Sunday, 12 February 2023
The Red Flags of Romantic Chemistry
David Robson in The Guardian
For centuries, our romantic fates were thought to be written in the stars. Wealthy families would even pay fortunes to have a matchmaker foretell the success or failure of a potential marriage.
Despite the lack of any good evidence for its accuracy, astrology still thrives in many lifestyle magazines, while the more sceptical among us might hope to be guided by the algorithms of websites and dating apps.
But are these programs any more rigorous than the signs of the zodiac? Or should we put our faith in love languages and attachment theory? (That’s to name just two fashions in pop psychology.)
The world of matchmaking is riddled with myths and misunderstandings that recent science is just starting to unravel. From the inevitably messy data, a few clear conclusions are emerging that can help guide us in our search for love.
If you are looking for the secrets of romantic success, the most obvious place to start would seem to be the science of personality. If you are an outgoing party animal, you might hope to find someone with a similar level of extraversion; if you are organised and conscientious, you might expect to feel a stronger connection with someone who enjoys keeping a rigid schedule.
The scientific research does offer some support for the intuitive notion that “like attracts like”, but in the grand scheme of things, the similarity of personality profiles is relatively unimportant.
“Yes, it is true that people are more likely to experience chemistry with someone who is similar to them in certain ways,” explains Prof Harry Reis at the University of Rochester, New York. “But if I brought you in a room with 20 people who are similar to you in various ways, the odds that you’re going to have chemistry with more than one of them are not very good.” It is only the extreme differences, Reis says, that will matter in your first meetings. “It’s not likely that you would have chemistry with somebody who is very dissimilar to you.”
The rest is just noise. The same goes for shared interests. “The effects are so tiny,” says Prof Paul Eastwick at the University of California, Davis.
Eastwick found similarly disappointing results when he looked at people’s “romantic ideals” – our preconceived notions of the particular qualities we would want in our dream partner. I might say that I value kindness above all other qualities, for instance, and you might say you are looking for someone who is adventurous and free-spirited.
You’d think we’d know what we want – but the research suggests otherwise. While it’s true that certain qualities, such as kindness or adventurousness, are generally considered to be attractive, experiments on speed-daters suggest that people’s particular preferences tend to matter very little in their face-to-face interactions. Someone who stated that they were looking for kindness, for example, would be just as likely to click with someone who scored high on adventurousness – and vice versa. Despite our preconceptions, we seem open to a wide variety of people showing generally positive attributes.
“We can’t find evidence that some people really weigh some traits over others,” Eastwick says. He compares it to going out to a restaurant, ordering a specific dinner, then swapping food with the table next to yours. You’re just as likely to enjoy the random dish as the one you’d originally ordered.
Given this growing body of research, Eastwick is generally very sceptical that computer algorithms can accurately match people for chemistry or compatibility. Working with Prof Samantha Joel at Western University in Canada, he has used a machine learning program to identify any combinations of traits that would predict mutual attraction.
Each participant completed a 30-minute survey, with detailed questions about their personality traits, their physical attractiveness, their political and social values and their dating preferences (whether they were looking for a fling or a long-term relationship). “It was very much a ‘kitchen-sink’ approach,” says Eastwick. The researchers then put the participants on blind dates and questioned them about whether they were likely to hook up afterwards.
For centuries, our romantic fates were thought to be written in the stars. Wealthy families would even pay fortunes to have a matchmaker foretell the success or failure of a potential marriage.
Despite the lack of any good evidence for its accuracy, astrology still thrives in many lifestyle magazines, while the more sceptical among us might hope to be guided by the algorithms of websites and dating apps.
But are these programs any more rigorous than the signs of the zodiac? Or should we put our faith in love languages and attachment theory? (That’s to name just two fashions in pop psychology.)
The world of matchmaking is riddled with myths and misunderstandings that recent science is just starting to unravel. From the inevitably messy data, a few clear conclusions are emerging that can help guide us in our search for love.
If you are looking for the secrets of romantic success, the most obvious place to start would seem to be the science of personality. If you are an outgoing party animal, you might hope to find someone with a similar level of extraversion; if you are organised and conscientious, you might expect to feel a stronger connection with someone who enjoys keeping a rigid schedule.
The scientific research does offer some support for the intuitive notion that “like attracts like”, but in the grand scheme of things, the similarity of personality profiles is relatively unimportant.
“Yes, it is true that people are more likely to experience chemistry with someone who is similar to them in certain ways,” explains Prof Harry Reis at the University of Rochester, New York. “But if I brought you in a room with 20 people who are similar to you in various ways, the odds that you’re going to have chemistry with more than one of them are not very good.” It is only the extreme differences, Reis says, that will matter in your first meetings. “It’s not likely that you would have chemistry with somebody who is very dissimilar to you.”
The rest is just noise. The same goes for shared interests. “The effects are so tiny,” says Prof Paul Eastwick at the University of California, Davis.
Eastwick found similarly disappointing results when he looked at people’s “romantic ideals” – our preconceived notions of the particular qualities we would want in our dream partner. I might say that I value kindness above all other qualities, for instance, and you might say you are looking for someone who is adventurous and free-spirited.
You’d think we’d know what we want – but the research suggests otherwise. While it’s true that certain qualities, such as kindness or adventurousness, are generally considered to be attractive, experiments on speed-daters suggest that people’s particular preferences tend to matter very little in their face-to-face interactions. Someone who stated that they were looking for kindness, for example, would be just as likely to click with someone who scored high on adventurousness – and vice versa. Despite our preconceptions, we seem open to a wide variety of people showing generally positive attributes.
“We can’t find evidence that some people really weigh some traits over others,” Eastwick says. He compares it to going out to a restaurant, ordering a specific dinner, then swapping food with the table next to yours. You’re just as likely to enjoy the random dish as the one you’d originally ordered.
Given this growing body of research, Eastwick is generally very sceptical that computer algorithms can accurately match people for chemistry or compatibility. Working with Prof Samantha Joel at Western University in Canada, he has used a machine learning program to identify any combinations of traits that would predict mutual attraction.
Each participant completed a 30-minute survey, with detailed questions about their personality traits, their physical attractiveness, their political and social values and their dating preferences (whether they were looking for a fling or a long-term relationship). “It was very much a ‘kitchen-sink’ approach,” says Eastwick. The researchers then put the participants on blind dates and questioned them about whether they were likely to hook up afterwards.
Pubgoers at a speed-dating event in 2021. Experts find that we bin our romantic ideals at such gatherings. Photograph: Alberto Pezzali/AP
Surprise, surprise? The algorithm could accurately pick out the participants who were generally considered to be more attractive to a larger number of people. And it could pick out those who were generally less picky and more open to second dates with a larger number of people. On predicting the particular level of attraction between two specific people, however, it performed no better than chance. There was no magic formula that could ensure a sizzling first date.
Most dating apps and websites keep the details of their algorithms secret, but Eastwick thinks it is unlikely that these companies have stumbled upon some secret that is missing from the psychological literature. Indeed, he suspects that romantic attraction may be an inherently “chaotic” process that inherently defies accurate prediction.
Reis is similarly downbeat about the chances of algorithms correctly predicting the prick of Cupid’s arrow. “The evidence that they have is very, very low-quality work.” In his opinion, these apps may rule out the people with the most extreme differences in personality and interest – but beyond that, it’s largely chance.
According to psychological research, we are much more likely to be swayed by the flow of the conversation and people’s nonverbal cues. “It’s whether the other person is smiling at the right moments, whether they’re really listening and showing that they understand what you’re saying,” says Reis. That’s impossible to gauge before the encounter from data gathered in a survey.
An additional problem is that the questions on a survey are necessarily rather abstract; they can’t capture the tiny details of someone’s life that might promote bonding. You might not bond over a general love of travel, but your mutual love of a particular location that you just happen to mention in your conversation. You might even start out with differences, but then change your mind on a certain topic as your date persuades you to see things their way – a process of reaching a joint understanding could provide the point of connection. “No algorithm is going to be able to tell us that’s going to happen ahead of time,” says Eastwick.
Even after couples have started dating, it can be tricky to work out which relationships will last in the long term. Analysing data from more than 11,000, Eastwick and Joel found that someone’s perception of their partner’s commitment was far more important than particular personality traits in determining their satisfaction in the relationship.
If you are au fait with self-help literature, you might have come to believe that “attachment styles” might explain your relationship woes. These are supposed to describe different ways of forming relationships with others, based on someone’s childhood experiences with their caregivers. The terms are fairly self-explanatory – you can have “secure”, “avoidant” or “anxious” attachment styles. You will find articles arguing that someone who has an anxious attachment style may find that an avoidant partner only exacerbates their insecurities.
Eastwick and Joel’s data suggest that attachment styles do play some role in people’s relationship quality. Even so, we must be careful not to overexaggerate their influence on our romantic fates. Prof Pascal Vrtička, a social scientist at the University of Essex, points out that our attachment styles can change with time. With the right partner, someone might move from anxious to secure, for instance. “It might take some time to lose some of your insecurity, but it is possible.” Once again, our attachment styles are one factor in a dynamic process, rather than determining the health of our relationships from the very beginning.
Surprise, surprise? The algorithm could accurately pick out the participants who were generally considered to be more attractive to a larger number of people. And it could pick out those who were generally less picky and more open to second dates with a larger number of people. On predicting the particular level of attraction between two specific people, however, it performed no better than chance. There was no magic formula that could ensure a sizzling first date.
Most dating apps and websites keep the details of their algorithms secret, but Eastwick thinks it is unlikely that these companies have stumbled upon some secret that is missing from the psychological literature. Indeed, he suspects that romantic attraction may be an inherently “chaotic” process that inherently defies accurate prediction.
Reis is similarly downbeat about the chances of algorithms correctly predicting the prick of Cupid’s arrow. “The evidence that they have is very, very low-quality work.” In his opinion, these apps may rule out the people with the most extreme differences in personality and interest – but beyond that, it’s largely chance.
According to psychological research, we are much more likely to be swayed by the flow of the conversation and people’s nonverbal cues. “It’s whether the other person is smiling at the right moments, whether they’re really listening and showing that they understand what you’re saying,” says Reis. That’s impossible to gauge before the encounter from data gathered in a survey.
An additional problem is that the questions on a survey are necessarily rather abstract; they can’t capture the tiny details of someone’s life that might promote bonding. You might not bond over a general love of travel, but your mutual love of a particular location that you just happen to mention in your conversation. You might even start out with differences, but then change your mind on a certain topic as your date persuades you to see things their way – a process of reaching a joint understanding could provide the point of connection. “No algorithm is going to be able to tell us that’s going to happen ahead of time,” says Eastwick.
Even after couples have started dating, it can be tricky to work out which relationships will last in the long term. Analysing data from more than 11,000, Eastwick and Joel found that someone’s perception of their partner’s commitment was far more important than particular personality traits in determining their satisfaction in the relationship.
If you are au fait with self-help literature, you might have come to believe that “attachment styles” might explain your relationship woes. These are supposed to describe different ways of forming relationships with others, based on someone’s childhood experiences with their caregivers. The terms are fairly self-explanatory – you can have “secure”, “avoidant” or “anxious” attachment styles. You will find articles arguing that someone who has an anxious attachment style may find that an avoidant partner only exacerbates their insecurities.
Eastwick and Joel’s data suggest that attachment styles do play some role in people’s relationship quality. Even so, we must be careful not to overexaggerate their influence on our romantic fates. Prof Pascal Vrtička, a social scientist at the University of Essex, points out that our attachment styles can change with time. With the right partner, someone might move from anxious to secure, for instance. “It might take some time to lose some of your insecurity, but it is possible.” Once again, our attachment styles are one factor in a dynamic process, rather than determining the health of our relationships from the very beginning.
Evidence suggests that dating app algorithms produce rudimentary matches. Photograph: Koshiro K/Alamy
The same can be said of “love languages”. While people’s style of expressing affection and appreciation for their partner – whether we prefer praise, or gifts, or hugs and kisses to show our affection – can influence a couple’s initial compatibility, it is possible to adapt and change over time.
Ultimately, our beliefs about relationships and the ways they ought to progress may be just as important as the initial compatibility of any two people. Our love lives, like so many areas of health and wellbeing, are the subject of expectation effects.
To get a flavour of this research, consider the following statements:
Potential relationship partners are either compatible or they are not
Relationships that do not start off well inevitably fail
And
The ideal relationship develops gradually over time
A successful relationship evolves through hard work and the resolution of incompatibilities
People who endorse the first two statements are said to have a “romantic destiny” mindset, while those who endorse the last two statements are said to have a “romantic growth” mindset. (Some people will fall in between – they might believe that relationships need to start out well, but that they can also develop over time.)
In general, people with the romantic destiny mindset will place more importance on the initial chemistry of the first encounter and if that goes well, they may be quick to fall in love. But they do not cope well with disagreements and may lose interest as potential incompatibilities come to light and may even engage in toxic behaviours to extricate themselves. Recent research suggests that people with the destiny mindset are more likely to “ghost” partners, for example. Those with the romantic growth mindset, on the other hand, tend to work harder to cope with the challenges, rather than looking to start again whenever differences come to light.
That’s the romantic side. Prof Jessica Maxwell, a social psychologist at McMaster University in Ontario, Canada, and colleagues have found similar patterns of behaviour in the bedroom. People with a “sexual destiny mindset” endorse statements such as:
If sexual partners are meant to be together, sex will be easy and wonderful
It is clear right from the start how satisfying a couple’s sex life will be over the course of their relationship
Maxwell’s studies show that people with these kinds of beliefs can fare very well, but they tend to be fatalistic if issues emerge. People with a sexual growth mindset, however, are more proactive about navigating their disappointments and looking for ways to improve their own and their partner’s satisfaction.
The same can be said of “love languages”. While people’s style of expressing affection and appreciation for their partner – whether we prefer praise, or gifts, or hugs and kisses to show our affection – can influence a couple’s initial compatibility, it is possible to adapt and change over time.
Ultimately, our beliefs about relationships and the ways they ought to progress may be just as important as the initial compatibility of any two people. Our love lives, like so many areas of health and wellbeing, are the subject of expectation effects.
To get a flavour of this research, consider the following statements:
Potential relationship partners are either compatible or they are not
Relationships that do not start off well inevitably fail
And
The ideal relationship develops gradually over time
A successful relationship evolves through hard work and the resolution of incompatibilities
People who endorse the first two statements are said to have a “romantic destiny” mindset, while those who endorse the last two statements are said to have a “romantic growth” mindset. (Some people will fall in between – they might believe that relationships need to start out well, but that they can also develop over time.)
In general, people with the romantic destiny mindset will place more importance on the initial chemistry of the first encounter and if that goes well, they may be quick to fall in love. But they do not cope well with disagreements and may lose interest as potential incompatibilities come to light and may even engage in toxic behaviours to extricate themselves. Recent research suggests that people with the destiny mindset are more likely to “ghost” partners, for example. Those with the romantic growth mindset, on the other hand, tend to work harder to cope with the challenges, rather than looking to start again whenever differences come to light.
That’s the romantic side. Prof Jessica Maxwell, a social psychologist at McMaster University in Ontario, Canada, and colleagues have found similar patterns of behaviour in the bedroom. People with a “sexual destiny mindset” endorse statements such as:
If sexual partners are meant to be together, sex will be easy and wonderful
It is clear right from the start how satisfying a couple’s sex life will be over the course of their relationship
Maxwell’s studies show that people with these kinds of beliefs can fare very well, but they tend to be fatalistic if issues emerge. People with a sexual growth mindset, however, are more proactive about navigating their disappointments and looking for ways to improve their own and their partner’s satisfaction.
Research shows that shared interests only give a minor boost to romantic chemistry. Photograph: Dmytro Sidelnikov/Alamy
Some relationships, however, are best left on the scrapheap; even those with a growth mindset need to acknowledge when things simply aren’t going to work out. And if there is no chemistry on a first date, there is no need to put yourself through another excruciating encounter.
But we should also be wary of having too many fixed preconceptions. Whether you are focused on finding someone with a particular profession, personality profile or planetary alignment, overly rigid ideas can blind you to the potential in the people around you.
If the science tells us anything, it is that love is inherently unpredictable. In matters of the heart, we should always be prepared to be surprised.
Some relationships, however, are best left on the scrapheap; even those with a growth mindset need to acknowledge when things simply aren’t going to work out. And if there is no chemistry on a first date, there is no need to put yourself through another excruciating encounter.
But we should also be wary of having too many fixed preconceptions. Whether you are focused on finding someone with a particular profession, personality profile or planetary alignment, overly rigid ideas can blind you to the potential in the people around you.
If the science tells us anything, it is that love is inherently unpredictable. In matters of the heart, we should always be prepared to be surprised.
On Invoking Historical Parallels
Nadeem Paracha in The Dawn
Recently, Orya Maqbool Jan, the retired bureaucrat who now fancies himself as an ideologue and political commentator, warned that if the ‘establishment’ continues to support the current government, Pakistan will be rocked by a revolutionary uprising like the one that erupted in Iran in 1979.
Then there is the former prime minister Imran Khan who was ousted in April 2022 and is now claiming that, if he is arrested, people would pour out on the roads like thousands of Turks did during a failed coup attempt against Turkish president Recep Tayyip Erdogan in 2016.
Pakistani politicians and ideologues often refer to contemporary dramatic events elsewhere to conjure alarmist possibilities in their own country. Only rarely do they refer to past events that took place in Pakistan. At least not in this context.
For example, no one speaks of the violent 1983 movement against the dictator Ziaul Haq, which almost yanked Sindh away from the rest of the country. Or very few now speak of the mass uprising against the Ayub Khan dictatorship in 1968.
Surely, our latest batch of sudden revolutionaries such as Jan and Khan could have given examples closer to home to forewarn the coming of an apocalypse in case things didn’t go the way they want them to.
Maybe they believe that examples like the 1968 and the 1983 movements, or even the 1977 uprising against the ZA Bhutto regime, or for that matter, the 2007 Lawyers’ Movement against the Pervez Musharraf dictatorship, were not dramatic enough? Perhaps. Indeed, images of public executions and firing squads and burning buildings from the Iranian Revolution, and visuals of people lying in front of tanks in Turkey, are certainly more exciting.
In 1969, when protests, mainly by leftist youth, had managed to force Ayub Khan to resign, the Islamist ideologue Abul Ala Maududi warned that the youth may face brutal retaliations from those who did not agree with their ideology. Maududi referenced the violence that Indonesian communists encountered in 1965-66.
In 1965, 500,000 to 1,000,000 communists and alleged communist sympathisers were massacred by the Indonesian armed forces and by right-wing Islamist groups when the military accused the largest communist party in Indonesia of murdering six military officers and attempting a coup.
But whereas Maududi, perturbed by the increasing leftist sentiments among Pakistan’s youth, warned about a retaliation against them in the mould of the 1965 Indonesian massacres, the retaliation did take place two years later — but 2,000 km away in the erstwhile East Pakistan.
What’s more, Maududi’s political party sent volunteers to facilitate Pakistan’s armed forces to eliminate Bengali nationalists.
This begs the question whether the alarmism that references dramatic upheavals elsewhere is actually wishful thinking on the part of those who use it to conjure what might happen in Pakistan? Their ‘warnings’ might actually be desires or even fantasies. After all, wouldn’t men such as Khan love seeing his supporters lying in front of tanks, or Jan relish the idea of an Iran-type revolution in Pakistan?
The reason that these remain alarmist fantasies inspired by events outside Pakistan is because Pakistan’s diverse ethnic and sectarian demography and the strongly unified nature of its armed forces are not compatible with the aforementioned events in Iran and Turkey — two countries that enjoy more sectarian/religious and ethnic homogeneity.
Yet, the reference of the 1979 Iranian uprising was all the rage in Pakistan across the 1980s. Ironically, it was mostly referred to by those in power. For example, in 1980, a sitting minister in the Zia dictatorship explained Zia’s Hudood Ordinances as deterrents formulated “to avoid an Iran-like revolution in Pakistan.” The stringent ordinances were described as ‘Islamic’ by the dictatorship, but were largely seen as being draconian and even “barbaric” by Zia’s opponents.
The minister was thus warning that, without such ordinances, the “Islam-loving people of Pakistan” would rise up and demand Shariah rule and that Zia was fulfilling this demand in a more measured manner and therefore mitigating the kind of commotion seen in Iran in 1979.
Even till the first Nawaz Sharif government (1990-93), Sharif was warning that if he did not continue “Zia’s mission”, the country would face an Iran-like uprising. In this case, however, it wasn’t wishful thinking, really. It was a warning to those who were his opponents.
In a way, Nawaz was telling them (as had Zia) to better tolerate his strand of Islamism than the strands being demanded by militant clerics. But why refer to the 1979 Iranian revolution in this respect, when one could refer to the vicious 1953 and 1974 anti-Ahmadiyya movements? Of course, after 1974, these movements became constitutionally justified and couldn’t be used as warnings of any kind.
The devastating Lebanese civil war (1975-1990) was once another favourite alarmist example. In the late 1980s, when ethnic violence erupted in Karachi, the then chief of the Mohajir Qaumi Movement (MQM), Altaf Hussain, often warned that Karachi would become like Beirut, the Lebanese city that was ravaged by the civil war. Images of that civil war were still fresh in people’s minds. So, instead of, say, referring to war-torn Dhaka of 1971 in former East Pakistan, Hussain chose to speak of Beirut.
The interesting bit is that, whether it was 1965’s Indonesia, 1980’s Beirut, 1979’s Iran or 2016’s Turkey, none of these references are very convincing in Pakistan’s context because the dynamics of Pakistan’s political and economic cleavages are nothing like those of Indonesia, Iran, Lebanon or Turkey.
And certainly not like those of 18th century France. Yes, Pakistani politicians are also very fond of warning about an uprising like the 18th century French Revolution. Why not refer to the 1857 uprising against the British in India instead, one wonders?
Most of these referential warnings look and sound like alarmist fantasies more than an outcome of any informed analysis. Pakistan’s 75 years are full of events that our alarmists can conjure. Yet, they continue to look elsewhere, blissfully ignorant of the fact that conditions elsewhere are quite different than what they are in Pakistan.
The reading of history by our alarmists is alarmingly sensationalist.
Friday, 10 February 2023
Thursday, 9 February 2023
Are CEOs with MBAs good for business?
Daron Acemoglu in The FT
Every year, tens of thousands of aspiring young moguls enrol at business school for an MBA, hoping to climb the corporate hierarchy. They are following predecessors who now run many leading companies, from Alphabet, Amazon and Apple to Microsoft and Walmart.
And the aim of faculty and administrators remains what Harvard Business School’s first dean, Edwin Gay, expressed in 1908: “To train people to make a decent profit, decently”.
Better knowledge and training can make leaders more innovative and productive, raising the returns to all stakeholders. Better managed businesses can more effectively achieve whatever objectives they set, including helping to tackle the myriad challenges society faces.
But has the MBA actually achieved these goals? Our recent research suggests a much less encouraging picture. Using detailed data on companies and workers from the US and Denmark, we looked at the effects when a chief executive with an MBA or undergraduate business degree takes over from one without such qualifications.
We found no evidence that CEOs with such degrees increase sales, productivity, investment or exports relative to the levels the company achieved before.
The biggest shift when a chief executive with a business degree takes charge is a decline in wages and the share of revenues going to labour, even in countries with different cultures. In the US, wages under business-degree holding CEOs were 6 per cent lower than they would otherwise have been after five years, and labour’s share of revenues was down five percentage points. In Denmark, the figures were respectively 3 per cent and 3 percentage points.
We found no evidence that these were companies with declining sales and appointed leaders with business degrees to rescue them. The patterns are similar when new MBA managers are appointed following the death or retirement of a previous CEO. Nor was there any indication that by reducing wage growth, chief executives with business education were creating more retained earnings to fund investment, which is no higher in their companies.
It may even be that, by ignoring broader stakeholders, such managers damage long-term profitability. For example, we found that higher-skilled employees were more likely to leave after the relative wage declines.
However, shareholders gain from the appointment of a CEO with a business degree — at least in the short term. Share prices increase, and we see more share repurchases in the US and higher dividends in the US and Denmark. Business-educated managers are also paid more.
The reason for the relative decline in workers’ wages and shareholders’ gain is clear. Companies run by CEOs without a business degree share increases in revenues or profits with their workforce — typically one-fifth of higher value-added. This ceases when a business-educated leader takes over. The wage impact is greater in concentrated industries.
It is impossible to know for sure why business-educated leaders have these effects, but our work provides clues. One reason could be the legacy of the economist Milton Friedman’s doctrine from 1970, which stated that “the social responsibility of business is to increase its profits”.
The idea that good managers raise profits is common in business schools and economics departments. Many courses advocate “lean corporations” or “re-engineering businesses” using digital tools to cut costs. It is possible that these ideas encourage leaders to take a tougher stance and ensure higher corporate profits are not shared with employees.
Another factor may be that the majority of business degree students interact closely with each other and often have little contact with blue-collar and clerical workers. As CEOs, they may not see the viewpoint of the rank-and-file or consider workers as stakeholders.
So is the current business school system broken? Not necessarily. First, only a small fraction of students become chief executives. Many work in other managerial positions, where their training may have very different implications.
Second, the majority of the chief executives in our sample received their degree before 2000. Business schools today may have evolved, but there are not enough CEOs with more recent degrees to judge the effects. Indeed, schools do appear to have changed rapidly this century. Many now have ethics courses and prepare their students for diverse careers, including in government service and non-profit organisations. Many students learn about corporate environmental and governance responsibilities.
Being aware of what managers with business degrees used to do is an important step in reflecting on how we can build better programmes.
Third, and most importantly, there is nothing hard-wired about business degrees. What MBAs mean and achieve will change, often prompted by students themselves. If they demand an experience that is richer than the Friedman doctrine and that prepares them for today’s societal challenges, most schools will adapt.
The change will have to start with what is taught in business schools, but it cannot stop there. The whole business school experience may need to be rethought, including how students socialise, form networks and gain experience. It will also have to involve a broader discussion of the social responsibilities of corporations and their business leaders.
Monday, 6 February 2023
What is a Default - A Pakistan Scenario
Asad Ejaz Butt in The Dawn
When Pakistan’s dollar reserves fell below $5 billion in December, and its credit default risk had reportedly become too high for analysts to ignore the possibility of an imminent default, the central bank made a policy decision to allow the opening of import letter of credits (LC) in a staggered manner to ensure spreading of the dollar reserve over a longer period of importing time.
The idea was to allow the government some diplomatic time to knock on the doors of friendly countries and multilateral organisations, including the International Monetary Fund (IMF). The Fund had dilly-dallied on the ninth review to force monetary authorities in Pakistan to take the first steps towards a few baseline reforms, including the relegation of the dollar to the markets. Markets that the central bank and the government regards as ripe with imperfections.
The rupee was finally devalued last week which automatically implied that it was left to a market that had the propensity to sell it to gain dollars. This provided IMF with the confidence to schedule the ninth review, which is now ongoing in Islamabad. It is likely that the IMF’s review will be completed, and default, as was predicted by some and wished by a few others, didn’t happen.
However, while the media thundered about the staggeringly high levels of inflation and alarmingly low levels of reserves, and analysts evaluated an infinitely large number of scenarios that would lead to a default, no one from the economists ever explained what a default meant and what would have happened to the economy if it took place.
From the mid of November to the end of January, I was asked this question many times: “is Pakistan going to default, or has it already defaulted?” None of those asking the question seemed to know what it meant for a country to default and what would happen if it did. Last week, for the first time, someone asked me what Pakistan’s economy would have looked like under the influence of default.
Put in very simple terms, a default for a country like Pakistan with large exposure in commercial loans means defaulting against commercial debt. Bilateral debt can be rolled over, while debt from multilateral organisations often has long-term maturity cycles making a country’s default vulnerability depend primarily on commercial loans.
So, imagine if Pakistan’s reserves had declined to such low levels that it would have defaulted against its commercial debt. This would have led the central bank to refuse commercial lenders’ payments to repay or service their debt.
That would have reflected in the further downgrading of the country’s ratings by agencies like Moody’s and S&P, dampening the trust of other international lenders and, after that, the government’s ability to raise new commercial debt.
Since the dollar inflows would have declined due to limitations of debt inflows, you could have only imported as much as you exported plus the dollars that expat Pakistanis remit from all over the world. This would be like a situation where you are forced by circumstances to keep your current account deficit close to zero.
Many of the imports that you would not afford would be inputs to the industry. While that would impact exports, the slowdown would impact production in the non-exporting sectors, pulling down the overall level of production in the economy. The natural consequence of all of this is the classic saga of too much Pakistani rupee chasing too few goods.
Inflation would have skyrocketed as the local currency that people would be holding would not translate into consumable items. Contraction in the economy due to production losses would have seen many people get laid off in a span of weeks, leaving some with money but nothing to buy and many without even money to buy. Economists call such situations characterised by slow growth but high unemployment and inflation ‘stagflation’.
This was played out in Sri Lanka in the summer of 2022. It suspended repayments on about $7bn of international loans due out of a total foreign debt pile of $51bn while it had $25m in usable foreign reserves.
Pakistan has around $3bn in reserves against an external debt pile of $126bn. Pakistan, in December 2022, was definitely headed in the Sri Lankan direction. However, we did not default and any chance of doing so has been left far behind.
Reviving even mere inches away from default is a world different to an actual default since, in the former case, you can resume business as usual as soon as a multilateral like the IMF returns with a few dollars in hand. However, in the latter case, even multilateral balance of payments support will take years to rebuild the economic edifice.
Pakistan didn’t default, and those who thought what happened to Pakistan in December of 2022 was a default must realise that a real default would have been much scarier than a few hundred LCs being opened with delay.
This piece is based on several conversations held with Mubashir Iqbal and Haider Ali.
When Pakistan’s dollar reserves fell below $5 billion in December, and its credit default risk had reportedly become too high for analysts to ignore the possibility of an imminent default, the central bank made a policy decision to allow the opening of import letter of credits (LC) in a staggered manner to ensure spreading of the dollar reserve over a longer period of importing time.
The idea was to allow the government some diplomatic time to knock on the doors of friendly countries and multilateral organisations, including the International Monetary Fund (IMF). The Fund had dilly-dallied on the ninth review to force monetary authorities in Pakistan to take the first steps towards a few baseline reforms, including the relegation of the dollar to the markets. Markets that the central bank and the government regards as ripe with imperfections.
The rupee was finally devalued last week which automatically implied that it was left to a market that had the propensity to sell it to gain dollars. This provided IMF with the confidence to schedule the ninth review, which is now ongoing in Islamabad. It is likely that the IMF’s review will be completed, and default, as was predicted by some and wished by a few others, didn’t happen.
However, while the media thundered about the staggeringly high levels of inflation and alarmingly low levels of reserves, and analysts evaluated an infinitely large number of scenarios that would lead to a default, no one from the economists ever explained what a default meant and what would have happened to the economy if it took place.
From the mid of November to the end of January, I was asked this question many times: “is Pakistan going to default, or has it already defaulted?” None of those asking the question seemed to know what it meant for a country to default and what would happen if it did. Last week, for the first time, someone asked me what Pakistan’s economy would have looked like under the influence of default.
Put in very simple terms, a default for a country like Pakistan with large exposure in commercial loans means defaulting against commercial debt. Bilateral debt can be rolled over, while debt from multilateral organisations often has long-term maturity cycles making a country’s default vulnerability depend primarily on commercial loans.
So, imagine if Pakistan’s reserves had declined to such low levels that it would have defaulted against its commercial debt. This would have led the central bank to refuse commercial lenders’ payments to repay or service their debt.
That would have reflected in the further downgrading of the country’s ratings by agencies like Moody’s and S&P, dampening the trust of other international lenders and, after that, the government’s ability to raise new commercial debt.
Since the dollar inflows would have declined due to limitations of debt inflows, you could have only imported as much as you exported plus the dollars that expat Pakistanis remit from all over the world. This would be like a situation where you are forced by circumstances to keep your current account deficit close to zero.
Many of the imports that you would not afford would be inputs to the industry. While that would impact exports, the slowdown would impact production in the non-exporting sectors, pulling down the overall level of production in the economy. The natural consequence of all of this is the classic saga of too much Pakistani rupee chasing too few goods.
Inflation would have skyrocketed as the local currency that people would be holding would not translate into consumable items. Contraction in the economy due to production losses would have seen many people get laid off in a span of weeks, leaving some with money but nothing to buy and many without even money to buy. Economists call such situations characterised by slow growth but high unemployment and inflation ‘stagflation’.
This was played out in Sri Lanka in the summer of 2022. It suspended repayments on about $7bn of international loans due out of a total foreign debt pile of $51bn while it had $25m in usable foreign reserves.
Pakistan has around $3bn in reserves against an external debt pile of $126bn. Pakistan, in December 2022, was definitely headed in the Sri Lankan direction. However, we did not default and any chance of doing so has been left far behind.
Reviving even mere inches away from default is a world different to an actual default since, in the former case, you can resume business as usual as soon as a multilateral like the IMF returns with a few dollars in hand. However, in the latter case, even multilateral balance of payments support will take years to rebuild the economic edifice.
Pakistan didn’t default, and those who thought what happened to Pakistan in December of 2022 was a default must realise that a real default would have been much scarier than a few hundred LCs being opened with delay.
This piece is based on several conversations held with Mubashir Iqbal and Haider Ali.
Sunday, 5 February 2023
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