Can Central Bank salaries be compared with those of Universities ?

October 18, 2012, 12:00 pm , The Island

Economic Development Minister Basil Rajapaksa President of Federation and Federation of University Teachers’ Associations Dr. Nirmal Ranjith Dewasiri greeting each other prior to their successful talks recently. (File photo)

By Sunil Jayasinghe

In an article published in The Island on 2nd October 2012, Dr Usvatte-aratchi made an attempt to estimate wages of central bankers in order to make a case for higher wages for university dons. The purpose of this article is to show his analysis is not valid because it is like comparing apples with oranges.

Salaries of central bankers are usually linked to salaries of banking sector employees in Sri Lanka. This is a usual practice in many countries. It has also been a practice that wages and perks of banking sector employees are set at a higher level than those of public sector employees due to several reasons. This was perhaps one of the reasons why Dr Usvatte-aratchi also decided to join the Central Bank even in those olden days after earning a degree with a first class or second class upper division despite the Civil Service and the University being more attractive and respectable professions back then compared to these days. All of a sudden he seems to have forgotten his own reasons for joining the Central Bank in the first place and has decided that it was unfair that he was paid a higher salary than his colleagues in the university.

Wages of any sector depends on how funds flow into that sector to pay wages. For example, the banking sector makes profits and pays taxes to the government while using a part of their profits to pay wages. Therefore they have a little more discretion in deciding wages of their employees than the public sector when the salaries are paid out of tax payers’ money. This is one of the reasons why wages of various non-public sector institutions are different to that of public sector employees’ wages. For example, a graduate with a first class degree employed in telecom sector could be paid a higher salary than his counterpart in the electricity sector. This may be true even in state-owned public corporations because these corporations are supposed to operate on a commercial basis and earn their wages after paying taxes to the government. If Dr Usvatte-aratchi’s argument that university dons should be demanding more wages than their counterparts in other sectors is valid; professors in Ivy League universities such as Colombia and Yale must demand for their salaries to be on-par with those of their counterparts with similar qualifications working in nearby Wall Street firms. I am sure those professors are well aware that even their students working at the Wall Street firms earn multiple incomes compared to their salaries in those Ivy League universities. However, they have the common sense to understand that if they demand such salaries they will be kicked out of the job the next day irrespective of how academically qualified they are in their own fields. They are also well aware that even if they join Wall Street firms after quitting universities they will have to start at a much lower wage than their students there until such professors acquire the skills necessary to work in Wall Street firms. Therefore, Dr Usvatte-aratchi’s comparison of wages between bankers and university dons are invalid. This is why one can’t find comparison of wages between central bankers and university dons in any other country or any other literature even for academic purposes. In this regard, the medical doctors’ union made a valid point by objecting to the proposal to treat university dons separately for wage setting because all are paid by tax payers’ money. One should not be treated differently from another because they are doctors, judges, civil servants or any other public sector employee. If Dr Usvatte-aratchi’s argument is valid, judges, civil servants, doctors, accountants and all other such professionals in the public sector should be demanding higher wages than those earned by their counterparts with similar qualifications in the private sector and public corporations. It is an acceptable fact that public sector wages in any country are subject to budget constraints and depends on tax payers’ money. For example, since the Lehman Brother crisis, all public sector wages in the US were frozen irrespective of the profession whereas wages of similar professions in the private sector have varied depending on the profitability of each sector.

I am surprised that an analysis by an eminent economist like Dr Usvatte-aratchi didn’t find it useful to discuss issues and problems relating to why public sector professionals are paid lower than others. Even in this debate he has not expressed his views about whether the government can spend 6% of GDP for education now or in the future. Instead he has made an attempt to estimate an average salary of a Central Bank staff officer and failed miserably. I know for a fact that his estimated salary of a staff officer for the year 2011 is higher than even the salary of a Deputy Governor of the Central Bank who is supposed to be placed at the highest point in the Bank’s salary structure. Level of competence of an economist is usually measured by his or her ability to estimate or predict outcomes based on most accurate assumptions. Dr Usvatte-aratchi’s estimate reflects either his level of incompetence in estimating figures or his ignorance by intention to mislead the general public.

I am also surprised by the fact that Dr Usvatte-aratchi had the common sense to find out the salary of one of his friends in a university for his analysis but did not make any attempt to talk to many of his Central Bank colleagues and friends. He had been recruited to the Central Bank twice, firstly as a staff officer after his graduation in the early days and secondly as a consultant after his retirement from his UN job. His poor analysis suggests that he has compromised his intellectual capacity to hate Central Bankers perhaps because he was unceremoniously kicked out from his consultant position due to his failure to make a useful contribution as expected from an intellectual of his calibre, despite the fact that he was given perks and privileges similar to as a deputy governor when he was hired as a consultant.

Since the comparison is invalid, I will not waste my time to compare the other benefits and perks between bankers and academics. Those must be different due to vast difference between those two sectors. Due to recent trade union action, the general public has seen wages, perks and other benefits university dons enjoy compared to their responsibilities and workload. Fortunately for the country, we haven’t seen an analyst like Dr Usvatte-aratchi from other sectors making new demands for similar benefits as university dons. Perhaps the majority of analysts have a lot more common sense!

I also don’t agree with Dr Usvatte-aratchi on his argument that a bright academic with a good first degree and a PhD from a good faculty has every incentive to take the first plane out of Katunayake because they are paid a lower salary than a Central Banker. In an increasingly open and highly integrated global labour market, migration of labor searching for better opportunities is a common phenomena not only in many countries but also in many different sectors of any economy. This is not necessarily a bad thing in terms of economic benefits and it could happen both ways. For example, when management trainees are recruited to the Central Bank, positions are open to graduates from both local and foreign universities with equal qualifications through an open, transparent and highly competitive process. I understand that the last time more than 10,000 applicants sat the competitive exam conducted by the Examination Department. Candidates who obtained the highest marks were interviewed and selected on the basis of merit. There were several university dons that also applied through this process and some may have succeeded. Does it mean that those who did not succeed or perhaps the other 10,000 odd aspirants should also be offered the same salary in other sectors as a management trainee at the Central Bank? Does it mean that because the Central Bank recruited only 50-75 out of such a large pool of talent, the universities are deprived of attracting equally talented graduates?

In my view, the quality of university academic staff has been deteriorating mainly due to the non-transparent, non-competitive recruitment process. It is a well-known fact that to become a university don one has to be a buddy of a head of department or have some sort of influence within the university staff irrespective of talent, competence or skills. I have met several very talented graduates that have been deprived of opportunities to join the academic staff merely because they have not been favourites of heads of departments or professors. There are a lot of talented Sri Lankan graduates from foreign universities who are interested in joining local universities to pursue academic careers. When will they be given an opportunity to compete with local buddies on a level playing field for recruitment? It seems like our university dons are moving in an increasingly backward direction in this regard. This is why they demand more autonomy in the recruitment process. They don’t like giving up their authority to abuse their positions instead of recruiting the best available talents like the banking sector does. If we continue to move in this direction we are going to see further deterioration of the quality of the academic staff in universities and more politicized trade union activity in the future. So the solution lies more in the hands of university dons than the government. Matching salaries of university dons with all other sectors of the economy or raising expenditure in education to 6% of GDP wouldn’t solve inherent problems in the system.

(The writer is a former Central Banker currently working at a Wall Street firm. He can be reached at slmarketmonitor@gmail.com)