Larry Summers on remaking higher education

Very little has changed in the pedagogy or contents of higher education for decades or even centuries. It's still the teacher facing students and trying to impart something. Larry Summers, former president of Harvard (among other things), proposes ways in which this might change. Here is a summary:

1. Education will be more about how to process and use information and less about imparting it.

2. An inevitable consequence of the knowledge explosion is that tasks will be carried out with far more collaboration.
 
3. New technologies will profoundly alter the way knowledge is conveyed.

 4. More focus on active learning compared to passive learning.

5. Mastering  a foreign language  will be less important (for American students) since English is becoming more widely used.

6. Greater focus on data analysis.

(Thanks to colleague Shailendra Mehta for sending me the link).

Ex- RBS chief loses knighthood

You could call it British PM James Cameron's concession to populism. Former RBS chief Fred Goodwin is to be stripped of his knighthood on account of the losses inflicted on it towards the end of his tenure. FT reports:

The man knighted in 2004 for his “services to banking” presided over a breakneck acquisition spree that ultimately led to the collapse of RBS in 2008; he then courted further controversy by initially refusing to give back any of his £16.9m pension pot.....his tenure ended with RBS recording a loss of £24bn – the largest in British corporate history – and being forced into the world’s biggest bank bail-out, with the injection of £45bn of government equity.

 Goodwin has not been convicted for any wrongdoing nor has he invited any regulatory action. But he has become something of a lightning rod for anger against bankers, not least because of his failure to express any sort of regret in public. 

 

Is the anger against bankers itself overdone? Schumpeter hints this might be so and points to the good things one associates with bankers:

Great financial centres have often been great artistic centres—from Florence in the Renaissance to Amsterdam in the 17th century to London and New York today. Countries that have chased away the moneylenders have been artistic deserts. Where would New York’s SoHo be without Wall Street? Or the great American universities without the flow of gold into their coffers?

 Well, yes. But the man in the street does think that there is something wrong with bankers wrecking the world economy and walking away with huge bonuses. Banking needs drastic changes. If demonising bankers is the only way to get them to embrace change, it's hard to complain about the current rage against the likes of Goodwin. 

Basel 3 and Indian banks

Under Basel 2, international banks were said to be at an advantage: they could lower their capital requirements through the use of advanced models. This, it was feared, would widen the gap between rich country banks and emerging market banks. In my view, Basel 3 holds out the promise that some emerging market banks, including those in India, can turn the tables on their rich country counterparts.

Basel 3 requires banks to hold more capital. That won't be easy for rich country banks, given that growth prospects are dim in the medium term and markets are under stress. They will do what they are already doing, namely, meet capital norms by shrinking their balance sheets. In contrast, banks in India and some other emerging markets can hope to raise capital on the strength of high loan growth and attractive returns to assets. They should be able to marry higher capital adequacy with growth- and, in the process, narrow the difference in market capitalisation over the next five years or so. Thus, under Basel 3, capital promises to be a source of competitive advantage- for some emerging market banks.

More in my ET column, Indian banks' capital edge.

World Bank paints a grim picture

The World Bank's latest Global Economic Prospects paints a grim picture of the world economy, FT reports.  It rightly sees the Eurozone crisis as being contained, not resolved. It allows for the possibility of the crisis getting out of hand in 2012. And it makes clear that emerging markets will be hit hard by any financial crisis centred on the Eurozone.

Emerging markets growth is projected at 5.4% in 2012, down from 6% in 2011. If the Eurozone erupts, it could shave 4.2% of growth off emerging markets. One of the channels through which emerging markets will be impacted is deleveraging of banks in high-income countries. Emerging markets in which these banks operate in a big way could see foreign subsidiaries being sold off or a sharp reduction in wholesale funding. Indeed, this is one argument against an enlarged foreign bank presence in India.

Mercifully, India is not among the 30 emerging markets with large funding requirements that would be hit hard.

Businessmen are overdoing the gloom

The prime minister and the finance minister did some plain-speaking with businessmen a few weeks ago about the economic climate in the country- how businessmen were creating a strong sense of negativity all round with their comments on 'policy paralysis' and its impact on the economy.

I thought even then that their plain-speaking was warranted. I am even more convinced after studying the figures on foreign capital flows. It is simply not true that foreign capital is shunning India. On the other hand, there is reason to believe that the long-term trends in flows are extremely positive, no matter that FIIs may have fled for the moment. I think the trends in FDI are particularly heartening, notably, the fact that FDI in the post-crisis period has been higher than in the India Shining period.

More in my ET column, Foreign money still pouring in.

How RBS failed

Royal Bank of Scotland was among the notable failures in the sub-prime crisis. The UK's FSA has published a comprehensive report on the failure. The acquisition of ABN Amro was an important cause as was the bank's dependence on wholesale market funding, and its plunge into certain risky assets. The report lists other factors as well. I was drawn to the analysis of the governance issues in the report, whether there were any conspicuous failures on the part of the board.

It turns out that there were none for which legal action can be taken against the board. The acquisition of ABN Amro, being a hostile acquisition, was not done with the necessary diligence but it had the board's approval. I read the section on governance carefully, and I find that the only thing the FSA can pin on the board is that it did not question or challenge the CEO strongly enough on this and other issues.

If that is a failure, then the vast majority of boards would be guilty of it. Those who talk of the board challenging or opposing the CEO have no clue about the culture that permeates boardrooms. In this culture, any sort of serious questioning of the CEO is a no-no. It is a very cheery, backslapping culture in which nobody makes wrong noises. If we want bank boards or any board to be more active and more questioning, we need to revisit the issue of independent directors and bring in people who are not appointed by management. Then, we may get a vestige of independence on the board. Today's independent directors can only collect their fee and commission and enjoy their lunch and drinks. Bank boards can't prevent bank failure, only stringent regulation can. More in my ET column, Boards and bank failure. 

The Telegraph carries an investigative report on the RBS failure. 

India's growth outlook

I present an optimistic view of growth prospects in my ET column, It can't be worse than 2009. This was before the latest figures showing a deceleration in IIP came out.

Why we need to retain AFSPA in Kashmir

The Armed Forces Special Powers Act has come under fire from human rights groups in Kashmir. A letter to the editor in Business Standard has a hilarious take on why it is still required.

McKinsey introspects

FT carries a detailed piece on the impact of the Rajat Gupta insider trading case on McKinsey, the firm that Gupta headed for three successive terms of three years each. The narrative is interesting but it does not enlighten us on what McKinsey might have done to prevent such a thing or whether there was anything at all in the way it functions that might give rise to such problems.

McKinsey executives ask,"Why didn't we pick up on it?" Well, is there any way you can? Is there any means of spotting potentially dangerous persons? Maybe one can keep an eye on traders in investment banks but very often these are the ones who actions get overlooked- they are stars, you see.

McKinsey has a rigorous process for screening people for higher levels of responsibility, it is not wanting in culture or training. Any firm is occasionally bound to have people who behave badly (and, most importantly, the allegations against Gupta relate to a period after he left McKinsey). The article suggests that values get compromised in times of runaway growth and it suggests that McKinsey would like to be careful in its pace of growth in the years to come. That would ensure that systems don't come under strain. But can firm policies really impact on the values and actions of individuals?