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Global Edition | Today Is Friday, March 12, 2010 |
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Global Edition | Today Is Friday, March 12, 2010 |
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The Bad News Hits Wall Street
Like any virus, the MBA infection ultimately serves only its own short-term interests regardless of ensuing damage to stakeholders, institutional corruption, or death of the enterprise it has infected.
The Master Of Business Administration degree is under attack today. There is good reason for what has become growing distrust of MBA degree holders and the schools that granted them. In little more than a generation, aided by advances in communications and technology, MBA degree holders developed, studied and applied scientific managerial systems to both public and private sector organizations and institutions. In the name of efficiency and profitability, waves of MBA trained managers infused scientifically developed managerial tools and take-no-prisoners ethics in financial, commercial, and governmental institutions.
The application of a single, one-dimensional managerial model to what are immensely complex organisms destabilized the critical balance between the public and private needs of a capitalist economic system. In just over one generation, American capitalism, and thus the western world as a whole, became so destabilized that it effectively collapsed — just as it had done three generations before.
While there are legitimate comparisons between the collapse of 1929 and the near collapse in 2008, there are many significant differences. Economically speaking, the critical differences are technical and organizational. What’s different technically is our degree of understanding of economic forces and dislocations. We knew little of the critical importance of monetary policy and credit market stability in 1929. In 2008 the Federal Reserve infused massive liquidity into troubled banks where there was little or no liquidity infusions in 1929.
If having attained greater ( but yet imperfect ) economic understanding helped to stave off disaster in 2008, it was, to a large degree, organizational failures, not economic innocence, that led to the massive failures of banks and financial institutions in 2008. There were two different, but connected organizational dislocations that served, among other factors, to enable the excesses that produced frozen credit markets.
One of these was what have proven to have been the unwise abandonment of governmental regulatory and oversight installed after the events of 1929. The other was a substantial change in what we demanded of private sector institutions that slowly abandoned public good values in favor of private good values.
Historically there has been a massive liberal shift in American public attitudes on matters of personal behavior in the six decades since the crash of 1929. In that same period there has been a massive conservative shift in our attitudes toward, and expectations of businesses in general — and public corporations in specific.
Where the vast majority of middle and working class Americans largely regarded their capitalist employers as only sources of job income during the 1920s, today’s workers perceive their own employers, and to some degree all public companies, as wealth creators by way of pensions, or direct holdings. In the last generation the beneficial ownership in public companies increased so sharply that most American families have either a direct or beneficial interest in equities and/or other market instruments.
Compared to the 1920s our educational institutions are far more sophisticated and more clearly focused on what’s practical as opposed to what’s ideological. We have advanced significantly in our understadning of economics by having experienced the infectious notions of perfect markets as advocated by Milton Friedman and Chicago School economic advocates. For those ( including this writer ) who were long term advocates of Friedman’s enthusiastic claims that markets were infallible, the events of the last year have made clear that what we know about economics is far less than it need be.
Looking back a half century one can now see how Friedman’s notions of perfect markets spread so easily, like an infection, in the absence of a clearer, perhaps wider, but more accurate view of the laws of economics. The problem is that we don’t know what we don’t know — so things that seem to make great sense, and which are taught, as if real, by prestigious colleges and universities take on the aura of legitimacy and reality.
If economics was so easily infected by imperfect ideas, other areas of business administration remained immune. Accounting, no matter how convoluted it may be practiced, is a fact based activity. Credits, debits and double entry are based on mathematical certainty. So is actuarial theory upon which insurance depends a long-proven and defensible science.
The remaining constituents of business administration education, finance, marketing and management are, like economics, part art and part science. Marketing, for example, is largely about how to create an illusion that makes a product or service more attractive, or desirable. So there’s plenty of room for personality, creativity and artistic expression in marketing. The same is true, to some degree, in finance where all the principals are rooted in mathematical certainty but where execution leaves plenty of room for creativity, or a deft sleight-of-hand.
So, no matter what prestigious school one might choose, the curriculum is one of arts and sciences absent a clear distinction about which is which. All the better for notions of what’s trendy, unproven, ill-considered, infectious, or popular to take root as if real. Absent some sort of immune system, and driven by rigorous academic certitude, what is infectious easily drives out what is logical, authentic or ethical.
That’s what happened to the perfect free markets theory advocated by Milton Friedman. For decades the infectious nature of his ideas moved beyond theory to public policy — bringing at least one of Friedman’s most prominent followers, former Federal Reserve Chairman Alan Greenspan, to publically describe his beliefs in perfect markets as having been wrong.
Having also been a believer, my citing Mr. Greenspan’s Mea Culpa is not to attack him, but to illustrate that what is believed and taught as being real by the most respected colleges and universities is evidence of viral contagion that rationalizes and celebrates what’s popular over what is probative and consequential.
There is a contagion loose in the world today. It’s a virulent, entitlement-driven virus that has severely damaged the private sector — especially the world’s financial system and credit markets. The contagion, an economic killer virus, is more infectious than influenza because it is and has been intentionally and knowingly spread by knowledgeable and informed adults and institutions to the most susceptible and innocent segment of our population — students.
Cultural Coarsening
Neither MBA programs, business schools, or higher education are responsible for all the failures in business and finance.
For there are massive forces loose in western culture that have coarsened our public discourse, elevated stridency to the equal of thoughtful, and diminished ethical standards in the endless pursuit of wealth and advantage.
In only one generation the MBA Virus drove out the remnants of inefficient 20th century management systems and thinking in favor of managerial expediency and short term thinking. Responsibility, accountability, honesty, integrity and community were replaced with opportunity, achievability and expendability.
Like any virus, the MBA infection ultimately serves only its own short-term interests regardless of ensuing damage to stakeholders, institutional corruption, or death of the enterprise it has infected. One of the foundations of scholarship, critical thinking, is easily marginalized by simple ideas that support popular beliefs, or which are openly promoted by persons whose credentials suggest omnipotence.
In a complex world, that which is believable is often preferred over that which is factual, logical and well understood. In the absence of critical analysis, especially where there is short term success, what is preferred is obsessively and unquestionably taught, promoted, sanctified, and pursued absent study or consideration of the likely outcome, or the potential for unwanted consequences.
Our institutions of higher education, especially but not exclusively the business schools, were the principal instruments of this nation’s financial collapse in the summer of 2008. Not because they advocated or intended the immense distortions that have damaged our nation and its institutions, but because they failed to consider, advocate, or teach about the consequences of applying a one dimensional approach to a very complex, multi-dimensional economic universe.
A mantra that seeks short term gain without consideration of long range consequences is inherently and, now we know, fatally flawed.
If you are bewildered, or even angry, that the criminally-minded bankers, financiers and swindlers who brought the credit markets to its knees just one year ago are still in command, still raking in billions for themselves by doing the exact same things today that caused their collapse, consider this: Our nation’s most prestigious and economically endowed business schools still preaching the same failed ideology.
Nothing has changed. The killer virus is still thriving.
Where the hell are the responsible adults in higher education?
