Robert Reich: Is Harvard Doing Enough?
This month, Harvard Business School (HBS) dropped a firecracker that some mistook for a bombshell. In its survey of HBS grads, the school’s U.S. Competitiveness Project found that alumni were relatively cynical about America’s economic outlook, while growing increasingly concerned about its infrastructure and education system.
The study’s co-chairs seized on the findings. “The United States is competitive to the extent that firms operating here do two things: win in global markets and lift the living standards of the average American, fumed Michael E. Porter of Harvard’s Bishop William Lawrence University. “The U.S. economy is doing the first of these but failing at the second.” And Professor Jan W. Rivkin depicted Americans as hapless victims of a powerful and distant cabal known only as “firms.” “American workers are captives of what the survey shows to be the weakest aspects of the U.S. business environment—for instance, our polarized politics and our struggling systems for educating young people and developing their workplace skills. Firms, in contrast, are beneficiaries of our nation’s greatest strengths—like our research universities and vibrant capital markets. Firms can escape the weaknesses in the U.S. business environment by moving abroad, but workers can’t.”
Ah, class warfare is back on the docket, just in time for the six-year anniversary of our economic collapse (We miss you, Bear Stearns and Lehman Brothers). However, the 2013-2014 U.S. Competitiveness survey, which is based on responses from 1,947 HBS alums, actually reflects some inherent contradictions…much like the real economy itself. For example, only 47% anticipated a decline in American competitiveness, down from 71% in the 2011-2012 survey. That said, 47% predicted a decrease in competitiveness in the coming three years (compared to the 33% who are betting on an improvement). And respondents working in small business responded more cynically about American prospects related to its political, legal, health care, tax, and education systems.
Respondents also singled out infrastructure as a major concern, with 42% claiming the conditions of airports, roads, and ports have waned over the past three years (and another 51% worrying that American infrastructure has fallen behind other advanced economies). However, these same respondents cited entrepreneurship, universities, company management, innovation, capital markets, and property rights as major American strengths that are continuing to improve.
As you’d expect, these results also stirred up the usual gadflies. In particular, it inspired Robert Reich, a former U.S. Labor Secretary under President Clinton and a driving force behind the Family and Medical Leave Act, to pen a paean to his beloved Kennedy years in The Harvard Business Review. “A half-century ago,” he writes, “CEOs typically managed companies for the benefit of all their stakeholders – not just shareholders, but also their employees, communities, and the nation as a whole.” As a result, Reich argues, “American companies and American citizens achieved a virtuous cycle of higher profits accompanied by more and better jobs.”
Yeah, Robert. Those steel magnates from the “Mad Men” era were all about fairness and giving back.
After gushing over his iconic youth, Reich delivers his damning narrative of how this economic Eden fell:
“But starting in the late 1970s, a new vision of the corporation and the role of CEOs emerged – prodded by corporate “raiders,” hostile takeovers, junk bonds, and leveraged buyouts. Shareholders began to predominate over other stakeholders. And CEOs began to view their primary role as driving up share prices. To do this, they had to cut costs – especially payrolls, which constituted their largest expense. Corporate statesmen were replaced by something more like corporate butchers, with their nearly exclusive focus being to “cut out the fat” and “cut to the bone.
In consequence, the compensation packages of CEOs and other top executives soared, as did share prices. But ordinary workers lost jobs and wages, and many communities were abandoned. Almost all the gains from growth went to the top…The results were touted as being “efficient,” because resources were theoretically shifted to “higher and better uses,” to use the dry language of economics. But the human costs of this transformation have been substantial, and the efficiency benefits have not been widely shared.”
His analysis makes perfect sense. But there’s just one problem. Reich doesn’t bother naming particular people. Instead, he directs a salvo straight at a broad and convenient target: Harvard Business School.
“For years, some of the nation’s most talented young people have flocked to Harvard Business School and other elite graduate schools of business in order to take up positions at the top rungs of American corporations, or on Wall Street, or management consulting. Their educations represent a substantial social investment; and their intellectual and creative capacities, a precious national and global resource.
But given that so few in our society – or even in other advanced nations – have shared in the benefits of what our largest corporations and Wall Street entities have achieved, it must be asked whether the social return on such an investment has been worth it, and whether these graduates are making the most of their capacities in terms of their potential for improving human well-being.”
Ah, the feared finger-wagging from the Ivory Tower! Forget greed, globalization, and technological transformation. The real culprit behind America’s alleged road to ruin is – wait for it – a business school curriculum? That’s right, HBS is the boogey man incarnate, the omnipotent eye and hidden hand that has orchestrated this grave transfer of wealth in a slow and fell swoop. For Reich, Harvard is a big, rich, and unpopular target. Who will rush to their aid? More important, Harvard won’t strike back (aside from a finger-wagging). The politics are perfect.
However, Reich seems behind the times. For one, HBS is emerging as a mecca for the sustainability movement. And aren’t some of Harvard’s best-and-brightest seemingly flocking to starting their own businesses, rather than painstakingly climbing the ladder to helm old guard firms? Reich’s generalizations just don’t add up! And his slipshod assertions beg the question: Is Reich actually concerned about the current crop of HBS students – or just grousing about grads from 20-30 years ago who’ve now assumed leadership?
Overall, Reich doesn’t make any serious argument about Harvard. And that’s exposed by his remedy for how to fix HBS (let alone our economic ails). After all the pomp-and-circumstance, this is Reich’s prescription for change:
“But given that so few in our society – or even in other advanced nations – have shared in the benefits of what our largest corporations and Wall Street entities have achieved, it must be asked whether the social return on such an investment has been worth it, and whether these graduates are making the most of their capacities in terms of their potential for improving human well-being. These questions also merit careful examination at Harvard and other elite universities. If the answer is not a resounding yes, perhaps we should ask whether these investments and talents should be directed toward “higher and better” uses.”
So we need to ask questions and reflect? Thank you, Captain Obvious! What will that achieve, exactly? Think about it: CEOs are no longer the all-powerful barons who can bend markets and governments on a whim. That ended with the Roosevelt administration (Teddy or Franklin, depending on your persuasion). Like a President, say Reich’s former boss Bill Clinton, CEOs are held in check by boards, by-laws, shareholders, customers, regulations, finances, the media, and (of course) popular opinion. Their impact may ripple wide, but it doesn’t exactly drill deep.
In short, Reich applies an industrial mindset to an economy that more resembles jazz, with its improvisations, digressions, and unexpected pops. Instead of indulging his golden age baby boomer fantasy, maybe Reich should return to the Harvard campus and put some muscle behind his ideals. Talk is cheap. And tying one business school to the consequences of large economic and cultural forces isn’t just sloppy. It’s tacky.
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Source: Harvard Business Review