Management theories have been firmly pushing the idea of capitalism, which aims at wealth-creation for the owners. Capitalism as an idea per se, and the capitalistic line of management theories have been coming under criticism for long; but have still managed to move on seamlessly. Recently, as part of its series ‘Schumpeter’, ‘The Economist’ has published an interesting article titled ‘Management theory is becoming a compendium of dead ideas’ (The Economist 2016b), which analyzes the capitalistic direction of management theories mainly on the basis of four basic ideas. The article ridicules these four basic ideas and stresses upon the need for reformation of management theories.

While the proposition of the need to reform management theories meets logic, the arguments given while rejecting the four basic ideas need to be put through a detailed discussion. This article discusses the contemporary status of management theories and the four basic ideas as highlighted by The Economist (2016b).

2. MANAGEMENT THEORIES, CAPITALISM AND THE NEED FOR REFORMATION:

The Economist (2016b) observes,

Management theorists sanctify capitalism in much the same way that clergymen of yore sanctified feudalism. Business schools are the cathedrals of capitalism.

Profit-making is an important but not the sole outcome of business (Fitzgerald & Cormack 2006). However, profitability has remained the essence of management theories. The business houses have strived for quick profits, which has further worsened the situation. As a result, capitalism has taken a far more predatory form than the one envisioned by Adam Smith and others (Smith 2010). It cannot be forgotten that businesses are part of a larger order and not apart from it. In aiming for short-term gains, businesses have sacrificed the values and seem to have lost sight of the real development (Bansal & Bajpai 2011).

The role of business education in twisting the face of capitalism has come for discussion earlier also. For instance, Holland (2009) observes that business schools give students a limited and distorted view of their role, due to which they pass out with major focus on maximization of shareholder value and only a limited understanding of ethical and social considerations integral to business leadership. Such distorted business education can only add fuel to the fire of capitalism. Real education shall address the issue of sustainable development (Sharma et al. 2016).

In order to understand the purpose of business theories and that of business education, it is essential to look at the purpose of business per se. It would be interesting to bring Aristotle into perspective while trying to understand the purpose of business. Aristotle, Ross, and Urmson (1980) classify business conduct into two types – Oikonomia and Chrematistike. While the former is embedded in the political system and fulfils societal objectives, the latter aims at making money. Aristotle, Ross, and Urmson (1980) clearly observe that “wealth is evidently not the good we are seeking”, while also noting that happiness is the universally pursued goal of human life, a view later supported immensely by thinkers including Nagraj (2008, 2009), Gaur et al. (2009), His Holiness the Dalai Lama (2012). Aristotle, Ross, and Urmson (1980) dismiss Chrematistike, because of its tendency towards excess. He maintains that chrematistic undertakings would undermine a balanced society which is the most capable of supporting a happy life. Aristotle’s conception of Oikonomic entities is largely based on the integration of economic, social, and political considerations (Pirson 2010). More recently, Korten (2009) observes that our economic system has failed in every dimension including financial, environmental and social; and denotes the failures of economic system to the misperception of money as wealth. Korten (2009) further maintains that the implantation of money as wealth in the minds of human leads to acceptance of the idea that money is a storehouse of value rather than simply a storehouse of expectations, and that ‘making money’ is the equivalent of ‘creating wealth’. Money, in fact, is only an accounting chit with no existence outside the human mind.

It is important to bring into discussion a research titled ‘Securities: The New World Wealth Machine’ (Edmunds 1996), which attempts to detach wealth-creation from the real economy and attach it with the financial assets instead. Edmunds (1996) theorizes that policymakers don’t need to focus on producing real wealth by increasing the national output of goods and services having real utility. Rather, he advises to put that aside and concern with securitizing real assets for putting investors into play in financial markets thereby creating gigantic asset bubbles. Phillips (2008) attributes the problems of sub-prime crisis to research works such as Edmunds’ by arguing that the securitization of housing mortgages might have been inspired by the work of Edmunds (1996), which was widely discussed on Wall Street.

A discussion of Korten (2009) with the then minister of forestry of Malaysia demonstrates the final height (or fall) of the failed capitalism. Korten (2009) mentions,

He told me in all seriousness that Malaysia would be better off once all its trees were cut down and proceeds were deposited in interest-bearing accounts, because interest grows faster than trees… This is exactly the kind of disaster to which Edmunds fallacy leads.

From the conception of Aristotle to the theory of Adam Smith to Edmunds and further to the business practices of post-modernism, business management has come full circle. As observed by Korten (2009), the solution to a failed capitalist economy is a real-market economy much in line with the true vision of Adam Smith.

In such a scenario, there is no denying the fact that management theories are in dire need of a thorough revisit. Again, as rightly observed by The Economist (2016b),

The gurus have lost touch with the world they seek to rule. Management theory is ripe for a reformation of its own.

3. FOUR BASIC IDEAS OF MANAGEMENT THEORIES:

The Economist (2016b) proceeds by highlighting four basic ideas in any business theory. These include (a) business is more competitive than ever; (b) we live in an age of entrepreneurialism; (c) business is getting faster; and (d) globalization is inevitable and irreversible. The article maintains that almost all the existing management theories revolve around these four basic ideas. The article rejects all these four basic ideas giving interesting arguments that instigate meticulous discussion.

(a) Business is more competitive than ever:

The Economist (2016b) outrightly rejects the idea that ‘business is more competitive than ever’. In support of the opinion, the article mentions,

The most striking business trend today is not competition but consolidation. The years since 2008 have seen one of the biggest ever bull markets in mergers and acquisitions, with an average of 30,000 deals a year worth 3% of GDP. Companies engaged in consolidation are enjoying record profits... In the 1990s Silicon Valley was a playground for startups. It is now the field of a handful of behemoths.

That the businesses have to appreciate and respect the need to coexist is a rightly-stated fact. However, that ‘the most striking business trend today is not competition but consolidation’ is largely an overstatement. Consolidation is not necessarily the opposite of competition. The growing consolidation as seen to be happening in the contemporary business world is a part of the larger business strategy designed to kill or overcome the competition, thereby building a competitive advantage. The example of Facebook-WhatsApp merger can be brought into perspective for establishing this argument. Both Facebook and WhatsApp were operating as social media players. While WhatsApp was the largest mobile app based social media platform with negligible presence in web based social media, Facebook was the leading website based social media platform with significant presence in mobile app based social media as well. WhatsApp was not only the biggest competitor for Facebook’s Messenger (mobile app based social media platform of Facebook) but could also pose a serious threat to its web based platform if at all it decided to expand into that category. Acquiring WhatsApp meant killing the competition in the former category while avoiding the same in the latter. What it also means is that Facebook is much expanded a business now as compared to its competitors such as Twitter, Instagram, WeChat, Google+, that are significantly present only in one of the mobile or web based social media platforms. The consolidation, in this way, has been used as a tool to build competitive advantage.

The case of TaxiForSure’s acquisition by Ola also serves as an example in this regard. The acquisition made Ola get rid of a prominent rival and help prepare better to take on Uber. The statement of an Ola investor drives home this point,

From the start, the whole intent behind buying TFS was to kill it. Once TFS was out of the picture, any investors who wanted to play in the cabs sector would necessarily have to invest in Ola. And that’s played out really well for us. Rather than fighting two competitors and burning more money, we are fighting just one (Uber). (The Mint 2016)

Besides Facebook-WhatsApp and Ola-TaxiForSure, other mergers including Microsoft-Nokia, Microsoft-LinkedIn, SBI-SBI’s associates also point towards the fact that the acquisitions are simply happening with an intention to kill or overtake the competition. Hence, rejection of the basic idea about business being more competitive than ever by The Economist (2016b) is largely overdone.

(b) We live in an age of entrepreneurialism:

The Economist (2016b)makes some sweeping statements with regard to entrepreneurialism. It states,

In some recent years more companies died than were born. A large number of business people who were drawn in by the cult of entrepreneurship encountered only failure…

In a much more realistic observation, Decker et al. (2014) maintain that the outcomes of entrepreneurship are more heterogeneous than commonly appreciated. While most startups exit within first ten years, most surviving businesses remain slow (and don’t grow), and some young firms record high growth thereby contributing significantly to job creation. Such firms make up for all the job losses associated with the first and second category of startups. The huge success of startups including Facebook, Uber, Airbnb clearly indicate that the entrepreneurialism is anything but dead. The success of ventures including Flipkart, Ola, Paytm, Oyo Rooms, Snapdeal, Micromax, etc in India also supplements the fact that the rejection of the idea that ‘we live in an age of entrepreneurialism’ does not have enough merit.

(c) Business is getting faster:

The Economist (2016b)does not strongly reject the idea that business is getting faster. Adopting a moderate approach towards the idea, it maintains,

There is some truth in this. Internet firms can acquire hundreds of millions of customers in a few years… The internet takes away with one hand what it gives with the other. Now that it is so easy to acquire information and consult with everybody (including suppliers and customers), organisations frequently dither endlessly.

The spread of internet has reflected in the speed of business. The advent of newer technologies like the internet of things is expected to further accelerate it. The argument that a lot of time gets spent in consulting partners and stakeholders about the information, at best appears to be a misplaced one.

(d) Globalization is inevitable and irreversible:

The fourth idea of management theories highlighted by The Economist (2016b) is that ‘Globalization is both inevitable and irreversible’. It emphasizes how thinkers like Friedman (2005) have repeatedly propagated the idea.

The recent occurrences in global political economy indicate that “nationalism” is posing serious threat to the speed of globalization. In another article, The Economist (2016a) observes,

many countries are shifting from the universal, civic nationalism towards the blood-and-soil, ethnic sort… The new nationalists are riding high on promises to close borders and restore societies to a past homogeneity….

The Economist (2016a) draws upon the recent examples from USA, Hungary, France, UK, Poland, Austria, Netherlands and India to highlight how a new ‘league of nationalists’ looms large in contemporary global political economy. The growing feel of protectionism indicates that the rejection of this fourth basic idea of management theories by The Economist (2016b) is not unfair.

4. THIRST FOR A NEW MANAGEMENT THEORY:

The agreement or disagreement with the rejection of four basic ideas of management theories by The Economist (2016b) notwithstanding, the article does well to highlight the thirst for a new management theory. Kumarappa (1951), Prahalad and Hammond (2002), Sandel and Hoffmann (2005), Nagraj (2008, 2009), Yunus et al. (2010), and Sandel (2012) have already touched upon the need for having an alternate theory of business. As outlined by Nagraj (2009), business is a part of the larger existential order and needs to play a role in helping humans meet their goals of continuous happiness and prosperity. Such business will adopt a complementary approach and contribute to the well-being of individuals, families, society and nature. The new business theory needs to contextualize the human face of business and may emerge as a humane model of business.

5. REFERENCES:

1. Aristotle, Ross, W.D. & Urmson, J.O., 1980. The Nicomachean Ethics, Oxford: Oxford University Press.

2. Bansal, I. & Bajpai, N., 2011. Gandhian values: Guidelines for managing organizations. Journal of Human Values, 17(2), pp.145–160.

3. Decker, R. et al., 2014. The Role of Entrepreneurship in US Job Creation and Economic Dynamism. Journal of Economic Perspectives, 28(3), pp.3–24.

4. Edmunds, J.C., 1996. Securities: The New World Wealth Machine. Foreign Policy, 104(Fall), pp.118–133.

5. Fitzgerald, N. & Cormack, M., 2006. The role of business in society: An agenda for action, New York.

6. Friedman, T., 2005. The world is ﬂat: A brief history of the twenty-ﬁrst century. New York: Farrar, Straus and Giroux, p.660.

7. Gaur, R.R., Sangal, R. & Bagaria, G.P., 2009. Human Values and Professional Ethics First edit., New Delhi: Excel Books.

8. His Holiness the Dalai Lama, 2012. A human approach to world peace. Journal of Human Values, 18(2), pp.91–100.

9. Holland, K., 2009. Is it time to retrain b-schools. New York Times, (March 14).

10. Korten, D.C., 2009. Agenda for a New Economy: From Phantom Wealth to Real Wealth First., San Francisco: Berrett-Koehler Publishers.

11. Kumarappa, J.C., 1951. Gandhian economic thought, Varanasi: Sarva Seva Sangh Prakashan.

12. Nagraj, A., 2009. Āvartansheel Arthshastra Second., Amarkantak: Jeevan Vidya Prakashan.

13. Nagraj, A., 2008. Jeevan Vidya – An Introduction R. Gupta, ed., Amarkantak: Jeevan Vidya Prakashan.

14. Phillips, K., 2008. Bad Money First., New York: Penguin Books.

15. Pirson, M., 2010. What is business organizing for? The role of business in society over time,

16. Prahalad, C.K. & Hammond, A., 2002. Serving the world ’s poor, profitably. Harvard Business Review, 80(9), pp.48–59.

17. Sandel, M.J., 2012. What money can’t buy, London: Penguin Books.

18. Sandel, M.J. & Hoffmann, S., 2005. Markets, morals, and civic life. Bulletin of the American Academy of Arts and Sciences, (Summer), pp.6–11.

19. Sharma, G.D., Uppal, R.S. & Mahendru, M., 2016. Technical education as a tool for ensuring sustainable development: A case of India. In International Conference on Sustainability, Technology and Education 2016. Melbourne, pp. 229–236.

20. Smith, R.D., 2010. The role of greed in the ongoing global financial crisis. Journal of Human Values, 16(2), pp.187–194.

21. The Economist, 2016a. League of nationalists. The Economist.

22. The Economist, 2016b. Management theory is becoming a compendium of dead ideas. The Economist.

23. The Mint, 2016. Like Ola, startups are shutting down acquired firms. The Mint, (18 August).

24. Yunus, M., Moingeon, B. & Lehmann-Ortega, L., 2010. Building social business models: Lessons from the Grameen experience. Long Range Planning, 43, pp.308–325.

Received on 15.06.2017 Modified on 11.07.2017

Asian J. Management; 2017; 8(3):921-924.

DOI: 10.5958/2321-5763.2017.00141.X