Conflicts of interest in academia

I wrote earlier about b-schools and their alleged role in the crisis. One complaint about b-schools is that they don't inculcate the right values in their wards- I have made it clear this is not something I take seriously. Another is that the ideas that came out b-schools are flawed- the glamourisation of financial innovation, the myth of market efficiency and so on. But these ideas didn't emanate from b-schools alone, you might fault the economics profession at large, including the famous Chicago school.

Devesh Kapur, writing in FT, has a more interesting view. He says that academics have developed a vested interest in pushing certain ideas- and suppressing others- because they stand to gain financially in the process. In other words, academic research is susceptible to considerations of pecuniary gain, just as doctors' prescriptions in the US and elsewhere are driven by gifts of various kinds, including stock options in pharma companies.

Many academics, particularly those from institutions that enjoy high prestige and reputation, now have serious business interests and an array of financial ties to the very institutions that their studies address. These interests range from lucrative speaking fees, advisory roles at financial institutions, managerial roles and stakes in private equity and hedge funds to corporate non-executive directorships.

.....There would be little chance of being invited to give a lucrative talk at Citicorp if one were in favour of sovereign debt forgiveness in the 1980s, against capital account liberalisation in the 1990s or against stock options in the 2000s..

...In recent years, the biological sciences have moved considerably to ensure greater transparency where there are potential conflicts of interest between research and financial remuneration, providing mechanisms for whistle-blowers to report conflicts of interest. Regrettably, these requirements are extremely weak in the social sciences and business schools.

There is something to what Kapur is saying. I am not sure, though, that industry and other links influence academic research in economics and business but they certainly seem to influence academics' positions on various issues of public policy, especially in so far as they impact on business.

For instance, there has been much comment about the huge fees earned from financial institutions by Larry Summers, an influential figure in the present Obama administration, and whether these are impacting on the administration's approach to solving the crisis. Academics who take positions that threaten the interests of corporates certainly stand to lose out on consulting and other sources of income and may even be denied visibility in TV and other media.

There is a more serious problem with academics sitting on boards and this has to do with governance more than research. As we saw in the Satyam episode, academics are not above using their board positions to earn consulting fees. There are other instances where academics sitting on boards have wheedled training programs out of the companies. This introduces serious conflicts of interest. Sebi must impose a ban on independent board members earning any kind of consulting income from companies with which they are associated.