The institutions and professions which are supposed to develop and sustain the critical analysis central to liberal democracy – universities, journalism, opposition political parties – have been found so severely deficient in this respect as to have lost almost all credibility. And with it, our model of democracy!
There may be a debate within (and about) the economics profession prompted by Paul Krugman, Steve Keen and the Real World Economics network - but where is the debate about the conditions in universities, journalism and politics which allowed such a profession (and that of management) to exert so much unchallenged influence and to screw us all so right royally?
A recent book Confronting Managerialism: How the Business Elite and Their Schools Threw Our Lives Out of Balance by Robert R. Locke and J. C. Spender offers some useful comparative, social insights. It contrasts the role of engineer-economists (and their schools) in post-war France with that of managers in America
US engineers principally in schools of industrial administration (MIT, Carnegie Institute of Technology, Georgia Institute of Technology, etc.) propagated the scientific toolkit of operations research. But their interaction with corporate management differed considerably from what took place in France. In 1900 when Frederick Winslow Taylor began the scientific management movement, engineers on the shop floor were deeply involved. But by the second quarter of the 20th century a revolution in corporate governance was well underway. Its historian, Alfred D. Chandler, Jr., most famously in The Visible Hand (1977), describes this rise of new managerial hierarchies in giant corporations whose managerial needs were quite different from those Taylorism induced. Because top corporate management concentrated on money more than product management, it required staff that could deal with financial reporting and marketing, that could oversee money flows through the various corporate divisions -- information that was much more vital to decision making in a multifaceted strategic setting than product knowledge. It required accountants and controllers to design and run the management system; they replaced the engineers previously at the top. At General Motors Alfred P. Sloan installed systems of financial reporting to headquarters “based heavily on analysis of managerial accounting data,” (Rother, 63). Sloan noted that GM was in the business of making money not automobiles. Other multiple division corporations followed suit. In 1929 The Controllers’ institute was founded in the United States because of their increasing managerial importance.
French engineers at the head of industry, preoccupied with saving their country from backwardness, succeeded in their task during what the French call “The Thirty Glorious Years” of postwar modernization (1945-75). American managers succeeded, too, in making lots of money. But there was little in the educational background of most top managers in US industrial corporations that permitted them to work closely with operational research scientists and economists like in the system of French engineering education and industrial leadership. US corporate moneymen lacked the scientific and mathematical knowledge needed to grasp quickly what operations research people and neo-classical economists were talking about..............
Post-war American business school professors and students had abysmal mathematical knowledge Business school professors, students and finance investors did not comprehend mathematics enough to see its limitation as a tool in the modeling of financial markets. When the financial crisis came, surprised finance analysts, Paul Wilmott and Emanuel Derman issued The Financial Modelers Manifesto, which opened with words reminiscent of Karl Marx: “A specter is haunting markets – the specter of illiquidity, frozen credit, and the failure of financial models.” Then followed the admission: “Physics, because of its astonishing success at predicting the future behavior of material objects from their present state, has inspired most financial modeling. Physicists study the world by repeating the same experiments over and over again to discover forces and their almost magical mathematical laws. … It’s a different story with finance and economics, which are concerned with the mental world of monetary value. Financial theory has tried hard to emulate the style and elegance of physics in order to discover its own laws. … The truth is that there are no fundamental laws in finance.”