A new generation of universities is cultivating a new generation of liars – liars who have become our economic elite. Not because the latest boom industry in higher education, Massive Open Online Course (MOOC) platforms such as Sebastian Thrun’s Udacity, are running classes in mendacity, but because business and economics are gaining popularity as higher education options. And students of business and economics, it turns out, may be much more likely to lie than students of other subjects.
The generational transformation is, after all, a matter of simple economics. A business school boom, beginning in the US thirty to forty years ago and spreading across Europe and Asia, has seen a massive rise in access to training in a very particular style. This is a training that students are willing to pay big money for (the global average cost of an MBA standing at $35,000) because it offers such high returns for graduates – big money that higher education institutions welcome, especially when their funds are being cut back. Courses in business and economics provide a win-win resolution of both parties’ financial predicament.
But as with many deals that on the face of it make perfect sense, this one involves an ugly trade-off. Along with theoretical models that “obscure rather than clarify the way organisations work”, business schools will apparently teach you to lie. Presumably not directly, but rather through the ways in which courses in business and economics train students to think about the world. A series of experiments conducted by Raúl López-Pérez and Eli Spiegelman of the Universidad Autonoma de Madrid found that students majoring in business or economics were more likely to lie when they could gain financially by doing so than students majoring in other subjects.1 Whereas humanities students were honest more than 50 per cent of the time, students of business and economics only told the truth 23 per cent of the time.
Part of this story was told by LSE Professor Robert Wade this week at a Cambridge seminar on economists’ contribution to the second Great Depression. At first glance it’s a striking indictment of academic economics, and a welcome weapon in the arsenal of social scientists wanting to take another shot at those arrogant, imperialist, orthodox economists. But it’s also a story that points beyond itself to a much more recent development – one that actually does implicate Udacity founder and Google Glass pioneer Sebastian Thrun – and to another more complex story involving bombs, the Ford motor company, and the self-fulfilling prophecy.
The Rise to Power of Economics
In a 2009 article Philip Delves Broughton, a graduate of the Harvard Business School, wrote that “[f]rom Royal Bank of Scotland to Merrill Lynch, from HBOS to Lehman Brothers, the Masters of Disaster [MBA graduates] have their fingerprints on every recent financial fiasco”. Not only were graduates of business schools central players in the financial crisis but business schools’ models, based on case studies of, among other institutions, the disgraced RBS, were being widely implemented. Combined with powerful economic theories, these models became the blueprint for an unstable financial system.
Former Dean of the Yale School of Management and Director of Research at Harvard Business School, Joel M. Podolny, traces the roots of business schools’ inadequate training back to a 1959 report commissioned by the Ford Foundation. Gordon and Howell’s report was published five years after the Foundation had begun a programme to reform business education in the United States. In a fascinating paper, Marion Fourcade and Rakesh Khurana discuss the context in which Ford’s programme transformed the role of economics in twentieth-century America. The Second World War had brought significant changes to the American economy: conflict demanded a massive increase in industrial production and many large corporations emerged from the war operating across multiple industries where they had previously confined their business to only one. Growing sales and spreading risk across industries and product lines became the key to firms’ survival, whereas before the war they might have tried to increase the efficiency of their work organisation or the competitiveness of their prices. This required a new set of skills in managing supply chains and forecasting demand.
But there was another important motivation for Ford’s programme. After the 1929 stock market crash and the Great Depression of the 1930s, capitalism’s social benefit had been cast into doubt. Prominent corporations such as Ford faced the challenge of rebuilding their public legitimacy. The programme to reform business education was a way for Ford to tie itself publicly to a new form of management that broke with the traditions of pre-war capitalism. Handled with care, novelty could provide the tonic the corporation needed.
So it was novelty that Gordon and Howell’s report recommended. A new style of management required the “judicious use of clinical materials and methods”; business schools should hire staff from traditional academic backgrounds emphasising quantitative methods: economists, statisticians, and operations researchers. Their ideal hire probably looked a lot like future president of Ford and later Secretary of Defense, Robert McNamara, then one of the “Whiz Kids” hired to turn the corporation’s post-war fortunes around. During the war McNamara had moved straight from a teaching post at Harvard Business School to an operating group in the Army Air Corps where, as Marion Fourcade and Rakesh Khurana clinically put it, he “used life expectancies of air crews, the application of stochastic simulation, queuing theory, and other new statistical techniques, to formulate acceptable kill ratios, bombing runs and airplane production runs”. War had developed both the prototype for the companies that would come to shape the postwar economy, and the prototype for their academic gurus.
The institutional model for the Ford Foundation’s ideal business school was not, however, the Harvard Business School; this honour went to Carnegie’s Graduate School of Industrial Administration (GSIA), where during the war the U.S. Air Force had set up a research centre tasked with developing mathematical models that could improve industrial operations. The close relationship that developed between Ford and the GSIA’s dean, Lee Bach, was to be mutually beneficial. As an economics graduate from the University of Chicago frustrated at what he saw as the discipline’s irrelevance during the Great Depression, Bach intended to transform economics into a discipline capable of solving social problems. Ford’s championing of the GSIA’s application of economics to business education was exactly the right vehicle for this transformation. The GSIA’s work gave greater legitimacy to Ford’s business strategies, and Ford’s endorsement gave greater legitimacy to the GSIA.
As Howell later claimed, his report “was the strategic force behind the reorientation of one of the largest sectors in American higher education; and it was by far the single most powerful force in bringing about that reorientation”. Ford’s $35 million investment in US business schools – of which the Harvard Business School and Chicago were two of the main recipients – helped set the standards for business schools first across America and later across the world. Managerial and financial elites would from this point forward be trained in the clinical style of a war-fashioned prototype. And the discipline of economics would secure its place at the heart of economic life.
The history of the modern business school helps us to understand why economics is such a formative discipline today. Its prominence has been ensured by particularly hospitable conditions within business and state institutions; but this prominence has gone on to perpetuate itself as the discipline of economics has in turn shaped business and state institutions in its image. The symbiotic relationship between Ford and the GSIA was only the start of a kind of looping effect that has continued since the 1950s.
An important consequence of this looping effect is that whether or not economic models are accurate or inaccurate may be a moot point. Under the right conditions – conditions in which corporations, governments, individuals are susceptible to the kind of thinking that economics promotes (conditions where a corporation such as Ford, for instance, is in search of a novel source of legitimacy) – economics may take root, thrive, and even cultivate the conditions for its own survival.
On Self-fulfilling Prophecies
To see what is really at stake here, we have to move beyond Delves Broughton’s and Podolny’s critique of business schools. These insiders direct their ire at the application of inaccurate knowledge to the economy due to business courses that are too narrowly focussed on inaccurate academic knowledge – specifically economic knowledge. But López-Pérez and Spiegelman’s truth-telling experiment might be interpreted as suggesting that the problems are deeper than those of inaccurate knowledge. The academic discipline of economics may actually have the capacity to shape reality in the image of the theories it propounds – in this case to shape people so that they conform to the utility-maximising calculators around whom the models of neoclassical economics are based. Perhaps the academic discipline of economics does not just attempt to describe the economy, but rather helps produce it.
This is the basic claim of the “performativity” thesis, stated in its earliest form by the French sociologist of innovation Michel Callon. At its simplest, the performativity of economics can be understood as a species of the self-fulfilling prophecy. In this case the prophecy is delivered in the form of economic models that purport to describe the way the world operates. These are taken up and used to build institutions – stock exchanges, market regulations, businesses, even business schools – even if they do not provide accurate descriptions of reality, and for motivations that may have little to do with their efficacy as models. But over time, as institutions operate on the assumptions embedded in these economic models, the models become true. People and the apparatus that surrounds them (machinery, computer programmes, risk analysis systems) start to conduct their business in the grooves set down by the models. Eventually the prophecy of economics is fulfilled.
Various studies suggest that economic performativity is something that should be taken seriously: it seems to have been a factor in developments as diverse as the modern derivatives trade, property titling systems in developing countries, and regional food markets in France. Performativity should be taken seriously not because these developments are necessarily bad ones, but because it suggests that academic economics, or at least those able to employ academic economics to build institutions, have an unsettling power to shape the world we live in. As the Ford Foundation’s relationship with the GSIA (and McNamara) illustrates, the power of an academic discipline such as economics is just one component of an elite-based concentration of power. We might reasonably be concerned about this simply because of the extent of this concentration, irrespective of its particular effects. Do we really want abstract models, conceived in the detachment of academic studies by a few economists and seized on by politicians and managers in search of novelty, to become the blueprints for a reality we all have to live in?
A Changing World?
But we may also reasonably be hopeful that things will change. The story of Ford and the GSIA suggests that economics requires a hospitable environment to gain so much power over the shaping of our institutions and the cultivation of our selves. New forms of business may ally with new ways of knowing that are not so tied to the detached, clinical precision required to formulate acceptable kill ratios and bombing runs. Legitimacy may be sought not in techniques associated with the glory of having won wars, but rather in skills that allow businesses to make a clean break with the discredited strategies of pre-financial crisis capitalism. Had the Second World War not followed so closely on the heels of the Great Depression, a similar break might have reshaped the capitalism (and academia) of the 1950s.
There is already some evidence that this is happening. Traditional MBAs may be waning in their dominance as the salary boost they confer on graduates drops, as their efficacy comes under scrutiny, and as business schools begin to make space for social entrepreneurship, driven by student demand. Partly thanks to an emphasis on soft skills such as “creativity” within the Silicon Valley -based tech industry, some (including pillars of business journalism such as Bloomberg and the Wall Street Journal) are starting to question whether design schools, with their focus on open-ended problem-finding and innovation, will start to replace business institutes created in the image of the GSIA and Chicago schools. Of course, academic institutions are still valuable resources for those wanting to acquire these newly-legitimate skills; but as notorious examples of tech enterprises started by university dropouts such as Facebook illustrate, academia – and academic research – no longer has a monopoly on legitimacy.
If we are worried about the power that an academic discipline has so far wielded in its shaping of our common world, we should probably be glad of this development. But we should not be too sanguine. These developments are, for the moment, localised and may be counterbalanced by the continuing dominance – and the continued export – of old models to new places. Creative capitalism has taken root in California and higher education is changing along with it at Stanford, but through Massive Open Online Courses, California is directly exporting educational programmes focussed on a narrow curriculum (so far MOOC platforms are dominated by courses in mathematics, engineering and computer science) to developing-world countries.
Behind one of the pioneers of these platforms, Udacity, is the Ford Foundation of the twenty-first century: Google. Udacity is run by Sebastian Thrun, Google’s Vice President and founder of the corporation’s secret research wing, the Google X Lab.2 It is part-funded by Google. While Udacity may not be cultivating liars through its courses, we should probably be asking what kind of worldview the technical knowledge it promotes gives rise to, and what kind of people and institutions are shaped by this knowledge. It seems fitting that Stanford was one of the higher education institutions to be shaped most comprehensively by the Cold War. In the near future we may have stories to tell that are much more worrying than tales of mendacious business majors lying to make a quick Euro.
- In these experiments participants sat in front of a screen on which either a blue or a green circle would periodically flash up. The participant (the ‘sender’) would then communicate the colour of the circle to another party (the ‘receiver’) unable to see the screen. If the sender claimed that a green circle was on the screen, he or she would receive €15; otherwise the reward would only be €14. The receiver was given €10 regardless of the circle’s colour or the sender’s honesty. Participants’ responses when a blue circle flashed on the screen – did they lie to gain a Euro? – were used to determine whether their motivation to maximise profit trumped a preference for truth.
- Intriguingly, in 2009 Joel M. Podolny, the former business school professor I referred to earlier, moved to become the Dean of Apple’s new higher education venture, Apple University.