Thursday, April 22, 2010

Economics: Blame it on the MBA?

TORONTO, ONTARIO - Long-time readers of this blog known that I have little patience for business people making technical decisions and believe this contributes to a lack of innovation. Kenneth and William Hopper have considerably less patience with holders of the Master of Business Administration (MBA) degree. The authors of "The Puritan Gift" place at least partial blame on the MBA for the savings and loan crisis, the Enron debacle, and the recent global credit crisis.

The argument of the Hoppers is not hard to follow, whether one agrees with it or not. They believe that the Puritan principles brought to the United States defined its business culture from the 1620's until the 1970's and created its economic success. The Puritans believed in being self-sufficient and thus people that could do "hands on" work with a "can do" attitude would eventually "work their way up the ladder" of companies and make informed decisions when they made it to the management level. The advent of the idea of "professional management," while based in scientific principles, eliminated the need to "learn the craft of management or to acquire 'domain knowledge.' The holder of the MBA was deemed capable of exercising control over any kind of organization through the medium of its accounts department... The effect on the quality of decisionmaking (sic) in both the public and the private sectors was catastrophic."

The Hoppers don't address politics--at least directly--but its seems to me the best example of their argument lies in the first MBA president--George W. Bush. While he had some experience as a politician prior to running for president, it wasn't his initially-chosen profession and he had not worked his way up from dogcatcher. While not over-emphasizing the concept, he very much ran his cabinet like a MBA--bringing lots of subject matter experts to the table (e.g. Colin Powell and Christine Todd Whitman), but then ignoring them in favor of his own principles. Never mind the ideology of those principles, just look at the quality of decision-making that resulted. Few non-ideologues now regard many of the major decisions of his administration, including the war in Iraq and tax cuts, as quality decisions.

This certainly rings familiar to me. The most successful organizations I have been involved in--both companies and non-profits--were run by people that had worked their way up the ranks of their field, whatever that might be, and learned the craft of management. The least effective organizations were run by MBA's who liked to have specialists around to make it appear that they had qualified staff, but consistently ignored the recommendations of those people, justifying their decisions with short-term financial arguments.

Where I may differ from the Hoppers is the centrality of the MBA degree to their thesis about the loss of the "Puritan Gift." They cite as one of the Puritan principles "a moral outlook that subordinated the interests of the individual to the group." That probably comes as a shock to most Americans, who are taught to believe that their whole country is founded on individual liberty. That may be true for individuals acting on their own, but it is not the tradition of American leadership, which did act in the interest of the group. Did Washington or Lincoln act in their own individual interests over that of the country? Hardly.

I would argue that the loss of connection with this Puritan principle is more central to the decline in decision-making than professional management per se. I believe it is possible to be a MBA holder that listens to technical experts and then uses their own management skills to make a decision based on more than "financial engineering." What is needed are incentive structures--perhaps compensation packages based on longer-term results--to encourage MBA's to think that way, instead of the way that too many are making decisions today.

In any event, I believe the Hoppers are on to something. The United States came to dominate the world economy in part because of its "Puritan Gift," and if it isn't careful, it runs the risk of losing that gift, and with it the resulting economic strength.

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