the rhodes trust squares off against wall street

Wall Street has three favorite activities. The first is making big, bold bets. The second is making a staggering amount of cash. The third is boasting how its banks employ only the best and the brightest, and they’re more than ready to shell out whatever it takes to attract them. Since most of the compensation comes from a bonus based on how profitable the company has been in a given year, they can afford to promise millions to a future scientist, or general, or researcher for diving headfirst into the stock market. And after more than two decades, the American Secretary of the Rhodes Trust, which gives highly prestigious scholarships to some of the most promising scholars in the world, voiced his concern that all the Wall Street style hyper-bonuses which have been dangled in front of Rhodes scholars, are creating a very disruptive brain-drain from other disciplines.

Having written for a business magazine and spent time at business school, I can already hear the infuriated cries of those who grew up in a culture that cherishes business above everything else or have a somewhat unhealthy trust in the stock market as the ultimate arbiter of the economy about the anti-business attitude of those Ivory Tower elitists. And indeed, some of the comments on his op-ed say almost exactly that. But the real point Elliot Gerson is making isn’t about the values of capitalism vs. the values public service. The issue that bothers him, and should bother us as well, is the jaw-dropping asymmetry in compensation which lures people who could make very useful and productive contributions in other fields. The higher the pay disparity, the less incentive there is to go into a field that pays well, but not thousands of times as well as going to Wall Street and inventing new ways to leverage banks into the stratosphere and beyond. If everyone’s busy making millions on The Street when the getting is good, who’s going to invent a new wave of actual products that will move the knowledge economy forward? Gerson lets the numbers highlight his concerns…

… Until [the 1980s], even though business ambitions and management degrees have not been disfavored in our competition, business careers attracted relatively few Rhodes scholars. No one suggested this was an unfit domain; it was simply the rare scholar who went to [join] Wall Street, finance and general business management. Only three American Rhodes scholars in the 1970s (out of 320) went directly into business from Oxford; by the late 1980s the number grew to that many in a year. Recently, more than twice as many went into business in just one year than did in the entire 1970s.

To put those statistics in perspective, over the last twenty years business fields went from attracting under 1% of all Rhodes scholars to nearly a quarter of them based on the disparity between the earnings of almost any other profession and the finance/management combination of Wall Street. Just like the financial sector spent the last three decades creating boom and busts cycles made of ever larger bubbles which popped with brutal results for the economy at large, so do the business professions seem to be becoming an academic bubble which is being fueled by leveraging debt related assets for immense profits. Even the recent bust which really should’ve shown how unstable and precariously positioned Wall Street banks really are and that instead of a sharp eye for new innovations, the banks make money by plowing everything they’ve got into the hottest asset of the day, is unlikely to stem the tide of wanna-be business tycoons.

Already, banks are paying stratospheric bonuses at the end of a year in which they used public money to save themselves from absolute obliteration, then gambled with it to return to profitability, tempting more and more students to get an MBA rather than an M.S. or a PhD. Sure it’s good to know your way around money and have a general business sense to raise funding for your projects, and I think everyone should be required to take a few business classes to understand how their potentially profitable ideas could one day be brought to life. But something is very wrong if we have more managers than designers, scientists or engineers and the cash to pay them comes from playing with algebra rather than investing into the future…