Why business schools charge so much and pay their teachers so little

Look under the hood to figure out if that MBA is a lemon.
Look under the hood to figure out if that MBA is a lemon.
Image: AP Photo/Nati Harnik
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You and I know why business schools charge so much for an MBA.

Because they can.

But why do they pay so little to everyone except their superstars?

It’s not just because they can. I think the real reason is much more sinister than that.

Once upon a time—before starting my MBA at NYU in the early 1980s—I thought that there was something wrong with extracting the most from someone while giving the least in return. That was back before my first finance professor said, “The sole objective of the professional manager is to maximize the net present value of the wealth of the owners.”

I had an ethics class where the explicit message was, “Crime doesn’t pay.” But the implicit message was, “It isn’t a crime if it is merely immoral and not strictly against the law.”

At no time during my MBA did I learn how to make a product—any product.  But that was OK. I was already a pretty good programmer and I didn’t need NYU to teach me how to make things. However, I was only a part-time student and freelanced full time to pay for school. I needed to learn how to get clients.

So I took a marketing class where the professor began with an old joke, “How can you tell if a salesman is lying?” Answer: “Because his lips are moving.” Then he told us about channels and pull and push and a bunch of other stuff I don’t remember. But he didn’t teach us how to sell, which I think he considered beneath him.

Good Old-Fashioned Ethical Salesmanship

So I paid $95 to take a day-long sales training seminar organized by the Independent Computer Consultants Association. It was taught by a older man named Jules Marine who I think sold something along the lines of insurance or real estate. He offered a full refund if we were not completely satisfied for any reason.

Before beginning, he asked everyone why we were there. One student said he was there to learn how to bend people to his will.

“What about what other people want?” Jules asked.

“I don’t care what others want,” the student said. “I want what I want.”

Writing him a refund check, Jules told him to leave because he did not meet the minimum moral or ethical standards to be his student.

The student objected, saying he really wanted to stay, but Jules said, “That is what you want, but it is not what I want. Now leave.”

You need to want what you need

After the student left, Jules said that people have needs and wants, and people do what they want; that fact is baked into the definition of “want.” If you do something then that is evidence you want to do it, and if you don’t do it then you can only stake a claim to wishing you did it, not actually wanting to do it.

If you lie and say you have no choice then you are actually telling two lies. What you want to do is lie—either because you have a hard-to-break habit of lying, you want to benefit from lying, or you do not want the consequences of the truth. If you say you must lie, then you are also lying to yourself because you want an excuse. The only way to want to tell the truth is to tell the truth. Honesty is not the best policy; it is the only policy.

Your job as a salesperson is to help people identify their needs. But people don’t act on their needs. They act on their wants. After identifying their needs your job is to get people to want what they need.

Getting people to want what they don’t need is to do them harm. Life is too short to spend it harming people, no matter how much or how little you are paid to do it.

It is noble to help people identify their needs and motivate them to fill those needs. There is nothing wrong with getting paid well for doing noble work.

You must give value for money if you want to avoid insomnia

Jules explained that you must give value for money if you want to sleep well at night. Costing more than you are worth is a form of fraud. What you are worth is the lesser of the value to your client (intrinsic value) and the price of the equivalent or better alternative (market value).

In addition to all this, Jules taught other things that changed my life. I wrote about one of them in my prior Quartz piece: Three steps in getting what you want. Jules was a disciple of Earl Nightingale, who was a radio announcer and motivational speaker from the 1950’s and 1960’s. You can get snippets of his philosophy here: How Much Are You Worth, and Let’s Talk about Money.

I believe Jules’ $95 one-day seminar was worth more than my entire MBA, which cost me years and all my savings and came with no guarantees. Apply Jules’ moral standards to business schools and you might say they are committing massive fraud. Apply NYU’s standards to Jules and you might say he was leaving a ton of money on the table. You decide.

Delivering low value for high price—a case study

More recently, a friend asked me to speak to the professional development class he taught at NYU grad school. Although he might be a fine academic in his field, when it comes to building a career or hunting for a job he is less than an expert. Although I am no expert either, I have some interesting ideas and have helped lots of people find work, so I guess that is why he asked me to speak to his students. I talked about some of the things Jules taught me.

I got good feedback from my talk, and was briefly happy with myself. I believed I was worth more than I charged, which was nothing.

Then, on the way home, I started to think about it.

The class meets for two hours once a week for 15 weeks. It was two credits that cost $1,600 each for a total of $3,200. That means each of the 25 students paid $213 to hear me speak for 2 hours. NYU collected $5,333 for just that one class and $80,000 for the entire semester.

Let’s apply what Jules Marine taught.

Why were the students there? It was required. What do the students want? A class.

How do we know it? Because that is what they did; they spent their money on a class. This is easy to understand. They are comfortable going to class and uncomfortable doing what it takes to get a job.

But what do they need? A well-paying job. (Many of the students told me they went heavily into debt for their degrees and had no choice but to find a job that pays well.)

So, our first order of business is to get students to want what they need and act accordingly. If our product does not get them what they need (a well-paying job) then we are not delivering what they need, no matter how we package it, and no matter what they think they want.

Imagine we admit we cannot help anyone actually get a job, but we can teach them about getting a job. The market value for knowing about getting a job is approximately $9.99, the price of What Color is Your Parachute on Kindle. If you study that book and know everything in it, then you will know more than me, or the professor, or just about anyone looking for work. Maybe we can charge $20 for that book and sleep at night, but surely not $3,200.

Of course knowing about how to get a job is not the same as knowing how to get a job. And knowing how to get a job is not the same as getting a job. Someone who knows just barely enough to land the job they actually land is more employed than someone who knows a ton about how to land a job but never does anything to land one.

Getting yourself to want something enough to act is called motivation. The market value of two hours of motivation is perhaps $20 per hour in a group setting. It is reasonable to charge $600 for a 15-week class with a great instructor who takes you through What Color is Your Parachute.

Imagine the graduate school had taken in $600 from each of the 25 students for 15 two-hour motivational talks. Had that $15,000 been split evenly with the instructor then everyone should be able to sleep at night.

But that is not what happened.

Hope for the future?

I don’t hate everything about NYU. For example, one of my favorite authors, Jonathan Haidt, works there. His first book, The Happiness Hypothesis, taught me how to be happier. I especially recommend his chapter on love and attachments, offered free online. I also like The Righteous Mind because it explains why I can get so righteous about things such as what a rip-off colleges can be, and more importantly, how I can listen to people who disagree with me. You can buy both books for $20, which is what NYU charged each student for 11.5 minutes of my talk.

Haidt is helping build, which says it is a “non-profit collaboration of researchers, most of whom are based in American business schools. We all share the conviction—backed up by research—that in the long run, good ethics is good business.”

I wonder if business schools believe good ethics is good education too. Do their faculties only research ethics, or do they also teach? Do they teach about ethics, or do they teach how to be ethical? Do they teach with only words or also by example? Would they invite me to tell their students what Jules told me even if some of the ideas are backed not by research but by common sense and soulfulness? If so, I am available, and I guarantee I will be worth what I will charge, which is zero. Will they offer a money-back guarantee that I’ll be worth what their institution charges to hear me, or anyone else for that matter?

I await my alma mater’s reply.

How the Evil Empire gets the serfs to sleep at night

I imagine being a struggling adjunct getting paid only $7,500 to teach a two-credit class. I imagine I have a PhD and therefore I must be worth what I am paid even thought I am only teaching about how to do something and not actually motivating anyone to do it. I feel good about myself and am about to go to sleep.

But as I drift off, I imagine hearing Jules say, “It doesn’t matter what you are paid, it is what the customer pays that counts. Imagine they paid you the full $80,000 directly? Are you worth that?” I wake with a jolt, but then I say to myself, “I know it is wrong, but I have no choice. I have to do it because I need the money. Besides, it’s the same everywhere.” I start to doze off again.

Then I hear Jules say, “If you are doing it then that is what you want to do it and you just want an excuse so you don’t have to admit that what you are doing is wrong.”

I realize that there are lots of institutions just like mine, all working the same con, and they are paying me peanuts so I can sleep. Then I imagine I am nothing but a serf working for an evil empire.

I no longer want to sleep. Instead I want to write an article about how, if adjuncts were paid the majority of the take, then they would no longer feel like the exploited but like the exploiter.

How do we know I wanted to write an article?

Here it is.