Public and Private

Photo: RM Stringer (Creative Commons)

Times columnists Gail Collins and Paul Krugman both wrote op-ed pieces this week about the eagerness with which  politicians seem to lust after the idea of privatizing public services. The timing is no coincidence; their interest was clearly piqued by the paper’s recent investigative reporting on New Jersey’s dysfunctional system of privately run halfway houses for prison inmates. As Collins points out, the impulse to privatize is one that crosses the political aisle, though perhaps not in equal measures:

Politicians of both parties are privatization fans, although the Republicans are more so. Mitt Romney has flirted with the idea of privatizing veterans’ health care. He goes steady with the Medicare privatization forces and is believed to be secretly married to the folks who want to privatize public education through the use of vouchers.

Krugman zeroes in on the potential for corruption when (as in New Jersey) the private companies involved cultivate deep connections with the politicians who are supposed to be working for us, not them:

Never mind what privatization does or doesn’t do to state budgets; think instead of what it does for both the campaign coffers and the personal finances of politicians and their friends. As more and more government functions get privatized, states become pay-to-play paradises, in which both political contributions and contracts for friends and relatives become a quid pro quo for getting government business. Are the corporations capturing the politicians, or the politicians capturing the corporations?

Between the stresses on public officials balancing difficult budgets and the voices of the energetic anti-government right, the question of how and when to privatize has become one of the fundamental issues of the day at the intersection of business and public policy. And that gets me asking, as a b-school professor, how we tackle this subject in management education. The answer: for the most pretty frivolously.

Business curricula are so caught up in technical training rooted in the functional areas of the firm (finance, accounting, marketing, operations, human resources, and the like) that the attention paid to matters of policy that span the boundary between firms and governments are treated as an afterthought, if at all. The market-focused ideology of U.S. business schools leads many within their walls to reflexively celebrate privatization and disdain regulation rather than think deeply about them. Your average b-school sees its mission as preparing graduates for gainful employment at (for instance) a firm that runs private prisons, not for deep engagement with the question of whether privatizing corrections is good public policy and beneficial for society.

A b-school dean might reply that someone wishing to engage deeply on that should head across campus and get a public administration or public policy degree; we’re here to equip our students with the tools they need to run these operations, not to question them existentially.

I think that’s wrong. Privatization isn’t something that business people should automatically favor any more than it’s something that big-government liberals should automatically oppose. When it works well it streamlines government and stimulates private sector economic activity — both good things. But when it doesn’t work it makes government less efficient and less effective (and possibly more corrupt), which harms business interests along with everyone else’s. There are things the private sector does better, and many things it doesn’t. Business people, like other humans, should be engaging in thoughtful conversation about this divide, not just sharpening pencils waiting on the sidelines to see what profit opportunities might emerge. We do our students a disservice if we don’t prepare them for that conversation.

Moral Capitalism?

Under the headline “Can’t a Capitalist Be Moral?,” U. of Chicago business school professor Luigi Zingales writes at that firms are unable to create better market systems, so it is left to business schools to “lead the effort to impose some minimal norms for business – norms that discourage behavior that is purely opportunistic even if highly profitable.” Zingales goes on to suggest that b-schools engage in more overt disapproval of actions that compromise healthy markets in the long run:

Asking business schools to stigmatize all behavior that does not maximize welfare would be absurd. They shouldn’t be expected to shame or criticize a company for using the market power that it has legitimately acquired … [or] … for taking advantage of the tax loopholes present in the system ….There is a difference, however, between taking advantage of existing tax loopholes and lobbying aggressively to have those tax loopholes created or expanded. What about marketing policies targeted to prey on addiction or to induce young customers to smoke? Is making money the only metric we should reward and admire in business leaders?

Zingales is making a reasonable although hardly original observation about the teaching role of business schools in relation to the purpose of the firm and a given market. Where he ends up is with a strikingly minimalist assessment of b-school ethics classes (I teach one of those animals at Vanderbilt) that locates them in two piles:

Some classes simply illustrate ethical dilemmas without taking a position on what people are expected or not expected to do. It is as if students were presented with the pros and cons of racial segregation, leaving them to decide which side they wanted to take. Other classes hide behind corporate social responsibility, saying that social obligations rest on firms, not individuals

Teaching an ethics class to people in their late twenties with professional experience (the prototypical MBA student at well-regarded b-schools) is not appropriately framed as an attempt to make students “more ethical” by telling them what to do and not do in specific situations. Instead, and what Zingales misses in his simplistic caricature, a reasonable goal for an ethics course involves giving students tools (analytical, lexical, and contemplative) that improve their abilities to recognize and decipher the moral content in situations and to generate options that are rooted in ways of thinking about that content.

Sure, I want my students going forward to make more ethical decisions as managers and executives, but I want them to do so because they recognize the presence of an ethical dimension to some particular context, and can draw on informed notions of moral reasoning to work their way through the situation. This we can and do teach in business schools, some of us anyway.