Home > education, income inequality, Politics and the economy > Business schools and inequailty

Business schools and inequailty

from Peter Radford

You may not be aware of the article that has created quite a storm on the New York Times website. It is about inequality at Harvard Business School and the insidious consequences of the emergence of a “class” system there.

Don’t laugh.

If HBS is now afflicted by class issues and the social disaster of inequality, then we can assume the rest of the country is in worse shape. HBS is, of course, partly responsible for the inequality we now suffer from through its relentless production of clever people with great connections who exploit finance and consulting without adding on offsetting social value.

Disclaimer: I graduated from HBS in 1979. Things seem to have changed enormously since I was there. Sure we had our contingent of super privileged kids, but the bulk of our class seemed to me to be from pretty ordinary backgrounds. The obnoxious oppression of class was largely absent. At least we could ignore the super wealthy and the quasi aristocrats because they were too few to have much impact.

Since then things have changed. But it isn’t just HBS that has slipped from an attempt at merit and hard work meaning something. America has fallen too. Fallen steeply. Fallen sharply. Fallen into the shadows where money accrues mostly to a few who perpetuate their grip on the cash register by pouring money into elections, buying off politicians, undermining democracy, and diverting most of the gains in the economy to themselves.

Case in point: of the entire increase in wealth the US has seen since 2009, 95% has gone to the top 1% of earners. That is a stark and living testimony to our plutocracy.

Just as America sacrificed large chunks of its freedom to fight spurious pseudo-wars against terror – let’s all say hi the NSA analyst listening to our phone calls – it has willingly sacrificed a goodly part of its democracy as it pursues corporate profit.

During my time here in the US – I came to go to HBS in 1977 and stayed afterwards because of the opportunities i imagined here – the country has deteriorated rapidly. It has adopted a market mentality where everything is measured against its sale value. The Reagan era, which I define as 1980 through to today, is characterized by the devaluation of social or communal cohesion and a rising epidemic of money obsession that borders on worship. America is a nation steeped in a tradition of individualism, but that has been hijacked by the powerful and used to demean and undermine any efforts at cooperation. Even where cooperation is obviously more profitable or cost effective. Health care reform being a current example.

The era of deregulation, neo-laissez faire, defunding of social programs, banking recklessness, and dominance of finance in our business world has led to an amoral, borderline unethical, and definitely anti-social set of managerial practices. Exploitation is hidden beneath catchy consulting phrases. Nastiness is expressed as hard headed and necessary calculation. Greed is, well, greed. It has become acceptable for the elite to set prices for their services that have no bearing on their contribution. They are, after all, both judge and jury on the value of that contribution.

I lay much of the blame for this squalid outcome at the feet of those who gave it intellectual cover. Unfortunately there are famous economists who rank high on the list of villains and whose legacy is now the inequality they still regard with a wicked indifference unbecoming of anyone purporting to be a “social” scientist. Their deep and not-too-well masked disregard for democracy has allowed them to turn a blind eye to the failures both of their theories and to the pillaging undertaken by those they taught well – too well. I shudder at the callous core of thought that infects our boardrooms. And no amount of ersatz “social responsibility” – which is usually window dressing anyway – can offset the appalling way in which modern business pursues profit and dismisses its workforce as a barrier to that profit.

I think I understand the nature of the change in capitalism. Far too few economists do. They still, I fear, live in the simple world of the 1800′s where capitalists were entrepreneurs, factory owners, and shareholders all rolled into one. Capital, labor, and land are still the common grist for the economic theory mill, even though they are imprecise, amorphous, and slippery concepts. That time of original capitalism is long gone. Today’s capitalism is a shadow of that raw world. Our modern version is dominated by bureaucrats. My class mates. Executives as they prefer to be called, but bureaucrats all the same. Technocrats perhaps. Steeped in antiseptic theory that devalues people and overvalues cash-flow. Willing, and able, to twist the market into any shape they want. Without effective oversight. Or, rather, with oversight provided by their like minded peers. Which is to say no oversight. Legally empowered to pay themselves without regard to their performance. And when challenged to do so, they set the bar for performance low and preferentially so they cannot lose. They then fire workers in order to boost profit and thus earn those egregious bonuses. And thereupon strut proudly and noisily across the social stage as they preen in the glow of their own self-importance.

These are who we call “job creators”. Unchallenged, overpaid, vain, and of little lasting value they populate our decision making elite. They are the plutocrats of Wall Street, consulting, and industry whom our business media fawn over and praise for their acumen. Never questioning what that acumen may be, or what its value is.

And many of them started their rise to this exalted status at HBS, which is my shame as well as theirs.

Put is this way: in the decades of the Reagan era, which encompasses much of the working lives of our elite, what has happened? What have they accomplished? Is our industry more competitive? Are our businesses better run? Are they engines of growth and prosperity? What did that business education create?

Wealth for the 1%. And nothing else. Worse: it destroyed, or is destroying, the very fabric of our society. It is engendering a social decay that manifests itself in rising political extremism on both wings of ideology. It is undoing the great American middle class. It is putting in place an American aristocracy – plutocracy – and obliterating the notion of opportunity for most citizens.

And our elite then decries those citizens as “moochers” when they have the temerity to put out their empty bowls and ask for more.

Well, it’s good to see HBS mired in the very swamp it helped create. It isn’t the only cause of our problems. But it sure didn’t help. And it’s also sobering to see its own management splutter about ineffectively when challenged by class. I doubt they ever thought they would have to talk about class. Yet they, their ideas, and their product have made us all have to deal with it.

For shame.

  1. Robert Locke
    September 21, 2013 at 9:11 am

    Could not agree with you more, Peter, and have been saying it for decades. I first raised doubts about the wisdom (Veblen did it in 1918) of creating business schools in a chapter (“Why Not Business Schools,” a play on words meaning not have them) in my book Management and Higher Education Since 1940 (Cambridge, 1989), then in The Collapse of the American Management Mystique (1996) I took them to task, and, with J-C Spender, in Confronting Managerialism (2011). I stressed class injustice but also the failure of the business schools to promote what they claimed to promote, managerial efficiency. It’s a hard slog, Peter, because while I was pointing our their shortcomings, business school education grew leaps and bounds in Europe and America, but not everywhere. Ironically, in Japan and Germany the USA MBA business school model ran into other management education traditions and did not do well. But the manufacturing economies in these countries did.

  2. September 21, 2013 at 2:56 pm

    There are many points to be made, beginning with our nostalgia for a ‘golden age’ somewhere in the past when things were not so bad. It is not clear to me when this was. But the post-WW2 US economic boom is already in our memories as a time when things were going gangbusters, politics seemed to work, and the distribution of wealth and opportunity was not so obnoxious, plus social mobility was high (aided by the GI Bill). No-one went bowling alone. But if we go further back in US history there were many grim periods here, as elsewhere.

    A second point revolves around the BSchools’ place in these historical changes (cycles?). On the whole I don’t think they have much influence, being best understood as finishing schools for the privileged. They are clearly not places where new ideologies – political, social, economic, or even technological are forged in long drinking/debating sessions among the intellectual cream students.

    At the same time it is important to appreciate the nature of the US class system and its modes of inter-class mobility – and how they differ from those of Europe.

    Since the Revolutionary days wealth has been privileged over most other bases for class, especially over politics which, in the US, does more to serve wealth than the other way around. Coolidge was bang on when he said “the business of America is business” (what he said was actually something different but this is the modern recollection).

    So the project to change US culture’s approach to and preferment of wealth is not likely to succeed. We might say personal economic gain is the most fundamental of all US political beliefs after life and liberty, something that is not true of any European country.

    On the other hand the US has a considerable history of ameliorating the socially-corrosive impact of a wealth-shaped class system. But the pendulum swings backwards as well as forwards. The post-WW2 era was a product of many things, but it was also the child of Depression Era politics and the New Deal. Thus the tea-party’s fundamental project is to unravel every bit of this legislation, along with Roe v Wade. They are firmly committed to the ideology of a previous era to which Coolidge’s quip speaks.

    Though various stripes of the neo-liberal ideology are ‘winning’ at the moment, the real issue is whether and when the forces of ideological resistance begin to marshal and push the pendulum forwards – as has happened many times in America’s history.

    For pessimists the central concern then is whether or not ‘democracy’ still functions in the US, whether the political system has been so choked off by the wealthy (through lobbying, gerrymandering, voter suppression, etc.) that the pendulum cannot swing forward again without some extra-democratic moves. Since the American Revolution itself there is no great history of these, though one might say the anti-Vietnam War and or the Civil Rights movements were the most recent. But there is clearly no immediate likelihood of any group of people – whether the poor, the sick, the unemployed, the uneducated, the Precariat, etc. – taking to the streets and protesting in ways that force significant political change.

    Least of all students at any BSchool I know of.

  3. September 22, 2013 at 4:45 pm

    from the first paragraph—‘they don’t add on any offsetting social value’.

    as has been mentioned.value theory is a theoretical problem (eg ordinal vs cardinal utility, really gross substitutibility).

    But, i’m sure the super rich can argue they add social value just through themselves—they give back to the community.

    i think it was thomas nagel (philosopher at NYU) who, in a book on inequality, pointed out that while inequality in excess (to be defined) is bad, at the same time we don’t want to deny the value or deprive the 99% of the vicarious experience of seeing, say, Princess Diana and the Queen of England in all their glory.

    Or, maybe as in Brazil, having the Olympics there—Sports and salaries!!!!—or, for the deeply religious, a visit by the Pope— even if they cost billions of $ and people are living in squalor and dying through the drug trade (since they can’t get a side deal (or second job) marketing tennis shoes, like sports stars, nor are considered eligible for the limited religious charity derived from church donations (eg providing legal services to priests involved in various scandals, and buyouts to those with lawsuits against the selfless proselitizers of jesus).

    instead we can go shopping in an upscale mall in nairobi kenya or perhaps become entrepenurs and sell guns to disgruntled employees.

    as leibniz said (or rather the ‘dr pangloss’ version promoted by voltaire) this is the best of all perfect worlds, or something. TINA. the shortest path may seem long, but in an ergodic world, its the only one (modulo the KAM theorem). in this equilibrium, defined in the long run, Keynes had a prediction (except for the exceptions, shown by KAM theorem, so some of us are exempt from that rule or law).

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