<p>Starts at 8:30</p>
<p>Understanding</a> the business behind business schools - Video on msnbc.com</p>
<p>It is no different than how people view all education as serving two distinctly different purposes:</p>
<p>1) Improve a person’s skill set so that he or she may better provide for himself or herself in the future economically. </p>
<p>2) Provide a social benefit to the world and the interactions we have with one another.</p>
<p>I am firmly in group #1 as far as why I chose to attend higher education, while #2 was an additional benefit.</p>
<p>And Khurana’s point is that, from a business school standpoint, those two points may well be in conflict. For example, that business schools have produced boatloads of investment bankers over the last few decades has surely proven to be monumentally lucrative for those individual bankers… but as we have painfully witnessed, might be highly deleterious to society at large. Let’s face it - much of modern day finance consists of little more than schemes to exploit loopholes to disguise risk. Should we as taxpayers provide tax subsidies so that universities - through their business schools - (perhaps unwittingly) teach their students those sorts of financial schemes?</p>
<p>In general people get paid more so that they could earn more on a basis of providing a need to society.</p>
<p>The schools that produce bankers are by and large private. The people who pay taxes are by and large upper middle to upper class. The financial crisis was caused by all participants, not just bankers. </p>
<p>I went to business school to benefit myself. Who cares about “society” or whatever that nebulous statement means.</p>
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<p>And it is precisely that sort of attitude that makes the case of business schools harder to defend to the public. Why should the public continue to support, through their tax dollars, activities that apparently (as you said) only serve to benefit the individuals involved rather than the public at large? If your answer is that they shouldn’t (or that you don’t have an answer), then it seems as if you’re actually agreeing with Khurana. </p>
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<p>And indeed the clearest case could be made for cutting off taxpayer funding for the top public business schools - the University of Michigan Ross’s, Virginia Darden’s, and Berkeley Haas’s of the world. For example, nearly 1/3 of all Virginia Darden MBA’s take jobs in financial services. Why should the taxpayers of Virginia support that activity if it doesn’t actually benefit society? </p>
<p>And as Khurana argued, even the private universities enjoy millions of dollars worth of tax breaks. Why should they enjoy those breaks if they support activities that do not provide a social value-add?</p>
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<p>If your argument is that the tax support derived from regular (as opposed to rich) taxpayers to support business schools is relatively small, then that would mean that the business schools should have absolutely no problem in abjuring that support. Rebate those funds back to those regular taxpayers. </p>
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<p>And yet it was the bankers, not the other participants, who were bailed out by the taxpayers.</p>
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<p>Whether that happens in general or not, such a notion is rather difficult to defend as it pertains to many new financial service offerings, which seem to serve little more function than exploiting loopholes in the system. {Granted, maybe such functions serve to benefit those people who are benefiting from the loophole, but that hardly seems to benefit society.}</p>
<p>Point taken.</p>
<p>Just to be clear, I don’t wish to imply that Khurana’s argument solely revolved around the maladies of the financial services industry. That was just a specific example that I was using. His critique is far more broadly based to also encompass, among other things, the social value of the strategy consulting industry to the average American. </p>
<p>For example, why should the average American continue to provide taxpayer subsidies (in the case of public institutions) or tax deductions (in the case of private institutions) to B-schools who produce MBA graduates turned consultants who then espouse the offshoring of the jobs of those very same taxpayers? {Such consulting ‘advice’ indeed has opened the door to a dark and deep truth of the class conflict embedded within our labor system: nobody seems to ever propose the offshoring of their own profession. For example, strategy consultants never seem to advocate the offshoring of their own services. By the same token, business school professors never seem to advocate the offshoring of tenure-track faculty positions. Managers never seem to offshore management jobs. It’s always somebody else’s profession that needs to be offshored.} </p>
<p>But whatever overall social value you may attribute to financial services, consulting, and other common MBA career pathways, the bottom line is that the median real wage of the average American has not risen over the last 3 decades. Whatever gains in economic efficiency may therefore have been reaped from business/finance/strategy innovation have apparently accrued to only the small percentage of people at the top of the wealth spectrum. Khurana is asking why, and I think it entirely appropriate that he does. More broadly, what specifically is the social value-add of business schools to the average American, and if there is none, why should average Americans continue to support them?</p>
<p>That might not be entirely accurate. It is easy to see people as stratum, but individuals change in their income levels throughout different stages of their life.</p>
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<p>Sure, people change their income levels throughout their lives, but that doesn’t mean that they change social stratum, relative to their own peer group. After all, it’s obviously unmeaningful to compare the socioeconomic standing of a middle-aged man with decades of experience and time to have (hopefully) built home equity and a retirement account vs. a guy right out of college in an entry-level job with zero experience and probably negative net worth from student loans. The proper relative comparison would be against other middle-aged men. How far can that man perform relative to the proper peer group surely by dint of personal talent and hard work, rather than the social class in which he was born? Socioeconomic mobility is, despite the national mythology surrounding the meritocratic American Dream, is not only not as high as it is in many other developed nations, but may have even declined over time. </p>
<p>[Socio-economic</a> mobility in the United States - Wikipedia, the free encyclopedia](<a href=“Socioeconomic mobility in the United States - Wikipedia”>Socioeconomic mobility in the United States - Wikipedia)</p>
<p>I think that the clearest example would be regarding the truly rich. How many Americans who were born in truly rich circumstances - e.g. of families of 8+ figures of net worth - will eventually die in poverty? I would say that the answer is close to zero. Truly rich families provide their children with not only to access to the best tutors and college degrees, but more importantly, to the right professional social networks that the rest of us can never dream of having. By the same token, the vast majority of Americans who die in poverty had been born in poverty.</p>
<p>Solution: American Revolution II</p>
<p>It’ll wipe the slate clean for everyone and we can all have the same start point after everything is destroyed.</p>
<p>It may happen sooner than you think once we default on our debt.</p>
<p>Interesting article, thanks for posting.</p>
<p>MBA students generally pay full price for their degree. If anything, in-state students are the ones who benefit from state schools and have paid into the system in order to get something out. As for the government trying to decide which major to favor and which to not, all it will do is create distortions in the market. </p>
<p>Regardless, people do things to benefit themselves. I fail to see how clearly admitting something that all of us innately know is bad or any less noble than someone else who does it but does not admit this. </p>
<p>I also could care less if states stop funding business schools. State funding of top public schools is an ever decreasing amount and many students at these schools (foreign/out of state/grad school) pay full tuition. Business schools bring in a lot of tuition money, as well as donations so you have that benefit. </p>
<p>The government should just get out of funding colleges and making student loans to begin with. Stick to national defense, foreign policy and core elements of governance.</p>
<p>Oh, one more side note. If top public business schools rejected state funds, it wouldn’t really matter. Berkeley, UVA, Ross, etc could all do just fine without state funds. Just like top private universities do. The only thing that will happen is very smart in-state kids will be excluded or have to pay more, which will simply hurt the lower class even more. </p>
<p>Additionally, the financial sector has a massive public benefit. The problem is the benefit of finance is complex and intangible. People drive on bridges and know what an engineer does. People go to the doctor and know what they do. People have no clue how finance benefits them, even though everything is benefited through finance. </p>
<p>The bridge had to get financed some how, in comes public finance professionals. Once the bonds are issued you have to have a vibrant and transparent secondary or else investors will not want to buy the bonds when they are originally sold. You need bankers to facilitate the sale of a company and provide price discovery. You need traders to make a market for those securities. On and on. </p>
<p>[Public</a> colleges tap private funds as state support dwindles - The Washington Post](<a href=“http://www.washingtonpost.com/local/education/public-colleges-tap-private-funds-as-state-support-dwindles/2011/06/29/AGHiWQvH_story.html]Public”>http://www.washingtonpost.com/local/education/public-colleges-tap-private-funds-as-state-support-dwindles/2011/06/29/AGHiWQvH_story.html)</p>
<p>“Even before the decline in state funding, the University of Virginia drew only one quarter of its revenue from Richmond.”</p>
<p>[Stephen</a> M. Ross Gives $100 Million to University of Michigan Business School](<a href=“http://www.bus.umich.edu/communitycreation/story_1.htm]Stephen”>http://www.bus.umich.edu/communitycreation/story_1.htm)</p>
<p>Michigan Ross can thank a financier for their $100MM gift from Mr. Ross himself. </p>
<p>[Overview</a> of funding sources - UC Berkeley Budget Primer](<a href=“http://berkeley.edu/news/budget/primer/sources.shtml]Overview”>Budget | Berkeley News)</p>
<p>Berkeley gets about a quarter from the state. I am sure they could easily do away with this through tuition increases for in state students as well as out of state students.</p>
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<p>The issue has little to do with in-state resident subisides at state schools; that’s actually only a relatively minor issue. The far larger issue that Khurana raised is why any business schools - whether public or private - should receive any government privileges, whether they be tax exemptions, taxpayer-funded research grants, or subsidized student loans, if it is true that those business schools do not actually provide value to society. </p>
<p>And the issue extends far beyond merely MBA education to also include business school research that, frankly, provides the academic imprimatur for numerous highly controversial management policies. As a direct case in point, why should the taxpayers continue to subsidize business schools if their faculty continue to publish position paper after position paper that touts the offshoring of the jobs of those very same taxpayers? {The taxpayers might likely respond that perhaps we should instead offshore the jobs of those business school faculty.} Or why should the taxpayers continue to subsidize the research of marketing professors who generate ever-more devious psychological methods to manipulate those very same taxpayers to buy things that they don’t really need? </p>
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<p>Are those the same market distortions that are generated when, say… the government decides to bail out the entire financial system? </p>
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<p>Quite the nice libertarian philosophy…that would have surely resulted in the complete sundering of the entire nation’s financial system in 2008. As has been extensively documented over the last few years, practically every single major Wall Street bank was technically insolvent at some time during the crisis and hence should have defaulted were it not for unprecedented government intervention. Just consider the chaos and misery wreaked upon the system by the default of Lehman. Now magnify that by several orders of magnitude. </p>
<p>Now, if you want to say that, yes, the financial markets should have been allowed to collapse and hundreds of thousands of bankers should have been tossed onto the streets, then fair enough. I give you credit for being consistent. But be that as it may, the fact remains that the current financial system exists today - and all of those bankers have jobs - only because of taxpayer intervention. </p>
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<p>Obviously so, but that’s why we enforce rules and incentives to align the benefits of individuals with benefits to society. Mugging somebody of his wallet may benefit you personally, but hurts society and so society enforces laws to imprison muggers. </p>
<p>Similarly, if it is true that business school graduates may actually be hurting society (or at least, not helping society), then perhaps the government should not be subsidizing b-schools. </p>
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<p>And on and on indeed… leading right to the most momentous worldwide financial catastrophe since the Great Depression. Nor is this a one-off. A decade prior occasioned the Asian/Russian Financial Crisis, prior to that was the S&L Crisis, prior to that was the Latin American Debt crisis, prior to that was the so-called ‘Secondary’ banking crisis, and so on. Every one of which wreaked immense societal damage and every single one of them necessitating government intervention, whether in the form of direct taxpayer capital injections, loans from multi-governmental bodies such as IMF and World Bank, or emergency central banking liquidity facilities. </p>
<p>The upshot is that I actually think it is an open empirical question as to whether the financial innovation of which you speak actually provides a net benefit to society. I agree that financial innovation does provide additional funding channel benefits of which you speak. But that has to be weighed against the (often times deliberately) hidden risk and greatly magnified volatility that the financial system imposes upon society, along with the taxpayer bailouts that the bankers inevitably call for whenever they encounter trouble. {Reportedly, Ben Bernanke, Tom Geithner, and Hank Paulson received hundreds of desperate phone calls from bankers pleading for a government rescue during the darkest nights of the crisis. Wait, I thought that bankers believed in free markets.} Bankers have ingeniously managed to devise a system where they repeatedly privatize the gains while socializing the losses.</p>
<p>So let’s add all the societal gains and societal losses from modern-day financial innovation to calculate a true net value. I’m not sure that the number would be positive. Even if it is, I suspect that the number would be relatively small, and society would therefore be better off in subsidizing other more valuable activities. As Khurana said, the average person in this country has not improved his station over the last 30 years, despite the vast financial innovation of that time period.</p>
<p>You are forgetting that there are business schools that do not turn out strategy consultants or high-finance types. There are hundreds if not thousands of small, regional universities that house colleges of business. These institutions are a gateway for lower-class, working-class, and middle-class students to obtain the knowledge and training to be small business owners, bankers at local and regional banks, managers at the stores you frequent daily. These individuals had no direct hand in the financial crisis, but they did create jobs and are on the front lines of recovery. Without state and federal funding for programs like mine, there would be whole communities in largely rural areas ignorant of accounting principles, management skills, marketing strategies, and finance procedures. My professors hosted a seminar on the local economy and the future of the region today where they did not suggest that every mom-and-pop should be shipped across the border or sea. To assert that all b-schools are evil because of individuals’ decisions is short-sited and simply untrue.</p>
<p>Point noted rattler.</p>
<p>Rattler917, obviously I’m not trying to say that everything that business schools has questionable social value. Obviously some activities of business schools do provide social value. </p>
<p>However, I would question whether the ranking of the business schools has anything to do with it. For example, I suspect that plenty of lower-ranked regional business schools produced plenty of graduates… who then took jobs as loan officers at regional banks or mortgage brokers, concocting toxic mortgages. Let’s keep in mind that the regional banks as a whole were even more distressed than the Wall Street banks were, with hundreds of them failing and hundreds of other surviving only by taxpayer bailouts. Yet those loans officers pocketed huge bonuses for their ‘exceptional’ performance, and they’re not giving any of that money back. Furthermore, I’m not aware of much substantial difference between the policies advocated by the faculty in top vs. lower-ranked business schools. Faculty at lower-ranked business schools seem to be just as supportive of - and publish papers touting - such controversial practices as offshoring, financial deregulation, corporate re-engineering (which always seems to result in mass layoffs), behavioral marketing, and the like. </p>
<p>Nevertheless, I agree that the issue ought not to be prejudged, but rather should be examined empirically. Does the positive social value of what business schools provide outweigh the negative? Maybe it does, maybe it doesn’t, but at least somebody ought to investigate the question.</p>
<p>As an MBA grad, I can say that business schools generally are a place to get your “passport” stamped for a potential future seat in some type of management role and it also provides you with a lifelong network. It’s not nearly comprehensive or long enough to have any meaningful or material impact (positive or negative) within the context of what is taught inside the classroom – be it a course on business ethics or entrepreneurship. The cynic in me would say that if a guy is out to commit fraud (or has it in him to do so in the future) no amount of classroom time espousing the necessity of ethical behavior will make any difference. If a guy (or gal) is a true visionary / entrepreneur, classes might be helpful at the margin, but its not like they are going to sit up after a case study and have some sort of magical epiphany and create the next big thing.</p>
<p>Now having said that, a lot of ugly things have transpired in financial markets over the last several years that do raise a host of questions. But to lay these things at the feet of business schools misses the mark IMO. At the end of the day, b-schools and their respective graduates follow the simple rule of market supply and demand. At the highest levels (i.e. elite schools and top graduates) there was and continues to be a very steady demand for graduates by investment banks and consulting firms (and b-schools have been more than happy to provide them). But let’s examine where true power lies.</p>
<p>The recent article blasting the culture of greed and irresponsibility by a departing Goldman Sachs executive comes as no surprise to me as someone who spent a considerable amount of time at a bulge bracket investment bank. Indeed in my estimation it is these firms (and the cultures of turning a profit at any cost) that are the ones that have the capital, human resources, clout and access to do serious damage to society and have done so relatively unchecked and without either remorse or any shred of accountability. Even after the sub prime crises and the collapse of Lehman Brothers, it is absolutely outrageous that a situation like MF Global could happen. People seriously underestimate the level of hubris and greed that runs through the veins of Wall Street execs. </p>
<p>If any insitution(s) were to be held responsible for the financial crises that we face today, investment banks should be on a very short list indeed.</p>