Loving the Corporation

Bookmark and Share | Scott Hargreaves
Counterpoint 19th September, 2006

When Peter Drucker died late last year, his reputation as the "father of the modern management" was secure. Leading business figures such as Jack Welch - the CEO who led a revolution at the massive GE Corporation - credited Drucker for the insights behind some of their key business strategies.

In a similar vein, the Editor of the IPA Review once introduced an article of Drucker's by calling him "probably the best-known writer in the world on the philosophical and practical aspects of industrial management"

Nothing remarkable there perhaps, except that the year of publication was 1956, highlighting the remarkable productivity and longevity of Drucker's life as the original management guru.

Drucker's 1956 article was called "The Management Horizon", and it looked at the impacts of automation and the challenges this raised for management.

"The Management Horizon" pointed out that automation would not mean mass unemployment - as many then feared - but rather a shift in the type of work that people did. There would be more technicians required to manage the new machines, and more managers to organize the work flow. The workers in automated factories would need higher levels of education and training. No longer unskilled factory fodder they would become a new type of knowledge worker, and must be free to do their jobs properly. Innovation continues to drive wealth creation, but in a corporation it is created by systemic management processes. Fundamentally, automation of production would drive the transition to a knowledge society.

Fifty years after publication of that article, it is perhaps time to resurrect our understanding of Drucker's philosophical stance and how it informed his practical advice. This can tell us much about both the efficiency and the legitimacy of the free enterprise system.

Drucker was interested in the potential of the Corporation, because he shared the common belief that modernity had shattered the traditional social structures, but he resisted the so-called 'progressive' assumption that the State must expand to fill the empty space. This approach he maintained, was doomed to failure.

His first big idea was the "emergence of Big Business...as a social reality." He called this "the most important event in the recent social history of the Western World". Corporations don't just manage economic transactions; they have become the pre-eminent institution of society itself. A corporation - like any powerful institution - should constantly renew its legitimacy by establishing and explaining its reason for being, one aligned with the objectives of the broader society. The rise of the corporation also meant that the leading social type was now the professional manager, who had to take a leading role.

This was a social and political view of modern free enterprise and its purpose, and Drucker saw no need to evoke the so-called "profit motive" as taught in schools of economics. Unlike the left, he had no issue with profit per se. "Even if corporations were run by angels", he said "they would still need to make a profit to survive and prosper." But profit was the outcome rather than the objective of rational, purposeful activity.

Drucker wasn't much interested in debates about what Government should do to manage the economy and deliver services, because they missed the point that there was little that Government could do without stuffing it up. He was also beginning to see the potential of the third or voluntary sector to make a comeback, if only the State would get out of the road. "Most post World War II social government programs," he said, "have been disasters." Governments rarely abandon any activity no matter how bad the failure, as something like - say - the provision of electricity assumes a "moral" rather than an economic dimension, and rational resource allocation goes out the window.

Perhaps in our post-Thatcher world complete with the Third Way, we might see Drucker's critique of State activity as an unremarkable sentiment, but in 1956 it took a certain intellectual fortitude to maintain that position. The Cold War was in full swing and even many defenders of freedom believed deep down that a centrally planned economy was the superior model in strictly economic terms. Ever since Lincoln Steffens returned from the Soviet Union in 1921 and declared "I have seen the future and it works," an endless stream of fellow travelers and useful idiots helped promote that falsehood.

In the West it wasn't always the principles behind the battling ideologies which were winning the hearts and minds, but rather expectations of who might win the industrial race. Drucker was trying to establish that capitalism could be managed to achieve superior economic outcomes, while also achieving social objectives and maintaining the dignity of the worker.

When in 1956 Nikita Khrushchev famously and furiously banged his shoe on the desk at the UN and told Harold Macmillan "We will bury you", the fear in the West was as much about being overrun economically as it was about a military challenge.

Drucker had no such fear. At the age of 93 he maintained the position he had reached when he left behind Nazi Germany as a young man to head for the USA: "I am for the free market," he said, "even though it doesn't work too well, nothing else works at all".