Peter Drucker and the New World of Economics, Society and the Individual

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The following was first posted ten years ago today, November 19, 2008. It looks at some of the work of Peter Drucker. His prescient ability to see global change should draw us back to his writings as insightful for our time. 

Reflecting on what I wrote ten years ago, I am more convinced than ever that our past, whether capitalist or socialist, is inadequate to the task of informing us as to what our future will be. We are at a transition point in human history that is unprecedented because there is an opportunity to create new institutions and new ways of functioning as a global society. 

What does this future look like? I cannot say with any confidence. However, my conviction is that the political and economic systems that have been dominant for the past one hundred years have reached a point of exhaustion and growing impotence. What follows? That is the question that should be the center of our conversations going forward. The writings of Peter Drucker would be a good place to start this conversation.

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A couple days ago, I was compelled to pull off my book shelf a couple of books by Peter Drucker, that I had read in the early 1990's.  I wanted to see what he had to say about economics, globalism and entrepreneurialism that may be relevant to what has been taking place recently.

Peter Drucker, who died at the age of 95 in 2005, was an Austrian born journalist, lawyer, and academic, who came to America in the late 1930's and became known as the father of modern management. His writings on leadership and management helped to frame how we understand business and the changing global social context. The impetus to start my own business came from reading his Innovation and Entrepreneurship in the mid-1980's. To get a good idea of the range and power of Peter Drucker's mind, download his 1994 The Atlantic Monthly article, The Age of Social Transformation.  I'm indebted to Peter Drucker as one of my intellectual mentors. I hope you will find insight and inspiration in these selections of his writing.

Two books I pulled off the shelf review were The New Realities (1989) and The Post-Capitalist Society (1993). I'l quote from the books and then comment.  

Keynes, the post-Keynesians, and the neoclassicists alike cast the economy in a model in which a few constants drive the entire machinery. The model we now need would have to see the economy as "ecology," "environment," "configuration," and as composed of several interacting spheres: a "microeconomy of individuals and firms, especially transnational ones; a "macroeconomy" of national governments; and a world economy.  Every earlier economic theory postulated that one such economy totally controls; all others are dependent and "functions."  In the marginal-utility world of the neoclassicists, the microeconomy of individuals and firms controls the macroeconomy of government.  In the Keynesian and post-Keynesian worlds, the macroeconomy of national money and credit controls the microeconomy of individuals and firms.  But economic reality now is one of three such economies. And soon the economic region (as in the European Economic Community), may become a fourth semi-dependent economy. Each, to use a mathematician's term, is a partially dependent variable. None totally controls the other three; none is totally controlled by the others . Yet none is fully independent from the others, either.  Such complexity can barely be described.  It cannot be analyzed since it allows of no prediction.

To give us a functioning economic theory, we thus need a new synthesis that simplifies - but so far there is no sign of it. And if no such synthesis emerges, we may be at the end of economic theory. There may then be only economic theorems, that is formulae and formulations that describe or explain this or that phenomenon and solve this or that problem rather than presenting economics as a coherent system.  But there also then would be no "economic policy" as the term is now understood, that is, no foundation for governmental action to manage the business cycle and economic conditions altogether.

Economic policy requires that lay people such as politicians understand the key concepts of economic theory, but economic reality is much too complex for that.  It is already difficult, if not impossible, to give answers understandable to a lay person to the simplest economic question.  If there is not again a simple economic theory - or at least one capable of simplification - then there can be only "economic policies" aimed at a specific problem, such as an inadequate savings rate.  There can be only what might be called "economic hygiene" or "preventive economics." These would aim at strengthening the basic health of an economy so that it could resist even severe bouts of economic crisis rather than at curing a crisis or managing it.  (The New Realities, 156-158.)

Those words were written during 1986-87, over twenty years ago, and well describe the economic situation that we now find ourselves in today. A complex global economic environment that does not yield to simple, completely integrated theories. And yet, these different spheres of economic activity - the individual, the firm, the nation-state, the transnational or global corporation and the economic region - are integrated in such a way that a failed bank in the US or a natural disaster in eastern Europe can impact an Indian entrepreneur or a Japanese merchant.

A half decade later, Drucker wrote.

Only a few short decades ago, everybody "knew" that a post-capitalist society would surely be a Marxist one.  Now we all know that a Marxist society is the one thing that the next society is not going to be.  But most us also know - or at least sense - that developed countries are moving out of anything that could be called "capitalism." The market will surely remain the effective integrator of economic activity. But as a society, the developed countries have also already moved into post-capitalism. It is fast becoming a society of new "classes," with a new central resource at its core. ... the real, controlling resource and the absolutely decisive "factor of production" is now neither capital nor land nor labor.  It is knowledge.  Instead of capitalists and proletarians, the classes of the post-capitalist society are knowledge workers and service workers. (Post-Capitalist Society, 5-6.)

Political and social theory, since Plato and Aristotle, has focused on power.  But responsibility must be the principle which informs and organizes the post-capitalist society. The society of organizations, the knowledge society, demands a responsibility-based organization.

Organizations must take responsibility for the limit of their power, that is, for the point at which exercising their function ceases to be legitimate.

Organizations have to take "social responsibility."  There is no one else around in the society of organizations to take care of society itself.  Yet they must do so responsibly, within the limits of their competence, and without endangering their performance capacity.

Organizations, in order to function, have to have considerable power. What is legitimate power? What are its limits? What should they be?

Finally, organizations themselves must be on responsibility from within, rather than on power or on command and control. (Post-Capitalist Society, 97.)


As I have tried to understand the political and economic developments of the past two months, I've talked with many people about what they think and are experiencing.  The one constant is the sense of having no power or control over their circumstances. They feel at the mercy of forces beyond their reach. This certainly means that we have fully arrived at the world Peter Drucker saw forming twenty plus years ago.

What are we to do?  I believe we need a shift in perspective about who we are individually, about the nature and responsibility of the leadership of organizations, and what is within our power to achieve in a realistic sense.

First, we need to think of ourselves as personally responsible for our lives, even if we feel that we've lost control of the environment of our lives. Only by accepting responsibility for our lives will we make the necessary changes to create the climate in which we can succeed. A decade ago, Daniel Pink wrote a provocative article in FastCompany magazine, followed by a book, called Free Agent Nation. His singular idea is that regardless of what we do, who we work for or with, that we must think of ourselves as "free agents" responsible for our vocational lives.  We must take charge of our life situation, and not transfer authority and responsibility for it over to some other person or organization. Only by taking personal responsibility will we find solutions to our immediate problems. This requires that we must become more open to new possibilities, new relationships, new directions and new challenges to meet.

More than ever this means that each of us must become learners. If you are bored by reading, try one of the books that offers short selections by Drucker. Stimulate your mind to think about ideas and their application. Begin to write down your thoughts in response to what you read. Think of reading as a conversation with an author. Find someone to share you thoughts, or better, share them on a weblog. It is not enough to read widely, but to think widely by learning to express what we feel in our hearts about what we read and see.

To prepare ourselves to lead in this new world that Drucker describes, we must discipline ourselves to begin to ask questions that lead us to people who can help us learn. If you need help, go to your local community college, sign up for continuing education courses, work on a new degree, learn a whole new field of knowledge, before you need it.  No one is going to come invite you to read and expand your education, even though I am doing that very thing at this moment. We must take responsibility to do it for ourselves. As President Eisenhower said, "Not all readers are leaders, but all leaders are readers." Learn to be an effective reader. If you need advice, just ask.

Ultimately this leads to the conclusion that I've been writing about for many years, that leadership begins with personal initiative. It is the initiative of taking personal responsibility for the environment you are in. Whether you are a CEO, a manager, a sales person, or a line worker, leadership emerges from the initiative of the individual to do what is needed to make a difference right now for the right reasons and in the right way.

Second, I suggest that each of us begin to think of ourselves as knowledge workers. Again, here's Peter Drucker.

Post-Capitalist Society deals with the environment in which human beings live and work and learn.  It does not deal with the person.  But in the knowledge society into which we are moving, individuals are central.  Knowledge is not impersonal, like money.  Knowledge does not reside in a book, a database, a software program; they contain only information. Knowledge is always embodied in a person; applied by a person; taught and passed on by a person; used or misused by a person. The shift to the knowledge society there puts the person in the center.  In so doing it raises new challenges, new issues, new and quite unprecedented questions about the knowledge society representative, the educated person. (Post-Capitalist Society, 210.)


This means that we have to understand what we know and its value in the context of where we live and work.  These are the assets that each of us can develop and use to great effect in organizations and our communities.

Lastly, we need to think of economics as not only the complex set of interconnected spheres, but also as a bottom-up phenomenon driven by entrepreneurs who create new enterprises that form the economic foundation of communities.

Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service. It is capable of being presented as a discipline, capable of being learned, capable of being practiced. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicated opportunities for successful innovation. And they need to know and to apply the principles of successful innovation.


But everyone who can face up to decision making can learn to be an entrepreneur and to behave entrepreneurially. Entrepreneurship, then, is behavior rather than personality trait. And its foundation lies in concept and theory rather than in intuition.

Every practice rests on theory, even if the practitioners themselves are unaware of it. Entrepreneurship rests on a theory of economy and society. The theory sees change as normal and indeed as healthy. And it sees the major task in society – and especially in the economy – as doing something different rather than doing better what is already being done.

Entrepreneurs see change as the norm and as healthy. Usually, they do not bring about the change themselves. But – and this defines entrepreneur and entrepreneurship – the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.

Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth. Innovation, indeed, creates a resource. There is not such thing as a “resource” until man finds a use for something in nature and thus endows it with economic value.

Entrepreneurs will have to learn to practice systematic innovation. Successful entrepreneurs do not wait until “the Muse kisses them” and gives them a “bright idea”; they go to work. Altogether, they do not look for the “biggie,” the innovation that will “revolutionize the industry, “ create a “billion–dollar business,” or “make one rich overnight.” Those entrepreneurs who start out with the idea that they’ll make it big – and in a hurry – can be guaranteed failure. They are almost bound to do the wrong things. An innovation that looks very big may turn out to be nothing but technical virtuosity; and innovations with a modest intellectual pretensions ... may turn into gigantic, highly
profitable businesses. The same applies to nonbusiness, public–service innovations.

Systematic innovation therefore consists in the purposeful and organized search for changes, and in the systematic analysis of the opportunities such changes might offer for economic or social innovation. (Innovation and Entrepreneurship, 19, 26, 27,30, 34-35.)


At the heart of my own perspective of leadership is this notion of the entrepreneur. Most of us are "leading from the middle" and are caught in the vise of expectations that are all around us. The only way to "escape" and thrive in an environment like this is to take responsibility for our own development, know our value in the marketplace of organizations, and develop the disciplines of innovation and entrepreneurship that enable us to be effective, impactful people in any and every situation.

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Peter Drucker describes a future that elevates the individual in society to a level of responsibility and influence that has not been known in our life times. He calls us knowledge workers. This insight is a foundation perspective for my Circle of Impact model of leadership. Today, because of these changes, and the emergence of technologies that very few could have anticipated when Drucker wrote, the opportunity for individuals to make a difference in the world is greater than every before. The challenge that is now before us is one where the structures of the world are stuck in seeking to sustain their past into the future, as their performance declines, and their organization become increasingly starved for leadership of the kind that Peter Drucker describes. This is part of what I mean when I say, "We are ALL in transition."