Raghuram Rajan: Money and education
Speech by Dr Raghuram Rajan, Governor of the Reserve Bank of India, at Shiv Nadar
University, Delhi, 7 May 2016.
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Thanks very much for inviting me to speak today. First, congratulations to all of you who are
receiving degrees today. Congratulations also to your teachers, family, and friends who have
invested in you and supported you.
Convocation speeches are meant to give you one last set of issues to ponder on before you
are let loose on the world. I will actually talk about two issues - an economic point deriving
from my training as an economist, and a point about private universities deriving from my
work at one for over 20 years. I embark on this talk comforted by the knowledge that the bar
for convocation speeches is low. If you even remember a word I say a few years from now, I
will have surpassed the average convocation speaker - most people don't remember who
spoke at their convocation, let alone what they said.
First, the economic point: In a very interesting recent book, Harvard philosopher Michael
Sandel points to the range of things money can buy in modern society. He seems to want to
make us angry at the growing dominance of the market.1 Professor Sandel worries not just
about the corrupting nature of some exchanges as they are monetized but also questions
their effectiveness; For instance, do kids really develop a love of reading if they are bribed to
read books? He is also concerned about unequal access to money, which makes trades
using money inherently unequal. More generally, Sandel fears that the expansion of
anonymous monetary exchange breaks down social cohesion, and argues for reducing
money's role in society.
While Sandel's concerns are not entirely new, his examples are worth reflecting on. For
instance, some companies pay the unemployed to stand in line for free public tickets to
Congressional hearings in the United States. They then sell the tickets to lobbyists and
corporate lawyers who have a business interest in the hearing but are too busy to stand in
line. Clearly, public hearings are an important element of participatory democracy. All citizens
should have equal access. So selling access seems a perversion of democratic principles.
The fundamental problem, though, is scarcity. We cannot accommodate everyone in the
room who might have interest in a particularly important hearing. So we have to "sell" entry.
We can either allow people to use their time to bid for seats - the one who stands the longest
wins the seat - or we can auction seats for money. The former seems fairer, because all
citizens seemingly start with equal endowments of time - we all start with 24 hours in a day.
But is a single mother with a high pressure job and three young children as equally endowed
with spare time as a student on summer vacation? And is society better off if she, the chief
legal counsel in a large corporation, spends much of her time standing in line for hearings?
Whether it is better to sell entry tickets for time or for money thus depends on what we hope
to achieve. If we want to increase society's productive efficiency, people's willingness to pay
with money is a reasonable indicator of how much they will gain if they have access to the
hearing. Auctioning seats for money makes sense - the lawyer contributes more to society
by preparing briefs than standing in line. On the other hand, if it is important that young
impressionable citizens see how their democracy works, if it is important that we build social
solidarity by making corporate executives stand in line with jobless teenagers, perhaps we
should force people to bid with their time by standing in line, and make entry tickets
nontransferable. And if we think that both objectives should play some role, perhaps we should
turn a blind eye to some operators hiring those with spare time to stay in line in lieu of busy
lawyers, so long as they do not corner all the seats.
What about the sale of human organs, another example Sandel worries about? Something
seems wrong when a lung or a kidney is sold for money. However, we celebrate the
kindness of a stranger who donates a kidney to a young child. So, clearly, it is not the
transfer of the organ that outrages us - we do not think the donor is misinformed about the
value of their kidney or is being fooled into parting with it. Nor, I think, do we have concerns
about the scruples of the person selling the organ - after all, they are parting irreversibly with
something that is very dear to them for a price that few of us would agree to.
I think part of our discomfort has to do with the circumstances in which the transaction takes
place. What kind of society do we live in if people have to sell their organs to survive? But
while a ban on organ sales may make us feel better, does it really make society better off?
Possibly, if it makes society work harder to make sure people are never driven to the
circumstances that would make them contemplate a sale. Possibly not, if it allows society to
turn its back on the underlying problem, either moving the trade underground, or forcing
people in dire circumstances to resort to worse remedies.
But I also think part of our unease has to do with what we perceive as an unequal exchange.
The seller is giving up part of her body in an irreversible transaction. The buyer is giving up
only money - perhaps earned on a lucky stock trade or through an overpaid job. If that
money was earned by selling a portion of a lung, or by painful savings accumulated after
years of backbreaking work, we might consider the exchange more equal. But the central
virtue of money is precisely its anonymity. We need know nothing about the rupee we get to
be able to use it. But because money's anonymity obscures its provenance, it may be
socially less acceptable as a medium of payment for some objects.
Professor Sandel makes us think. But he seems to move too quickly to prescribe banning
monetary transactions, when his real concern is perhaps with the unfair distribution of
money. What he also seems to ignore are the virtues of anonymity. In a free market, all it
takes to buy what you want is money. You do not need a pedigree, a great family history, the
right table manners, or the right fashionable clothing or looks. It is because money has no
odour, because it is the great equalizer, that so many people across history have been able
to acquire resources and invested them to make the world we live in. Indeed, making it easy
for Dalits to start businesses may do more for their social status because money empowers
than many other forms of affirmative action. Rather than prohibiting the use of money and
wealth, let us think about increasing society's tolerance for its use.
What can you take away from all this? First, that it helps to question everything, including my
interpretation of Sandel, for only with questioning comes clarity. Second, if you believe my
interpretation, there is a strong link between society's support for free markets and the
fairness with which wealth and opportunity is distributed among the population.
Unfortunately, even while inequality between countries is diminishing today, inequality within
countries is increasing. Today, even well-run market economies seem to be favouring those
who already have plenty. In part, this is because skills and capabilities have become much
more important in well-paid jobs, and those born in good circumstances have a much better
chance at acquiring these. The winner-take-all nature of many occupations, where a few of
the most capable entrepreneurs and the best workers take most of the income (think apps,
architecture or acting, for example) accentuates the value of early childhood preparation; and
hence the benefit of being born to the right parents in the right community. Income inequality
is on the rise, with some having colossal incomes and others worrying about the next meal.
What can we all do to restore faith in markets? We have to work to provide effective access
to schooling and healthcare for all, a non-discriminating job market with many jobs, equal
opportunities for further advancement regardless of gender, race or background. All this will
increase the perceived legitimacy of wealth and society's willingness to broaden the areas
where it is spent. Thoughtful philanthropy, as reflected in the founding of this school, can
further help enhance society's acceptance of great wealth. Finally, as you embark on careers
that are likely to be very successful, you should earn by creating perceptible value and,
equally, spend to create value. Not only will your work be more enjoyable, but you will
strengthen the economic freedoms we sometimes take for granted.
Let me turn briefly to my point about private education. Private education across the world is
expensive, especially in high-quality research universities, and getting more expensive all the
time. That is because the critical resource, good professors, is in short supply. Two solutions
are proposed. One is technology. Why not have the best professors beam lectures at
thousands of students over the net? The problem is that while such classes seem
theoretically attractive, completion rates are abysmal. We do not finish such courses perhaps
for the same reason we do not simply take a course syllabus and read the recommended
books in the library - there are too many distractions in life for us to complete without other
forms of compulsion. Online courses still need to figure out, not just how to get student
commitment, but also how to provide the learning support that a university community and
environment offers.
A second solution is to dispense with research and to have teachers who do not do research.
After all, such teachers do not need Ph.Ds, and there should be many more available. Yet it
does appear that students prefer degrees from research universities in the United States to
those from teaching colleges, even for their undergraduate degrees where students do little
research. Let me conjecture why. It is not that research professors know more about the
basic material that has to be taught - their research is often specialized in a narrow area.
Neither does research necessarily make you a good teacher - understanding the material at
a deeper level may sometimes make it more difficult to explain. I do think, however, that
good research requires curiosity. Almost all researchers remain curious through their lives,
and constantly update their teaching material to reflect developments in the field. I would
conjecture, though I have no proof, this is why teaching at research universities is, on
average, preferred to teaching at teaching colleges - you are taught more up-to-date
challenging material in the former.
The bottom line is that education at high quality research universities will remain expensive
for a while, certainly till we learn to combine technology and people better. Given the need to
broaden access to all the deserving, we have to make degrees affordable. One part of the
solution is student loans, but we have to be careful that student loans are repaid in full by
those who have the means, while they are forgiven in part for those who fall on bad times, or
those who take low paying public service jobs. We also should make sure that unscrupulous
schools do not prey on uninformed students, leaving them with high debt and useless
degrees. A second part of the solution is philanthropy, not just by the founders, but by the
successful students from a university. Giving back to the university is a way of subsidizing
the costs of future generations acknowledging the subsidies you received from the founders
when you got your degree. I hope we develop a strong culture of alumni giving in India.
You have been very patient in listening to me. Let me conclude. India is changing, in many
ways for the better. You will be able to help shape our country, the world, and your place in it.
By all means set yourself ambitious goals. But remember that, as both ancient Indian
philosophers and modern day behavioural psychologists say, the achievement of narrow
personal goals - greater wealth, rapid promotion, or increasing renown - rarely brings you
anything other than brief pleasure. I don't claim to know the secret of happiness, but this
seems obvious - if you like the journey, if you get pleasure from the work you do, it matters
far less when, or indeed whether, you reach your destination.
You have far more control over the journey you choose. And often the most enjoyable
journeys are those where your goals are broader and where you take others with you,
especially others who could not make it without your help. In doing so, you will make this
world a better, and more stable, place.
Thank you! I wish you good luck in your future endeavours and hope they are crowned with
success.