First some background in graduate school for the hard
sciences and other areas the mentor is training their replacements, and they
invest huge amounts of time and money into their students, and initially get
very little in return. In effect the mentor is reproducing academically, and so
they must be selective since the student’s future successes are a reflection of
their training. That is to say if a student becomes a star that reflects well
on their mentor, and the converse is true as well. Lest any one think is the
same altruistic relationship as parent/child it is not the balance is still in
the favor of the mentor, since the students give more than they get for the
opportunity to learn. The relationship is critical for the funding model; since
it is the combination of the professor’s prestige and guidance plus the student’s
work that creates the work product that justifies ongoing funding. But since
the student and mentor will likely share similar interests once the student has
completed their education they will compete for resources against their former
mentor and their former peers. This situation is one of the reasons the funding
model for the hard sciences is becoming untenable, too many smart people
competing for the same resources, and to run a productive lab to get enough
funding mentor’s have to train too many students. Even if many of the students
don’t go into academia, you still end up with a glut of people who do and the
funding can’t keep up. (Crafty mentors will even take largely unsuitable students
just to have the labor force.) This is the cause of Ph.D. bubble, but that is
not my point.
However, business schools are smarter they do things like
create models of optimal utilization in a resource limited environment, so they
can see that the Ph.D. model at the scale needed for the hard sciences is
untenable. So, they created a way to fund themselves using students without the
possibility of over reproducing and depleting the available resources, the MBA.
The MBA is a degree that is mostly about book learning, “branding” and making
connections with current and future leaders. (That might be an overstatement,
but I think there are many that would agree with me.) However, to get this
degree the student spends enormous sums of money with minimal material gain,
but the anticipation of a higher earning potential. In the “Business School
model” a mentor can churn through hundreds or thousands of MBA students,
getting money or money and labor. Since an MBA isn’t a terminal degree none of
these people actually go into academic finance, so the mentors can support
their research and salaries without ever actually reproducing academically. Occasionally,
someone will want a Ph.D. in finance, but that isn’t an issue since it is a
rare event compared to the number of MBA, and even the occasional doubling of
the number of people in the field won’t dramatically reduce the funding. You
might think that that is counterintuitive, but as with pyramid schemes as long
as the base grows faster than the top the situation is stable. Unlike a pyramid
scheme the MBA’s coming out of a Business School don’t expect to rise higher at
the Business School they go back to the commercial sector, so the base is constantly renewed. When the market can
bare new Ph.D. graduates expands the top, which creates capacity and widens the
base. It is truly a brilliant model, I bow to their brilliance!!!
The only issue is that this model is solely dependent on the
community valuing the MBA and its brand. While the top schools have little to
worry about since their brand is secure and they remain very selective, the “MBA”
itself is becoming devalued. People can get MBA’s online, the lower and middle
tier schools are being undermined as the value of the letters after people’s
names become less valuable. Sometime there will be a tipping point, (I am sure a modeler at a business school could determine at what percent of the workforce having an MBA, the ROI of an MBA is no longer worth it.) Once the MBA bubble pops, for Business Schools to sustain their financial model, they
will have to invent a new product to offer to keep the cash flowing (like the emergence of exotic derivatives). The MBA
will be obsolesced as the hot degree at the base of the pyramid and replaced
with more specialized educational products like a Masters in Business
Statistics or Masters in Commerce Analytics.
I expect to see these educational products come out at the top schools first as a way
for their graduates to distinguish themselves from all the other people out there
with MBA after their name on business cards. (Thus sustaining both their brand and revenue stream.) As is traditional when an over hyped market collapses, the
people who most recently shelled out tens of thousands of dollars to get an MBA, in order to
have an opportunity for future gain, will be left holding the bag…
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