A milestone in the progress of management education in India is the Report of the IIM Review Committee. The fact that the last review took place at least 15 years ago and the eminence of the committee itself add to its lustre. Among its recommendations reported in the press are the restoration to centre stage of the main course and the strengthening of academic research. These are farsighted suggestions and hopefully will be pursued wholeheartedly at IIMs. Nevertheless, it is not known whether the report has said much about the contents of the course itself. For the uninitiated, though the latter is widely referred to as the MBA, or master’s in business administration, the IIMs themselves see it as the postgraduate diploma in management. “Diploma”, as only universities in India are entitled to offer degrees, and “management”, as it was astutely assessed in the India of the early 1960s that management education encompassed more than just the prospects of business.
Photograph: Madhu Kapparath / Mint
There is some reason to be concerned that since then, the MBA has metamorphosed into purveying what the management consultant John Kay has termed ABM, short for the American Business Model. In his The Truth About Markets, Kay identified four features of the ABM, namely, the premise that self-interest rules, the adherence to market fundamentalism, the recommendation of a minimal state and the desirability of low taxation.
The meteoric rise of the ABM is related to the implosion of the Soviet Union. With the latter event also went the idea of central planning without markets. The history of European communism permanently erased the hubris that you can build economies without markets. Indeed, in his reply to the “anti-globalizers”, Amartya Sen has pointed out that no country has attained sustained prosperity without the extensive use of markets. However, from this recognition to the philosophy of the ABM is actually a leap of faith. Sen has also pointed out that there is no such thing as “the market outcome”, very likely implying that markets are embedded in a larger matrix of social, political and even economic — for economic relations extend beyond the mere exchange of goods and services that markets facilitate — institutions. To make sense of this, we need only to observe that widely differing countries ranging from the US to India are considered “market economies”.
The ABM has taken a severe beating with the meltdown, which has punctured the myth of the savvy, all-seeing financial manager. It was Wall Street that had bellowed the superiority of the model, pressurizing the American state to prise open foreign markets while resisting any attempt at regulation of its own activities. Now, American capitalism has had to be saved by the very agency that its votaries had repeatedly sneered at, namely, government intervention.
In the wake of the meltdown has come a young Barack Obama, arguing for an end to “unforgiving capitalism”, speaking of compassion and promising even more government intervention. However, the ABM may be down but not out, as the Democrats have in the past aggressively pushed Wall Street on the rest of the world. In any case, “change has come to America” for sure, and those in charge of management education in India must clearly address the relation of the MBA to the ABM.
I propose two ingredients to render more credible the MBA offered in India. First, it should be historically rooted. Second, it must involve a far greater understanding of the economy as it is, rather than as constructed by the ABM.
By “historically rooted”, I mean our managers must be educated enough to see that effective management is not just a matter of reaching for the contents of a bag of timeless verities, if not fads. The approach in India today to management ideas emanating from the West appears no different from that adopted to modernity more generally about 50 years ago. That is, it is mostly one of uncritical absorption.
A greater sense of history would help Indian students see that the rise of the financial sector and management consultancy in the US is not some sign of a superior economy, but of the decline in competitiveness of manufacturing there. US capital now needs to move elsewhere. To miss this development, and to see finance as the core of a management education and consulting as the most challenging destination after school, is unfortunate.
Now for the second ingredient. Management education must be built on the far firmer foundation of an understanding of the economy than is standard in the MBA today. It must help the young see that “the economy is not a firm”. In an article published, somewhat cheekily, in the Harvard Business Review, Paul Krugman has pointed out why this is so, and, therefore, why when it comes to the economy, the CEO’s vision could be disastrous. He has demonstrated this by reference to the idea of “downsizing”, ever so fashionable in American business circles in the mid-1990s.
The fact is that if all firms were seizing upon the promised opportunity to downsize at the same time, it would only deflate the economy. This dispels one of the maxims that comes closest to the philosophy of the ABM — “what is good for General Motors is good for America”.
IIMs are unique, even by international standards, in including a large number of compulsory courses in economics in their postgraduate programme. IIM Kozhikode, in fact, once had five and still has four. But over time, the MBA in India, in thrall of the ABM, has discounted the importance of economics. In the late 1990s, the editor in Bangalore of a leading national business daily had held up as a symbol of globalization the fact that a prestigious Indian management institution had dumped the course on the Indian economy. More’s the pity for India’s aspiring managers.
Pulapre Balakrishnan is an independent economist. His writings can be accessed at www.pulaprebalakrishnan.in. Comment at firstname.lastname@example.org