Tackling asset bubbles

There is a sense that we have to do something about asset bubbles in order to prevent major financial disruption although it's not clear what is to be done and at what point. Frederic Mishkin, writing in the FT, draws a distinction between "credit bubbles", which are driven by excess bank lending, and "irrational exuberance", such as the boom in IT stocks in 2001. The former are a problem, he says, because they endanger banks. The latter are ok, some investors get burnt, that's all.

Right now, Mishkin argues, the US does not face a credit bubble although various asset prices may have shot up. Credit is, in fact, in short supply, so monetary tightening would be premature.

I am not entirely persuaded about this distinction. Take a stock market bubble. It could be driven, not by excess domestic credit growth, but by a surge in foreign inflows. Does this need to be tackled or not? A sudden withdrawal of foreign funds could cause the stock market to collapse and it may derail investment plans of companies to which banks are exposed. Domestic bank credit has not driven the stock bubble, yet banks could be imperilled.

Of course, the central danger to guard against is bank exposure to risk assets- real estate, stocks and commodities. But, it's not necessary that banks are at risk only from bubbles caused by excess credit. There could be an indirect impact on banks from the collapse of bubbles for which banks are not primarily responsible. Corporates' overseas borrowings, which find their way into the domestic market, for example.

Some bubbles may be more dangerous than others, as Mishkin points out, but all bubbles may need watching.

Rich pickings for independent directors

Naresh Chandra, former cabinet secretary, made a cool Rs 2 crore from his independent directorships last year, according to an ET story. This included Rs 75 lakh from Vedanta. Omkar Goswami, the economist, raked in Rs 1.3 crore. Deepak Satwalekar, formerly of the HDFC group, and Rama Bijapurkar, marketing consultant, are among the big earners.

Not to grudge anybody their earnings but has there been any attempt to evaluate board performance and contributions of board members? And what is an optimal level of payment for board members? When payments are too low, you can't get good people. Whey they are too high, you can't expect independence.

I don't have the answers. But I am surprised these questions aren't being pursued. I guess it suits all concerned not to be asking these questions.

Indian corporate sector's lip service toeducation

India's corporate sector bemoans the lack of investment in education and the resulting skill shortages. It talks of education a a great opportunity. Businessmen have been quick to latch on to money-making opportunities in professional courses- engineering, medicine, management. But their commitment to producing first-rate educational institutions has been zilch, as Devesh Kapur points out in TOI.

The commitment of Indian business to philanthropy in higher education was strong prior to independence and has dwindled ever since. Pre-independence, business interests not only made the transition from merchant charity to organised professional philanthropy, but did so in a significant way. They created some of India's most enduring trusts, foundations and public institutions, including the Aligarh Muslim University, Banaras Hindu University, Jamia Millia, Annamalai and Indian Institute of Science. Of the 16 largest "non-religious" trusts set up during this period, 14 were major patrons of higher education.

Today, the so-called not-for-profit educational institutions do not engage in philanthropy. Their income comes from fees rather than endowments and investments. Thus even while the number of "trusts" set up for philanthropy in higher education has been steadily rising, the total share of "endowments and other sources" in higher education funding has been consistently falling - from 17 per cent in 1950 to less than 2 per cent today. Some of this decline is to be expected, as the government has expanded its role in higher education, yet the extent is remarkable.

So, what is the implication for policy? If we accept that quality in education exists only in the non-profit model and Indian business is not interested in this model, how do we produce quality education? The answer, it would seem, is a combination of higher investment by government and foreign universities. I have my doubts about foreign universities coming in entirely on their own: their cost structure would make it difficult for them to provide mass education. Perhaps, central universities and the proposed national universities forging partnerships with foreign universities may be a solution.

Greater government investment would also require putting in place proper governance mechanisms. This does not mean leaving matters to academics or 'autonomy' as interpreted by some IIT and IIM faculty, which means boards run by professionals, with government keeping a distance. This hasn't worked and it won't work, as I have argued ad nauseam in my posts. The proposed collegium for IIMs and the pan-IIT council are the sort of mechanisms we need but much work needs to be done to make these effective.

Cash transfer versus NREGS

NREGS, the national employment scheme, drew a lot of flak when it was first introduced. It has since received some grudging credit and its critics have at least recognised the value of the fiscal stimulus it has provided.

The standard argument against NREGS, which is also the argument against subsidies, is that it is better to make transfers to a carefully targeted segment, namely, the BPL category. If you spend Rs 100 on the NREGS, Rs 20 will be siphoned off, Rs 30 will be spent on administration, Rs 20 on materials, which will be wasted because of poor quality of works, and only Rs 30 will reach the poor as wages. Far better to transfer Rs 30 to designated accounts.

Tushaar Shah addresses this argument in an article in TOI.

The NREGS launch in 2006 had created a widespread impression in many parts of rural India that it would eventually end up as a cash transfer programme. Many people believed the job card-holder household would be entitled to an annual cash transfer of Rs 10,000. This is why numerous well-off households and local bigwigs, including village sarpanchs, acquired them.

NREGS design - guaranteeing 100 days' unskilled manual work toany household, rich or poor, willing to do such work - minimises type II error. Even if the rich acquire job cards, they can benefit from NREGS only if they are ready to do unskilled manual work, which they are generally not. NREGS self-targets the needy. The BPL card, ration card and NREGS job card under cash-transfer denote entitlement, not what their holders do. That NREGS reduces type II error is evident in the fact the number of households registering for work that is much smaller than that of job card-holders. Again many NREGS projects remain unfinished and funds are returned because those who registered for work do not show up. This would hardly be the case if all job card-holders were automatically entitled to Rs 10,000 deposited in their accounts.

There you have it: cash transfers would amount to looting by the powerful in the countryside. Those who advocate it have no clue as to how things work in the countryside. Shah concedes that poor quality of works is an issue. But this needs to be addressed through better governance. Indeed, that is an argument I would make for NREGS, that by mobilising NGOs and other agents at the grassroots level, it becomes a powerful tool for improving governance.

One aspect of NREGS is that the access to information on the scheme is superior to what would be provided under the RTI Act. To make NREGS-based works worthwhile, we have to bring about greater accountability at the grassroots. It is a challenge, of course, but the effort is worth it, quite apart from the purchasing power it confers on the poor.

Novel suggestion on bank bonuses

Even that paragon of the free market, the Economist, has joined the chorus against bank bonuses. I suppose you could call that progress in thinking after the sub-prime crisis.

Banks argue that they have repaid government capital, they need to retail talent, that management pay is for shareholders to approve and that the government, the media and the public should stay out of it.

The Economist makes the point that the top ten investment banks at the start of 2008 made an average return on equity of just 8% between 1999 and 2008. Four made cumulative losses. Staff got four times as much as shareholders did in profits. So, bonuses are at the expense of shareholders.

Moreover, banks are handing out large bonuses to employees while arguing that higher capital requirements would be too onerous for them! In a free market, you could still argue that these are matters between management and shareholders and that the government and the public should stay out of it. But this is not a free market situation: the banks have been bailed out by tax payers and- more, importantly- still enjoy subsidies:

It is not just that they were saved from destruction. They got public capital (much of it now repaid), short-selling bans on their shares and rescues of counterparties, such as American International Group, which the public otherwise had no interest in saving. Today they enjoy laxer accounting, loose collateral rules at central banks, explicit debt guarantees and asset-purchasing schemes. And, critically, they can borrow cheaply because they are deemed too big to fail. All of them—from comparatively healthy Goldman to the nationalised weaklings—are being subsidised by the rest of us. As a way to keep cash flowing to the wider economy and help banks rebuild their capital, this subsidy made sense; nobody intended it to go to employees.

<>If we accept that outsized bonuses, courtesy of public subsidies, are just not on, how do we deal with them? The popular solution is to rein in bonuses. The Economist thinks this won't work and it will lead to micro-management by government. It proposes an alternative:

Assume that America’s top five investment banks would pay two percentage points more on unsecured borrowings without an implicit guarantee. On that basis the subsidy is $36 billion a year (compared with pay this year of perhaps $120 billion). Providing banks have built up adequate capital, they could face a funding “premium” in much the same way that they already pay premiums for deposit insurance......The premium would last at least until the state guarantees are withdrawn. The longer-term debate may yet move from wishy-washy living wills to breaking up banks (as the governor of the Bank of England suggested on October 20th—see article).

Management gurus

The Schumpeter column of the Economist mentions three irritating habits of management gurus (the number is a sarcastic reference to these gurus' penchant for reducing all topics to a given number of 'easy steps'):

The first is presenting stale ideas as breathtaking breakthroughs. In a recent speech in London Mr (Stephen) Covey declared capitalism to be in the middle of a “paradigm shift” from industrial management (which treats people as things) to knowledge-age management (which tries to unleash creativity)......But management gurus have been making this point for decades. William Ouchi announced it in 1981 in the guise of “Theory Z”. Elton Mayo and Mary Parker Follet had made much the same point 60 years before. It makes you long for some out-of-the-box thinker who will argue that the future belongs to companies that are unfit for human beings (which it may well do).

The second irritating habit is that of naming model firms. Mr Covey littered his speech in London with references to companies he thinks are outstandingly well managed, including, bizarrely, General Motors’ Saturn division, which is going out of business. Tom Peters launched his career with “In Search of Excellence” in 1982. ...............Five years after “In Search of Excellence” appeared, a third of its ballyhooed companies were in trouble.

The third irritating habit is the flogging of management tools off the back of numbered lists or facile principles. .............But most of these rules are nothing more than wet fingers in the wind. Gurus preach the virtues of “core competences”. But in the developing world many highly diversified companies are sweeping all before them.

Which points to the most irritating thing of all about management gurus: that their failures only serve to stoke demand for their services.

The article also points out that one of the gurus' fecundity is not confined to the literary realm:

Mr Covey is working on nine other books, including one on how to end crime. He also presides over a business empire that is even more sprawling than his ever-growing family (he had 51 grandchildren as The Economist went to press)

My own view on management gurus is that there is only one original in the business and that is Peter Drucker. He said whatever needed to be said on the subject. The rest is elaboration, refinement or just plain repetition.

New paradigm for lending rates

Banks don't seem to get their pricing of loans right- and not just banks in India. In India, the RBI has had in place norms for computation of the BPLR since 2003. But this has given risen to several distortion: sub-prime lending is rife (70% of all loans), borrowers grumble about lack of transparency and lending rates rise quickly when policy rates rise but are sticky in the downward direction.

The RBI constituted a working group on BPLR last June, of which I was a member. The group submitted its report on October 20. I have brief exposition of our approach in my ET column.

Corporate suicides

France Telecom has had a rash of suicides, the Economist reports, 24 suicides since 2008. The reason? It is making the transition from state monopoly to MNC and at least new recruits don't enjoy job security.

The Economist notes that corporate suicides are an extreme expression of a pervasive problem: unhappiness at work. It provides some reasons:

The most obvious reason for the rise in unhappiness is the recession, which is destroying jobs at a startling rate and spreading anxiety throughout the workforce. But the recession is also highlighting longer-term problems.....A second source of misery is the drive to improve productivity, which is typically accompanied by an obsession with measuring performance....A more subtle problem lies in the mixed messages that companies send about loyalty and commitment. Many firms—particularly successful ones—demand extraordinary dedication from their employees. (Microsoft, according to an old joke, offers flexitime: “You can work any 18-hour shift that you want.”)

So, what can be done? More rights for workers, better HR, better communication... well, yes. The article also suggests that Europe's demographics - falling birth rates and caps on immigration- will strengthen employees' bargaining powers.

All this is fine. But, there is a simple fact that the article seems to overlook. People are unhappy in their jobs because they are doing things they don't really like. This is true not just of managers but of lawyers, doctors and other professionals. Society trains people to survive and be successful, not to pursue one's true vocation. In the performing arts, one often finds people supremely satisfied even though people are not financially well off.

So, of course, we need to improve the work culture and HR. But, the secret of happiness in one's job lies ultimately in doing what one enjoys doing.

Regulating Goldman Sachs

John Gapper, writing in FT, makes three suggestions for regulating Goldman. One, hive off private equity and hedge fund from Goldman but allow market-making and investment banking activities to continue. Two, allow it to fail in future. Three, revert to the compensation structure Goldman had when it was a partnership- that is, 90% of all bonuses to be retained until retirement. Then, top managers cannot cash out even while placing the firm in jeopardy.

I think one and three are good suggestions although the difficulty with three is that it cannot be applied only to Goldman- you would need an industry-wide norm. It's the second that poses a problem. How do you regulate Goldman so that it is allowed to fail? I can't see any easy solution.

It's interesting, though, that Goldman today makes little money from proprietary trading- only 10% of revenues. The biggest money-spinner is market-making and, there, Goldman is not betting its own money. The basic principle that Gapper espouses is a sound one: there has to be some restriction on the scope of activities of firms that have the backing of taxpayer money in principle.

Mervyn King favours narrow banking

Bank of England Governor Mervyn King has added fuel to the debate on bank regulation by favouring the break up of banks so that deposit taking and payments are clearly separated from riskier trading and other activities, FT reports.

In doing so, King has taken a position opposite to that of the UK Treasury on the subject. One corollary of limiting the scope of banks' activities is that it will automatically make banks smaller and more manageable. My own view is that, since this approach may not be practical, it would be better to limit the size of banks.

The current thinking, especially in the US, is to focus on more stringent capital requirements for large banks so that there are disincentives for getting too big. I have argued this won't work- and King appears to be of the same view.

More Goldman bashing

One rival Wall Street executive describes Goldman (with rueful admiration) as “a bunch of clever thugs”. He means that Goldman has been tough about seizing profitable opportunities even if that involves, for example, bidding for an asset against a former client.

The above from an FT article, the latest in Goldman-bashing. Goldman thinks it's free to do what it likes because it has returned the government capital of $10 bn infused last year. Not true, as the article points out. When it got capital, Goldman was an investment bank. Today, it is a bank. Goldman today is a high-risk institution gambling with people's money. That is not an internal problem of Goldman, it is a systemic issue.

Dealing with asset bubbles

Everybody now talks of 'macroprudential surveillance', which is monitoring systemic risks in order to prevent a major crisis. Is this feasible? Is it possible for central banks to meangingfully use financial stability as a goal in addition to price stability? The IMF's World Economic Outlook (October 2009) has an analytical survey. I comment on it in ET column, How to respond to asset bubbles.

The IMF's analysis suggests that having financial stability as an additional goal is not easy to implement. But the RBI has long had it as an objective. How come? Well, if you do have financial stability as a goal, then you are liable to intervene in a high growth phase even if that means sacrificing some growth. In other words, not intervening carries the risk of financial instability but intervening could mean losing out on growth. Advanced countries will tend towards the former because they can take occasional setbacks in their stride. Not so less developed countries- they don't mind sacrificing some growth but they just cannot afford financial instabilty.

In the near future, because nobody wants another major crisis, expect policy makers to intervene even while economists struggle to refine their understanding of what constitutes an asset bubble.

Significance of Kaminey

I haven't seen Kaminey (although I have seen the other film with which it is compared, Satya) but did the next best thing, which is to read a critique of it in EPW. Reading reviews is a very sensible way of sounding knowledgeable about movies without having to take the trouble of seeing them- I practise this technique very effectively with books as well.

The author sees Kaminey as marking a new trend in Bollywood- the celebration or even glorification of criminality:

Urban criminals, until the mid-1990s, were not glamorous figures in Hindi popular cinema, and only people led astray (as in Deewar 1975) became criminals. The film that changed this was perhaps Ram Gopal Varma’s Satya (1999). Satya appeared “realistic” but had a discourse interpretable in the context of the economic liberalisation initiated by P V Narasimha Rao and Manmohan Singh in 1991-92, which also marked the end of Nehruvian socialism. Law enforcement has been treated in different ways by Hindi cinema but Satya was the first film to treat the police as though they were no different from a private agency, made stronger by their indifference to the law.

......There are key dissimilarities between Satya and Kaminey and the chief among these is that while in Satya there was still a world outside the underworld, in Kaminey the underworld is the world and it would appear that everyone is somehow implicated in criminality.

In other words, the film takes the line that not only do you get away with flouting the law, it is almost a condition for success in the world. To do otherwise is to be pretty dumb. Only a complete disregard for law and scruple can produce success. It's painful, I guess, to see this portrayed but is the reality very different?

The author highlights the fact that the movie has been more successful in urban areas than elsewhere and that it has been better received in theEnglish media than in the language press. He interprets this to mean that its values are more reflective of those of the middle and upper classes than the lower classes. He links the decline in values to the way economic reforms have been pursued:

Even if one concedes that freeing the economy from the shackles of control was a good thing, it would have been appropriate at that point to strengthen enforcement in areas where intervention was still necessary. This, unfortunately, did not happen and India today is an enforcement nightmare. But it is apparently a nightmare that allows certain classes to dream.

What gets the author's goat is the portrayal of the law enforcement agencies:

The portrayal of the law in Kaminey is unprecedented in Indian cinema. The anti-narcotics squad functions as the handmaiden of drug-runners and when the police arrive at the final exchange, the criminals due to be “arrested” announce on the street their open offers to the men in khaki – 25% of the take increasing gradually to 33% – and thereby make the police waver. This is far more extreme than even Satya because policemen in Kaminey are only acting for themselves, and not even nominally engaged in enforcing the law.

Again, just a case of cinema mirroring life, uh? To those who think Bollywood is being a trifle too cynical, I would say this: Bollywood caught up with gangster politicians and the nexus between politics and crime long before the rest of the media did. It does seem to me that Vishal Bharadwaj, the director, has his finger on the pulse of reality.

Backlash from bankers

I wrote in my ET column, cited in yesterday's post, that it would be difficult to push through regulation because of the power of banking lobbies.

Josef Ackermann, the Deutsche Bank head, has fired the first salvo, reports FT:

A deluge of financial regulations threatens to harm economic growth, one of the world’s top bankers said on Friday, in what appeared to be the start of a concerted fightback by the industry against feared regulatory overkill.

........There is a trade-off between maximising stability of banks and optimising growth of the real economy. That balance [should] not be forgotten,” Mr Ackermann told the Financial Times. He warned that the entire economy would “pay a high price” if regulation went too far.

.....He cited proposals to raise the quantity and quality of capital banks have to hold, alter the definitions of capital, add capital buffers for systemic firms, rainy-day provisions, liquidity requirements and “living wills” to apply in case of failure.

Mr Ackermann's main contention is that regulators must harmonise rules across the globe, otherwise the global financial system could fragment. True. But, national regulators cannot wait until agreement is reached on all matters. In some cases, they are bound to press ahead, depending on how pressing local needs are. We must hope that if some nations give the lead, that will force others to follow suit. Otherwise, we may have to wait forever for meangingful changes to emerge.

I am not very hopeful that there will be radical changes in regulation. As I have said before, we need a bigger crisis and wider social unrest for that to happen.

G-20 meet and proposed solutions

The G-20 has promised to get tough with banks. And the proposals are stronger than the ones talked about earlier. So far, so good. But is it good enough? No. Because higher capital, executive pay linked to risk and stiffer regulatory requirements for large banks will not stave off the next crisis, if only because the solutions that finally get implemented will not be tough enough.

We need better macroeconomic mangement. In other words, regulation must be supplemented by "macro-prudential" surveillance. More on this in my ET column, Tame the economy, not the banks

Demonising Wall Street

From the Economist:

At a hearing in February a Congressman addressed JP Morgan Chase's boss, Jamie Dimon, as "Mr Demon". Deliberate or not, it captured the mood.

I guess you could say that, on Wall Street, such CEOs come a Dimon-a-dozen.

Incidentally, Oliver Stone is planning a sequel to his movie,"Wall Street", that features an institution resembling Goldman Sachs. It is due in cinemas next spring. Hopefully, with the recovery gaining ground by then, it will run to full houses.

Reforming b-schools

The debate continues. The Schumpeter column of the Economist has some suggestions:

So what should business schools do to improve their performance? More history classes would help. Would-be business titans need to learn that economic history is punctuated with crises and disasters, that booms inevitably give way to busts, and that the business cycle, having survived many predictions of extinction, continues to prey on the modern economy.....

History courses aside, business schools need to change their tone more than their syllabuses. In particular, they should foster the twin virtues of scepticism and cynicism....

The original sin of business schools is boosterism. Professors are always inclined to puff the businesses that provide them, at the very least, with their raw materials and, if they are lucky, with lucrative consultancy work.....Business schools need to make more room for people who are willing to bite the hands that feed them: to prick business bubbles, expose management fads and generally rough up the most feted managers. Kings once employed jesters to bring them down to earth. It’s time for business schools to do likewise

What to make of these suggestions?

History lessons? You mean to say the people who ran Bear Stearns and Lehman had not heard of booms and busts? Scepticism and cynicism? You could argue that the latter has a tendency to triumph over the former. Why be sceptical about financial engineering products when you can make money at somebody else's expense? B-schools do not need to foster cynicism. Their faculty and students have this quality in abundance.

I agree with the third point, about boosterism at b-schools. Faculty writing great stories about organisations that provide them the material, consultancy, and, in some cases, chair professorships. This is a serious governance issue for the boards of b-schools, it is not a matter that concerns only faculty.

Sibal takes on the IITs

NDTV had a debate featuring the president of the IIT faculty federation, Dinesh Mohan, professor at IIT Delhi and Mohandas Pai of Infosys. I had meant to report this on my blog but Abi has pre-empted me with a detailed account.

There are just a couple of other points made by Dinesh Mohan that I would like to highlight. Mohan said he had taught in European and American universities and that the degree of autonomy he had at IIT Delhi was far more than was available in those places. So much for the talk of infringement of 'autonomy'. Yes, Sibal knocked the stuffing out of the IIT faculty's arguments with the strident declaration that the protest was not about 'autonomy' but money.

Mohan made another point that I had made myself in my post on the Yash Pal report: partly, the faculty shortage at elite institutions is the result of senior faculty not being receptive to quality talent coming in.

Let me add: both the IITs and IIMs have used the 'autonomy' argument to gain public sympathy whenever they are at the receiving end of criticism or when government has attempted to look closely into their affairs. As somebody who has been part of the IIM system, I can vouch for what Dinesh Mohan has said: you cannot have greater academic freedom than is available currently in the IIM system. At no point has government made the remotest attempt to infringe such freedom. Moreover, there is virtually no funding constraint on academic exploration, the problem that cripples research at universities.

I do believe that the IITs and IIMs offer the fullest scope possible for faculty to develop themselves as academics. Not only that, we are free to express ourselves on matters of public policy and often find ourselves taking positions contrary to those of government or public authorities and even criticising government. We must give government credit for making this possible.

My greatest fear is that it is the withdrawal of government from these institutions that will threaten academic freedom because then academics would become more subject to the control of management and the boards. Boards in which government representatives are present have never prevented us from expressing our views. But boards in which government is absent and that are run by people from the private sector well may.

Being part of government makes for true academic autonomy in other ways: you have job security; the institutions come under the writ jurisdiction of High Courts, so there is easier recourse against mala fide actions of management; and then there is the whole range of supervision and protection afforded by coverage under CAG, CVC and the RTI Act.

I come back to my old argument: putting in place a governance structure with checks and balances that will adequately substitute the benefits conferred by government presence cannot be done overnight; it has to be a slow and gradual evolution and it has be fully tested before we can contemplate government withdrawal. A governance vacuum in the IITs and IIMs caused by precipitate government withdrawal is for me the ultimate nightmare.

Bonus for IIT faculty

IIT and IIM faculty have been asking for more...... well, not quite like poor Oliver. IIT faculty have planned a hunger strike for September 24. Indian Express reports that IIT directors are seeking to head off the crisis by offering a performance-linked bonus:

Directors of the Indian Institutes of Technology (IITs) are fine-tuning a Performance Related Incentive Scheme (PRIS) which they are expected to place on the table later this week to defuse the stand-off with protesting faculty across all seven IITs.

Under this, an incentive equivalent to “two to four months of salary” could be offered annually to faculty depending on their performance which will be quantified on key indicators.

This is a terrible idea. There is a sufficiently large literature on incentives that casts doubt on the efficacy of these even in a corporate context. In academics, such schemes can play havoc with the very culture of academia.

Leave aside the measurement aspect. You produce high quality work in academics because you are driven by intellectual curiosity- not because you hope to get two months' bonus. Pecuniary rewards can come in other, more satisfying ways- sponsored reserach, consultancy, high value awards for outstanding work, royalty on books, patents, etc.

How many great academic institutions in the world have performance-linked bonuses? Top academic institutions have variable increments that are linked to performance. Your base salary itself can move up sharply based on work done- and that translates into extra pay over the rest of your career. There is nothing like extra pay for a given year- which is what bonuses are about.

The Sixth Pay Commission had suggested the cautious introduction of performance-linked incentives in government. The suggestion has not taken off because of the difficulty in implemting such schemes in government. Why should government make an exception in the case of government-run academic institutions?

I am surprised that IIT directors should have thought up such a scheme.

B-schools after the crisis- business as usual?

There was much talk in the early months of the present crisis of b-schools doing deep introspection into their goals and pedagogy and coming out with a radical revamp. What has actually happened? Not much, according to the Economist. Even as the world recovers from the crisis, b-schools, it appears, will carry on as usual, with some cosmetic changes to take into account the crisis.

Most (b-schools) have settled for modest adjustments. Columbia Business School in New York, for example, set up a faculty committee that delved into every aspect of the MBA programme. But it is introducing just two new modules—on the future of finance and the collapse of the auto industry. At Thunderbird School of Global Management in Arizona, too, there is to be no ripping up and starting afresh. Instead, students on the Global MBA course are to be brought together at the end of the programme for a final module on global citizenship.

Instead of radical change, there will now be attempts to incorporate the crisis and its lessons in various courses, as required. That is normal. The East Asian crisis is part of courses in economic development. LTCM is standard fare in courses on financial institutions and markets.

Randall Kroszner, a former governor of the Federal Reserve and an economics lecturer at Chicago University’s Booth school, agrees that his MBA students will notice a change of emphasis, if not a radical new curriculum. “If I just taught my money class as I did four years ago I wouldn’t have the same emphasis on the housing market or the inter-connections between the banking and non-banking financial systems. I touched on it, but one would be foolhardy not to put a new emphasis on it.”

Monetary policy is another example. Five years ago, the theoretical possibility of a zero lower bound on interest rates may have been mentioned in passing, but most students saw it as such a low-probability event for most developed countries that they didn’t pay it much attention. Now it is a real issue that affects business decisions.

Anthing else? Well, there is talk of greater focus on "soft skills". But this can only give those familiar with b-schools a sense of deja vu......