HBS Flunks Finance 101

As regards your December Editor’s Note wherein you refer to Dean Jay Light’s remarks to the hastily organized financial crisis panels during the week of September 22: Light attributes the financial crisis to the “‘collision of a collapsing housing bubble and a new, but untested, financial system,’ one that has proven to be unexpectedly fragile in a way that nobody really understood.”

This is the Harvard Business School? If the basics of the financial system are not understood here, then perhaps the School should refund the tuitions of the past several years. What business will pay for the services of your graduates if they don’t ask the hard questions? Meeting others who can advance your career isn’t all there is, maybe that is what “nobody really understood.”

Timing is everything. Light, “an expert on finance,” had his chance to call together these panels years ago, to research the “new, but untested, financial system,” unregulated as all get-out, filled with “trust me” and “I don’t really understand the math.” Light and his experts seem to understand it now. What new information did they get that was unavailable to HBS before?

Jane Helmstaedter
Mendham, NJ

No Reason to Go Nuclear

While I applaud the general thrust of Byron Wien’s “My Two Cents” contribution in the December issue, he wandered beyond his competency with the following statement: “We will need to generate most of our electricity using nuclear fuel.” With this statement Mr. Wien (MBA ’56) reflects the same flawed assumptions shared by many otherwise astute individuals having no experience or expertise in the power industry.

I am an energy industry professional of 28 years, one who has no quarrel with nuclear in principle. But nuclear power suffers from the same inherent shortcomings it always has. It is too expensive; it carries too much investment risk for even the largest utilities without massive transfer of risk to taxpayers and/or ratepayers; and it takes too long from conception to operation to play a meaningful role in most system planning. You don’t have to take my word for it: Numerous sources over the past several years have documented the actual costs of the new generation of nuclear plants, including testimony to regulators by many of the utilities proposing to build them. According to these sources, nuclear power will cost $0.17–$0.30 per kWh, compared with approximately $0.06–$0.08 for conventional coal plants and $0.16 (est.) for coal plants that capture and store CO2. Moreover, renewable technologies offer the ability to produce affordable power. Most promising is concentrating solar thermal, which is being built in the desert Southwest today under contract with California utilities for $0.14–$0.16 per kWh. As the technology matures and scales, that should fall below $0.10. And these plants can be realized in three to five years, compared with ten or more for nuclear plants. As the rest of the December issue makes clear, we are suffering today from mistakes we learned a long time ago not to make. Why would we now repeat the mistake of banking on a nuclear option that simply makes no economic sense?

Michael Hogan
(MBA ’88)
Sunapee, NH

Priorities Trump Prescriptions

Your December article on HBS professor emeritus Robert Stobaugh’s energy “bestseller” of 1979 makes too strong a case that his policy recommendations should have been heeded. The basic shortcoming: We first need to agree on the priority of the problems and what viable solutions exist. Viability includes technical and financial feasibility as well as political acceptance.

Stobaugh suggests the problem is U.S. dependence on foreign oil; the most promising approaches to achieving a more balanced energy menu, he thought, would be largely through increased energy efficiency and focusing on solar energy as the best of the alternative energy options. Indeed, the United States has seen a marked improvement in energy efficiency, but solar has proven not to be the most promising alternative energy source.

In contrast to his call for energy independence, other voices put environmental protection first, with the article noting a “looming disaster of global warming.” A further objective is to support economic growth, with “affordable” prices for energy and avoidance of supply interruptions. The conflicts among these are apparent. ANWR drilling (Alaska) would be economical and reduce foreign oil dependency, but at a potential environmental cost. “Clean coal” with carbon dioxide sequestering for power generation fits all objectives, except it is not doable on the scale needed.

Stobaugh’s book supports the inclusion of “externalities” in energy pricing, the implication being that, if included, this would permit a “free-market approach.” This triggers immediate conflicts in both theory and political sensitivity: Should Midwest motorists have to pay a price for gasoline that includes a questionable element for environmental impact? The opposition would rise when this “externality” is seen to pay for mass transit programs in eastern cities. The debate will persist.

Robert C. Baker
(MBA ’57)
Darien, CT

Dean McArthur’s Contributions

Thank you for your article on Dean McArthur in the December issue. It was a pleasure to be reminded of his many contributions to the School and global society. Dean McArthur’s most significant contribution to my personal development occurred after I had left the School. I had the good fortune of participating in a luncheon in New York City to honor the Dean after his retirement. He told a moving story about service, friendship, and HBS involving a friend suffering in a Maine hospital. The selflessness of the Dean’s support for his friend and his wonderful storytelling ability melted away years of anger that I held inside about humanity’s treatment of each other. I am forever grateful to Dean McArthur for his humanity.

Nique Fajors
(MBA ’93)
Palo Alto, CA

...and His Wonderful Life

Regarding your article on Dean John McArthur, thank you — a profile wonderfully written, a life wonderfully lived.

Andrew Tobias
(MBA ’72)
Miami, FL

Enough with the Hero Worship

After reading the December issue, I was reminded of one of the School’s faults that I observed over forty years ago as a student: excessive rich-hero worship. In the article about the Centennial Summit there were photos and comments from the current crop of “heroes”: Jeff Immelt, Meg Whitman, Jamie Dimon, Rick Wagoner, etc. It appears that HBS maintains its policy of a firm relationship between wealth and intelligence.

Couldn’t you have found room for Sam Schmuck (MBA ’XX) with significant achievement but modest means who has worthy views on the topics being discussed? With an alumni body of some 70,000 there must be several. Would you have let Gandhi participate? Probably not. In this regard, HBS remains part of the problems discussed at the summit, not the solution.

Clyde A. Lofdahl
(MBA ’64)
Littleton, CO

Do the Right Thing

Something is missing. In time of crisis, reflection is essential but so is introspection as a part of it. Your December articles about the financial debacle make no mention that maybe the eminent faculty of HBS could inculcate a higher sense of ethics in the national and international leaders it anoints. There must be a countervailing force to compensate for the all-too-often glorified notion of profit at all costs — now. Growing the pie for the entire community within which a business operates, as well as for the community of nations, should be understood as a mid- to long-term win-win strategy. Anything contrary to that notion contributes to contracting the pie.

Eventually, the very rich find out that they need others to buy their goods, or the goods of the companies they invested in! The consciousness of the Marshall Plan was not only right at the human level, it was a smart economic strategy. Are we not missing that consciousness right now?

Jon Canas
(AMP 86, 1981)
Eustis, FL

Questioning Market Capitalism

Your September article “Is Market Capitalism Headed for Trouble?” asserts that market capitalism “survived the Great Depression.” But did it get out of the Depression on its own or through the help of the state, in the form of the New Deal? If market capitalism gets through the present crisis, as it probably will, will it do so through its own self-healing powers or through government intervention?

You further state that market capitalism “won the Cold War.” I find this statement insulting to those who overturned the Communist Eastern European governments. The workers at the Gdansk shipyards and the tens of thousands demonstrating in Prague, Leipzig, and East Berlin did not risk their lives for market capitalism (the capitalism that, in the name of profitability and globalization, soon destroyed many of their jobs). Many of those who demonstrated then had in mind socialism with a humane face.

Winston Churchill is reported to have remarked that parliamentary democracy is the worst imaginable form of government, all others excepted. Maybe the same applies to market capitalism.

Uwe Lembke
(MBA ’61)
Saint Germain-en-Laye, France

Beyond Class Notes

Usually I just scan our class notes, where Norm Whitaker (PMD 17, 1969) does the best job of any class secretary. However, I found the December articles very interesting. Either I have been missing out, or the content has been vastly improved.

Stan Humphries
(PMD 17, 1969)
St. Simons Island, GA

Build a Cost-Effective MBA

The September article “Building a Better MBA” was extremely interesting but missed an important point: How can a better MBA be delivered on a more cost-effective basis? Most for-profit and nonprofit institutions are finding ways to deliver their goods and services for fewer dollars of capital per unit of output. Why should educational institutions be exempt?

Stuart Ray
(MBA ’70)
Nassau, Bahamas

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