On business education and apprenticeship

America went into economic decline starting in the 1970s. Figuring out why may lead to a solution (one can hope …), so I sort of obsess over it.

I have suggested that a rising education level in the country likely led to a decline in the choice of manufacturing-based jobs, thus contributing to a decline in innovation (it is hard to innovate when you are not building anything, since the act of building exposes some of the best problems to solve). Without innovation, you lose the advantage you hold over your competition, and so you have to compete on price — an inherently lower-margin approach. I think a decline in innovation is what ultimately caused US economic growth to drop sharply, from three and a half percent to two percent in the early 1970s.

However, it is not immediately clear which cause begat which cause — innovation in America drying up, ultimately causing firms to lower their costs by outsourcing; or firms outsourcing their manufacturing, thus pushing away from themselves most of their opportunities for innovation. Both result in the decline in innovation, both potentially cause the drop in economic growth. But which is the initial catalyst?

I think the answer is both. The key is a long discussion I had with an economist the other day.

We were talking about innovation, tech, random stuff, and he gave me his perspective on formal education vs. business sense. His father had owned a factory a long time ago and was very selective about who he hired. He had found that one of the primary keys to manufacturing both efficiently and well was the experience level on the manufacturing floor: in particular, the old-timers knew what they were doing. Over the years, these guys had accumulated a significant amount of knowledge of how to do their job well, so that high quality output was ensured. The thing was that this knowledge took the form of “tricks of the trade” … more specifically, these were “tricks” that the old-timers were not particularly interested in sharing with strangers. Why? Because if you teach a new-hire stranger how to do your job as well as you do, who’s to say he doesn’t eat your lunch the next day? Come to think of it, that also describes the relationship between US engineering education and the rest of the world.

Anyway.

Conundrum: how do you hire new people and get them up to speed in the closely held tricks of the trade? How do you convince the old-timers to give up their secrets willingly?

Solution: you hire their kids.

This goes back to the age-old apprenticeship mechanism, whereby a master in a trade (or artform) teaches someone the knowledge he has accumulated over a lifetime of working in the medium. The apprentice is usually a child of the master or the child of a known and trusted friend. Why is this important? If you accept as an apprentice someone you know and trust, then

  1. you have a vested interest in seeing them succeed, and
  2. they are unlikely to stab you in the back and eat your lunch once they learn your secrets.

This guy’s dad, the factory owner, made a point to hire the children of his workers. The workers on the factory floor shared their manufacturing secrets with their kids, the factory hummed along, everybody was happy.

The monkey wrench, the economist said, appears when you get someone in charge who doesn’t understand this relationship (which, I’m going to hazard a guess, covers most executive officers on the planet). He described what happened when a typical MBA is put in charge: the new executive brings in strangers as employees; predictably, knowledge is not shared from the experienced employees to the new hires, and that knowledge is ultimately lost by not being transferred. In such a situation, a factory either becomes less efficient, or starts producing lower-quality output, or both.

So — here’s the theory. Two forms of education were on the rise in the mid- to late-1900s. One was the rush to college (discussed earlier); the other was the rush to business school. I think we have two complementary effects:

  1. The rush to get bachelor’s degrees produces a white-collar work force that is not “in the trenches,” is thus isolated from many of the realities of manufacturing the product, and so cannot innovate as effectively as before. Innovation declines, and, as a result, manufacturing declines … is ultimately outsourced.
  2. The rush to get MBAs produces an executive class that, for whatever reason, is somewhat detached and isolated from many of the realities and details (e.g. inter-personal dynamics) that can make the difference between a good company and a great company. Manufacturing suffers (potentially), is outsourced as an attempt to solve the problem, and, as a result, the potential for future innovation is all but eliminated.

Effect #1 directly reduces the degree to which the American work force innovates. Effect #2 increases the likelihood that an American executive could decide to outsource without realizing the potential deleterious effects. Together, both spell the end of American productivity.

I’m guessing that education, in both these forms, is the culprit behind our end of affluence.