MUMBAI, India — The first thing I ever learned about India was that my parents had chosen to leave it.
The country was lost to us in America, where I was born. It had to be assembled in my mind, from the fragments of anecdotes and regular journeys east.
Now, six years after returning to the country my parents left, as I prepare to depart it myself, the mind goes back to the beginning, to my earliest pictures of India
India, reflected from afar, was late-night phone calls with the news of death. It was calling back relatives who could not afford to call you. It was Hindu ceremonies with saffron and Kit Kat bars on a silver platter.
India, consumed on our visits back, was being fetched from the airport and cooked a meal even in the dead of night. It was sideways hugs that strove to avoid breast contact. It was the chauvinism of uncles who asked about my dreams and ignored my sister’s.
It was wrong, yet easy, to feel that we did India a favor by coming home. We packed our suitcases with things they couldn’t get for themselves: Jif peanut butter, Hellmann’s mayonnaise, Gap khakis. These imports sketched a subtle hierarchy in which they were the wanting relatives and we their benefactors.
My cousins in India would sometimes ask if I was Indian or American. I saw that their self-esteem depended on my answer. “American,” I would say, because it was the truth, and because I felt that to say otherwise would be to accept a lower berth in the world.
What it meant to be American was to be free to invent yourself, to belong to a family and a society in which destiny was believed to be human-made.
I looked around in India and saw everyone in their boxes, not coming fully into their own, replicating lives lived before. If only they came to America, I told myself, so-and-so would be a millionaire entrepreneur; so-and-so would be as confident in her opinions as her husband; so-and-sos’ marriage would be more like my parents’, with verve and swing-dancing lessons and bedtime crossword puzzles; so-and-so would study history and literature, not just bankable practicalities.
I moved to India six years ago in an effort to understand it on my own terms, to render mine what had until then only belonged to my parents.
India was changing when I arrived and has changed dramatically, viscerally, improbably in these 2,000 days: farms giving way to factories; ultra-cheap cars being built; companies buying out rivals abroad. But the greatest change I have witnessed is elsewhere. It is in the mind: Indians now know that they don’t have to leave, as my parents left, to have their personal revolutions.
It took me time to see. At first, my old lenses were still in place — India the frustrating, difficult country — and so I saw only the things I had ever seen.
But as I traveled the land, the data did not fit the framework. The children of the lower castes were hoisting themselves up one diploma and training program at a time. The women were becoming breadwinners through microcredit and decentralized manufacturing. The young people were finding in their cellphones a first zone of individual identity. The couples were ending marriages no matter what “society” thinks, then finding love again. The vegetarians were embracing meat and meat-eaters were turning vegetarian, defining themselves by taste and faith, not caste.
Indians from languorous villages to pulsating cities were making difficult new choices to die other than where they were born, to pursue vocations not their father’s, to live lives imagined within their own skulls. And it was addictive, this improbable rush of hope.
The shift is only just beginning. Most Indians still live impossibly grim lives. Trickle down, here more than most places, is slow. But it is a shift in psychologies, and you rarely meet an Indian untouched by it.
Grabbing hold of their destinies, these Indians became the unlikely cousins of my own immigrant parents in America: restless, ambitious, with dreams vivid only to themselves. But my parents had sought to beat the odds in a bad system, to be statistical flukes that got away.
What has changed since they left is a systemic lifting of the odds for those who stay. It is a milestone in any nation’s life when leaving becomes a choice, not a necessity.
My parents watch me from their perch outside Washington, D.C., and marvel at history’s sense of irony: a son who ended up inventing himself in the country they left, who has written of the self-inventing swagger of a rising generation of Indians, in a country where “self” was once a vulgar word.
At times, my mother wonders if they should have remained, should have waited for their own country’s revolution instead of crashing another’s. And as I leave India now I can only wonder how history would have turned out if the ocean of change had come a generation earlier.
Because it came between their generation and mine, the premise of our family story has been pulled out from beneath us. We are American citizens now, my family, and proudly so. But we must face that we are Americans because of a choice prompted by truths that history has undone. They were true at the choice’s making; in India, I saw their truth boil slowly away.
They don’t crave our mayonnaise and khakis anymore. They no longer angrily berate America, because they are too busy building their own country. Indian accents are now cooler than British ones. No one asks if I feel Indian or American. How delicious to see that unconcern. How fortunate to live in a land you needn’t leave to become your fullest possible self.
And how wondrous, in this time of revolutions, to have had my own here.
I grew up in America defining myself by the soil under my feet, not by the blood in my veins. The soil I shared with everyone else; the blood made me unbearably different. Before I loved India, I loathed it. But that feeling seems now like a relic from a buried past.
I leave now on the journey’s next stretch, with sadness and with joy, humbled by India, grateful to have been at the revolution and to have known the revolutions within
Monday, 9 November 2009
Why Do Intellectuals Oppose Capitalism?
Why Do Intellectuals Oppose Capitalism?
by Robert Nozick
Robert Nozick is Arthur Kingsley Porter Professor of Philosophy at Harvard University and the author of Anarchy, State, and Utopia and other books. This article is excerpted from his essay "Why Do Intellectuals Oppose Capitalism?" which originally appeared in The Future of Private Enterprise, ed. Craig Aronoff et al. (Georgia State University Business Press, 1986) and is reprinted in Robert Nozick, Socratic Puzzles (Harvard University Press, 1997).
It is surprising that intellectuals oppose capitalism so. Other groups of comparable socio-economic status do not show the same degree of opposition in the same proportions. Statistically, then, intellectuals are an anomaly.
Not all intellectuals are on the "left." Like other groups, their opinions are spread along a curve. But in their case, the curve is shifted and skewed to the political left.
By intellectuals, I do not mean all people of intelligence or of a certain level of education, but those who, in their vocation, deal with ideas as expressed in words, shaping the word flow others receive. These wordsmiths include poets, novelists, literary critics, newspaper and magazine journalists, and many professors. It does not include those who primarily produce and transmit quantitatively or mathematically formulated information (the numbersmiths) or those working in visual media, painters, sculptors, cameramen. Unlike the wordsmiths, people in these occupations do not disproportionately oppose capitalism. The wordsmiths are concentrated in certain occupational sites: academia, the media, government bureaucracy.
Wordsmith intellectuals fare well in capitalist society; there they have great freedom to formulate, encounter, and propagate new ideas, to read and discuss them. Their occupational skills are in demand, their income much above average. Why then do they disproportionately oppose capitalism? Indeed, some data suggest that the more prosperous and successful the intellectual, the more likely he is to oppose capitalism. This opposition to capitalism is mainly "from the left" but not solely so. Yeats, Eliot, and Pound opposed market society from the right.
The opposition of wordsmith intellectuals to capitalism is a fact of social significance. They shape our ideas and images of society; they state the policy alternatives bureaucracies consider. From treatises to slogans, they give us the sentences to express ourselves. Their opposition matters, especially in a society that depends increasingly upon the explicit formulation and dissemination of information.
We can distinguish two types of explanation for the relatively high proportion of intellectuals in opposition to capitalism. One type finds a factor unique to the anti-capitalist intellectuals. The second type of explanation identifies a factor applying to all intellectuals, a force propelling them toward anti-capitalist views. Whether it pushes any particular intellectual over into anti-capitalism will depend upon the other forces acting upon him. In the aggregate, though, since it makes anti-capitalism more likely for each intellectual, such a factor will produce a larger proportion of anti-capitalist intellectuals. Our explanation will be of this second type. We will identify a factor which tilts intellectuals toward anti-capitalist attitudes but does not guarantee it in any particular case.
The Value of Intellectuals
Intellectuals now expect to be the most highly valued people in a society, those with the most prestige and power, those with the greatest rewards. Intellectuals feel entitled to this. But, by and large, a capitalist society does not honor its intellectuals. Ludwig von Mises explains the special resentment of intellectuals, in contrast to workers, by saying they mix socially with successful capitalists and so have them as a salient comparison group and are humiliated by their lesser status. However, even those intellectuals who do not mix socially are similarly resentful, while merely mixing is not enough--the sports and dancing instructors who cater to the rich and have affairs with them are not noticeably anti-capitalist.
Why then do contemporary intellectuals feel entitled to the highest rewards their society has to offer and resentful when they do not receive this? Intellectuals feel they are the most valuable people, the ones with the highest merit, and that society should reward people in accordance with their value and merit. But a capitalist society does not satisfy the principle of distribution "to each according to his merit or value." Apart from the gifts, inheritances, and gambling winnings that occur in a free society, the market distributes to those who satisfy the perceived market-expressed demands of others, and how much it so distributes depends on how much is demanded and how great the alternative supply is. Unsuccessful businessmen and workers do not have the same animus against the capitalist system as do the wordsmith intellectuals. Only the sense of unrecognized superiority, of entitlement betrayed, produces that animus.
Why do wordsmith intellectuals think they are most valuable, and why do they think distribution should be in accordance with value? Note that this latter principle is not a necessary one. Other distributional patterns have been proposed, including equal distribution, distribution according to moral merit, distribution according to need. Indeed, there need not be any pattern of distribution a society is aiming to achieve, even a society concerned with justice. The justice of a distribution may reside in its arising from a just process of voluntary exchange of justly acquired property and services. Whatever outcome is produced by that process will be just, but there is no particular pattern the outcome must fit. Why, then, do wordsmiths view themselves as most valuable and accept the principle of distribution in accordance with value?
From the beginnings of recorded thought, intellectuals have told us their activity is most valuable. Plato valued the rational faculty above courage and the appetites and deemed that philosophers should rule; Aristotle held that intellectual contemplation was the highest activity. It is not surprising that surviving texts record this high evaluation of intellectual activity. The people who formulated evaluations, who wrote them down with reasons to back them up, were intellectuals, after all. They were praising themselves. Those who valued other things more than thinking things through with words, whether hunting or power or uninterrupted sensual pleasure, did not bother to leave enduring written records. Only the intellectual worked out a theory of who was best.
The Schooling of Intellectuals
What factor produced feelings of superior value on the part of intellectuals? I want to focus on one institution in particular: schools. As book knowledge became increasingly important, schooling--the education together in classes of young people in reading and book knowledge--spread. Schools became the major institution outside of the family to shape the attitudes of young people, and almost all those who later became intellectuals went through schools. There they were successful. They were judged against others and deemed superior. They were praised and rewarded, the teacher's favorites. How could they fail to see themselves as superior? Daily, they experienced differences in facility with ideas, in quick-wittedness. The schools told them, and showed them, they were better.
The schools, too, exhibited and thereby taught the principle of reward in accordance with (intellectual) merit. To the intellectually meritorious went the praise, the teacher's smiles, and the highest grades. In the currency the schools had to offer, the smartest constituted the upper class. Though not part of the official curricula, in the schools the intellectuals learned the lessons of their own greater value in comparison with the others, and of how this greater value entitled them to greater rewards.
The wider market society, however, taught a different lesson. There the greatest rewards did not go to the verbally brightest. There the intellectual skills were not most highly valued. Schooled in the lesson that they were most valuable, the most deserving of reward, the most entitled to reward, how could the intellectuals, by and large, fail to resent the capitalist society which deprived them of the just deserts to which their superiority "entitled" them? Is it surprising that what the schooled intellectuals felt for capitalist society was a deep and sullen animus that, although clothed with various publicly appropriate reasons, continued even when those particular reasons were shown to be inadequate?
In saying that intellectuals feel entitled to the highest rewards the general society can offer (wealth, status, etc.), I do not mean that intellectuals hold these rewards to be the highest goods. Perhaps they value more the intrinsic rewards of intellectual activity or the esteem of the ages. Nevertheless, they also feel entitled to the highest appreciation from the general society, to the most and best it has to offer, paltry though that may be. I don't mean to emphasize especially the rewards that find their way into the intellectuals' pockets or even reach them personally. Identifying themselves as intellectuals, they can resent the fact that intellectual activity is not most highly valued and rewarded.
The intellectual wants the whole society to be a school writ large, to be like the environment where he did so well and was so well appreciated. By incorporating standards of reward that are different from the wider society, the schools guarantee that some will experience downward mobility later. Those at the top of the school's hierarchy will feel entitled to a top position, not only in that micro-society but in the wider one, a society whose system they will resent when it fails to treat them according to their self-prescribed wants and entitlements. The school system thereby produces anti-capitalist feeling among intellectuals. Rather, it produces anti-capitalist feeling among verbal intellectuals. Why do the numbersmiths not develop the same attitudes as these wordsmiths? I conjecture that these quantitatively bright children, although they get good grades on the relevant examinations, do not receive the same face-to-face attention and approval from the teachers as do the verbally bright children. It is the verbal skills that bring these personal rewards from the teacher, and apparently it is these rewards that especially shape the sense of entitlement.
Central Planning in the Classroom
There is a further point to be added. The (future) wordsmith intellectuals are successful within the formal, official social system of the schools, wherein the relevant rewards are distributed by the central authority of the teacher. The schools contain another informal social system within classrooms, hallways, and schoolyards, wherein rewards are distributed not by central direction but spontaneously at the pleasure and whim of schoolmates. Here the intellectuals do less well.
It is not surprising, therefore, that distribution of goods and rewards via a centrally organized distributional mechanism later strikes intellectuals as more appropriate than the "anarchy and chaos" of the marketplace. For distribution in a centrally planned socialist society stands to distribution in a capitalist society as distribution by the teacher stands to distribution by the schoolyard and hallway.
Our explanation does not postulate that (future) intellectuals constitute a majority even of the academic upper class of the school. This group may consist mostly of those with substantial (but not overwhelming) bookish skills along with social grace, strong motivation to please, friendliness, winning ways, and an ability to play by (and to seem to be following) the rules. Such pupils, too, will be highly regarded and rewarded by the teacher, and they will do extremely well in the wider society, as well. (And do well within the informal social system of the school. So they will not especially accept the norms of the school's formal system.) Our explanation hypothesizes that (future) intellectuals are disproportionately represented in that portion of the schools' (official) upper class that will experience relative downward mobility. Or, rather, in the group that predicts for itself a declining future. The animus will arise before the move into the wider world and the experience of an actual decline in status, at the point when the clever pupil realizes he (probably) will fare less well in the wider society than in his current school situation. This unintended consequence of the school system, the anti-capitalist animus of intellectuals, is, of course, reinforced when pupils read or are taught by intellectuals who present those very anti-capitalist attitudes.
No doubt, some wordsmith intellectuals were cantankerous and questioning pupils and so were disapproved of by their teachers. Did they too learn the lesson that the best should get the highest rewards and think, despite their teachers, that they themselves were best and so start with an early resentment against the school system's distribution? Clearly, on this and the other issues discussed here, we need data on the school experiences of future wordsmith intellectuals to refine and test our hypotheses.
Stated as a general point, it is hardly contestable that the norms within schools will affect the normative beliefs of people after they leave the schools. The schools, after all, are the major non-familial society that children learn to operate in, and hence schooling constitutes their preparation for the larger non-familial society. It is not surprising that those successful by the norms of a school system should resent a society, adhering to different norms, which does not grant them the same success. Nor, when those are the very ones who go on to shape a society's self-image, its evaluation of itself, is it surprising when the society's verbally responsive portion turns against it. If you were designing a society, you would not seek to design it so that the wordsmiths, with all their influence, were schooled into animus against the norms of the society.
Our explanation of the disproportionate anti-capitalism of intellectuals is based upon a very plausible sociological generalization.
In a society where one extra-familial system or institution, the first young people enter, distributes rewards, those who do the very best therein will tend to internalize the norms of this institution and expect the wider society to operate in accordance with these norms; they will feel entitled to distributive shares in accordance with these norms or (at least) to a relative position equal to the one these norms would yield. Moreover, those constituting the upper class within the hierarchy of this first extra-familial institution who then experience (or foresee experiencing) movement to a lower relative position in the wider society will, because of their feeling of frustrated entitlement, tend to oppose the wider social system and feel animus toward its norms.
Notice that this is not a deterministic law. Not all those who experience downward social mobility will turn against the system. Such downward mobility, though, is a factor which tends to produce effects in that direction, and so will show itself in differing proportions at the aggregate level. We might distinguish ways an upper class can move down: it can get less than another group or (while no group moves above it) it can tie, failing to get more than those previously deemed lower. It is the first type of downward mobility which especially rankles and outrages; the second type is far more tolerable. Many intellectuals (say they) favor equality while only a small number call for an aristocracy of intellectuals. Our hypothesis speaks of the first type of downward mobility as especially productive of resentment and animus.
The school system imparts and rewards only some skills relevant to later success (it is, after all, a specialized institution) so its reward system will differ from that of the wider society. This guarantees that some, in moving to the wider society, will experience downward social mobility and its attendant consequences. Earlier I said that intellectuals want the society to be the schools writ large. Now we see that the resentment due to a frustrated sense of entitlement stems from the fact that the schools (as a specialized first extra-familial social system) are not the society writ small.
Our explanation now seems to predict the (disproportionate) resentment of schooled intellectuals against their society whatever its nature, whether capitalist or communist. (Intellectuals are disproportionately opposed to capitalism as compared with other groups of similar socioeconomic status within capitalist society. It is another question whether they are disproportionately opposed as compared with the degree of opposition of intellectuals in other societies to those societies.) Clearly, then, data about the attitudes of intellectuals within communist countries toward apparatchiks would be relevant; will those intellectuals feel animus toward that system?
Our hypothesis needs to be refined so that it does not apply (or apply as strongly) to every society. Must the school systems in every society inevitably produce anti-societal animus in the intellectuals who do not receive that society's highest rewards? Probably not. A capitalist society is peculiar in that it seems to announce that it is open and responsive only to talent, individual initiative, personal merit. Growing up in an inherited caste or feudal society creates no expectation that reward will or should be in accordance with personal value. Despite the created expectation, a capitalist society rewards people only insofar as they serve the market-expressed desires of others; it rewards in accordance with economic contribution, not in accordance with personal value. However, it comes close enough to rewarding in accordance with value--value and contribution will very often be intermingled--so as to nurture the expectation produced by the schools. The ethos of the wider society is close enough to that of the schools so that the nearness creates resentment. Capitalist societies reward individual accomplishment or announce they do, and so they leave the intellectual, who considers himself most accomplished, particularly bitter.
Another factor, I think, plays a role. Schools will tend to produce such anti-capitalist attitudes the more they are attended together by a diversity of people. When almost all of those who will be economically successful are attending separate schools, the intellectuals will not have acquired that attitude of being superior to them. But even if many children of the upper class attend separate schools, an open society will have other schools that also include many who will become economically successful as entrepreneurs, and the intellectuals later will resentfully remember how superior they were academically to their peers who advanced more richly and powerfully. The openness of the society has another consequence, as well. The pupils, future wordsmiths and others, will not know how they will fare in the future. They can hope for anything. A society closed to advancement destroys those hopes early. In an open capitalist society, the pupils are not resigned early to limits on their advancement and social mobility, the society seems to announce that the most capable and valuable will rise to the very top, their schools have already given the academically most gifted the message that they are most valuable and deserving of the greatest rewards, and later these very pupils with the highest encouragement and hopes see others of their peers, whom they know and saw to be less meritorious, rising higher than they themselves, taking the foremost rewards to which they themselves felt themselves entitled. Is it any wonder they bear that society an animus?
Some Further Hypotheses
We have refined the hypothesis somewhat. It is not simply formal schools but formal schooling in a specified social context that produces anti-capitalist animus in (wordsmith) intellectuals. No doubt, the hypothesis requires further refining. But enough. It is time to turn the hypothesis over to the social scientists, to take it from armchair speculations in the study and give it to those who will immerse themselves in more particular facts and data. We can point, however, to some areas where our hypothesis might yield testable consequences and predictions. First, one might predict that the more meritocratic a country's school system, the more likely its intellectuals are to be on the left. (Consider France.) Second, those intellectuals who were "late bloomers" in school would not have developed the same sense of entitlement to the very highest rewards; therefore, a lower percentage of the late-bloomer intellectuals will be anti-capitalist than of the early bloomers. Third, we limited our hypothesis to those societies (unlike Indian caste society) where the successful student plausibly could expect further comparable success in the wider society. In Western society, women have not heretofore plausibly held such expectations, so we would not expect the female students who constituted part of the academic upper class yet later underwent downward mobility to show the same anti-capitalist animus as male intellectuals. We might predict, then, that the more a society is known to move toward equality in occupational opportunity between women and men, the more its female intellectuals will exhibit the same disproportionate anti-capitalism its male intellectuals show.
Some readers may doubt this explanation of the anti-capitalism of intellectuals. Be this as it may, I think that an important phenomenon has been identified. The sociological generalization we have stated is intuitively compelling; something like it must be true. Some important effect therefore must be produced in that portion of the school's upper class that experiences downward social mobility, some antagonism to the wider society must get generated. If that effect is not the disproportionate opposition of the intellectuals, then what is it? We started with a puzzling phenomenon in need of an explanation. We have found, I think, an explanatory factor that (once stated) is so obvious that we must believe it explains some real phenomenon.
This article originally appeared in the January/February 1998 edition of Cato Policy Report.
by Robert Nozick
Robert Nozick is Arthur Kingsley Porter Professor of Philosophy at Harvard University and the author of Anarchy, State, and Utopia and other books. This article is excerpted from his essay "Why Do Intellectuals Oppose Capitalism?" which originally appeared in The Future of Private Enterprise, ed. Craig Aronoff et al. (Georgia State University Business Press, 1986) and is reprinted in Robert Nozick, Socratic Puzzles (Harvard University Press, 1997).
It is surprising that intellectuals oppose capitalism so. Other groups of comparable socio-economic status do not show the same degree of opposition in the same proportions. Statistically, then, intellectuals are an anomaly.
Not all intellectuals are on the "left." Like other groups, their opinions are spread along a curve. But in their case, the curve is shifted and skewed to the political left.
By intellectuals, I do not mean all people of intelligence or of a certain level of education, but those who, in their vocation, deal with ideas as expressed in words, shaping the word flow others receive. These wordsmiths include poets, novelists, literary critics, newspaper and magazine journalists, and many professors. It does not include those who primarily produce and transmit quantitatively or mathematically formulated information (the numbersmiths) or those working in visual media, painters, sculptors, cameramen. Unlike the wordsmiths, people in these occupations do not disproportionately oppose capitalism. The wordsmiths are concentrated in certain occupational sites: academia, the media, government bureaucracy.
Wordsmith intellectuals fare well in capitalist society; there they have great freedom to formulate, encounter, and propagate new ideas, to read and discuss them. Their occupational skills are in demand, their income much above average. Why then do they disproportionately oppose capitalism? Indeed, some data suggest that the more prosperous and successful the intellectual, the more likely he is to oppose capitalism. This opposition to capitalism is mainly "from the left" but not solely so. Yeats, Eliot, and Pound opposed market society from the right.
The opposition of wordsmith intellectuals to capitalism is a fact of social significance. They shape our ideas and images of society; they state the policy alternatives bureaucracies consider. From treatises to slogans, they give us the sentences to express ourselves. Their opposition matters, especially in a society that depends increasingly upon the explicit formulation and dissemination of information.
We can distinguish two types of explanation for the relatively high proportion of intellectuals in opposition to capitalism. One type finds a factor unique to the anti-capitalist intellectuals. The second type of explanation identifies a factor applying to all intellectuals, a force propelling them toward anti-capitalist views. Whether it pushes any particular intellectual over into anti-capitalism will depend upon the other forces acting upon him. In the aggregate, though, since it makes anti-capitalism more likely for each intellectual, such a factor will produce a larger proportion of anti-capitalist intellectuals. Our explanation will be of this second type. We will identify a factor which tilts intellectuals toward anti-capitalist attitudes but does not guarantee it in any particular case.
The Value of Intellectuals
Intellectuals now expect to be the most highly valued people in a society, those with the most prestige and power, those with the greatest rewards. Intellectuals feel entitled to this. But, by and large, a capitalist society does not honor its intellectuals. Ludwig von Mises explains the special resentment of intellectuals, in contrast to workers, by saying they mix socially with successful capitalists and so have them as a salient comparison group and are humiliated by their lesser status. However, even those intellectuals who do not mix socially are similarly resentful, while merely mixing is not enough--the sports and dancing instructors who cater to the rich and have affairs with them are not noticeably anti-capitalist.
Why then do contemporary intellectuals feel entitled to the highest rewards their society has to offer and resentful when they do not receive this? Intellectuals feel they are the most valuable people, the ones with the highest merit, and that society should reward people in accordance with their value and merit. But a capitalist society does not satisfy the principle of distribution "to each according to his merit or value." Apart from the gifts, inheritances, and gambling winnings that occur in a free society, the market distributes to those who satisfy the perceived market-expressed demands of others, and how much it so distributes depends on how much is demanded and how great the alternative supply is. Unsuccessful businessmen and workers do not have the same animus against the capitalist system as do the wordsmith intellectuals. Only the sense of unrecognized superiority, of entitlement betrayed, produces that animus.
Why do wordsmith intellectuals think they are most valuable, and why do they think distribution should be in accordance with value? Note that this latter principle is not a necessary one. Other distributional patterns have been proposed, including equal distribution, distribution according to moral merit, distribution according to need. Indeed, there need not be any pattern of distribution a society is aiming to achieve, even a society concerned with justice. The justice of a distribution may reside in its arising from a just process of voluntary exchange of justly acquired property and services. Whatever outcome is produced by that process will be just, but there is no particular pattern the outcome must fit. Why, then, do wordsmiths view themselves as most valuable and accept the principle of distribution in accordance with value?
From the beginnings of recorded thought, intellectuals have told us their activity is most valuable. Plato valued the rational faculty above courage and the appetites and deemed that philosophers should rule; Aristotle held that intellectual contemplation was the highest activity. It is not surprising that surviving texts record this high evaluation of intellectual activity. The people who formulated evaluations, who wrote them down with reasons to back them up, were intellectuals, after all. They were praising themselves. Those who valued other things more than thinking things through with words, whether hunting or power or uninterrupted sensual pleasure, did not bother to leave enduring written records. Only the intellectual worked out a theory of who was best.
The Schooling of Intellectuals
What factor produced feelings of superior value on the part of intellectuals? I want to focus on one institution in particular: schools. As book knowledge became increasingly important, schooling--the education together in classes of young people in reading and book knowledge--spread. Schools became the major institution outside of the family to shape the attitudes of young people, and almost all those who later became intellectuals went through schools. There they were successful. They were judged against others and deemed superior. They were praised and rewarded, the teacher's favorites. How could they fail to see themselves as superior? Daily, they experienced differences in facility with ideas, in quick-wittedness. The schools told them, and showed them, they were better.
The schools, too, exhibited and thereby taught the principle of reward in accordance with (intellectual) merit. To the intellectually meritorious went the praise, the teacher's smiles, and the highest grades. In the currency the schools had to offer, the smartest constituted the upper class. Though not part of the official curricula, in the schools the intellectuals learned the lessons of their own greater value in comparison with the others, and of how this greater value entitled them to greater rewards.
The wider market society, however, taught a different lesson. There the greatest rewards did not go to the verbally brightest. There the intellectual skills were not most highly valued. Schooled in the lesson that they were most valuable, the most deserving of reward, the most entitled to reward, how could the intellectuals, by and large, fail to resent the capitalist society which deprived them of the just deserts to which their superiority "entitled" them? Is it surprising that what the schooled intellectuals felt for capitalist society was a deep and sullen animus that, although clothed with various publicly appropriate reasons, continued even when those particular reasons were shown to be inadequate?
In saying that intellectuals feel entitled to the highest rewards the general society can offer (wealth, status, etc.), I do not mean that intellectuals hold these rewards to be the highest goods. Perhaps they value more the intrinsic rewards of intellectual activity or the esteem of the ages. Nevertheless, they also feel entitled to the highest appreciation from the general society, to the most and best it has to offer, paltry though that may be. I don't mean to emphasize especially the rewards that find their way into the intellectuals' pockets or even reach them personally. Identifying themselves as intellectuals, they can resent the fact that intellectual activity is not most highly valued and rewarded.
The intellectual wants the whole society to be a school writ large, to be like the environment where he did so well and was so well appreciated. By incorporating standards of reward that are different from the wider society, the schools guarantee that some will experience downward mobility later. Those at the top of the school's hierarchy will feel entitled to a top position, not only in that micro-society but in the wider one, a society whose system they will resent when it fails to treat them according to their self-prescribed wants and entitlements. The school system thereby produces anti-capitalist feeling among intellectuals. Rather, it produces anti-capitalist feeling among verbal intellectuals. Why do the numbersmiths not develop the same attitudes as these wordsmiths? I conjecture that these quantitatively bright children, although they get good grades on the relevant examinations, do not receive the same face-to-face attention and approval from the teachers as do the verbally bright children. It is the verbal skills that bring these personal rewards from the teacher, and apparently it is these rewards that especially shape the sense of entitlement.
Central Planning in the Classroom
There is a further point to be added. The (future) wordsmith intellectuals are successful within the formal, official social system of the schools, wherein the relevant rewards are distributed by the central authority of the teacher. The schools contain another informal social system within classrooms, hallways, and schoolyards, wherein rewards are distributed not by central direction but spontaneously at the pleasure and whim of schoolmates. Here the intellectuals do less well.
It is not surprising, therefore, that distribution of goods and rewards via a centrally organized distributional mechanism later strikes intellectuals as more appropriate than the "anarchy and chaos" of the marketplace. For distribution in a centrally planned socialist society stands to distribution in a capitalist society as distribution by the teacher stands to distribution by the schoolyard and hallway.
Our explanation does not postulate that (future) intellectuals constitute a majority even of the academic upper class of the school. This group may consist mostly of those with substantial (but not overwhelming) bookish skills along with social grace, strong motivation to please, friendliness, winning ways, and an ability to play by (and to seem to be following) the rules. Such pupils, too, will be highly regarded and rewarded by the teacher, and they will do extremely well in the wider society, as well. (And do well within the informal social system of the school. So they will not especially accept the norms of the school's formal system.) Our explanation hypothesizes that (future) intellectuals are disproportionately represented in that portion of the schools' (official) upper class that will experience relative downward mobility. Or, rather, in the group that predicts for itself a declining future. The animus will arise before the move into the wider world and the experience of an actual decline in status, at the point when the clever pupil realizes he (probably) will fare less well in the wider society than in his current school situation. This unintended consequence of the school system, the anti-capitalist animus of intellectuals, is, of course, reinforced when pupils read or are taught by intellectuals who present those very anti-capitalist attitudes.
No doubt, some wordsmith intellectuals were cantankerous and questioning pupils and so were disapproved of by their teachers. Did they too learn the lesson that the best should get the highest rewards and think, despite their teachers, that they themselves were best and so start with an early resentment against the school system's distribution? Clearly, on this and the other issues discussed here, we need data on the school experiences of future wordsmith intellectuals to refine and test our hypotheses.
Stated as a general point, it is hardly contestable that the norms within schools will affect the normative beliefs of people after they leave the schools. The schools, after all, are the major non-familial society that children learn to operate in, and hence schooling constitutes their preparation for the larger non-familial society. It is not surprising that those successful by the norms of a school system should resent a society, adhering to different norms, which does not grant them the same success. Nor, when those are the very ones who go on to shape a society's self-image, its evaluation of itself, is it surprising when the society's verbally responsive portion turns against it. If you were designing a society, you would not seek to design it so that the wordsmiths, with all their influence, were schooled into animus against the norms of the society.
Our explanation of the disproportionate anti-capitalism of intellectuals is based upon a very plausible sociological generalization.
In a society where one extra-familial system or institution, the first young people enter, distributes rewards, those who do the very best therein will tend to internalize the norms of this institution and expect the wider society to operate in accordance with these norms; they will feel entitled to distributive shares in accordance with these norms or (at least) to a relative position equal to the one these norms would yield. Moreover, those constituting the upper class within the hierarchy of this first extra-familial institution who then experience (or foresee experiencing) movement to a lower relative position in the wider society will, because of their feeling of frustrated entitlement, tend to oppose the wider social system and feel animus toward its norms.
Notice that this is not a deterministic law. Not all those who experience downward social mobility will turn against the system. Such downward mobility, though, is a factor which tends to produce effects in that direction, and so will show itself in differing proportions at the aggregate level. We might distinguish ways an upper class can move down: it can get less than another group or (while no group moves above it) it can tie, failing to get more than those previously deemed lower. It is the first type of downward mobility which especially rankles and outrages; the second type is far more tolerable. Many intellectuals (say they) favor equality while only a small number call for an aristocracy of intellectuals. Our hypothesis speaks of the first type of downward mobility as especially productive of resentment and animus.
The school system imparts and rewards only some skills relevant to later success (it is, after all, a specialized institution) so its reward system will differ from that of the wider society. This guarantees that some, in moving to the wider society, will experience downward social mobility and its attendant consequences. Earlier I said that intellectuals want the society to be the schools writ large. Now we see that the resentment due to a frustrated sense of entitlement stems from the fact that the schools (as a specialized first extra-familial social system) are not the society writ small.
Our explanation now seems to predict the (disproportionate) resentment of schooled intellectuals against their society whatever its nature, whether capitalist or communist. (Intellectuals are disproportionately opposed to capitalism as compared with other groups of similar socioeconomic status within capitalist society. It is another question whether they are disproportionately opposed as compared with the degree of opposition of intellectuals in other societies to those societies.) Clearly, then, data about the attitudes of intellectuals within communist countries toward apparatchiks would be relevant; will those intellectuals feel animus toward that system?
Our hypothesis needs to be refined so that it does not apply (or apply as strongly) to every society. Must the school systems in every society inevitably produce anti-societal animus in the intellectuals who do not receive that society's highest rewards? Probably not. A capitalist society is peculiar in that it seems to announce that it is open and responsive only to talent, individual initiative, personal merit. Growing up in an inherited caste or feudal society creates no expectation that reward will or should be in accordance with personal value. Despite the created expectation, a capitalist society rewards people only insofar as they serve the market-expressed desires of others; it rewards in accordance with economic contribution, not in accordance with personal value. However, it comes close enough to rewarding in accordance with value--value and contribution will very often be intermingled--so as to nurture the expectation produced by the schools. The ethos of the wider society is close enough to that of the schools so that the nearness creates resentment. Capitalist societies reward individual accomplishment or announce they do, and so they leave the intellectual, who considers himself most accomplished, particularly bitter.
Another factor, I think, plays a role. Schools will tend to produce such anti-capitalist attitudes the more they are attended together by a diversity of people. When almost all of those who will be economically successful are attending separate schools, the intellectuals will not have acquired that attitude of being superior to them. But even if many children of the upper class attend separate schools, an open society will have other schools that also include many who will become economically successful as entrepreneurs, and the intellectuals later will resentfully remember how superior they were academically to their peers who advanced more richly and powerfully. The openness of the society has another consequence, as well. The pupils, future wordsmiths and others, will not know how they will fare in the future. They can hope for anything. A society closed to advancement destroys those hopes early. In an open capitalist society, the pupils are not resigned early to limits on their advancement and social mobility, the society seems to announce that the most capable and valuable will rise to the very top, their schools have already given the academically most gifted the message that they are most valuable and deserving of the greatest rewards, and later these very pupils with the highest encouragement and hopes see others of their peers, whom they know and saw to be less meritorious, rising higher than they themselves, taking the foremost rewards to which they themselves felt themselves entitled. Is it any wonder they bear that society an animus?
Some Further Hypotheses
We have refined the hypothesis somewhat. It is not simply formal schools but formal schooling in a specified social context that produces anti-capitalist animus in (wordsmith) intellectuals. No doubt, the hypothesis requires further refining. But enough. It is time to turn the hypothesis over to the social scientists, to take it from armchair speculations in the study and give it to those who will immerse themselves in more particular facts and data. We can point, however, to some areas where our hypothesis might yield testable consequences and predictions. First, one might predict that the more meritocratic a country's school system, the more likely its intellectuals are to be on the left. (Consider France.) Second, those intellectuals who were "late bloomers" in school would not have developed the same sense of entitlement to the very highest rewards; therefore, a lower percentage of the late-bloomer intellectuals will be anti-capitalist than of the early bloomers. Third, we limited our hypothesis to those societies (unlike Indian caste society) where the successful student plausibly could expect further comparable success in the wider society. In Western society, women have not heretofore plausibly held such expectations, so we would not expect the female students who constituted part of the academic upper class yet later underwent downward mobility to show the same anti-capitalist animus as male intellectuals. We might predict, then, that the more a society is known to move toward equality in occupational opportunity between women and men, the more its female intellectuals will exhibit the same disproportionate anti-capitalism its male intellectuals show.
Some readers may doubt this explanation of the anti-capitalism of intellectuals. Be this as it may, I think that an important phenomenon has been identified. The sociological generalization we have stated is intuitively compelling; something like it must be true. Some important effect therefore must be produced in that portion of the school's upper class that experiences downward social mobility, some antagonism to the wider society must get generated. If that effect is not the disproportionate opposition of the intellectuals, then what is it? We started with a puzzling phenomenon in need of an explanation. We have found, I think, an explanatory factor that (once stated) is so obvious that we must believe it explains some real phenomenon.
This article originally appeared in the January/February 1998 edition of Cato Policy Report.
Sunday, 31 May 2009
Sunday, 21 December 2008
Tuesday, 9 December 2008
Innovation lessons from the 1930s
History suggests that even the deepest downturns can create huge opportunities for companies with money and ideas.
DECEMBER 2008 • Tom Nicholas
Recent turmoil in global financial markets and its spillover into the real economy have generated considerable interest in the Great Depression. There’s much to be fascinated with, both in the parallels (banking failures, a large spike in real-estate foreclosures, and global uncertainty, for example) and the points of contrast (such as the speed and coordination of the response of central banks and finance ministries in 2008).
Can the business practices of the 1930s yield useful lessons for executives setting priorities in today’s uncertain and evolving environment? For investments to promote innovation, the answer may be yes. Executives are often told to maintain investment during downturns. It’s easy to question this countercyclical advice, however, in times like the Depression or the present, when the volatility of financial markets (an indicator of uncertainty) reaches historic highs. Is the typical behavior of executives—act cautiously and delay investment projects until confidence returns—the wiser course?
Many companies hesitated to innovate during the 1930s. Consider, for example, patent applications as a proxy for resources devoted to innovation. The growth rate of US patent applications by companies with R&D laboratories was considerably lower during the 1930s than in the preceding decade. On the whole, corporate executives considering plans for research investments preferred to wait and see.
Furthermore, patent applications were far more synchronized with the business cycle during the Depression, when the cycle was extremely volatile, than they had been during the ’20s, when economic conditions were buoyant (exhibit). From 1929 to 1937, for example, there were five years of GDP growth and four years of GDP contraction. Patent applications generally followed the same pattern, lagging behind by one year: the number of patent applications increased during years following GDP growth and decreased during years following GDP contraction, with two exceptions: 1934 and 1935. As the economy whipsawed companies during the 1930s, they appear to have regularly adjusted their views about the payoff from innovation.
Back to top
Yet several successful companies did not delay such investments. One was DuPont. In April 1930, a noted DuPont research scientist, Wallace Carothers, recorded the initial discovery of neoprene (synthetic rubber). Although the company’s price levels and sales fell by roughly 10 and 15 percent, respectively, that year, DuPont boosted R&D spending to develop the new technology commercially. A buyer’s market for research scientists and low raw-material prices helped the company to keep the cost of its research investments manageable. Neoprene, which DuPont publicly announced in November 1931 and introduced commercially in 1937, became one of the 20th century’s major innovations. By 1939, every automobile and airplane manufactured in the United States had neoprene components. Similarly, DuPont discovered nylon in 1934 and introduced it in 1938 after intensive R&D and product development.
DuPont isn’t the only such example. Many new technology companies—for instance, Hewlett-Packard and Polaroid—that became leading innovators later in the century were established as entrepreneurial start-ups during the 1930s. Radio Corporation of America, the high-tech company whose stock was bludgeoned during the Great Crash, returned to profitability in 1934 as it shifted its innovation efforts from radio to the nascent television market. In total, US companies founded at least 73 in-house R&D labs each year from 1929 to 1936.
Of course, these examples don’t mean that aggressive investments for innovation would have been wise for every company during the 1930s or are universally wise today. But taken together, the patent research and the experience of successful innovators in those years suggest that although delay is the natural response to uncertainty, some companies should continue innovating even in an extraordinarily deep economic downturn—especially with technologies that take a long time to commercialize after discovery. Companies that delay these investments may forego significant growth opportunities when uncertainty subsides and the economy recovers.
The experience of the 1930s also illustrates a broader point. Although deep downturns are destructive, they can also have an upside. The Depression-era economist Joseph Schumpeter emphasized the positive consequences of downturns: the destruction of underperforming companies, the release of capital from dying sectors to new industries, and the movement of high-quality, skilled workers toward stronger employers. For companies with cash and ideas, history shows that downturns can provide enormous strategic opportunities.
About the Author
Tom Nicholas is an associate professor at the Harvard Business School, where he teaches business history and entrepreneurial management.
DECEMBER 2008 • Tom Nicholas
Recent turmoil in global financial markets and its spillover into the real economy have generated considerable interest in the Great Depression. There’s much to be fascinated with, both in the parallels (banking failures, a large spike in real-estate foreclosures, and global uncertainty, for example) and the points of contrast (such as the speed and coordination of the response of central banks and finance ministries in 2008).
Can the business practices of the 1930s yield useful lessons for executives setting priorities in today’s uncertain and evolving environment? For investments to promote innovation, the answer may be yes. Executives are often told to maintain investment during downturns. It’s easy to question this countercyclical advice, however, in times like the Depression or the present, when the volatility of financial markets (an indicator of uncertainty) reaches historic highs. Is the typical behavior of executives—act cautiously and delay investment projects until confidence returns—the wiser course?
Many companies hesitated to innovate during the 1930s. Consider, for example, patent applications as a proxy for resources devoted to innovation. The growth rate of US patent applications by companies with R&D laboratories was considerably lower during the 1930s than in the preceding decade. On the whole, corporate executives considering plans for research investments preferred to wait and see.
Furthermore, patent applications were far more synchronized with the business cycle during the Depression, when the cycle was extremely volatile, than they had been during the ’20s, when economic conditions were buoyant (exhibit). From 1929 to 1937, for example, there were five years of GDP growth and four years of GDP contraction. Patent applications generally followed the same pattern, lagging behind by one year: the number of patent applications increased during years following GDP growth and decreased during years following GDP contraction, with two exceptions: 1934 and 1935. As the economy whipsawed companies during the 1930s, they appear to have regularly adjusted their views about the payoff from innovation.
Back to top
Yet several successful companies did not delay such investments. One was DuPont. In April 1930, a noted DuPont research scientist, Wallace Carothers, recorded the initial discovery of neoprene (synthetic rubber). Although the company’s price levels and sales fell by roughly 10 and 15 percent, respectively, that year, DuPont boosted R&D spending to develop the new technology commercially. A buyer’s market for research scientists and low raw-material prices helped the company to keep the cost of its research investments manageable. Neoprene, which DuPont publicly announced in November 1931 and introduced commercially in 1937, became one of the 20th century’s major innovations. By 1939, every automobile and airplane manufactured in the United States had neoprene components. Similarly, DuPont discovered nylon in 1934 and introduced it in 1938 after intensive R&D and product development.
DuPont isn’t the only such example. Many new technology companies—for instance, Hewlett-Packard and Polaroid—that became leading innovators later in the century were established as entrepreneurial start-ups during the 1930s. Radio Corporation of America, the high-tech company whose stock was bludgeoned during the Great Crash, returned to profitability in 1934 as it shifted its innovation efforts from radio to the nascent television market. In total, US companies founded at least 73 in-house R&D labs each year from 1929 to 1936.
Of course, these examples don’t mean that aggressive investments for innovation would have been wise for every company during the 1930s or are universally wise today. But taken together, the patent research and the experience of successful innovators in those years suggest that although delay is the natural response to uncertainty, some companies should continue innovating even in an extraordinarily deep economic downturn—especially with technologies that take a long time to commercialize after discovery. Companies that delay these investments may forego significant growth opportunities when uncertainty subsides and the economy recovers.
The experience of the 1930s also illustrates a broader point. Although deep downturns are destructive, they can also have an upside. The Depression-era economist Joseph Schumpeter emphasized the positive consequences of downturns: the destruction of underperforming companies, the release of capital from dying sectors to new industries, and the movement of high-quality, skilled workers toward stronger employers. For companies with cash and ideas, history shows that downturns can provide enormous strategic opportunities.
About the Author
Tom Nicholas is an associate professor at the Harvard Business School, where he teaches business history and entrepreneurial management.
Wednesday, 1 October 2008
Sunday, 7 September 2008
The Hydra-Headed Beast
Pasted from Atanu Dey's deeshaa.org
The Hydra-Headed Beast
Here is the real problem with the “greed is always bad, public provision is always good” perspective. As James Buchanan pointed out in “Politics Without Romance,” it makes no sense to assume that, under some circumstances (private buses), people are greedy, and under others (government buses), people are benevolent. The fact is that in both cases people behave purposively, pursuing their own goals filtered through the incentives and costs the system presents to them. Yet, the idea persists that removing profits and using government planning results in a kind of moral transubstantiation. Many planners think that profits are evil and would prefer a system that eliminates profits, even it means accepting substantial losses and no improvement in service.
No matter how many times this notion is killed off by experience and evidence, the hydra of planning grows another head, and political leaders trumpet the new reform in public service. Then, when the reform fails, commissions are formed, implementation is blamed, and budgets are raised.
The Transantiago bus reforms took an imperfect private system, operating without public subsidy and serving well over a million people a day, and “publicized” it. The expectation, almost pathetically naïve in retrospective, was that outlawing profits and demotivating drivers would change human nature. Worse, planners believed that they could dictate choices to commuters, who turned back to private automobiles instead. Why don’t they ever learn?
The Hydra-Headed Beast
Here is the real problem with the “greed is always bad, public provision is always good” perspective. As James Buchanan pointed out in “Politics Without Romance,” it makes no sense to assume that, under some circumstances (private buses), people are greedy, and under others (government buses), people are benevolent. The fact is that in both cases people behave purposively, pursuing their own goals filtered through the incentives and costs the system presents to them. Yet, the idea persists that removing profits and using government planning results in a kind of moral transubstantiation. Many planners think that profits are evil and would prefer a system that eliminates profits, even it means accepting substantial losses and no improvement in service.
No matter how many times this notion is killed off by experience and evidence, the hydra of planning grows another head, and political leaders trumpet the new reform in public service. Then, when the reform fails, commissions are formed, implementation is blamed, and budgets are raised.
The Transantiago bus reforms took an imperfect private system, operating without public subsidy and serving well over a million people a day, and “publicized” it. The expectation, almost pathetically naïve in retrospective, was that outlawing profits and demotivating drivers would change human nature. Worse, planners believed that they could dictate choices to commuters, who turned back to private automobiles instead. Why don’t they ever learn?
Wednesday, 3 September 2008
Africa's 'Cocoon' Phase: Can Private Investors and Entrepreneurs Transform the Continent?
Africa's 'Cocoon' Phase: Can Private Investors and Entrepreneurs Transform the Continent?
http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2039
In the past, business in Africa behaved like a "caterpillar" -- uninteresting, slow moving and easy to step on, says Eric Kacou, managing director of OTF Group, a U.S.-based consulting firm focused on emerging economies. Today, the continent is poised for a metamorphosis that requires a "new mindset" relying less on natural resources and more on innovation and private sector growth. At the Wharton Global Alumni Forum in Cape Town, South Africa, Kacou was among the speakers on two panels exploring the potential for new business models and "smart" capital to change Africa's economy.
Visit http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2039 for the complete story.
http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2039
In the past, business in Africa behaved like a "caterpillar" -- uninteresting, slow moving and easy to step on, says Eric Kacou, managing director of OTF Group, a U.S.-based consulting firm focused on emerging economies. Today, the continent is poised for a metamorphosis that requires a "new mindset" relying less on natural resources and more on innovation and private sector growth. At the Wharton Global Alumni Forum in Cape Town, South Africa, Kacou was among the speakers on two panels exploring the potential for new business models and "smart" capital to change Africa's economy.
Visit http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=2039 for the complete story.
Experimental Entrepreneurship: Removing the 'Tin Cup Dependencies'
Experimental Entrepreneurship: Removing the 'Tin Cup Dependencies'
http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=1376
Although it has one of the most dynamic economies in Africa, Botswana also has one of the world's highest known rates of HIV-AIDS infection. In response, the Botswana government, along with the Medical School of the University of Pennsylvania and Wharton's Sol C. Snider Entrepreneurial Research Center, is helping develop a more efficient system to manage and monitor HIV/AIDS therapy. According to Ian C. MacMillan, director of the Snider Center, and James D. Thompson, associate director of Wharton Entrepreneurial Programs, the Botswana project illustrates a new concept called
Visit http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=1376 for the complete story.
http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=1376
Although it has one of the most dynamic economies in Africa, Botswana also has one of the world's highest known rates of HIV-AIDS infection. In response, the Botswana government, along with the Medical School of the University of Pennsylvania and Wharton's Sol C. Snider Entrepreneurial Research Center, is helping develop a more efficient system to manage and monitor HIV/AIDS therapy. According to Ian C. MacMillan, director of the Snider Center, and James D. Thompson, associate director of Wharton Entrepreneurial Programs, the Botswana project illustrates a new concept called
Visit http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=1376 for the complete story.
Tuesday, 26 August 2008
Traffic Jams
Traffic jams are nothing new. In 45 BC, Rome banned all vehicles from within the city -
and in other cities vehicles, including horses, were allowed only at night... because of
traffic jams
and in other cities vehicles, including horses, were allowed only at night... because of
traffic jams
Monday, 18 August 2008
How Disruptive Innovation Changes Education - Q&A with Clayton M. Christensenh:
Extract from HBS Working Knowledge
HBS professor Clayton M. Christensen, who developed the theory of disruptive innovation, joins colleagues Michael B. Horn and Curtis W. Johnson to advocate for ways in which ideas around innovation can spur much-needed improvements in public education. A Q&A with the authors of Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns. Key concepts include:
As an industry, education has certain elements that have made the market difficult to penetrate and lasting reform hard to come by.
As a general rule, the most promising areas for innovation are pockets or areas that appear unattractive or inconsequential to industry incumbents and where there are people who would like to do something but cannot access the available offering.
To improve education as an industry, businesspeople might consider investing in technological platforms that will allow for robust educational user networks to emerge.
HBS professor Clayton M. Christensen, who developed the theory of disruptive innovation, joins colleagues Michael B. Horn and Curtis W. Johnson to advocate for ways in which ideas around innovation can spur much-needed improvements in public education. A Q&A with the authors of Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns. Key concepts include:
As an industry, education has certain elements that have made the market difficult to penetrate and lasting reform hard to come by.
As a general rule, the most promising areas for innovation are pockets or areas that appear unattractive or inconsequential to industry incumbents and where there are people who would like to do something but cannot access the available offering.
To improve education as an industry, businesspeople might consider investing in technological platforms that will allow for robust educational user networks to emerge.
HBS professor Clayton M. Christensen, who developed the theory of disruptive innovation, joins colleagues Michael B. Horn and Curtis W. Johnson to advocate for ways in which ideas around innovation can spur much-needed improvements in public education. A Q&A with the authors of Disrupting Class: How Disruptive Innovation Will Change the Way the World LearnsAbout Faculty in this Article:
Clayton M. Christensen is the Robert and Jane Cizik Professor of Business Administration at Harvard Business School.
More Working Knowledge from Clayton M. Christensen
Clayton M. Christensen - Faculty Research Page
How can schools around the world educate their students better? What does the future hold? Most researchers who study these questions in the field of education peer through the lenses of sociology and public policy. HBS professor Clayton M. Christensen and colleagues chose a different approach—the theory of disruptive innovation, often applied to a variety of other industries, such as technology and health care. Christensen's theory was first explored in his two New York Times bestsellers, The Innovator's Dilemma (1997) and The Innovator's Solution (with Michael E. Raynor, 2003).
His latest book, coauthored with Michael B. Horn (HBS MBA '06) and Curtis W. Johnson, shows how the theory of disruptive innovation-which in a nutshell explains why organizations experience difficulty with particular types of innovation and how they might systematically succeed-offers promising insights for improving public education. The book is titled Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns.
According to the authors, "Our goal in writing this book was to dig beneath the sorts of surface explanations for why schools struggle to improve, and the lenses on innovation, which is our field of specialty, proved a great way to help us do just that."
Christensen, Horn, and Johnson recently teamed up via e-mail to answer a few questions from HBS Working Knowledge on the best paths to better education for more schoolchildren.
Martha Lagace: You have decided to study education through the lenses of your research on innovation. How did you come to approach the problem in this way, and what makes the analysis of public education similar to, and different from, other industries you have studied in-depth, such as computers and health care?
Authors: Nearly a decade ago, representatives who had played pioneering roles in the chartered school movement came to us and said, "If you'd just stand next to the world of public education and examine it through the lenses of your research on innovation, we bet you could understand more deeply how to improve our schools."
The ability of these lenses to shed new light on complicated problems has been proven in contexts ranging from national defense to semiconductors; from health care to retailing; and from automobiles to financial services to telecommunications. When we took the people from EducationEvolving up on their invitation, we saw quickly that the same was true in education. Our goal in writing this book was to dig beneath the sorts of surface explanations for why schools struggle to improve, and the lenses on innovation, which is our field of specialty, proved a great way to help us do just that.
Education has many unique facets to it. As people have been quick to point out, in the United States, education is highly regulated; it is first and foremost about the future of children—and thus the future of our country as well—so the stakes are high; and it has certain elements that have made the market difficult to penetrate and lasting reform hard to come by.
That said, our lenses show how any organization can innovate successfully, and the forces at work in schools and districts are the same as those in other organizations. In fact, one very surprising thing is that, on average, schools have done a better job adjusting to disruptions imposed upon them than have companies in the private sector. Our research shows that the classic signs of disruption are now occurring in the world of education, in the same ways they occur in the other contexts we have studied.
Q: As you write, "Disruption is a positive force. It is the process by which an innovation transforms a market whose services or products are complicated and expensive into one where simplicity, convenience, accessibility, and affordability characterize the industry." How in essence do you think about disruption vis-à-vis public education? Where do you see the most room for innovation?
A: The lesson from all industries is that the most promising areas for innovation are pockets of what we call "nonconsumption"—areas that appear unattractive or inconsequential to the industry incumbents and where there are people who would like to do something but cannot access the available offering. By targeting these areas, you have a much greater chance of launching successfully a disruptive innovation that can transform a market.
The puzzle in U.S. education was that, at first blush, there are no obvious areas of nonconsumption; virtually everyone is required to attend school. If you take a deeper look, however, you see that actually there are many pockets of nonconsumption in education in the United States. For example, in many schools, if a student fails a course, he or she has no recourse to make up the class and must simply move on to the next course. There is no option for credit recovery. Likewise, no school can possibly offer all 34 Advanced Placement courses that are out there, and yet there are often students in the schools who would love to take some of the ones that are not offered.
In these foothold areas, computer-based or online learning is beginning to fill the void and plant itself and make inroads in the education system in classic disruptive fashion. Online learning has increased from 45,000 enrollments in 2000 to roughly 1 million in 2007, and shows signs of continuing to grow at an even more rapid pace.
Computer-based learning is an exciting disruption because it allows anyone to access a consistent quality learning experience; it is convenient since someone can take it virtually anywhere at any time; it allows a student to move through the material at any pace; it can customize for a student's preferred learning style; and it is more affordable than the current school system.
Q: What is the promise you see in this regard in the emerging online user networks?
A: Disruption tends to be a two-stage process. In the first stage, although the products are more accessible to users, they are typically still relatively complicated to build. We see this in education; effective and engaging computer-based learning products are not easy to make.
Within a few more years, however, two factors that were absent in stage 1 that are critical to the emergence of stage 2 will have fallen into place. The first will be robust platforms that facilitate the creation of user-generated content. The second will be the emergence of a user network, whose analogues in other industries include eBay and YouTube. A user network is a type of business model in which customers exchange with each other. For example, telecommunications is a user network because we send information to you, and you send it to us.
In education, this will mean that the tools of the software platform will make it so simple to develop online learning products that students will be able to build products that help them teach other students. Parents will be able to assemble tools to tutor their children. And teachers will be able to create tools to help the different types of learners in their classrooms. These instructional tools will look more like tutorial products than courseware initially. And rather than being "pushed" into classrooms through a centralized selection process, they will be pulled into use through self-diagnosis—by teachers, parents, and students who don't have access to another tutoring option.
Q: How would you suggest businesspeople lend their background and expertise to improving education?
A: It's a good question. Given the impact businesspeople have in society, it is crucial that they understand the root causes of why schools have struggled so much and why so many reform efforts have failed historically. Having this understanding will better guide them as they think through which school-improvement programs and initiatives to support.
We are already seeing a relatively big outpouring of activity from businesses, investors, and entrepreneurs behind computer-based learning solutions of various stripes—from mobile-platform solutions to educational gaming to online learning courses for computers in classrooms. This interest and activity should allow us to make great progress in the years ahead.
We also recommend investing in technological platforms that will allow for the robust educational user networks to emerge. Doing so will have extraordinary impact, and funding the development of these platforms and user networks within which learning tools can be exchanged should be financially rewarding for investors
Tuesday, 12 August 2008
The growing opportunity for investment banks in emerging markets
The growing opportunity for investment banks in emerging markets
As gloom besets capital markets in the developed world, the prospects of emerging ones continue to shine.
Markus Böhme, Daniele Chiarella, and Matthieu Lemerle
August 2008
The credit crunch that erupted in mid-2007 has already taken many new twists in the first half of 2008. But new McKinsey research shows that, amid the general uncertainty, the outlook for investment banking in emerging markets remains relatively bright.
Even in the worst case, emerging Asia and Europe, the Middle East, and Latin America will probably show absolute revenue growth over the next three years. Under all likely outcomes, the proportion of global revenues from emerging markets will jump sharply. Collectively, indeed, revenues from investment-banking and capital market activities in these regions are projected to match those in North America by 2010; in 2006, before the credit crunch, they amounted to less than half.1 A case, perhaps, for referring to “emerged” rather than emerging markets in the future?
Exactly when capital market activity recovers around the world will depend on three critical uncertainties: the prospects for the US and global economies, the speed of recovery in credit markets, and the behavior of investors and regulators. But several factors already suggest that emerging markets will be big winners in the near future. First, their macroeconomic environment remains comparatively benign, even if talk of a complete “decoupling” of their economies from those of the United States and Western Europe was premature. Although, if trade flows with the West do suffer, regional demand for oil and commodities, growing intra- and interregional trade flows (especially within Asia and between it and the Middle East), and huge infrastructure-investment programs will continue to underpin growth. Second, a new breed of global corporate players, notably in countries such as China, India, and the United Arab Emirates (UAE), now demands the sort of sophisticated investment-banking services previously reserved for large Western multinationals. This new group thus represents an increasingly attractive fee pool.
On the supply side, the emerging world’s capital markets will continue to develop. In part, their growth reflects intraregional competition, seen in the rush to develop financial centers in the Middle East and in government-sponsored bond issuance programs. At the same time, global investment banks are redirecting their resources—both human and capital—toward emerging markets, which they see as a new source of revenues to compensate for leaner times at home.
In the event of a relatively benign outcome for global capital markets—a one-year setback, with growth resuming in 2009—we calculate that revenues from investment banking in emerging markets will increase by 16 percent a year from 2007 to 2010, when they will generate 28 percent of the global total (exhibit). In this “steady recovery” scenario, Asia will continue to represent the lion’s share (66 percent) of the emerging markets’ revenue stream of almost $120 billion.
Your javascript is turned off. Javascript is required to view exhibits.
Suppose that the industry contracts more sharply during the second half of 2008, with a much slower, even faltering recovery in 2009. Revenues from emerging markets will still rise significantly (6 percent), according to our research, and will probably exceed $90 billion by 2010. In this “long chill” scenario, these regions will account for a bigger share of the global total (30 percent) than they would under our more benign scenario.
What’s really likely to distinguish emerging and developed markets over the next few years is the different effects of the credit crunch. Emerging markets, after all, do not have as much fallout to manage as their Western counterparts do: by the end of the first quarter of 2008, they had generated only around 7 percent of investment banks’ write-downs, as opposed to more than 21 percent of global revenues. Furthermore, revenues from credit and securitization—mostly plain-vanilla corporate bonds—represented just 9 percent of the emerging markets’ revenue pools in 2007. By contrast, credit products were responsible for 18 and 10 percent of US and European revenues, respectively.
Of course, one could argue that these numbers do not tell the full story. With limited product origination in emerging markets, there has been little to securitize, and institutions there have consequently avoided the dramatic swings in valuation that have hurt their counterparts holding market-traded products in the developed world. Even if many institutions hold significant amounts of bad loans, they are not required to mark them to market.
The absence of a bond “culture” means that managers of institutions based in emerging markets can now focus harder on the areas most likely to generate future growth. Under our analysis, commodities and equity derivatives will probably be the big winners, no matter how markets perform more generally. Foreign exchange, interest rate swaps and futures, and equities (including derivatives) will do well under our benign scenario and will be relatively resilient even in the tougher one.
While all emerging markets are expected to fare comparatively well under both scenarios, we see some interesting nuances across regions.
Emerging Asia
Over the next few years, we expect wholesale banking revenues ($38 billion in 2006) in Asia outside Japan to double under our steady-recovery scenario and to increase by more than 60 percent even with a long chill.
Drivers will include robust economic growth—increasing both the stock and turnover of financial assets—and further deregulation in local markets. Emerging Asian countries, moreover, will integrate with global financial markets and become a target for financial players; as more Asian companies expand internationally, they will also become a source of new investments, funds, and wholesale-banking activities.
Sovereign wealth funds and hedge funds have emerged as new client groups and are growing rapidly, with the $200 billion fund of the China Investment Corporation (CIC) just one of the latest actors on the stage.
Indeed, China is the country to watch: its financial depth is already comparable to many developed markets. Its future growth will be mainly built around equities, rates, and an emerging debt capital market and corporate-bond market, as well as an appreciating currency, which should further boost revenue pools. Product diversity and innovation will increase in China: advanced products such as securitization, derivatives, and program trading should start to thrive as regulators continue to loosen restrictions.
India’s growth is also expected to be strong under both our scenarios, with M&A and rates trading comparatively more important than they are in China. That said, lower growth and lower savings rates mean that India’s accumulated financial stock will be only one-fifth of China’s.
Asian markets are fast becoming as demanding and sophisticated as markets in Europe and the United States. Clients have developed a taste for complex financial products and demand good local service; domestic competitors are ramping up their skills and opening their checkbooks to attract international talent.
An onshore presence in emerging Asian markets, meanwhile, is becoming critical. The old model of the suitcase banker operating from hubs such as Singapore and Hong Kong will fail to satisfy clients and regulators seeking a true commitment to the local market.
Complex products (acquisition finance, exotic fixed-income products, equity derivatives, and proprietary trading) will develop in emerging local onshore markets and continue to grow in the bigger financial centers. As elsewhere, the lines between financial services are blurring with increasing overlap between investment banking, asset management, and private banking. A significant share of private wealth in Asia, after all, is generated through capital markets transactions.
Latin America
We expect Latin America’s revenue pools to grow by 16 percent a year under our benign scenario and by 4 percent in the more pessimistic one. Brazil, representing half of Latin America’s revenue pool, dominates the region’s capital markets, followed by Mexico and Chile. Brazil’s capital markets have developed recently—the primary markets are growing especially rapidly (there were 61 IPOs in 2007 alone), along with simple derivatives markets and cash equities brokerage.
In Brazil, we see four key growth drivers. First, local and international banks will invest in building sales and trading capabilities, especially in OTC products such as commodity derivatives. There is strong latent demand for this type of product in a country that is a leading exporter of several agricultural and mining commodities and where domestic players have had little opportunity to manage their risks locally. International banks (especially those based in New York) are also expected to move aggressively to build their presence in this market, which for them has the double advantage of being close to home and largely unaffected by the credit crunch.
Second, the country’s return to investment-grade status and a program of large infrastructure projects will create long-term financing needs and promote the development of a proper yield curve. Third, the recent relaxation of restrictions on investment—mutual funds can now place up to 20 percent of their assets overseas, for example—is expected to be followed by tax changes that will benefit foreign investors and the trading of derivatives. These moves should help boost capital flows and facilitate the use of more sophisticated financial instruments.
Finally, Brazil’s overall macroeconomic outlook—4 to 5 percent GDP growth is expected under our benign scenario—will encourage new equity and debt issues, as well as M&A activity. Even in our more pessimistic scenario, Brazil should fare comparatively well, given its strong structural demand and the economy’s focus on commodities.
Emerging Europe
The outlook for capital market businesses differs substantially across emerging Europe, but all of these countries share the prospect of strong underlying growth: 19 percent annually in the region as a whole until 2010 in our benign scenario, 7 percent in the event of the darker one. Russia, accounting for 42 percent of the region’s capital market revenues and growing at more than 20 percent a year, is a major—but not the sole—part of the story. The opportunities in emerging Europe are sprouting in countries ranging from relatively developed Poland, which is preparing to adopt the euro, to truly emerging markets, like Kazakhstan. Notwithstanding the region’s heterogeneity, we have identified a number of general trends.
While Russia and other parts of Central and Eastern Europe offer rich opportunities in primary products such as new debt and equity issues, secondary market products will provide the lion’s share of the revenue pool—a mix that already mirrors Western Europe’s. In the future, we believe, growth will probably shift from foreign exchange to interest- and equity-based derivatives, among other products.
Except in Russia, foreign-owned universal banks, using their corporate-banking arms for distribution, have mostly been quick to deploy their capital market expertise across emerging Europe. Universal banks have captured the bulk of the revenues in these markets. Local trading rooms, often with oversight from Western players, have proliferated. Russia is different. Global investment banks have aggressively built a presence there, but local boutiques have grown into serious players. Two of the top five Russian firms remain independent, and the founding management teams of the three acquired by global banks are still highly prominent. Furthermore, local universal banks are improving their capabilities significantly, and Moscow is well placed as a financial center to address the country’s vast domestic market and the former Soviet republics.
The Middle East
Investment banks are reassigning more and more bankers from London and New York to the Middle East, despite the region’s small capital markets (2007 revenues of $3 billion), a limited but growing number of listed companies, and debt markets that remain small relative to GDP.
Our research, however, shows that this region is likely to enjoy the fastest capital market expansion in the emerging world under both of our scenarios. Revenue pools will grow by 25 and 16 percent a year under the optimistic and pessimistic ones, respectively, from 2007 to 2010.
The oil-rich states of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—are generating wealth at levels not seen since the 1980s. High oil prices have triggered an unprecedented wave of investment, including a huge pipeline of industrial and large-scale infrastructure projects, such as Saudi Arabia’s new “economic cities.” By some accounts, the GCC will have invested around $3 trillion in the region by 2020.
A number of domestic companies are using these resources to expand internationally and become “global champions,” while wealthy private investors are investing around the globe. Countries across the Middle East continue to modernize their regulatory and institutional frameworks, while governments and listed companies increasingly embrace Islamic structures supporting the growth of Sukuks (bonds that comply with Islamic law).
Even under our pessimistic scenario, the medium-term outlook for capital markets in the Middle East remains positive. The sheer magnitude of the wealth accumulated over the past few years should help support these markets if a protracted economic recession ever chokes global demand for oil and slows the flow of capital into the GCC.
Emerging markets now have a rare window of opportunity to catch up with the rest of the world, not least because they don’t have to mitigate the mess created by current market dislocation in the West.
Of course, unpredictable events—such as a major political upheaval or an escalation of regional tensions in the Middle East—could call this into question. But barring a geopolitical disaster, under the benign and the pessimistic scenarios alike, emerging Asia, Latin America, emerging Europe, and the Middle East should achieve sustained growth and capture close to 30 percent of the global investment-banking pie over the next few years.
About the Authors
Markus Böhme is a principal in McKinsey’s Munich office, Daniele Chiarella is a principal in the Frankfurt office, and Matthieu Lemerle is a principal in the London office.
The authors would like to acknowledge Alberto Bernuzzi, Mehmet Darendeli, Jeremy King, George Nast, and Stephan Schmidt-Tank for their contributions to this article.
Notes
1Our scenarios rest on the findings of the McKinsey Global Capital Markets Survey (GCMS), a comprehensive, in-depth analysis of the state of the global investment-banking industry. The survey provides forward-looking estimates of revenues from capital markets activities for the years 2006 to 2010.
We welcome your comments on this article. Letters will be considered for publication online as well as in the print edition of The McKinsey Quarterly. Those chosen for publication may be edited for length and clarity and will be published along with the writers' names. We may also choose to publish the names of the companies or institutions with which the writers are affiliated, as well as any other information provided.
As gloom besets capital markets in the developed world, the prospects of emerging ones continue to shine.
Markus Böhme, Daniele Chiarella, and Matthieu Lemerle
August 2008
The credit crunch that erupted in mid-2007 has already taken many new twists in the first half of 2008. But new McKinsey research shows that, amid the general uncertainty, the outlook for investment banking in emerging markets remains relatively bright.
Even in the worst case, emerging Asia and Europe, the Middle East, and Latin America will probably show absolute revenue growth over the next three years. Under all likely outcomes, the proportion of global revenues from emerging markets will jump sharply. Collectively, indeed, revenues from investment-banking and capital market activities in these regions are projected to match those in North America by 2010; in 2006, before the credit crunch, they amounted to less than half.1 A case, perhaps, for referring to “emerged” rather than emerging markets in the future?
Exactly when capital market activity recovers around the world will depend on three critical uncertainties: the prospects for the US and global economies, the speed of recovery in credit markets, and the behavior of investors and regulators. But several factors already suggest that emerging markets will be big winners in the near future. First, their macroeconomic environment remains comparatively benign, even if talk of a complete “decoupling” of their economies from those of the United States and Western Europe was premature. Although, if trade flows with the West do suffer, regional demand for oil and commodities, growing intra- and interregional trade flows (especially within Asia and between it and the Middle East), and huge infrastructure-investment programs will continue to underpin growth. Second, a new breed of global corporate players, notably in countries such as China, India, and the United Arab Emirates (UAE), now demands the sort of sophisticated investment-banking services previously reserved for large Western multinationals. This new group thus represents an increasingly attractive fee pool.
On the supply side, the emerging world’s capital markets will continue to develop. In part, their growth reflects intraregional competition, seen in the rush to develop financial centers in the Middle East and in government-sponsored bond issuance programs. At the same time, global investment banks are redirecting their resources—both human and capital—toward emerging markets, which they see as a new source of revenues to compensate for leaner times at home.
In the event of a relatively benign outcome for global capital markets—a one-year setback, with growth resuming in 2009—we calculate that revenues from investment banking in emerging markets will increase by 16 percent a year from 2007 to 2010, when they will generate 28 percent of the global total (exhibit). In this “steady recovery” scenario, Asia will continue to represent the lion’s share (66 percent) of the emerging markets’ revenue stream of almost $120 billion.
Your javascript is turned off. Javascript is required to view exhibits.
Suppose that the industry contracts more sharply during the second half of 2008, with a much slower, even faltering recovery in 2009. Revenues from emerging markets will still rise significantly (6 percent), according to our research, and will probably exceed $90 billion by 2010. In this “long chill” scenario, these regions will account for a bigger share of the global total (30 percent) than they would under our more benign scenario.
What’s really likely to distinguish emerging and developed markets over the next few years is the different effects of the credit crunch. Emerging markets, after all, do not have as much fallout to manage as their Western counterparts do: by the end of the first quarter of 2008, they had generated only around 7 percent of investment banks’ write-downs, as opposed to more than 21 percent of global revenues. Furthermore, revenues from credit and securitization—mostly plain-vanilla corporate bonds—represented just 9 percent of the emerging markets’ revenue pools in 2007. By contrast, credit products were responsible for 18 and 10 percent of US and European revenues, respectively.
Of course, one could argue that these numbers do not tell the full story. With limited product origination in emerging markets, there has been little to securitize, and institutions there have consequently avoided the dramatic swings in valuation that have hurt their counterparts holding market-traded products in the developed world. Even if many institutions hold significant amounts of bad loans, they are not required to mark them to market.
The absence of a bond “culture” means that managers of institutions based in emerging markets can now focus harder on the areas most likely to generate future growth. Under our analysis, commodities and equity derivatives will probably be the big winners, no matter how markets perform more generally. Foreign exchange, interest rate swaps and futures, and equities (including derivatives) will do well under our benign scenario and will be relatively resilient even in the tougher one.
While all emerging markets are expected to fare comparatively well under both scenarios, we see some interesting nuances across regions.
Emerging Asia
Over the next few years, we expect wholesale banking revenues ($38 billion in 2006) in Asia outside Japan to double under our steady-recovery scenario and to increase by more than 60 percent even with a long chill.
Drivers will include robust economic growth—increasing both the stock and turnover of financial assets—and further deregulation in local markets. Emerging Asian countries, moreover, will integrate with global financial markets and become a target for financial players; as more Asian companies expand internationally, they will also become a source of new investments, funds, and wholesale-banking activities.
Sovereign wealth funds and hedge funds have emerged as new client groups and are growing rapidly, with the $200 billion fund of the China Investment Corporation (CIC) just one of the latest actors on the stage.
Indeed, China is the country to watch: its financial depth is already comparable to many developed markets. Its future growth will be mainly built around equities, rates, and an emerging debt capital market and corporate-bond market, as well as an appreciating currency, which should further boost revenue pools. Product diversity and innovation will increase in China: advanced products such as securitization, derivatives, and program trading should start to thrive as regulators continue to loosen restrictions.
India’s growth is also expected to be strong under both our scenarios, with M&A and rates trading comparatively more important than they are in China. That said, lower growth and lower savings rates mean that India’s accumulated financial stock will be only one-fifth of China’s.
Asian markets are fast becoming as demanding and sophisticated as markets in Europe and the United States. Clients have developed a taste for complex financial products and demand good local service; domestic competitors are ramping up their skills and opening their checkbooks to attract international talent.
An onshore presence in emerging Asian markets, meanwhile, is becoming critical. The old model of the suitcase banker operating from hubs such as Singapore and Hong Kong will fail to satisfy clients and regulators seeking a true commitment to the local market.
Complex products (acquisition finance, exotic fixed-income products, equity derivatives, and proprietary trading) will develop in emerging local onshore markets and continue to grow in the bigger financial centers. As elsewhere, the lines between financial services are blurring with increasing overlap between investment banking, asset management, and private banking. A significant share of private wealth in Asia, after all, is generated through capital markets transactions.
Latin America
We expect Latin America’s revenue pools to grow by 16 percent a year under our benign scenario and by 4 percent in the more pessimistic one. Brazil, representing half of Latin America’s revenue pool, dominates the region’s capital markets, followed by Mexico and Chile. Brazil’s capital markets have developed recently—the primary markets are growing especially rapidly (there were 61 IPOs in 2007 alone), along with simple derivatives markets and cash equities brokerage.
In Brazil, we see four key growth drivers. First, local and international banks will invest in building sales and trading capabilities, especially in OTC products such as commodity derivatives. There is strong latent demand for this type of product in a country that is a leading exporter of several agricultural and mining commodities and where domestic players have had little opportunity to manage their risks locally. International banks (especially those based in New York) are also expected to move aggressively to build their presence in this market, which for them has the double advantage of being close to home and largely unaffected by the credit crunch.
Second, the country’s return to investment-grade status and a program of large infrastructure projects will create long-term financing needs and promote the development of a proper yield curve. Third, the recent relaxation of restrictions on investment—mutual funds can now place up to 20 percent of their assets overseas, for example—is expected to be followed by tax changes that will benefit foreign investors and the trading of derivatives. These moves should help boost capital flows and facilitate the use of more sophisticated financial instruments.
Finally, Brazil’s overall macroeconomic outlook—4 to 5 percent GDP growth is expected under our benign scenario—will encourage new equity and debt issues, as well as M&A activity. Even in our more pessimistic scenario, Brazil should fare comparatively well, given its strong structural demand and the economy’s focus on commodities.
Emerging Europe
The outlook for capital market businesses differs substantially across emerging Europe, but all of these countries share the prospect of strong underlying growth: 19 percent annually in the region as a whole until 2010 in our benign scenario, 7 percent in the event of the darker one. Russia, accounting for 42 percent of the region’s capital market revenues and growing at more than 20 percent a year, is a major—but not the sole—part of the story. The opportunities in emerging Europe are sprouting in countries ranging from relatively developed Poland, which is preparing to adopt the euro, to truly emerging markets, like Kazakhstan. Notwithstanding the region’s heterogeneity, we have identified a number of general trends.
While Russia and other parts of Central and Eastern Europe offer rich opportunities in primary products such as new debt and equity issues, secondary market products will provide the lion’s share of the revenue pool—a mix that already mirrors Western Europe’s. In the future, we believe, growth will probably shift from foreign exchange to interest- and equity-based derivatives, among other products.
Except in Russia, foreign-owned universal banks, using their corporate-banking arms for distribution, have mostly been quick to deploy their capital market expertise across emerging Europe. Universal banks have captured the bulk of the revenues in these markets. Local trading rooms, often with oversight from Western players, have proliferated. Russia is different. Global investment banks have aggressively built a presence there, but local boutiques have grown into serious players. Two of the top five Russian firms remain independent, and the founding management teams of the three acquired by global banks are still highly prominent. Furthermore, local universal banks are improving their capabilities significantly, and Moscow is well placed as a financial center to address the country’s vast domestic market and the former Soviet republics.
The Middle East
Investment banks are reassigning more and more bankers from London and New York to the Middle East, despite the region’s small capital markets (2007 revenues of $3 billion), a limited but growing number of listed companies, and debt markets that remain small relative to GDP.
Our research, however, shows that this region is likely to enjoy the fastest capital market expansion in the emerging world under both of our scenarios. Revenue pools will grow by 25 and 16 percent a year under the optimistic and pessimistic ones, respectively, from 2007 to 2010.
The oil-rich states of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—are generating wealth at levels not seen since the 1980s. High oil prices have triggered an unprecedented wave of investment, including a huge pipeline of industrial and large-scale infrastructure projects, such as Saudi Arabia’s new “economic cities.” By some accounts, the GCC will have invested around $3 trillion in the region by 2020.
A number of domestic companies are using these resources to expand internationally and become “global champions,” while wealthy private investors are investing around the globe. Countries across the Middle East continue to modernize their regulatory and institutional frameworks, while governments and listed companies increasingly embrace Islamic structures supporting the growth of Sukuks (bonds that comply with Islamic law).
Even under our pessimistic scenario, the medium-term outlook for capital markets in the Middle East remains positive. The sheer magnitude of the wealth accumulated over the past few years should help support these markets if a protracted economic recession ever chokes global demand for oil and slows the flow of capital into the GCC.
Emerging markets now have a rare window of opportunity to catch up with the rest of the world, not least because they don’t have to mitigate the mess created by current market dislocation in the West.
Of course, unpredictable events—such as a major political upheaval or an escalation of regional tensions in the Middle East—could call this into question. But barring a geopolitical disaster, under the benign and the pessimistic scenarios alike, emerging Asia, Latin America, emerging Europe, and the Middle East should achieve sustained growth and capture close to 30 percent of the global investment-banking pie over the next few years.
About the Authors
Markus Böhme is a principal in McKinsey’s Munich office, Daniele Chiarella is a principal in the Frankfurt office, and Matthieu Lemerle is a principal in the London office.
The authors would like to acknowledge Alberto Bernuzzi, Mehmet Darendeli, Jeremy King, George Nast, and Stephan Schmidt-Tank for their contributions to this article.
Notes
1Our scenarios rest on the findings of the McKinsey Global Capital Markets Survey (GCMS), a comprehensive, in-depth analysis of the state of the global investment-banking industry. The survey provides forward-looking estimates of revenues from capital markets activities for the years 2006 to 2010.
We welcome your comments on this article. Letters will be considered for publication online as well as in the print edition of The McKinsey Quarterly. Those chosen for publication may be edited for length and clarity and will be published along with the writers' names. We may also choose to publish the names of the companies or institutions with which the writers are affiliated, as well as any other information provided.
Sunday, 27 July 2008
Brain Food
I found this in the Science and Technology section of the Economist last week and thought of preserving it as a constant reminder.
Sunday, 6 January 2008
Welcome 2008
I am amazed at my own will-power...or the lack of it.
It is a few days short of one long year, today, that I give it my yet another try and resolve to write more often. Or post interesting notes when I feel lazy.
It is a few days short of one long year, today, that I give it my yet another try and resolve to write more often. Or post interesting notes when I feel lazy.
Friday, 26 January 2007
To be
To be, or not to be: that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them? To die: to sleep;
Shakespeare (Hamlet’s Soliloquy)
Friday, 19 January 2007
Why we procrastinate?
January 14, 2007 by Kurt Kleiner
No other anguish is quite like that of the procrastinator. He knows that the job has to get done, that putting it off just makes it harder, that the worry is worse than the work. And yet he can't ... quite ... get ... started.
Procrastination seems built into human nature – the ancient Roman orator Cicero fretted about it, as did the Greek historian Thucydides.
Today, 95 per cent of people say that they sometimes procrastinate.
The real problem, though, is the 20 per cent of us who qualify as chronic procrastinators. These are people who procrastinate so routinely that their work, finances or personal relationships suffer because of it.
At its worst, procrastination is a form of self-destructive behaviour, like drug addiction or chronic gambling. Like them, its origins are mysterious, and its treatment difficult.
Now a new analysis of the psychological literature by a University of Calgary psychologist could help untangle what makes so many of us put off until tomorrow what we really should do today.
Piers Steel has just published a mammoth review of the scientific literature on procrastination in the journal Psychological Bulletin, and his conclusions are at odds with some conventional ideas.
"Some of them are dead wrong," Steel says.
His research contradicts one major theory, which is that procrastinators suffer from anxiety and so have a harder time facing a difficult task.
Steel looked at the literature and found that statistically there's very little correlation between anxiety and a tendency to procrastinate.
The same with the flattering idea that procrastinators are also perfectionists, people who care so much about doing it right that they can't bear to get started. Again, Steel found no correlation.
What he did find is that procrastinators are less confident that they can handle a given task. They're also more impulsive and less conscientious overall.
"Whether you believe you can or you believe you can't, you're right," Steel says."Some of these old wives' tales bear out. People who believe they can are less likely to procrastinate."
Steel's paper is unlikely to be the final word on procrastination. But it's important because it's the best attempt so far to analyze hundreds of psychological studies that have been conducted over a period of decades.
Part of the problem of procrastination is defining it in the first place. We all have dozens of things we could be doing at any particular moment, and some of them have to be put off.
Prioritizing turns into procrastination when we know the job needs to be done, we know we'll be worse off if we don't do it, we intend to do it – and we still don't do it. It is profoundly irrational behaviour, and its very irrationality makes it tough for procrastinators and psychologists alike to understand.
Samuel Johnson, the prolific 18th-century writer and lexicographer, admitted to procrastinating himself, and described the remorse familiar to any procrastinator: "I could not forbear to reproach myself for having so long neglected what was unavoidably to be done, and of which every moment's idleness increased the difficulty."
But he also puzzled over what made people procrastinate when it was so clearly against their best interests. "The folly of allowing ourselves to delay what we know cannot be finally escaped is one of the general weaknesses," he concluded.
Steel thinks procrastination is probably an even bigger problem today.
We have more readily available distractions, like the Internet and computer games. (Steel says he's had problems with computer games himself.) And many jobs are becoming more self-structured, which means it's increasingly up to us to impose our own work goals and deadlines.
The harm caused by procrastination can be immense. Steel points to a study by the tax-preparation firm H&R Block that says putting off doing their taxes costs U.S. citizens an average of $400 each because of errors due to the last-minute rush.
Even more irrationally, 70 per cent of patients suffering from glaucoma don't get around to using their eye drops regularly, which could potentially result in blindness.
Fifty per cent of heart attack patients don't manage to make the lifestyle changes that could save their lives.
"On the one hand, it's easy to trivialize procrastination. We joke about it," says Timothy A. Pychyl, a psychologist at Carleton University who studies procrastination.
"But procrastination is self-defeating. It's a breakdown in volitional action. I have an intention and I'm not following through on it. You're not able to follow through on what you want to do."
Over the years, psychologists have come up with a lot of ideas about what makes people procrastinate. In addition to anxiety and perfectionism, some suggested that procrastinators were self-sabotaging, hostile and rebellious, or depressed.
But for Steel, procrastination can be explained by an insight borrowed from behavioural economics called hyperbolic discounting. This is the tendency to value near-term rewards more than long-term ones. For instance, some people will choose a payoff of $50 today over $100 tomorrow.
Steel combined hyperbolic discounting with a theory of motivation called expectancy theory, and came up with something he calls temporal motivational theory (TMT). It boils down to this:
Utility = E x V / Gamma D
Utility is the desirability of getting something done. E is expectancy, or confidence. V is the value of the job, and includes not only its importance but also its unpleasantness. Gamma stands for how prone a person is to delay doing things. And D means delay, or how far away the consequences of doing, or not doing, the task are.
The bigger the top number compared to the bottom, the less likely a task will be put off. So if you expect to do well at a job (E), and it's a pleasant thing to do (V), and you're not prone to being delayed by distractions (Gamma), and it has to be done right away (D), you're not likely to procrastinate.
If you expect to fail at a difficult task and you're easily distracted and it doesn't have to be done for quite awhile, you're going to procrastinate.
"It's a little bit unsettling that human nature can be reduced to an equation," Steel says. "But you can show that pretty much every major view of behaviour can be reduced to that."
Perhaps not surprisingly, other procrastination experts don't think it's quite that simple.
"It makes an important contribution by summing it up," says Pychyl. "It doesn't mean that he's captured the whole phenomenon. There are elements we still don't understand about these self-defeating behaviours."
Pychyl thinks it's still too early to rule out anxiety, perfectionism, depression or other causes that have been suggested for procrastination.
William J. Knaus, a psychologist and author of Do It Now!, a procrastination self-help book, says it's a complex behaviour that's far from being understood. But he insists procrastinators can change.
"It's a challenge," he says, "but it's doable. We have enough of the tools now so that anyone who is serious about making strides and improvements can do so."
No other anguish is quite like that of the procrastinator. He knows that the job has to get done, that putting it off just makes it harder, that the worry is worse than the work. And yet he can't ... quite ... get ... started.
Procrastination seems built into human nature – the ancient Roman orator Cicero fretted about it, as did the Greek historian Thucydides.
Today, 95 per cent of people say that they sometimes procrastinate.
The real problem, though, is the 20 per cent of us who qualify as chronic procrastinators. These are people who procrastinate so routinely that their work, finances or personal relationships suffer because of it.
At its worst, procrastination is a form of self-destructive behaviour, like drug addiction or chronic gambling. Like them, its origins are mysterious, and its treatment difficult.
Now a new analysis of the psychological literature by a University of Calgary psychologist could help untangle what makes so many of us put off until tomorrow what we really should do today.
Piers Steel has just published a mammoth review of the scientific literature on procrastination in the journal Psychological Bulletin, and his conclusions are at odds with some conventional ideas.
"Some of them are dead wrong," Steel says.
His research contradicts one major theory, which is that procrastinators suffer from anxiety and so have a harder time facing a difficult task.
Steel looked at the literature and found that statistically there's very little correlation between anxiety and a tendency to procrastinate.
The same with the flattering idea that procrastinators are also perfectionists, people who care so much about doing it right that they can't bear to get started. Again, Steel found no correlation.
What he did find is that procrastinators are less confident that they can handle a given task. They're also more impulsive and less conscientious overall.
"Whether you believe you can or you believe you can't, you're right," Steel says."Some of these old wives' tales bear out. People who believe they can are less likely to procrastinate."
Steel's paper is unlikely to be the final word on procrastination. But it's important because it's the best attempt so far to analyze hundreds of psychological studies that have been conducted over a period of decades.
Part of the problem of procrastination is defining it in the first place. We all have dozens of things we could be doing at any particular moment, and some of them have to be put off.
Prioritizing turns into procrastination when we know the job needs to be done, we know we'll be worse off if we don't do it, we intend to do it – and we still don't do it. It is profoundly irrational behaviour, and its very irrationality makes it tough for procrastinators and psychologists alike to understand.
Samuel Johnson, the prolific 18th-century writer and lexicographer, admitted to procrastinating himself, and described the remorse familiar to any procrastinator: "I could not forbear to reproach myself for having so long neglected what was unavoidably to be done, and of which every moment's idleness increased the difficulty."
But he also puzzled over what made people procrastinate when it was so clearly against their best interests. "The folly of allowing ourselves to delay what we know cannot be finally escaped is one of the general weaknesses," he concluded.
Steel thinks procrastination is probably an even bigger problem today.
We have more readily available distractions, like the Internet and computer games. (Steel says he's had problems with computer games himself.) And many jobs are becoming more self-structured, which means it's increasingly up to us to impose our own work goals and deadlines.
The harm caused by procrastination can be immense. Steel points to a study by the tax-preparation firm H&R Block that says putting off doing their taxes costs U.S. citizens an average of $400 each because of errors due to the last-minute rush.
Even more irrationally, 70 per cent of patients suffering from glaucoma don't get around to using their eye drops regularly, which could potentially result in blindness.
Fifty per cent of heart attack patients don't manage to make the lifestyle changes that could save their lives.
"On the one hand, it's easy to trivialize procrastination. We joke about it," says Timothy A. Pychyl, a psychologist at Carleton University who studies procrastination.
"But procrastination is self-defeating. It's a breakdown in volitional action. I have an intention and I'm not following through on it. You're not able to follow through on what you want to do."
Over the years, psychologists have come up with a lot of ideas about what makes people procrastinate. In addition to anxiety and perfectionism, some suggested that procrastinators were self-sabotaging, hostile and rebellious, or depressed.
But for Steel, procrastination can be explained by an insight borrowed from behavioural economics called hyperbolic discounting. This is the tendency to value near-term rewards more than long-term ones. For instance, some people will choose a payoff of $50 today over $100 tomorrow.
Steel combined hyperbolic discounting with a theory of motivation called expectancy theory, and came up with something he calls temporal motivational theory (TMT). It boils down to this:
Utility = E x V / Gamma D
Utility is the desirability of getting something done. E is expectancy, or confidence. V is the value of the job, and includes not only its importance but also its unpleasantness. Gamma stands for how prone a person is to delay doing things. And D means delay, or how far away the consequences of doing, or not doing, the task are.
The bigger the top number compared to the bottom, the less likely a task will be put off. So if you expect to do well at a job (E), and it's a pleasant thing to do (V), and you're not prone to being delayed by distractions (Gamma), and it has to be done right away (D), you're not likely to procrastinate.
If you expect to fail at a difficult task and you're easily distracted and it doesn't have to be done for quite awhile, you're going to procrastinate.
"It's a little bit unsettling that human nature can be reduced to an equation," Steel says. "But you can show that pretty much every major view of behaviour can be reduced to that."
Perhaps not surprisingly, other procrastination experts don't think it's quite that simple.
"It makes an important contribution by summing it up," says Pychyl. "It doesn't mean that he's captured the whole phenomenon. There are elements we still don't understand about these self-defeating behaviours."
Pychyl thinks it's still too early to rule out anxiety, perfectionism, depression or other causes that have been suggested for procrastination.
William J. Knaus, a psychologist and author of Do It Now!, a procrastination self-help book, says it's a complex behaviour that's far from being understood. But he insists procrastinators can change.
"It's a challenge," he says, "but it's doable. We have enough of the tools now so that anyone who is serious about making strides and improvements can do so."
Saturday, 13 January 2007
Doctrine
"A doctrine may be modern, fashionable, generally accepted and nevertheless detrimental to human society, civilization and survival" Ludwig Von Mises
Wednesday, 27 December 2006
India v/s English
Sucheta Dalal www.suchetadalal.com writes
The BPO and IT industries today absorb so much of the smart, technically qualified and eminently employable talent that there is a serious shortage of people for other, not-so-paying, smaller businesses who also need similar skill sets. Contrary to the bleeding-heart view about BPO employees being stuck in stressful and monotonous jobs, those earning high call-centre salaries are unwilling to consider less-paying but more challenging employment that requires aptitude, learning and slower initial growth.
It is necessary to address an important differentiator that has already emerged in the job market today. It is the earning difference between those who are conversant with the English language and those who aren’t.
Salary differences between equally qualified (non-professional/technical) candidates can be as high as 400 to 500 per cent. In fact, the more fancied jobs in airlines, hotels, media, banks and financial services only to those who know English, the rest are forced into less fancied assignments.
Ironically enough, the wide gap in earning starts from jobs where literacy levels are less important; for instance employment as peons, drivers, courier and delivery staff, sales assistants, counter staff and waiters.
The best jobs with the upmarket shopping malls, multiational fast-food chains and tony restaurants go to those who can speak English along with the mandatory fluency in local languages. The job market in the services sector is likely to expand furiously as malls, multiplexes, food courts, and large retail chains expand operations across India, moving from the cities to larger towns. This growth will only accelerate if the government eventually permits Foreign Direct Investment in the Retail Sector, letting in large retail chains such as Wal-Mart.
Unfortunately, there is no concerted effort as yet by the corporate sector, NGOs or even social organisations to help improve their English-speaking skills and confidence levels to prepare for the coming boom. Consequently, there is already a serious shortage of ‘employable; human resources in the service sector.
My own effort to help a young girl, desperate to ‘‘improve her English’’ through a formal programme in Mumbai drew a blank. Her big ambition is to land a sales job in a smart food or retail chain. I found that the few private tutors available are astonishingly expensive. On the other hand, I found it much easier to sponsor her for a basic and inexpensive orientation course in the use of computers that was run by an NGO called Pratham.
The Chinese apparently hired football stadiums to teach the English language and enhance employment opportunities.
In India, language chauvinism bars frank discussion or an acknowledgement that English is now the global language of commerce. In his Independence Day address in August 2004, President A.P.J. Abdul Kalam talked about the need to achieve 100 per cent literacy by increasing our education expenditure. The bigger challenge in the coming years will be to adapt our school and college curricula to meet the demands of changing society, job market and individual aspirations.
This will mean inclusion of language skills, computer literacy and vocational training at the school level. That in turn will require investment in finding and employing better trained and better paid teachers to prepare students for a better India
The BPO and IT industries today absorb so much of the smart, technically qualified and eminently employable talent that there is a serious shortage of people for other, not-so-paying, smaller businesses who also need similar skill sets. Contrary to the bleeding-heart view about BPO employees being stuck in stressful and monotonous jobs, those earning high call-centre salaries are unwilling to consider less-paying but more challenging employment that requires aptitude, learning and slower initial growth.
It is necessary to address an important differentiator that has already emerged in the job market today. It is the earning difference between those who are conversant with the English language and those who aren’t.
Salary differences between equally qualified (non-professional/technical) candidates can be as high as 400 to 500 per cent. In fact, the more fancied jobs in airlines, hotels, media, banks and financial services only to those who know English, the rest are forced into less fancied assignments.
Ironically enough, the wide gap in earning starts from jobs where literacy levels are less important; for instance employment as peons, drivers, courier and delivery staff, sales assistants, counter staff and waiters.
The best jobs with the upmarket shopping malls, multiational fast-food chains and tony restaurants go to those who can speak English along with the mandatory fluency in local languages. The job market in the services sector is likely to expand furiously as malls, multiplexes, food courts, and large retail chains expand operations across India, moving from the cities to larger towns. This growth will only accelerate if the government eventually permits Foreign Direct Investment in the Retail Sector, letting in large retail chains such as Wal-Mart.
Unfortunately, there is no concerted effort as yet by the corporate sector, NGOs or even social organisations to help improve their English-speaking skills and confidence levels to prepare for the coming boom. Consequently, there is already a serious shortage of ‘employable; human resources in the service sector.
My own effort to help a young girl, desperate to ‘‘improve her English’’ through a formal programme in Mumbai drew a blank. Her big ambition is to land a sales job in a smart food or retail chain. I found that the few private tutors available are astonishingly expensive. On the other hand, I found it much easier to sponsor her for a basic and inexpensive orientation course in the use of computers that was run by an NGO called Pratham.
The Chinese apparently hired football stadiums to teach the English language and enhance employment opportunities.
In India, language chauvinism bars frank discussion or an acknowledgement that English is now the global language of commerce. In his Independence Day address in August 2004, President A.P.J. Abdul Kalam talked about the need to achieve 100 per cent literacy by increasing our education expenditure. The bigger challenge in the coming years will be to adapt our school and college curricula to meet the demands of changing society, job market and individual aspirations.
This will mean inclusion of language skills, computer literacy and vocational training at the school level. That in turn will require investment in finding and employing better trained and better paid teachers to prepare students for a better India
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