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Il conflitto di interessi degli economisti tra le cause della crisi
Crises always prompt an anguished and angry search for causes and culprits, and the current financial crisis is no exception. Fingers have been pointed at supine regulators, greedy bankers and investors, naive consumers and feckless politicians. One group, however, that has escaped careful scrutiny has been the academic community, particularly economics departments and business schools. After all, many of the intellectual underpinnings of the causes of the current crisis – be it financial innovations, capital account convertibility, deregulation or stock options – come from the best and brightest in US academia, not bureaucrats in dead-beat third world countries. Indeed, as the size and influence of the financial sector mushroomed in the past quarter-century, business schools and economics departments reaped a rich harvest. Money – and with it salaries, endowments and institutional power – moved in their favour.
While there is widespread recognition that (with a few notable exceptions) academics were caught as unawares as anyone else, there has been little discussion on why this was the case. One likely reason is the type of knowledge that enjoys academic status; basic knowledge of the economy had been seen as old fashioned and a low-brow activity. The crisis has brought this back into fashion, and in this sense academia is self-correcting.
A more troubling reason behind the failure of academics in the current crisis is the nature of their financial incentives and the resulting conflicts of interest – not dissimilar to what so many in Wall Street faced. Academics have stressed the critical importance of incentives in shaping human behaviour. But they have been reluctant to shine the light on how their own behaviour may be affected.
One factor, in particular, needs highlighting: the hidden financial conflicts of interest that a growing number of academics face. Many academics, particularly those from institutions that enjoy high prestige and reputation, now have serious business interests and an array of financial ties to the very institutions that their studies address. These interests range from lucrative speaking fees, advisory roles at financial institutions, managerial roles and stakes in private equity and hedge funds to corporate non-executive directorships.
This marriage between ideas and the real world has been seen to be a big plus by universities, and there is much to commend these arrangements. But if financial incentives shape the behaviour of mere mortal human beings, might not they shape the behaviour of academics as well? If an academic is writing and lecturing about the virtues of capital account liberalisation and running his own hedge fund, he may be simply implementing his ideas.
But it is at least conceivable that at some point it could be the other way around. There would be little chance of being invited to give a lucrative talk at Citicorp if one were in favour of sovereign debt forgiveness in the 1980s, against capital account liberalisation in the 1990s or against stock options in the 2000s.
Universities are about research and teaching – but they have also become about big money. It is a symbiotic relationship and one should have no illusions about how hard it is to do the former without the latter. Taking intellectual risks, having the freedom to research and publish on anything of one’s choice and having the right to make mistakes is the life-blood of academia. But should one not ask of academics the same standards of transparency we demand elsewhere? There is a good reason why the standards should be higher for academia: its members enjoy an increasingly rare privilege in having lifetime tenure. We may preach the virtues of labour market flexibility to governments and companies, but are rather wary in applying it to ourselves.
In recent years, the biological sciences have moved considerably to ensure greater transparency where there are potential conflicts of interest between research and financial remuneration, providing mechanisms for whistle-blowers to report conflicts of interest. Regrettably, these requirements are extremely weak in the social sciences and business schools. Tenure was meant to ensure academic freedom, not protect academics from financial wheeler-dealing. Academia would do well to ask whether, and how, this needs to change.
The writer holds the Madan Lal Sobti Professorship at the University of Pennsylvania
Copyright The Financial Times Limited 2009