The 1950-1970 Business School Coup d'Etat and the 2008 Wall Street Meltdown

Little did I know that when I began teaching at Tulane University in 1961 and three years later at Duke, where I taught for thirty years, that I was participating in a defacto coup d’état in American business education which would give rise to a period of unprecedented economic prosperity followed by the economic meltdown of 2007-2008.

Although what I had been hired to do at Tulane, namely, introduce courses in quantitative business analysis and management science in the undergraduate business curriculum, appeared on the surface to be quite innocuous, it turned out not to be so innocent at all.

Even though the seeds of American imperialism were sewn in the Mexican War (1846-1848), the Civil War (1861-1865), the Spanish-American War (1898), World War I (1914-1918), and World War II (1939-1945), the United States did not truly become an empire until after World War II.  Unbeknownst to me the United States was about to become an empire due in no small part to the revolution getting underway in business education.

Following on the heels of a 1959 Ford Foundation report calling for radical changes in business education in the United States, Tulane had obtained funding from Ford to beef up business research; strengthen the Business School’s grounding in economics, behavioral science, and quantitative analysis; and improve the professionalism of the school’s undergraduate business and MBA programs.  To help lead the revolution at Tulane I was paid a whopping $5,600 per year.  These were heady times!

Prior to the onset of the revolution business schools were viewed as comatose like institutions whose students took too many vocational business courses, too few liberal arts courses including math and science, and played too much because they had so few academic demands on their time.  Research in business schools tended to be unscientific, mundane, or nonexistent.  Business school faculty and students were treated as anti-intellectual, unprofessional, second class citizens.

Against this moribund backdrop the confluence of four forces precipitated the Business School Revolution in the 1950s.  These forces are spelled out in the recent book by Mie Augier and James G. March entitled The Roots, Rituals, and Rhetorics of Change (Stanford University Press, 2011).

First, the lasting positive impact on medical education in the United States of a 1910 report by Abraham Flexner provided an important role model for those interested in business education reform.  Based on evaluations of 155 medical schools in the United States, the Flexner Report called for tougher entry requirements, fewer medical schools, more scientific research, increased professionalism, and improved funding.  There was a widespread view that the Flexner Report had resulted in increased rigor and more involvement in basic research throughout academic medicine in America. It appeared to offer a model which might be emulated by business schools.

Second, an important byproduct of World War II was a new discipline known as operations research which was characterized by the use of sophisticated mathematical models and statistical techniques to solve managerial decision problems.  Operations research provided the intellectual foundation underlying an Air Force think tank known as the RAND Corporation launched in 1948 in Santa Monica, California.

According to Augier and March:

RAND championed a creed that celebrated multidisciplinary work, problem framing, mathematical social science and operations analysis, and the application of refined intelligence and educated technique to imagining new ways of resolving old social problems, beginning with problems of national security and extending ultimately to a wide range of public concerns.  In particular, the focus was on the use of decision theory, mathematics, statistics, and microeconomic analysis to improve the choices made by leaders of social collectivities (such as armies, firms, nations).

RAND soon became an incubator, laboratory testing ground, and promoter of creative new ideas in the decision sciences.  It attracted the crème de la crème of those working in the fields of economics, operations research, and organization theory including such luminaries as Kenneth Arrow, Tjalling Koopmans, Jacob Marschak, Roy Radner, Howard Raiffa, Martin Shubik, Herbert Simon, and Oliver Williamson to mention only a few.  By the 1960s RAND had become the place to be and the place to be seen, if you were an aspiring young business school professor.  RAND along with other Defense Department related think tanks such as the Office of Naval Research (ONR) and the Advanced Research Projects Agency (ARPA) soon began to have considerable influence over the kind of research conducted in American business schools.  But this was just the tip of the iceberg in terms of the influence the Pentagon would soon wield over higher education in America.  There was no turning back.

Third, the influence on the business education revolt of University of Chicago President Robert Maynard Hutchins and Economist Milton Friedman cannot possibly be overestimated.  Throughout his tenure as President Hutchins vigorously promoted “vicious intellectualism” and research based interdisciplinary scholarship, which resonated with those in search of a new mission for business education.  On the other hand, Professor Milton Friedman and his colleague George Stigler brought an almost religious-like commitment to radical free-market economics to the table.  This was an ideology which fiercely opposed labor unions and any form of government regulation, ownership, or control.  The name of the game was deregulation, privatization, and globalization.  The full impact of the Chicago School of Economics on business education did not kick in until the 1980s when President Ronald Reagan zealously promoted its use to the exclusion of any other form of economics.

Fourth, perhaps the most important force influencing the radical transformation of business education was the 1959 Ford Foundation commissioned report by two University of California, Berkeley, economists, Aaron Gordon and James Howell, calling for a virtual revolution in business education.  Gordon and Howell recommended that business education become more professional, less vocationally oriented, more scientific, and more research based.  In addition, they recommended that business school curricula increase their course offerings in economics, quantitative analysis, and behavioral science.

Between 1954 and 1964 the Ford Foundation spent over $35 million on programs to improve business schools and management education according to Augier and March:

It commissioned a major report, provided grants to business schools, supported graduate fellowships, established prizes for business school dissertation research, and supported conferences and training sessions in new methods for old faculty.

Over two-thirds of the money spent by Ford went to eight business schools:  Carnegie Tech, Chicago, Columbia, Harvard, MIT, Stanford, UC Berkeley, and UCLA.  But the crown jewel in Ford’s portfolio of grant recipients was the Graduate School of Industrial Administration at Carnegie Institute of Technology.  GSIA became the poster child of the business school coup d’état.  It was considered by most to be the place where the most innovative and most radical changes were taking place.

By the late 1970s all of the major business schools in the United States and many of the less important ones were in compliance with all of the recommendations of the 1959 Ford Foundation report.  They were also all marching to the ideological beat of the Chicago School of Economics drum.  Milton Friedman was their God.

Courses in management science, operations research, information systems, quantitative analysis, linear programming, computer simulation, and inventory control replaced descriptive courses in marketing, production, and personnel management.  Business schools became more research oriented and more professional as well.  Their status within colleges and universities began to rise accordingly.  To have an MBA meant that you were highly marketable and that you would be sought out by Wall Street and Corporate America who would offer premium wages for your services.  Indeed, that’s what it was all about.

But there was much more.  The groundwork had been laid for business schools to assume a much more influential role with Corporate America, Wall Street, the U.S. Government, and the Pentagon.

As the house of cards came crashing down on Wall Street and the global economy continued to melt down in 2008, the premier graduate schools of business who trained most of the architects and promoters of the financial debacle remained eerily silent on the sidelines.  Yet is was from MBA programs at places like Harvard, Wharton, Yale, Chicago, Columbia, and Stanford that Wall Street’s movers and shakers learned most of their dirty tricks such as creative accounting, insider trading, bribery, hostile takeovers, stock price manipulation, anti-labor tactics, lying, cheating, and fraud to mention only a few.  There they acquired the necessary skills to transform Wall Street into a global Ponzi scheme.  Hedge funds, derivative contracts, credit default swaps, exchange-traded funds, and sophisticated mathematical models were all part of the greed driven drill.  It was at business schools where Corporate America’s future leaders learned how to use behavioral science to manipulate consumers and employees alike so that their ever increasing salaries would go unnoticed below the radar screen.  It was all about the political economy of greed.

As I watched the financial meltdown unfold, I experienced feelings of déjà vu.  Back in the 1980s for a period of six years, I taught all of the courses on business strategy at Duke University’s Fuqua School of Business.  Each semester I would ask my students to write a personal strategic plan for the ten-year period after their graduation from Duke’s MBA program.  The question I posed was “What do you want to be when you grow up?”  With few exceptions, they wanted money, power, and things – very big things including vacation homes, expensive automobiles, yachts, and even airplanes.  They were primarily concerned with their careers and the growth of their financial portfolios.  It was all about greed and personal pleasure.  Their personal plans contained little room for family, intellectual development, spiritual growth, or social responsibility.

Their mandate to the faculty was “Teach me how to be a moneymaking, money spending machine.  Give me only the facts, tools, and computer techniques required to ensure my instantaneous financial success.”  Everything else was fundamentally irrelevant.

Their God was technology – particularly the computer.  Technology represented the ultimate solution to all of their problems – professional, financial, social, personal, political, and even geopolitical.  Only through technology could they deny their finiteness and guarantee their own immortality.  They had much rather automate a factory than negotiate with a difficult labor union.  Missile defense systems were preferable to negotiating with the Soviet Union, which was perceived to  be our enemy then.  Courses on business ethics and corporate responsibility were used by manipulative MBA students to come up with pseudomoral justifications for their narcissistic, materialistic, sociopathic behavior.

My Duke students exemplified cultural historian Morris Berman’s thesis in Why America Failed that what America has always been about is “hustling, materialism, and the pursuit of personal gain without regard for its effects on others.”

President Ronald Reagan and University of Chicago economist Milton Friedman were the heroes of my MBA students.  Reagan had assured Americans that what life was really all about was “looking out for number one.”  He once said, much to their delight, that “what I want to see above all is that this country remains a country where someone can always get rich.”  And he did just that.  As for Friedman, his irresponsible aphorism that “the only social responsibility of business is to make as much money as possible for the stockholders” was viewed with religious fervor.  Anything goes so long as the company is making as much money as possible for the shareholders.  This was an ideology to beat all ideologies – an ideology embraced by Wall Street and Corporate America for the next two decades and an ideology which resulted in the greatest recession since the 1930s.

But the chickens have finally come home to roost, and the cataclysmic failure of graduate schools of business is now painfully obvious to all.  Business school deans and professors are nowhere to be found on either the evening news or on television talk shows.  At a time when business schools should be engaged in serious introspective discussions about what went wrong, it’s business as usual at the academy.

The collapse of the American financial system raised serious doubts about the legitimacy of business education in a university curriculum.  Business schools are a national disgrace.  George W. Bush and Mitt Romney both received their MBAs from the Harvard Business School.  Need we say more?

On September 17, 2011, in tiny Zucotti Park in lower Manhattan, the so-called 99 percent fired the first shot across the bow aimed squarely at the wealthiest 1 percent of Americans, officially launching the Occupy Wall Street movement.

OWS is nothing less than a frontal assault on the materialism, the greed, the inequality, the unemployment, the poverty, the environmental degradation, the racism, the cronyism, and the militarism associated with American capitalism.  The American Empire is too big, too centralized, too powerful, too undemocratic, too intrusive, too violent, and too unresponsive to the needs of individual citizens other than the superrich.  It has too few jobs, too many home mortgage foreclosures, too much student debt, too many people living in poverty, too many without health insurance, and increasingly does too little to support the poor and middle class.

The emperor truly has no clothes.  The myth of American exceptionalism is all a big lie!

What few seem to realize is that OWS is simply blowback from what Mie Augier and James G. March call the Golden Age of business schools in their recent book The Roots, Rituals, and Rhetorics of Change: North American Business Schools After the Second World War.

After devoting 322 pages to hyping the positive effects of the 1950-1970 takeover of graduate schools of business by the free market technocrats, the authors abruptly conclude their book with the following final sentence.  “The Golden Age was transformed to a significant extent into an era of the glorification of huge fortunes and of those who accumulated them, the anointing of greed as a social virtue, and the substitution of the lessons of experience for the lessons of analysis and research.”

It’s almost as though they wrote an entire book about the revolution which took place in business education and failed to notice that the seeds of destruction which have led to the precipitous decline in the American Empire were planted, cultivated, and nourished in graduate schools of business over the past sixty years.  The mathematical models, economic theories, behavioral science, and increased professionalism of American business schools have all played an important role in the creation, moral justification, and implementation of a culture of technofascism which Occupy Wall Street is now rebelling against.

As a result of the training which they received in leading MBA programs, professional managers on Wall Street and in Corporate America have been able to take scientifically based hustling, greed, and their own personal salaries and bonuses to heretofore unimaginable levels.

In the words of Eric Fromm:

Modern man has transformed himself into a commodity; he experiences his life energy as an investment with which he should make the highest profit, considering his position and the situation on the personality market.  He is alienated from himself, from his fellow men, and from nature.  His main aim is profitable exchange of his skills, knowledge, and of himself, his “personality package” with others who are equally intent on a fair and profitable exchange.  Life has no goal except the one to move, no principle except the one of fair exchange, no satisfaction except the one to consume.

And graduate schools of business have played no small part in making all of this happen!  The Harvard Business School model is under siege, and appropriately so.

Thomas H. Naylor

April 5, 2012

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Founder of the Second Vermont Republic and Professor Emeritus of Economics at Duke University; co-author of Affluenza, Downsizing the USA, and The Search for Meaning.

www.vermontrepublic.org.