The Impact of the Financial Crisis on Australasian Business Schools

1. The Recession and Business Schools ANZAM Institutional Members’ Meeting March 27th, 2009 Professor Nigel Healey University of Canterbury

2. Overview The financial crisis The impact on the real economy Potential implications for Australasian business schools

3. The financial crisis Sub-prime mortgage losses US housing downturn Initial Trigger • New structured credit products Booming credit markets Pre-Conditions Uncertainty about extent and location of risk • De-leveraging • Movement to safe liquid assets Impacts

4. Effects of the financial crisis… On the financial sector: Massive losses/write-downs Risk aversion and liquidity preference Global de-leveraging Large asset price falls Credit expensive and scarce – “tax the living to bury the dead”

5. Effects of the financial crisis On the real economy: Erosion of business and consumer confidence Reduced investment spending (credit, confidence, risk appetite) Reduced consumer spending (negative wealth effects, confidence, fear of unemployment) Reduced global demand and commodity prices

6. Countries impacted in different ways Crisis a product of credit boom and financial engineering

7. …and growth outlook deteriorating everywhere

8. Potential implications for Australasian business schools • Endowment income – b-schools as a cash cow • Executive education • International enrolments • Public funding • Faculty recruitment and retention • Societal attitudes to business schools

9. Potential implications for Australasian business schools (1) ASX All Ordinaries • Loss of endowment income • Stock market prices - down 50% • Interest rates down from 8% to 3% • Alumni giving • B-schools as the cash cows – envy over salary loadings

10. Potential implications for Australasian business schools (2) • Executive education • Short courses –open vs in-company • Executive (company-sponsored) MBAs • Consulting • High-margin, but pro-cyclical

11. Potential implications for Australasian business schools (3) • International enrolments depend upon: • Availability of university places at home • If demand exceeds supply, some of the excess spills over • Cost of study abroad • Ability and willingness to pay for tuition and living costs • From savings • By borrowing • By students working in host country

12. Availability of university places at home: the potential demand

13. Availability of university places at home: the spillover effect

14. Availability of university places at home: the expanding supply Chinese enrolment rates (%)

15. Cost of study abroad: exchange rates depreciations in Australia, NZ and UK A$ NZ$ GBP

16. Ability to pay from savings: the Hang Seng Index Hang Seng Index Nikkei Index

17. Ability to pay by borrowing: risk aversion and the credit squeeze Source: RBNZ

18. Ability to pay by borrowing: Asian banking system solvent Source: RBNZ

19. Willingness to pay: deteriorating growth and employment outlook in Asia • Falling exports to US, Europe • Slowing economic growth (China), recession (Japan) • Rising unemployment • Growing fear of unemployment • Reports of international students failing to return due to economic hardship in the family

20. Ability and willingness to pay: fewer jobs while studying and on graduation • Many international students have: • Part-time jobs in term-time • Full-time jobs in the holidays • Right to full-time work in host country on graduation • In-country employment covers part of living/tuition costs • Employment prospects in host countries deteriorating quickly, international students disproportionately affected • Employment prospects in home country also worsening, return on investment reduced

21. Factors influencing international student demand: summary

22. Potential implications for Australasian business schools (4) • Pubic funding • Lessons from US state schools, with balanced budget constitutions • Pressure on government expenditure as deficits fuel public debt, debt service costs • Political inclination to see pain of recession shared – caps on public subsidies for domestic tuition, moral suasion in terms of pay settlements

23. The price of fiscal stimulus packages Source: RBNZ 23

24. Potential implications for Australasian business schools (5) • Faculty recruitment and retention • Demographic timebomb – baby-boomers (1945-60), massification and Asia • Competition from private sector and salary inversion • Short-term: • Shake-out in corporate sector • Collapse in competition from US schools • Offset by exchange rate depreciation • Medium-term: increase in attractiveness of academic careers (ICT post tech-boom, but SUVs post-oil speculative bubble)

25. Potential implications for Australasian business schools (6) • Public attitudes to business schools • Enron, WorldCom • GFME, Corporate Social Responsibility • Quants vs bankers • Nerds vs Suits • Student demand for vocational business degrees rising, now 20-25% of UG – time for a correction?

26. Conclusions • Universities – and so business schools – traditionally counter-cyclical • Now many sources of revenue non-public and cyclical: • Endowment income, executive education, international education… • ….even possibly public funding • Short-term gains in hiring • Potential damage in terms of public attitudes