Shut Down the Business Schools
MBAs are among those to blame for the financial crisis.

May 30, 2011
Also published on Quora

Topics = { Corruption + Education + Financial Regulation }

I have a number of friends who are affiliated with business schools at elite universities in one form or another. Some of them are studying topics such as economics and sociology, with the goal of eventually earning a PhD. The following is not directed at those individuals or those particular programs of study. This is all about the most popular program at every business school, the MBA.

I should note that I don't consider myself an expert on business schools. I have never attended one; probably the closest direct qualification I have is that of spending a few summers during college subletting from students on the almost nauseatingly gorgeous campus of Harvard Business School, but I spent those summers writing code, not observing the mostly empty campus.

In 2008, the world economy came within a few days of complete collapse. In a speech delivered recently to the Electronic Transactions Association, a financial industry lobbying group, former Senator and Senate Banking Committee Chairman Christopher Dodd recalled how shortly after the collapse of Lehman Brothers, Federal Reserve Chairman Ben Bernanke told a conference room of Congressmen and Senators that if they did not act immediately, meaning within days, the global economic system would, in fact, cease to function. Understandably, the room fell silent.

Three years later in Palo Alto, California, the horror of the financial crisis seems as distant as the Vietnam War, during which most of the up-and-coming generation were not even alive. Financial crisis? Companies today are going public. Their valuations are in the billions of dollars. If there's a bubble, no one seems to be at risk of getting hurt, except for maybe a select few. If there was even a crisis, it's certainly difficult to tell.

That is, if you live in Palo Alto, California. If you live in East Palo Alto, California, or you live even in a major city nearby such as San Francisco, or in the cornfields of southern Illinois, or anywhere in Louisiana, or Cleveland, Ohio, or Phoenix, Arizona, or just about anyplace but Silicon Valley in the vast land that is the United States of America, you would have to be completely blind to think that nothing is wrong.

Yes, unemployment is quite high at nine to ten percent; it has been high for a while. Yes, The New York Times just ran another story about plummeting housing prices, even when they've already been plummeting non-stop for years. Yes, banks are foreclosing on houses illegally, overwhelming judges and lawyers with so much paper that it's impossible to actually keep track. Yes, young lawyers are being routed to low-paid non-partner-track programs while medical and law students are drowning in hundreds of thousands of dollars of debt. Yes, interchange rates for payment processing keep rising while small businesses earn less revenue. But do any of these problems amount to the most fundamental problem in the country?

The answer is clearly no. Not to ignore the seriousness of all of these problems, for they are all extremely serious. The most fundamental problem, however, is that since 2008, nothing fundamental has changed. The economic statistics in the news are the symptoms, and many of them are lagging indicators besides. (Case in point: we already know why housing prices are going down and will continue to: for years and years prior, they went up!)

It should be fairly obvious why the 2008 status quo is our most fundamental problem today. In his speech, Senator Dodd explained it quite well to many of the people who deserve some of the blame. Leading up to 2008, the United States was ignorant, and that very ignorance almost ended the United States.

Should we blame the ignorant consumers who purchased securities and signed contracts they did not understand? No. Consumers were deceived into purchasing securities and signing absurd contracts with a frequency we now understand to be staggering. Literally no one was capable of understanding the system's full complexity. The blame clearly lies with the financial elite who should have known better—far better—shifting back and forth between roles offering considerable money in investment banks and considerable power in government.

What do Hank Paulson (74th Secretary of the Treasury), Vikram Pandit (CEO of Citigroup), Edward M. Liddy (former CEO of AIG), Richard S. Fuld, Jr. (former CEO of Lehman Brothers), Kerry Killinger (former Chairman and CEO of Washington Mutual) Robert Nardelli (former CEO of Chrysler) and Rick Wagoner (former CEO of GM) all have in common? Hint: it's not just the fact that their actions collectively wiped out hundreds of billions of dollars in wealth. All of them are certified Masters of Business Administration—many of them certified by Harvard University, in fact.

What does this mean? Does such a small sample represent any actually useful information? Can we really assume that one degree makes such a large difference?

Yes. And yes again.

The view from the top is telling for a number of reasons. There were undoubtedly thousands of MBAs employed in the financial industry in 2008, managing bank operations at all levels in all types of departments—so it's not just a coincidence that the leaders of these institutions also possessed the same degree. MBAs are widespread wherever failure roams. Remember Enron? Jeffrey Skilling was a Harvard MBA. Andy Fastow had an MBA, too.

As for whether the degree makes a difference, I may not have an MBA, but I certainly administer a business, and I have worked closely with MBAs in the past. It makes an enormous difference, and one I have perceived as decidedly negative. MBAs are often intelligent, ambitious individuals who lack the endurance or unique skill necessary to qualify as entrepreneurs of their own volition. On average, they actively ignore detail, meaning that they choose not to understand it—the kind of detail that an engineer, for example, would find absolutely critical. On average, they delegate everything possible, literally believing that their time is more valuable than anything else. On average, they believe that most problems can be reduced to a Microsoft Excel spreadsheet and solved through simple cost-benefit analysis. On average, they tend not to be inventive enough or knowledgeable enough to differentiate important breakthroughs from useless hype, and so they gravitate toward media bandwagons. On average, they have extremely high earnings expectations and view the non-MBAs to whom they delegate tasks as disposable. On average, they have no particular interest in any given idea or problem, so long as it might make a lot of money.

On average, if you run your business like your average MBA, your business will fail.

It's worth asking what the point of having a degree for businesspeople is in the first place. Granted, there is a long history which is undoubtedly interesting, but right now, in 2011, what is the point? It has already been well-established that the degree does not signify anything (intelligence? creativity? trustworthiness? kindness? uniqueness?) except perhaps a likelihood that the individual possessing the degree exhibits a number of undesirable traits—unless your business is based on principles of fraud and deceit, as the large banks were in 2008 and remain today, in which case those traits are absolutely wonderful.

So what good does the degree do for the country? I cannot answer this question. In my entire (admittedly limited, but by choice) experience observing and working with top-tier business school students and MBAs, I have not once observed a single positive attribute stemming from an MBA program directly, and not some other source. On the other hand, I have observed many, many negative attributes. Suffice it to say that I will never hire an MBA for my own business.

Business schools generally have one other negative effect, which is that they give large research universities (and I am specifically referring to Harvard, though this may also apply elsewhere) a poor excuse for limiting undergraduate studies. My own request to study the intersection between computer science and economics by examining the market practices of Microsoft Corporation was rejected by Harvard College in 2003 as being too pre-professional. One professor told me I should simply apply to business school, not understanding the absurdity of his suggestion. The MBA curriculum and thesis research are quite different, even in cases where research involves a particular corporation.

Given the enormous revenues that business schools bring in for universities, it is unlikely to happen, but shutting down every business school in the country would be the best thing that could happen to the United States today. The buildings and other vast resources could easily be re-allocated to programs advancing science, or technology, or the arts.

Meanwhile, as has always been the case, business "leaders" (in the true sense of the word) need to learn about real problems that affect real people. Being surrounded by the difficulties that life presents is how one learns to overcome them, whether through private enterprise or otherwise. In contrast, having one's employer pay for a two-year academic vacation that terminates in a piece of paper leads to entitlement, laziness, arrogance, and ignorance.

I've had enough of that, and I don't think I'm the only one.


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