Rise of the MBAs

Management courses do more for universities than society, argues Ben Schiller

Management courses do more for universities than society, argues Ben Schiller

In his 1954 book The Practice of Management, the great American management thinker Peter Drucker wrote that “no greater damage could be done to our economy or to our society than to attempt to ‘professionalize’ management by ‘licensing’ managers … or by limiting access to management to people with a special academic degree”.

At the time, Drucker was worried by what he saw as a new phenomenon for managers to be trained at business schools, rather than 'learning on the job', as they always had. He disagreed that management could be a profession, like medicine or law, because it was essentially something you learned by doing, not in the classroom.

Despite his reputation, society has completely failed to take Drucker’s advice. Since the 1950s, thousands of business schools have opened around the world with the express intention of teaching management, and the skills and knowledge imparted there have come to be seen as increasingly important in the world’s boardrooms, not to mention its governments.

Today, more than half the US’s senior managers are alumni of business schools. And things are going the way of MBAs in other places too: India, for example, has seen a huge boom in management education over the last decade. Having had practically no business schools twenty years ago, it now has as many as 2,500, and graduates a staggering 500,000 MBA students a year.

In the UK, 248,000 students took management or business degrees in 2008-9, including 58,000 postgraduates, and 32,000 MBAs. Business is now the most popular subject in higher education. And in the last fourteen years, according to the Association of Business Schools, the number of people taking postgraduate management courses has grown 94 per cent, compared to 63 per cent across all subjects.

To some, this is a positive sign, showing a healthy interest in business among the young, and laying good foundations for the future. To others, though, it is importing the wrong sort of expertise and culture from the US. Arguably, say its critics, management education does more to benefit universities and students (through fees and higher salaries) than it does the wider fabric.

In their celebrated 2007 book The Puritan Gift, Ken and Will Hopper argue that business school fundamentally changed the way managers progress in their careers. In the old days, young people would join companies from university and spend years acquiring what the Hoopers call domain knowledge of their chosen industry. With business school, graduates were licensed to practice management, without ever having done it, and without in-depth industry understanding.

This change, in turn, led to an over-reliance on financial metrics (to compensate for other knowledge), and the rise of financial engineering at the expense of lasting value creation, the Hoppers say. Managers became detached from the coalface, and began to identify more with shareholders than employees. The result was "intellectual arrogance and managerial incompetence on a scale inconceivable in earlier generations".

Several critics have blamed business schools for engendering a culture of aloofness in boardrooms today. They point out that scandals like Enron and the recent financial crisis involved numerous management graduates, including several regulators and government officials. While it is unfair to blame business schools for everything, it is reasonable to question the underlying model, and ask whether we should be copying the US approach so unthinkingly.

British politicians have spoken of the need to rebalance the economy away from a dependence on the financial sector. They argue – rightly – that the path back to prosperity lies in rebuilding the manufacturing sector, and creating products that we can export around the world. If that is the case, though, then we need to educate and encourage youngsters differently. The problem with business schools is they tend to produce more financial whiz kids and consultants, than innovators and entrepreneurs; around half of London Business School’s MBAs go into financial services or management consulting, for example.

The UK has become more entrepreneurial in the last fifteen years. Figures like Branson, Dyson, and Sugar are now household names. Shows such as Dragons Den make independent business exciting. Entrepreneurialism is celebrated in magazines, web sites, and ‘how I made’ columns. The internet has spawned thousands of start-ups, while also making it easier for people to work for themselves or in small groups.

The UK is still less dynamic than it might be, though. Gordon Brown spoke of creating "a deeper and wider entrepreneurial culture where enterprise is truly open to all". But if anything, during the Labour years we became more professional than entrepreneurial. For every youngster dreaming of being the next Theo Paphitis, thousands more go to university hoping to become lawyers, consultants, and financial analysts.

Though they teach some useful skills, business schools feed a culture of credentialism, where what matters is the degree, rather than skills or experience. They have created the illusion of a profession, and the pretense of a scientific body of knowledge. And they have done this largely not for our benefit, but for their own. If we want to build a new economy from the ruins of the financial crisis, then we need to educate people in new ways. Rather than more management, universities would serve us better by teaching something of merit, and holding up a less distorted mirror to business's workings.

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Ben Schiller, a freelance journalist, blogs on his website. He is writing a book about the management industry.