develop a learned helplessness about solving problems in the organisation at all.)
An old friend of mine teaches the first year CS curriculum at a local university. By all reports he’s phenomenally good at his job. He truly cares and his students adore him. But he’s making a fraction of the salary he could be making in industry. At some point he’s probably going to quit to do a job he’s not as good at, and doesn’t enjoy as much. Why is he paid many times less than he’s worth? Because the university wants to pay CS lecturers who teach 2000 students the same as they pay people who teach poetry to a class of 5. So my friend can’t get a competitive salary without entire departments revolting. Who’s fault is that? I don’t believe it’s malicious intent. It’s just a boring, systematic failure high up in the org chart leading to bland mediocrity. The only people who can do something about it don’t care about outcomes enough to fix the problem.