Message to MBAs: We Are No Longer Masters of the Universe

Tom Wolfe, author of Bonfire of the Vanities, refers to MBAs as “Masters of the Universe.” It’s been a long time since I got my MBA — 36 years. But, being an MBA is not just receiving a degree. It’s a state of mind.

Over the last 12 months, all around the world we have been experiencing an economic and financial crisis of almost existential proportions. What is really unnerving about it all is its unpredictability.

Some of the largest financial institutions in the world have failed, or have been rescued only at the last minute: Citigroup, Merrill Lynch, AIG, Royal Bank of Scotland, UBS, etc.

Yet, if you listen to politicians and economists, you’ll hear things are getting better. So, who are the Masters of the Universe to believe? Are we still deep in a crisis? Or are we coming out of it?

Let’s look at the facts. The Harvard economist Kenneth Rogoff and his colleague Carmen Reinhart of the University of Maryland recently published a new book titled, “This Time is Different: 8 Centuries of Financial Folly.”

They systematically document that, with every major banking crisis in history, it takes the world a very long time to recover. The down phase of the cycle typically lasts four years. GDP falls by 9% — and it takes ten years to return to pre-crisis levels. For us today, that means the global economy has a long way to go.

On top of all this, we are seeing unprecedented monetary and fiscal intervention by governments all over the world. It is particularly serious in my own country, the United States. Let’s do the math: The U.S. monetary base doubled in the last year. That is the largest increase in 50 years — by a factor of ten.

According to the economist Arthur Laffer, unfunded liabilities of U.S. federal programs now amount to over $100 trillion. That is about $900,000 for every single U.S. household. How are we Americans ever going to pay that off — when U.S. federal tax receipts are only $2.4 trillion and U.S. federal spending is $3.9 trillion?

Finally, U.S. budget deficits are projected to reach 11.2% of GDP in 2009, the highest level since World War II. This compares with 3.2% in 2008.

What does all this mean for the world’s largest economy? It means massive tax increases at the federal, state and local levels, higher interest rates, inflation, partial default on government promises and devaluation of the dollar.

The bottom line is that we have been living beyond our means in the United States — and it is time to “pay the piper.” This is also bad news for economies like Switzerland and Germany, which very much depend on high-tech exports to the United States.

The United States, like Japan before it, is going to be sick for quite a long time. While we can be encouraged by growth in places like China, India and Brazil, they are not yet big enough economically to take up the slack.

So what do we do at our companies to survive the turbulent times we will surely face in the years ahead?

• Wake up and be realistic.

Our political leaders have a vested interest in making us feel good. All I can tell you is, “Don’t drink the Kool-Aid.” If what they are promising sounds too good to be true, follow your instincts. It is too good to be true.

• Manage your own personal finances carefully and conservatively.

Save as much as you can and consume less. If you’ve got a good job, KEEP IT. Do your very best to exceed your management’s expectations.

When I graduated from Harvard and started to work in General Motors Treasurer’s Office in New York, my colleagues were truly among the best and brightest in the world. Some of them later became chairmen of major corporations.

I knew I wasn’t any smarter, so I had to work harder and longer. I made a little sign for my desk that said, “Hustle.”

• Prepare your own companies for a sustained period of little or no growth.

This brings me to some concluding thoughts. Why didn’t all this knowledge and privilege help us MBAs — the presumed Masters of the Universe — to anticipate the crisis and act accordingly? We should have known, but we did not. I think a lot of it has to do with the way we were educated.

Entering business school, we were told we were simply among the — if not the very — best and brightest. But then the rush toward a fulfilling career took over. And frankly, the tasks we are assigned to usually are hyper-complex ones. Can we admit that some tasks are even above our heads, because, after all, we are simply human?

Our professional environment demands that we have an air of total confidence about ourselves. As a result, some nagging doubts don’t get addressed — and are swept to the side. The pressure for success gets ever higher — and the time to deal with issues ever shorter.

Time after time, it’s about portraying an air of “mission accomplished,” a spirit that does not just lead to troublesome results in the world of foreign policy. Thus, when things go terribly wrong, there is a human tendency to blame someone else. That was no exception in this financial crisis.

Also, since it is so hard to fix the problems at hand, we often resort to believing the good news story from the other guys.

If we Europeans, so the thinking goes, can’t have a dynamite economy, let’s count on the Americans pulling it off. And now that the Americans are stuck, let’s count on the Chinese to pull the global economy out of the morass. If the Chinese can’t do it, well there must be someone, isn’t there?

This impulse is really little more than a case of wishful thinking, something we as business leaders absolutely cannot afford.

Now, as to the road ahead, I think there is a great deal that we as MBAs, a self-designated elite, need to reflect upon — in terms of our false sense of personal security and aura of invincibility.

That is something which the business school culture has indoctrinated us with, that we should have resisted, but didn’t — because the rewards were so high, because the ride was just too good.

In the bigger scheme of things, the only way out is to recognize the principle — and simultaneous nature — of collective responsibility as well as, paradoxically, of individual responsibility.

We are no better than the sum of our joint abilities and readiness to improve, to tackle the hard tasks, with honesty, diligence and stamina. That applies on the family level, the village and town level, the company level, the regional level and the national level. Only then will we do better on the global level as well.

Are you going to work 12 hours per day just to make a lot of money? Or are you going to finally try to make a real difference in the world and give back, or share some of the enormous good fortune which you have received?

The Japanese poet Ryunosuke Satoro put the opportunity of working together very succinctly: “A country? The world? Individually, we are one drop. Together, we are an ocean.”

Editor’s Note: This essay is adapted from remarks delivered by Louis R. Hughes in Rueschlikon, Switzerland, to the Joint Alumni Conference, SAMBA, on October 2, 2009.