While people in the capital markets or selling to it lament the “It’ll never be the same” nature of recent events, there is an emerging meme that says that this is perhaps a good thing.
Fareed Zakaria in a recent column in the Newsweek titled There is a Silver Lining:
Wall Street will also need to change. Paul Volcker has long argued that the recent spate of financial innovation was nothing of the kind: it simply shuffled around existing resources while contributing few real benefits to the economy. Such activity will now be reduced significantly.
A friend of mine is an ex-entrepreneur and now a successful executive. After his MBA many years ago, he joined a management consulting firm. He considered a career in finance, but didn’t pursue it. His reason as he told me was that a finance job is not “satisfying because it doesn’t produce any tangible value”. I was at that time selling Infosys’s services to Wall Street and was totally enamored with the world of finance. I put my friend’s opinion about finance down to “sour grapes” and didn’t give it another thought.
But when Paul Volcker, one of the most respected former Fed Chairmen, says what he says above, it makes you think.
Further on in the column, Zakaria quotes Boykin Curry and says,
…As a result, most of our top math Ph.D.s were being pulled into nonproductive financial engineering instead of biotech research and fuel technology…” The crisis will stop the misallocation of human and financial resources and redirect them in more-productive ways. If some of the smart people now on Wall Street end up building better models of energy usage and efficiency, that would be a net gain for the economy.
For the longest time, captains of the tech industry have lamented the fact that fewer and fewer American graduates were choosing a career in science and engineering. American school curriculum and teaching was not equipping students with the right skills in math and science that would allow them to pursue such careers, they would say. I have never completely agreed with this line of argument.
There is only a certain fraction of the population that has the aptitude and the interest to pursue post-graduate studies and/or a career in science or engineering. There may be some elasticity in what that fraction is, I’ll admit, and better teaching and curricula might expand that marginally. But by and large, at least in the US, that fraction won’t change by much. There are people who are better suited for, or are more interested in other vocations. You can make a decent living doing almost anything here, and that is a good thing. People can follow their dreams and do what they love.
The set of students who have the aptitude and the interest in science or engineering, have many options available to them. Of all these options, the highest paying jobs are in finance, law, medicine, consulting and perhaps a few others. Why would someone want to go into science or engineering careers if they could get into one of these high paying jobs?
It’s easy to see how the market is diverting human capital to where it will earn the most. It is harder to say if this is not in the long-term benefit of the economy and society at large. You can probably say with reasonable confidence that a smart graduate joining a clean tech company has a better chance of doing good for society than if they became a trial lawyer. But you can’t really say that all high-tech innovation is better than any financial innovation. That would be too much of a blanket statement. And what’s the point in arriving at that conclusion anyway. It’s not like we want the government to intervene in employment markets to make high-tech jobs more attractive.
The reason why there aren’t enough students going into science and engineering is because there are too many other higher paying jobs. At the top of the heap are finance jobs – high paying jobs whose numbers have been growing rapidly. As their numbers come down, I expect that will help more students choose science and engineering. And with some help from the next President, with rising investments in clean tech, who knows, these students may some day contribute to saving the planet.
Next – tort reform to take care of trial lawyers!
photo: David Paul Ohmer