“How do you expect to earn money if none of you actually produces anything?”
Douglas Adams' immortal expression of exasperation with a group of middle managers and telephone sanitizers rings much in my mind in recent months. As an engineer I have long been suspicious of MBAs and the financial crisis completely confirms this – wealth is created by producing products and services that actually bring tangible benefit to clients, not through magic tricks with other people’s money.
But for all we are inclined to despise bankers (and I am in no way opposed to this), even these Masters of the Universe could not create the present financial crisis alone. I believe that they needed the cooperation of real producers of value and also of People Like Us.
I trace the origins of this downfall to the emergence during the 1980s of the Master of Business Administration) (MBA) degree as a recognized and desirable academic qualification. It’s something like a degree in hairdressing, but admittedly a lot of hard work, so as to select for the brightest or at least the most committed. And these bright young things were unleashed on the world with their alma mater’s certification of their Master of the Universe status, fully capable of managing any business by the numbers.
Results were quick to emerge, as we saw in the wave of
“re-engineering” (a.k.a. downsizing) that flowed in the early 1990s. And now a whole generation later, management
of a business by the numbers is firmly entrenched. It reminds me though of the response of the
owner of a Yorkshire
This philosophy put publicly listed companies at the mercy of the stock analysts and forced business leaders who should have known better to focus their energies on quarter by quarter improvements in bottom line profitability, forgetting their actual reason for being in business.
The benefits of this flowed to stockholders at the expense of employees (although they might also have been stockholders). There is a clear trend over the last twenty years showing that salaries have failed to keep track of growing profits.
So what does a consumer do when there is no prospect of a significant salary increase? Well we turned to alternative Weapons of Mass Financing. The warning sign of this for me came when I saw ordinary people leasing rather than buying cars. This is clearly a financial trick to enable average people to buy upmarket transportation. Then Home Equity Loans were invented to tap into accrued but unrealized equity in our homes and that was the beginning of the slippery slope. It’s a straight and very fast path from there to Sub-Prime Mortgages.
And by then even the Masters of the Universe could no longer control the monster they had created. So I look forward as we eventually emerge from this crisis to a refocusing on businesses that actually create useful products and services. For example, engineering.