Sunday, May 24, 2009

A very dumb idea: make b-school like law/med school

The idea that we should "professionalize" business school so that it is more like med school or law school has been making the rounds recently (e.g. Time, NY Times, NPR, etc.). Whereas a true profession like law or medicine has a code of ethics designed to serve the greater good, business school is different because no such code exist.

Very large red alarms goes off for the economist in me at this idea. Because whereas others see professions as something noble, the economist sees a cartel. The standard view of professional societies (stemming from the medieval guilds) is that by regulating who can enter the market, they create a cartel that keep prices high by keeping people out. As Time noted, professionalization implies "a professional exam, a licensing board and exposure to malpractice," as institutions quickly become cooped by government. Economically, these institutions use government's coercive power to maintain their high prices. Some of the largest sources of dead weight loss and inefficiences in the economy are associated with the legal and medical industries.

That said, I am sympathetic to the benefits of monopolies. Like a benevolent dictator, a benevolent monopoly can often do the right thing, where a competitive market cannot (see Google for example). So maybe the lawyer and the medical cartel is justified, but the idea of professionalizing business so that you would need government approval to run any company is more than a little scary.

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