Wednesday, July 7, 2010

Community: The Concept of the Corporation Chapter 3

A student of mine, who has been my regular discussant on the community nature of business, has just returned to his home to take charge of an educational institution. He participated in the group as a high school student and is looking forward to leading it. It gave him, and a large group of other students, a new perspective of themselves. It is clear that as a leader, he hopes to expand that role.

He’s going to an organization that is in pretty good shape. No debts. No major problems. He needs to update the group’s technology but that is a fairly trivial issue. Yet, he’s going into it with hope, with a desire to do something new, to do the kinds of things that were one important to him.

Tuesday, July 6, 2010

Imperfection: The Concept of the Corporation Chapter 3

Imperfection. Drucker is talking about the need to understand the importance of the imperfect nature of society while supporting its goals. He has an interesting phrase. “Nothing is more contemptible than the sum resignation to the inevitable imperfections of society which in all ages has characterized the Philistines. (So long as the Philistines are a literary society, the provides a metaphor for a certain type of action, his insight is fine. Should there be a Philistine Anti-defamation organization, then he is in trouble.)

He writes about American society as dualist, as both pragmatic and realistic, but he is really talking about hope. We are best when we are a hopeful people, when we expect good, when we see the thing with feathers that hovers in the air, when we know that it has a substance.

Monday, July 5, 2010

Take America Back: The Concept of the Corporation Chapter 3

Drucker notes that Americans have a fluid connection to their society. In Germany, he could find people who despised the Nazis but loyally fought for their country in the second world war. He sees Americans as loyal to this combination of pragmatism and idealism. The loyalty produces the “take it back” mentality, the idea that the institutions of society no longer meet the goals of society and hence need to be reclaimed by those tho really understands those goals. In the 1960s, the left made those claims. It is now the right raising that issue. And so things progress.

Corporation as Social Institution: American Beliefs: The Concept of the Corporation Chapter 3

Drucker argues that American society has its foundation in Christian theology. While this claim has certain truths, in that the individuals who established that society and indeed the people who ran it through Drucker’s time, had that foundation, I wonder if this idea limits the usefulness of Drucker’s analysis. The challenge that this idea presents is the confusion that American society promotes Christianity or Protestantism or that it should do so or that it fails to do so. But if you back away from that controversy, you see a foundation for society that is easy to miss if you just claim that the founders were merely rational humanists of the enlightenment or that the 19th century leaders were merely following the logical steps of capitalism.

There is nothing in capitalism that calls for ethics. Indeed, the idea that the buyer should beware is only to prevalent. But there are indeed forces that demand that business transactions be ethic. It is easy to dismiss some of these forces as naive or quixotic but they are sincere, as Drucker notes, and see the gap between the ideal and the present reality. They are seen in business organizations, in business schools, in groups of business people who lunch together just to understand others better.

As I have noted before, The Economist ran an article on Drucker, as this is the centenary of his birth, and noted that he “asked the right questions.” They did not say that he provided the right answers. I suspect Drucker’s insistence on the Christian foundation of American Society gave them pause. It only gets more prevalence as his writings progress.

Friday, July 2, 2010

Happy 4th: The Concept of the Corporation Chapter 2

At long last, we are done with Chapter 2, which is really Section 2. Two more are left. Have a happy 4th of July. If you were do it in a Druckerian manner, you would do it in a decentralized fashion. You make the potato salad. Someone else should do the hot dogs.

Thursday, July 1, 2010

The rightness of the cause: The Concept of the Corporation Chapter 2

Drucker is very confident in his ideas, especially if we remember that the Cold War is just starting at that we won’t see the failures of Communist production for another 40 years. I remember walking through an abandoned factory and apartment complex in Kiev. It occupied a huge block (150 yard by 400) with train tracks running through the middle. Bland, faceless and uninteresting. It was especially awful if you compared it with the apparatchik housing up the hill. Only a handful of people still lived there. They still had line up for the single grocery store in the corner of the area that had once served 10,000 people. It would be, I suppose, an example that Drucker would identify as the failure of centralized management.

Then again, there are parts of Detroit that look much the same way. He writing at time when Detroit is on the top of the economic pile.

Wednesday, June 30, 2010

Job Advice: The Concept of the Corporation Chapter 2

He ends with leadership. He ends with the advice we give to new graduates. Work for a small company first. Your will learn more. You will get a better understanding of the business. You will move into leadership ranks faster.

“A senior executive of one of the big divisions after speaking at length
about the advantages of his centralized organization, concluded by saying that they were attainable only because the smaller decentralized divisions supplied the top leadership,” Drucker noted. It works “very much in the manner in which a big baseball club will get its talents from its small farms, but its revenue from the
big.timers. (127)

Tuesday, June 29, 2010

Annual Model Year: The Concept of the Corporation Chapter 2

In his autobiography, Sloan presents the annual model change as a way of improving the product. He is a little more or a Taylorist than Drucker.

Drucker argues that it is a way of bringing market forces to bear on units that cannot be decentralized.

We all see what we admire in the picture.

In a note that shows how thoroughly this discussion is rooted in 1946, Drucker notes that few organizations could afford an annual model change. “the annual model is something few industries could have”. (124) Many, many industries run on production cycles that are far shorter than a year. That is one of the changes that has happened in the past 50 years, a change that could not have been managed without software.

Monday, June 28, 2010

Nearing the End: The Concept of the Corporation Chapter 2

As we near the end of this chapter, we’re led through a discussion how centralized firms or units can still be managed in a way that makes them responsive to market forces. It is pretty straightforward but does not really anticipate the argument that markets are merely producers of information and that an individual need not be present at the market to get the information.

Friday, June 25, 2010

Socialist Production: The Concept of the Corporation Chapter 2

Here is the question. Are there forms of production that are capitalist and other forms that are socialist? The answer is probably yes, if you look at the national economic scale.

Does the answer to that question change if you look within a company? In particular, can certain products be only manufactured only by a process that must be considered socialist? Must automobiles be a capitalist product? How about computers? How about software?

Here is the real issue. If decentralization represents modern free enterprise, are there some products that require such a tightly managed, step by step production process that they cannot be produced by a decentralized organization? Is our commitment to free enterprise measured by the amount of parallelism in our production processes?

This probably a moot point but it does suggest one of the boundaries between engineering and political economy, between Taylor and Drucker. “The importance of the question whether decentralization is absolutely more efficient than centralization does not lie, primarily, in its application to business management,” Drucker concludes. “It is actually the question whether a socialist economy can be as efficient economically as a free-enterprise economy.” (p122)

Thursday, June 24, 2010

Golden Tower of the Fisher Building: The Concept of the Corporation Chapter 2

Nearing the end of Chapter 2.

If you know Detroit, you know the Golden Tower of the Fisher Building, which is on West Grand Avenue, which is more or less the active and healthy section of downtown. The General Motors building is across the street from it. The Motown artists lived north of it.

I was going to do a bit of a note about how the Fisher Building represented the decentralization of General Motors but that idea fell apart. First, Fisher Body never occupied the Fisher Building. The family build it after they sold Fisher Body to General Motors. (For the record, I worked for Fisher Oldsmobile, which was owned by minor and distant branch of the family.)

Second, Fisher Body was not very decentralized. They had one plant for each of the major GW auto lines, which were all managed out of Detroit. Third it was highly efficient as a centralized unit.

Drucker argues that it was able to survive as a centralized unit because it made a single, simple products. That may be the case or not. There is aways a question of why it existed as a distinct unit at all and was not divided and merged into the different automobile lines.

It was originally an artifact of the early manufacturing process. People bought automobiles without the body and then bought a body later. Certain carriages apparently worked on a similar principle. It survived because it survived because it used a specialized manufacturing technique – stamped sheet metal – that was not common in other parts of the company.

Drucker’s example of Fisher Body may not tell us much about how to a company any more than the Fisher Building tells us much about GM. It is not centralized. It seems to work. It may not be a logical division of the company. It certainly is no longer. It was dissolved in 1984.

Wednesday, June 23, 2010

Generalizability: The Concept of the Corporation Chapter 2

Things often unfold as you are reading. Details come clear. The kind of process that Drucker is works best in situations where productive process can be isolated in a single unit. These ideas may not be the panacea that Drucker claims.

There are really two problems for most companies. The first is indeed that a number of productive processes can’t be done in a way that allows for competition between units. The second is that a single product or single production process can’t provide many useful market-based yardsticks for managers beyond cost accounting. We move from return on investment to minimizing cost, which is radical change. We move the market to Frederick Winslow Taylor.

Drucker gives some examples. They may provide models for midsized companies. We shall see.

Tuesday, June 22, 2010

Motors Holding: The Concept of the Corporation Chapter 2

It costs to balance power. Inequality is free or at least cheap.

General Motors balanced power, got two organization to have the same goals or at least similar goals, with Motors Holding Company. Motors Holding is General Motors venture capital firm. It finances young dealers, looking for the strongest individuals. As it is a unit of GW, it aligns the interest of these dealers with the corporation. When a dealer is having trouble, this unit can go to the units of General Motors as that dealer’s representatives. A manager in General Motors “will be much more willing to accept Motors Holding as unbiased and as likely to be right than he would be
to accept a dealer.” Drucker must be talking about dealers that must small businessmen in deed. A business of two or three people. A salesman, a manager and a mechanic? My olds dealership had 3 salespeople in the 50s. It had a dozen in the 70s.

It is a clever idea but Drucker’s text suggest a few issues. First, the profits of Holding Motors is limited. In effect, GM is paying to balance the goals of dealers with the goals of the company. Second, the dealer is required to buy back shares of the dealership as quickly as possible. It suggests that the dealer may also be paying for this service by not having the same kind of flexibility to negotiate terms.

Monday, June 21, 2010

Dealer Council: The Concept of the Corporation Chapter 2

Drucker spends little time with this. The idea is obvious. GM has a council of 36 dealers that represent the 12,000 in existence in 1946. It’s a good ideas. It helps with the flow of information. It helps GM executives imagine what it is to be a dealer. However, it does not really balance power.

Friday, June 18, 2010

Used cars : The Concept of the Corporation Chapter 2

Apparently General Motors had to develop expertise in the used car market in order to support its dealers. When I worked in the business, that market was international, though confined to North America. Michigan cars were taken to Mexico and sold there, as they were generally in poor shape because of the salt used on the roads in winter. Used Cars from Texas and Florida were brought to Michigan, as they were in better condition and could be sold for more.

Once or twice a month, the used car team appeared at the dealership. They were gypsies of a sort, moving north and south, dealing for cars, and notifiying their carriers when and where to pick up their purchases and deliver their sales. I drove them on and off the trucks, a frightening task, though I don’t recall that I ever dropped a car off the rail. I think I came close on at least one occasion, though.

The used car team communicated with our dealership through a stream of telephone numbers, phone booths I suppose, that they left at the dealership like a trail of bread crumbs. Cell phones and the internet must have made that process much easier.

Thursday, June 17, 2010

Good will: The Concept of the Corporation Chapter 2

Drucker spends a bit of space arguing that the repubation of a dealership and its community relations were assets. Is that a new concept in 1946? I can’t believe it is. But it does represent a issue that we will track. The value of a good name.

Wednesday, June 16, 2010

Dealer Relations : The Concept of the Corporation Chapter 2

Profit comes not only from buying low and selling high but also from increasing turnover and reducing risk. In the auto industry, turnover is connected to the model year and will be dealt with later. The reduction of risk is connected directly to dealer relations and making them feel that their commitment is secure.

I don’t know the kind of dealer that Drucker is describing. I helped the local Oldsmobile dealership move from a 1950s era building to a 1970s. The 70s building was a substantial investment and the owners were quite proud of it. The 1950s, though showing its age, was nice for its time. Judging from old pictures, the original owners clearly felt that they had moved into a new class.

What came before? Was it basically a field and a shack? Drucker is suggesting that dealers may have been little more than an open field because he talks about General Motors guaranteeing that dealer contracts will run for at least 2 years and will give at least three months notice. It seems to me that my dealership could have gotten the kind of loan that they would have needed to build either the 1950s or 1970s facilities on those kind of terms. But perhaps that is what the dealer policies were offering. General Motors had a strong market research group. Drucker hints that they had a strong sense of what the 1950s automarket would look like. The central administration was probably trying to protect their ability to terminate contracts while offering enough security for local dealers to get decent loans.

In business, nothing is ever free.

Tuesday, June 15, 2010

Losing the Franchise: The Concept of the Corporation Chapter 2

Last year, when General Motors ceased to be General Motors, or at least the General Motors of Peter Drucker, a large number of dealerships lost their franchises. At the time, I remember it being a bit odd that GM could do that unilaterally. Only when I read this did I realize that dealerships were not a franchise arrangement but a sales agreement, a right to sell. Drucker notes that in this kind of arrangement, the small dealers stake their capital, good will, and sacred honor on the manufacturer with little guarantee of stability. It was probably was a decent arrangement in the 50s and 60s when auto sales were climbing. That arrangement changed in the fall of ’73 when the first oil crunch hit.

The 1973 model year had the biggest sales for American manufacturers ever. It never achieved that again. With that fall, when sales stalled before lumbering forward, we saw the first signs that things were never going to be the same again. I was new enough to business to think that the problem was merely the fact that the owners of the dealership were risking their capital on their business. Little did I know that the power relationship with the manufacturer was so unequal.

Thus the world changed.

Monday, June 14, 2010

I’ll take it to my manager: The Concept of the Corporation Chapter 2

We know the little drama. We’re negotiating a deal for a new car with a sales person. The distances between prices offered and asked has narrowed but remains substantial. The sales person then says “I’ll see what I can get from my manager” and leaves the office. After a suitable interval, he or she returns with a grin on the face. “I can give you a great deal” are the first words out of their mouth.

We’ve come to believe that this little act is a piece of performance art, a little attempt to push the customer into the deal. I worked in a dealership for 2 years and generally believe that to be the case. Yet, at the same time, it hints at real conflict between the interest of dealer and manufacturer.

The manufacture wants to sell new cars. This means that they want the used cars to be expensive – high trade-in value to encourage new car sales, high market value to discourage used car sales. The dealer wants used cars to be inexpensive – greater margins on new car sales and a greater opportunity to make profits on used car sales.

This is a difficult problem that can’t be easily solved by having good management policies for the manufacture or better information flow. Policies can blunt the issue to substantial extent but can’t eliminate it. Better information flow only strengthens the manufacturers flow.

During my employment, the information flow was handled by paper and requirements. Once or twice a month, I would have to drive to the district with a pouch of paper that listed the vehicle sales, new and used with prices. In return, I got a check for profits that the manufacturer had held.

Friday, June 11, 2010

Public Relations: The Concept of the Corporation Chapter 2

This is an interesting little section but a little sad. Here, public relations refers to corporate relations with the public, a two-way flow of information, not merely publicity for the company. Drucker seems to think that companies can put together boards that will facilitate that flow. General Motors is trying to do something in Dayton that will involve all local industry.

I know that there are indeed community roundtables and business discussion groups. Information does flow through these methods. But so often, it is really nothing more than opinion surveys and corporate messages. Abstraction upon abstraction with a dose of alienation. Not an easy problem to solve. Not an issue for which Drucker gives a lot of ideas. It is not merely board reform, he notes, because boards of directors are not representational. Members are supposed to think about the good of the organization not the good of the segment that support them. If such is the case, then community relations are clearly an operational activity.

Thursday, June 10, 2010

Talent and Leadership : The Concept of the Corporation Chapter 2

It is not Drucker’s view. And it is all the more disturbing when you remove the word “special”, which is easy to do as you read it. The “man with leadership
ability should be separated at a very early stage from the man with special skill and talent.” If read quickly, it suggests that leaders are people without “skill and talent.”

In fact, the problem of developing leaders hits an issue, and hits it hard, that bothers engineers and technical people. Leadership seems to be a general quality, something apart from technical knowledge or skill. How do you develop leadership qualities? Drucker asks, arguing that they include “imagination and understanding.”

He presents two ideas, though neither seems to be especially convincing. One is to rotate promising people through different units of the corporation. The second is to use the central staff to train individuals. Both seem to be mechanical solutions to a problem that resists such an approach. “the question of specialist versus generally educated person is not a problem that is unique to the big-business corporation.” He admits. “It is part of the debate on vocational versus liberal education that has been agitating the educational world for a long time.” But Drucker thinks that corporations may be able to solve the problem more easily than educational institutions.

We shall see.

Wednesday, June 9, 2010

Executive Isolation : The Concept of the Corporation Chapter 2

Isolation. How could they think like that? How could they make such a decision? How stupid are they?

Common questions that employees ask about management. All start from a rather nasty point of view but they get at a real problem. Executives have to isolate themselves from lower level workers, customers, suppliers and the general public. Drucker blames this problem on social isolation but it has a deeper cause, though a cause that may not have been as obvious in Drucker’s day. A fundamental issue is that of abstraction. Anyone who makes decisions from large amounts of information must traffic in abstractions. Abstractions inevitably hide information.

Drucker does see imagination as the cure for isolation and it is a good choice of word. It is the ability to make an accurate mental image from the material before you. Human contact is one way of getting that point of view for it can inculcate empathy, the ability to feel as others do. Still, the ability to imagine how others are thinking is not as easy as merely sharing conversation with different people about homes and children. It is one step, but not the last one. How do you tell the story of someone you don’t know well. Every narrative ultimately is a tale about the storyteller. It takes a lot of effort to understand that opinions, approaches and even conceptions that differ from our own can be honestly held.

I would have thought that Drucker, which his concern for metaphysics, would have thought more deeply about this.

Tuesday, June 8, 2010

ReConversion : The Concept of the Corporation Chapter 2

Drucker clearly loves the story of how GW converted to war production and then reconverted to civilian production. An example of decentralization at work. No unified plan for the company, Drucker claims, but a series of principles that the company attempted to use to shape its approach to the war. This section largely deals with the relation between central and divisional management, which is Drucker’s chief concern, and it largely presents the story as successful. The company did what it did and started reconversion to a peace time economy in the spring of 1943.

It is hard to read this without thinking of the stories of war fraud. The Truman Commission. All My Sons. Still, the most interesting point to me is one that is unexamined. In the section about reconversion, the central management decides on a major expansion program even though they anticipate that the domestic demand for automobiles will be of short duration. What did they foresee for the post-war years? Did they know that most of the productive capacity of the world would have been bombed to pieces? Did they anticipate the GI bill, or the Cold War? This seems unlikely. Why did they make such plans? General Motors faced its greatest crisis of the first half century in the 1922 post war recession. Drucker is writing as if that event never existed.

Monday, June 7, 2010

War Conversion : The Concept of the Corporation Chapter 2

The Gospels are rarely considered as a source of wisdom for military planning. “What king,” says the book of Luke, “going to make war against another king sitteth not down first and consulted whether he be able with ten thousand to meet him that cometh against him with twenty thousand?” (Luke 14:31, In case you have any interest).

Drucker is more than passing familiar with the Bible but he does not make the connection with this idea as he describes how General Motors prepared for the war. It is, of course, a planning problem that requires lots of information. The senior management began working on war plans in January 1941, about 6 months after the US military starting making their plans. They looked at it systematically, a decided two things:

  • First, they would bid only on difficult and critical tasks, a strategy that would allow them to learn the most from the war.
  • Second, their ability to take war work would be limited by the amount of labor in the 20 areas of the country in which their plants were located. They completed their plans by January 1942 and identified the limits of work for each division.

Most of the research on General Motors war conversion deals with those labor issues. They see it as expanding the bureaucratic management of labor and the rise of human resource departments. All of that is fine but I am reminded that the mathematician Karl Pearson got involved in the first world war because the British government needed a survey of available labor. He had the staff able to handle it. What tools and technologies were needed by GM in 1942?

Friday, June 4, 2010

Fireflies: The Concept of the Corporation Chapter 2

It was a short week and hot. Summer is here and with it came the fireflies. As you walk home, you can see them hovering near the shrubs. They will be here for 4 weeks, maybe 5. They like hot weather but will be driven off by the oven of July. Or they will have mated by then and retired to air-conditioned hovels in the earth to raise their kids.

Drucker has returned to planning, which is the great contradiction of his writings. He doesn’t like it in governments. He likes it in companies. He sees way in which management is starting to displace the market but he has yet made no comment about it. There are still enough market indicators guiding their decisions.

We are clearly at a cusp with this company, the start of the evening when the fireflies appear. General Motors already has the ethos that I will be tracing in the modern workplace. It already has much of the mechanism for gathering and using data –facts – that software will support. It is clearly all handled by hand at this point, and there are few companies with the resources to do that kind of work. We will see how they start to build that structure.

Thursday, June 3, 2010

Organic Growth: The Concept of the Corporation Chapter 2

Perhaps I was too cynical yesterday. Perhaps I was too impressed with the similarities in language between Hard Times and Concept of the Corporation. In fact, I’ve been in organizations run by opinions and know the frustrations of dealing with demons.

Drucker balances the insistence of fact against the idea that General Motor’s decentralization was not imposed by a dictatorial power but grew naturally and adjusted to needs of people and organizations.

Human organizations often have to take detours, he notes. “Being human they run never aspire to perfection and must thus make imperfection workable. Being human they also have to reckon with the very considerable differences of temperament, ability and rhythm between individuals.”

This split, which marks the difference between the human and the absolute, is the issue that makes Drucker interesting.

Wednesday, June 2, 2010

Gradgrind: The Concept of the Corporation Chapter 2

Drucker is clearly not Charles Dickens. And Dickens clearly is not the ancestor of Drucker, though the two have a number of things in common, especially a deep appreciation for human frailty.

This is the section that is the guidelines for Gradgrind in Dickens’s Hard Times.
'NOW, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life. Plant nothing else, and root out everything else. You can only form the minds of reasoning animals upon Facts: nothing else will ever be of any service to them. This is the principle on which I bring up my own
children, and this is the principle on which I bring up these children. Stick to Facts, sir!'

Drucker says the same idea: “Objective criteria of cost and efficiency, of return on the invested capital, and of competitive standing in the market, General Motors aims at the elimination of personal and subjective elements in the relationship between boss and subordinate, central management and divisional management.” (75)

Drucker is arguing that business decisions need to be make on hard data, especially market share and return on investment. By making decisions on hard numbers, everyone knows what they have to do and how they be judged. This kind of operation makes the atmosphere of the company more pleasant for the management. (and of course Drucker is only talking about management).

“In fine, this objective yardstick should not only make possible informal and friendly personal relations, a spirit of teamwork and a free and frank discussion. It should also—at least, that is what the people in General Motors claim— make the organization of management as a team on a federal basis natura1 and almost inevitable by erecting strong barriers of fact against action based on nothing but seniority and rank.” (71)

Tuesday, June 1, 2010

Freedom and Informality: The Concept of the Corporation Chapter 2

This chapter begins with a disturbing thought. It claims that GM was once an informal and relaxed company. I have gotten used to the idea that GM was once the largest defense contractor and that Detroit was once the wealthiest city in the country, though I suspect that claim wilts a bit when you look at New York carefully. Still, the GM I knew in my youth was not a bastion of casual activity.

Still, that is what Drucker claims: “There is little emphasis on title, rank or formal procedure. Indeed, the one thing that is most stressed by all executives is the “informality” that exists in the relationships among the members of this group and in the division of their work.” (p 63)

It is a description that reminds me of the early days of Silicon Valley, when news reports were full of casual clothes and undisciplined hours. At the time, I thought that this approach came from a combination of California weather and money from the military industrial complex. In fact, it probably had more to do with the fact that the reporters were describing engineering complexes rather than production facilities. Engineers have a different relationship to their tools than workers.

Still, this picture of Detroit in the 1940s is not Detroit in the 1970s. If it was true, and I will assume that it was, Drucker is clearly using it to claim that the management of General Motors was a good. It was a good place to work, he is saying, so the management must be good.

Monday, May 31, 2010

Memorial Day: The Concept of the Corporation Chapter 2

It’s Memorial Day in the United States so there is no Drucker today. I have visiting relatives and spent the day shepherding them through the city. A memorial service with lots of important people and lots and lots of spectators in the morning. A concert in a city park at night.

We saw the management in the morning. Guards and guides and people looking at checklists. We were able walk out of the facility and back to the subway on our own. That may have been a mistake. Most people were being shuttled back and forth under careful watch.

The evening concert was a little more subtle. The evidence was careful stashed behind the stage. We saw a show between the trees and under lights and never thought who was guiding it or who made the plan to set up the equipment or clean up the trash. We enjoyed the night and that was all we considered.


Friday, May 28, 2010

Tiny Duffy Meetings: The Concept of the Corporation Chapter 2

I like the image or at least the name of Tiny Duffy, who was enforcer for the Huey Long character in Robert Penn Warren’s All the King’s Men. Drucker’s discussion of management meetings suggests how Tiny Duffys work. They listen. They go to management meetings and sit on the edges. They hear the discussion and try to determine what ideas are behind it. I once heard a cast study about a new restarant. The place proving popular and had large crowds on weekend nights. On one night, a waiter asked the manager to step into the kitchen, where she met the entire staff. The staff was demanding a riase or they would quit. The case asked “What do you do?”

The question was misleading. The right answer was not an action but a strategy. “That won’t happen.” Is the right response. “I will know the discontents among the staff and make sure that they never rise to that level.”

Thursday, May 27, 2010

Tell your boss it is stupid. The Concept of the Corporation Chapter 2

How do you tell your boss that some policy or decision is stupid? The old joke says “Very carefully.” Drucker argues that large management meetings give junior supervisors a chance to fight back and gives a heart warming example of a policy on foremen that was rolled back. It is a good story and you should look at it if you are reading the book. I do think that it points to a specific issue.

Most managers are more cautious in the presence of their subordinates. It is hard to tell people “no” to their face. It is harder still when you have a lot of them. One of the big questions of management concerns how you get advice from your staff and subordinates and how do you get that advice in a form that is actually useful. A large meeting might be the forum, but it can also be the place where discipline breaks and you are faced with a collected force that carries no useful info and cannot be easily assuaged.

Wednesday, May 26, 2010

Are we really economists? The Concept of the Corporation Chapter 2

Are we really economists? Do we really look at every factor under our control and try to make the decsion that produces the greatest return? Drucker seems to suggest that we don’t and hence is anticipating Herbert Simon, who argued that we really don’t. According to Simon, we run companies on heuristics, on simple rules that seem to work most of the time. When they don’t, we have long meetings that analyze the problems and devise a new system to coordinate labor and monitor progress. Often this is a practical solution but it can also be quite far form economics. It’s administrative behavior.

Tuesday, May 25, 2010

Feedback: The Concept of the Corporation Chapter 2

Here is another spot where software is going to change the game. Drucker is now talking about the Sloan meetings, the large conventions that Alfred Sloan held for managers to discuss problems and policies. Why is there a large meeting facility in Milford, Michigan at the GM test facility? It’s a small town in the far eastern corner of Oakland County. But it has direct rail connection to Detroit and to the northern Detroit suburbs. It was a place for GM execs to get to the country and talk.

Drucker talks about the meets in glowing terms, but then he says nothing that Beninger doesn’t say 40 years late in his discussion of managerial feedback. Over 600 GM executives attended these meetings, which must have been most of the senior management.

Companies are bigger. They are less interested in assembling their top execs in one place. There are also more ways of getting and distributing information. I know that large corporate meetings still exist but heavily supplemented by teleconferences and other exchanges of information. IBM used to bring all of its sales staff to Endicott New York every summer. I doubt that that is still the case.

Monday, May 24, 2010

The Euphemism of the Bonus” The Concept of the Corporation Chapter 2

We probably need to change the name of bonuses. Of course “incentive pay” sounds too much like a euphemism. Yet, they are a tool for keeping people in line. The criteria for paying bonuses has to be an objective measure but that measure may be somewhat distant from the market. In the last year, we have seen a lot of bonuses paid by Wall Street firms that have angered the public. The public argues that individuals who may have contributed to the decline of the economy should not get bonuses. While I am not in a position to judge the validity of the bonuses, I can see that the recent rounds were poor political moves. They angered a public that was not predisposed to like such payments.

At the same time, I appreciate that each company may have had internal social reasons to pay bonuses. (See my last post.) Yet, they defended the bonuses on economic grounds and, as Drucker suggests, failed to heed the political issues. A corporation needs to do three things: function internally, provide for the aspirations of the society, and sustain a stable society. The Wall Street bonuses may have only accomplished one of the three.

Friday, May 21, 2010

The bad personnel call: The Concept of the Corporation Chapter 2

Drucker has a lengthy discussion of personnel issues at the executive level but only hints at the real problem. All things are legal for me, says the prophet, but all things are not expedient. In theory, central officers have complete control over divisional executives. However, they hire and fire at their own peril. A bad decision hurts the entire division. A unpopular leader, fired at an inopportune moment sends a shudder through the organization. Am I vulnerable? Do the bosses make completely arbitrary decisions? Need I be worried? In a moment, a difficult employee can be a hero if not handled properly.

I have seen many a bad personnel decision and made several myself. The one problem that will always devastate is a group is the appearance of arbitrariness, the suggestion that you make decisions with no principles at all. I saw one recently. The boss admitted that the employee “didn’t agree with him.” With that admission, the boss may have lost all authority to make such decisions ever again. If you have to make a decision, you have to have a reason or at least be able to defend the decision as good for the group. Of course there are times, rare indeed, when you need to make a firm decision in order to enforce discipline but one should never be seduced into believing that such a tactic is regularly needed.

Thursday, May 20, 2010

Politics: The Concept of the Corporation Chapter 2

Is this a political document? Is Drucker writing to convince a certain segment of the country that his view of the corporation is right? Is he trying to thwart the remaining inclinations towards the New Deal. I’ve been impressed with the extent to which the writers in Forbes and Fortune are clearly trying to establish a more open framework for business and to discredit the New Deal reforms. They link government coordination of production to fascism and argue that such processes ultimately destroy all freedom.

Yet Drucker is clearly not a pure capitalist. He is not arguing that the independent structures must maximize their return on investment and do all within their power to do so. They act independently, he argues, and that will bring about the necessary result. Obviously, the companies of 1946 simply cannot do all the analysis that they would need to do to absolutely maximize their returns. This will be the interesting story that unfolds as software develops. Does software help capitalists be capitalists?

Wednesday, May 19, 2010

Decentral Operations: The Concept of the Corporation Chapter 2

Drucker makes an interesting literary decision. He introduces the benefits that he sees in decentralization in the context of one of his interviews. It moves the discussion away from his opinions and gives it the appearance of being more objective, more analytic. If you look carefully, the benefits tend to be the benefits to central management or the corporation than to individuals. They don’t quite deal with the three categories that Drucker identifies at the start of the book, though I suspect that he will return to those points and try to make the connection between the inner and outer world of the corporation.

The five benefits of having a central manager, articulated by an unidentified central executive, are:

  1. The central management gets broad goals for the divisions;
  2. Unifies the divisions into a whole and limits their authority;
  3. Tracks progress and problems;
  4. Relieves divisional directors of certain task (Financial, legal, public relations etc);
  5. Offers best advice from central legal, accounting, etc staff.

All of these things can be good things but they can also seem like impositions on division leaders who are anxious to acquire more authority. The complaints can be major or they can be petty – too much red tape, interference by bean counters, and so on.

Tuesday, May 18, 2010

The Conservative Revolution Redux: The Concept of the Corporation Chapter 2

Drucker clearly likes the idea that GM is a decentralized corporation. For Mr. Sloan [the president of GM] and his associates, the application and further extension of decentralization are the answer to most of the problems of the modern industrial society.” (p46) His opinion recalls the end of his prior book, in which he larges that the American revolution gave the world “new society with values, new beliefs, new powers and a new social integration without social revolution.” (184)

He now has to show that this strategy is able to meet the three sets of goals that he established for a corporation:

1. The ability of the Corporation to survive and function as an independent entity;
2. The ability of the Corporation to fulfill the needs and aspirations of society;
3. The ability of the Corporation to sustain a stable society.

He is writing in 1946, when the memories of 1929 were fresher than they were today. At the same time, many in the country had a more idealized view of the corporation than we do at the moment. The Futurama of the 1939 Worlds Fair projected a beautiful world filled with superhighways and large corporations.

Monday, May 17, 2010

Tale of Two Buildings : The Concept of the Corporation Chapter 2

There is a General Motors Building in both New York City and Detroit. Or at least their once were buildings of the same name in both cities but then GM moved into the Renaissance Center on the Detroit River and the original General Motors Building was renamed Cadillac Place. OF course in 1946, the year of this book, the GM Executive Offices were in 1775 Broadway, now 3 Columbus Circle.

The point is that General Motors had a strong presence in both cities. Detroit was the industrial hub, the home of operations. New York was the financial center, the place where the company raised funds and dealt with the corporate world. The separation mirrored the corporate structure of GM, though the physical locations don’t perfectly map onto the company structure. By 1946, GM had 30 divisions and each was almost a complete company. The corporate office provided certain central services – legal, financing, etc. – that held the group together.

Friday, May 14, 2010

Forces and Balance: The Concept of the Corporation Chapt 2

Drucker’s policy discussion ends quickly here. He barely introduces the topic before he shifts to something else. It suggests the standard critique of Drucker: He asked the right questions but didn’t always provide the right answers.

In reading this chapter, I began to realize that he is anticipating the world of Alfred Chandler, or perhaps more likely Chandler drew from him. Managerial policy favors stability, argued Chandler. When a company develops a professional managerial class, it makes decisions that tend to preserve the positions of those managers. We have seen that problem in many companies. DEC in the 1980s. IBM about the same time. We may be seeing it in Microsoft.

There is “always a latent conflict between the administrators who define efficiency in terms of the perpetuation of the administrative machine and the “doers” who define efficiency in terms of the aims and purposes for which the institution exists,” is Drucker’s response. “ These conflicts are not only inevitable, they are necessary; and no institution could function unless all four trends were equally represented.” I suppose that this is Schumpeterist capitalism. We have the fight so that inefficient organizations die and are replaced by more efficient ones.

Thursday, May 13, 2010

Nature of Policy: The Concept of the Corporation Chapt 2

Policy is always a tricky beast. It can ossify an organization but without it, an organization can be chaotic and strive for a dozen different goals. Under the best of circumstances, undisciplined initiatives can cause an organization to lose focus. In the worst case, says Drucker, “there is a real danger that speculation be mistaken for initiative.”

I’m currently working on a policy problem that will likely get plenty of objection from a group of independent units that are running of in an entrepreneurial fashion, each trying their hand at the market. The good side of their work is that they are all exploring different opportunities. The obvious drawback is that they are taxing the centralized staff by each using different techniques to solve related problems.

Back to Goldstine. He’s an academic and places grate faith in expertise. During the second world war, he provided technical expertise to the Army, an expertise that was quite rare. (Mathematical ballistics). Yet, expertise can harm an arganization as those with such knowledge tend to look at the activity from only one point of view. “The premium on expert knowledge,” saith Drucker, “contributes substantially to this danger because it puts emphasis on the “professional view” as does the isolated life which the average managerial employee of the large corporation often leads.”

Wednesday, May 12, 2010

Yardsticks: The Concept of the Corporation Chapt 2

Software has brought an age of accountability. We can gather lots of information about organizations and use that material to judge the operation of any unit. I have been involved in many such exercises. The problems with this work is two forld. First, you want to establish something that is objective and cannot be easily manipulated. Second, you need to find a measurement that truly fits the overall goal of the organization. The simplest example is sales. The overall goal for the company is profitability. High sales tend to produce more profits. However, sales are usually measured on a short time frame while profit is considered on a longer term. You can easily make short term gains in sales that are detrimental to long-term profit. You can drain the potential customers for the next two years, sell products that require too much support, create backlogs in service and production. The list goes on. Finding good yardsticks is not as easy as it sounds.

Early writers on software – Goldstine for example – felt that software would carry expertise to companies and factories. In some ways, it has fulfilled that promise in the managerial context. We sell canned software to small organizations, which they use without modification, even when the software includes implicit yardsticks or targets.

Tuesday, May 11, 2010

Independent Command : The Concept of the Corporation Chapt 2

We are wandering away from technology here. Drucker is spending much of this chapter making the case for the special nature of industrial leadership. He notes that small business does not really provide a training ground for mid-level managers. In effect, they don’t have the right kind of experience to move into that kind of position. Leadership in one job does not translate into leadership skills for another kind of position.

I see that time and again in the software world. Skill with technology is not the same as skill with finance. Skill with finance is not the same as skill with politics. With words that presage the recent American presidential campaign, Drucker notes that we do not have a formal training program for presidential leaders. We tend to draw presidents from the ranks of senators and governors. The former, usually, do not have any experience with large-scale independent leadership. The latter have dealt with problems that almost never appear on a national level.

Monday, May 10, 2010

Conservation of Intellectual Energy: The Concept of the Corporation Chapt 2

We know the end of the story, or at least the next chapter, and so some of Drucker’s predictions ring hollow. He clearly has great faith in mass production as a form of industrial organization. “Indeed it may be said that the rate of industrial expansion in this country depends very largely upon our ability to recruit and train a sufficient number of potential leaders in mass production industry,” he argues.

It is a prediction that seems to be based on the idea that the labor pool will be stable, that communities will not engage in a race to the bottom for labor costs, and that international trade will not grow. I suppose that we can forgive him the last misstep. The GATT treated, which starts the modern international trade regime, is being negotiated as he writes this book.

Still, he makes an interesting claim about mass production by stating that it redistributes work from the craftsman to the manager. “Intellectual energy like any other form of energy cannot be eliminated; and what is saved at the bottom must be added at the top,” he claims. If such were the case, then his prediction would have been largely true, subject to dislocations of labor.

Friday, May 7, 2010

WWII Production: The Concept of the Corporation Chapt 2

We are moving through the second chapter of Concept about a page at a time, but it offers many topics for discussion. The biggest, which has bothered me from the start of this project, concerns the connection between 21st industrial life and the second world war. Was our industrial organization complete determined by the forces that shaped the late 1940s? Memories of the 1930s depression, the rise of fascism, the conversion of industry to war work, the desire – strong among business people – to free the corporation from governmental control. It is a question that will not be easily answered until the end of this project.

In the meantime, Drucker is arguing that mass production and the corporate structure that supports such production is the foundation for all modern industry. Mass “production is not a technique but a basic concept of industrial organization that is generally applicable.” he argues here. “Its essence—to repeat what has been said before in different words—is the substitution of co-ordination and organization for individual skill.”

Thursday, May 6, 2010

Civil War The Concept of the Corporation Chapt 2

Drucker dashes over the problem of Civil War. He may get to it later.

The problem is common enough. An organization needs a good supply of leaders. You need to have leaders serving in lower positions who can take the top. Each is ambitious. Elbows are thrown. Words are said. The fight begins. How do you stop Civil War without being Richard II, without alienating your subordinates and weakening the organization. Richard (Shakespeare if the reference is not clear.) banishes one contender and punishes another. In the process he starts the process that will lead to his overthrow. He could not control his followers and could not defend himself. The play ends badly, if you have not seen it . There is a speech about a “little, little grave”. That is all that is left for the weak leader.

Wednesday, May 5, 2010

Identification: The Concept of the Corporation Chapt 2

I’ve seen it many times. We all have. An organization gets a new leader, who is met with great enthusiasm. The employees or members of whatever feel that this leader will correct all the mistakes of the former regime and lead the group to new heights. In six or twelve months, the new leader’s stock has fallen. The staff is grumbling. Everyone feels that nothing has changed. The group is again on the road to perdition.

In this section on leadership, Drucker argues that the leader and the organization, need to solve the problem of identity or espirit de corps. The workers or members need to identify with the organization, with the leader, with the goals of the group. Increasingly, we have attempted to solve this problem with goal alignment exercises, as we have long ago learned that the human mind has an unchanged penchant for criticism. I’m not sure that goal alignment can get at the spiritual connection that Drucker desires. It may be the difference between his age and ours. It may be the difference between his outlook and modern attitudes.

An “ institution must he able to make useful the good and to neutralize or deflect the bad qualities in its members,” he writes, “to be able to dispense with
the superman or the genius, and to organize a systematic and dependable supply of reliable leaders.”

Tuesday, May 4, 2010

Crying Leaders: The Concept of the Corporation Chapt 2

For my May column in Computer, I wrote about the problems of leadership that Drucker raises here. (You can find it on or in the IEEE electronic library, if you have access to the later.) I have received more email about it than any of my recent columns, though largely for reasons that were independent of the subject of the column. You have to go back to the one called “Force of Nature”, which I did almost three years ago. It, too, was about leadership and was largely misinterpreted. It dealt with the fact that we don’t do much to prepare technical people for leadership but most of the correspondents wrote me to say that they identified with one or more of the characters in the column.

This last May, I took issue with Akio Toyoda, who gave sad performance as a CEO in a time of difficulty for his company Toyota Motors. His biggest was the fact that he was unable to control his emotions, however his speech was also badly written. If it had been delivered by a more confident individual, it might have worked, but it was not. Though it was probably written by a PR firm, it was filled with basic mischaracterizations of good management and good control in a crisis.

The point in the speech that I attacked was the idea that a good corporation was built on the backs of good people. I argued, as Drucker does, that a good organization can get good work from mediocre people and that only a poor company requires top people to function effectively.

“No institution can possibly survive if it needs geniuses or supermen to manage it,” writes Drucker in this chapter. “It must be organized in such a way as to be able to get along under a leadership composed of average human beings.” Such was my impression of Toyoda’s performance. Either he was a mediocre leader or he was being guided by people who had a mediocre understanding of industrial organization.”

Monday, May 3, 2010

Gadgets: The Concept of the Corporation Chapt 2

Drucker makes an interesting comment about our infatuation with gadgets. We tend to substitute them for organization and relationships. He is thinking about machine tools for assembly lines. We would tend to conceive them as the various forms of computers and aps. In either case, his point has some validity.

Friday, April 30, 2010

Mass Production: The Concept of the Corporation Chapt 2

“Things are cheap, people are expensive.” That is a key element o Drucker’s argument here. I learned that phrase when I worked for Oldsmobile, a company that no longer exists. It was supposed to make you remember not to substitute human labor for things.

Drucker is actually going a step further than that. He is close to arguing that systems engineering is the dominant field of the corporation. He sees four key elements into a company. (And here, he is talking about a manufacturing company.)

The first element is to divide any good into a collection of interchangeable parts.

The second element is the reduction of the manufacturing process into a series of single steps.

The third element is the design of a plant that integrates the individual manufacturing steps.

The last is the ability to train and prepare workers to operate that plant.

Since all of those element depend on people, they become the central part of the organization and hence, the expensive aspect.

Thursday, April 29, 2010

Academics: The Concept of the Corporation Chapt 1

Drucker does not talk about people who care only about the wealfare of the corporation and nothing about the aspirations of society or the needs of a stable society. These people would only consider how you would keep a company operating at all costs. I suppose that they are called academics.

Wednesday, April 28, 2010

Analytics Structure: The Concept of the Corporation Chapt 1

Drucker has established a fairly complicated structure for analysis. Like so many arguments in academe, the fight will not be over story but over the structure that contains the story. He posits three levels of analysis:

1. The workings of the corporation as an independent organization;

2. The extent to which corporations fulfill the needs and aspirations of society;

3. The extent to which they fill the requirements to sustain a stable society.

He further argues that none of the three levels is dominant, that no one can solve a problem on one level and leave the other two untouched. It is a political philosophy he calls Harmony.

He rapidly dismisses Idealism, which is concerned only with the problems of level 2, how we care for members of society and the opportunity each member of society may possess. He is equally hard on Pragmatism, which is only concerned about producing the greatest goods for the least cost. Both he claims lead to totalitarianism. It is easiest to understand those claims if you have read his two prior books.

Tuesday, April 27, 2010

Good for GM: The Concept of the Corporation Chapt 1

At this point, Drucker knows nothing about the classic quote from Charlie Wilson. That quote comes from a Senate hearing on January 15, 1953. Wilson, then President of General, is being questioned by senators about his fitness to be Secretary of Defense in the Eisenhower Administration. A Republican senator from new Jersey asked Wilson if he could make a decision that would be beneficial to the U.S. but harmful to GM. “Yes, sir,” said Wilson, “I could. I cannot conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa.”

This quote soon gests twisted into the phrase “What is good for General Motors is good for the nation. At this point, GM is the nation’s largest defense contractor. Drucker also argues that it best represents the leading corporations of America. That is why it is a good subject for his book. Better than Bell Teleophone. Better than Dupont.

Monday, April 26, 2010

Veblen & Universities: The Concept of the Corporation Chapt 1

Again, Drucker is putting the corporation in the context of national security. He quotes, though he does not really make the argument, that we may come to see the world wars as a response to the rise of the corporation. He also argues that the only other large institutions that have appeared in the years between 1900 and 1946 , the labor union and the government agency, are responses to the rise of the corporation. He fails to mention the university but that is connected as well. I can recall a colleague who made that argument in a seminar a few years ago, quoting Veblen in his defense. When another colleague argued that it shouldn’t be that we, the original speaker replied, perhaps it shouldn’t but it is.

Friday, April 23, 2010

Determinative: The Concept of the Corporation Chapt 1

If you didn’t understand it the first two times, perhaps you will get it the third. Drucker argues that he is studying big business not because it dominates the economy of 1946 but because it is determinative, because it is the leader and sets the standards for economic behavior. Again, for the third time in three books, he refers to the example of Victorian gentleman. They were not a majority in their society but they were a majority of the leaders and most social classes wanted their leaders, the leaders of industry say, to behave like gentlemen. In a similar way, we want our businesses to have the same standards, the same efficiency, the same strategic control as large corporations. Finally his sense of decisiveness is starting to make sense.

Thursday, April 22, 2010

Free Enterprise: The Concept of the Corporation Chapt 1

Drucker’s definition of Free Enterprise is pretty straightforward. It has four elements:

Governments set the rules of the economy but usually don’t participate by running businesses

Governments can operate natural monopolies or operations needed for national security;

Productive Resources owned privately;

Corporations competing in Markets and Market forces determine business decisions.

(Second one, about natural monopolies, seems less elegant than the others as it seems a pragmatic statement that acknowledges the state of affairs rather than states a basic principle of the economy.)

Wednesday, April 21, 2010

Cold War: The Concept of the Corporation Chapt 1

So by nature, businessmen are Cold Warriors.

This is one of those chapters that flips the work on its head. It defines “free enterprise” in the process, but I will get to that later. I have often heard the argument that “Free Trade Prevents War” and have generally assumed that someone derived that idea from the nature of capitalism or their desire to promote capitalism. I had never thought that someone would start with that point and then derive the principles of free economy from it, but Drucker does so.

His title for this chapters “Capitalism in one Country” is a direct mockery of Stalin’s policy of “Socialism in one country.” Stalin’s theory, proclaimed in 1924, was that the Russian leadership could no longer assume that that the socialist revolution would would spread naturally to the other countries of the world. Therefore, the leadership of the Soviet Union had to establish socialism in the USSR and use the power of the state to help spread it. “Formerly, the victory of the revolution in one country was considered impossible,” explained Stalin in his lectures on Lenin, “on the assumption that it would require the combined action of the proletarians of all or at least of a majority of the advanced countries to achieve victory over the bourgeoisie. Now this point of view no longer fits in with the facts.”

So Drucker starts with the conflict between Capitalism and Communism, with the idealogical stand off that will eventually be called the Cold War. “Thus to make our free-enterprise system function—as the basis of domestic strength and unity and as a model for others, “ he argues, “is the most important and the most immediate contribution Americans can make to international peace.”

Peace. We form large corporations because we want Peace.

Tuesday, April 20, 2010

Starting New: The Concept of the Corporation

This book follows directly from End of Industrial Man. He began researching it in 1943, just after completing the former book. General Motors gave him access to the company and the records for 18 months, roughly until the end of 1944. During this time, the company was working as a large supplier for the war and was starting to think about how it would operate in the post-war economy. So we have Drucker thinking about the free operation of business with a company that was not operating in a fully free economy nor had it done so since the start of the New Deal.

At this point, businessmen were quite concerned about the kind of economy that would emerge at the end of the war. So is the book an analysis of a freely operating company, as Drucker’s question suggests, or is it Drucker positing the kind of business world that he hopes will emerge?

Monday, April 19, 2010

Introduction: The Concept of the Corporation

New book. New start. New set of problems. This is, of course, the foundation of Drucker’s later work, though it clearly builds upon his earlier work. “What are the task and the contribution of business enterprise in a free society and an expanding industrial economy?” he asks in the forward. In working through these ideas, he will be looking at freedom of decision, freedom of movement for capital, freedom of business.

He starts by arguing, in a slightly disingenuous way, that the book is only a sketch but that he would rather publish a sketch than wait to finish the complete task before putting things into print. He tells a story about China, which is an odd choice. He describes China as a mysterious place, though the characterization is far from completely true. China was not yet closed by the Communist revolution and Life magazine was covering it. Pearl Buck and been writing about the country for 15 years and had Won the Nobel Prize for her work in 1938, 8 years before this work. The Good Earth was a best seller in its time.
Furthermore, the 1920s had seen a rapid growth of business and the corporation. The stories of the corporations from that era were well known.

Drucker seems to be saying that he will be talking about a world that we know something about and yet need to explore further. Yet his very specific in his example. He was talking about a scholar that was writing a book in 1900 and had yet to publish it. I suppose that such detail suggests that the book was a real project by a real author. As China had changed much between 1900 and 1946, so Drucker is suggesting that business is changing fast. So we begin.

Friday, April 16, 2010

The Unsocial Plant: The Future of Industrial Man, Chapter 9 pt 5

“The central fact in the social crisis of our time is that the industrial plan has become the basic social unit but that it is not yet a social institution.”

And here we end the Future of Industrial Man. I am going to take a little break and start on the Concept of the Corporation, which will start to consider this question. It is April, which is a cruel month for an academic.

Thursday, April 15, 2010

Social Policy and Industry: The Future of Industrial Man, Chapter 9 pt 4

“Such policy must center on industry. The fact that in total war the individual in industry has an important social function and a clear and unambiguous social status must be used to build a permanent functioning social organization.”

This quote returns to a theme that gets lost in the book. Social status is important. Social authority is important. How does a good society impart those things. The failure of fascism, capitalism and socialism is all related to this issue.

Wednesday, April 14, 2010

Present War and Post-War: The Future of Industrial Man, Chapter 9 pt 3

“The facts, institutions and beliefs of this, our present war society will be the foundation of our post-war peace society.” This is both a positive and a negative statement for Drucker. Certainly he appreciated the camaraderie, the sacrifice the hard work elicited by the war. But he also know that the war economy was a planned economy. He wanted little to do with such thing.

Tuesday, April 13, 2010

Lack of Plan?: The Future of Industrial Man, Chapter 9 pt 2

The critics claim that Drucker didn’t provide a plan to build the post war society. That is largely true, though a conservative such as Drucker really doesn’t want to provide such a plan. “The sum total of all this,” he writes, “ is that we have the engineering rules which we must follow in our architecture in order to build the kind of house we desire.” (195)

When he wrote this book, he could see that war production was at its height and might not have an easy way to return to a civilian economy. He also knew that the Depression had been a poor business economy. With no recent model to choose, and a powerful liberal leadership, he was hoping to find a new model.

Monday, April 12, 2010

Prospects: The Future of Industrial Man, Chapter 9 pt 1

Well, this is the end of the run and none too soon. There are ideas in this book that are going to be important but they are presented in ways that make it difficult to connect them with the information age. I see the following issues are relevant to the bigger project:

1. Drucker trained the managers of the information age;
2. Drucker is concerned with planning and centralized economies;
3. Drucker is concerned about the social unit of the new society;
4. Like so many other businessmen, he is worried that the economy will not return to the same
place it was before the depression;
5. That the post-war world will be led by the U.S. (I suppose he is not anticipation the Cold War.)
Those will be our issues and our starting points.

Friday, April 9, 2010

Review: "A Subjective Thesis": The Future of Industrial Man,

“A subjective thesis.”

Heavens, academics can be so arrogant. Drucker’s book “serves to remind political scientists and economists that without the study of fundamentals it is impossible to understand and evaluate detail.” Overall, it is a positive review, though the reviewer, Waldemark Gurian, wants to push Drucker towards a different sent of ideas. “A certain obscureness would have been avoided if Drucker had used the term ‘Common Good’ instead of ‘Freedom.” Common Good should be the aim of all regimes and societies.”

In spite of all this Gurian respects Drucker. “It would be unjust to compare the learning of Peter Drucker with that of” Joseph Schumpter. Drucker “has a much better understanding of political and social realities than the economist of Harvard.”

In the end, is the issue of industrial society just too small a topic for these academics?

Thursday, April 8, 2010

Review: "Industrial Cities": The Future of Industrial Man

One of the members of my doctoral committee joined the University of Washington in the 1930s and perhaps he knew this review, Thomas I Cook. Seattle is an odd bear of a city. The only urban area shut down by an industrial strike. The Wobblies. The Industrial Workers of the World. When I was there, the Anarchist party still had a visible presence in the city. And, of course, in 1999, protesters shut down the WTO negotiations that were being held in the city.

Dr. Cook is clearly more impressed in the political sphere than the industrial sphere. “Indeed, one is tempted to suggest that the modern democratic state has as its essential task the rendering responsible of the industrial organization,” he argues. “provided that the state is conceived as community organized rather than government all-powerful, there is less danger in the extension of its powers than in Mr. Drucker’s own scheme.”

Seattle is, of course, an industrial city. In 1943, it was connected to the rest of the country by only a few steel rails that crossed the mountains and deserts. Probably not the place where these ideas would meet a favorable reaction.

Political Science Quarterly

Wednesday, April 7, 2010

Review: Faint Praise: The Future of Industrial Man

It is a review of faint praise and little foresight
The reviewer is J. H. Landman of City College, New York. Provocative, he says. Stimulating. Still, you sense he is not particularly fond of the book. “His marshaling of facts to prove this economic evolution results frequently in a distortion of history.”

The oddest conclusion in this book is the claim that Drucker thinks that the future society will be organized around either a medieval craft guild or a contemporary Factory Soviet. The reviewer makes this point while acknowledging that the west possesses a “technological society operated by engineers, chemists, and skilled mechanics in behalf of finance capitalists, while the economic goods are inequitably distributed.”

Review: the American Academy of Political and Social Science

Tuesday, April 6, 2010

The Conservative Revolution of 1776: The Future of Industrial Man, Chapter 8

The Conservative Revolution of 1776

There is a lot that interests me in this chapter but little that really encourages me to write. It is largely a discussion of the political economy of 1776 and the ideas that form the foundation for the modern conservative movement. However, one comment at the end of the chapter clearly points to the era that will form the basis for my project. At the end of this chapter Drucker argues that the post-war world will need a new form of society.

“The nineteenth-century separation of political government and social rule,” he writes, “ is almost gone.” He argues that this separation has been weakened “because the institutions of the mercantile society cannot organize the power in the industrial system.” (p182) The question before us is to understand what institutions are to organize the industrial system and what role technology- particularly software – will play in those institutions.

Monday, April 5, 2010

Refined Technique: The Future of Industrial Man, Chapter 8

This is a difficult chapter to connect with software and technology. Drucker does have a nice quote. “Up to the last war – and even beyond it- there was a growing tendency to identify freedom and even free society with refinements in technique.” (p 154)

We live in an era in which the refinement of technique is considered important and hence this comment may be of relevance to us. However, this chapter is largely about how the American revolution of 1776 differs from the French revolution of 1789. He argues, as one might expect, that the 1776 revolution was more important for Europe than for the US and that it was a liberal revolution in the sense that it promoted liberty.

All of this is fine and good but for this project it only resurrects the question that he poses in the first chapter. How did the industrial climate that developed in the years that followed the second world war reflect the principles of that war. From the business literature, we know that the businessmen of 1944 and 1945 were deeply concerned about this question. At the same time, we know that the principles of the war involved massive, coordinated production that demanded substantial records, computation and planning. We also know that the computer provides a means for keeping those records, doing that computation and making those plans.

Friday, April 2, 2010

The Future of Industrial Man, Chapter 7: Section 4

The last part of this chapter traces the ideas of 20th century totalitarianism back to Rousseau. Intellectually, such work is fun. At the same time, it begs the question “So what?” “Why should I care?” Drucker seems to be interested in it as a kind of apostolic succession or diabolic succession I suppose. The ideas are bad because the roots are bad.

Occasionally, I meet someone who has a direct connection to the early days of the computer. At the last meeting of the Computer Society, I discovered that a friend was a grandstudent of Howard Aiken, the 1940s computer pioneer who built the Mark I at Harvard. My colleague had studied with Fred Brooks, the designer of the IBM 360, who was the student of Aiken.

I am astute enough to know that ideas can move from teacher to student but there has to be some freedom of thought from generation to generation, or perhaps a backlash of thought. Certainly we all know the truism that kinds are often like their grandparents because the two generations can find a common enemy in the parents. We also know that system designers are often trying to correct the errors in their last system when they design a new program.

Yet, we like to trace ideas, good and bad, to their roots. Hayeck does some of the same thing in his book on the origins of the social sciences. In that book August Comte is the villain. Comte, of course, spent time in Geneva, a city he shares with Calivin, Voltaire, Piaget, Byron, Mary Shelley and the Geneva Bible. And what is common there?

Thursday, April 1, 2010

The Future of Industrial Man, Chapter 7: Section 3

Here Drucker is revisiting the issue of majority rule and rights of minorities. It does not contain a lot of material that is particularly new, though it does remind me that the term “common sense” is not as friendly and simple as it seems to be. We take it to mean “ordinary wisdom”, “understanding the basic facts of the world.” Of course, it you look at the words with even a modicum of attention, you note that is means what it says. It refers to the sensibility that is held in common. The ideas about action and activity on which the majority agree.

Drucker moves from taking about the problems with majority rule with the issue of identifying the best government. “All out theoretical and practical discussion of politics suffers from the fact that arguments about freedom are supported or opposed by arguments about the best government and vice versa.” He is clearly concerned with freedom and acknowledges that a free government may not always be best by all standards.

To connect this to the computing world, I have to return to when I was first working as a programmer for Burroughs Corporation. It was a big company but it was far smaller than IBM. Furthermore, more software was available for the large IBM mainframes. Hence, at many customer sites, you found at least one manager who argued that they needed to dispose of the Burroughs machines and get IBM equipment because everyone had them.

There was a logic to this reasoning. Renting IBM equipment might reduce the problems with your site, give you access to more software and certainly put you in touch with a larger number of programmers training on your machines. The Burroughs machines were far more flexible and easier to use. But there were fewer of them And they weren’t IBM. And so they are gone.

Happy April Fools by the way

Wednesday, March 31, 2010

The Future of Industrial Man, Chapter 7: Section 2

There was a time, when I was working as an assistant dean in an engineering school, that I felt I needed to get an outside perspective. Things were not going well and I couldn’t explain why they were not. Eventually, I found my way to the office of a dean at a school safely distant from my own. I explained the problems and found a sympathetic ear. “Rational Positivism” she explained. “Engineers want everything to be as rational as their engineering and they don’t accept that much of human existence is not.”

Such is basically the argument of this second, though not a single engineer is mentioned. It is about the failure of rationalism as a political movement. Drucker argues that rationalists are politically paralyzed. They “can neither compromise for power nor fight for it.” He ends “ultra-bold in theory and timid in action, strong in opposition and helpless in power, right on paper but incapable in politics.”

Again, this raise many questions about his views for an industry that is based on rational logic.

Tuesday, March 30, 2010

The Future of Industrial Man, Chapter 7

This is a sixty year old book but it seems to be commenting on the political events of 2010. In particular, it seems to be describing the current Populist Tide. The purpose of the chapter is to argue that rationalist liberalism, the kind of liberalism that we associate with the New Deal, is an absolutist movement and hence leads to tyranny. It’s essentially the argument of Fox News, but it better written.

I must confess that I find the implications of this chapter disturbing. Let us suppose that the New Deal liberalism is indeed tyrannical because it elevates human reasons to absolute status, because it claims that such reason is the only way to find truth. Then, Drucker argues, populism, from the right or left, is a protest moment. “It cannot develop the institutions of social or political life. For event at its best it is primarily a protest against institutions.” So Drucker would project that we apparently have some years of fruitless protest ahead. Oh Good.

Looking beyond this parallel, how will Drucker’s observation help an industry that is fundamentally based on rationalism? And promotes rationalism?

Monday, March 29, 2010

“Influence of American Economic Policies”

If Drucker did not invent the Information Age, then the Information Age was invented for him. This is one of those interludes that is difficult for me to assess the validity of the argument. It is an article he wrote in 1941 when he was a new professor at Sarah Lawrence.

Superficially, the piece seems like a love letter to his new country. He is arguing against a claim (unreferenced in the piece) that the US adopted a global economic policy that destroyed Europe in the 1920s. Instead, he argues, the country did the best it could for the countries of Eastern and Southeastern Europe.

The most interesting part is at the end, the suggestion that Drucker is going to be at the center of information age. After a little digression on the changed nature of the global trade (from complementary to competitive) he asks question that points to the future. It ”seems to me that our approach to the international economic organization of tomorrow cannot start from the question of trade in goods, but must first answer two questions: How can the international movement of man power and how can the international movement of capital and ideas be organized?”

The moment of labor and goods seems to be obvious issues. When did economics become interested in the movement of ideas?

Friday, March 26, 2010

The Future of Industrial Man, Chapter 6: Last Post

Tolerance and indifference. Drucker makes much of these qualities. They are truly useful. Are you tolerant of a minority group if they do things that you approve? Probably not. You have to be willing to let them hold a divergent view.

Do you live in a free society if you are indifferent about certain aspects? This is important because Drucker talks about technical questions as being things of indifference to most of society. Do you make a free judgment when you determine the best way to organize knowledge or process data or make judgments from data, even if those actions have moral consequences? At this point in his career Drucker would say no but we will see what happens as he begins to conceive the importance of information in society.

Thursday, March 25, 2010

The Future of Industrial Man, Chapter 6: Free Society and Free Government

I’ve been reading Hayeck’s book, The Road to Serfdom on my commute to work. It is background reading for this project, which is in itself background reading. As it happens, Drucker quotes Hayeck and Hayeck quotes Drucker. The references have been useful. Yet, I have been surprised how many of my peers take offense at the book. Many have been truly shocked “Are you reading that swill Hayeck?” they ask.

Not all of them do that, of course. I know more than a few University of Chicago Economists, though the Chicago School of economics is not all that thrilled with the members of the Austrian School.

These responses seem to me to fall victim to Drucker’s thoughts on truth. Is it just what the majority think? I’m trying to understand the computing age and that work is taking me here. I have to understand how Drucker thinks or I will just be espousing my own opinions.

Wednesday, March 24, 2010

The Future of Industrial Man, Chapter 6

The first theme of this section is how freedom is constituted in the ability to make bad decisions. The second theme is the limitation of democratic rule. Tyranny of the majority. He doesn’t like anything that suggests one group is closer to truth than any other. It is very egalitarian of him. But he also hits a key issue for the information age. How can we can we define a quality in terms of a quantity? How do we claim that truth is what the majority see? That is the appeal of common sense. It is ordinary wisdom, the judgment of the majority. Yet we believe in the romantic hero, the loner who sees something that goes against the sensibility of the majority and is able to act.

Tuesday, March 23, 2010

The Future of Industrial Man, Chapter 6: Free Society and Free Government

There is a scene in Tony Kushner’s play Slavs, which seems to be the outtakes from Angels in America, in which two aged Bolsheviks sit in some corner of heaven and complain about what has happened since they left earth. Neither is pleased. The Soviet Union has collapsed and they don’t see that as good. However, they aren’t concerned with the actions or state of society or the prosperity of the inhabitants. “Where is the theory?” The Soviet Union was based on a wonderful theory. Where is the theory of capitalist society?

Well, part of it is in this chapter.

The elements are familiar to anyone who has been following the political debates of the last two decades. Freedom is based on the ability to choose and the ability to make the wrong choice. It is tightly connected, in Drucker’s mind to limited government. However, Drucker also connects it, quite tightly, to the Christian idea of fallen man, of humanity being sinful and not able to see perfection in this world.

If he were writing the book in 2010, would he frame the issue that way? At the very least, it resonates with fewer people than it did in 1946. Still, it is one the endearing things about Drucker. He is writing about big ideas. At this point, the scope of his world is the Western civilization of mid-20th century Europe. Yet, he doesn’t see it as one possible framework for management. He conceives it as the only one.

Monday, March 22, 2010

The Future of Industrial Man, Interlude

I’ve read ahead. Have you been able to see that? This blog represents the fruit of my efforts to read Drucker’s works in order and carefully outline them. However, I have read a number of books that come later. His novels are tough going. He does not have a novelists sense of detail. He also makes the old epithet “an Ayn Rand Love Scene” seem like a complement.

In Drucker on Asia he more or less disowns this book, claiming that these ideas have never gained popularity. They are difficult to understand and they lead to conclusions that seem peripheral. Perhaps society is broken. Perhaps the decisive power is illegitimate. Perhaps it fails to give function and status to individuals in a proper way. But it moves forward and it has ideals. What bridges the gap that separates Druckers metaphysics from the pragmatism of the society that he has been describing?

Friday, March 19, 2010

The Future of Industrial Man, Chapter 5 (pt 2)

Doubts and questions. Is Second Life a free and open society? Does it reward individuals according to their industrial skill, their ability to work with network software? It seems to do so. Capital accumulation doesn’t help you. Neither does social capital, at least to a certain extent. Yet, it does so by surpressing the world that exists outside the virtual society, by claiming that it is secondary to Second Life.

In this chapter, Drucker argues that the factory was the model for totalitarian society and that totalitarian dictators were able to build big industrial societies by surpressing the influence of wealth and social heritage. They were only able to do this through a policy of constant warfare . If we try to extend that argument to the Internet or to Second Life, we see that while it is possible to extend the values of the internet into the greater society but that such an extension does not antidote the power of money or social status. Both retain substantial power and cannot be dethroned easily. I don’t know if war would allow us to surpress the power of wealth and status. But what would physical isolation do to them? If we could no longer travel, or if we could not travel beyond our immediate neighborhood, would internet society become global society?

Thursday, March 18, 2010

The Future of Industrial Man, Chapter 5: Challenge and Failure of Hilterism

Not much new here. This is largely a repeat of his last book. The basic idea is that the totalitarian societies of the second world war attempted to make industrial society the basis for general society. They did this that valued the skill of industrial workers and advanced them if they had skills and were loyal to the leaders. However, the only way that they could legitimize this process was to claim that it was needed because the country was at war. The old industrial leaders had to sacrifice financial rewards and social position because of the war.

In seeing this for a second time, I’ve wondered if the internet does indeed provide the opportunity for a new, industrial social organization, one that provides purpose and function based on industrial skills. In ordinary working settings, we find that industrial skills can only provide a limited form of advancement. Unless you are able to manage people and manage capital, you cannot advance far in industrial society. It provides advanced functions and advanced purposes to business people more easily than it does to technocrats.

If you don’t probe the internet back to its financial basis, which is a fairly substantial conditional, you find societies that reward skills with software and communications skills. At first glance, those societies would seem to provide function and purpose independent of capital. But I am bothered by the idea that the internet hides its financial roots. It offers artificial societies that don’t’ quite correspond to life without this technology.

Wednesday, March 17, 2010

The Future of Industrial Man, Chapter 4: Industrial Reality of the 20th Century (pt 6)

Last for this chapter. Drucker critiques a number of attempts to create functioning societies within the industrial world. He has one kind thing to say about agrarianism – looking back to agriculture as the foundation of society. Basically, he says that it looks backward rather than forward. It is nostalgic in the way that Bob Dylan songs are nostalgic for a society that can’t exist.

He is much harder on unions as he claims that they are primarily a negative force that is no more legitimate than modern management. Finally, he dismisses those who think that management can be the basis for a functioning society. (notably James Burnham.) Again, the legitimacy of management is his key issue.

I’ve been thinking about how I would place modern, Internet based production into Drucker’s framework. Clearly, the Internet has been a good place to sell labor and services. My friend Doug the Rocket Scientist is working with a Pakistani programmer to develop an application for his energy system. He found the guy on an internet site that is a market for skilled labor. I see how this site bring income to individuals and how it allows them to work as independent entrepreneurs. I’m not sure that it assembles them into a functioning society. This website seems to be nothing more than a day-laborer market. And it does nothing more for the programmers who sell their services, than the kinds of markets that one can find in key suburban parking lots, where low skill workers pedal their labor for a days wage and nothing more.

Tuesday, March 16, 2010

The Future of Industrial Man, Chapter 4: Industrial Reality of the 20th Century (pt 5)

I grew up in a union town and I served as the union administrator for my unit. Nothing Drucker says about them can surprise me.

Drucker argues that they are no more legitimate than modern management, as union leaders are elected through a process that does not really engage most union members. His central claim is that they are a negative force that serve to counterbalance the corporate management. They can’t serve the individual because they are charged with providing uniform circumstances across different plants and different companies.

My memories of Detroit unions are distant and colored by what I have read rather than by what I experienced. When law enforcement agencies recently discovered that Teamster President Jimmy Hoffa may have been buried near the condo that my parents owned, it brought a host of stories back to mind. However, as I thought about most of them, I concluded that the bulk of them were generated by secondary sources, as I could never have been in a position to see that news first-hand.

My union experience at school paralleled Drucker’s comments. Most of the teachers had no connection with the union and saw it only as an organization that took a monthly fee from their paychecks. In theory, they received more money from us because of the contract but my school actually paid more before the contract. Again, the group didn’t do much for the individual as it tried to enforce a uniform policy across 6 or 7 very different schools.

Monday, March 15, 2010

The Future of Industrial Man, Chapter 4: Industrial Reality of the 20th Century (marching away)

This is a long and difficult chapter. I will be grateful when this is over, though I am a bit concerned that the next one is about Nazis. I have read plenty of Drucker on Nazism.
Here’s his basic point. Modern industrial society is not legitimate because it does not provide status or function to industrial workers. Workers – and by this he means unskilled workers – are just an automatic element in a big production machine. In this role they gain nothing that integrates them with society.

First, according to Drucker, they do not understand the process of production and hence do not know their place in it.

Second, without an understanding of the process, they cannot take initiative.

Finally, they can add nothing personal to the work.

Based on these three things, Drucker argues that industrial work does not give unskilled workers a place or a true function in society.

A week or so ago, I went to the staff appreciation ceremony at school. The staff are far from being unskilled workers, so the parallels with Drucker’s observations may not be that good.

The event impressed me two ways. First, it was a large activity with people from every part of the school. Not a one there could have understood how their contributions fit into the entire organization. Still, most had a local context that allowed them to understand how their job fit into some well-defined activity.

Next, it surprised me with the reliance on video presentations. The first was understandable. It came from the President who was out raising money. The remainder came from leaders who were there. They relied on the vocabulary of modern television advertising and had the production values that one normally associates with commercials for local automobile dealers.

I didn’t doubt the sincerity of the videos but they left me feeling distant from the event rather than closer. They didn’t seem to do any thing that a lunch with the immediate supervisor and a few friends couldn’t have done better. But perhaps that is the point. The division lunch looks more like an artifact from pre-industrial society and this big event is more closely linked to mass production.

Friday, March 12, 2010

The Future of Industrial Man, Chapter 4: Industrial Reality of the 20th Century (pt 3)

A reader has reminded me that Coconuts is also a great Kaufman comedy. I concede that this is true.

In this project, I have to keep returning to the time in which the book was published. He is writing in 1943 and is dealing with a simpler social idea. Small towns. Independent bankers. Responsible shareholders. John Steinbeck. George Bailey. All the rest. Kaufman, too, I suppose, as he has a nostalgic eye even though he writes about urban life.

It is an age before mutual funds and corporate investors. These institutions will ultimately form a countervailing power to corporate management. Manage has a real check on its power when they face someone who owns a substantial fraction of the company.

At the same time, Druckers divides the economy into two parts. The first is the economy of production. The second is the economy of rights and finance. He calls the first real and the second symbolic. The first conveys power but not wealth. The second has wealth but no power. The growth of mutual funds is part of the symbolic economy and it is some attempt to get power but it still lives in the world of symbol.

Thursday, March 11, 2010

The Future of Industrial Man, Chapter 4: Industrial Reality of the 20th Century (pt 2)

This chapter actually connects nicely to Drucker’s last, which was on totalitarianism. It is a chapter on political philosophy that dissects the nature of the modern corporation. It argues that the corporation is a political entity based on the social contract. It derives its power not from a government but from the property brought to it. He makes many references to Locke and his second treatise government.

Drucker is trying to make the point that while the corporation has a legitimate role, the management of the corporation has become an illegitimate power because it no longer based on the power of the stockholders. Management can make decisions without worrying about any reaction from the shareholders.

His reasons starts with the famous book by Berle and Means, The Corporation and Private Property, which made the first serious argument about the division between shareholders and management. Drucker has noted that capitalism has continued to work when shareholder control has been completely eliminated from the corporation, as in the Soviet Union or has been completely eviscerated, such as in Nazi Germany.

Wednesday, March 10, 2010

The Future of Industrial Man, Chapter 4 and the Solid Gold Cadillac

A local theatre recently produced the play Solid Gold Cadillac but George Kauffman and some other writer – a Barnard professor I believe. (I should know this fact as I sat next to his daughter at the opening.) It was not a great play. It is nothing compared to You Can’t Take it With You or even The Man Who Came to Dinner, the two great Kauffman comedies. At the same time, it got close to the key issue of this chapter of Drucker: that corporate management has no legitimate basis for its power.

The play tells the story of a company that is vaguely General Motors. It is run by a group of executives who have little interest in anything beyond wealth and womanizing. They hold control by getting proxies from their shareholders who know nothing about company and gladly give the proxies to management. The scheme falls apart when a woman (an actress who is playing an actress) is given the job of shareholder relations, gets all the proxies and takes over the company.

As a work of art it is both silly and lacking any truly interesting character. However, it does represent the times well. It was writing slightly after The Future of Industrial Man and it recognizes, as the business literature of the time was starting to comprehend, that management had become divorced from the shareholders.

Tuesday, March 9, 2010

The Future of Industrial Man, 3: Mercantile Society of the 19th Century (pt 4)

I’m dwelling on this chapter because it seems central to Drucker’s argument but I want to talk about Adams for a bit. Adams wrote about visitors to a World’s Fair worshipping a dynamo. It is hard to understand what that meant to people at the end of the 19th century. The dynamo freed them from the natural world. They could have light any time they needed it – day or night – they could have heat and the power to run tools. To exploit this technology, they would have to develop a relationship to it. This relationship would be different than the relationship with land and the production from land. It could provide wealth and social status and purpose, but such provision would not be permanent. Furthermore, it put individuals in a new relationship with those who owned the dynamo and those who operated it. Those who owned the dynamo might get status and function might get status and function from the market in traditional ways. Those who operated the dynamo got their positions from knowledge, knowledge that might have a market value but was substance very different from that of land or other assets.

Monday, March 8, 2010

The Future of Industrial Man, 3: Mercantile Society of the 19th Century (pt 3)

I am trying to understand this chapter in terms of the technological industry. It seems that the Vernon cycle is highly relevant to the ideas that Drucker is promoting. Vernon argues that the manufacture of high tech goods follows a certain pattern. It starts in an expensive labor market near to the source of the ideas that created the product. (Think Cambridge, Massachusetts). From that start, the process is standardized so that it can go to other expensive labor markets that are far from the source. In both these cases, the product is mostly sold locally.

Following these two steps, the production process is further standardized so that be manufactured in a low wage labor market. When production goes to such a market, the product is then exported back to the original area in which the product was created.
In this world, market participation is competitive. The ability of individuals to participate in that market depends on their relationship to the production process, not to the good itself. Once that process changes, they can easily lose their ability to acquire status and function.

If a programmer’s job depends on the proximity to their client, they have a certain ability to participate in the market and claim status. If the job can move to anywhere in the globe and depends upon knowing the latest programming techniques, then the programmer has precarious position indeed.

Friday, March 5, 2010

The Future of Industrial Man, 3: Mercantile Society of the 19th Century (pt 2)

Drucker argues that we believe that we still live in a mercantile society but that we do not. Production has changed and is no longer tied to a specific location or a special climate. It is no longer the monopoly of a single country but can move to follow economic efficiencies. Because of this, trade is no longer complementary, in which one country trades the products of its land for products of another region, but competitive. Participation in the market becomes a competition to see who can use resources most efficiently.

I am still trying to grasp the changes that Drucker sees. He has a way of defining an idea in a single word or a phrase and then repeating those words without further elucidation. In Drucker’s new world, we apparently organize our lives around methods of production: how we generate electricity, how we make wine, how we create nails, to identity three examples that have appeared in the historical economics literature. Our connections to the good is through our participation in the process, not because we own a certain piece of land or live in a certain climate. If the process changes, then our relationship changes in an instant. Once we may have controlled the good or service. In a moment, that control is gone. The property represented by that good or service may still trade on the market but our relationship to it is now quite different. We cannot gain social status or function from it.

Thursday, March 4, 2010

The Future of Industrial Man, 3: Mercantile Society of the 19th Century

This chapter contains the foundation of the book. Drucker argues that by the start of the early modern era, social status and function were determined by two things: property and the market. One gained social status and function through the possession of property and exercises that status and function through the market. In this world, the socialially decisive power is that which controls the market.

The argument centers on England, though he does give examples from other European countries: The Junkers of Germany and the French bourgeois proprietor. Like the landed gentry of England, these classes apparently had enormous control of the society of their time. Drucker arges that the English gentry retained leadership status well into the 19th Century and that their influence still remains on Western society. We value land ownership. We view country estates as a buffer from political rule. We view industrial work as second-class or as somehow demeaning.

In this chapter, Jane Austen becomes a central figure, England’s “greatest social analyst” in Drucker’s words. She clearly saw the role of the market in her society. She was the daughter of a clergyman but she never endowed any of that class with social power in her novels. Mr. Collins in Pride and Prejudice is a simpering fool. Mr. Elton in Emma is a selfish egotist. Neither commands anything in the market nor has any profit by which they may participate in the market.

Indeed, Austen’s most famous novel begins with a frequently quoted reference to the market “It is a truth universally acknowledged,” she notes, “that a single man in possession of a large fortune must be in want of a wife.” This begins a novel of young women and young men participating in the marriage market, bringing to that market the property, great or small, that they possess: land, cash, family connections, physical appearance and prospects for the future.