Intuition Issue 1, 2011

Executive Compensation
Necessity or Obscenity?
 ‘I want to

beco
a business partner
and actually make
a difference.’

Eager to kick off your career as a

financially qualified business leader
and progress quickly?
Register today to become a
CIMA student:
T. +44 (0)20 8849 2251
E. cima.contact@cimaglobal.com
www.cimaglobal.com/me

Philip Sancto
BA (Hons) Economics, University of Leicester
Finance Executive, Tesco
P

We would like to take this opportunity to formally WELCOME THE NEW

welcome all prospective readers to the first issue IMPERIALISTS
of Intuition, the Economics Society Magazine. The
brain child of the Society’s President Kei Lin Siew .
We were charged with the task of creating a maga- CAPITAL MOBILITY
zine that whilst still accessible to those without a IN THE EU
strong economic focus or background but yet con-
tained enough relevant economic commentary. It
been a tough balancing act but I’m confident along EXECUTIVE
with the other student contributors that we’ve COMPENSATION
managed to do this, how well however remains to
be seen and we eagerly await the numerous cri-
tiques and feedback that we are sure to receive. INTUITION MEETS:
GIANLUIGI VERNASCA
Our feature piece for this term’s issue of the
magazine is by David Deller who asks the question
- Is Executive Compensation a necessity or obscen- THE OTHER OPTION
ity? The question is especially pertinent in light of
bankers and executives receiving what can be per-
ceived as exorbitant payoffs even though many QUANTITATIVE
banking institutions were bailed out by the tax
EASING
payer and the effects of the recession are still to
wear off. In the article the author examines the
complexity of executive contracts and also evalu- HOW DO I GET AN
ates their social and moral implications. INTERNSHIP?
Other articles include an examination of Chinese
economic investment in Africa and what this holds
for the future of the continent and also a discus-
sion of the issue of capital mobility in the Euro-
zone. We also have an interview with a man who
needs no introduction to anyone studying Eco- EDITORS:
nomics at the University, Gianluigi Vernasca and
for those of you who are interested in how to get Andreea Raducanu
an internship we have prepared a special article
Rasaak Agoro
from Careers Centre.

All this and lots more are featured in the magazine

and we hope you enjoy them as much as we have
enjoyed producing them.
DESIGN/ LAYOUT:
Daiana Bassi
[If you would like to write for Intuition email:
arradu@essex.ac.uk or aagoro@essex.ac.uk ] Fredrick Chatt

3
Q
I want to be I want to learn more
part of one about industries that
of the largest interest me
societies

I want to go on
lots of regular
I want help socials
with my career

I want to go to
New York with
my friends

Why should I
join the Essex
Economics
Society?

Welcome the new
Imperialists, same as
the old imperialists?
By Dyama Mgoduso
A lot has been mentioned of China’s increas-
ingly powerful position in African affairs and its
development. Some cynically say that African
countries have traded previous colonial alle-
giances for the new economic and political su-
perpower. If one goes on the basis of that argu-
ment, it is worth analysing this new protagonist
in international affairs.
If rhetoric is taken out of the equation, what we
have are the cold, hard facts; China has over a
billion people, and since the government has
slowly introduced capitalism and free markets,
the population has had a voracious demand for
goods and services to be manufactured and
consumed. Africa has what seems to be an end-
less supply of various raw materials ready to be
mined and converted into goods, there seems
to be a natural fit for both parties to trade.
Before continuing, it would be of interest to
have a look at some of the figures involved. In a
study conducted by the Council on Foreign Re-
lations, trade between Africa and China
amounted to £47 billion in 2007. The predomi-
nant commodities being traded included: Chi-
nese import of oil from Sudan, Nigeria and An-
gola; timber from West Africa; copper from
Zambia and the Democratic Republic of Congo
and diamonds from Angola, Botswana and Si-
erra Leone. Interestingly, China also imported
African value-added goods such as processed
foods and household consumer goods. This is of
some surprise to some as Africa is not re-
nowned for its manufacturing capacity.
“Some cynically say that African countries
have traded previous colonial allegiances for
the new economic and political superpower”
In the same year, China’s largest bank by mar-
ket capitalisation, the Industrial and Commer-
cial Bank of China (ICBC) purchased a significant
stake in the Standard Bank of South Africa, one
of Africa’s largest Banks with a significant pres-
ence on the African continent. ICBC sees Stan-
dard Bank as a strategic asset and vehicle for
further expansion into Africa, as from a retail
banking perspective, Standard Bank has in-
creased its branch network to 332 branches
across Africa and built up an impressive track
record along the way. Due to a lack of direct,
tangible benefits accruing to the South African
economy, the overriding sentiment with re-
gards to the Chinese and the deal was encapsu-
lated by the statement of former South African
president, Mr Thabo Mbeki, when he said:
“Africa risked falling into a colonial relationship
with China.” Although rather uncharacteristi-
cally blunt, the comment reiterates some con-
tinuous themes in this article that Africa should
not view China and its investment as a solution
to its problems. Relations should be based on
trade that creates real and tangible progress in
African economies that benefits its peoples and
the boon of this new economic relationship
should not be exclusive to the political elites
who are well placed to benefit the most from
China’s ‘benevolence’. Although it should also
be noted that Mbeki’s observation isn’t neces-
sarily representative of the 54 sovereign coun-
tries that make up the continent.
Returning to some of the figures involved, over
5
 the past five years, direct investment in Africa
has amounted to £8.6 billion, this figure does
not include loans made by the Chinese govern-
ment and agencies to African countries, this
point is important given China’s trillion dollar
foreign exchange reserves, this allows them to
lend to African countries at preferential interest
rates. Finance Ministers in Africa are more likely
to take these loans than the ones provided by
the IMF or the World Bank, institutions per-
ceived as being bastions of Western exploita-
tion of Africa. Additionally, the direct invest-
ment has been made
mainly in infrastructural
development projects,
which to African econo-
mies is more tangible than
investment in financial
assets, which can be easily
offloaded should a change
in investment strategy en-
sue or the perceived risk
of investing in Africa in-
crease. These infrastruc-
tural projects create much
needed employment op-
portunities which directly
and indirectly affect hun-
dreds of thousands of
families, although cynics
have alluded to the point
that China is only building
the roads, bridges and
transport networks in or-
der to extract minerals out of Africa more effi-
ciently.
As a direct result of this ‘economic stimulus’ for
African countries, China has been able to garner
political support from African countries on the
international arena. This was exemplified at the
Copenhagen Summit where South Africa and
other emerging nations (known by the acronym
BRIC’s) decided to plough their support behind
China with regard to carbon emissions and envi-
ronmental policy, and not support the meas-
ures proposed by the United States and Great
Britain. This subsequently led to a stalemate
between the United States and the European
Union one side and the emerging countries on
6
the other. To end the ensuing stalemate a po-
litical and legally non binding agreement was
reached whereby nations would “take note of
the Copenhagen Accord of December 18,
2009”. This agreement was rushed through
countries like Bolivia, Sudan and Venezuela be-
come more in favour of the proposals issued by
China and its allies, which would have proved
disastrous to the West.
The fundamental question that needs to be
posed is, is China’s involvement in Africa benefi-
cial to the African continent and its inhabitants?
Notwithstanding China’s
contentious human rights
record and equally ques-
tionable labour practices,
the most balance opinion
I have can be summed up
by a recent article by Deb-
orah Brautigan titled
‘Africa’s Eastern Promise-
What the West can learn
from China’s Investment
in Africa’, “This is an op-
portunity for African
states to ride into the
global economy on
China’s shirttail rather
than remain natural re-
source suppliers to the
world.”
“The fundamental ques-
tion that needs to be
posed is, is China’s involvement in Africa bene-
ficial to the African continent and its inhabi-
tants?”
In other words, African countries can take this
opportunity to build sustainable industries that
diversify their economies from purely being re-
source based, educate their populations and
provide an adequate level of healthcare which
improves the well-being of their people. Results
of the former are illustrated by statement made
on the by Mr Abdoulie Janneh, Chief Secretary
of the United Nations Economic Commission for
Africa (ECA). He stated, “There is evidence of
diversification of production and trade flows in
 through institutions like the African Union
(similar to the principles of the European Union,
but without the loss of political and national
sovereignty) and its economic development
program called NEPAD.
From a Chinese perspective, I suppose being
intimately involved in Africa not only fulfils their
economic objections and programs by having a
steady supply of raw resources to feed their
economic growth, but arguably just as impor-
tant China’s political objectives. By virtue of
China’s trade, investment and loans to African
states, they can exert a more influential role in
international foreign policy, as geographically
speaking, the African continent is of significant
strategic importance to both the East and the
West.
Photo: Chinese Premier Wen Jiabao and South African
ex-President Thabo Mbeki shake hands in June 2006 “By virtue of China’s trade, investment and
loans to African states, they can exert a more
in the continent. Africa’s recent economic per- influential role in international foreign policy”
formance is not only due to the external de-
mand for its commodities but also as a result of To illustrate the strategic importance of Africa
growth in services such as banking, telecommu- and its mineral wealth, Mobuto Seso Seko (an
nication, tourism and construction.” These unscrupulous former leader of what was known
comments would seem to suggest that there as Zaire under his regime in Central Africa, but
seems to be direct correlation between China’s now commonly referred to as the Democratic
investments in Africa over the last decade being Republic of Congo), reportedly managed to si-
used to develop other industries.¹ Hopefully the phon off billions of dollars out of Africa by play-
continued relationship between Africa and ing on Western fears of the spread of commu-
China will help fulfil some of the Millennium nism from the East. In return he received politi-
Development Goals (MDG) for the eradication cal protection and patronage from Western
of poverty, and follow the old adage of ‘teach a governments, while simultaneously trading his
man how to fish, so he can learn how to fish for country’s vast mineral resources to Soviet na-
himself and his dependents’. tions who used them to build war machines in
Apart from fulfilling the MDG for poverty alle- preparation with war with the West. The eco-
viation, it will also fulfil what numerous African nomic ideals may have changed, but the princi-
scholars and academics have termed the ple of influence over the continent and its min-
‘African Renaissance’ and what some of the erals is still intact!
more imminent politicians on the continent
metaphorically termed ‘The rebuilding of Car-
thage’. The latter referring to the prehistoric ¹ For further information on the diversification
trading port located in North Africa, which due of Africa’s economies and the building of intel-
to its strategic importance and influence in the lectual capital see “Economic Diversification in
region was taken over by the Romans who pro-
Africa: A review of selected countries”. A joint
ceeded to destroy its culture and civilisation. As
stated earlier, it is imperative Africa begin to study by the United Nations Office of the Spe-
rely on its own indigenous knowledge to solve cial Adviser on Africa and the NEPAD-OECD Af-
its more pertinent socio-economic problems rica Investment Initiative.

7

Gianluigi Vernasca: BSc (Parma), MSc
(Warwick), DPhil (Pavia), PhD (Warwick)
By Damilola Adefeyisan
Starting off, we’d like to know who Gianluigi
Vernasca is. Can you tell us a little bit about
yourself ?
Well, I’m a lecturer here at the University of
Essex. Came here in 2006 so this is nearly my 5th
year at this University. I am Italian, I studied in
Italy for my undergraduate then I came to Eng-
land to do a masters degree at Warwick where I
also studied for my PhD. Then I worked as a
consultant for a year, in 2005 I moved to Uni-
versity of York and then I moved here (Essex).
How do you find the University of Essex?
This is probably the best department I’ve been
in and that’s probably why I’m still here
(laughs). I’m enjoying my time here, colleagues
are really good and I enjoy teaching the stu-
dents.
What are your main research interests?
Well I started with Industrial economics. My
8
PhD thesis was two-thirds about dynamic mod-
els of Industrial Organisations so dynamic price
competition models, Cournot and Bertrand
Games. Then I moved a bit away from that by
doing a Macroeconomics and especially inter-
ested in overlapping generations models and
Inter generation issues like environmental ex-
ternalities and problems of deficits and public
debt. So my main interests are Industrial econo-
metrics and Macroeconomics.
Has that always been your interest as an Un-
dergraduate?
Not really, my main interests were economic
policy so very interested in fiscal and monetary
policies. Then moved a bit away from that when
I started studying for my Masters at Warwick
and I became more interested in the mathe-
matical aspects of economics and the tech-
niques used in solving economic problems.
Can you tell us a little about your home coun-
try Italy, what part of Italy are you from? – I
come from the North from a very small town
called Piacenza. It is 60 km south of Milan. In a
beautiful part of Italy called Emilia Romagna
where the most famous foods seen here as Ital-
ian food comes from, Lasagne, Ravioli, etc.
On EU concerns, there was this article on the
Economist about ‘breaking up the Euro area’
what is your take on this?
Hopefully it will not happen. It will be a major
blow I think. I know there are some problems in
some of these weak countries that may put the
stability of the European Union to harm but
hopefully it will continue to stay this way be-
cause there are only gains from having a stable
and good relationship between those countries
instead of having them separated as it was be-
fore the introduction of the Euro.
Coming back to the UK, what are your
thoughts on the new government cuts espe-
cially with the cuts on education, (newly voted
increase in higher education tuition fees where
some Universities may charge up to £9000 per
year)?
I come from a country in which tuition fees are
particularly low, used to be low, which econom-
ics has viewed to be a ‘public good’ beneficial
for the entire society. Not only for the students,
but it is better to live in a society with many
people having a good degree as this increases
human capital so it will be good to subsidise as
you will get a positive externality. Hence in my
view, a rise in tuition fees is not a good policy.
On the other hand given the system there was
in the UK, that is probably something the gov-
ernment had to do and some universities also
are not particularly against because well estab-
lished universities can surely gain by asking for
more tuition fees.
Since these increases in fees are helping to re-
duce burden on the UK government to balance
deficits what other direction do you think the
government could have taken instead?
There is no doubt they had to cut public expen-
diture because unfortunately the deficit was
too high and at some point would become un-
sustainable with those kinds of policies. What
happened to Greece and Ireland tells you if you
don’t cut your public expenditure you may get
into trouble. The problem is if it’s advisable to
do it with that amount at this time? That’s de-
batable. You can cut 25% of the budget in every
public body which is very simple and a linear
way around it. My guess would be you will want
to think twice about where to cut as not all the
sectors are the same. It is understandable as
some sectors as the NHS will not be cut so not
all sectors can be treated the same as they have
different economic implications.
With these cuts do you see any drastic changes
to the Economics department here at Essex
University?
The economics department is in a good posi-
tion at the moment but we cannot predict what
will happen after 2012. No one really knows
what will happen in a couple of years as there is
uncertainty and I don’t have a guess of what
will happen. Hopefully there will not be dra-
matic changes but I’m sure some changes will
happen.
Being a lecturer here for nearly 5 years how
have you found the economics students from
this university? Will you say we are world
class? Every year we have heterogeneous stu-
dents coming to this university. A very good
bunch of students are really good so for them
there is not a problem and if you do something
that is simple and they are bored about it, it
does not matter as they will perform well any-
way. Of course there are some students that
may struggle because they have low analytical
skills as they did not take maths at a-levels so
those are the students you’d like to take care
of. But overall I’d like to admit I’m very pleased
with the cohort of students I’ve had so far. In
every year there are a good bunch of students
that engage with the material available- coming
to office hours, interested in the topics – and
this is what you’d want.
Has there been quite a turnover of under-
graduate students staying on at Essex to pur-
sue postgraduate programmes?
I know many students, especially the ones that
get good degrees of a high 2:1 or 1st , normally
tend to go for masters in other places. I think
this is not a bad choice, it is good to move to
other places, to have more experience. I know
some very good students remain in Essex for
masters but it is not the majority as the major-
ity tend to apply to other places. After 3 or 4
years here as an undergrad you simply want to
face new challenges and this is good for your
career.
Discussing the Nobel Prize awarded to Profes-
sor Christopher Pissarides (alumni of Essex
University – BA. In Economics, 1970 and MA.
In Economics, 1971) for his joint contributions
(with Mortensen, D. and Diamond, P.) to the
search theory and the department’s reaction –
It’s a good thing for the department especially
as the department is particularly strong in
search theory. Ken Burdett, Melvyn Coles, Eric
Smith, are all good researchers in this area and
the fact that it has been awarded with a Nobel
Prize means this area of research is important
9
 to economics and is good news. Pissarides used
to be a student at Essex University, he took his
Undergraduate and Masters here. Mortensen
often visits the university and I remember him
doing a seminar some years ago. He is also col-
laborating with people in the department and
fortunately the department of economics here
is an excellent resource centre. The department
is pleased with the fact that search theory has
been recognised in a way that it got the Nobel
Prize. That as well is a very good reputation for
the students studying at Essex.
What are your future goals and aspirations ?
I’m not sure about, haven’t thought about it
actually. My aspirations will simply be to live
well and get satisfaction from what I am doing
then everything else will be fine. I’m just some-
one that wants to have a quiet and happy time
that’s all. (Smiles)
CASUAL
Are you aware of ‘The Gianluigi Vernasca ap-
preciation society’ created on Facebook for
you?
Oh yes, I do know! The way I found out was
very strange. A friend of mine that used to be
here, now at the Trinity College in Dublin sent
me an email saying you should check this out
(referring to the webpage). Back then I did not
have a Facebook account because I did not
know Facebook existed until then. So I created
an account and went to see the page. I remem-
bered some of the students on the page and
those that created it; they attended my second
year lectures for macro. They were nice stu-
dents and it was a nice thing they did.
Are you into sports at all?
Not anymore. I used to play football on Sundays
when I just came here but then I was becoming
too old and getting injured so I decided it was
time to quit. So I don’t play anymore.
Are you aware that there’s an England vs. Italy
6 Nations Rugby match in February 2011 here
in the UK? Will you be interested in that?
Yes Italy plays in the 6 nations now; was al-
10
lowed to join about 5/6 years ago. Of course we
always arrived at the bottom, we did not have a
particularly good team then but it’s a good
thing for Italian Rugby. I like watching many
sports so when the 6 Nations comes on I will
watch it but football is my favourite sport to
watch.
What’s your favourite football team?
My favourite team is Juventus an Italian team
from Turin. I’m not from Turin but I’ve sup-
ported Juventus since I was little because of Mi-
chel Platini (Present UEFA president), who was
a French player and played for Juventus (from
1982-1987). He was an amazing player so I be-
gan supporting the team.
Do you live locally?
I live here in Colchester, very close to Tesco,
near Greenstead Road and the reason being
Tesco. It is open 24 hours so I can go there and
do my shopping. Sometimes you can see me at
2 am doing my shopping (laughs). It is very sad I
know but it happens.
One last question, I read somewhere 'An
Economist's Theory of Reincarnation: If you're
good you come back on a higher level. Cats
come back as dogs, dogs come back as horses,
and people-if they've been real good like
George Washington- come back as money.' –
What will you like to come back as?
As Brad Pitt.
GIANLUIGI IN 60 SECONDS
Favourite...
Food - Pizza
Hobby - Listening to music and playing the gui-
tar
Movie - Nashville by Robert Altman. I like the
atmosphere you get throughout the whole
movie.
Place to travel to - Italy
Economist - John Maynard Keynes
Quote (Economic or otherwise) - "It is not
from the benevolence of the butcher, the
brewer, or the baker that we expect our dinner,
but from their regard to their own interest",
Adam Smith
By Michael Tsiagbe
Although it might be one of the less glamor-
ous attractions in London the LSE is of the
utmost importance to not only the city’s
economy but that of the whole country. To
give a rundown of what the LSE does - it ac-
commodates the issue, sale and purchases
of securities suck as stocks, bonds and de-
rivatives from stockbrokers, companies and
investors respectively. Floatation, Initial
Public Offerings (IPOs) and dividend pay-
ments are all functions of the stock ex-
change. In order for a firm or company to
become listed on the LSE (as with any stock
exchange) it must undergo what it known as
floatation, this is the act of making your pri-
vately owned company available to the pub-
lic, once this occurs and the firm meets all
the conditions and requirements of the LSE
it can become a Public Limited Company
(PLC). There are various markets for various
sizes of firm the FTSE 100 being for the larg-
est 100 companies in the UK all the way
down to the AIM markets for the small-
est.The significance of the stock exchange
within our economy is ever increasing espe-
cially in this new economic era. Ever since
the financial crisis of recent times the banks
have been significantly more reluctant to
provide capital to individuals and firms in
the form of loans for fear of defaulted pay-
ments and firms going into insolvency firms.
Simply put, gone are the days of easy loans.
Given these circumstances companies must
find new ways to finance their growth and
business ventures, however the options are
often very limited and unless one can secure
the financial backing of wealthy individuals
willing to invest it may be very hard to fund
raise that much needed capital. The solution
firms in the UK are now utilising more than
ever in recent times is the selling of equity
11
 ever in recent times is the selling of equity lated capital raised these newly floated
in order to raise capital. The first thought firms will invest them into trying to be as
that may spring into mind would be com- successful as they can be and to be a big
pany owners pitching their business plans to company you usually need a lot of well
the entrepreneurs on BBC 2’s Dragons Den, qualified staff. Imagine, the Colchester Win-
but there is a much more sophisticated dow Fitting Company a small sized company
method, the equity markets. unable to secure a loan from its bank de-
cides to float on the LSE Alternate Invest-
“LSE creates a platform for entrepreneurs ment Market offering 400,000 shares
and enterprises alike to raise funding for (through its stockbroker) at £1 per share.
their businesses, playing a vital role in job The IPO is successful and the company
creation and economic growth.” raises £400,000 which can now be invested
Recent figures into the planned expansion of its window
state that thus fitting force in
far this year, order to increase
£6.7 billion has the frequency of
been raised from fitting, this in
the initial public turn creates jobs
offering of com- for a number of
panies on the local window
LSE this is when fitters, a simplis-
a newly floated tic example that
firm offers illuminates a
shares to sell for greater point.
the very first Companies cre-
time. In com- ating funds from
parison to this equity sales also
year’s only benefit from not
£1.5billion of being indebted
last year this to their banks, of
demonstrates a course dividends
massive growth may be paid out
of over 400%. to the sharehold-
The Alternate ers at intervals
Investment Market has also been a major but this is at the
player contributing to £847 million of discretion of the board of directors. What
money raised through that market alone, the LSE does for the economy is create a
almost three times as much as last year’s platform for entrepreneurs and enterprises
figures. To the everyday person all these big alike to raise funding for their businesses,
numbers being bandied around will do little businesses that may grow in future to be-
to ease their immediate concerns about em- come major forces in their chosen markets
ployment because well, it doesn’t help going from employing merely hundreds of
them... or does it? We’ve all heard in the staff to one day thousands. Given the tal-
news about mass redundancies and the high ented work force within the UK the LSE can
rates of unemployment, graduation employ- play a vital role in job creation, economic
ment and whatnot, matters that truly have growth and the realisation of the ambitions
an effect on our lives. Given the accumu- of the shrewd entrepreneur.
12
By Kristen Lund
Ever wondered when the first paper money of great histories. Have you for example ever
was issued? Or the first stocks? Or maybe you heard of the Medici-family? They were the rich-
wondered where the first banks were estab- est family in renaissance-Italy, and their de-
lished? Or the first insurance-company? How mand for art and luxury was crucial for artists
did it all begin? The answers are nearer than like Botticelli. What is even more interesting is
you might think. that their fortune came from the first modern
In his book “The Ascent of Money – A Financial bank.
History of the How about John Law,
World”, Niall Fergu- Scottish murderer and
son gives you an in- gambler? He became
troduction to the something of a Minister
history of modern of Finance for the
finance. He starts French king in the early
with how money 18th century, made a for-
was first issued in tune, got responsibility
Mesopotamia, and for the colony of Missis-
how Spain’s misun- sippi, printed the first
derstanding of the paper money in Europe,
concept lead to ex- lost control and ended
treme inflation in up running France into a
the 17th century. He great recession. This
then moves on to contributed heavily to
banking, explaining the French Revolution.
how modern banks The grandest history,
where first estab- which I will not tell you
lished in the cities of anything about, is per-
northern Italy during haps the one about the
the 13th century. The man in the picture, Na-
stock markets ap- than Mayer Rothschild.
pearance on the That one is well worth
scene is then explained, focusing on the rise running to the library on its own.
and fall of the Dutch East India Company. He There are other good stories too, and those
then moves on to the history of the bond mar- that I have mentioned deserve greater atten-
ket, explaining why it saved Britain from Napo- tion. All in all, this is a good introduction to fi-
leon. Then the death rate of Scottish priests is nance if you have not had much of it before
used to explain the birth of Scottish Widows, and a good book of history as well. You will cer-
the world’s first insurance company. In the end tainly learn a lot from reading it, and most peo-
there is a chapter about mortgages, the house ple will find it to be easy to read. I probably
market and the financial relationship between should not tell you this, as the book is better,
China and America. but the book is actually made as a TV-series
If you think this sounds dull, you could not be also, covering the same topics.
more wrong. This is not a simple listing of dates Facts:
and transfers. On the contrary, it is both an al- In the library: 3rd floor, HG 171.F4
ternative history of the world and a collection ISBN: 978-1-846-14192-8
13
 By David Deller
Fred ‘The Shred’ Goodwin, Tony Hayward, Jeff
Skilling and Ken Lay - all of these executives
have entered the public’s consciousness over
the past decade as examples of corporate
greed, incompetence or outright fraud. They
also have something else in common: their
compensation packages had been approved by
their companies’ boards and were claimed to
offer incentives aligning the executives’ inter-
ests with those of shareholders.
“There is the general question of whether we
should view large payments to executives as
necessary incentives, however unpalatable, or
as the result of poorly designed contracts and
the ability of powerful ‘insiders’ to extract re-
sources from companies.”
Gabaix and Landier in their book "Why Has CEO
Pay Increased So Much?” state that there was a
500% real increase in executive compensation
in the US between 1980 and 2003. The rapid
growth in compensation over the past 30 years
has understandably resulted in much debate by
social commentators particularly given the in-
crease in income inequality that has occurred
over the same time period. Whilst there are
14
exceptional cases there is the general question
of whether we should view large payments to
executives as necessary incentives, however
unpalatable, or as the result of poorly designed
contracts and the ability of powerful ‘insiders’
to extract resources from companies.
The Basics
In order to have a complete idea of the exact
roles of Executives in large companies the or-
ganisational structure and hierarchy of these
companies needs to be understood. Large cor-
porations that feature so prominently in our
everyday lives - companies like Ford, Shell, Vo-
dafone, Microsoft have at the top of all their
organisations senior executives who determine
their companies’ direction. Importantly these
corporations also all share a separation of own-
ership from control. What does this mean?
Well, put simply, it means that these compa-
nies’ owners have delegated responsibility for
running these companies to specialist manag-
ers. As a result there is what is known as a prin-
cipal-agent problem: the owners (principals)
want the managers (agents) to take actions that
maximise the value of their company but the
owners cannot observe managers’ activities on
a day-to-day basis. Are they poring over finan-
cial statements or practising their gulf swing?
The need to overcome this agency problem to-
gether with the need to attract high quality
managers are the key justifications given for the
pay awards received by executives.
Before continuing the components of executive
compensation should also be understood. It is
certainly worth looking at the executive pay de-
tails that have to be reported in the Annual Re-
port of any large public limited company (PLC).
Report of any large public limited company
(PLC), excluding non-pecuniary benefits such as
company cars, executive pay generally consists
of four components:
 Basic salary
 Bonuses related to short-term perform-
ance
 Shares, share options and other long-term
incentives
 Pension contributions
Performance Related Pay
At the core of the principal-agent problem is
the issue of hidden effort here the pay-off to
the company owner, i.e. profits, increases with
employee effort. As such if an employee was
faced with a constant salary they would exert
no effort as there would be no benefit to incur-
ring the cost of effort. However if there is a per-
formance variable, say profits, which is corre-
lated with effort then by linking pay to this vari-
able effort can be induced. If a worker exerts
high effort then, on average, profits will be
higher and so they will receive sufficiently
higher pay to offset the cost of effort. The prin-
cipal is using the performance variable as an
‘informative signal’ of the employee’s effort.
A lot of work has been conducted into finding
the optimal contracts for executives however, it
is difficult to think of real firms precisely deriv-
ing their optimal contracts due to their often
counter-intuitive shape and firms’ lack of
knowledge regarding their agent’s utility func-
tions. Nevertheless this logic of hidden effort
and the need to align manager and shareholder
interests when making investment decisions are
the common justifications for awarding shares
and share options to managers. This was most
Photo: Michael Douglas as Gordon Gekko; the
man who made greed acceptable
notably argued by Jensen and Murphy
(1990a,b) who saw increasing the sensitivity of
managerial pay to company performance as key
to solving the agency problem. Awarding
shares and share options to managers is the
most obvious way to achieve this sensitivity;
and for executives of successful companies will
result in large rewards. Nevertheless questions
remain as to whether executive compensation
is overly generous in general, provides the cor-
rect incentives and is actually awarded on the
basis of merit.
“The need to overcome this agency problem
together with the need to attract high quality
managers are the key justifications given for
the pay awards received by executives.”
Whilst accepting the potential value of per-
formance related pay the difficulty of designing
compensation practices that provide the de-
sired incentives needs to be recognised. For ex-
ample, in situations where an employee en-
gages in multiple activities if the employee is
offered strong rewards related to one activity
they will rationally reduce their effort in other
activities that receive lower rewards. For exam-
ple, by rewarding bankers on just the basis of
short-term profits the risks associated with
lending decisions were often ignored. Addition-
ally increasing the rewards for success is likely
15
 to increase the incentives for executives to mis- comparisons for senior executives generally
report performance or engage in frauds like EN- have to involve comparisons with executives in
RON. Also incentives dependent on share prices other companies. The empirical evidence on
might be problematic if one believes share whether this is actually done is mixed as Aggar-
prices can be driven by speculation rather than wal and Samwick (1999) discuss. Even if RPE is
real information about company performance. used there is the question of whether the com-
panies chosen for performance comparison are
Rewards for Luck/Failure chosen to provide a representative benchmark
Where the logic of performance related pay or a flattering picture of company performance.
seems invalidated, and the issue of executive Lastly RPE may encourage unwanted risk-
pay seems the most obscene, is when managers taking. Brown et al (1996) provides evidence
receive massive pay-offs even when their com- concerning investment managers that using RPE
panies are in serious trouble. This was the crime encourages poorly performing managers to pur-
Fred ‘The Shred’ committed and, as an article sue high-risk investment strategies: if you are at
in ‘The Economist’ makes clear, if you have the bottom of a league table projects offering a
problems swallowing the pay-offs that some- small chance of a very big pay-off are more at-
times occur in the UK the pay-offs to some US tractive than safer projects offering more mod-
executives are on a different level again. Being erate pay-offs.
sympathetic to managers it should be remem-
bered that some of the pay-offs incorporate The Managerial Power Hypothesis
rewards that were accrued during periods of All of the previous models discussed assume
good performance. However since the financial that the principals, here shareholders, set the
crisis it is clear that ‘rewards for failure’ are sim-
pay scheme offered to managers. The manage-
ply not tolerable with the potential for compa- rial power hypothesis put forward by Bebchuk
nies to ‘clawback’ bonuses that had previously and Fried (2003) questions this assumption.
been awarded being discussed. Bebchuk and Fried suggest that the setting of
pay itself is subject to an agency problem where
“Whilst accepting the potential value of per- board members, who are supposed to repre-
formance related pay the difficulty of design- sent shareholders interests, instead are con-
ing compensation practices that provide the cerned more about their relationships with ex-
desired incentives needs to be recognised.” ecutives and hence offer overly generous incen-
tive contracts.
However it is not just rewards for failure that
need to be considered; what about rewards for “However it is not just rewards for failure that
luck? To what extent did the executives of tech- need to be considered; what about rewards for
nology companies during the internet boom luck? To what extent did the executives of
increase the value of their companies? Did technology companies during the internet
share price increases simply reflect favourable boom increase the value of their companies?”
underlying economic/stock market conditions?
In theory to overcome this issue one could use In this framework the two key constraints on
Relative Performance Evaluation (RPE) as de- executive pay are the strength of shareholders
scribed by Green and Stokey (1983). Here by compared to executives and an ‘outrage factor’
comparing the performance of two individuals regarding pay awards. Evidence supporting the
the common ‘noise’ factors influencing their view that powerful shareholders and good cor-
reported performances, for example a stock porate governance lead to pay schemes that
market boom, can be filtered out hence provid- more closely fit those suggested by agency the-
ing a better indicator of an individual’s perform- ory is provided by Bertrand and Mullainathan
ance. Whilst RPE may be straightforward to ap- (2001). The concept of the ‘outrage factor’ is
ply for a group of assembly line workers such that executives and boards will set the highest

16

4. If one sees the main problem with executive
possible pay subject to it not drawing undue
criticism from the press, politicians or share-
holders’ groups.
Conclusion
So after all of this where do we stand? Is the
level and structure of executive compensation a
necessity or an obscenity? Unfortunately, as
Gabaix and Landier point out, much of the em-
pirical evidence on executive compensation is
mixed with a lot of the theory lacking easily
testable predictions and many of the results
being reliant on the specific measures of pay
and performance used. There are also other
discussions of pay and incentives that have not
been mentioned such as the incentives offered
by career progression or the possibility of har-
nessing non-monetary incentives. Also if your
main concern with executive pay is the resulting
income inequality the arguments presented
above may have only a limited impact on your
views.
However a number of conclusions can be drawn
from the research in this area:
1. A well designed contract linking pay to per-
formance should have a positive impact on
effort and the decisions taken by manage-
ment. However designing such contracts will
always be a difficult task.
2. The operation of a market for talent seems
a reasonable explanation for much of the
growth in executive pay.
3. The managerial power hypothesis needs to
be taken seriously. As such improvements to
corporate governance to increase the power
of shareholders are important. Moves to in-
troduce binding shareholder votes on execu-
tive pay and encouraging institutional inves-
tors to take a pro-active role in the pay-
setting process are sensible policies. Here
the UK’s corporate governance practices
seem somewhat ahead of those in the US.,
pay as the resulting inequality then this issue
is best addressed through a progressive tax
system and closing tax loopholes, although,
such measures will reduce the strength of
incentives offered.
Overall economics highlights the importance of
incentives; the debate about executive pay
shows the difficulty of designing the correct in-
centives and evaluating whether the incentives
currently observed are optimal. At the heart of
popular anger about executive pay is that it is
undeserved and leads to a more unequal soci-
ety. Whilst economic ideas can reduce the risk
of undeserved pay a trade-off between incen-
tives and equality remains. The balance be-
tween the two rests on our own personal pref-
erences and hence executive pay is likely to be
hotly debated topic for many years to come.
So for you are these argu-
ments convincing? Is ex-
ecutive pay a necessity or
an obscenity?
17
 By Bogdan Carmaciu
Although as European based students we
might be aware of the European Union (EU),
it’s safe to say not many of us are aware of
its economic functions. In the subsequent
paragraphs what follows is an analysis of
how national regulations overwrite EU poli-
cies. Before we proceed we need to make a
few assumptions. Let’s say the money you
get in exchange for your work is neutral. It’s
a more advanced barter, in which you quan-
tify your own labour in order to purchase
what other people produce: you can quan-
tify the money you get with the amount you
spend on food, transport etc. But this cre-
ates problems, because this economic tool is
very volatile. This happens because different
countries have different population needs,
different production facilities and different
regulations. Inside a common market like the
EU this creates huge headaches because not
all member states have the common cur-
rency, euro (€).
To illustrate this the following countries can
be used as an example: Germany, UK and
Romania. All three of them are part of the
EU, but have different currencies. How is this
possible? Money quantifies your labour, but
again, different economic backgrounds of
entry make it so that the same job pays dif-
ferently. For example, some jobs in the UK
and Germany pay up to three times more
than in Romania. Is the one working in Ro-
mania working less? Is the same job over-
paid in the UK or Germany? The answer to
both questions is no. The reason is that a
country can only pay so much for one job or
another is mainly due to how developed
each country is. If you have a stronger, more
developed economy you can afford to pay
more. But then why do all three nations have
different currencies even though they are all
part of the EU?
18
The UK rejected the euro because it felt it
would have lost a significant part of its sover-
eignty and make its economy weaker. Let’s
evaluate the following scenario: Germany
and the UK have the same monetary mass
vales (same amount of money) in the econ-
omy, and they trade with each other (for
simplicity’s sake). The current accepted £/€
ratio is around 1.17. That means that for
every £100, Germany requires €117. Consid-
ering other factors constant, monetary mass
is proportional to prices. This in turn implies
that Germany should have higher prices
compared to the UK (of course this is not
necessary true in reality).
If the UK changes its currency to the Euro,
it’s monetary mass will increase which in
turn will drive up prices.
The effect on everyday consumers is that
this will increase national income and start a
cycle of hyperinflation. Why does this hap-
pen? When the UK joined the EU, it had a
very powerful economy that grew further by
opening up its markets. When the Euro was
introduced, the UK did not want to expand
its monetary mass. The countries that ac-
cepted the Euro restricted their monetary
masses, which only had a positive effect on
the respective economies at the time (the
monetary restriction was followed by other
fiscal changes). This illustrates to us that the
UK monetary policy functions properly and
needs its own currency in order to safeguard
the economy while still keeping its markets
open.
Implementing a new currency that is not in-
ternally driven can have dire effects.
Based on previous analysis the conclusion
reached is that the UK should not at least for
now consider switching to the Euro. But
should newer states (2004 and after) adjust
their monetary masses in order to par out
and switch to the common currency? This
author would advice against that for the fol-
lowing reasons.
When operating on the monetary mass, in
order not to drive prices up, national income
(the amount of goods and services produced
inside the economy) needs to go up. This can
be achieved through increased government
expenditure, cut in taxes or through attract-
ing foreign direct investment (FDI). Attract-
ing FDI is one of the EU’s priorities because it
enables free migration of money, and is es-
pecially advantageous to its developing
member states in the eastern bloc. So should
developing countries be accepted more eas-
ily in such common market agreements? Yes
and no.
The problem arises when deciding from what
level to accept entry. When the period of
imposed changes comes, they should not be
viewed as political, but economic goals. FDI
should be attracted in these new members.
Critics of this policy could say this would just
make richer countries lose their wealth to
poorer countries. However, this is not the
truth. In essence, a company reaching out in
a new market should in theory attract more
customers and through free labour market it
can get a bigger pool for well prepared can-
didates for different tasks. For example, you
can hire an Austrian that studied economics
in England for a development project in Bul-
garia.
If developing nations are to join the EU, they
must be economically and socially sound to
join the euro zone within months, not years.
This would imply having an economy secure
enough to handle such a change. The current
progress pattern puts a lot of stress on de-
veloping economies that brings them in a
fragile equilibrium that makes them too de-
pendant on the common market system that
they do not control. That wouldn't necessar-
ily be a problem, if the system itself would
be unified. An EU experiment is currently
taking place between Germany and France.
The two countries are looking to develop a
common fiscal regime that would ease the
promotion of free capital flow. At the mo-
ment, this is where the EU falls short in a
number of ways.
Anyone holidaying in a country that uses dif-
ferent currency has had this one problem
more than anything: taking cash out of the
ATM. When you withdraw cash and you
don't use the same bank (but even then you
might have surprises), you lose money. For
example, if you take out £100 in Romania
from a UK account, you lose between £7 to
£12 depending on the bank agreements and
card type. This is where capital mobility falls
short.
If analyzed from a distant, it seems normal to
think you get charged for stretching banking
services outside the usual reach. If free la-
bour mobility is the goal then it must also be
the case for capital mobility.
Although it is a simplistic example from an
average consumer’s point of view, the circu-
lation flow for companies is infinitely more
complicated and ends up spending more
money. So until companies shift their capital
in accordance to their own best interests,
FDI in developing countries will suffer.
The solution and what is needed more than
anything in my view is promoting better eco-
nomic links in countries other than cheaper
trade.
Before adopting a new currency, steps have
to be made properly. If that is the case, then
what is needed is not a stricter regime inside
the common market but developing a
mechanism on which the market stands. If all
is aligned (with a certain degree of error,
nothing being perfect), then inner mecha-
nism frictions disappear easier and make
transitions to new regulations smoother.
This in turn helps developing states pick up
speed with clearer goals than keeping infla-
tion at a certain level, rising GDP by a certain
percentage and so on and so forth. In my
view, the systems need to evolve from
within, and the EU better pick its skirt and
start running for greener pastures.
19
 By Kristen Lund
On the 3rd of November the Federal Reserve
board decided to start on a second round of
quantitative easing (QE). The Financial Times
stated that the decision to do so was one of
their most important in decades. Why? The rea-
son is as follows.
In the current economic climate investors are
nervous about losing their money. This has
made them buy a lot of government bonds i.e.
public debt. These are regarded as a safe in-
vestment because developed economies like
most western governments almost never de-
fault on their debts. The stock-market has suf-
fered as a result of this; prices have fallen, and
the risk-premium on holding stock has risen.
Risk-premium is the extra return investors get
for holding risky assets, instead of risk-free
bonds.
Into this narrative we introduce the banks and
like every other investor they are nervous. As
it’s been widely reported, they remain unsure
as to whether to lend consumers and small
businesses money more often than choosing
not to. As things stand it would seem banks see
their money as been better off in government
20
bonds, with lower risk, and lower returns. But
lending to everyday people is far more impor-
tant because they start up enterprises, buy
houses and keep the real economy going. So it’s
in everybody’s interest in order to keep con-
sumption high and real income stable that
banks are willing to lend consumers money.
The solution then, to the current unfavourable
equilibrium is for the central bank to lower the
interest rate other banks get for overnight de-
posits. This interest rate spreads through the
whole economy, and all banks soon charge a
lower rate. Investors are faced with a lower
rate, and shift some of their money to other
assets to get a higher return. This alleviates the
unwillingness of investors to put their money
into riskier assets. Unfortunately this solution is
not viable in an economy like America’s today
where interest rates are at near-zero levels.
Lowering it further is inadvisable at this point.
So what can be done?
There is a solution and it’s called quantitative
easing. For many years even mentioning it in a
central bank was seen as taboo. The process is
straight forward and is as follows: in order to
get investors to buy stocks, the return on bonds
has to come down. This way investors are en-
couraged to take some risk in order to get the
higher returns in the stock market. To achieve
this - the central bank buys bonds and thereby
creates demand as a result. Prices go up, and
returns fall. To get money to buy these bonds,
the central bank prints money. The difference
between this and just printing money to get
growth going is what the central bank buys; in
this case its mainly second-hand bonds not
bonds directly from the Ministry of Finance.
Back to the recovery of the economy; while
banks and other investors certainly concerns
the Fed, deflation is probably more important
in shaping QE. The risk for deflation is quite se-
rious. Many homeowners in America already
face the problem of their house been worth less
than the value of their debt. Should prices fall
even more the gap will further expand into an
adverse ratio. If the economy wide price level
fall is allowed to accelerate the danger of a de-
flationary spiral arises and so does the prospect
of another 1930’s style great depression. Ensur-
ing that companies and households have access
to credit is a countermeasure to this.
So after reviewing the relative merits of QE the
question is then why was it a taboo for many
years until the recent financial crisis? The rea-
son is because the effects can go several ways.
On one hand it can be highly effective at spur-
ring money growth but with the risk of it been
faster than what the central bank can control
which then leads to inflation and precipitously
into hyperinflation. This can be the case if the
central bank buys too much bonds, and thereby
pump too much money into the economy.
On the other hand the measure can be ineffec-
tive with no changes in the market taking place.
This can happen if the investors continue to
hold bonds or invest their new money abroad.
When this happens too much investment can
flow into countries with a bond market but with
little ability to take action against sharp fluctua-
tions in the market. This typically occurs in
emerging markets where an asset bubble can
easily be started. From this angle QE can be in-
effective at home and harmful abroad. The
move could also be seen by other countries as a
foil to enhance American exports. When the
Federal Reserve prints dollars its international
value falls which makes it cheaper to import
American goods. This strategy could be adopted
by other countries weary of losing out in the
competition for international consumers. If
every country does this a zero sum race to the
bottom ensues with no winner at the end.The
main reason however for the sizeable scepti-
cism surrounding its efficacy was the Japanese
experience with QE. The Bank of Japan faced a
situation with zero-level interest rates and a lot
of bad loans in the market much like the sub-
prime crisis of later years. The country experi-
enced deflation from 1997/98 and the central
bank choose to start on a program of QE in
2001. It was deemed quite unsuccessful, as de-
flation held its grip on Japan for another dec-
ade. It seems like the only real effect it had on
the economy was to drive down bond-prices
while expensive imports killed deflation. The
package The Federal Reserve is putting together
now is the second, the first ending earlier this
year. The institution has announced that they
will buy bonds for a total of $600bn; $75bn
each month through July. And do they think it
will work as opposed to Japan? Well, in 2002, a
year after Bank of Japan started its program;
Ben Bernanke said "...sufficient injections of
money will ultimately always reverse a defla-
tion."Reaction to the announcement of the
package has been swift.
The Economist’s verdict has been positive
mainly because of the upsurge in market per-
formance. Commentators in the Financial Times
disagree however on its long run effectiveness
even after bond-prices fell and a reputed hedge
-fund manager reportedly telling The Economist
that QE has already proven its value. Holding an
altogether unique perspective is famed econo-
mist Joseph Stiglitz whose view is that the
money will flow out of America and cause a cur-
rency-war and asset-bubbles in emerging mar-
kets.
Opinion on this latest Federal Reserve measure
seems to be varied and inconsistent. But, as all
students of economics sadly know, nobody
knows anything till it’s all over and hardly any-
thing when it is over.
21

Help !
o I G e t
How D
r n s h i p ?
an Inte
This article was written by Gillian Powell
Davies, international careers adviser in the
Careers Centre.
One of the most frequently asked questions
of Careers Centre staff is ‘How Do I Get an
Internship?’ Judging from the level of en-
quiries, most students don’t need convincing
of the benefits of doing an internship. I
know as a careers adviser that a good intern-
ship or work placement on a CV can make
the difference between a graduate getting a
job at the end of their course or not.
Tell me how I find an internship or writing a well composed request.
work experience?
Think of 5Bs in your approach:
Be proactive. Register with internship web-
sites, but don’t just sit and wait for the ideal
internship to pop up. Chances are it won’t.
And if it does, hoards of other students will
also be applying. Think where else you can
try. Ask people’s advice. Follow-up potential
contacts.
22
Be investigative. Whilst some internships
and work experience opportunities are
advertised, many aren’t, especially In the
creative and voluntary sectors. So use those
important research skills you have devel-
oped to find out who you might approach
speculatively.
Be focused. Focus on the sector or occupa-
tion you want. Searching too broadly is a bit
like searching for a needle in a haystack. If
you think you might want to work in say
publishing, find out who the employers are,
which are the professional bodies and who
are their members. Try
www.prospects.ac.uk which provides good
background material on many occupations.
Be open-minded. This probably sounds like
a contradiction to the one above. But there
is the apt, albeit gruesome, saying, “There’s
more than one way to skin a cat.” If it seems
impossible to find work experience in your
ideal area, maybe ask if you can shadow
someone for a day to improve future appli-
cations. For example some large employers
like parts of the NHS and Price Waterhouse
Coopers have formal Insight Days. Remem-
ber where employers don’t advertise, ask by
Be organised. If I say treat it like a military
operation, I say this because I have known
too many students who’ve just left it too
late. And it’s a real shame. Many of the
large employers and schemes like SEO in the
UK will have recruitment deadlines for in-
ternships as early as November and Decem-
ber. Some will not have any stated deadlines
at all, but often you have to be quick off the
mark. There are some excellent schemes like
Shell Step and the University’s own
‘Frontrunner’ programme where you need to
take note of their recruitment seasons. Af-
ter Christmas it’s a good time to focus on
making speculative approaches to employ-
ers.

What are employers looking for?

Ses s i o n s
Get it from the horse’s mouth! Each year
you have the opportunity to meet some ma-
jor employers at the Options Fair, some of
whom offer internships. My guess is you’ll
find internship employers are not so very
different to graduate employers in what they
are looking for. In the application process,
they want to see a professional looking ap- What other help is there?
plication, or CV and a well-written covering As part of the international programme the
letter. Similarly at interview, they will usually Careers Centre will be offering the following
select the best qualified applicant who dem- sessions:
onstrates good communication skills, who
prepares for the interview by studying what  Weekly ‘CV Basics’ Workshops;
the employer does, and who genuinely
wants to contribute and to learn. So it’s seri-  ‘Effective Applications’ Workshops and
ous stuff. No excuses here for being ‘just a ‘Interviews’ Workshops are carried
first year or second year student’. throughout the year

If you need some extra help on these job  ‘Law Taster for Non-Law Students. Col-
preparation skills, look up when the Careers lege of Law’ on the 2nd of March
Centre is offering these sessions next.
 ‘International Series—CV Clinic’ on the
3rd of March

For more details visit the Events section:

www.essex.ac.uk/careers/

ng
Banki For links to useful websites visit:
www.essex.ac.uk/careers/resources/
Accounting placements.shtm
Finance Find the Careers Centre on

www.facebook.com/

essex.careerscentre

www.twitter.com/UoE_Careers

23
 By Daiana Bassi
Established in 1987, before most of us were
born or even dreamt of going to university,
Erasmus is the EU Lifelong Learning Pro-
gramme’s flagship. It aims at creating a
‘European Higher Education Area’ and fostering
innovation throughout Europe.
In more practical terms, Erasmus is an Exchange
Programme between EU/EEA Universities
where students have the opportunity to spend
a period abroad studying at one of the 4,000
plus participating higher education institutions.
Over 200 000 students choose to take part each
year in this programme. This huge popularity is
attributed to several factors:
 It enhances your CV: employers find Erasmus
students more attractive as it “exposes the
student to new cultures and ways of think-
ing, thus facilitating the internalization of
different work ethics and world
views” (British Council)
 It is one of the best way to learn a foreign
language or improve your skills;
 It counts towards your degree;
 You do not pay any tuition fees during your
study abroad period;
 It enables you to discover a different culture
and you gain an international network of
friends;
The criteria for enrolment are easily met. Stu-
dents from all subjects areas can take part in
the Erasmus Programme the only two require-
ments being: you must be enrolled at a Higher
Education or a Higher Education/Further Educa-
tion (HE/FE) Institution in the UK, and be a EU/
EEA or a candidate country national. There are
currently 31 participating countries: all of the
24
EU/ EEA countries plus Turkey, and in the future
Croatia and Macedonia might also take part.
Remember: Erasmus is not a GAP YEAR! In Es-
sex it counts 20% towards your degree; you
have to pass all of your courses and the grades
you get at your host institution will be con-
verted to Essex equivalents which will show on
your academic transcript.
Despite all of its benefits, Erasmus is not as
popular in the UK as it is in other European
countries. I attribute that to some myths stu-
dents have about the programme:
1. You have to be fluent in the local language!
It helps but many universities have courses
taught in English.
2. It is very expensive to live abroad! Not nec-
essarily, some European capitals especially
those in Central and Eastern Europe are
much cheaper than Colchester. For those
going west, there is an Erasmus grant that
helps towards the costs of living and if that
is not enough, you can apply for a higher
student loan allowance.
3. Students form outside of the EU can not
take part! Well they can, but the only differ-
ence is that it will not be an Erasmus , but
simply an exchange. They will not get an
Erasmus grant and will have to pay half of
the tuition fees at the home institution for
the year spent abroad.
For more information visit the university’s
study abroad page. There you will find a
list of all the Universities with which Essex
has a link and a step by step application
guide. Alternatively, go to the Study
Abroad Office in room 5S.7.27.
By Daiana Bassi
It was October 2008 at the beginning of my sec-
ond year at Essex when I decided to change my
degree scheme from Economics with Mathe-
matics to Economics with International Ex-
change. Why people asked me, why would any-
body want to add another year to their studies?
Going back over two years now nobody, includ-
ing economists and politicians, was sure of the
full impact of the so called ‘credit crunch’. My
prediction as an economist student was that
the crisis would be a long one and as a result
the amount of graduate jobs offered by compa-
nies would continually decrease, leaving me
with little prospects of getting hired after my
graduation in 2010. Unfortunately, I was some-
what right: nearly one in 11 graduates were un-
employed six months after leaving university.
According to a study carried out by the Higher
Education Careers Services Unit Charity in Janu-
ary 2010, this is the highest proportion for 17
years.
Given how grim the future looked back then, I
started to think about ways of differentiating
myself from the crowd. One of the ideas that
came to my mind was to go on exchange, as it
would add some relevant experience to my CV
(more than a year spent unemployed or work-
ing in a shop after my graduation), and it would
enable me to learn a new language.
Having made up my mind about going abroad
the only thing left was to choose a country.
There was only one country that I really wanted
to know better and that was Italy. Although I
am an Italian national (my family is Italian) I was
not born and I had never lived in Italy for more
than a couple of months. Even my Italian was
not fluent. One University in Italy stood out for
me: Bocconi University in Milan is the best Busi-
ness/ Economics University in the country and
they have courses in English!
In August 2009 I arrived in Milan without any
accommodation sorted out, only a hostel reser-
vation where I would stay till I found something
more permanent. It was a difficult first two
weeks, but I had an amazing time at the hostel.
There I met other exchange students in the
same situation as me whom became the first
people I started hanging out with. It felt like
freshers’ week again!
What was it like being in a different university?
It was hard in the beginning: I did not know
where the rooms were, the reading list for the
courses I took were immense, for one course I
had to read 3 books of 420 pages each! It was
different: they have 90 minute lectures instead
of the very long 50 minute ones we have at Es-
sex! There were no mock exams for most
courses, the grades are out of 30 instead of
100, a pass is 18/30 which is more than 50% of
the exam and a first is 27 and above. It was
amazing: the lecturers really know how to cap-
ture a students’ attention and the course list
was brilliant! There were more than 100
courses to choose from each term and there
were options like management of fashion, de-
sign based companies or workshop in film in-
dustry management.
How was living in a foreign city? Milan is truly
the capital of fashion; everything evolves
around fashion and design. It is not uncommon
to feel like you’re in a fashion show when
you’re standing at the platform of a tube sta-
tion and you watch loads of very tall and slim
girls walking along form side to side! It is an ex-
pensive city though! If you like clubbing you’ll
not be pleased to know that you have to pay
around €25 to get into most clubs and a drink in
a club can cost just as much as the entrance.
However, you can find cheaper options and stu-
dent deals like aperitivo (drink and a buffet
where you eat as much as you can).
I have to admit it wasn’t all plain sailing. There
were loads of ups and downs. Sometimes I felt
trapped in a maze; blind folded trying to find
my way out using only my intuition. The high-
lights have to be the wonderful people I met,
some of which will be lifelong friends, my im-
proved Italian, and having aperitivo on a boat
floating on an artificial canal built by Leonardo
da Vinci in the fifteen century.
25
 By Andrzej Robaszewski
Taking part in the Erasmus exchange was my
plan since the first day of studying at the Uni-
versity of Essex. I heard so many great stories
about the Erasmus program from my friends, so
I decided to try it for myself. Since I began
studying French in secondary school, I have al-
ways wanted to live in France for a period of
time as to, not only visit it, but to get a real life
experience of French culture and its spirit –
something you will not fully get from one week
holiday. It turned out that my Erasmus year
gave me all that I expected, and so much
more!!
I decided to do my year abroad in Paris at the
Université Panthéon-Assas Paris II where I was
continuing to enrich my degree in Economics.
Being able to spend a year in one of the most
beautiful cities in the world, while still enjoying
my student life, was a once in a lifetime oppor-
tunity. What I was excited about the most was
that I would be able to explore Paris so much
better than from just a touristic point of view.
Having a chance to understand French culture
from inside was an adventure itself. From visit-
ing all the historic places to everyday life, from
meeting many Parisians to living this unique
lifestyle– all of which gave me an incredible
chance to feel what it is like to live in Paris.
At the university I was equally involved in all the
same projects and work as French students. As
the educational system is so different from the
one in England, I have certainly gained a lot of
valuable experience from being a part of the
Université Panthéon-Assas. I got an opportunity
not only to study in French but also take some
subjects I would not have had a chance to study
at Essex.
During my year in Paris I have become friends
with many great people, including a lot of other
exchange students from around the world. Get-
ting to know their cultural habits, cuisine and
interests was so much fun and resulted in some
good friendships that I hope will last for many
years to come. Going out and partying in Paris
26
was also something I will never forget. As I think
of it now, there were so many great moments
to reminisce when thinking of France. Picnics
with friends under the Eiffel Tower, exploring
hidden cafeterias or walks on the banks of the
Seine – these are just some of the things I en-
joyed equally at the beginning of the academic
year as at the very end of it. There were also
many hilarious and totally unexpected mo-
ments: being stuck at the airport because of the
ash cloud, seeing famous actors wandering the
streets of Paris, or being involved in huge
events like freeze mob.
Finally, thanks to spending a year in Paris, I es-
tablished my French, which was one of main
reasons for going on an exchange year. In a cur-
rent world of constant migration, knowing one
extra language gives us so many more opportu-
nities. No matter if it is for work or private life,
being able to use a foreign language is a price-
less advantage.
I enjoyed my year in France very much and I
would advise everyone to at least consider
spending some time abroad as a part of an ex-
change program. It is a truly amazing experi-
ence, enriching you as a person and giving you
tons of new perspectives which will certainly
prove very useful in your future.
 “Our chief aims are to broaden our members’
economic horizons beyond the classroom and to
provide them with ample opportunity to inter-
act with other students in a variety of ways”

To achieve our aims we provide a host of activities and

events to keep your academic and social calendar busy!

- Internship talks
- Postgraduate studies talks
- Career events
- Lectures on Current Economic situations and topics
- Presentations made by company representatives

- New York trip

- A wide variety of socials including paintballing, go
karting, ice skating, Bowling, Film Screening
- Chirstmas & Easter Dinners
- Summer BBQ