MBA Admissions Consultant
Joined: 26 Dec 2008
Posts: 2457
Given Kudos: 2
Location: Los Angeles, CA
RIP, MBA Part Deux!
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28 Mar 2009, 10:37
If there is any "lesson" we can learn from the past 20+ years, it's that while free markets and self-interest can and will be important foundation, they are not enough. That is the biggest fallacy of the last era -- that free markets are the ONLY thing necessary to solve everything. Free markets are important, but not enough. It's important to look after your own backyard, but you can't simply ignore your neighbors and expect to have a well functioning neighborhood over the longer term.
The biggest problems we face and will face for the next 20+ years or so are:
Sustainability and climate change -- free markets alone can't solve an energy crisis. While business can be an important player in providing innovation and distribution, they aren't the ONLY player and will have to work in concert with governments and other non-business entities on this; it'll likely have to be a combination of business/enterpreneurship, government policy, subsidies, and publicly-funded research.
Education -- the last 20+ years has seen an utter deterioration of the US public school system. Private schools can be an important player in shaping our education system (both K-12 and college), but having a strong education system that is accessible to all people requires more than just free markets to sort itself out. A strong public school system that complements the private school markets is necessary and has been neglected for way too long.
Healthcare -- in the US, we have relied too much on supposed "free markets" to provide healthcare. And the system is broken. It's clear that the *quality* of healthcare is second-to-none in the US, but the biggest problem is access/affordability and bureaucracy (you'd think that a private system would create *less* paperwork and admin headaches, but having dealt with both the US and Canadian system firsthand both as a patient as well as an employer/administrator, dealing with HMOs is a far greater bureaucratic headache than dealing with the provincial government). Whatever happens, it doesn't look like free markets alone can provide quality *and* access -- there will need to be either a complementary public system, some sort of public subsidy, or more regulation (or some combo of all 3). We've seen that you can't leave it to the HMOs to maximize shareholder value and expect that the byproduct is a strong healthcare system.
Terrorism/Extremism -- as we've seen in the past 8 years, we can't deal with terrorism and extremism simply by invading countries, bombing them, and shooting people. The real war is won in the boring process of fostering a healthy economy. This is where business can have a HUGE impact. Trade and investment isn't just a trade in goods and services -- but an exchange in ideas. Guns and bombs may be necessary and important, but so are free markets and business. But neither alone is sufficient. Either way, we can't just leave people be and expect things to simply work.
Poverty -- again, foreign aid alone isn't the solution; business and free markets can really be a huge and vital player in lifting billions around the world out of poverty. But again it's just one of many things. In any developing country, the foundation that has to be there is a functioning education system, access to affordable healthcare (prevents disease), political/social stability (factions aren't killing one another), and sensible economic policy. None of these alone are enough - and they are all interrelated and feed on one another. But again we can't just say "free markets" and "every man for himself" and expect these countries to function. In addition to free markets, there needs to be responsible government - which has nothing to do with free markets.
One other thing about free markets. The absolute biggest fallacy that so many of us fell into in the last 20+ years is the idea of free markets itself.
Markets are efficient and effective and beautiful when there is perfect competition -- what that means is that you have a market where there is no market power - either on the demand or supply side. Lots of participants, and no one person or entity can move the market. The barriers to entry are basically zero. In this kind of situation, self-regulating free markets are ideal and efficient.
But most industries don't have perfect competition, because there are huge benefits to be reaped through economies of scale and scope. Most industries naturally evolve into oligopolies, duopolies, or monopolies -- structures that are ripe for abuse of power because you have market power concentrated in the hands of the few. What you do as a market player can move the market or even ruin the market. The barriers to entry are high. Look at financial services -- you can't just "start" a bank and compete with Citibank. The barriers to entry are high. The number of "players" are relatively low. One player (i.e. AIG) can sink the market. Same with healthcare -- there are economies of scale and scope to consolidating into gigantic HMOs and pharma companies, so that market power is concentrated in the hands of the few, and barriers to entry are high. Same with oil&gas, utilities, airlines, education, etc. - so many industries aren't truly competitive in the classic "perfect competition" that you'd see in Econ 101 textbooks. In this kind of environment, letting "free markets reign" leaves room for the potential for self-destruction because what one player can do can do damage to the entire market. Oligopolies, duopolies and monopolies create externalities, asymmetric information (there isn't equal access to info - again those with market power may have privileged information that the public may not know), and can lead to the rewarding of perverse incentives. The "market" then in all these industries can't simply be accountable to themselves -- they have to be accountable to the communities they do business in; they have to be accountable to the public because what they do affects the public.
Having worked on Wall Street before, this is where I found their argument for self-regulation to be laughable.
So I don't think it's a big deal that the "best and brightest" will go into a more diverse array of careers. That's a great thing. Because we need more than business/free market solutions to solve the above problems that will affect ALL of us. It's not just your problem, or my problem, but OUR problem.
If there's any lesson that we can learn from the past, it's to focus on working together, rather than pointing blame on one institution or another.
And business schools would be wise to really emphasize this - that businesses aren't "masters of the universe" but instead are an important player in a multilateral environment. It's no longer "what is good for business is automatically good for the world".