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

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
Factors impacting USA UK Euro Japan Asia ex Aust / NZ
economies Japan
Bank losses
Crisis a product of credit boom and financial engineering
Credit restrictions
Export demand
Commodity prices

7. …and growth outlook deteriorating
everywhere
2009 GDP growth forecasts (percent)
Consensus
forecasts At Dec 08 At Feb 09 Change
Australia 1.6 0.4 -1.2
Asia x Japan 3.9 0.9 -3.0
USA -0.7 -2.1 -1.4
Japan -0.2 -3.8 -3.6
Eurozone -0.5 -2.0 -1.5
UK -1.3 -2.6 -1.3
NZ 0.2 -0.9 -1.1

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
Tertiary school-age population
China India Nigeria
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: UNESCO; Economist Intelligence Unit

13. Availability of university places at
home: the spillover effect
350,000 Total international students China
325,000 Total international students India
300,000 Total international students Nigeria
275,000
250,000 Estimated number of international students enrolling
in undergraduate and postgraduate study in
225,000
Australia, Canada, France, Germany, Japan, New
200,000 Zealand, United States, United Kingdom
175,000
150,000
125,000
100,000
75,000
50,000
25,000
0
1999 2000 2001 2002 2003 2004 2005 2006
Source: Economist Intelligence Unit; National Statistical Offices

14. Availability of university places at
home: the expanding supply
Chinese enrolment rates (%)
120
100
80 Primary
Junior Secondary
60
Senior Secondary
40 Tertiary
20
0
1990 1995 2000 2005 2006

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
400
US Congress
passes TARP
package
350
300 US 5-year CDS index
Lehman Brothers
files for bankruptcy
250
Source: RBNZ
Bear Stearns
aquired by JP
200
Morgan with Fed
assistance
150 BNP Paribas subprime
funds frozen; German lender US Treasury bails-out
SachsenLB requires credit Freddie Mac and Fannie Mae;
100 line Emergency loan from the
Federal Reserve to insurer AIG
50
0
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08

18. Ability to pay by borrowing: Asian
banking system solvent
US$ billion US$ billion
1200 1200
Losses, Asia
Losses, Europe
1000 1000
Losses, Americas
Total new capital raised
800 800
Source: RBNZ
600 600
400 400
200 200
0 0
2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 (to date)

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
Availability of university places at home
Cost of study abroad
Ability to pay from savings
Ability to pay by borrowing
Willingness to pay – uncertainty
Ability to pay – jobs in host country
Willingness to pay – jobs on graduation

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. Source: RBNZ
0
2
4
6
8
10
12
US
Ch
Si in
ng a
ap
or
e
Ru
ss
Au ia
Ne stra
w lia
Ze
ala
So
u t nd
h
Af
G r
lob ica
al
to
ta
l
UK
Ca
na
da
Ja
pa
n
The price of fiscal stimulus packages
EU
Fr
an
ce
G
er
m
Fiscal expansions post crisis (percent of GDP)
an
y
Sp
a in
In
dia
Ita
ly
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