The Misconception about Education and Competitiveness

  
To prepare yourself for the job market, you first have to clear a widespread misconception about education, which is what this post is about.

The Influence of Confucian Philosophy

Under the influence of Confucian philosophy, the Chinese (and probably other Asians as well) place an overwhelming emphasis on formal education and academic results. Kids are raised to believe that they need to do well in school in order to have a bright future.

This phenomenon is spreading to other parts of the world. When Asian American children do well in exams, Caucasian parents feel the pressure to push kids to study harder.

This claim may not do justice to Western intellectual traditions though. In fact, knowledge and critical thinking have always been held in high regard in the West too, as seen from the ancient Greek civilization to Francis Bacon’s famous saying, “Knowledge is power.” Today, this tradition continues as politicians and commentators insist that higher education is the key to a country’s future.

No doubt, knowledge is valuable, and academic research is important to the progress of human civilization. But media reports that equate education with success have led many kids (and many parents) to believe that the smarter you’re and the better you’ve done in school, the better your job will be in the future. The question is, Is this really the case?
 

The Myth of Education

Sadly, that good grades today mean a good job tomorrow is nothing but a myth. If only life is so simple. The truth is, except for a few science and engineering jobs, employers don’t care that much about the knowledge you’ve acquired in college.

What your future boss cares about is the value you can generate for the organization. As you can imagine, a profound knowledge of Roman history or planetary systems doesn’t help the majority of businesses and organizations achieve their objectives. While knowledge is the focus of college education (and one may argue this should be the case), skills are what employers are looking for.
 
Please don’t get me wrong. I’m not saying college education is unimportant for your career. A college degree is now a prerequisite for many jobs, and good grades from a good university signal to potential employers that you’re smart and can self-learn effectively. Besides, most successful people, including most successful entrepreneurs, have a college degree.

Yes, education is important. But as Benjamin Franklin said, “Half a truth is often a great lie.” Students will only be disappointed if they falsely expect a college degree – even with many A’s on the report card in this era of grade inflation – will translate into a dream job (though the reputation of a top school like Harvard and Princeton will undoubtedly help).

Students need to remember that college curriculum isn’t designed with the specific aim to prepare for one’s career. Good grades and high qualifications don’t necessarily translate into productive work performance, even for technical fields like engineering. As Michael Schrage points out, there is no guarantee that a PhD in computer science is also a good programmer.

The Purpose of College Education

So, what is the true purpose of college if it isn’t doing a good job to prepare us for our career? To the society as a whole, one main purpose of college education is to train students to be an independent thinker and to build a more civilized society.

On an individual level, college is the place to explore and expand your academic interests. It also gives you a wonderful opportunity to find yourself and understand your values and motivations.

In any case, formal education is only part of the equation when it comes to job search and career development. If you want a promising career, a lot of your learning should take place outside the classroom. We’ll discuss what skills you need to work on and practice outside school in the next post.

P.S. From this post onward, I’ll ask questions at the end of each post to stimulate your thoughts and invite participation. Hopefully we can collect and share more ideas and insights on this site.
  
Questions: Do you believe that today’s college students overly rely on formal schooling in their career preparation? And what do you think is the true purpose of college education?

(Entry 1 of 4 in the How to Increase Your Competitiveness and Land Your Dream Job series) 

The 7 Essential Skills to Advance your Career   Next >

  

How to Increase Your Competitiveness and Land Your Dream Job

Competition among firms has become more intense in recent years, as firms need to compete across borders in the age of globalization. Similarly, in the labor market, competition is increasing because we now need to compete with workers from all over the world.

  

In the pursuit of lower costs, companies have automated production processes and offshored operations to countries like India and Bangladesh. In most developed countries, unemployment rates are high by historical standards. It seems increasingly hard to have the job of your dreams.

  

But no worries! This 4-part series will show you the key to career success and fulfillment. Click the links to unlock the secrets to getting your dream job:

  

Part 1  The Misconception about Education and Competitiveness

Part 2  The 7 Essential Skills to Advance Your Career

Part 3  Mentality: The Essential Element for Success

Part 4  The Use of Knowledge in the Workplace

  

Hopefully you’ll find this series helpful in your personal and career development. You’re most welcome to leave a comment or raise a question. Thank you and I wish you a fulfilling career!
   

The Future of the Euro Area: Growing Closer or Falling Apart?

Last time, we argued that monetary expansion is necessary to pull the PIIGS out of recession and the debt crisis. In the final post of this series, I’ll discuss the outlook for the European Monetary Union. While this crisis is an opportunity to address the deep-rooted problems in the eurozone, European leaders must decide at what cost they’re willing to preserve the currency union.

An Opportunity to Achieve Closer Integration

After two world wars, Europe came to realize that prosperity can only come with continental peace and stability. Since then, closer cooperation and integration have been Europe’s goals. The eurozone was set up in the late 1990s as part of the efforts to promote peace and integration.

However, the eurozone has always had structural problems, since it comprises vastly diverse economies which without fiscal union shouldn’t be allowed to use the same currency. The problems, which were obscured in good economic times, have been exposed in the financial crisis. It’s now clear that the absence of two institutions threatens the stability and sustainability of the eurozone.

First, to improve financial stability and market confidence, Europe needs a unified banking authority that monitors the industry and recapitalizes troubled banks when necessary. Second, a central authority with power over taxation, which ensures fiscal responsibility and provides a framework of fiscal transfers, is necessary to any sustainable monetary union.

Their absence has long been an obstacle to European integration, but only in a crisis can these structural problems be addressed. The current challenges have made it clear that the continued existence of the euro depends on the success of reforms. This sense of urgency and the high stakes involved have presented Europe with a perfect opportunity for closer integration.

Conflicting Interests among Euro Members

However, integration incurs painful sacrifices and is easier said than done. On one hand, the peripheral countries have to endure the pain of austerity measures and labor market reforms, which include cutting welfare spending to improve labor market efficiency and reduce economic distortions. Germany, on the other hand, is burdened with costly bailouts.

On top of the sacrifices, euro members have found it extremely hard to reach an agreement due to conflicting interests. Basically, Germany wants to spend the least possible to prop up the eurozone, while other euro members (with the exception of the Netherlands) are trying to get the most from Germany. Given the difficulty of cooperation, few concrete steps have been taken to solve the crisis.

Indeed, European leaders are still deeply divided on how to save the euro. Though deposit insurance may be the only way to save the currency union, Germany’s reluctance to insure over 2 trillion euros worth of deposits in Italy and Spain is perfectly reasonable.

Germany opposes the idea of euro bonds as well. The objection is justified though. The issuance of euro bonds will take the pressure off politicians and slow down structural reforms. More importantly, countries like France and Italy propose debt mutualization because they want Germany to share the cost of future spending. No wonder Germany rejects the deal.

Meanwhile, Germany is taking measures to minimize losses in the event of a breakup. Some argue Germany is bailing out Greece for its self-interest too. By propping up Greece’s banks, Germany can spread out the debt burden of Greece across all euro members.

Ironically, what was intended to create peace and prosperity has turned into a dysfunctional partnership that threatens the world economy. But it’s hardly surprising that every euro member is protecting and fighting for its self-interest. After all, the eurozone is composed of independent sovereigns with people of different national identities.

Breakup not the End of the World

If euro members lack the commitment to closer integration, then the exit of some countries, or even a breakup of the euro, is the only feasible option in the long term. Both a German exit (which some believe to make more economic sense than a Greek exit) and the exit of the “Club Med” countries could work.

In the case of a German exit, politicians can sell the idea abroad as a noble sacrifice to correct the imbalances within the eurozone. Internally, they can persuade voters that an exit means they no longer have to waste money on rescue packages.

The bottom line is the same rule applies in love and in politics: If different parties can’t settle their differences, then a breakup is all for the best. And a breakup of the euro doesn’t have to be the end of European cooperation. Members can remain good friends even after breakup, just like what couples do.

P.S. Sorry for the delay of this post. I was busy preparing for the CFA exam, and I just had a trip to Phuket last week. Now I’m ready to blog again. Please stay tuned for a series of new posts on personal development next week!

(Entry 4 of 4 in the Update on the Euro Debt Crisis series)

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The Need for More Monetary Expansion in the Eurozone

In the previous posts, we’ve talked about the costs and benefits of a Greek exit. This post will argue that if the eurozone is to continue, more aggressive policies by the the European Central Bank (ECB) are desperately needed.

  

Germany’s Recession and Recovery in the Early 2000s 

Even if Greece exits the euro and the ensuing financial contagion is limited, the euro area still faces a lot of tricky problems. For the eurozone to survive, the ECB needs to stop its obsession with inflation and focus more on growth. Monetary expansion is needed to counteract the contractionary impact of fiscal austerity, though Germany seems unwilling to accept this fact.

As Paul Krugman argues, when Germany was in a recession in the early 2000s, its recovery was aided by a current account surplus against the peripheral countries that are in deep financial trouble now. In the early 2000s, Greece, Ireland and Spain enjoyed strong economic growth. The low interest rates set by the ECB were optimal for Germany but too low for these 3 countries.

On one hand, the low interest rates helped Germany recover. On the other hand, the low interest rates led to high inflation and even higher growth (to the point of overheating) in the PIIGS. In economic boom, the PIIGS bought more exports from Germany, adding an extra boost to Germany’s recovery. 

Expansionary Policies to Pull the PIIGS out of Recession 

Now the monetary policy is again optimal for Germany, but not expansionary enough for the PIIGS countries. Last time the PIIGS helped Germany return to growth, and now is the time for the reverse to happen. 

Under monetary expansion, Germany and the Netherlands will experience relatively high inflation. While this may be unpleasant internally, wages and prices in the South will be cheaper in relative terms as a result. This is exactly what Europe needs to solve its key problem – the large productivity gap between Germany and the troubled economies in the South. With cheaper, more attractive exports, the PIIGS can sell more to Germany and the rest of the world, getting out of recession.

Though deflation and wage cuts in the South can narrow the gap too, deflation is contractionary while wages are sticky in the short run. Hence, it’s much better to have inflation in the North instead of deflation in the South.

Indeed, the ECB should help narrow the productivity gap with more aggressive policies. Easing measures can restore cost competitiveness of the PIIGS, which is the first step to less unemployment and economic recovery. In turn, recovery will help governments control the public debt and achieve balanced budgets.

Liquidity Injection to Support Banks

Signs show that the ECB is moving in the right direction. The long-term refinancing operations (LTRO) in December and February injected liquidity in the markets by offering banks unlimited short-term loans at interest rates as low as 1%. Many commentators think of the LTRO as the European version of quantitative easing.

In addition to boosting the economy, injecting liquidity is also a measure to strengthen the firewall and prevent contagion. The ECB can inject liquidity by, for example, guaranteeing to buy unlimited amounts of sovereign bonds in the event of a Greek exit.

In this way, the ECB can ensure that banks won’t collapse because of sour sovereign debt. This is important because credit freezes if banks fail, which will result in a further economic slump in Europe and probably the rest of the world.

The real question is who should take the responsibility to bail out troubled banks, and the answer is the ECB is in a better position to do so than the euro countries. Government bailouts will add to the public debt and risk increasing borrowing costs for the state. Obviously, this isn’t helpful and will only aggravate the sovereign debt crisis.

(Entry 3 of 4 in the Update on the Euro Debt Crisis series) 

 

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Grexit: Hard Choices and Inevitable Tradeoffs

Last time, we talked about why a Greek exit has become more likely and how policymakers are preparing for it. However, whether to exit or not won’t be an easy decision. A Grexit entails costs and risks, or else it’d have occurred a year ago. In this post, we’ll discuss these costs and risks, first for Greece and then for other euro members. 

The Costs for Greece

Given that recent polls show about 80% of Greeks want to stay in the eurozone, it seems they’re aware of the costs, which are listed below.

(1) An exit destroys Greek savings. A Grexit means euro deposits in Greece will have to be redenominated in Greece’s new currency. Given Greece’s high trade deficits and weak public finances, its new currency will be worth a lot less than the euro (with some estimates of a 60% depreciation). Such a depreciation will incur a huge loss for the Greeks.

(2) Contracts will have to be redenominated under the new exchange rate, which will result in a chaotic transition. Under a large, sudden depreciation, the cost of inventories and the loan burden to external creditors will shoot up. Many business will face bankruptcies.

(3) Though devaluation can restore competitiveness in the long run, rapid inflation makes lives difficult in the short run. Nevertheless, some commentators argue the economic contraction after default and devaluation, though severe, won’t last long. They often point to Iceland as an example. The country, which suffered from a credit crisis and a collapse of the financial sector back in 2008, is now on a steady path of recovery.

(4) Anticipation of an exit causes an outflow of Greek deposits to foreign countries. To protect their savings, Greek depositors prefer to save in a German bank (where savings will still be denominated in euro with purchasing power intact) rather than to save domestically (where savings will be redenominated and depreciate by a great deal). This is why Greece’s deposits have fallen from $236 billion last December to $214 billion now. If the situation continues, banks will collapse and Greece’s financial system will be wrecked.

 

The Costs for the Rest of Eurozone
 

A Greek exit will be tough for other euro members as well because of the following reasons.

(1) It may cause bank runs in other peripheral economies. Worried that their countries will ultimately follow the same path of Greece, Spaniards and Italians may take deposits out of domestic banks and put them in foreign banks. Again, this will severely damage the banking system of the respective countries, making the breakup of the euro area more likely.
 
(2) The risk of contagion is a serious threat to the European economy. Since many European banks have exposure to Greek debt, Greece’s default and exit may spark a confidence crisis and cause a credit crunch. Though European finance ministers are working hard to build a firewall to deter the spread of contagion, and European banks have been offloading Greek assets in the past few months, these efforts may not be enough. The slump in stock markets around the world in the past two weeks suggests businesses and investors aren’t that confident in the effectiveness of the firewall.

(3) Grexit means the eurozone wasted lots of money to bail out Greece. In the last two months alone, the eurozone lent $140 billion to Greece in its bailout efforts. European leaders may not want to give up right after such large-scale bailout efforts, especially when Grexit means the rescue loans won’t be paid back. However, one can argue that it’s time to stop the bailout and cut loss before it’s too late.

(P.S. Interestingly, some have proposed a conspiracy theory on why Germany doesn’t want Greece to exit. The fear is Greece’s exit will turn out to be a success and help the country return to growth. Observing Greece’s successful experiment, Spain, Portugal, and other distressed countries will want to follow suit and exit the euro. This will lead to the collapse of the euro.) 

Time to Make Hard Choices 

Given these costs, whether Greece stays in or leaves the euro isn’t an easy decision. However, after months of procrastination, Europe is finally at the critical stage where it must face inevitable tradeoffs and make hard choices. And a Greek exit is definitely an option to consider.

To me, Grexit is the only way out for Europe, because there is no way economies as diverse as Germany and Greece can stay in the same monetary union for long. It simply isn’t sustainable. Greece can’t restore competitiveness and will die a slow economic death if it remains in the euro. Other euro members can’t prop up Greece and its financial sector forever, especially when Greece most likely won’t be able to afford to pay back its loans. A Grexit is necessary despite its short-term pain, and what is important is to have an orderly exit and contain contagion to other countries.

(Entry 2 of 4 in the Update on the Euro Debt Crisis series) 

 

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