Do you still need an MBA?

This article was originally featured on The Economist.

THE master of business administration (MBA) is no stranger to damning criticism. In the 1950s an influential report commissioned by the Ford Foundation lambasted the degree for being weak and irrelevant. In the 1980 Business Week reported that firms were bemoaning the inability of newly minted MBAs to communicate, their overreliance on mathematical techniques of management and [their] expectations of becoming chairman in four weeks. In the 2000s observers noticed that firms involved in corporate disasters, such as Enron and Lehman Brothers, tended to be run by alumni from prestigious business schools.

192,000 masters degrees in business were awarded in America in 2012, making it easily the most popular discipline among postgraduate students

Yet the MBA remains hugely popular. Nobody knows exactly how many people study for the degree globally, but 192,000 masters degrees in business were awarded in America in 2012, making it easily the most popular discipline among postgraduate students. Worldwide 688,000 people sat the GMAT, the de facto entrance exam for MBA programmes, in 2014—although this is down considerably from 2008, when 745,000 took the test. The reason for this drop is partly cyclical: people tend to apply to business schools during downturns in an attempt to shelter themselves from the economic storm. But the MBA faces many longer-term problems. The most pressing is tighter visa requirements in parts of the rich world. It may seem obvious that countries would wish to attract and retain the brightest young minds. But to the despair of business-school deans, both America and Britain—the two most popular destinations for foreign students—now place tougher restrictions on foreign students who want to stay and work in the country after they finish studying.

In America foreign MBA graduates must find a firm to sponsor them for an H-1B visa, which entitles them to work for up to three years in the country, with the possibility to extend to six years. But the demand for these visas by far exceeds supply. America caps the number of H-1Bs at a total of 85,000 (the first 20,000 applications are reserved for students of a master’s degree). These are snapped up within days. In Britain graduates must find work even before their student visa expires if they want to stay in the country.

Such restrictions are a particular problem for MBA programmes because many students choose a business school based on where they want to work after they graduate. Predictably, countries with a more welcoming attitude, such as Canada, are seeing applications from abroad rise. In contrast, the proportion of applicants interested in American schools fell from 83% in 2007 to 73% in 2015, according to GMAC, a business-school body.

Canada and other countries do not just covet foreigners deciding whether to apply to American schools. The Canadian government has hired giant billboards in Silicon Valley reading “H-1B Problems? Pivot to Canada” to attract disgruntled foreign graduates. “If [American firms] can’t import the talent, they will export the jobs,” says Matt Slaughter, the dean of the Dartmouth College’s Tuck School of Business. “Unlike lawyers or doctors, the MBA qualification is transferable across borders.”

“Western business schools are losing ground to those based in emerging economies”

Such concerns highlight the fact that MBA graduates are still in demand among employers. At schools included in The Economist’s latest ranking of full-time MBA programmes, 89% of students found a job within three months of graduating. Their median basic salary is close to $100,000, an increase of 88% compared with their pre-study salaries. But some things have changed: banks, for instance, have become much less keen on MBAs since the financial crisis (perhaps because business-school alumni were often singled out as the culprits).

Western business schools are also losing ground to those based in emerging economies. The share of students who send their GMAT scores to an Asian and Australasian business school—a good proxy for applications—has nearly doubled to 8.1% since 2007. Eight-and-a-half Asian business schools now make it into our ranking of full-time programmes (INSEAD has campuses in France and Singapore). These numbers are small, but they are likely to rise. China, in particular, plans to improve its business schools to meet demand for local managers.

Established schools are also disrupting themselves. Over the past five years the number of master-in-management (MiM) degrees, which unlike MBA programs admit students straight from university without prior work experience, has shot up. In America even schools such as Michigan, Duke and Notre Dame are embracing what was once considered a strictly European qualification. Despite covering much of the same ground as an MBA, MiM programmes also tend to be much cheaper. Every student who graduates from them is likely to be one fewer lucrative MBA candidate in the future.

Not all business schools are affected in the same way. Students will always, it seems, want an MBA from Harvard, Chicago or London Business School. It is those with lesser reputations that face the toughest times. More than two-thirds of full-time programmes costing under $40,000 a year reported either flat or declining application numbers in 2015, according to GMAC. In contrast, most of those charging more than $40,000 said that their applicant pool had grown.

That suggests an oversupply of MBA programmes. Those taking an economics class in one of them might reasonably expect a shakeout. Alas, in the world of business schools such laws do not seem to apply. No matter how few people an MBA programme can attract, few schools will countenance dropping the programme altogether: a business school is defined by its MBA. As Stephen Hodges, the president of Hult International Business School, puts it: “Is a business school really a business school if it doesn’t offer an MBA?”