Home > Uncategorized > Dysfunctionalism in US economic departments and business schools

Dysfunctionalism in US economic departments and business schools

from John Locke

The problem, however, is not the failure of economic departments and business schools to create a prescriptive science, but the refusal of nomothetic neoclassical economists and mathematical modelers in them to admit the failure, and their actions after they gained a monopoly of the sinews of institutional power, that produced dysfunctionality in Anglo American higher education. That dysfunctionalism is expressed in their constant battle with people in academia who realize the prescriptive failure of the nomothetic science project, with which readers of the Real-World Economics Review blog are painfully familiar, and a dysfunctionalism that results in education from their narrow minded refusal (b) to accept the importance of the ideographic tradition in economic and business studies during the current crisis in U.S. management capitalism. 

The elimination of ideographic economics from the economists’ ranks is particularly poignant, inasmuch as the nomothetic neoclassical economists’ attitude towards ideographic economics seriously compromises any attempt of economists to evaluate capitalism’s shortcomings. This includes Veblen’s view that modern capitalism produced a set of socially beneficial tendencies but also a set of parasitical forces. Among the beneficial tendencies he counted “workmanship, industry, the machine process, and technological progress” (Schatzberg, 2006). On the parasitic side, he listed “predation, business enterprise, absentee ownership, and other pecuniary institutions” (ibid., 499) For business schools, Veblen’s stress on the parasitical side of pecuniary institutions is especially significant, since the financilization of the economy has been carried out by nomothetic thinking finance professor in business schools in league with private financial and banking firms governed through director primacy, Veblen’s parasitical forces. In The Theory of the Leisure Class: an Economic Study of Institutions (1899), Veblen also laid out a social critique of conspicuous consumption as a function of social class and of consumerism, derived from the social stratification of wealth. Schatzberg observed that the institutionalist Seligman, who defined economics as the study “of the social conditions necessary for the sustenance of life,” (Schatzberg, p. 498) opened therewith the discipline to the ethics of social criticism. The disappearance of historical and institutional economists ended this sort of analysis among economists of the U.S. capitalist culture.

More importantly, the recent concentration on finance and investor capitalism in business schools at the expense of manufacturing eliminated the possibility of business schools playing any serious role in solving the manufacturing crisis. They actually opted out of the effort. Robert S. Kaplan, former dean of Carnegie-Mellon Business School and then a Harvard Business School professor, after reviewing articles published in leading operations management journals and examining research and teaching in top business schools, found that only one to two percent of the U.S. business schools had “truly been affected, as of early 1991, by the Total Quality Management revolution that had been creating radical change in many U.S. and worldwide businesses,” and was integral to the Japan Production System (Kaplan, 1991, p. 1; Ishikawa, 1985). He concluded that “American business school research and teaching contributed almost nothing to the most significant development in the business world over the past half century – the quality revolution.” U.S. MBA education proved to be at best neutral in that the neoclassical economic theory and prescriptive sciences it devised and taught had very little to do with a people-oriented management processes American production engineers outside business schools sought to introduce into manufacturing.

Robert R. Locke,
“The effect of academic business studies in Germany and America in the modern era”,
real-world economics review, issue no. 83, 20 March 2018, pp. 116- 137  http://www.paecon.net/PAEReview/issue83/Locke83.pdf

  1. April 15, 2018 at 1:33 am

    This conversation circles endlessly – on the one side we have normally well-intentioned folk who need to earn their spurs playing the game, and on the other, elderly curmudgeons like Robert and myself – and many others more worthy – struggling to get a word-hold, to find some in the other camp who are even prepared to admit the failure of the ‘nomothetic project’.

    Both of us have turned to history as our lever. History can suggest (never prove). One view is to ask, as above, where do we see evident impact of this HUGE intellectual effort? We clearly lack a set of disciplinary exemplars for others, especially doctoral students, to emulate. Some theorists get emulated, highly cited, as various discursive fashions take hold – institutional theory, RBV, evolutionary, and so on. But do these ‘new breakthroughs’ lead to evident impact on managerial behavior and thinking?

    Another view begins by asking “Where did this project come from?” and “What was it for?”

    Most in our camp presume it was something to do with improving managerial understanding and performance. So we get upset when we see how it has been hijacked by a professoriate concerned only with a promotion and tenure process that depends on a kind of mutual admiration – Yes! This research paper is a significant ‘contribution’.

    This leads to the weakness in our argument – where is the alternative more managerially impactful program?

    But those examining the history of our community are beginning to see another story altogether – that the project was never anything to do with managerial competence, skills, etc.

    This argument is emerging among those looking into the history of Cameralism – which we know is the direct forebear of ‘management education’ as we understand it today. The links are fully visible for those who bother to look.

    The bottom line seems to be that Cameralism was a political project that appropriated the concept of science for strictly political purposes.

    More interesting is that the history of Cameralism shows how its fortunes rose and fell. I think it is clear that Cameralism – and management education – falls to hand as part of the wider project to reconstruct society after some national catastrophe. Cameralism’s history was transformed by the drive to reconstruct Europe after the 30 Years War.

    Likewise the US concept of management education was born in the post-Civil War Reconstruction. Yes there were some decades between the end of the war and the emergence of management education as we understand it today. But things like this move slowly, no doubt. But the US view has deliberately excised the work of the Industrial League – which actually began before the Civil War and led to the Land Grant universities for ‘mechanics and farmers’.

    The point is that Cameralism – and US management education later – reached out to ‘science talk’ to buttress a political project. That it was never empirically supported in no way diminished its appeal. Many retained their faith that science could be harnessed to the public good.

    • Frank Salter
      April 15, 2018 at 9:11 am

      This conversation circles endlessly” is true. Unfortunately man is more rationalising than rational. It is inbuilt to seek relationships even when none exist and then psychological set intrudes. We need to break through this apparently endless repetition.

      “… to find some in the other camp who are even prepared to admit the failure of the ‘nomothetic project’.” — at this point it is necessary to ensure that critique is well-founded. Unfortunately, there is too much over-generalisation. Narrow points are made but broad conclusions are drawn. I am sure you would accept that what is being sought are the underlying mechanisms on which to base our understanding. If is to be quantitative then mathematics with its strict set of rules is required. So the test must be are the rules valid or not.

      Conventional economic mathematical analysis generally consists of fitting equations to empirical data, which is perfectly valid. It is when the functional form is claimed to be theory that a category error of enormous significance is made — correlation does not imply causation — but that is what the claims of theoretical validity imply. What conventional analysis shows is merely a method if interpolating empirical data — no more, no less. These relationships do not describe the underlying mechanisms of reality, merely the specific shape of that part of reality which has been examined.

      To break the circle will require enormous effort. Economists will have to distinguish between good and bad analysis. Let us hope that economists will learn from the experience of Svante Arrhenius. His dissertation of 1844 led to an initial award of a fourth class degree which was promoted to a third and finally its extension to the 1903 Nobel prize in Chemistry.

    • robert locke
      April 15, 2018 at 7:47 pm

      “The bottom line seems to be that Cameralism was a political project that appropriated the concept of science for strictly political purposes.”

      I think I agree with you as far as modern US management science is concerned, but the facts do not tell the same story for Germany. . If you google the top ten subjects studied in higher education in Germany in 2017, you get the following results:

      1, business economics (Betriebswirtschaftslehre)………………………………………238,105
      2, Mechanical Engineering (Maschinenbau(-wesen)…………………………………..118,692
      3, Law (Rechtswissenschaft)……………………………………………………………………………114,002
      4. Computer Engineering (Infomatik)……………………………………………………………….110,108
      5. Medicine (Medizin – Allgemein Mediziin)…………………………………………………….. 92,011
      6. Economics (Wirtschaftswissenschaften)…………………………………………………………91,386
      7. Psychology (Psychologie)……………………………………………………………………………..75,448
      8. German (Germanistik/Deutsch)…………………………………………………………………….74,880
      9. Electrical Engineering, Electronics (Electrotechnik, Electronik)………………………….69,517
      10. Economics Engineering (Wirtschaftsingenieurwesen mit Ingenieurwesen
      Schwerpunkt)………………………………………………………………………………………………..67,998
      Among the top ten, economics is found in position 6, but by far the largest group in German higher education (24% of all top ten majors) study bwl. To them could be added group 10, 6% of the top ten majors. If you add group 1 to group 10, you find 30% of the top ten majors in German higher education, studying business economics.

      In 1900 the Prussian state made the following contributions to institutions of higher education: universities RM 10,238,535, technical institutes (technische Hochschulen) RM 1,264,589, agriculture institutes, RM 1,571,000, vetinerary institutes RM 1,264,589, and over six million RM to secondary trade and commercial schools. Not one Pfennig was provided for the new Handelhochschulen, which relied on chambers of commerce and industry, municipalities, and wealth business benefactors for financial support.

      My point, the most dynamic education subject in 20th century Germany, Betriebswirtschaftslehre, was not a result of state but private civic sponsorship. It is hardly believeable, therefore, that BWL was created for state purposes.

      But this does not mean that Spender is wrong. Camerialism was the creation of state sponsored effort to use Staatswissenschaft to develop the state’s economy. The adoption of “science” methods was a tool used by the American state to establish its hegemony economically and politically after 1945. Postwar Germany was no longer in the state hegemony business, so BWL was praxis centered.

  2. Prof James Beckman, Germany
    April 15, 2018 at 9:18 am

    Hi, Spender 7, as I read Google, Cameralism is a German project of the 18th & early 19th C, dealing primarily with government administration. Since I am an American having taught in Germany since 2002, I feel quite aware of it. My German friends in small private business have to explain toilet paper usage to the tax authorities, costing the German government in labor time far more than any additional revenue received. I don’t find it relevant to larger business, which has worked things out with those same tax authorities.
    What this reveals to me is that a good attorney, lobbyist or PR regime is worth their weight in gold, which is how the Conservatives in the UK & Republicans in the US make their way. Of course, the liberals in each country do the same, but they are far less effective generally, although the Verdi public union in Germany threatens more negotiating “advisory” strikes tomorrow, making it impossible for me to reach my university.
    Academic economists largely make their way from following the current nomothetic religion, while some of them make a real income from realistically applying science ideographically, Every bit of my consulting for large German firms is the latter.

  3. April 15, 2018 at 5:59 pm

    Thanks Professor Beckman. Thanks for weighing in. Cameralism’s origins in Europe go way back – perhaps to the 1500s. Of course, the idea of a science of the human condition is much older – since the Han Empire in China adopted somewhat similar methods BCE.

    Our nomothetic project just keeps digging up this battered corpse and trying to breath new life into it – a special habit of those who pay no attention to the history.

    My point is that studying the history here is illuminating. I actually wrote ‘understanding’ the history’ rather than ‘studying’ it – but that’s the point, history offers no ‘understanding’, it merely tries to shine light into how each of us views the present in a time-full way rather than in an abstract, perhaps mathematical, but time-free way.

    Aristotle taught us that we think in no less than two mutually exclusive ways – hence the nomothetic/ideographic distinction. It is not given to us to ‘know’ certainty – as Vico phrased it ‘to enter God’s mind’. Hence we come closer to full understanding by playing the two ways of knowing against each other.

    Here’s a new piece of work on Cameralism’s various histories in Europe:

    Tribe’s doctoral work was historically framed, theorizing the development of capitalism in the agriculture of Europe – say around 1500s – taking some exception to Marx’s analysis and especially those who trivialize by claiming “it was the enclosures wot did it’.

    As Frank Salter shows, the nomothetic project rules today, ever hopeful in spite of the historical evidence. This deserves to be examined and explained as best we can. Then, given the failure, the intellectual tussle gets framed between ‘doing it right/better’ – as he and the vast majority of our colleagues claim is ‘the solution’ – and seeing it is compelling evidence of a deeper appreciation of a more complicated grasp of the human/social situation.

    History can help us make better sense of the nomothetic project. To treat it as a failure to which there is no alternative but trying the same thing over and over again is to mistake the evidence – one wag’s definition of stupidity. Common enough among politicians but the very opposite of our responsibilities as academics.

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