Talking About Tomorrow: Peter Drucker
January 1, 2000
CLAREMONT, Calif. -- Peter Drucker invented management -- not as a practice, but as a field of study. It's safe to say that no theorist in his field has a longer track record: He turned 90 years old in November. It was he who first asked managers to decentralize their operations and treat their employees like humans -- in the 1940s. The concept of "knowledge work" is his coinage, from the 1950s. He has remained consistently fresh and ahead of the times ever since, dubbed by Wired magazine as the "arch-guru of capitalism."
He grew up in Vienna, studied finance, and went to work as a newspaper reporter. In 1939 the first of his 28 books, "The End of Economic Man," also became his first bestseller when Winston Churchill hailed it publicly. A short time later, as a professor at Bennington College in Vermont, he spent two years observing General Motors Corp. from the inside. The resulting books, called "The Concept of the Corporation," cemented his reputation a management theorist and his career as a consultant to major corporations.
He remains an active professor at Claremont College's Peter F. Drucker School of Management. He was interviewed in his single-story home filled with books, Japanese art, and vinyl recordings of music by Bach.
-- Thomas Petzinger Jr.
Untenable Assumptions
The Wall Street Journal: Do we have a "new economy?"
Dr. Drucker: If by "new economy" you mean something in which a boom can go on forever, I don't think we have that. In Germany there were periods known as Founders Years, which you had in the 1830s with the railroad boom in Europe -- a very long period that seemed to defy the law of gravity only to end in a really spectacular collapse. Founders Years are periods of fundamental technological and economic transformation; you have long, heady years of certain enormous fortunes. You have that again in the 1860s, followed by the 1870s with the crash of the Vienna stock exchange that spread world-wide. So seven or even 10 years of boom are not unprecedented.
Whether there is a new economy, we don't know. But there is a need for new economic theory, which is something else again. Our economists, not just American economists, still consciously or subconsciously operate in terms of the old axioms.
WSJ: Such as?
Dr. Drucker: I would say that economics makes three assumptions that are no longer tenable -- three basic axioms on which economic theory is based. One is that the national economy is a unit of activity in which monetary and tax policy determines the behavior of both individuals and businesses. Secondly is the scarcity axiom. The third one is that if you sell something you alienate it, you have lost it. None of these is valid anymore.
WSJ: Let's unpack that. You say the national economy is no longer a unit?
Dr. Drucker: Goods and services are increasingly global, even if your market is purely regional, purely local. Your potential competition overnight can be from anyplace in the world. Someone has a nice niche in a regional market in Dayton, Ohio. Overnight, somebody from Denmark takes over the market.
WSJ: And within the U.S., the economy is splintering into smaller and smaller independent pieces. Isn't that so?
Dr. Drucker: Yes. Instead of seeing cycles of the economy, we may see cycles of industries. For instance, we had a fairly substantial cyclical recession in this country in the early '90s, but a good many industries were totally unaffected. Home Depot grew fastest in those years. On the other hand, traditional heavy industry had five very nasty years. So maybe the national economy is no longer a meaningful economic center.
WSJ: You also said the scarcity axiom was becoming obsolete. Do you mean the idea that things have value only insofar as they're limited in supply?
Dr. Drucker: What I mean is that the scarcity axiom does not pertain to information. Let me give you two examples, one where they understand this and one where they don't. I will not give company names.
There is the company that gave you the map and driving direction you used to get from the Los Angeles airport to my home; you go to the Internet, and they don't charge a penny. They make their money from advertising, which you have to look at to get these directions. They understand that the scarcity axiom does not apply to information because they can keep giving away information and receive more revenue in another way.
On the other hand, there is a major newspaper, one I am very fond of, which believes in selling subscriptions to the online edition of the paper, which is a total misunderstanding. It should be given away to create a larger subscription base.
This first company understands information, the second one has yet to learn.
WSJ: Let's move on to the third obsolete axiom.
Dr. Drucker: Economics holds that if you sell something, if you transfer something, you no longer have it. That does not apply to information. On the contrary, you have no information, basically, unless you share it. Sure, of course, you try to keep strategic information to yourself. But when your product is information, information accrues as you release it.
Some implications of this we don't understand, but some we begin to realize. For instance, our balance of payments is probably a total delusion. I don't know what percentage of the information industries today export. In terms of their own domestic prosperity, my guess is that 40% of the employment of Silicon Valley and the like comes out of information sold outside of the U.S. But how they get paid, we don't know.
There is a fourth assumption of economics which very few economists are aware of, which is that production, employment and value move in parallel. That is no longer true. In the 20th century, certainly since 1918, the relative value of the products of agriculture and minerals relative to manufactured goods has been going down by 1% a year compounded. At the same time, agricultural production has exploded the world over, even though agricultural employment has disappeared since World War I. That does not fit the assumptions of economists.
We face the same now in manufacturing in this country. Forty years ago in the late Eisenhower years, 35% of all the workers were in manufacturing. The figure is now less than 18%, while manufacturing production has tripled. Manufacturing prices are now going down at the rate of 1% a year compounded, which is one of the main reasons why we have no inflation.
Chains of Command
WSJ: Even if you don't commit to the idea of a new economy, you certainly seem to think we need a "new management."
Dr. Drucker: When we went into the modern corporation around 1870, we looked for a model. There was only one model. It was the Prussian Army. And in combat you have to have command. You have to have command in a crisis, someone who can say "This is it" and stop the yapping. But you are not in a crisis situation normally, and you have more time than you have in combat. So that model is no longer used in the military. I've done a fair amount of work at a tactical Air Force base. There is a colonel who is in charge of all the maintenance. The maintenance is done by a crew chief, who is a sergeant. If the sergeant says a plane is not ready to be flown, it isn't. Now, if he says it too often, you replace him. But as long as he is the crew chief, the colonel can't overrule him.
WSJ: Are corporations catching up to the military, or are they still following Frederick the Great?
Dr. Drucker: If you were to come on Saturday afternoon to my advanced management program, you would find 78 people, very successful people, 60% from business, 40% from elsewhere. They are upper-middle management. The companies don't send them to us unless they are the most successful, most promising people. And their bitterness about their management and their companies is unbelievable. They feel the financial people treat them like peons. What really offends them most is that the financial people think they can make them happy by bribing them.
WSJ: Bribing them with high salaries?
Dr. Drucker: Yes, and stock options, but not respecting them as professionals. And have you looked at turnover rates?
WSJ: Some places in Silicon Valley it's 30% a year.
Dr. Drucker: And in the pharmaceutical industry it is reaching 30%, where it used to be nil. And the cost of replacing one of these people is absolutely astronomical.
WSJ: So what is the answer?
Dr. Drucker: The answer is respect. Let me tell you a story.
I just spent 10 days in the hospital. This is our local hospital, and I know the administrator. Nine of those 10 days I was in good shape, but I had to lie flat and motionless because I had an IV in each arm. So all the nurses came and chatted with me. They came to me in the hope that I would get across to the administrator something that irked them. I won't tell you the details. It involved a change in policy imposed on the hospital by the HMOs that altered their professional status. They were being told what to do instead of being asked what should be done. They are used to that from physicians -- but not from administrators.
And all I had to do was, when the administrator came to say hello, I said, "Look, you are creating trouble with your nurses. Yes, the HMO put pressure on you. But instead of issuing orders, you should call in the senior nurse from each group and sit down with them. You explain the pressure from the HMOs and ask, 'How do we handle it best? What are your ideas?' They may curse. They may say that HMOs are perfectly stupid. But they should make the decision on how to handle it. They should be treated as professionals who know their job."
And he did it while I was still there. And in two days the atmosphere changed. The same nurses came to me and said, "This is again the place I like to work in." That was all he had to do.
WSJ: And will more businesses in the future take that kind of action?
Dr. Drucker: More and more have. More and more will. Because otherwise, the results aren't there. And more and more organizations are becoming conscious of the mobility of the good people -- which, you know, is a shock to most of them, those in the older generation. We grew up still with the belief that the employee needs the company more than the company needs him. Try to tell that to my grandchildren.
WSJ: They would laugh in my face.
Dr. Drucker: They don't even know what it means. Sure, some young workers are very greedy, very conscious of rapid promotion. But they also see themselves much more like craftsmen of old. It used to be the tradition that when the craftsman had finished his apprenticeship, he would spend five years traveling as a journeyman. Even in this country, up to the Linotype, the printer had his own fonts, his own tools. And the old saying was that he stayed in one place until he married. We are getting there again, except that you don't have to marry anymore.
Getting, and Giving, Satisfaction
WSJ: So what is the lesson for an employer? To honor craft? To honor personal fulfillment?
Dr. Drucker: Yes. It's not difficult! Put responsibility on your good people. Stop talking "empowerment." That's an obscene word.
WSJ: Certainly a patronizing word.
Dr. Drucker: Plus the fact that you take power from one place and put it in another, it is still power. Instead, talk responsibility. Look, who is the most successful in attracting and holding good people? The nonprofits. The satisfaction has to be greater than in business because there is no paycheck.
WSJ: Do our schools need to change?
Dr. Drucker: Our schools do not prepare people. The school is an invention of the eighth century. Antiquity didn't have schools in our sense. It had tutors. Then the monastery came. If you put one of those Benedictine monks into a modern high school, he would feel very comfortable. And in the 11th century came the convent and schools for girls. We really haven't changed all that much. The subjects have changed, but not much since the 19th century. We are becoming more specialized -- not less. There is no synthesis yet. Nobody teaches social sciences, the understanding of the behavior of people in institutions. They teach economics and psychology and sociology as if those things existed. They do not exist. They are contrivances. Nobody teaches numeracy. Mathematics, yes. But numeric literacy we don't know how to teach.
WSJ: How will this change?
Dr. Drucker: Traditionally, schools have not been changed by the needs of society or the changes in knowledge, but by external technology.
WSJ: Like the introduction of the book.
Dr. Drucker: Like the book. So online technology is going to have an incredible impact, but we don't know when and we don't know whether it will involve what is being taught or how it is being delivered. The history of the book would argue that we are very, very slow. It took 200 years for books to become used in schools. And things that could not be taught with the help of the book disappeared. Up until 1600, music was an integral part of education. It vanished after the book.
WSJ: You're a man of 90 in plainly robust health. What's the secret to your longevity?
Dr. Drucker: Two things. First, genetics, obviously. My father died at 91. My mother probably would have lived just as long if she hadn't been in an accident. Secondly, being a workaholic. I need stress.
WSJ: Always have to go against the grain, don't you?
Dr. Drucker: Look, stress is bad for people for whom stress is bad. The rest of us -- and I don't know what the proportion it is, but it is a large proportion -- we thrive. I set my own deadlines. I know they are fictitious, but they still put pressure on me. And I think that is the secret. My wife is 88. She is also a workaholic. But believe me, it is constitution more than anything else.
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