The World That We Created

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Thursday, August 29, 2019
By David Bach
Photo by iStock/wildpixel
Business schools helped shape the world order that is now under siege from global tensions and rising populist sentiments. What can they do to save it?

During the past 40 years, business schools have done phenomenally well. They have spread to the far corners of the world—and in the process, according to a 2014 article in Forbes, they have made the MBA the most sought-after degree on the planet. They not only have thrived in, but they have helped create, a rules- and exchange-based global order. Because of its emphasis on trade,foreign direct investment, and globalization, political scientists often refer to this paradigm as the “liberal international order.”

Over the past generation, this paradigm has helped lift a billion people out of poverty—but it also has increased economic disparity and contributed to the worsening environmental crisis. No wonder, then, that it is currently under threat, as G. John Ikenberry makes clear in his article “The end of liberal international order?” in the January 2018 edition of International Affairs. I argue that, because business schools have had such an outsized role in shaping this order, they have a responsibility for sustaining it. Only if they champion a model of inclusive and sustainable growth will global tensions ease and trust start to return.

It’s essential to trace how we got here. While the number of business schools has increased steadily over the past century, the number of AACSB-accredited schools has more than quadrupled since the late 1970s, with the biggest jump coming after the collapse of communism and the rise of market-oriented reforms in the 1990s. This period saw top business schools emerge in Asia, while existing programs in Europe and Latin America converged on a style of management education modeled after U.S. programs. Most recently, this trend has reshaped management education in Africa and the Middle East. As a result, the percentage of AACSB-accredited schools that are based outside of North America has grown from just under 4 percent in 2000 to just over 34 percent today.

Even as the U.S. style of management education spread across the globe, three other pillars of the U.S. political economy gained international sway (see “Growth of Liberalism” below). Between 1980 and 2000, the number of democracies more than doubled, with the biggest growth occurring between 1990 and 1995, when countries in Latin America and Eastern Europe embraced popular rule. In parallel, between 1990 and 2000, many countries slashed restrictions on cross-border capital flows and ushered in a new era of global finance. Finally, proceeds from the privatization of formerly state-owned enterprises increased sevenfold between 1985 and 2000.

As more countries integrated into the global economy, demand for U.S.-style management education surged, completing the cycle. This led first to more international students heading to the U.S. for study, and then to the establishment of high-quality local programs.

Growth of Liberalism chart

Not only did management education benefit from the systemic changes to the world order, business schools also helped catalyze and steer them. For example, research at top business schools provided some of the academic foundation for the famous “Washington Consensus,” which outlined the expected efficiency and welfare gains from trade, investment, and financial liberalization on the one hand and privatization and pro-market reforms on the other.

Similarly, many of the consultants, bankers, investors, entrepreneurs, and CEOs who seized the resulting opportunities had passed through the halls of the world’s best-known business schools, where their courses extolled the virtues of globalization, free trade, and shareholder value. As these principles took hold throughout the global economy, the majority of humanity began to enjoy improved livelihoods.

This is the world that business schools helped create. And yet, the pillars of that world are increasingly in peril.

Booming Backlash

Today, the spread of democracy has stalled, opposition to globalization has surged, and trust in institutions has collapsed. “Democracy’s basic tenets—including guarantees of free and fair elections, the rights of minorities, freedom of the press, and the rule of law—are under siege around the world,” according to Michael J. Abramowitz, president of Freedom House, which measures the extent of political rights and civil liberties across the globe.

In January 2019, the organization reported that freedom has declined globally for the 13th year in a row. The organization finds two reasons for this decline: “the retreat of the United States as both a champion and an exemplar of democracy” and the growing influence of nondemocratic countries such as China, particularly among developing nations.

At the Yale School of Management, we gathered our own evidence when we surveyed more than 3,000 MBA students from the 30 schools of the Global Network for Advanced Management (GNAM), of which we are a member. The majority of students studying in South Africa, Nigeria, Ghana, Kenya, Indonesia, Canada, Australia, Japan, and China believe that developing countries and emerging markets are looking more to China than to the U.S. for guidance on how to organize the economy and society.

Separately, the World Values Survey—a global organization of social scientists who study the impact of changing values—recently investigated reactions to the statement that “it is essential to live in a democracy.” Across a set of mature democracies, fewer than 30 percent of respondents born in the 1980s agreed with the statement, while more than 70 percent born in the 1930s did. Not surprisingly, yet disconcertingly, in the GNAM study, the majority of students in Europe and the U.S. believe there will be fewer democracies in the future.

China and the U.S. are also on opposite ends of the debate over globalization. In the 2017 Trust Barometer released by public relations firm Edelman, only 38 percent of Chinese respondents said they believed that “globalization is taking us in the wrong direction.” In contrast, at 59 percent, the United States has the fourth highest share of globalization skeptics, behind only the battered economies of Italy, France, and Spain. Moreover, the same study shows that across 30 leading global economies:

  • 47 percent agree that “we should not enter into free trade agreements because they hurt our country’s workers.”
  • 69 percent agree that “we need to prioritize the interests of our country over those of the rest of the world.”
  • 72 percent agree that “the government should protect our jobs and local industries, even if it means that our economy grows more slowly.”

I recently explored this issue in an online class I taught on the future of globalization. In it, MBA students from 21 GNAM schools met virtually to consider how nationalist backlashes could impact the global economy. They found a high correlation between support for globalization and the rate of change in the human development index (HDI), which combines indicators of a country’s education levels, economic performance, and population health. Notably, it was the change in HDI that mattered, not the absolute level. In countries where HDI growth had slowed or stagnated, people were quite skeptical of globalization. But in countries where HDI growth remained robust and the quality of life kept improving, support for globalization was strong, even if absolute levels of education, prosperity, and health were lower.

The U.S. and China are very much on opposite sides of this divide. While levels of human development in the U.S. are high, in parts of the country they are stagnating or declining, leading to growing anti-globalization sentiment. China’s overall HDI levels are much lower, but they’re steadily increasing, which fuels a much greater support for globalization. The trade war that has pitted the two countries against one another is in many ways a logical consequence of these diametrically opposed sentiments.

'An Implosion of Trust'

Just as support for globalization has declined in Europe and the U.S., so has overall confidence in institutions. In 2017, Richard Edelman called attention to “an implosion of trust” across developed economies. His company’s Trust Barometer found that more than two-thirds of surveyed countries were “distrusters,” defined as those in which fewer than half of the respondents “trust the mainstream institutions of business, government, media, and NGOs to do what is right.” Just a year before, barely half the respondents had been in that camp.

Edelman commented that trust “is now the deciding factor in whether a society can function. As trust in institutions erodes, the basic assumptions of fairness, shared values and equal opportunity traditionally upheld by ‘the system’ are no longer taken for granted. We observe deep disillusion on both the left and the right, who share opposition to globalization, innovation, deregulation, and multinational institutions.”

Indeed, the 2017 Edelman Trust Barometer indicated that 53 percent of the respondents from 30 countries believed that “the present system” was not working; 15 percent thought it was, and 32 percent were unsure.

Rejection of the status quo and a growing anxiety about the future have fueled a wave of populist revolts that have propelled anti-globalization and anti-elite leaders into power. Their policies and actions, in turn, have undermined liberal international institutions—including governmental bodies such as the European Union, intergovernmental entities such as the World Trade Organization, and multinational accords such as the North American Free Trade Agreement.

They also have weakened democracy, jeopardized the independence of the judiciary and the media, and channeled a growing wave of anti-immigrant sentiment. In Hungary, perhaps the most extreme case, these dynamics even drove the liberal Central European University—and its internationally accredited business school—out of the country.

A Dual Challenge

While many factors contribute to the backlash against globalization, a common underlying cause seems to be growing economic inequality. Demographer Branko Milanović of the City University of New York popularized the “elephant chart” that powerfully illustrates the disparities. It shows that the growing middle class in emerging markets has seen a substantial rise in real income, while people at the very top of the income distribution realize huge gains (see “The Inequality in the Elephant” below). In between, however, sits the middle class in Western countries. Those individuals not only have profited relatively little from globalization, they feel growing resentment toward the foreign workers and global elites who have benefited handsomely from outsourcing, free trade, and integrated capital markets.

Inequality in the Elephant chart

Even so, the elephant chart makes it clear that the vast majority of humanity enjoyed substantially increased real incomes between 1988 and 2008, a time that also saw the global spread of democracy, competitive markets, and cross-border capital flows. Because business schools around the world had been promoting the liberal Western values of free trade, corporate growth, and globalization, they and their graduates deserve some credit for this remarkable development. But by the same token, business schools bear some responsibility for the dramatic increase in inequality that has accompanied this aggregate growth in wealth.

In the U.S., for example, since the Reagan era of market-oriented reforms, income for the top 0.1 percent has grown more than 400 percent compared to barely 20 percent for the bottom 50 percent. In a 2017 article in the Quarterly Journal of Economics, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman explore just how uneven the gains have been (see “The Rise of the Rich” below). Between 1980 and 2010, the aggregate income share of the bottom 50 percent of earners dropped from 20 percent to just over 12 percent, while the top 1 percent grew their take from 11 percent to more than 20 percent.

The Rise of the Rich chart

But rapidly rising economic inequality, especially in advanced countries, has been only one byproduct of globalization. The deteriorating health of our planet is a second one. A May 15, 2019, article in The Economist noted that, “with its four-tiered smog warnings and lethal dumps of toxic waste, China has become Exhibit A for the environmental costs of economic development.” Just as business schools can claim some credit for helping lift more than a billion people out of poverty in emerging economies, they have to accept some of the blame for the toll this growth has taken on the environment. For instance, by teaching curricula that emphasize economic growth even at the expense of the environment, they have taught executives around the world to put profit over planet.

The dual challenge facing leaders today is how to generate inclusive growth that does not further imperil the environment. The former is necessary to combat the wave of populism that is undermining the rules- and exchange-based global order, while the latter is the key to our very survival.

The Role of Business Schools

Charging business schools with solving two of the most vexing global challenges is, of course, preposterous. However, precisely because elite business schools have benefited so much from globalization, and because the ideas taught in our classrooms have helped shape the world we live in today, we have a special responsibility to step up. Here are six interrelated steps that most business schools can take right now:

Engage diverse voices. Democracy requires diversity—of beliefs, backgrounds, and lived experiences. A particularly worrying trend in many U.S. universities is that conservative students are increasingly reluctant to speak out. At Yale, a 2017 survey found that 71 percent of conservative undergraduates—versus 24 percent of liberals—were uncomfortable expressing their political opinions in class.

At the same time, many students from underrepresented backgrounds say they are tired of carrying the burden of educating their privileged peers about what it means to be black, transgender, or Muslim. The public sphere thus shrinks, making it harder to reach consensus on the problems we face.

While business schools have sought to foster diversity through the admissions process, they also must create an inclusive environment in which meaningful exchange can happen. Shortly after the 2016 election, students at the ZucmanYale School of Management started organizing regular “Ask me anything!” sessions designed to amplify the voices of students who might be subject to prejudice. School leaders should foster such initiatives and ideally involve faculty and staff as well. Encouraging exchange in this manner can go a long way toward fostering an inclusive community and broadening the debate on key issues.

Expand management education. While more business schools are offering students opportunities to work on projects with students and faculty from other disciplines, the majority of the courses still take a “business-only” approach. This does a disservice to students, the world, and schools themselves. Hardly any of today’s challenges can be solved with the tools of business alone. Business schools that are part of major research universities should leverage the expertise of faculty in history, political science, literature, or law to provide students with a holistic perspective on how we got to this point and what solutions might look like.

At my home institution, we have sought to broaden the conversation with several thought-provoking sessions. An examination of the causes and consequences of income inequality was facilitated by a renowned political scientist. A discussion of the centrality of the First Amendment to the U.S. Constitution was hosted by the dean of Yale Law School. A primer on the history of race relations in the U.S. was led by an expert from the history department. In each case, the sessions included a focus on the role and responsibility of business.

Explore big issues and solutions. Today’s business faculty should be prepared to lead inquiries into the highly consequential issues that our students will face once they graduate. To protect workers, should we close borders or invest in retraining? Is a tax on robots worth considering? What might a decarbonized economy look like, and what are the business opportunities that will drive the transition? What changes in organizational culture, design, and functioning are necessary to achieve true gender equality?

Over the past 30 years, business schools have been successful because they and their faculties have set their eyes high, advocating passionately for a globally integrated, market-driven world. Should we not work as passionately today for more inclusive, more equitable, and more sustainable growth, if only to defend the open, global order against its critics? If we seek solutions to big issues instead of just insisting our critics are wrong, our students will be far better prepared for the leadership challenges that await them.

Model behavior. Don’t just address the big issues; bring controversial and polarizing topics into the classroom. A diverse MBA classroom is particularly well-suited for discussions about the economics and politics of immigration, the best ways to achieve gender equity, or the political and social justice perspectives on minimum wage. By encouraging spirited fact-based debate and modeling the respectful behavior required for civil disagreement, faculty can build the learning experience around democratic norms, tolerance, and the joint exploration of problems and solutions.

Cultivate deep global connections. The time for purely national solutions to pressing challenges has passed. Business schools must forge deep connections with other nations, but these relationships do not magically materialize. It is not enough to rely on international students—who then frequently are expected to adapt to the local culture. Instead, we need deliberate efforts to meaningfully connect with students, faculty, and leaders around the world.

Through GNAM, for example, 30 business schools from 27 countries have created a platform for collaboration and exchange. Since the launch of the alliance in 2012, more than 7,000 MBA students have spent a week on another member school’s campus, interacting with local peers as well as students from other schools. Over the same time period, more than 1,200 students have taken online classes with students from other member schools, forming global virtual teams that work on major issues. Faculty also collaborate in key areas, including the production of case studies that examine an issue from dual perspectives. Only by developing such international relationships will business schools be able to contribute to the wide-ranging solutions we will need to solve pressing global problems.

Open up. If business schools are truly going to respond to the populist movement, we must open ourselves up and engage in dialogue with society at large. Universities are widely seen as elitist, and—as political theorist Jan-Werner Müller argues in his 2016 book What Is Populism?—a defining feature of populism is that it is anti-elites. The five steps I outlined above cannot take place behind closed doors, inside the proverbial ivory tower. Rather, universities must provide society with more access to our research and our knowledge. We can reach larger audiences by not only offering affordable online programs, but also inviting commentary and critique from those outside our institutions.

Taking on the Challenge

Because business schools have contributed so much to the rules- and exchange-based global order, they should take a bold stance to protect it now that it is in peril. We helped create this world; if we believe in its pillars, it’s up to us to reinforce them.

But there are four more reasons I believe it’s time for us to step up. One is pragmatic, two are strategic, and the fourth is normative.

First, the challenges we face today are global. Nationalism cannot fix them. Sure, “beggar-thy-neighbor” policies may make for good bumper sticker slogans, but economies and societies are so deeply interconnected that only collaborative efforts will produce tangible results. Business schools are uniquely positioned to contribute precisely because we attract students from around the world and because our pedagogy emphasizes leveraging diversity to find solutions to tough problems.

Second, we must stand up for our ideals. By and large, business students are optimistic about the future and view business schools as catalysts of global opportunities. A world that is less global, less democratic, less fact-based, and less hopeful about the future is simply a bad world for business schools.

Third, business schools are facing strong competition from consultancies, professional service firms, online providers, and others who argue they can impart management skill more effectively than academic behemoths. Competition is good, but there is no doubt we have to innovate. One thing we have going for ourselves is that our mission is not just to deliver a return to each tuition-paying student—we also serve society at large. In other words, by taking on this challenge, we sharpen our profile vis-a-vis those who approach education merely in transactional terms.

Finally, this moment simply requires leadership. In classrooms, in commencement speeches, we implore our students and graduates to step up when the going gets tough, to lead when there is a dearth of leadership. The same must apply to us.

David Bach
Professor and Deputy Dean for Academic Programs, Yale School of Management, Yale University
The views expressed by contributors to AACSB Insights do not represent an official position of AACSB, unless clearly stated.
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