The Drucker Perspective: X Will Mark the Spot Where America Once Stood, Unless...
Part I
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Editor's Note
When a product, or a company, or an industry, or a nation dies, the bereaved often wonder what happened.
…A truthful joke once told by Harvard's Ted Levitt: “It appears the biggest problem we have in America today is ignorance and apathy, don't you agree Burns? Burns answered, 'I don't know and I don't care.' ”
We all had better start knowing and caring – before we reach the point of no return.
Few will argue today's serious political unrest… unprecedented lawlessness… economic policies producing near-certain hyperinflation… defunding the police .. the Afghanistan tragedy… the horrific border invasion... non-stop government policies aimed at creating dependency, not competencies.. and all the other news we are bombarded with daily, must be understood and meaningful solutions implemented – fast and successfully!
Today's government policies will produce tomorrow's results. There is always a time lag between today's actions and their full impact.
To paraphrase Peter F. Drucker: “{if the current border invasion} continues, we can fully expect individual degradation, the lawlessness, of the non-developing third world to threaten the safety, the peace, the affluence of wealthy countries such as America – who are for the most part desperate and incompetent people fleeing to the developed world.”
When Drucker wrote this, our borders were under control.
But he correctly projected a trend with the future: "increasing immigration would create more "welfare cripples," draconian increases in corporate taxation which would discourage entrepreneurship and innovation, thereby shrinking America's economic growth and make possible America's displacement as the world's biggest economy. Please read Drucker's Managing in a Time of Great Change (Chapter 25).
America's economic future may very well be characterized by what F. Scott Fitzgerald's Nick Carraway said (in The Great Gatsby) when asked how a given individual went bankrupt: "Slowly, then suddenly…"
We all Owe a Debt of Gratitude to Peter F. Drucker
In this five-part series of articles, we hope to provide readers with Peter F. Drucker's spot-on-analytical and predictive analyses that clarify economic subjects relating to Scientific Marxism/Socialism… the harmful impacts of confiscatory corporate and individual taxation.. the role of profits in keeping our economy humming and providing monies for much-needed entitlement programs… reducing trillions of dollars of result-less government spending… Drucker's prescriptions for managing in a turbulent/hyperinflation economy… and much more.
Even though Drucker passed in 2005, he provided us with a method of thinking about today's critical problems. Learning is thinking with other people's ideas.
Drucker's ideas will certainly go a long way in helping you better understand today's new realities and why it is now essential to realize that it's likely your business has outgrown the philosophy, organizational structure, habits and practices of yesterday's world – and how to successfully adjust to today's rapidly arriving, disruptive future.
An Overview of Part I
This article (Part I) provides you with a quick summary of why today's increasing inflation rates could destroy both democracy and capitalism and usher in the false promise of "salvation by society" – which for centuries has had tremendous "utopian coddling" appeal but always produces disastrous results.
Further, this article presents (in highly abbreviated form) Drucker's historical perspective of what might be called America's two world-changing productivity improvement innovations – namely, (1) scientific agriculture and; (2) scientific management – which are the true heroes in having provided the path out of poverty for untold millions if not billions of people in developed and developing nations.
Better yet, these two American innovations produced something new in the world, farm surpluses… reduced infant mortality and hunger… created the quickest way for a person living in a developed country to make a decent living… spurred upward mobility in ways never thought possible… and built a new spirit of performance leading many to a more hopeful, prosperous and bearable society.
Revisionist history has neglected these two important American innovations.
Nevertheless, learning about these two innovations provides you with a much-needed foundation to understand seemingly unrelated happenings relating to creating massive government dependencies, unstoppable government printing presses now fueling possible runaway inflation, a very real potential slide into Democratic Socialism/ Scientific Marxism, and more!
At the conclusion of Part I, we believe you'll think thoughts you never thought of before.
'Success Comes in a Can, Not a Can't... You've Got to Believe You Can, or You Won't'
This article (Part I) is rather long. But we think you will find it extremely useful in assessing many of today's happenings. We hope you will read it from start to finish.
Many have told us (in a pre-test of this article) that it was important enough to re-read, study, underline, discuss, and pass along to employees, friends and family members.
Never before was there such a compelling need to frequently repeat and more broadly disseminate Drucker's most productive insights on misguided/misinformed economic/political policies that threaten America's prosperity, health – and indeed our very survival.
Introduction
It's time for all of us to understand we are now living in a Drucker's Post-Capitalist Society; a society which in no way resembles the society in existence when Karl Marx was writing both his pamphlet entitled The Communist Manifesto (1848) and his three-volume Das Kapital (1867-1883).
It's also time for all of us to understand ill-trained politicians – ignorant of economic history and the analytical and predictive power of well-trained economists – are bound to make colossal blunders that seriously weaken if not destroy the American capitalist system… and its evidence-based ability to lift people out of poverty and making them independent and contributing members of society.
Said Drucker: "Whenever we face a problem of poverty {or inequality of incomes}, whether domestic or international, the first impulse is to solve it through re-distributing wealth… Unfortunately, there is not enough wealth around to get us anything except disillusionment [and financial ruin]…"
To create and continuously grow societal wealth, observed Drucker, every country has to make productive its fundamental resources–the most important being creating the competencies required to enable those willing and able to actively participate economically in an ever-expanding economy.
Yet government decision-makers wielding enormous power are now focusing on "making the rich poorer" as opposed to "making the poor richer" or more productive." It's a recipe for economic disaster. Always has been!
America achieved extraordinary success by making the poor productive. Growing skills, self-confidence and the capacity to achieve is what made America the wealthiest and most prosperous country in the world.
But the name of the game today is to grow welfare and entitlement spending. To create dependency on the government and, in turn, create a voting block to keep elected officials who favor dependency over developing competent, self-supporting members of the middle class.
This voting block, acting in a completely consistent, humanist way are acting in their own self-interest to paraphrase Drucker "even if they are or once were highly skilled… but the welfare system has converted them into 'welfare cripples.'"
The Re-Distribution of Wealth Fallacy
Re-distributing wealth always appeals to those who say they are pursuing social justice. And on its surface, this claim appears to be a noble cause and well-intentioned. Perhaps it is.
But overwhelming evidence shows massive redistribution of wealth (through increased corporate and individual taxation) is ultimately self-defeating and absurd economics.
Aggressively pursued, it leads to economic disaster.
Massive redistribution of income creates government dependency, diminishes individual self-worth/self-reliance and more likely than not produces learned helplessness that eventually leads to economic stagnation… with greater and greater tax burdens placed on those with the capacity to generate wealth (e.g., currently the top 1% of income pay 40% of America's tax burden).
It Gets Worse
Rest assured, if making more and more people dependent on government is truly the goal or objective, there will never be enough money generated through increased individual and corporate taxation to accomplish that objective.
So, initially, we can expect a variety of new taxes including a "value-added tax (VAT)" that taxes consumption. That, our friends, increases the prices we pay for goods and services.
Taxes on capital gains, wealth taxes, car mileage taxes and many other discreetly hidden taxes are now being evaluated by government policymakers in the hopes they can sustain our ever-growing Welfare State.
People dependent on the government for their non-cash incomes will vote for government leaders who keep the monies/benefits coming.
Even Still Worse – Supply Shortages
We all know about today's frighteningly high inflation rates caused by printing unprecedented amounts of money for the purposes listed above.
Inflation could exceed 20% in the not-too-distant future if current conditions continue.
"Inflation could spike to 20% in the next few years as the U.S. money supply explodes," says Wharton professor Jeremy Siegel.
We all know about today's predicted long-run supply shortages (e.g., Intel expects the global chip shortage to continue until 2023 which will hamper the production of everything from computers to cars… Beer manufacturers cannot sell their product in quantities demanded because they cannot receive an adequate supply of bottles).
Authoritative economists now predict long-term supply shortages relating to a wide range of products will prevent many organizations from meeting the demand for their goods and services.
Take-home message: It boils down to too much money (caused by printing too much money) chasing too few goods (caused by supply shortages). When demand exceeds the supply of goods and services, prices rise.
At the time of this writing, CEOs of major corporations seem to be talking about little else than supply shortage inflation and the need for their organizations to aggressively raise prices to maintain adequate profitability.
Now Add in Major Declines in Customer Demand Caused by Increasing Individual Taxes
But there's another problem on the horizon. We can fully expect individual and corporate taxes to increase.
For this article, we will discuss the increased tax impact on individuals (which does translate into trouble for businesses). (Part III will fully discuss the impact of higher taxes on corporations).
When individual tax increases happen, if to the degree now being touted by government officials, people will have less money to spend – more fancifully called a decrease in "discretionary spending."
When people spend less, companies cut back in order to adjust for lower demand levels; the cost of unemployment includes lost economic growth, the price of unemployment benefits, health costs and the general demoralization and frustration of the population.
A Double Whammy?
The message is clear: it's possible to get hit with two disastrous situations simultaneously–slow/low/no economic growth because as an old proverb states: "You cannot sell anything from an empty wagon."
Translated, supply shortages prevent selling goods or services thereby lowering GDP or economic growth.
The second situation for a slow/low/no-growth economy could occur if discretionary spending significantly declines. In short, customer demand for goods and services dwindle.
Both cases lead to high inflation and slow/low/no economic growth.
Sorry, Still More Bad News: "I Wanna Raise" Requests Will Accelerate
Purchasing power declines with increasing price levels. We all know about how the prices of heating oil, gas, food, building supplies, autos, airline fares, apparel and a host of other frequently purchased items are increasing at a steady if not an increasing amount of increase.
Some polls indicate that inflation is now the number one issue with today's voting public. And rightly so!
People are increasingly having less discretionary income after they buy the essentials. So, what's the inevitable result? They start asking for “cost of living increases.”
Yet giving increases in wages without corresponding increases in employee productivity always results in more inflation. Why?
A simple equation, formulated by C. Jackson Grayson, former pricing commissioners/czar during the Nixon administration illustrates this notion quite well:
Wage Increases minus Productivity Increases = Price Increases |
For example, if wages increase by 10% and productivity increases by 3%, then prices would increase by 7%.
From all the available evidence, productivity (especially knowledge worker productivity) will not keep pace with the demand for increased wages as prices continue to spiral upwards. (We discuss in a future article what must be done to increase worker and other key productivities).
Economists have known for 400 years it's impossible to give massive wage increases without corresponding productivity increases if galloping inflation is to be avoided.
The reasoning is simple. Give wage increases without productivity increases and guess what happens? Prices begin to rise because companies cannot or will not absorb the extra costs
Why? Corporations have to maintain what is called “minimum acceptable levels of profitability" to prepare for inevitable crises including economic downturns and continuously create purposeful innovation.
A True and Simple Example to Illustrate This Point
In New York state, a minimum wage law was enacted. Restaurants, in general, typically have relatively low-profit margins.
In order to meet the wage increases requirements, many restaurants had to increase their prices (for which many were criticized for "price gouging.")
Indeed, many restaurants in New York State closed their doors forever because they were unable to raise their prices to the levels required.
Politicians felt they were doing "good." High fives among politicians abounded.
Unfortunately, for the subsequently unemployed, the increase in their minimum wage was short-lived.
Hardly a day goes by that we do not hear about companies planning to increase their prices, if possible, because of the mounting inflation ranging from extraordinary monies that must now be paid to hire new talent to the increasing prices of fuel and energy costs.
Please read our article on hyperinflation for more details - Hyperinflation: Buzzword or a Coming Horrific Reality?
Make No Mistake
Increasing productivity will be a major concern for most organizations if they want to maintain competitive prices. This is a point we cannot overemphasize!
Indeed, we will begin to hear a lot about pricing in an inflationary economy coupled with the coming rediscovery of the works of Harvard's Michael Porter, The Boston Consulting Group (BCG)… and others who have formulated generalizable robust strategies that could very well help organizations through what promises to be a difficult and turbulent/hyperinflation economy. (We will be discussing these and other strategies in future articles and online courses).
Now…A Quick Drucker History Lesson You'll Want to Teach Others
In many of Drucker's books, he specifically stated there were two specific American training innovations or events that changed the character of both society and workforce productivity (worldwide) – the likes of which were virtually unimaginable to the powers that be in the 1800s.
These two events are:
- The Morrill Act (1862) which established land-grant colleges in every state in the union for the purpose of increasing farm output and farm productivity and;
- Frederick Winslow Taylor's development of scientific task management which probably multiplied the ability of factory workers to increase their productivity by a factor of 100 if not more.
The Morrill Act (1862)
In brief, more than 70% of America's population was engaged in agriculture in the mid-1800s. Most farms struggled to produce the required agricultural output to feed a growing nation.
The purpose of the land-grant college (individually and collectively) was to convert existing knowledge about the right way to farm into a series of systematic, well-organized learning programs that would make up the bulk of the curriculum of an agricultural college.
The discipline known today as agricultural science was discovered and initially developed in the 1800s through extensive research and experimentation.
But, for all intents and purposes, these materials remained in filing cabinets scattered throughout the nation.
Farmers had no accessibility to this productivity-boosting knowledge, let alone the required skills to effectively use it to increase crop yields and the like.
Simply put, much knowledge existed about how to increase farm productivity, but few farmers knew anything about it or how to use it productively.
A group of very smart people got together… and sifted through the tremendous amount of scientific farming research reports that did exist and organized it into a unified, coherent body of knowledge, or methodologies that could be taught, learned and practiced.
This Warrants Repeating
This virtually unknown group of people put the known knowledge about how to dramatically increase farm yields into methodology-driven learning programs – equivalently converting all that was then known about scientific farming into a systematic "program" that enabled every farmer to become an agronomist and systematic technologist.
These programs or learning courses gave average farm owners a capacity to perform well beyond what the ablest farm owner was ever able to produce, but it also enabled the outstanding farm owner to increase farm output to levels undreamt of in all of history.
More on the Productivity of Agriculture
Farmers typically sent their sons (usually the firstborn or the one that would be most responsible for productively managing the farm) to one of the land-grant colleges.
But, as the benefits of learning scientific farming increased farm yields to unimaginable levels, multiple farm-raised offspring enrolled in these powerful scientific farming, degree-granting programs.
Drucker reminds us, land-grant colleges increased farm productivity to unprecedented levels and enabled America (and then the rest of the world) to produce something no one ever imagined possible – large farm surpluses.
In turn, the number of people needed to be involved in agriculture was drastically reduced and allowed farmworkers to leave the farm in order to work in the big cities and elsewhere for a much higher wage than was typically paid to farmworkers.
The results of scientific farming were not immediate. It took decades to realize the "hoped-for impact on farm work, farm output and farm productivity."
In other words, it took time to equivalently create a cumulative effect/critical mass that would change the world forever.
Today, less than 3% of our population is engaged in farming – and that holds true for many other countries worldwide.
To Reiterate
In retrospect, America through its land-grant colleges helped feed rapidly growing populations worldwide, prevent massive starvation and enabled farmworkers to leave the farm and participate in the Industrial Revolution which created greater societal wealth.
Now, isn't The Morrill Act of 1862 something that should be included in, at least, American history books for students of all ages to learn?
It's time to start talking about "What America has done right "and how it has benefited hundreds of millions of people worldwide.
But, as stated above, it took many years for the results of the land-grant colleges to become public knowledge and applauded for their incredible contribution to the world.
Frederick W. Taylor's Invention of Scientific Task Management
Drucker frequently commented that among the "makers of the modern world" Frederick Winslow Taylor(1856-1915) is rarely mentioned.
Taylor created the field of scientific management, that is, the systematic study of work and tasks.
Using today's terminology, Taylor believed quantum leaps could be achieved in manual worker output if work processes could be streamlined and /or re-engineered (i.e., redesigned).
It is important to distinguish between streamlining a process and reengineering a process.
Streamlining purges "special causes of trouble" that have crept into a well-designed process & have to be removed to make the process function as designed, that is, to achieve specific efficiency and outcome measurements.
However, in many instances after streamlining has been accomplished, the process is still deemed incapable of attaining the desired level of performance.
So if the process is incapable of doing what it is supposed to do, the process has to be redesigned, that is, reengineered.
How a Sand Shoveler Changed the Course of History
It should be mentioned–indeed, emphasized–about the same time Taylor was beginning his pioneering work on studying work, Karl Marx was putting the finishing touches on his much-quoted third volume of Das Kapital.
Marx predicted capitalism was doomed because the productivity of workers employed by businesses was destined for diminishing returns – especially, worker productivity.
Indeed, Marx's core thesis was essentially: "the only way to produce more was to work more and work harder…"
Taylor believed the key to producing more was to "work smarter." Taylor's invention of scientific management took the world by storm.
All productivities – including worker productivity – grew exponentially due to the applications of scientific management.
From Working Harder to Working Smarter: An Illuminating Example
Taylor, in his most talked about accomplishment, studied a fellow by the name of Schmidt who was a sand shoveler. People had been shoveling sand for thousands of years. No one ever bothered to study the task of sand shoveling.
Taylor redesigned the way Schmidt performed shoveling tasks. In essence, "he eliminated motions that were not needed; he further realized the shovel used to carry the sand was the wrong size and had the wrong handle."
Bottom line: Taylor made the job of sand shoveling much easier by enabling Schmidt to work smarter, not harder.
And guess what happened? Schmidt was able to shovel, by some estimates, five times more sand per hour.
Still, Taylor–once he figured out exactly how the job should be done for maximum productivity and with the least amount of physical effort – discovered he could quickly train new employees to do the job right and, thereby, earn a higher wage than ever before.
Stated differently, Taylor (as did those that developed the curriculums for land-grant colleges) invented what we now call training.
In essence, Taylor enabled the moving from apprenticeship learning to training, which took far less time and effort and had a far greater impact on productivity.
Training can therefore be said to be an American innovation. Worthy of being included in American history textbooks?
The Morrill Act, Scientific Management and Scientific Marxism
In short, Taylor proved Marx wrong. Properly viewed, the eventual success of land-grant colleges in dramatically increasing farm output and farm productivity also condemned Marx's core thesis to the scrap heap.
No one can blame Marx for not recognizing these innovations as productivity-boosting accomplishments because they didn't really materialize until Marx's passing.
But it did happen and also decisively disproved Marx's assertion the economic pie was a given and could not be increased, except by putting in more capital or working more and harder.
On the other hand, Taylor showed "that the economic pie could be enlarged rapidly by studying work, reengineering the work process that enabled the worker to work smarter – and, therefore, be entitled to increase wages.
Taylor thought by systematically studying work and the worker, quantum leaps in productivity could be obtained. And he was so right!
We have no evidence Karl Marx knew anything whatsoever about Taylor and vice versa. And it's quite likely they never heard of each other at the time of their passings.
Nevertheless, to repeat, scientific management (and the agricultural productivity revolution) decisively disproved the core thesis of what's now increasingly being called Scientific/Socialistic Marxism – but is also known under other names including Democratic Socialism.
It is quite possible if Marx had known about Taylor's "work smarter" revolution, he very well might have realized his prediction of ever-diminishing capital productivity was incorrect – and revisited his faulty extrapolation based on the then-current trends which proved to be discontinuous.
(We will laterally extend this discussion in Part II)
Indeed, Drucker thought Marx was brilliant because he asked all the right questions. However, his answers were wrong in many instances. As always, asking the right questions is extremely important; and as always the right questions never change but the answers to those questions do change.
How Taylor's Training Methodology Helped Win World War II
Many historians (and most significantly Drucker) believe Taylor's contributions helped America win World War II. Why? Germany and Japan prior to World War II studied America's workforce capabilities.
Their conclusion? We were deficient in the skills required for wartime rearmament. And they were right. But because of the work of Taylor, we had the methodologies for studying work of all kinds.
Thankfully, we also had a smart group of military leaders willing and skilled in applying the teachings of Taylor... and capable of "training" military and civilian workforce "how to do the job right."
Put differently, The United States Armed Forces during World War II applied Taylor's basic methodology to train millions of people to serve as navigators, electricians, pilots, cooks, paramedics, masons, bombardiers and the like.
To get these young people up to speed, trainers compressed years of meaningful experience into months (sometimes weeks) of organized learning. (An excellent discussion of Taylor's contributions can be found in Drucker's book Post-Capitalist Society; New York: (HarperCollins,1993)
Formal coursework replaced apprenticeship. It was commonly believed before World War II that at least 10 years of mentoring, coaching and practicing were necessary to attain first-class skills in manual crafts.
During the war, however, average people with no specific talent became highly skilled workers after 60 to 90 days of training. This was possible only because of the pioneering work of Frederick Winslow Taylor.
To Be Continued…
In Part II, we explain why the world of Karl Marx is not the world of today. We are living in Drucker's Post-Capitalist Society which offers a host of entitlement benefits and retirement security unimaginable in the 1800s.
Knowledge workers and technologists (i.e., people who have very advanced knowledge but also work with their hands) are really – according to Drucker – today's new capitalists.
Why? Because the bulk of knowledge workers truly own the means of production because their pension funds, mutual funds, 401(k)s and the like are invested, in large part, in ongoing businesses of all kinds and sizes.
The implications of Drucker's observations which he initially called "pension fund socialism" will be an eye-opener for many readers. It certainly prompted us to dig deeper.
