Just what NC really needs -- fewer UNC system grads

Today's N&O reports that the state House budget released this week cuts back on enrollment growth funding for the UNC system for 2011-12.  Ray Rapp, a Democrat from Mars Hill, is quoted "We're trying to keep it accessible and affordable as it always has been, but we're trying to get a handle on planning.  It just can't be an open checkbook."

Initial reactions: 
1) I have worked at one of the two flagship research universities for 32 years and this is the first I have heard of an open checkbook.  Last time I checked the UNC system took about a 10 percent budget cut this year.  I am sure the faculty and staff who have been laid off would like to get their hands on this open checkbook.
2) This is a classic case of save now and pay later.  College graduates earn roughly 50 percent more over their lifetimes than high school graduates.  Since the overwhelming majority of UNC system grads stay in NC and the state has a graduated income tax, they pay 55-60 percent more in taxes over their lifetimes.  Also corporations base their location and expansion decisions on the availability of educational resources.
3) I do not envy the position of state legislators.  They have a $700-800 million budget hole to plug in 2010-11 and a $3 billion hole in 2011-12.  Clearly there will need to be retrenchment in many areas; unfunded federal mandates will make matters even more difficult.  Painful decisions about taxes and future government services await. 
4) I am not so naive as to think the UNC system should be exempt from future cuts.  However, these cuts should not be made in a way that will jeopardize access to higher education for future generations.  I think all other options should be on the table: more distance ed, higher teaching loads, shifting some teaching from UNC to community and technical colleges -- all of this and more should be on the table.

Survey: Raleigh top US city for quality of life

Raleigh placed numero uno in the USA in Portfolio.com's survey of which cities have the best quality of life.  Growth, educated workforce, lots of high level jobs and a large inventory of new homes were all cited as factors that made Raleigh stand out above the rest.  The survey focused on employment and housing data, so other cities with more major league sports, parks, beaches, and the like will no doubt claim foul.  Also there were no adjustments for disamenities such as corruption, crime or pollution. 

Signs of labor market improvement

Tuesday's WSJ reports that an increasing percentage of employees are leaving their jobs voluntarily.  For the first time in 18 months, the quit rate is higher than the layoff rate.  The main reason is that the layoff rate has dropped quite a bit in the last two quarters; the increase in the quit rate is relatively modest.

As a general rule people do not quit their jobs when the unemployment rate is almost 10 percent.  The increase in the quit rate suggests that there has been an increase in job openings and employers are starting to raid each other.  If employment starts growing on a sustained basis, companies will not be able to rely on raiding alone to fill positions, thereby opening up opportunities for the jobless.  Hopefully we will continue to get good news on the employment front. 

Whither financial regulation?

Last week the Senate approved an overhaul of financial regulation.  The bill had to be designed so that it would receive 60 votes, which means that it contains many features that have little to do with the root causes of the 2008 financial meltdown and much to do with the pet causes of individual Senators.  The Senate bill calls for regulation of the credit rating agencies, which is warranted (see my earlier post on credit rating agencies).  It also imposes new regulations on the derivatives market; I am in no position to judge whether these are just right, insufficient or overkill.  Both the House and Senate bills create a new consumer watchdog agency, which is good news for whomever gets a job working at this agency, bad news for financial institutions that will face increased costs, and no news for the rest of us because we all know what a great job the existing watchdog agencies did preventing the financial meltdown two years ago. 

Neither the House or Senate bill does anything about Fannie Mae and Freddie Mac.  Also the Senate bill contains a provision limiting what credit card companies can charge merchants for debit card purchases.  If this becomes law, the result will be entirely predictable -- the cards will be less widely used and Visa et al will come up with new fees to offset the drop in revenue.  But this provision will allow some Senator to claim he has stood up for the little guy who is fed up with these outrageous fees charged by the charge cards.  Remember -- you need 60 votes. 

Versioning Hollywood movies

Saturday's WSJ reports a long overdue development: Hollywood studios plan to start distributing new films directly to households within 30 days of their initial release.  MBA 505 veterans know that the studios use Shapiro and Varian's theory of versioning to extract the maximum amount of consumer surplus.  After appearing in first run theaters, movies are distributed to dollar movie houses, cable, and DVD.  Those who are most impatient pay the higher price.  With the growth of bandwidth and a rising share of households with HD TVs and surround sound, I have long thought that the studios would start issuing movies directly to households sooner -- thereby grabbing more of that consumer surplus for themselves and leaving less for movie theaters.  It appears that day is here.  Studios plan to charge $20-30 for a nearly first run movie (e.g., Robin Hood would be a likely choice this weekend), which is competitive with movie prices for a couple.  Of course if you watch a movie at home you will miss certain things, like overpriced snacks and strangers talking on their cell phone.

French b-school coming to NC State

Big news today for NC State: SKEMA, one of the top business schools in France, will be opening a facility on NC State's Centennial Campus in January 2011.  Yours truly is quoted in the story saying that this is a "pretty big deal."  It is the first case (of which I am aware) of a foreign business school setting up a campus on US soil.  A number of US schools, including Chicago and Duke, have opened up operations overseas.  This is further evidence that we are entering an era of global competition in management education.  NC State, UNC-CH and Duke will have the opportunity to partner with SKEMA on multiple fronts: research, executive education, and academic programs. 

SKEMA is a new business school formed last year when ESC Lille and the Ceram Business School in Nice merged.  Before the merger, the Financial Times ranked Lille #44 and Ceram #49 in its 2009 rankings of European business schools. 

Could an incentive plan reduce government waste?

Business historian John Steele Gordon wrote a WSJ op-ed last week advocating financial incentives for government employees to lower operating costs.  As an economist and a government employee (dean is just a nice word for bureaucrat), the subject strikes close to home.  Steele thinks we bureaucrats would much more energetically seek cost savings if our incentives were aligned with the taxpayers.  He cites the example of the British Royal Navy which was charged to keep the seas clear of enemy warships and commerce.  After capturing a vessel, the booty would be split by formula to the admiral (12.5%), captain (25%), commissioned officers (12.5%), senior warrant officers (12.5%), petty officers (12.5%) and crew (25%). 

My reaction: in some cases such incentives would work out well, especially in the purchasing arena.  But I see two big difficulties if this concept were widely applied.  First, incentive plans are difficult to design without creating gaming opportunities.  Expect employees to overestimate costs and then miraculously find cost savings.  Second, customers of government services lack good options in the private sector, so cost savings to benefit employees will trump service quality.  In education there is an easy way to reduce costs: increase class size.  The same principle applies to other government services as well, think how long the lines at the DMV could get. 

N&O provides job seeking advice for MBAs

Sunday's N&O featured a blog entry from staffer Mary Cornatzer containing some job seeking advice for MBAs.  Mostly standard stuff (e.g., include your degree on your resume, give specific examples in interviews), but I was not aware of Indeed.com a website that allows you to sweep through corporate websites to find MBA hiring managers.  If you heard it here first, please remember your alma mater when you get that new plum assignment.  Jobs and internships at IBM, Red Hat, and GSK showed up a minute ago when I tried it out. 

Today Greece, tomorrow the US?

Over the weekend the European Union (EU), the IMF, the Fed and other parties put together a trillion dollar line of credit for EU members who are at risk of defaulting on their debt.  The stock market reacted favorably on Monday, reversing most of last week's losses.  Today NYT writer David Leonhardt draws comparisons between the Greek economic situation with that here in the US.  At an abstract, qualitative level the two situations are similar: both countries are living beyond their means and are borrowing from foreigners to make up the difference.  Fortunately for the US, the scale of the problem here is more manageable than in Greece.  Nonetheless we face unpleasant choices; we cannot have more government programs and spending (as preferred by Democrats) AND more tax cuts (as preferred by Republicans).  Who elected these politicians anyway?  Oh, we did. 

NBC17 interview on the value of an MBA

The local NBC affiliate WNCN interviewed me last Friday to learn more about the value of an MBA and what NC State does to prepare its MBAs for the marketplace.  Here are links to portions of the interview concerning general advice for those thinking about an MBA, which industries are hiring MBAs, and how an MBA can provide more job security.

Greece is the word

Paul Krugman's NYT column today does a great job explaining the sources of the Greek economic crises and pointing out the limited options available to deal with it.  The essence of the problem is that even though Greece's economic issues may not be as severe as those facing some some states in the US, states such as California can rely on federal programs such as Social Security, grants and stimulus packages whereas there is no European central government with taxing and spending authority to help Greece out. Krugman believes that Greece will ultimately have to go off the Euro and issue a new devalued currency that will reduce real wages and make Greek exports economically competitive.  A debt default a la Argentina in 2001 is also in the cards.  Other European governments (Portugal, Spain, Ireland in particular) could be in the same boat.  Krugman seems to think this will not be as disruptive as the fall of Lehman Brothers; I hope he is right.

What should business schools do?

Five years ago James O'Toole and Warren Bennis wrote an article for Harvard Business Review titled "How Business Schools Lost Their Way."  The authors took b-schools for task for overemphasizing scholarly research and under-emphasizing ethics, leadership, and complex, cross-disciplinary issues.  This week O'Toole and Bennis assess in Bloomberg Business Week online how much progress has been made. 

NC State's MBA has long emphasized the sort of clinical learning environment used in professional schools in other disciplines such as engineering, law and medicine.  Our students do lots of projects, much more so than in other schools.  We also are national leaders in interdisciplinary concentrations such as supply chain and technology-based entrepreneurship.  

Jim Owens on economic policy

Today President Obama gave an update on the progress of his economic plan to the White House Business Council, chaired by Caterpillar CEO and NC State alum Jim Owens (Ph.D., economics, 1973).  Owens gave the President some unsolicited economic advice in a WSJ op-ed yesterday.  He made the following suggestions:

• Adopt transparent accounting in government (e.g., do not assume state retirement plans will get 8% returns)
• Simplify the tax code and reduce corporate tax rates
• Spend more on infrastructure (you have to say this if you are Cat's CEO)
• Promote free trade agreements
• Control health costs
• Reform immigration laws to allow those obtaining graduate degrees in the US to work here
• Keep the Federal Reserve independent

Nothing radical and mostly sensible.   The President talked mostly about improving K-12 education through Race to the Top, health care reform, and financial regulation.

The truth about GM repaying its TARP loan

Last week General Motors conducted a public relations blitz celebrating the repayment of its TARP loans. Treasury secretary Geithner also issued a press release saying GM has repaid its debt ahead of schedule.

Those with memories recall that GM received about $60 billion in government funds, but the TARP repayment amounted to a mere $6 billion. Also, GM is still not profitable. So where is the money coming from? GM CEO Ed Whitacre failed to note in his press release that GM drew upon another line of credit at the Treasury to pay off its TARP debt. Taxpayers continue to hold a sizable equity position in GM, but the odds that an IPO would make them whole are quite low. Today's NYT reports that the Congressional Budget Office expects taxpayers to take a $30 billion hit on GM.

My take: credibility is a precious asset, one that neither GM or the White House has in great supply right now. This phony message needlessly depreciates that asset further.