The one that got away

A cousin of mine, who is the head of risk at a leading Indian mutual fund, met a bright young graduate from Kolkata’s elite Presidency College a few years ago. This encounter took place in Mumbai and my cousin, already well established on the corporate ladder by then, advised the young man to pursue an MBA. The youngster replied that he had come to Mumbai to become a music director and had no intention of pursuing an MBA. You, I and my cousin should now be thankful for the Presidency graduate’s determination — had this youngster become a corporate drone, we probably would have never heard of Pritam Chakraborty, my current favourite music director. 

As I go on to explain in this column, the MBA damages society in many different ways the first of which is such misallocation of talent — people who have deep talents in a variety of different spheres of life get sucked into the MBA because it represents what appears to be a relatively low-risk route to a meal ticket in the corporate world. The damage that this apparently low-risk meal ticket inflicts at a personal level was captured beautifully in the highest grossing Bollywood movie of all time, 3 Idiots (although, I confess, the focus of that movie is more on IIT than on the MBA).

In my line of work, investment advice, and more generally, in investment management, the MBA is arguably even more damaging. My reading of the most successful investment managers is that they tend to be patient, level-headed and resilient individuals who have the fortitude to stand their ground in the face of waves of fear and greed that sweep through the market. The MBA represents the antithesis of this particular mindset — in the words of one of India’s most successful fund managers, “An MBA wrecks your mind…it instils in you all the wrong things about corporate life and does not teach you what you actually need to know about finance, about balance sheets, about investing, about patience.” 

Also, the MBA is a bad investment for the majority of those who do it. Through entrance exams — CAT and GMAT — the MBA filters the best brains of a generation into a classroom where Economics & Finance 101 is imparted in dressed-up format with overheated business jargon for one or two years. Then everyone is packed into a pen, spruced up and readied for recruiters to come and choose. Now, let’s segment the kids in the pen into two lots to see how this game works.

The winners, that is, the whizkids, the real superstars of the generation, would have got a job anyway regardless of whether they had spent two years in business school or not; for them the two years is pure “opportunity cost”. These people had the aptitude to structure mergers, analyse investments, create marketing plans, etc. — the MBA simply delayed their entry into the labour market and made them enter on terms specified by the recruiter.

The losers, that is, those without innate talent, would have struggled in any case to enter the elite professions. The MBA is unlikely to change that — last I heard, the qualification is not known to increase intelligence. But by giving them hope of rising above their limitations, the MBA basically played a confidence trick on them, the same confidence trick that the advertisers of hair tonics or quacks peddling get-rich-quick schemes sell.

Hence, for neither category does the MBA really deliver long-term cashflow uplift — what it actually does is use the success of the winners to suck in the next generation of losers. I appreciate that there will be a small minority of people for whom the MBA was a life-changing experience and allowed them to switch to a more lucrative profession but, unless these people were oblivious to basic finance and economics, that “switch” is unlikely to have come from the content of the MBA.

The good news is that India seems to have wised up to the adverse effects of the MBA. In 2008, 276,000 unfortunates registered for the CAT. After steadily falling for three years, in 2012 the figure has perked up to touch 210,000. My high school statistics tells me that this is a CAGR of negative 7%. If this trend continues for another 10 years then only half the number of bright young Indians (around 100,000 youngsters) will be subjected to the competitive drudgery of CAT. The possibility that within the next decade, less than 100,000 Indians will sit for CAT every year is a very happy thought; that is the sort of change I would like to believe in.

The views expressed here are personal. The author would like to state that he does not have an MBA