You would not normally think that management theorists are peddling sclerotic ideas. You would think that people who are working in business are more supple and more flexible than those who traffic in religious or secular dogmas. After all, companies pay good money for the advice offered by management theorists. It’s difficult to believe that they are being taken for a ride.
And yet, that is what a recent comment in the Economist’s Schumpeter column. It even compares today’s management theorists to the Catholic Church in the early Renaissance and says that their field is ripe for a Reformation.
Like today’s political commentariat management theorists have latched on to a certain number of dogmas and will not let go. They have built their business on a foundation of erroneous beliefs. They are so thoroughly convinced of the truth of their big ideas that they are impervious to reality.
Schumpeter presents its narrative:
Management theorists sanctify capitalism in much the same way that clergymen of yore sanctified feudalism. Business schools are the cathedrals of capitalism. Consultants are its travelling friars. Just as the clergy in the Middle Ages spoke in Latin to give their words an air of authority, management theorists speak in mumbo-jumbo. The medieval clergy’s sale of indulgences, by which believers could effectively buy forgiveness of their sins, is echoed by management theorists selling fads that will solve all your business problems. Lately, another similarity has emerged. The gurus have lost touch with the world they seek to rule. Management theory is ripe for a Reformation of its own.
You will note that the magazine is taking out after the theorists on the grounds that they have sanctified capitalism. Schumpeter is not going to critique capitalism. He will argue that Western economies are being stifled by government bureaucracies. They are often capitalistic in name only.
Schumpeter begins with this dogma:
The first idea is that business is more competitive than ever.
True or false?
Schumpeter says that it is false. The business world is less competitive than before. Businesses are doing more consolidating than competing:
The most striking business trend today is not competition but consolidation. The years since 2008 have seen one of the biggest-ever bull markets in mergers and acquisitions, with an average of 30,000 deals a year worth 3% of GDP. Consolidation is particularly advanced in America, says a report in 2016 by the Council of Economic Advisers, which also showed how companies engaged in consolidation are enjoying record profits.
And then there is the dogma of entrepreneurialism. We all believe in entrepreneurs, especially because, after going to so much trouble to learn how to pronounce the word, we feel obliged to use it.
A second, and related, dead idea is that we live in an age of entrepreneurialism.
Are we seeing the growth and development of a myriad of small businesses? Are these businesses driving job creation and pulling the nation out of its chronic malaise?
Last night I saw a television report on entrepreneurialism. It took us to Washington, D.C. and asked us to consider how the Trump economic agenda would create more food trucks. That’s right, what the nation really needs is more food trucks. That’s the future of business expansion!
As for the facts on the ground, Schumpeter reports:
In America the rate of business creation has declined since the late 1970s. In some recent years more companies died than were born. In Europe high-growth ones are still rare and most startups stay small, in part because tax systems punish outfits that employ above a certain number of workers, and also because entrepreneurs care more about work-life balance than growth for its own sake. A large number of businesspeople who were drawn in by the cult of entrepreneurship encountered only failure and now eke out marginal existences with little provision for their old age.
In short, government bureaucracy has made it extremely difficult and extremely risky to start a small business. For most people the point is obvious. Small businesses have the most difficulty because they do not have the funds to pay for compliance officers.
This suggests that in America and Europe big government has been stifling capitalism. Management theorists should be helping their clients deal with government regulations, not put their heads in the sand and pretend that it's not a problem. Instead of preaching the gospel of capitalism they ought to be demonstrating against an increasingly intrusive government.
Capitalism is still the great policy, but socialistic governments have put it on life support.
Management theorists are also selling the idea that the internet has helped business to accelerate decision-making, production and distribution:
The theorists’ third ruling idea is that business is getting faster.
And yet, whatever advantages a business might glean by collecting more information more quickly has been counterbalanced by the intrusive government bureaucracies.
Schumpeter refutes the notion:
And in many respects business is slowing down. Firms often waste months or years checking decisions with various departments (audit, legal, compliance, privacy and so on) or dealing with governments’ ever-expanding bureaucracies. The internet takes away with one hand what it gives with the other. Now that it is so easy to acquire information and consult with everybody (including suppliers and customers), organisations frequently dither endlessly.
The last point sounds like a page out of Francis Fukuyama. It says that a world order based on free trade was the inevitable outcome of the movement of the World Spirit. And that its progress cannot be reversed. Schumpeter suggests that it was not inevitable and will not necessarily survive.
A fourth wrong notion is that globalisation is both inevitable and irreversible—the product of technological forces that mere human decisions cannot reverse.
Of course, the trend seems to be pointing away from globalization and toward a revival of mercantilism:
In 1880-1914 the world was in many ways just as globalised as it is today; it still fell victim to war and autarky. Today globalisation shows signs of going into reverse. Donald Trump preaches muscular American nationalism and threatens China with tariffs. Britain is disentangling itself from the European Union. The more far-sighted multinationals are preparing for an increasingly nationalist future.
Schumpeter concludes that management theorists have gotten so mired in their dogmas that they has missed out on the pervasiveness of government meddling in the private economy. They have failed to adapt to a changing world:
The backlash against globalisation points to a glaring underlying weakness of management theory: its naivety about politics. Modern management orthodoxies were forged in the era from 1980 to 2008, when liberalism was in the ascendant and middle-of-the-road politicians were willing to sign up to global rules. But today’s world is very different. Productivity growth is dismal in the West, companies are fusing at a furious rate, entrepreneurialism is stuttering, populism is on the rise and the old rules of business are being torn up. Management theorists need to examine their church with the same clear-eyed iconoclasm with which Luther examined his. Otherwise they risk being exposed as just so many overpaid peddlers of dead ideas.