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.