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We have too damn many bankers. That’s been the gripe among some economists, who pin the 2008 financial crisis on what they call the financial sector’s outsized role in America’s economy. So a recent Wall Street Journal article bearing the headline “Elite Grads in Business Flock to Tech” doubtless cheered such critics. The upshot of the article was that the tide may be going out on Wall Street, carrying MBA graduates to Silicon Valley and other centers of technology jobs instead.
School of Management students are part of the trend, says Mark Williams (GSM’93), an SMG master lecturer and executive-in-residence. Among last year’s graduates who accepted employment offers three months after Commencement, a plurality, 21 percent, went into technology and science, versus 16 percent in financial services, according to SMG’s Feld Career Center. Bostonia spoke about the tech migration with Williams, author of Uncontrolled Risk: Lessons of Lehman Brothers and How Systemic Risk Can Still Bring Down the World Financial System (McGraw-Hill, 2010), about the collapse of investment firm Lehman Brothers in 2008.
Williams: Since the Great Recession, the traditional employment opportunities—investment banking, corporate finance—greater job opportunities are really not there anymore. But in high tech, the mobile sector is growing dramatically; we’re looking at search engines on a day-to-day basis; look at social media and how important that’s become; and finally, there is cloud computing. After the recession, we saw a growth in the high-tech sector four times greater than in any other industry.
At BU, we have an entrepreneurial concentration option MBA, and we’ve seen growth and interest in that in particular. We have innovation competitions at BU. It just shows this kind of beat that high tech and innovation and change has to it. We can look back to January 2007, when Facebook had about 12 million active users. Now there are over a billion. Twitter just did an IPO in November, and within a month it doubled in value, so in that sense, it’s almost as if the high-tech industry is a gold rush.
Right. For example, Facebook grows and has to issue more shares of stock and capitalize itself and decide on strategy. The industry of finance is how to take a smaller pile of money and turn it into a larger pile of money. Companies have finite capital, so how can you best allocate the capital? You can’t just rely on scientists and engineers to make those risk/return decisions. You have to have finance folks.
The US economy is overbanked. We have over 6,000 banks, we’re seeing a massive consolidation of our banking industry, and we’re also seeing greater regulation. That’s reducing the amount of risk that banks can take, and as banks take fewer risks they have less profit. It means less hiring of new MBAs.
What created the financial crisis were many financial products that did not truly create value. They actually destroyed wealth, were financial dynamite. Compare that to the innovations we have in high tech. Those create value, new jobs, and new products. If we didn’t have MySpace, we wouldn’t have Facebook; if we didn’t have Facebook, we wouldn’t have Twitter. One innovation creates another innovation that then goes on to create another. That innovative spirit is not really there in banking. If we can take some of our best and brightest MBAs and they can start heading to Silicon Valley instead of heading to Wall Street, we could actually see some significant growth in our economy. We could see unemployment drop maybe to 5 percent, and that would be a wonderful day.
There is a greater chance now that we’re getting to a bubble in high tech. NASDAQ is at a 14-year high; NASDAQ is a high tech–heavy index. We’ve seen how Twitter in one month has doubled in value, but where is it going to get its revenue? Is it really worth more than Adidas? Snapchat at the end of November was offered $3 billion by Facebook—Snapchat has no revenue—and Snapchat said no, we’re worth much more. There could be an inflated view and a bubble that is being created.
Part of the capital market system is allowing money to flow to the highest and best uses. The NASDAQ is on an all-time high, and that represents optimism that this sector will continue to grow.
I view bubbles differently. From an investor’s standpoint, if you’re investing in a high tech—beware, it looks like it’s getting frothy. But if you’re looking for employment at a company like Google, whether Google stock is at 1,000 or 800, you’re still going to be employed, and there are still going to be good opportunities going forward for that company.
Technology is embedded in everything we do. It’s not a fad at all. I say to MBAs, move into an industry that you have enthusiasm and interest for. Don’t move just to Wall Street or some other firm because you’re chasing the money.