How Business Schools Came to Be the Way They Are

If, as still seems possible, Mitt Romney becomes the nominee of the Republican Party, then the US presidential campaign in 2012 will consist of a competition between two men with very different preparations for the job: one, a political organizer who found a home in law schools; the other, a private equity investor with close ties to a business school (Romney has a law degree as well.) In that case, The Roots, Rituals, and Rhetorics of Change: North American Business Schools after the Second World War, by Mie Augier and James G. March, may get some of the attention it deserves.

It may not show up on best books lists – not even the one I wrote for Strategy + Business – but Roots, Rituals and Rhetorics (for which I have adopted the useful mental shorthand of the “three Rs” of change), was the most unexpectedly illuminating book I read this year.  Not everybody is as interested as I am in how our ideas about business and economics originate, and how they are absorbed, elaborated and changed. But for fans of such things, this book is nearly impossible to beat.

Few readers at the beginning of the second decade of the twenty-first century will be surprised by Augier and March’s broad conclusions about how the social organization of business has changed since 1945.

A managerial class came into being in those fifty years. What had been relatively open occupational category before the war, drawing from the ranks of workers, owners and college grads, gradually became the province of the MBA.

A new language emerged.  Spreadsheets became the standard form by which MBAs exchanged opinions; “properly aligned incentives,” their desiderata.  Managers spoke the new lingo to one another, confident that they would be understood.  There was less technical language for the general public.

Business schools’ faculties became the gatekeepers and custodians of managerial rhetoric, first through the students whom they admitted, then through the curricula they devised; finally through the support they provided to executives, through consulting, mentoring, research, and their links to the press.

Business schools assumed the task of producing fundamental knowledge relevant to management, a responsibility they shared with departments of economics.   As repositories of a store of know-how indispensable to practice, management schools came to be seen as having joined the worlds of engineering, medicine, law, science, architecture, and theology.

What’s riveting about the book is the historical narrative by which its authors reach those conclusions. They turn it into a story, which they tell in graceful, often witty, prose.  March, 83, lived through much of it: a Stanford University professor since 1970, a sociologist, he is a veteran of the Nobel nomination league for his writings on decision-making and organizations. Augier, of the Naval Post Graduate School, nearly fifty years March’s junior, is an especially original historian of economic ideas.  As essentially the account of a participant-observer, the book is a welcome complement to Philip Mirowski’s  Machine Dreams: Economics Becomes a Cyborg Science, another version of more or less the same story. Roots, Rituals and Rhetorics’ jacket image, a sculpture of a sleeping slave by Michelangelo, is presumably a sly rejoinder to the abstract bronze robot on the cover of Machine Dreams.

Augier and March begin their account with a chapter on Abraham Flexner.  It was Flexner’s 1910 report on medical education in the United States and Canada, Bulletin Number Four, from the Carnegie Foundation, that guided foundations’ investment in medical schools for a crucial twenty years after it appeared. The US was suffering from “a century of overproduction of cheap doctors,” Flexner wrote.  Universities, not commercial establishments, should train physicians. Fundamental knowledge of science and medicine, not apprenticeships, should be the basis for their education. Professionalism, meaning peer review, should be the rule.

It worked. Within a decade of Flexner’s prescription, the number of medical schools declined dramatically; the quality of students, faculty and instruction in the remaining schools substantially improved; and science, biochemistry in particular, became pervasive in the curriculum. Not surprisingly, in the 1950s and ’60s, the Flexner Report became a model for foundations wishing to reshape the business schools.

The authors move on to a chapter about the University of Chicago, where they say Robert Hutchins, president from 1929 until 1951, played a key role in galvanizing the spirit of change.  Hutchins supported the highly interdisciplinary Cowles Commission, hired Friedrich von Hayek, Milton Friedman and Aaron Director.  And even though Hutchins considered business schools second-rate intellectual enterprises, the Chicago Graduate School of Business under Allen Wallis, George Shultz, James Lorie and George Stigler came to represent – though only after Hutchins left – precisely the sort of research-oriented curriculum and interdisciplinary faculty that he had championed in other corners of the university.

It was RAND Corp. that provided the most stimulating incubator of change in the years after World War Two. An acronym for Research And Development, RAND was a private facility originally chartered by the US Air Force to explore ways of organizing scientific and technological knowledge for military purposes.  Its first Pentagon boss was Gen. Curtis LeMay.  But RAND’s Southern California headquarters, across the street from the Santa Monica pier, quickly grew into a kind of universal think-tank, spinning out important work on strategic thinking, decision making, organization theory and economics of all sorts, much of which found its way into business school curricula.   “Cleverness led inexorably to excess,” the authors write. RAND’s cocksure enthusiasm for intelligence eventually was implicated in both the misadventure of Vietnam and the financial collapses of the first decade of the twenty-first century, they say. But its influence also led to the creation of successful and durable  programs, such as the Advanced Research  Projects Agency (ARPA) and the Office of Net Assessment in the Defense Department.

None of it would have happened the way it did without the Ford Foundation.  Chartered in 1936, the philanthropy in the 1950s supported a number of liberal causes, among them public broadcasting in the United States, nation-building in Asia and support for the social and behavioral sciences.  California attorney H. Rowland Gaither, who eventually would become the foundation’s head, left RAND Corp. to set up a wildly ambitious web of programs, especially in view of Se. Joseph McCarthy’s enthusiasm for attacking social science in general and foundations in particular.  Business education turned out to be “a safe haven,” a “philanthropoid’s  dream,” in the words of one Ford functionary.

And so it was that the Graduate School of Industrial Administration at the Carnegie Institute of Technology in Pittsburgh – a small, unranked, and unaccredited school at a second-tier engineering institute, as the authors put it – became a poster- child of the new management education.  That story is too interesting to tell here, but what went on in the old factory building that Andrew Carnegie had built on the side of a hill, so that it could be used as a gravity-powered assembly line in case the education business didn’t work out, was an explosive success, assembling a collection of faculty members (including March) whose influence on both economics and management education was far flung.  After that, everybody got into the act, led by the Wharton School of the University of Pennsylvania, the University of Chicago, Northwestern University, and Stanford University.

And of course there was Harvard, which, as the citadel of teaching by case methods, routinely hedged its bets. Its business school had long maintained a foot in the business of knowledge production.  Historian Alfred Chandler might well have shared a Nobel Prize, had he lived a year or two longer. Instead, the prize for research on governance, a deft one, went to Elinor Ostrom, of Indiana University, and Oliver Williamson, of the University of California at Berkeley. Starting in the late ’70s,  however,  Harvard Business School dean John McArthur made a decisive break, promoting from within Michael Porter, in strategy; and hiring a trio of key outsiders: Michael Jensen, from the University of Rochester, in organization; Robert C. Merton, from the Massachusetts Institute of Technology, in finance; and Robert Kaplan, from Carnegie Mellon University, in accounting;. These were serious researchers at the very top of their fields, producers of public knowledge, as opposed to a stereotypical old guard at Harvard, for whom teaching was paramount.

Roots, Rituals and Rhetorics doesn’t concern itself with the content of the doctrines that were propagated by these and other thinkers. There is nothing about income distribution, the global financial system, nation-building and the like. So much heavy lifting lies ahead for other historians of thought.  There is, after all, a distinct possibility that the attempt to improve the intellectual environment of the business schools overshot and produced something else instead. In any event, the book ends on a note of disappointment:

As the scholars and policy makers who grew up during the Great Depression and the Second World War and launched their careers in the 1950s and 1960s were gradually removed from the scene, they were replaced by individuals who grew up in different times and were imbued with different, less academic, and more self-interest-oriented perspectives. 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.

But, briefly, there was a Camelot.

Having embarked on the reform of management education, however, this is no time to stop. Business schools were part – only a part – of a well-intentioned effort to take apart and examine the workings of North American society in the ’50s and ’60s.  Those same economic architects and engineers must now assist in putting it back together again. What’s the Carnegie Foundation, or whatever may be its nearest equivalent today, doing about that now? Significantly, it seems to me, Augier and March prominently acknowledge the John and Cynthia Reed Foundation, a creation of the former Citicorp CEO and present chairman of the MIT Corporation.

There is plenty of juice in this orange. I don’t see how you can know much of anything about, say, the rise of management consulting, without Augier and March.  The Roots, Rituals, and Rhetorics of Change is an indispensable point of entry to one of the most important stories of our time.

DAVID WARSH covered economics for The Boston Globe for  22 years and, earlier, reported on business for The Wall Street Journal and Forbes. He publishes Economic Principals.com, an  independent weekly commentary on the production and distribution of economic ideas, where this article first appeared. He can be reached at warsh@economicprincipals.com


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