Peter Drucker RIP

Peter F. Drucker the father of post modern management passed away Nov. 11. He was a student of Joseph Schumpeter and classmate with leftwing economist Karl Polanyi. And while they both came out of the ecomomic mileu of Vienna both of them rejected Von Mises and Hayek for different reasons. However in the end Drucker would end his life rejecting the very capitalist system he, like Polanyi, would attempt to ameliorate. Last weeks Business Week reported on Druckers passing and his disenchantment with capitalism;

The story of Peter Drucker is the story of management itself. It's the story of the rise of the modern corporation and the managers who organize work. Without his analysis it's almost impossible to imagine the rise of dispersed, globe-spanning corporations.

But it's also the story of Drucker's own rising disenchantment with capitalism in the late 20th century that seemed to reward greed as easily as it did performance. Drucker was sickened by the excessive riches awarded to mediocre executives even as they slashed the ranks of ordinary workers. And as he entered his 10th decade, there were some in corporations and academia who said his time had passed. Others said he grew sloppy with the facts. Meanwhile, new generations of management gurus and pundits, many of whom grew rich off books and speaking tours, superseded him. The doubt and disillusionment with business that Drucker expressed in his later years caused him to turn away from the corporation and instead offer his advice to the nonprofit sector. It seemed an acknowledgment that business and management had somehow failed him.
The Man Who Invented Management

Drucker and Polanyi as students of Schumpeter, and survivors of the economic and poltical changes occuring in the world after WWI saw the failure of Vulgar Marxism, the belief in the ultimate crisis in the capitalism business cycle would create a revolution, and its supercession not just by Keynesianism but by a new rebirth of Capitalism from the ashes of the Great Depression. Unlike the Vienna School of economists both Polanyi and Drucker shared a common concern that economics was NOT divorced from society.

However, when Polanyi argues that it is the advent of the economic logic that destroys the social fabric, and that the latter protects itself through, for instance, the social regulation of labor markets, environmental pollution, and financial speculation, he seems to be treating not only "the economic" as an autonomous extra-social logic, but also "the society" as an undifferentiated whole. When "the society" is pegged against "the economy," it becomes difficult to see how "society" may be divided between those who do and do not benefit from the rule of markets and how "the economy," including the institutions of market society, is always shaped by political struggles, animated by cultural codes, and most importantly, embedded in economic theory.Karl Polanyi: Freedom in a complex society

Gone was the Fordist production model of industrial capitalism with its Tayorist management theory of fitting the worker to the machine. The workers aspiration for revolution were dashed by the failure of the Bolshevik revolution to ignite a world revolution, with the reactionary counter-revolution of fascism, and with capitalisms rebirth through war, when it seemed doomed in the Great Depression.

Keynes, Schumpeter, and Drucker all viewed the world from the influence that the failed workers revolution of the 20th century had had on capitalism. Druckers conclusions and predictions were based on the aspirations of the worker as a human being in the corporation not as an institution but as a community. These were exactly what workers who created Workers Councils and practiced Worker Self Management, during the revolutions in Russia and Europe and later during the Spanish Civil war, were decrying capitalism for.

Drucker's model of management is the Self Management of the failed workers movement, in the same way that Keynes economics was influenced by the need for capitalism to meet the social demands of the working class, unemployment insurance, benefits, the sharing of the good life capitalism promised for all and not just the elite. Schumpeters view that capitalism must overcome its bourgoies nature, and become the capitalism of everyman sums up what this school of post-modern capitalism offered the post WWII world.


-- It was Drucker who introduced the idea of decentralization -- in the 1940s -- which became a bedrock principle for virtually every large organization in the world.

-- He was the first to assert -- in the 1950s -- that workers should be treated as assets, not as liabilities to be eliminated.

-- He originated the view of the corporation as a human community -- again, in the 1950s -- built on trust and respect for the worker and not just a profit-making machine, a perspective that won Drucker an almost godlike reverence among the Japanese.

-- He first made clear -- still the '50s -- that there is "no business without a customer," a simple notion that ushered in a new marketing mind-set.

-- He argued in the 1960s -- long before others -- for the importance of substance over style, for institutionalized practices over charismatic, cult leaders.

-- And it was Drucker again who wrote about the contribution of knowledge workers -- in the 1970s -- long before anyone knew or understood how knowledge would trump raw material as the essential capital of the New Economy.
The Man Who Invented Management

Drucker grasped the mundane fact that prosperity and democracy are the result of most people spending most of their time working for others. Somehow the crooked timber of mankind has to work as one. It has to organise and thus be managed.

After the second world war Drucker did something unprecedented: he examined a company, General Motors, as a social phenomenon. He saw it not as a Victorian sweatshop but as a living, breathing institution whose chief creative resource was its staff and customers. The resulting masterpiece, The Concept of the Corporation, appalled GM and its executives were banned from reading it. It sold millions, notably, the author noted wryly, in Japan.

Drucker was a radical conservative. A passionate capitalist, he realised that companies which behaved as mere assembly lines to enrich their owners soon fall victim to state control, as they had in fascist Germany. (He also noted that assembly lines moved no faster than their slowest operative.) Workers had in some sense to “own” their work or they would not innovate.

From this he evolved the concept of the “knowledge worker”. He invented, or first articulated, concepts such as decentralisation, privatisation, teamwork, globalisation, management by objective and corporate social responsibility. Companies must be part of American society, the American dream, he said, or good people would not work for them and bad people would capture them and need ever-tighter regulation. Drucker’s writings and preachings made corporate America respectable again after the Depression.

How my hero would have wept at Whitehall’s mad managers

The Engineer Edward Deming inspired by Druckers work developed his management model, another subversion of workers self management, TQM; Total Quality Management. Today we know it for just in time production, multi-tasking, worker empowerment, etc. all the language of the self managed workers movement now turned on its head and used against the workers to guarntee a profitable capitalist enterprize.

Drucker and Deming's ideas were not accepted by American corporations until they face two major economic crisises, the first after the Oil crisis of '74. And later after the economic melt down with black October on Wall Street in 1987.

I think that economics sticks to the behavior of commodities. Absolutely. Consider the Arab oil boycott; it was very easy to see in 1973, and I was one of the few who said it would fail, because unlike modern American economists I do know a good deal of history. And modern American economists are incredibly ignorant of history— unbelievably—especially of economic history. But cartels have never lasted ten years; the only cartels that last are cartels that systematically cut their price, and OPEC made no signs of doing so, yet it isn't going to last. All 'a cartel does is signal the end of the dominance of its industry. That's it. And people will, when petroleum becomes expensive, find ways of doing with less. People will switch to different cars. In that sense I'm very much an economist. I believe in rational behavior, economically rational, in economics, but I do not believe that it is the dominant rational behavior, it is dominant in certain situations which people see as economic situations. But look, if you take the theme petroleum and then go back to the Depression, gasoline consumption didn't go down at all because people in this country discovered that wheels are more important than food. Freedom is more important than food. Now that is not an economic fact.

And so, long ago, I saw economics as an extremely important way of looking at things. But I don't accept the idea that it is a science, that it is mathematical, that it is rigorous, and that it is autonomous. In American economics today, there is no basic economic theory—no theory of price, no theory of value, no theory of change, no theory of the correlation of technology and economics, no theory of work—all the basic problems of economics are excluded because they are not capable of being quantified. That's much earlier, that's 1920. Economics is the last discipline in which logical positivism [the doctrine that the only truths are those affirmed by the methods of natural science] still holds sway, and that's why you can predict with certainty that this is the last generation of modern economics. Because in everything else, logical positivism is gone. And you know I was born into it. Logical positivism is the result of the marriage of America and Vienna. A Conversation with Peter F. Drucker

Their work was accepted by the post War economies of Japan and Germany. With Schumpeters observation of the Creative /Destructive nature of post modern capitalism came the rebirth of these two countries as economic competitors with America. And they did by adapting their unique forms of state capitalism to fit Druckers and Demings management structures. In the case of Japan it was the hierarchical creation of MITI, the joint state, business, banking corporation, which determined production for years in the future. In Japan it also took the destruction of the unions to be able to introduce Demings TQM models of production, where the workers once again was loyal to the company. The old paternalistic capitalism was writ large across the face of Japan.

In Germany it was the model of tripartism that succeeded, where state capitalism functioned through Works Councils, which meant the unions, corporations and the state shared in the risks and wealth of the growth of the German economy. This meant workers on the Boards of corporations, and a national strategy for growth much like Japan.

Schumpeter, Drucker and Demings were the new models of post modern management of capitalism, models of comptetive state capitalisms that gave America a run for its money. America still a nation of corporations and institutions in competition with each other did not accept the Drucker model of management nor Demings until the economic crisis of the late 1980's and eraly 1990's.

It was used to smash unions, roll back wages and benefits, outsource work, privatize the public sphere, and to get more work out of workers for less. It was the Wal-Mart greeter as happy worker in the corporation as community. No wonder in his last years Drucker turned his back on corporate America who had so abused his ideas.

CR: Do you think that your writings on management lend themselves to misuse?
PD: Most people, most laymen, when they hear management hear business management, but that is their mishearing. And from the beginning, even though my first books dealt with business simply because it was the only experimental area available, my public has been, especially in this country, at least as much nonbusiness as business. And you have a very peculiar situation because in this country by merely, believe me, pure historical accident: The study of organizations is located in the business school largely because the political scientists in the late nineteenth and early twentieth century focused on constitutionalism and thus failed to see the emergence of the civil service and of government as an institution.

Concern with the working of government came out with the New Deal. Actually, Herbert Hoover was the first one with an interest in it, but no one picked it up until the New Deal. Very late. And then it was organized as a separate discipline and called "public administration," which is probably one of the most boring things we ever created; it deals only with procedures.

And so we had no focus where one could look at the new reality of an institution after this. Even now your liberal arts tradition considers organizations to be abnormal. Here is Ken Galbraith, who writes a book which argues that there exists two institutions: first the government and then business. It never occurred to Ken that Harvard University is a very powerful institution. I once said to Ken, an old friend, at dinner, "Your last book is a tour de force but, you know, from a Harvard professor, no mention of the university as an institution is a little funny." And he looked at me and said, "My God, I never thought of that." And he doesn't know that the labor union and the hospital are institutions. A Conversation with Peter F. Drucker

And this is the very failure of the American Ruling Class, both its poltical and economic arms, remain divided, as does its ideolgy as reflected in the Free Market Liberaltarians on one hand and the Republican War Party on the other. That failure is why in Canada an American style neo-con movement has failed, because our civil society is made up of insitutions, organization, and the 'individulaist' ideology of American liberaltarianism is out of touch with the rest of the world. It is a throw back as Drucker correctly points out to the 19th century. There are no new ideas coming out of the neo-cons despite the 'neo' in their name.

Drucker on the other hand understood that modern capitalism had become dominant, that it is reflected in all aspects of society, not just the board rooms. In fact his work in the NGO and non-profit sector showed that this was no longer the volunteer sector but a growing area of new capitalist organization.

His insights, like Polanyi's, into the function of capitalism as social organization while neither Marxist nor Anarchist benefits both in adding to a radical understanding of capitalism being the dominant social realtionship of society. As much as Foucault has with the issue of governability. And while Foucault is more popular with the Left, a little Drucker could go a long way to understanding how capitalist organization dominates all social institutions including unions, academia, meals on wheels, etc. Those who fail to see capitalism as a social relation, and only as an economic system will continue to miss this point.

"Economic liberalism was the organising principle of a society engaged in creating a market system. Born as a mere penchant for non-bureaucratic methods, it evolved into a veritable faith in man's secular salvation through a self-regulating market.... Only by the 1820s did [economic liberalism] stand for the three classical tenets: that labour should find its price on the market; that the creation of money should be subject to an automatic mechanism; that goods should be free to flow from country to country without hindrance or preference."

"There was nothing natural about laissez-faire; free markets could never have come into being merely by allowing things to take their course. ... Laissez-faire itself was enforced by the state. The [1830s and 1840s] saw not only an outburst of legislation repealing restrictive regulations, but also an enormous increase in the administrational bureaucracy able to fulfil the tasks set by the adherents of liberalism. ... Laissez-faire was not a method to achieve a thing, it was the thing to be achieved."

"This paradox [of the need for a strong central executive under laissez-faire] was topped by another. While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not."

Karl Polanyi