The economic crisis has exposed the myth of business-school expertise.
By Matthew Stewart
Posted Wednesday, March 25, 2009 - 3:57pm
Put your ear to the ground near any business school campus, and you will
hear the sound of another bubble about to pop. The MBA will soon be joining
equities and house titles in the museum of formerly overvalued pieces of
The problem in the short term begins, like so many other fine things these
days, in the financial sector. Over the past two decades, about one-third of
graduates from top business schools took jobs in finance. But banking will
never be what it once was (we can only hope), and consulting—the other
major consumer of MBAs—is reeling, too. Couple declining demand with the
fact that at the onset of a recession, the supply of students actually rises
as the prospectively unemployed look for ways to fill in gaps in their CVs,
and "shorting" the MBA looks like a compelling near-term trading strategy.
The really grim news for the MBA, however, is about more than short-term
trends. Isn't it just a little suspicious, after all, that the sector that
showed the greatest appetite for MBAs was the most grotesquely mismanaged?
In fact, the economic crisis has exposed long-standing flaws not just in the
modern approach to business education but in the very idea of business
The truth is that the relevance of the technical training allegedly offered
by the MBA was always overblown. The idea that there is some body of
knowledge pertaining to business management that can be packaged up and
distributed to the business universe in two-year course-lets—well, it
sounded good about a century ago, when it was first conceived. Maybe it
still had merit when the schools were turning out only a few thousand
graduates per year. But it certainly stopped making sense well before the
schools achieved their current level of production of a whopping 140,000 or
so graduates per year. The empirical evidence on the contribution of the MBA
to individual career performance seems to bear this out—mainly because it
doesn't exist. In fact, if the relevance of an M.D. to the performance of
doctors were even half as unsubstantiated, we'd probably be fantasizing
about tossing a few physicians in jail, too.
The other truth helpfully revealed in the throes of the crisis is that
ethics and integrity and social responsibility aren't just optional extras
for good business management—unless by "management," you mean "looting."
Managers don't need to be trained; they need to be educated—in the sense of
"civilized." Unfortunately, a business degree isn't just irrelevant to that
purpose; it's positively detrimental.
Now, to be fair, people don't behave like jerks just because they spend two
years in business school. After all, as many of my business school friends
have pointed out, most of the first year goes into heavy partying, and the
second year is really a marathon job fair. No, for the most part, people
behave like jerks because nobody stops them from doing so. The charmers at
AIG walked away with multimillion-dollar second homes as a reward for
exposing their institution and the entire financial system to outrageous
risks because it was (so far as we know) a perfectly legal way to make money
. The whizzes at Goldman Sachs hedged their supersize profits with
underpriced, implicitly publicly backed insurance from AIG for the same
If we ask why no one stopped these people, however, we come right back to
business school. It was the market fundamentalism that dominates business
school thinking that assured us that markets are self-regulating. It was the
management myth—the idea that there is some specialized, teachable body of
expertise that constitutes management—that confirmed the strange notion
that these people were capable of regulating themselves. And it was the
shareholder-value model from Business 101 that said all you need to do is
load up managers with tons of stock options and they'll be sure to do the
right thing. These aren't just ideas that happen to be taught at business
school; these are the ideas that provide the rationale for the existence of
the schools. The only semblance of a theory behind modern business education
is that it purportedly produces "experts" in shareholder-value maximization
who are capable of forming an ideal, self-regulating market.
It's a neat theory, of course, and pretty radical, too. But not since the
fall of the Soviet Union has a system of belief woken up with so many
parking tickets on its windshield.
The reality is that business school is now chiefly a community of intention.
It brings together people who share certain career aspirations—for the
most part, to make big bucks—and occupies their time teaching them a few
technical things that they don't need to know, along with a code of conduct
that says, in essence, whatever is legal is ethical; and if it makes money,
it's a positive duty. It's now clear that we would have all been much better
off if, instead of cloistering these people on fancy campuses with world-
class golf courses, we'd have sent them off to do two years of national
For the benefit of beleaguered business school academics, it's worth
pointing out that a world with fewer MBAs is not necessarily a world without
business studies. On the contrary, once researchers dispense with the idea
that they have to package their material for the purported benefit of junior
managers everywhere, they could actually study business. Maybe they could
even learn to criticize it. Maybe they and their students could even learn
to report on it, the way that journalists used to do.
In the meantime, since the national-service idea probably isn't going to
gain much traction, I suggest that it's time to go long on the humanities.
Now that we've tried business with savages, perhaps it's time to giv
2proper greedy is good, over-blown greedy is bad.