The University of Cambridge is a brand. To an economist, a brand is a piece of information that helps consumers by overcoming asymmetric information. In the commercial world, a good brand allows the producer to charge more than for for an unbranded item.
I would guess that the most famous British brands around the world are: the BBC, the royal family (as a republican I must write this in lower case), Oxford University (especially in the US), Cambridge University (especially in Asia) and Harry Potter. The London School of Economics name is also very well known internationally and unfortunately has been slightly (though temporarily I think) tarnished recently.
Brand comes down to name (or symbol) recognition plus positive perceptions. On a recent trip to Singapore, Hong Kong, Shanghai and Beijing, I was pleasantly surprised to find just how strong the Cambridge brand is. In Singapore I got into conversation with a security guard at the reception to a very well known sovereign wealth fund. He was delighted to find that I worked at Cambridge University. Something similar happened at a Starbucks in Beijing. Not only have people heard of Cambridge, they think highly of it.
In China there is a particular lucky reason for this recognition. A Chinese poet, Xu Zhimo, spent time at King’s College, Cambridge, in the 1920s and wrote a poem, “On Leaving Cambridge” in 1928. He was killed in a plane crash in 1931. His poem is taught in Chinese schools and in 2008 was inscribed (in Mandarin) on a stone in the grounds of Kings. I have seen Chinese visitors moved to tears when they see that stone. By a fluke of history, Cambridge’s name (or at least its Chinese version) is therefore very well known in the world’s most populous country. You can read more about Xu Zhimo here.
Oxford’s higher recognition in the US is owed to the Rhodes Trust. Set up after the death in 1902 of British imperialist Cecil Rhodes, the foundation uses some of the money that Rhodes plundered from southern Africa for scholarships to Oxford University for students from the US and several other countries. Bill Clinton is a Rhodes Scholar and a couple of my oldest friends are too. The Gates Trust is now doing something similar for Cambridge but will take a while to catch up with the Rhodes’ reputation.
Respect for a university depends on more than sentiment though. I was a guest of two central banks plus an influential Chinese think tank on my trip, owing to my affiliation. I met some very important and impressive people. It is, I believe, my job rather than my personal reputation which gave me such opportunities (together with some generous support from Cambridge students from Singapore, Hong Kong and China who helped with introductions and arrangements).
So where does the value of a brand come from? From people’s experience. You can only temporarily inflate a brand. If the reality fails to match the hype, the reality will quickly win. Cambridge’s student are valued highly because it is very hard to become one. I would like to think that the experience students have in Cambridge is also of great value but it’s actually hard to disentangle the valued added from what economists call the screening effect (i.e.the fact that the university selects the best students means employers naturally recruit there).
A friend who is a professor of the economics of education likens this feature of all successful educational institutions to the economics of night clubs. A successful night club is successful mainly because it attracts the most fashionable clientele. It has to do certain things right to achieve this but there is also a path dependent equilibrium – it’s fashionable because it’s fashionable, because those perceived to be most fashionable choose to go there, thus attracting other fashionable people.
In education, once you are perceived to attract the best students then (unless you screw it up) you will continue to do so because the best students want to be recognised as such by being admitted (ie to overcome the asymmetric information -they KNOW they are the best but need to signal it).
The path dependence acts a barrier to entry to other organisations trying to achieve the same reputation. But it’s not an absolute barrier. I would expect that some of the world’s most successful and prestigious business schools will be in China in the next decade or so and older universities in the west had better not be complacent.
I would never urge somebody to apply to the MFin purely because of the Cambridge brand. In fact it would be a bad signal if that was their main motivation. But it would be churlish to pretend the brand is of no significance. It is partly historic precedent, partly luck but mainly because (I hope) we keep doing the right things that the brand remains so strong.