This is very true, and I have noticed the same thing in the field of composition (at least as it exists in the university setting). It is the norm to come across students who have, for example, taken 3 years of harmony and still cannot compose a solid and convincing bass line.
Also, their notion of counterpoint is often very weak - I remember one of my professors describing it as something that we must do but will never use...yes, a university professor said this.
In terms of composition, many professors (in my experience) suggested nothing more than 'weirdifying' by adding random special effects and cutting a 16th off of, otherwise, square measures. I would be hard pressed to find someone in my faculty who could do a simple and effective orchestration of 10 bars of a Beethoven piano sonata. We are not talking about wonderful artistic orchestration, like Ravel, I mean something simple and elegant...like Mendelssohn. If they don't have the basic materials of music down pat, no wonder they can't compose anything that is coherent and convincing.
This applies to performance in a slightly different way. If a performer has no notion of harmony (what specific chords imply in terms of accent and voicing) or counterpoint, they will never achieve anything beyond a so-so performance in which they play all of the right notes. Just as an example, I was listening to Michelangeli playing Beethoven's Op. 2 No. 3 - he is so sensitive to changes in colour and subtle differences (a new counterpoint to the main melody, for example), and as such, his playing has incredible depth to it.
That's really a shame. I think the lowering of basic music standards (counterpoint, harmony, analysis) is a political victory for musicians of a certain style, who don't believe that such standards should be elevated over others as being of true technique. Going to composer forums these days, one is often surprised that those who choose to identify themselves with classical music have the harshest and most political criticisms of it. I lament this identity crisis, and try my best to keep political considerations out of music.
I optimistically believe that someday people will return to the true techniques of writing music, and a new era can dawn. I believe this of a lot of things, though; I also believe that churches should maintain what are today traditional liturgies, in spite of the massive success of non-denominational mega-churches. Churches too go through an identity crisis, and often seem to be their own worst enemy. One should love who one is, and what one does, and if one does not love oneself, one should do something different with themselves, and not try and change the world that many others love.
Or take dancing. Recently there has been a surge in young people interested in ball-room dancing, that is, dancing with technique. Why? Because if you go to the clubs, and see the way they dance there, you will realize right away that that is not the way one will be dancing at one's 50th wedding anniversary. Or hopefully not the 5th either.
This is why I am optimistic: society loosens its bonds, and people try and disdain the old in favor of the "new," whch is never really new anyways - then society collectively seems to realize what it is missing.
I leave you with a quote from Steve Reich, one of the most "modern" composers of our time:
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"Another thing you learn at a conservatory is to study the music of the past, and to imitate it yourself. And that is a worthwhile activity. To come up with an original style while you are still a student may occasionally happen, but generally speaking, what happens when you're a student is that you are imitating older styles.
Also, you may be doing exercises in formal disciplines like four-part harmony or species counterpoint, and you may wonder to yourself, what possible use will this have for me? Well, I would like to say that I remember being about 35 years old and writing Music for Mallet Instruments, Voices and Organ, thinking to myself, "My gosh! I'm 35 years old and I'm writing four-part harmony."...
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Walter Ramsey