The tide may be turning on a discredited business model

Anyone looking for the canary in the mine might consider the fall in MBA degrees
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Set aside their common native language, and it would be hard to imagine an odder couple than Klaus Schwab and Angela Merkel – he the cerebral economic guru; she the down-to-earth Chancellor of Germany.

Yet there they were, sharing the stage at Davos yesterday. She spoke about competitiveness, how Germany had achieved it and what difficulties lay ahead. He, the genial interrogator, sought generalities and prescriptions.

But as the banter went to and fro, it was not hard to imagine that, in fact, something more significant was happening. Could it be that, after a period of argument, fumbling and confusion, the metaphorical baton was finally being passed from the theorists to the practitioners, from the economists to the politicians? And that the gathering this week, on the slope of Switzerland’s “magic mountain”, will be the one that draws a line under the worship of all things economic? And a time when it was thought that not just economics, but management and business, could usefully be treated as a science?

Klaus Schwab founded the European Economic Management Forum – note the name – back in 1971. He had business leaders in mind, and his prime objective was to introduce Europeans to US-style business ministration. His big idea preceded the huge expansion of US business schools, though not by much, and he again anticipated the spirit of the age 16 years later when he turned his European venture into the World Economic Forum and tempted an ever wider circle of political leaders to take part.

Basking in its record of drawing the elite of the elite, Davos survived the economic crises of 2007-9 pretty much intact –as, alas, did the elite of the elite. But it has been a more introspective group that has met in recent years. This year’s motto, for instance, is “dynamic resilience” – a far cry from the thrusting optimism of global capitalism’s heyday. And something similar could be said of one of this year’s major themes: inequality, not just internationally, but inside individual countries. Time was – in the rarefied Alpine air at least – when inequality, like greed, would have been thought good, or at least a necessary spur to prosperity. That was when the so-called Anglo-Saxon economic model was seen as the way of the world.

The picture is more complex now. And the question is not only whether Davos itself can or should survive, but whether the thinking that it promoted – and which it came to reflect back at itself in a particularly self-congratulatory way – might not, at last, be on its way out. Those who argue that, having withstood the cataclysms of 2008, the World Economic Forum can go on and on are discounting ideological inertia. Five years is not a long time for an institution now in its forties in which some Very Important People have a stake. But there are signs that faith is waning.

One of these is the scale of hospitality. Champagne might now be dispensed more discreetly, but the largesse never came close to drying up. This year, however, as reported by The New York Times, Friday night at Davos could be summed up as “no dinner, no parties”. None of the most lionised hosts is holding an event this year. Not Google, not Accel, not Nike. 

Anyone looking for the canary in the coal mine, however, might consider recent figures showing the decline of post-graduate business degrees in the Anglo-Saxon world. In Britain, figures compiled by the Financial Times for its Global MBA rankings show student numbers on the UK’s 18 top Master of Business Administration programmes at their lowest for eight years and more than 20 per cent lower than they were at their height in 2010. The writing could well be on the wall for less sought-after courses.  

One explanation, favoured by business academics, is that the new student visa regime is to blame, and specifically the abolition of the rule that non-EU students can stay on to work for one or two years after graduating. Why these courses – like so many postgraduate courses in Britain – are so reliant on non-EU students, and whether the right to stay and work made a student visa essentially a free pass to immigration need not be addressed here. But there is another explanation: that the sort of exercises that feature in MBA programmes – business theory, formulae and modelling  – do not enjoy the credibility they once did, or the salaries that would pay the fees.

Nor has the US, the birthplace of the MBA, bucked the trend. The number of MBA applicants has fallen sharply in each of the past four years. US visa requirements and the uncertain economic climate are cited as reasons, but the nature of these courses and their benefits are surely relevant, too, plus the proliferation of business courses in Asia. Those US programmes that attracted increased interest were tailored to sectors, such as healthcare, away from high finance.

It is likely that prospective students, home-grown or foreign, have weighed the value of a US-style business degree and found it wanting. In fact, comparatively few captains of industry or major entrepreneurs, on either side of the Atlantic, have an MBA. And it is in the very sectors most discredited today, such as banking, that most MBA graduates are found. It might be unfair to mention it, but George Bush – the first US president to have an MBA (from Harvard) – was one of the worst in terms of anticipating the consequences of decisions (Afghanistan, Iraq) and understanding the need for a human response (Katrina).

Back to Davos… One MBA banker speaking this year was Jamie Dimon, of JPMorgan Chase, who apologised for his company’s trading loss, while defending banks and their practices in general. But his words did not go unchallenged. He was confronted directly by a senior IMF official, who argued that the big banks’ lack of transparency still made them dangerous, and indirectly by the German Chancellor, who said there should be no sector of any sort of banking that was outside regulation. Belatedly, the tide may be turning.