Seminal Self-Help

Managing in Turbulent Times, by Peter F. Drucker. Harper & Row, 239 pp., $9.95.

To manage, says Webster, is “to contrive to get along”—in a word, to cope. To manage is also, of course, to direct or conduct the business of an organization, whether profit-making enterprise, non-profit institution, or government agency. It is, of course, this latter sense of the verb “to manage” which lies behind the phenomenal growth over the past several decades of the academic discipline called Management; and it is Management, the branch of organized scholarship, rather than managing, the business of dealing with one’s problems on a day-to-day basis, which will come immediately to the minds of most readers when they see that Peter F. Drucker has published a new book. For twenty years Professor of Management at the Graduate Business School of New York University (the institution which also employed Ludwig von Mises throughout the 1950s and ’60s), author of sixteen books, including such classics as The Practice of Management, Managing for Results, and Management: Tasks, Responsibilities, Practices, Drucker would seem qualified better than anyone else either living or dead to be considered (as his publisher calls him) “the founding father of the discipline of management.”

He is much more than that, however. He is a Ph.D. in international law who has taught economics, statistics, politics, history, and philosophy as well as management, and who has worked for more than four decades in the newspaper business.

Currently he writes editorials for the Wall Street Journal and serves as Clarke Professor of Social Science at the Claremont Graduate School in Claremont, California. As the title of his latest book clearly indicates, he is interested in managing as well as in management. If, as I. A. Richards once said, a book is a machine to think with, then this book is a machine to cope with.

Managing in Turbulent Times, Drucker declares in the last paragraph of his Introduction, “is concerned with action rather than with understanding, with decisions rather than with analysis.” Therefore, “it aims at being practical, a work for the decisionmaker,” what we might call a self-help book. And the gist of its advice may be summed up in a single easily remembered rule of thumb: In making your decisions, whatever they may be, do not rely on the benevolence or truthfulness of either governments or economists or journalists— they’re all likely either to rob you or to lead you so far astray in your understanding of the turbulent times we live in that you’ll end up unwittingly robbing yourself.

This is precisely what you are already doing, Drucker argues, if you are managing any enterprise of any kind and you fail to adjust all the relevant financial facts about that business—its “sales, prices, inventory, receivables, fixed assets and their depreciation, and earnings”— for inflation. “Inflation,” he reminds us, “is the systematic destruction of wealth by government.” By manipulating money and credit “to attain short-term economic or even shorter-term political advantages,” politicians and bureaucrats have made inflation a permanent part of our economic lives. What’s worse, they have also promoted widespread misunderstanding of inflation’s true causes and effects—for example, by helping to perpetuate the incredible idea that inflation is caused by businessmen and labor leaders who raise their prices (which, as one financial analyst has remarked, is rather like the idea that rain is caused by wet streets).

Of course, this should hardly be surprising. As Drucker points out, “governments, with rare exceptions—Brazil is the most important one—resist the truth about inflation. Governments, especially under the twentieth-century system of progressive income taxes, are the main beneficiaries of inflation and have no incentive at all to reveal the true facts.” (emphasis added)

And inflation is far from the only subject on which governments may be relied upon to produce misleading, self-serving, and generally unreliable information. Another is the effects of our foreign trade upon our domestic industry. “A government statistician,” Drucker writes,

will report the export of hides from America as “exports” and the import of shoes as “imports”; his figures will nowhere relate the two. The American cattle grower does not even know that his livelihood depends on the sale of foreign-made shoes in the American market, for hides represent the margin between breaking even and making a profit for the livestock grower in Nebraska. Nor, conversely, does the Haitian manufacturer of the soles for these American shoes realize that he depends on hides grown in the United States. . . . And when shoe workers’ unions in the United States or shoe manufacturers in North Carolina agitate for a ban on the importation of “cheap foreign imports,” no cattle grower in the Great Plains realizes that they are actually agitating to ban the export of American hides on which his livelihood depends.

When the American tanning industry—as it does—asks for a ban on sending hides abroad, American shoe retailers (let alone American consumers) do not realize that this would mean having no shoes to sell in American shops. They do not know that there are not enough American workers available to do even a fraction of the tanning needed.

By far the greatest and most pernicious of government’s mendacities, however, is the aforementioned— the lying tale it tells in order to assure that we will continue to endure (and that our rulers will continue to profit by) unchecked inflation. It could be checked, of course, but not by any means which governments would be likely to consider. “The logical conclusion was drawn three years ago,” Drucker writes, by the last surviving economic giant of the 1930s, that most emphatic non-Keynesian, F. A. Hayek. Hayek proposed that money be altogether taken away from governments. Each of the world’s major banks should, he argued, be given the right to issue its own money, with the market deciding which bank to trust.

We know today that the “objective non-political expert” of Keynes’s proposal does not exist —he is as mythical as the unicorn. Keynes’s “economist-kings” would be politically controlled and politically manipulated, and would themselves immediately become politicians. But we also, I think, have to accept that the time is not ripe for Hayek’s logical proposal to take money out of the hands of “experts” of any kind and to entrust it to the people who use it, to producers and consumers in a free market. National money will surely remain, for the time being, political, governmental money.

I should hasten to add, lest the above quotation persuade anyone that Drucker has come out for Austrian economics, that no such thing is the case. Drucker is as he has always been: a maverick. He belongs to no economic school and is critical of all. “We now know,” he writes, that a valid theory of economics will have to be based on productivity as the source of value. The nineteenth-century labor theory of value, which Marx took unchanged from his predecessors all the way back to Ricardo and Adam Smith, was simply wrong; even the Marxists have had to give it up. But the valiant attempt to do without a theory of value altogether—begun a hundred years ago by the Austrian school and climaxing in the “value-free” economic analysis of today’s Keynesians and Friedmanites—has also been proved a failure. We do need a genuine economic theory based on a theory of value; but such a theory will have to be based on the postulate that “productivity is the source of all economic value.”

Until we have such a theory, Drucker seems to say, we should simply beware of economists, whatever their schools, and follow at our own peril the advice they give us—especially if they are Marxists. Drucker’s antipathy to current economic analysis is universal—he finds fault with everyone— but it is not really evenhanded. Marx and his followers come in for special criticism on a number of grounds, not the least of which (and understandably, given Drucker’s emphasis on the requirements of management, such as the ability to anticipate changes and adapt to them) is the Marxists’ utter failure to predict accurately the pattern of capitalist development in Western countries. As a result, their central concepts and the jargon they use to convey them have become almost comically unrelated to the real world.

Europe—the “disadvantaged” family now receives a larger income out of transfer payments than the average blue-collar working family earns through its labor. Payments under welfare programs and Social Security are not being taxed and the substantial non-cash income paid out in the form of food stamps, rent subsidies, or health care is not counted as “income” in the official figures. As a result, the recipients of transfer payments actually received the equivalent of $10,000 to $11,000 a year pre-tax per household, which is more than the average blue-collar household earns unless there are two breadwinners. In traditional Marxist terms, the recipients of the transfer payments could thus justly be called “exploiters”; but no one, I imagine, would call them “capitalists.”

“The old Marxist definition of the ‘exploiter’ is someone who receives income without working for it,” Drucker writes,

and at the expense of the “toiling masses.” In developed countries, the only groups whom this definition now fits are the “disadvantaged,” the non-working and officially “poor” who are being maintained at the expense of the working people. In the United States—where “transfer payments” may still be somewhat lower than in western Europe—the “disadvantaged” family now receives a larger income out of transfer payments than the average blue-collar working family earns through its labor. Payments under welfare programs and Social Security are not being taxed and the substantial non-cash income paid out in the form of food stamps, rent subsidies, or health care is not counted as “income” in the official figures. As a result, the recipients of transfer payments actually received the equivalent of $10,000 to $11,000 a year pre-tax per household, which is more than the average blue-collar household earns unless there are two breadwinners. In traditional Marxist terms, the recipients of the transfer payments could thus justly be called “exploiters”; but no one, I imagine, would call them “capitalists.”

Insofar as a “capitalist” is the owner of the means of production—again the standard Marxist definition—the only “capitalists” are the country’s employes. In one way or another, the economy of every developed country and the businesses within it are run for their benefit. Only in the United States are the employes actually the owners so far, or at least, in legal terms, the “beneficial owners.” Through their pension funds, the employes of American business own almost a third of the equity capital of the publicly owned companies, that is, of all large American businesses. Other employe pension funds—those of the self-employed or those that employes in companies without formal pension plans set up for themselves—own another 5 to 10 percent of America’s equity capital; some estimates run even higher. Employes through their pension funds thus own anywhere between one-third and two-fifths of the equity capital of American industry. These employe pension funds are the only large owners, the only ones that fit the traditional definition of the “capitalist.”

One conclusion to which this latter criticism must inevitably lead us is that the socialist economists who co-opted the till-then-basically-libertarian Left during the last years of the nineteenth century were actually Pied Pipers—pied vipers one might more properly call them—who doomed their followers by leading them into an inviting blind alley. Private ownership of the means of production, they asserted, was the cause of our chief social ill: the “alienation” of the worker from his work, the system of “wage slavery” and worker powerlessness. Yet now that what Drucker calls “pension fund socialism” (see his invaluable 1976 book The Unseen Revolution: How Pension Fund Socialism Came to America) has created true worker ownership of the means of production, why does this ill remain unremedied? “The new owners of big business, the employes,” as Drucker calls them, do not own their individual jobs, create their own job descriptions, set their own salaries, or determine the criteria according to which the businesses they own will be managed. This is true partly because workers have decided (and with good reason) that they can best serve their own interests by specializing in wage income and leaving others to specialize in management. More important, it is true partly because the Pied Pipers of socialism were wrong: it was not “ownership of the means of production,” but government, which gave nineteenth century “capitalists” the power they wielded; and it is not their failure to own the means of production, but government, which is now preventing workers from developing those types of worker control of industry which are not impractical for competitive reasons. “The stake in his pension,” Drucker writes, “is likely to be the largest single asset of any American employe over forty-five years of age, whether janitor or executive vice president. But it is not his to sell, pawn, borrow against, or bequeath; and the precise value of his asset is not determined until after his death, when his claim has ceased.” It is only in the last few years that “legislation to protect the pension of the individual is giving him rights in respect to the management of the fund and claims against it that closely resemble the safeguards of the property rights of traditional ‘owners.’ Thus it is that the free market has brought us worker-owner-ship of big business, and government has prevented its full realization.

Drucker delights in standing accepted wisdom on its head in this way, and he does it with a frequency that is startling in a book of scarcely more than 200 pages—or would be to anyone who didn’t already know that the source of most accepted wisdom these days is the daily headlines on newspapers and TV screens. And “most of the headlines about the world economy,” as Drucker says, “should be treated with the utmost skepticism. It is quite unlikely, for instance, that mainland China will become a major market, a major industrial producer and ex-porter, in the next twenty-five years—except perhaps of petroleum.” For another instance, “in the Western countries and in Japan, business after business these last ten years has announced ‘record profits’ year after year. In fact, very few businesses (if any) in these countries can have made a profit at all. Making a profit is by definition impossible in an inflationary period.” This holds true, Drucker contends, whether we are talking about the profits of a small company like Complete Automotive Repair, Incorporated of Oakland, California, or a multinational giant like Exxon or Mobil—for all that the “profits” of these latter companies have lately called down a storm of indignant name-calling and demands for punishment from pundits like Ralph Nader and Barry Commoner whose utterances are routinely recycled into newspaper and TV headlines.

But Drucker is not content to debunk the myth of the big corporate profit; he goes on to dismiss as foolishness the headlines which tell us to fear the growing power of the giant—especially the multinational—corporations and to deplore their depredations (which they

“The idea that inflation is caused by businessmen and labor leaders who raise their prices is, as one financial analyst has remarked, like the idea that rain is caused by wet streets.”

presume to call “investments”) in the Third World. The giant corporations, Drucker insists, are on their way out; their numbers and influence have been declining steadily for most of this century, for the simple reason that they have grown too big and bureaucratic to compete efficiently with smaller firms; and in any case, their “crimes” in the Third World have been outrageously exaggerated. “Despite all the rhetoric,” he writes, “the ‘developing’ countries during the post-World War II period were not important . . . to businesses in the developed world.”

If we take the extractive industries out of the statistics [and “the extractive industries are not ‘multinationals’; they are basically companies that produce raw materials . . . ‘suppliers’ rather than ‘businesses’.”], 85 percent of all the investment in “multinationals”—and especially the investment since World War II—has been by developed countries in other developed countries. This holds true for the American investment, which was primarily in Europe, especially after the start of the Common Market, and secondarily in Canada and Japan. The developing countries

accounted for 5 to 8 percent of the investment. This is true even of financial institutions. . . . The American banks—and, following them, the British, German, Swiss, and Dutch banks—have invested primarily in other developed countries. Of the deposits of the major American multinational bank in 1979 outside the United States, 90 percent (other than OPEC money) were in and by developed countries.

Speaking of OPEC, Drucker neatly demolishes the headlines which have advertised the “huge profits” of the famous oil cartel by showing how inflation has robbed the Arabs of their profits too. He also demolishes the headlines which decry the lack of economic growth in the Third World, showing that even with the damping effect of a dramatic drop in infant mortality which has led to an artificial “population explosion” especially in Latin America, the per capita annual growth rates in these countries “are still faster than anything seen any place in the world before and a good deal faster than European growth rates of the nineteenth century.”

Finally, he charges the headline writers with having overlooked the most important story of all: “None of the headline-makers with which we are so constantly bombarded—neither OPEC nor all the promised shortages of food, metals, or minerals that are now so widely predicted, nor any other ‘crisis’ of the moment—are [sic] nearly as important, let alone as real, as the changes taking place in population structure and population dynamics.” Among these changes: the aging of the population, which will end compulsory retirement and alter the fundamental nature of jobholding in the next two decades; the waves of immigration from the overpopulated developing world to the comparatively under-populated developed world, which will make the South-western United States perhaps the only region in the developed world to enjoy major industrial growth in the 1980s and ’90s; and the declining birthrates and increasing average educational attainment in the developed world, which will leave the

United States short of industrial workers and the U.S.S.R. short of military personnel in the years ahead and will therefore steer the world closer to a peaceful, integrated world economy.

And there is much, much more in this brief wisp of a book—so much that its implications go on reverberating unbidden in the mind for weeks after one has finished it and one feels, inevitably, that one has enjoyed an encounter with the work of a genuinely seminal thinker. To be seminal, after all, is not necessarily to be right. It is merely to be suggestive, heuristic, provocative, so that whatever the truth of one’s ideas, one can be sure that they will have influence, that they will inspire others to test them, amend them, develop them, discover their consequences. It is not always characteristic of seminal thinkers that they teach the truth, but it is characteristic of them that they make their own narrow concerns seem genuinely universal, even central to the entire business of living. Freud gave psychology this atmosphere of fundamentality, of being inescapable. Marx performed a similar service for economics. Drucker has done the same for management. He has neither the vivid imagination of Freud nor the incredible polemical vigor of Marx, which may explain the comparative slowness of his establishment as a major theorist. But in his own less colorful way, he is a profounder thinker than either of them and deserves an even wider audience. The skeptical may discover this to their own satisfaction in what is, happily, an entirely representative example of Drucker’s thought in action: Managing in Turbulent Times.

Jeff Riggenbach manages two non-profit enterprises: LR and “Byline,” a daily radio program which he produces and syndicates for the Cato Institute.