Thursday, July 10, 2008

Choose economics as your business specialisation

I have never recommended that any other than the least academically able business students* even consider enrolling in undergraduate degrees such as dedicated marketing and human resource management. The vast bulk of students are far better off studying a discipline like economics or finance provided, again, that the latter provides a solid background in basic economics.

Economics students are better off that this lot because they learn to analyse the world in terms of a solid body of theory that has been developed over the past 200 years. Apart from providing them with an education of intrinsic interest (with quantitative methods, modelling skills, economic history, knowledge of institutions) economics also gives them a good fundamental education that they can apply in various areas. They also earn more money.

  • Those who want to employ marketing specialists would be better-off seeking an economics or arts graduate with a good fundamental education followed by practical experience (and perhaps an MBA) rather than an undergraduate who has majored in marketing but doesn't know what a demand curve is. Or who doesn't know any finance or macroeconomics and hence doesn't understand the broad forces that drive business.
  • Those who want to employ human resource managers could usefully sample from the same pool. They will certainly do better than employing an undergraduate who has studied some gobbledegook personel management and third rate psychology - but no labour economics, game theory or industrial law - and who, apart from a part-time job working at McDonalds, has never themselves been part of the paid workforce. How can they assist in bargaining with a trade union or employer when they have never studied bargaining?

The fallacy in believing that you do best by choosing a vocational specialisation rather than a solid fundamental education is underlined by a recent Forbes study on graduate salaries in the US. Business isn't fooled even if naive undergraduates fall for the vocational slogans and the managerialism-speak.

In the Forbes study, guess what - economics comes second! in terms of reward. In order of the fields are:

1. Computer Engineering
2. Economics
3. Electrical Engineering
4. Computer Science
5. Mechanical Engineering
6. Finance
7. Mathematics
8. Civil Engineering.

The reason that economics is valued so highly is that it provides strong generic, analytical skills. It is adaptable and is consistent with flexible thinking. Those who seek to analyse marketing and human resource issues without quantitative methods and without the economics that provides a clear understanding of how markets work are like the hapless soldier trying to charge a regiment of tanks with a defective slingshot.

They will almost inevitably lie at the bottom of the managerial ladder both in terms of status and salary and deservedly so.

Firms provide better on-the-job training than universities do. Most of the self-proclaimed practical 'businesspeople' pushing an atheoretical, anti-analytical line in the universities couldn't organise themselves a root in a brothel. Most have no business experience and parade their philistine anti-intellectualism as something to be admired when it is clear to all that they are simply making a virtue of necessity.

For the Forbes survey (not the polemics) a Hat Tip to Greg Mankiw.

* The least able students have other options too. The generic B.Bus when properly constructed with enough quantitative methods, economics and finance is better than any amorphous dedicated vocational degree that, in the main, combines psychobabble with management-speak. They would also be better off doing an Arts degree.

16 comments:

Spiros said...

I'm guessing, Harry, that at your university there are many more marketing majors than economics majors.

Am I right?

Maybe if economics professors were better at marketing they'd attract more students.

conrad said...

I agree HC -- although I wonder what the real value of even an economics degree in Australia is these days as things get more and more watered down. I wonder if the reason it ranks highly in the US is because it is a graduate degree where you really can teach relatively more difficult stuff.

One thing that is also often overlooked is that the big employers like banks select very widely. I have a few friends with engineering degrees working in the big banks, and indeed even one that did media studies! At least for graduate intakes, it evidentally appears they would rather take smart people than those with degrees that are supposedly specifically in the area (I'd love to see the real distribution). So this agrees with your observation that doing a degree with some title (like marketing) doesn't mean people will prefer you in those areas over people that haven't done such a degree.

The other thing that is interesting is how poor an understanding students have of all this. I know in psychology, students constantly complain about having to do statistics, so more and more gets chopped out of courses to satisfy them. However, if you look at graduate outcomes, it appears they have the best outcomes of people with arts degrees because they did learn a bit of stats. c'est la vie I guess.

Sinclair Davidson said...

I can't speak for Harry's institution, but at my institution the Marketing school got absorbed by the Economics and Finance school. While I agree with Harry's general point (cuz its all an econ conspiracy) if marketing is done properly - emphasising its economics roots and high level quant requirements it can be quite rigorous - that is what we're aiming to do.

hc said...

Sinclair,

Certainly good that the RMIT degree includes macroeconomics as well as what looks like microeconomics in second year. They do no economics in first year, right so they do, in total, one quarter of one year's economics.

But where are the quantitative requirements? I can't see any but maybe I am looking in the wrong place.

http://mams.rmit.edu.au/eolprogsummaries/bp141

Sinclair Davidson said...

Work in progress - at the moment all students do business statistics. We have just appointed a full Professor in Marketing and additional staff.

Tim Fry does a lot of high quant marketing work (for a private firm on a contract basis through the uni) and we're hoping to grow into that market.

Sinclair Davidson said...

Sorry - need to be clearer. Students will have done a semester of macro in first year and a semester of micro in second year (we don't have a single subject called "economics"), they also do a semester of finance (really just applied micro) and a semester of Business Statistics and a semester of marketing research (more quant stuff). Then the three electives would (mostly) come from other subjects offered in the school (basically more economics or finance or more quant). The Business Ethics subject is taught by a guy with a strong economics background.

So all up, that relates to a minimum of 18 months of economics and finance and 12 months of quant over a three year academic program (the fourth year is a "work experience" program).

Conrad said...

Actually, I just found some data which confirms my suspicions at least for graduate salaries (unfortunately economics and business are lumped together):

http://www.aa-education.com/salary-australia/

There is definitely data out their on the more meaningful long term salaries (I would expect, for example, that business people overtake social workers), although I can't recall where it is right now. The main thing I remember was that mathematics graduates were near the top of the list, despite not have targetted degrees (doctors may have been on the top).

derrida derider said...

I'd actually broaden your argument. Any degree with a fairly wide range of subjects in it that focuses on analysing how the world works (especially but not only quantitative analysis) is better preparation for work, and indeed the world generally, than a narrowly vocational one.

Many years ago I had a job giving careers advice to school leavers. I saw a number of reasonably gifted students with evidence of an analytic bent who had no idea of what they wanted to do. I advised them to start an Applied Maths major and pursue as wide a range of minors within that degree as they're allowed. With that background you can switch to an enormous range of specialties later (virtually any of the natural or social sciences, engineeering, business, IT, even philosophy and some of the arts).

hc said...

Spiros, Economics is in fact doing quite well - the market works.

Conrad, Many good jobs go to strong Arts degrees too and so they should. Degrees emphasising flexible thinking have a role.

Derrida, I was talking about those wanting to work in business. I'd vbroaden your claims to include certain Arts degrees.

Its the phony vocationalism in modern universities that is the problem. Good science, maths & arts graduates will outperform dodgy vocational degrees anyday.

conrad said...

"Degrees emphasising flexible thinking have a role"

I completely agree with you on this, but the problems is that these degrees become fewer and fewer -- I believe Arts graduates now show similar levels of flexible thinking as any other type, so the idea that certain degrees are teaching people how to think in flexible ways doesn't really hold water anymore. It's pretty obvious why when teaching -- at least where I work students now expect you to tell them exactly how to do everything (including format tables -- no jokes). I'll assume La Trobe is no better in this respect

Francis Xavier Holden said...

harry and others - You forgot to mention that the added bonus is that Economists are soo bloody 'umble and modest.

Oh lord it's hard to be Humble when you're perfect in so many ways
who cares I never get lonesome
cause I treasure my own company.

Oh Lord it's hard to be humble
when you're perfect in every way.
I can't wait to look in the mirror

'cos I get better looking each day
to know me is to love me

I must be a hell of a man.
O Lord it's hard to be humble
but I'm doing the best that I can.

hc said...

I'd distinguish between the people and the discipline FXH.

Francis Xavier Holden said...

I'm not sure I care too much about the "better" degree to do as it involves a whole set of value assumptions and etc etc.

however - over my long years if theres one simple thing from economics that I would appreciate that every person I have had to deal with understood it would be Opportunity cost. So much so that I have at times delivered a seminar to bewildered workers myself. I'd like to see it taught im secondary schools at least for one lesson.

Typically it bumps up against me like this: Average worker A suggests entity takes on extra project X. Extra Project X is a "good thing to do". No extra funding is available for X either as income or reduced costs. Worker A will put the extra 5 hours a week into X for a year.

When asked what will be dropped from A's allegedly full work schedule to make way - answer is "Nothing".

hc said...

FXH, Opportunity cost is the most basic idea in economics. Its the need to make tradeoffs in systems where there is no slack.

Moreover the evidence is that even graduate economics students don't get it right.

The idea that you can get something for nothing is pervasive. Vice Chancellors who tell academics to do more research when teaching loads and administrative loads are at breaking point etc.

I think all people should study at least this basic economics.

Francis Xavier Holden said...

ah but Harry I didn't point out that in my little example I'm closer to the VC.

Surely if management wants something that is an explicit re-arrangement of priorities being requested.

My favourite anecdote on this matter of academic workoad is about when I noted that Academic Dr X had promised to commit himself .5 for 6 months for a particular consulting project, this was in addition to the other .5 I knew he had committed to another consulting project. Who knows what other projects he had comitted himself to as well. A quick call to a Uni colleague confirmed that yes Dr X was also committed full time to the Uni as well.

I guess academics must have greater capacity and more hours for work than mortals.

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