Donald Trump vs. The Mandarins

Email Print
FacebookTwitterShare

For
a thousand years, China was administered by Mandarins. These bureaucrats
swore loyalty to the emperor. Then they were granted enormous control
over the entire society. From the days of the Pharaohs until the
twentieth century, the Mandarin class was the world’s most powerful
bureaucracy.

To
enter the ranks of the Mandarin class, a young man had to pass a
rigorous written examination. The examination covered Chinese classical
poetry. What did a knowledge of Chinese poetry have to do with ruling
a vast empire? Directly, very little. Indirectly, a great deal.

A
student needed five things to pass the exam: (1) advanced literacy;
(2) enough leisure to study for the exam; (3) a very high IQ; (4)
a teacher; (5) the ability to endure intense boredom for many years
under a nearly absolute master.

The
teacher was a man who had failed to pass the exam.

Had
he passed, he would not have become a teacher.

This
system, or something very close to it, has very nearly conquered
America. At the gates, one man now stands as the representative
agent of the resistance: Donald Trump.

"YOU’RE
FIRED!"

The
recent failure of a team of formally educated hot shots on "The
Apprentice" to defeat the street-wise team points to a major
problem in this country, but also its solution.

The
problem: Our political representatives have accepted the self-serving
opinion of institutionally self-certified academics in non-profit
institutions, namely, that this special-interest group has the moral
right to determine who gets certified academically and who doesn’t.
Legislators have granted them this legal right by way of college-accrediting
agencies, which then determine what constitutes a legal degree-granting
institution.

The
solution: The free market. What saves us from complete control by
these mostly tax-funded, Ph.D.-holding bureaucrats and their certified
disciples is the right of consumers to spend their money almost
any way they please. Consumers, in paying for what they want, irrespective
of the educational background of producers, keep the flow of funds
flowing to street-smart entrepreneurs.

In
every field, the Mandarin class has attempted to control access
to power. In some fields, they have been highly successful: medicine,
law, education, and the professions in general. The word "profession"
no longer means "profession of faith." It means "certified
by state-licensed bureaucrats."

The
Mandarins have been least successful in areas of the economy that
are the most dependent on mass marketing. But they have done their
best to impose the functional equivalent of Chinese poetry on American
business: the MBA degree.

THE
MBA

Maybe
you aren’t thinking of earning an MBA degree. This report will still
be useful to you. After reading it, you may come to the conclusion
that the American educational system is nutty. The higher up we
look, the nuttier it gets. I hope so, anyway.

Earning
a masters in business administration degree is a very expensive
project. It is extremely high risk. You may not graduate. If you
do graduate, the degree probably will not earn extra money for you.

Why
not? Because there are too many people with MBA’s, and tens of thousands
of others are on the way. Supply and demand are working against
the market value of the MBA. First, there is an MBA glut, meaning
"excess supply at existing high prices." Second, the information
imparted by these programs is not useful in generating consumer-satisfying
output, which is the basis of higher wages. This is the other side
of the glut: decreasing demand from the buyers of final output:
consumers.

Large
corporations hire hundreds of MBA’s, yet these corporations refuse
to abandon customer-alienating practices. Like dinosaurs caught
in the tar pits, they seem helpless in the face of competition from
Chinese industries staffed by the sons and daughters of peasants.
They seem blind to the implications of price competition of the
Internet. They seek protection from the government rather than seeking
the support of their customers.

It
is well-known that small businesses generate more new jobs than
large businesses do. There are not many MBA’s running small and
medium-sized businesses.

Don’t
these bright MBA-holding experts understand that the basis of profitability
is customer satisfaction? No, they don’t. They got where they are
by performing in a controlled environment that was designed by bureaucrats
who personally have never met a payroll, who have sent their entire
lives writing term papers that nobody besides other bureaucrats
read.

THOSE
WHO CAN’T, TEACH

Consider
the faculty of a business school. It is accredited by an organization
made up of PhD-holding non-businessmen, or, more likely, anti-businessmen.
The decision to accredit or not accredit is backed up by the Federal
government and the states, which have granted a monopoly to the
regional accrediting agencies to license institutions of higher
education.

These
accrediting agencies are unknown to the public. They operate in
near-secrecy, yet they control entry into a $270 billion a year
industry: American higher education.

They
have established a rule that to be a graduate degree-granting institution,
most of the faculty members must possess Ph.D. degrees. To earn
a Ph.D. takes several years writing term papers, passing exams,
and paying tuition and expenses. I speak from personal experience.

So,
when a business school goes looking for someone to join the faculty,
it does not look to business. It does not approach retired businessmen
who oversaw the creation of billions of dollars of value for consumers.
Businessmen were too busy creating value to have had time to earn
a Ph.D. They are not eligible.

Side
note on law schools: The most prestigious journal for American
law is the "Harvard Law Review." To get published there
is to make your mark. You become a somebody. The Harvard Law
Review is edited by third-year law students at the Harvard
Law School. Not only are they not lawyers who have passed the
bar, they have yet to graduate. A bunch of twenty-somethings determine
the criteria for shaping legal opinion for the nation, and then
impose these criteria. These kids announce to America’s legal
theorists:

"Shape
up or ship out." The theorists shape up.

Nutty,
you say? Of course it’s nutty. It’s higher education in America.
This is not the free market at work. This is a state-created monopoly
at work — the largest, most influential monopoly on earth.

This
has all been done behind the scenes. I am aware of no book on the
history of the accreditation agencies, with their links back to
Rockefeller’s General Education Board (1903), itself deliberately
shrouded in anonymity by its creator.

So,
when you go off to a business school to become a certified expert
in business, you place yourself at the mercy of a group of bureaucratic
monopolists who have never run a business. (A partial exception
is the faculty at the University of Dallas, which has produced thousands
of MBA’s. Business school faculty members must have a Ph.D. and
also have real-world management experience.)

If
they could run a business, they would be out there making piles
of money. But they cannot run a business, so they get paid to certify
aspiring businessmen as having what it takes. What it takes to do
what? Write term papers.

Then
why attend a business school? One word: Rolodex. You will meet members
of the class above you, your own class, and the class behind you.
You will be given an opportunity to "network" with them.
This is the opinion of a old friend of mine, a graduate of the Harvard
Business School, whose start-up company made it to the New York
Stock Exchange . . . and then died.

Problem:
If you are not attending one of a handful of very expensive business
schools, your network’s connections won’t be worth much. You will
be like a line of drunks, arm in arm, helping to hold up each other.
These top schools are Harvard, Wharton (the first one), Stanford,
and Chicago.

PROF.
PFEFFER BLOWS THE WHISTLE

Jeffrey
Pfeffer teaches in Stanford’s business school. In 2002, he released
the conclusions of his study of the economic payoff of earning an
MBA at any of the also-ran business schools. Here is a summary of
what he found.

In
articles published in Business 2.0, National Post, the
Chicago Sun-Times, and the Chronicle of Higher Education,
Stanford Business School Professor Jeffrey Pfeffer stated that
you may be just as successful in your career if you do a two or
three week boot camp on business basics instead of a two-year
MBA.

Professor
Pfeffer analyzed 40 years of research on the economic value of
an MBA degree. He concluded that it does not guarantee a successful
career or a higher salary. His research was published in the Fall
2002 issue of the Academy of Management Learning and Education.

How
many aspiring business school applicants are aware of this? Not
many. The business schools’ faculties have no incentive to spread
the word. Their livelihood depends on widespread ignorance about
this study. After all, they are ill-equipped to compete in the world
of business.

He
also said, "Little of what is taught to students in business
school prepares them for the corporate workplace. You have to
question what goes on in the two years it takes to get an MBA,
if someone can virtually be equivalent in two or three weeks.
What that suggests to me is that if you take a smart person, and
give them a relatively short course, a mini-MBA, if you will,
they basically do as well as the MBAs."

On
what evidence does his startling conclusion rest? On evidence supplied
by the free market. He is a wise scholar. He let profit-seeking
organizations gather the evidence. Then he studied it.

Dr.
Pfeffer said he has long been skeptical of the value of an MBA.
He became convinced after a group of consulting firms and investment
banks did their own research comparing the performance of business
school graduates to those trained in two- or three-week programs
teaching new employee’s business basics. The internal studies
found the non-MBAs did no worse, and in some cases better, than
their peers with a business degree. The studies also found more
education did not result in higher salaries. For example, a study
of consultants at McKinsey & Company who had been on the job
for one, three and seven years found that at all three points,
employees without an MBA were as successful as those with one.

I
first read about this in an online article published by the Chicago
Sun-Times (July 5, 2002). I saved it as a "Favorite,"
and the marvelous free desktop search engine distributed by Copernic
let me find it. (I had misfiled it.) Today, that
article is available only from the website of a distance-learning
college
.

Prof.
Pfeffer of Stanford recently said, "Obviously, if you get
admitted to Harvard or Stanford or another elite school, the very
fact of your admission is going to increase your worth in the
job market. Employers who hire brand-name MBA graduates do so
on the basis of the quality of the student body at the school,
not whether the students have acquired specific skills or knowledge
with their degrees."

The
implication of this statement is that you can capture for yourself
much of the value of an MBA degree from an elite school by simply
applying to that school and getting accepted. Disclosing on your
resume that you were accepted at Harvard or another elite business
school can help you prove your case that you are just as capable
as someone who graduated from that school.

Best-selling
author and Stanford MBA Seth Godin suggested this strategy in
his article in Business 2.0.

Now
here’s a money-saving strategy for anyone smart enough to get accepted!

An
elite school will accept less than 25% of those who apply. For
example Harvard and Wharton accept only about 10% of those who
apply to their MBA programs. The idea of course, is to apply to
MBA programs that have a very good reputation or ranking and are
very selective about who they accept.

SURROGATES
FOR ILLEGAL TESTING

Businesses
want to hire the best and the brightest. Why? Because, in the long
run, brainpower produces results.

Because
of the Federal government, it is illegal to test for brains directly.
Why? Because this has been found to eliminate too many applicants
from members of certain protected racial minorities. The Equal Employment
Opportunities Commission will file a lawsuit against companies that
screen by tests, unless it can be shown that the test was inherently
related to a specific job.

However,
if a company screens by a business school degree, then it’s OK to
restrict hiring for jobs in general. The testing is done by an agency
that has been accredited by a government-created monopoly.

So,
large companies hire MBA-holders from the best schools, which admit
the brightest students. They are not hiring the information that
was imparted by the MBA program. They are hiring three things: (1)
IQ, (2) Rolodex; (3) the ability to endure intense boredom and survive.
They are hiring Mandarins.

The
question is: Will these Mandarins be able to compete in a world
that does not swear loyalty to the emperor, but must bow and scrape
to the consumer? Is the ability to conform to the rigors of an MBA
curriculum the same as the ability to forecast accurately future
consumer demand, and then devise a cost-effective way to meet that
demand?

Bill
Gates and Michael Dell, both college drop-outs, don’t think so.
They are not Mandarins. They stand at the gates alongside Trump.
Plus . . . they have better barbers.

CONCLUSION

There
is a disconnect in the heart of American business management: the
business management school. This was Prof. Pfeffer’s conclusion
in his original article. The business schools imitated the arts
and science departments.

In
implicitly or explicitly rejecting the so-called trade-school
model, business schools gained respectability and approval on
their campuses by conforming to the norms and behaviors of arts
and sciences departments.

If
there is a kiss of death for entrepreneurship, it is the outlook
of the liberal arts departments of an American university. This
has lowered the market value of an MBA from all but the most prestigious
schools.

For
the most part, there is scant evidence that the MBA credential,
particularly from non-elite schools, or the grades earned in business
courses — a measure of the mastery of the material —
are related to either salary or the attainment of higher level
positions in organizations. These data, at a minimum, suggest
that the training or education component of business education
is only loosely coupled to the world of managing organizations.

My
conclusion: It is better to get on-the-job training in a mid-sized
business noted for its entrepreneurship than it is to earn an MBA.
It is better to come under the influence of a manager who has prospered
in a growing company than a professor of business administration.

February
26, 2005

Gary
North [send him mail] is the
author of Mises
on Money
. Visit http://www.freebooks.com.

Gary
North Archives

Email Print
FacebookTwitterShare
  • LRC Blog

  • LRC Podcasts