Does the world really need MBAs?

A few weeks ago I was sitting in a coffee shop writing my thesis. Next to me were two students from Harvard’s Business School, that esteemed institution responsible for many of the managers who have been doing such a bang up job of running our nation’s financial system. They were going over a case for one of their classes, and from listening to them struggle with simple math, it was apparent that those two, who are at the best business school in the country, probably wouldn’t have lasted a minute in any graduate program in the hard sciences.

To begin with, I am skeptical of the very idea of having a management class that swoops in from their MBA school, sans real world experience, to manage companies. It seems to me it would make more sense to pick management from people inside a business who have demonstrated understanding and ability of the unique aspects of that industry.

From my admittedly distant vantage point, business school seems to train people not to truly lead, but to be the quickest in following the herd. Instead of giving us managers who learn a business and find ways to improve its product, it gives us a bunch of jar scrapers who do little of sustance but simply find increasingly clever ways to fool people into paying more for less using the latest management fad. You leverage your customer base into a value-added service relationship, or you outsource non-core competencies, or synergize across divisions, etc. Anything to goose the next quarter earnings growth. You put Snickers bars near the check out at Kinkos, but god forbid do you actually innovate and create something of unique, sustainable value.

Of course, you can’t expect them to do that, because true leadership isn’t something you pick up in a seminar, and acquiring the skills to really innovate in a meaningful way requires a tough slog through an actual technical education. Don’t get me wrong, I have tremendous respect for good managers, having worked under a few. But it can’t be taught in a class. Worse, the concept of business school means that our leadership class is an entirely self-selected group. Leadership should be a position that is earned, not self-anointed by one’s choice of graduate school.

In fact, give some thought to what kind of person even thinks it possible to become a valuable leader with two years of night school, and you begin to understand why corporate America is in the fix it’s in. It’s no surprise so many of them cut corners ethically and focus on short term results at the expense of true sustainable value. When I was applying to grad school, I looked at the statistics of the GRE scores by major. Business majors scored lower than everybody; lower on Math than English majors, and lower on Verbal than Engineers. It seems the only qualification one has to have for leading people in corporate America is an inability to do much else.

This kind of pseudo leadership is epitomized by the well-documented decline of Hewlett-Packard under the erstwhile tenure of Carly Fiorina. This once great innovator that gave us the first handheld calculator was morphed into a company that sells cheap plastic printers at cost so that they can gouge consumers with ink at 1000% profit margins. Short term, that works as a way to make money. Long term, HP is never going to invent anything again, because after all the short-sighted cost cutting, their research labs are essentially defunct. Of course, a marketing consulting firm was probably paid hundreds of thousands of dollars to come up with their “invent” slogan. The management class has no sense of their own self-created irony.

Like HP, many once great American businesses are essentially management consulting companies that happen to have inherited some intellectual property. Far out product development funding is decimated, and what remains is for management to scrape the bottom of the jar with marketing tactics, outsourcing, and whatever trivial refinements are allowed by their skeleton R&D departments. Looking naively at corporate profit growth in the US, the MBAs seem to be vindicated, but this growth has been illusory. They call it transforming America to a knowledge-based economy. I call it burning the furniture to heat the house. How much longer can we grow by shrinking?

Given the ubiquity of MBAs, it’s easy to forget that the very concept of business school didn’t come about until the early 20th century, and it didn’t take off until after the war. We managed, as a country, to produce some of the world’s greatest industrial achievements without the aid of MBAs. We built a transcontinental railroad, gave the world aviation, invented the automobile industry and modern assembly line manufacturing, all without a single business school graduate around to synergize or value-add anything.

I believe history will show that the concept of management school, and the notion of a management class that is self-selected by career choice and not demonstrated ability in a field, is a major failure. Maybe it’s time to rethink our pipeline for corporate management.

Obviously, any time one is talking about an entire group consisting of hundreds of thousands of people, you’re talking in approximations and on the average. Some of the great leaders I’ve met that I alluded to above actually had MBAs. My point is that they are great leaders not because they have MBAs, but because of their experiences and inclinations. In fact, the people I know who I respect the most with MBAs have very little respect themselves for the degree, which is where much of my skepticism about the degree originates.

If one were into conspiracies…

Our country is running massive deficits, financed by foreign government purchases of Treasury instruments. It’s not clear how long we can keep finding buyers for our debt while paying virtually zero interest. This is especially so when the stock market is going up, presenting an attractive (at least in theory) return compared to government bonds. In a rising stock market, people are less apt to head for the safety of bonds. So, what’s a government to do? Devalue the stock market. Now that the stock market has gone up for long enough such that companies like Goldman Sachs and Bank of America have been able to recapitalize themselves via trading profits, now might be a good time to crash the market back down and drive up demand for government bonds. A great way to do that would be for somebody in the administration to propose legislation that would ban stock market investments by some of the largest investors in the stock market: commercial banks.

I’m not saying this is one of the intents behind the Volker rule, but it does work out quite well. I’ll also point out that the Volker rule imposes even more restrictions on bank trading than Glass-Steagall ever had. All in all, a very nice way to keep the stock market form overheating without having to raise interest rates, a perfect bit of finesse whereby borrowing costs stay down for the government without having to tighten credit and potentially derail whatever recovery we’ve got going here. While I’m obviously joking about a conspiracy theory, I do believe it’s true that a stock market drop may be necessary to containing borrowing costs for the government. Thus, they may not be so quick to try to take efforts to prop it up.

Fashion victims finally hit bottom

I’ve noticed (probably about two years later than the rest of the world, of course) that the latest in men’s fashion are printed designer t-shirts. Actually, I kind of like some of them, as fashion goes. Or did, rather, until I found out that people are paying $70 for a silk screened t-shirt. You know, the genre of clothing favored by little league t-ball teams all across the country? Apparently when you replace “Bob’s Rib Shack Temecula Valley Bluejays” with a skull and crossbones, the price goes up considerably. I can only imagine this is the result of a very cynical wager made over beers wine spritzers by two designers after work one day regarding who could get people to pay more for a t-shirt.

And that’s how we got this. The worst elements of the success of this trend is the fact that (a) about half the male population of the country is falling for this “designer t-shirt” scam and (b) they are legally allowed to vote in federal elections. I know some people will fault me for not understanding fashion, and in general I don’t, but I think it’s a self-evident truth that if somebody gets you to pay $70 for something that costs $4 to produce, you need to rethink your priorities. Especially if that thing can be had for $10 with equivalent function elsewhere. But god bless the fashion victims, because lord knows where our economy would be without them loading up their credit cards with four-color printed underwear at a 1200% markup.

Why unions tend towards self-destruction

As pointed out by Mish Shedlock, the public MTA union has brokered an 11% pay increase while municipalities across the country struggle to make ends meet. The callous disregard of public unions for their taxpaying “employers” is highlighted in this article by the candid comments of an Albany police union chief, who stated for the record that “If I’m the bad guy to the average citizen… and their taxes have go up to cover my raise, I’m very sorry about that, but I have to look out for myself and my membership.”

Given that most local and state government budgets are complete disasters, the only possible result of such union intransigence is massive layoffs. It’s already happening, in fact, as municipalities all over cut back on police and fire budgets. Some towns have even shuttered their police departments, relying on county sheriffs for protection.

Plot illustrating the steady decline in union membership over the past several decades.

It’s pretty clear that unions, far from providing job security to their members, more often price their members out of a job. One need only look at the massive decline in American union membership (see the included figure) to see proof of this. Union bosses get rich at the expense of the junior members, whose jobs are cut. But how is this possible? How can union presidents continue to get elected despite the fact that they are clearly pricing their members out of existence?

The answer, I think, is that unions are inherently self-destructing because of a survivorship bias in their member voting, exacerbated by union domination of the labor prices in certain fields. When union jobs are lost, those who are fired are likely to seek employment in other fields, as unions do everything they can to ensure that when a job is priced out of existence at one firm, it is priced out of existence at all firms. That’s why there are three (for now) US auto companies but only one union. If companies do it, it’s called price fixing. If labor does it, it’s called the United Autoworkers Union.

Intuitively, one would expect that any union boss so arrogant as to insist on pay raises unaffordable by the employer would get voted out by union members. However, if you lose your job you’re probably not going to sit around paying union dues, you’ll probably going to start looking into a lateral move into another trade. Or you might just give up looking for work or retire early. The point is this: the people who continue voting for the status quo union leadership are, by definition, those who have benefitted from union membership, not the millions of workers who have had to leave their chosen profession due to the union destroying their jobs.

Imagine a hospital which has such poor medical care that anybody who has more than a cold dies, but whose cafeteria serves fillet for every meal. Customer surveys of this hospital would be nearly unanimously positive; all the people who leave the hospital will have had a great time, but the corpses can’t complain. This pretty much describes what is happening at unions.

A letter from legal has arrived for you, Alex

Greenblatt & Goober, Attorneys
September 14, 2009

Dear Baby Alexander,

We are writing on behalf of our client, your father, Jonathan Birge. This is in followup to, and clarification of, the ad hoc verbal contract entered into by you and Dr. Birge during negotiations of the bedtime taking place on the evening of September 12th, 2009. To wit:

You (heretofore LITTLE BABY) agree to make a goodfaith effort to “hush,” including, but not limited to, not saying a word. In return, your father (henceforth ‘DADDY’) has authorized us to release into your possession one (1) live mockingbird.

In the unlikely event said mockingbird should fail to sing, as determined by a third-party arbitration panel, DADDY will purchase, for you, a diamond ring of commensurate retail value.

Should the diamond ring be found of fraudulent origin, limited to composition by brass alloy, a looking glass will be provided. Herein, “looking glass” is understood to be a term of art, not to imply construction of any particular material. Specifically, molded polymer magnifying optics of any kind will be acceptable under the terms of this contract.

If the looking glass should become “broke” due to faulty materials or workmanship, excluding acts of god and/or negligence on your part, you agree to accept from DADDY one (1) billy goat as full payment in-kind.

If the billy goat fails to perform under previously agreed upon provisions terms in the  standard goat labor contract, (see “Pulling” in the attached rider), DADDY agrees to provide you with a cart and bull of equal or greater value, as determined by commodity prices published in the prior day’s Wall Street Journal.

No guarantee is provided as to the cart and/or bull’s suitability for any implied or express purpose. Only in the event that the cart and bull should, as a unit, “turn over” (as per the accepted legal definition of a rotation of no less than 90 degrees around the cart-bull axis) will the warrantee terms of this agreement be in effect, and renumeration provided in the form of a dog, to referred to as “Rover” by both parties for the duration of the contract.

In the event the dog named “Rover” is unable, or refuses, to bark audibly, both parties agree to final compensation in the form of a horse and cart, under identical liability terms to the previously mentioned cart and bull. Should the cart and horse fail to maintain appropriate orientation, as defined in the adjoining diagram, the “FALL DOWN” clause of the horse and cart contract will be in effect: DADDY agrees to stipulate for the record that you are “the best baby in town,” with both parties enjoined from further comment on the matter for a period of thirty (30) days.

By falling asleep, you give your full consent and agreement to this contract, and agree to waive all future legal action against your father as it pertains to this or any prior informal mockingbird for sleep agreements.

This Contract shall be interpreted under the laws of the State of Nevada.

This Constract is executed in the City of Cambridge, County of Middlesex, Commonwealth of Massachusetts.

Signed,
Steven Greenblatt, Esq.

Twitter… for men

With recent advent of Woofer, the Twitter clone that requires the use of 1400 characters, I’d like to add my own entry into the foray.

Introducing Twitless: Twitter for Men. “140 Characters. A month.”

You can use your 140 characters any way you want, but if you use ’em up early, you’ll just have to wait until next month, chatty Kathy.

Twitless. Because real men only talk when they have something to say.