Do Business Schools Incubate Criminals?

Published on naked capitalism, by Yves Smith, July 18, 2012.

Luigi Zinglaes, who teaches at the University of Chicago’s business school, had an op-ed in Bloomberg provocatively titled “Do Business Schools Incubate Criminals?” He argues that business schools are “partly to blame” for the decline in ethical standards in the business world, and urges that ethics not be taught as a separate course by lightweight profs, but integrated into all courses.  

This piece is so backwards I don’t quite know where to begin. It’s telling that it blames former McKinsey partner, now convicted insider traders Rajat Gupta’s and Anil Kumar’s crimes on the failure get ethical training in business school. I’m not making this up: “Where did Gupta, Kumar and others get the idea that this kind of behavior might be OK? Most business schools do offer ethics classes” but contends they are unserious. No other possible explanation is explored. Gee, they both went to the Indian Institute of Technology. Why isn’t their education at a more formative stage under scrutiny as well? … //

… A lot of employers in finance and business look for “hunger” and the version mathbabe described, the desperate fear, is particularly attractive. So to be competitive, job seekers have to at least credibly feign that sort of predatory aggression. And to keep their job, they have to operate in that manner. So the flaw of Zingales’ argument is that the students are responding to the character attributes sought in many of the most prestigious employers. And given how much it costs to go to school these days, business school students and many college students can’t afford not to be mercenary.

The larger manifestations of this hungry behavior in the midst of abundance are undermining the foundations of commerce and the rule of law. Every week we see new evidence of rampant fraud, as well as continuing unwillingness of banks and other large companies to sacrifice a little bit of profit to do the right thing (Exhibit Number One is the refusal of mortgage servicers to do principal mods). As trust weakens, the cost of commerce rises: more time on due diligence, more extensive and elaborate negotiations and contracts, more litigation. And the resulting uncertainty will deter some customers from using certain services and products (this is not theoretical; quite a few readers have said they would not buy a house using a mortgages because servicers can abuse them and it’s well nigh impossible to get recourse).

Animals in social species seem to have a hard wired sense of fairness. While members often use ruses and deception, others will punish cheaters, even when it involves effort and risk with no apparent gain. So as depressing as current conditions are, many may assume that rather than have our culture continue to progress along Ferengist lines, the pendulum will swing the other way, just as the McCarthy era was followed by the 1960s. But extreme stress conditions can produce a complete breakdown in social structures. A warning from Joseph Tainter’s Collapse:

  • The Ik are a people of northern Uganda who live at what must surely be the extreme of deprivation and disaster. A largely hunting and gathering people who have in recent times practiced some crop planting, the Ik are not classifiable as a complex society in the sense of Chapter 2. They are, nonetheless, a morbidly fascinating case of collapse in which a former, low level of social complexity has essentially disappeared. Due to drought and disruption by national boundaries of the traditional cycle of movement, the Ik live in such a food- and water-scarce environment that there is absolutely no advantage to reciprocity and social sharing. The Ik, in consequence, display almost nothing of what could be considered societal organization. They are so highly fragmented that most activities, especially subsistence, are pursued individually. Each Ik will spend days or weeks on his or her own, searching for food and water. Sharing is virtually nonexistent. Two siblings or other kin can live side-by-side, one dying of starvation and the other well nourished, without the latter giving the slightest assistance to the other. The family as a social unit has become dysfunctional. Even conjugal pairs don’t form a cooperative unit except for a few specific purposes. Their motivation for marriage or cohabitation is that one person can’t build a house alone. The members of a conjugal pair forage alone, and do not share food. Indeed, their foraging is so independent that if both members happen to be at their residence together it is by accident.
  • Each conjugal compound is stockaded against the others. Several compounds together form a village, but this is a largely meaningless occurrence. Villages have no political functions or organization, not even a central meeting place.
  • Children are minimally cared for by their mothers until age three, and then are put out to fend for themselves. This separation is absolute. By age three they are expected to find their own food and shelter, and those that survive do provide for themselves. Children band into age-sets for protection, since adults will steal a child’s food whenever possible. No food sharing occurs within an age-set. Groups of children will forage in agricultural fields, which scares off birds and baboons. This is often given as the reason for having children.
  • Although little is known about how the Ik got to their present situation, there are some indications of former organizational patterns. They possess clan names, although today these have no structural significance. They live in villages, but these no longer have any political meaning. The traditional authority structure of family, lineage, and clan leaders has been progressively weakened. It appears that a former level of organization has simply been abandoned by the Ik as unprofitable and unsuitable in their present distress (Turnbull 1978)…
  • Faced with such an array of imposing problems, and constantly bombarded with media attention to these and other dilemmas, people are naturally concerned. For reasons that are more or less rational, a respectable segment of the population of Western industrial societies fears that one or several of these factors will bring a breakdown and a new dark age. Only a veneer of complexity lies between us and the primordial chaos, it is thought, the Hobbesian war-of-all-against-all. A considerable level of political activity results from such fears, and both national priorities and international policies are to a significant degree influenced by this popular concern. Some people store food or dig fallout shelters, in expectation of the failure of a political process to resolve the situation. Others go to greater lengths, stockpiling weapons and conducting paramilitary training, even engaging in military games, in anticipation of the day when the ghost of Hobbes emerges, when we are all reduced to the conditions of the Ik.

The irony, of course, is that while the misery of the Ik is a rare outcome, the fear of it reduces cooperation and thus makes that type of result more likely. (full text).


Occupy the Economy by Richard Wolff: Book Review, on Worker’s Action;

The Financial Times also is thinking short for paywall journals.

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