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The Role of Economics in Business Curricula

“What is the place of economics in the curriculum of business?” That was the opening sentence and principal question of an article by Roswell C. McCrea in the Journal of Political Economy nearly 100 years ago. Keep in mind, it was early in the development of collegiate schools of business in the US, and schools at the time were largely “proliferations of departments of economics.”

I reckon McCrea was influential in business education. When the article appeared in 1926, he had already been Dean at the Wharton School (of Commerce and Finance, at the time) and would go on to become Dean at Columbia Business School and President of AACSB, which was then the American Association of Collegiate Schools of Business. His article was published along with “discussion” by four prominent professors, a mix of men (an indicator of the times) who were either economists, Deans, or both like McCrea.

The article and discussion are interesting and offer more to learn and enjoy than is covered here. Of immediate bearing is McCrea’s belief that the answer to our question depends on what we think about the purpose of business schools and the nature of economics. Here is an excerpt:

“I have encountered two extremes of attitude toward relations between schools of business and departments of economics. One is based on the view which stresses the profit-making objective of business and the resulting desirability of concentrating educational effort toward this end. The other disparages this emphasis and urges the importance of saving economics from the insidious encroachment of private-pecuniary upon social-welfare ideals. (pp. 21-22)”

Oddly, the opposing views lead to the same answer, which is to separate economics from the curriculum of business.

“The proponent of the first view would confine economics to its own little compartment in the university structure, in order to hold the school of business to the primary task of training for business vocations. The advocate of the opposing view would keep economics largely in its own particular bailiwick, not to save business from economics, but to save economics from business. (p. 221-222)”

Reflecting on my own teaching experience, I can testify directly about the difficulties of combining economics and business education. While teaching managerial economics in a part-time MBA program, I was careful, almost apologetic, about explaining that economics is an academic subject, not a vocational one. We don’t do economics in the same way we do accounting, I explained to students, so my job was to curate concepts from economics that can enable them to manage organizations more effectively (i.e., profitably) and build their careers in business (i.e., get promoted and make more money).

While this might sound harmless, it made me uneasy. Economics is about what’s best for society, not just for business. I was providing only part of the picture and encouraging students to use it for their own benefit. 

Of course, anyone who believes the Friedman doctrine would say there is nothing inconsistent in my approach—teaching students how to maximize profits and pursue their own self-interest is exactly in the public interest. Alternatively, some critics of business education believe that the inclusion of economics, especially its assumptions about rational, self-interested behaviors, and competitive markets, is part of the problem with business. 

McCrea had this to say.

“In my own view, economics, wherever else it may or may not belong, does belong in the school of business. Both business and economics need to be saved from themselves. Without the presence of economics in some vital form, the work of a school of business is likely to degenerate into detailed description of business organization and procedure, with no organizing principle other than the possible one of search for effective competitive devices, and with no clear vision of the social goal of business activity. (p. 222)”

The discussants avoided disagreeing with the conclusion but offered some things to think about. A. B. Wolfe (an Ohio State professor who later served as president of the American Economic Association) suggested that the “acquisitive” approach was inevitable in business schools and that economics offered “too many things that are unreal and untrue” (p. 229) to be useful. To Chester Phillips (founding Dean at the University of Iowa) “the study of economics may be conducive to social motivation but is not essential to it.” (p. 231) He believed political science, philosophy, and ethics could be at least as useful to business education. 

Although J. C. Bonbright (a professor at Columbia University) suggested economics has a “wider angle of vision” (p. 239) and could be most helpful to examining the environment of business, he questioned how much business executives need to understand. Perhaps they are “in the position of a small boy who needs no knowledge of mechanics in order to learn how to throw a baseball.” (p. 240) Finally, Edmund Day (founding Dean at the University of Michigan) highlighted the challenge in instilling a real professional attitude in business schools when the “relation of business administration to public policy remains unlike that of economics.” (p. 243)

That was nearly 100 years ago. What has happened since then and where do we go from here? 

My impression is that business schools have become less inclusive of economics. That’s partly because separate bodies of knowledge have been developed in business subjects, such as management, marketing, finance, and accounting. Business schools are no longer compelled to recruit professors from economics departments. Surely the mathematical progression of economics has also played a role, driving the perception that it has become more academic and even less relevant to management practice.

Economics can, according to the Economist in April this year, “plausibly claim to be moving toward a unified science of business.” However, while it has come a long way (e.g., advances in asymmetric information, behavior economics, institutional economics, and more), it still falls short of a “realistic theory of the firm” and can’t ever be enough. According to the magazine, “most of what makes for a flourishing business cannot be captured in a tight theory with a few equations” and “many of the influences on any topical issue—which tech firm will win the AI race, say—lie outside its purview.”

But the Economist addresses only one side of McCrea’s equation: the evolution of economics as a discipline. It doesn’t address the shifting purpose of business schools towards societal impact (CSR, ESG, and SDGs). The social orientation, relevance to policy, and wider angle of vision of economics make it particularly useful to schools that view business education as a mechanism for positive change in business and society. 

To be sure, I’m referring to mainstream economics, not radical departures from it. It’s about material and social incentives, for example, which when combined with personal preferences, define behavior. “This behavior may or may not be in the general interest,” according to Jean Tirole in Economics for the Common Good, and economics “involves constructing institutions to reconcile, as far as possible, the interests of the individual with the general interest.” (p. 3) This highlights the opportunity to combine the experience of business schools in serving individuals and organizations with the emphasis in economics on serving society and policy.

I also believe economics can play another role in business education. In Good Economics for Hard Times, Abhijit Banerjee and Esther Duflo write that “the world is a sufficiently complicated and uncertain place that the most valuable thing economists have to share is often not their conclusion, but the path they took to reach it—the facts they knew, the way they interpreted those facts, and deductive steps they took, the remaining sources of their uncertainty.”

And it works both ways, economics as a discipline can be strengthened by the orientation towards practice at many business schools, especially the ones that are most interested in aligning business and individual actions to improve society. As McCrea duly noted, “The joining of socially motivated thinking with a knowledge of concrete, shifting reality, such as can be affected in a school of business, may well escape the puttering of the strict vocationalist on the one hand, and the futility of the closet philosophy on the other.”

Dan LeClair, CEO

Dan LeClair was named CEO of the Global Business School Network (GBSN) in February of 2019. Prior to GBSN, Dan was an Executive Vice President at AACSB International, an association and accrediting organization that serves some 1,600 business schools in more than 100 countries. His experience at AACSB includes two and half years as Chief Strategy and Innovation Officer, seven years as Chief Operating Officer, and five years as Chief Knowledge Officer. A founding member of the Responsible Research in Business and Management (RRBM) initiative, Dan currently participates on its working board. He also serves in an advisory capacity to several organizations and startups in business and higher education. Before AACSB, Dan was a tenured associate professor and associate dean at The University of Tampa.

Dan played a lead role in creating a think-tank joint venture between the European Foundation for Management Development (EFMD) and AACSB and has been recognized for pioneering efforts in the formation of the UN’s Principles for Responsible Management Education (PRME), where he served on the Steering Committee for many years. Dan has also participated in industry-level task forces for a wide range of organizations, including the Chartered Association of Business Schools, Graduate Management Admission Council, Executive MBA Council, and Aspen Institute’s Business and Society Program.

Widely recognized as a thought leader in management education, Dan is the author of over 80 research reports, articles, and blogs, and has delivered more than 170 presentations in 30 countries. As a lead spokesperson for reform and innovation in management education, Dan has been frequently cited in a wide range of US and international newspapers, magazines, and professional publications, including the Wall Street Journal, Financial Times, New York Times, China Daily, Forbes, Fast Company, and The Economist. Dan earned a PhD from the University of Florida writing on game theory.