Reflections on ACR 2008 in San Francisco, II: Amazing Speech

I left off the last blog entry where John Deighton was coming to speak at the Doctoral Symposium at ACR this year in San Francisco, on Thursday October 23rd at the lunchtime Plenary Session. He had no PowerPoint’s and was reading the presentation off of his laptop, which was an experiment that he predicted would likely end in failure.

It was anything but a failure. What I gathered from John’s presentation truly clarified and captured what I was just beginning to detect in the zeitgeist of the American spirit, as I wrote about just a little while ago in this blog.

John’s presentation took a historical view. He took us back to the changes in business schools in the 1950s, after the Carnegie and Ford Foundations examined the state of business schools in America and found them lacking. They were places operated mainly by ex-business people, and were teaching business based on anecdote. The foundations called for a more scientific approach. Almost overnight these schools transformed themselves into scientific institutions. They hired Ph.D.s in basic fields. They built applied fields for themselves in a matter of years.

According to John, the two crowning achievements of these years were both in the field of Finance, both were derived from Economics, and both had much of their origins in the university of Chicago and its Economics department  and approach.  First, the Efficient Market Hypothesis, that asserted that the market always knows best, and can adjust itself accurately to demand without the need for heavy-handed regulation. Next was the Markets and Hierarchies and agency theory approaches drawn from the Transaction Costs approach of Oliver Williamson, which provided a rationale for deregulating economic actions and allowing self-governance and self-regulation.

According to John, these two theories had an impact akin to that of a religion. They provided the ideological underpinning for a half-century of Milton Friedmanesque deregulation of one market after another.

And again, according to John, we had just seen the ultimate defeat of this perspective. The death knell of this Chicago economics ideology was ringing in the air all around us.
I must say that, ever since I became a business school professor in 1997, finance was always the major that attracted  many of the best students. This has always, for me, been just “the way it is.” Investment banking, merchant banking, financial positions-these were the ones where  people could make the most money the fastest, and this suited many MBAs just fine. Marketing was for those with a bit more of a creative,  expressive, curious,  streak, those who put some sort of job satisfaction above the goal of simply making massive incomes (although massive incomes would, of course, be sort of nice).

What was going to happen now that banks and finance companies were failing?

This wasn’t just an oncoming recession. This was the End of The Era of Unregulated and Self-Governing Finance. The end of the endless trough, the Big Feeding Frenzy Party. Could it be the end of Big Business and Big Finance regulating themselves? This could, conceivably, be the beginning of something like the post-Depression Era, the Roosevelt New Deal Projects-the age of bigger government, of (gasp-don’t-say-it-in-front-of-the-children)-a more Socially adept (don’t say it), socially aware (don’t say it), yes, Socialist-style government in American (damn! I said it). Yikes. Or, Whoah. Or Wow.

This is real Sea Change stuff.

John tied his talk up by bringing in the connection to the field of consumer research. In this new era where Finance’s EMH had been discredited, where  finance no longer held its position on the high point of the b-school and business pyramid, where regulation, negotiation,  and understanding public policy were coming into positions of prominence, in this new era where would business need to turn for the answers that vexed it.

According to John, there was no one better suited to formulate and answer these questions than the scholars who were in the building for ACR, for the following reasons.

  • We are already deeply involved in understanding the mechanisms of consumer choice and consumers’ actual behaviors.
  • We are already concerned with the effects of marketplace behaviors, and formulating recommendations to ameliorate and improve unintended consequences and ill side effects.
  • We have achieved  impressive levels of scientific understanding, from fieldwork to Bayesian models to lab experiments, about the ways that markets and consumption really work, as opposed to the ways that they were supposed to work and that had been assumed, reified, then deified in the halls of Finance Departments around the world.
  • We have many active,  important ties to industry, and to the parts of industry that actually interface with the world, with regulators, with public relations people, with advertising and media, and with consumers themselves.
  • And we are beginning to flex our muscles in the field of social policy.

This was heady, amazing, call-to-arms stuff. Powerful stuff. For me, John’s speech was one of the major highlights of ACR 2008. I’ll tell you more about some of the other highlights tomorrow.

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