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Post-capitalist Society

Peter F. Drucker

I J I U T T E R W O R T H

I I N E M A N N

Acknowledgements

This book owes much to my long-time US editor and friend Cass

Canfield, Jr. He patiently endured countless proposals and out-

lines and encouraged me at every step. He carefully read my

manuscripts and made most helpful suggestions and criticisms.

Thanks are due also to another long-time friend, Marion

Buhagiar, who read and reviewed the book's first completed draft

and helped greatly in revising and editing it. The biographer of

Frederick Winslow Taylor, Professor Ronald Greenwood of GMI,

the General Motors Engineering and Management Institute in

Flint, Michigan, critically read my comments on Taylor and

Scientific Management (in Chapter 1). The last section of Chapter

6 owes a debt to the late Robert Greenleaf (especially to his wise

little book, Servant Leadership (Paulist Press, 1977) and to

Leadership as an Art by Max de Pree, (Doubleday, 1990), and to a

good many discussions with these two friends and with Dr David

Allan Hubbard, the President of Fuller Theological Seminary in

Pasadena, California. My assistant Holly Hauck over a long year

bravely coped with the vagaries of my handwriting. To all of

them my warmest thanks.

Claremont, California

Thanksgiving Day 1992

2 Post-capitalist Society

blossoming of the Renaissance, peaking between 1470 and 1500 in Florence and Venice; of the rediscovery of Antiquity; of the European discovery of America; of the Spanish Infantry, the first standing army since the Roman Legions; of the rediscovery of anatomy and with it of scientific inquiry; and of the general adop- tion of Arabic numerals in the West. And again, no one living in 1520 could have imagined the world in which one's grandparents had lived and into which one's parents had been born. The next transformation began in 1776 - the year of the American Revolution, of Watt's perfected steam engine and of Adam Smith's Wealth of Nations. It came to a conclusion 40 years later, at Waterloo - 40 years during which all modern 'isms' were born. Capitalism, Communism and the Industrial Revolution emerged during these decades. These years saw also the creation

• in 1809 - of the modern university (Berlin) but also of universal schooling. These four decades brought the Emancipation of the Jews - and by 1815 the Rothschilds had become the Great Power overshadowing kings and princes. These 40 years produced, in effect, a new European civilization. Again, no one living in 1820 could imagine the world in which one's grandparents had lived and into which one's parents had been born.

Our time, 200 years later, is again such a period of transformation. This time it is not, however, confined to Western society and Western history. It is one of the fundamental changes that there is no longer a 'Western' history or indeed a 'Western' civilization. There is only world history and world civilization - but both are Westernized'. It is moot whether this present transformation began with the emergence of the first non-Western country, Japan, as a Great Economic Power - that is, around 1960 - or with the computer, that is, with information becoming central. My own candidate would be the American GI Bill of Rights after World War II which gave every returning American soldier the money to attend a university - something that would have made absolutely no sense only 30 years earlier, at the end of World War I. The GI Bill of Rights - and the enthusiastic response to it on the part of America's veterans - signalled the shift to the knowledge society. Future historians may well consider it the most important event of the twentieth century. We are clearly still in the middle of this transformation - indeed, if history is any guide it will not be completed until 2010

Introduction: the transformation 3

or 2020. But it has already changed the political, economic, social

and moral landscape of the world. No one born in 1990 could pos-

sibly imagine the world in which one's grandparents (i.e. my gen-

eration) had grown up and in which one's own parents had been

born.

The first successful attempt to understand the transformation

that turned the Middle Ages and the Renaissance into the Modern

World, the transformation that began in 1455, was not even

attempted until 50 years later: with the Commentaries of

Copernicus, written between 1510 and 1514; with Machiavelli's

Prince, written in 1513; with Michelangelo's synthesis and transcen-

dence of all Renaissance art in the ceiling of the Sistine Chapel

painted between 1510 and 1512; and with the re-establishment of

the Catholic Church at the Tridentine Council in the 1530s.

The next transformation - the one that occurred 200 years ago

and was ushered in by the American Revolution - was first

understood and analysed 60 years later, in the two volumes of

Alexis de Tocqueville's Democracy in America, published, respec-

tively, in 1835 and 1840.

We are far enough advanced into the new post-capitalist society

to review and revise the social, economic and political history of

the Age of Capitalism and of the nation state. This book will

therefore take new looks at the period we are leaving behind -

and some of the things it sees from its new vantage point may

come as distinct surprises (they did to me).

To foresee what the post-capitalist world itself will look like is,

however, risky still. What new questions will arise and where the

big new issues will lie, we can, I believe, already discover with

some degree of probability In many areas we can also describe

what will not work. 'Answers' to most questions are still largely

hidden in the womb of the future. The one thing we can be sure of

is that the world that will emerge from the present rearrangement

of values, of beliefs, of social and economic structures, of political

concepts and systems, indeed of world views, will be different

from anything anyone today imagines. In some areas - and espe-

cially in society and its structure - basic shifts have, however,

already happened. That the new society will be both a non-social-

ist and a post-capitalist society is practically certain. And it is cer-

tain also that its primary resource will be knowledge. This also

means that it will have to be a society of organizations. Certain it

is also that in politics we have already shifted from the 400 years

Introduction: the transformation 5

Morgan, Rockefeller, Carnegie or Ford in the United States;

Siemens, Thysen, Rathenau, Krupp in Germany; Mond, Cunard,

Lever, Vickers, Armstrong in England; de Wendel and Schneider

in France; or of the families that owned the great zaibatsu of Japan;

Mitsubishi, Mitsui and Sumitomo. By World War II they had all

been replaced by 'professional managers'* - the first result of the

Management Revolution. There are still a great many rich people

around, of course, and they are still prominent in the newspapers'

society pages. But they have become 'celebrities'; economically

they have almost ceased to matter. Even on the business pages all

attention is being paid to 'hired hands', that is, to managers. And

such talk of money as there is, is about the 'excessive salaries' and

bonuses of such hired hands who themselves own little or noth-

ing.

Instead of the old-line capitalist, in developed countries pen-

sion funds increasingly control the supply and allocation of

money. In the United States they owned in 1992 half of the share

capital of the country's large businesses and held almost as much

of these companies' fixed debts. The beneficiary owners of the

pension funds are, of course, the country's employees. If

Socialism is defined, as Marx defined it, as ownership of the

means of production by the employees, then the United States has

become the most 'socialist' country around - while still being the

most 'capitalist' one as well. Pension funds are run by a new

breed of capitalists, the faceless, anonymous, salaried employees,

the pension funds' investment analysts and portfolio managers.

But equally important: the real and controlling resource and the

absolutely decisive 'factor of production' is now neither capital,

nor land, nor labour. It is knowledge. Instead of capitalists and

proletarians, the classes of the post-capitalist society are knowl-

edge workers and service workers.

The shift to the knowledge society

The move to the post-capitalist society began shortly after World

War II. I first wrote of the 'employee society' even before 1950.t

Ten years later, around 1960,1 coined the terms 'knowledge work'

• The best account, though limited to manufacturing in the United States, is Alfred D. Chandler's book The Visible Hand (Harvard University Press, 1977).

• e.g. in my book The New Society (1949).

6 Post-capitalist Society

and 'knowledge worker'. And my 1969 book The Age of

Discontinuity first talked of the 'society of organizations'. This

book is thus based on work done over 40 years. And most of its

policy and action recommendations have been successfully tested.

Only with the collapse of Marxism as an ideology and of

Communism as a system* did it, however, become completely

clear that we have already moved into a new and different society.

Only then did a book like this become possible: a book that is not

prediction but description, a book that is not futuristic but calls for

action here and now.

The bankruptcy - moral, political, economic - of Marxism and

the collapse of the Communist regimes were not 'The End of

History' (as a widely publicized 1989 articlet proclaimed). Even the

staunchest believers in the free market surely hesitate to hail its tri-

umph as the Second Coming. But the events of 1989 and 1990 were

more than just the end of an era; they signified the end of one kind of

history. The collapse of Marxism and of Communism brought to a

close 250 years that were dominated by a secular religion - I have

called it}: the belief in salvation by society. The first prophet of this

secular religion was Jean-Jacques Rousseau (1712-1778). The

Marxist Utopia was its ultimate distillation - and its apotheosis.

The same forces which destroyed Marxism as an ideology and

Communism as a social system, are, however, also making capi-

talism obsolescent. For 250 years, from the second half of the eigh-

teenth century on, capitalism was the dominant social reality. For

the last hundred years Marxism was the dominant social ideol-

ogy. Both are rapidly being superseded by a new and very differ-

ent society.

The new society - and it is already here - is a post-capitalist soci-

ety. It surely, to say it again, will use the free market as the one

proven mechanism of economic integration. It will not be an 'anti-

capitalist society'. It will not even be a 'non-capitalist society'; the

institutions of capitalism will survive though some, e.g. banks,

may play quite different roles. But the centre of gravity in the

post-capitalist society - its structure; its social and economic

• Both anticipated in a book of mine The New Realities - published in 1989 and written in 1987, several years ahead of the actual events.

• 'The End of History' by Francis Fukayama, The National Interest, Summer

t in my book The New Realities (1989).

8 Post-capitalist Society

Outflanking the nation state?

The late 1980s and early 1990s also marked the end of another era,

another 'kind of history'. If the fall of the Berlin Wall in 1989 was

the climactic event that symbolized the fall of Marxism and

Communism, the transnational coalition against Iraq's invasion of

Kuwait in February 1991 was the climactic event that marked the

end of the 400 years of history in which the sovereign nation state

was the main (and often the only) actor on the political stage.

Future historians will surely rank February 1991 among the 'big

dates'. There is no precedent for such transnational actions. At no

earlier occasion did nations - without a single dissenter of conse-

quence (and almost without dissent altogether) - put the common

interest of the world community in putting down terrorism ahead

of their own national sentiments, and, in many cases, ahead even

of their own national interest. There is no precedent for the all but

universal realization that terrorism is not a matter of 'politics' to

be left to individual national governments. It requires non-

national, transnational action.

It is widely believed, especially among Liberals in the United

States, that the 1991 war against Iraq was mounted to protect the

West's oil supply. Nothing could be further from the truth. Iraqi

control of the oil wells of Kuwait - and those of Saudi Arabia as

well - would have been very much in the West's economic interest.

It would have meant much cheaper oil. For while Kuwait and Saudi

Arabia have practically no native populations and therefore no

urgent need for immediate petroleum income, Iraq is heavily

overpopulated, and, except for petroleum, almost totally without

natural resources. It therefore needs to sell as much oil as it possi-

bly can whereas Kuwait and Saudi Arabia are primarily inter-

ested in keeping oil prices high and that means keeping

production low. This, by the way, explains why the United States

heavily supported Saddam Hussein's regime in Iraq, even before

the Iraq-Iran war and why it continued to do so until the very

moment when Saddam attacked Kuwait and thus indulged in an

overt terrorist act. It also explains, I suspect, why Saddam miscal-

culated; he must have been convinced that the United States

would let him get away with flagrant aggression in order to

ensure low petroleum prices. And everyone I know in a major

petroleum company was sure when Iraq invaded Kuwait that the

Introduction: the transformation 9

US government would not do anything but make a few disap- proving noises. In the 400 years since the French lawyer-politician Jean Bodin (1530-1596) invented it (in his 1576 book Six Livres de la République) the nation state had become the one organ of political power, internally and externally. And since the French Revolution, i.e. in the last 200 years, it also became the carrier of the secular religion, the belief in salvation by society. In fact Totalitarianism - Communist as well as Nazi - was the ultimate distillation and apotheosis of the doctrine of the sovereign nation state as the one and only organ of power. Political theory and constitutional law still know only the sov- ereign state. And in the last hundred years it has steadily become more powerful and more dominant. It has mutated into the 'Megastate'. It is the one political structure we so far understand, are familiar with, and know how to build out of prefabricated and standardized parts, an executive, a legislature, courts, a diplo- matic service, national armies, and so on. Every one of the nearly 200 new countries that have been carved out of the former colo- nial empires since the end of World War II has been set up as a sovereign nation state. And this is what every one of the various parts of the last of the colonial empires, the Soviet empire, aspires to become. And yet for 40 years, that is, since the end of World War II, the sovereign nation state has steadily been losing its position as the one organ of power. Internally, developed countries are fast becoming pluralist societies of organizations. Externally, some governmental functions are becoming transnational, others regional (i.e. in the European Community), others are being tribalized. The nation state is not going to 'wither away'. It may remain the most powerful political organ around for a long time to come. But it will no longer be the indispensable one. It will increasingly share power with other organs, other institutions, other policy makers. What is to remain the domain of the nation state? What is to be carried out within the state by autonomous institutions? What is to be 'supernational·? What is to be 'transnational·? What is to be 'separate and local·? These questions will be central politi- cal issues for decades to come. In its specifics, the outcome is quite unpredictable. But the political order will look different from the political order of the last centuries in which the players

Introduction: the transformation 11

did not create the 'New Man'. Instead it brought out and strength- ened all the worst in the 'Old Adam': corruption, greed and lust for power; envy and mutual distrust; petty tyranny and secretive- ness; lying, stealing, denunciation and, above all, cynicism. Communism, the system, had its heroes. But Marxism, the creed, did not have a single saint. The human being may well be beyond redemption. The Latin poet may have been right: human nature always sneaks in through the back door no matter how many times the pitchfork tosses it out the front door. Maybe the cynics are right who assert that there is no virtue, no goodness, no selflessness, only self- interest and hypocrisy (though there are enough witnesses to the contrary, as I remind myself in my darkest hours). But surely the collapse of Marxism as a creed signifies the end of the belief in Salvation by Society. What will emerge we cannot know

• we can only hope and pray. Perhaps nothing beyond stoic resigna- tion? Perhaps a rebirth of traditional religion addressing itself to the needs and challenges of the person in the knowledge society? The explosive growth of what I call 'pastoral' Christian churches in America - Protestant, Catholic, Non-Denominational - might be a portent. But so might be the resurgence of Fundamentalist Islam. For the young people in the Moslem world who now so fervently embrace Islamic Fundamentalism would, 40 years ago, have been equally fervent Marxists. Or will there be new religions? What is unlikely to happen is easier to forecast than what is likely to happen. We will not see the rejection of material values and of technology - the 'Return to the Middle Ages' - which a Japanese writer, Taichi Sakaya (born 1935), predicted in a Japanese best-seller of the mid-1980s (published in English in 1991 by Kodansha International, New York-Tokyo-London, under the title The Knowledge-Value Revolution). The worldwide spread of information and of technology is certain to make this impossible. (Apart from the fact that Mr Sakaya's thesis rests on the nine- teenth-century - and long disproven - belief that the Middle Ages spurned material goods. Alas, they lusted for them. They were obsessed with possessions and greedy beyond belief. There is substance to the old Marxist gibe that the Crusades were the biggest shopping trip ever. The Middle Ages were poor not because they chose to be poor. The Moslem conquest of the Hellenistic world and of the Mediterranean had cut off their access to antiquity's wealth producers.)

12 Post-capitalist Society

Still, redemption, self-renewal, spiritual growth, goodness and virtue - the 'New Man' to use the traditional term - are likely to be seen as existential rather than as a social goal and political pre- scription. The end of the belief in salvation by society surely marks an inward turning. It makes renewed emphasis on the indi- vidual, the person. It may even lead - at least we can so hope - to a return to individual responsibility.

The Third World

This book focuses on the developed countries - on Europe, on the United States and Canada, on Japan and the newly developed countries on the mainland of Asia, rather than on the developing countries of the Third Worldless-developed nations unimportant or even less important. Thatwould be folly. Two-thirds of the world's population live, after all,in the Third World; and by the time the present period of transi- 7. This is not because I consider the tion comes to an end - around 2010 or 2020 - the Third World willhouse three-quarters. But I also consider it highly probable that within the next decade or two there will be new and startling 'economic miracles', in which poor, backward, Third-World coun- tries transform themselves, virtually overnight, intoeconomic powers. It is even possible that there will be far more fast-growth such transformations than there have been in the last 40 years, that is, since we first began to talk about 'economic development'.All the elements for rapid economic growth are present in the coastal, urbanized, areas of mainland China -the north to Canton in the south. They have a huge domestic mar-ket; a highly educated population with tremendous respectlearning; an old entrepreneurial tradition; closefrom Tsientsin in ties to thefor 'Overseas Chinese' in Singapore, Hong Kong and Taiwan, with access to their capital, their trading networks and theiredgeable people. All this might be released in an explosion ofentrepreneurial growth if Beijing's political and economic tyranny knowl- could be peacefullyoffer an adequate domestic market. Mexico may already be in the removed. Latin America's larger countries 'take-off stage. And Brazil might surprise everybody by the speed of its turnaround once it musters the political courage tofollow Mexico's recent example and abandon the failed (and indeed suicidal) policies into which it plunged after 1970. No one

14 Post-capitalist Society

I am often asked whether I am an optimist or a pessimist. For any

survivor of this century to be an optimist would be fatuous. We

surely are nowhere near the end of the turbulences, the transfor-

mations, the sudden upsets which have made this century one of

the meanest, cruellest, bloodiest in human history. Anyone who

deludes himself that we are anywhere near the 'end of history' is

in for unpleasant surprises - the kind of surprises that afflicted

America's President Bush when he first bet on the survival of the

Russian Empire under Mikhail Gorbachev and then on the suc-

cess of Boris Yeltsin's 'Commonwealth of Ex-Russian Nations'.

Nothing 'post' is permanent or even long-lived. Ours is a tran-

sition period. What the future society will look like, let alone

whether it will indeed be the 'knowledge society' some of us dare

hope for, depends how the developed countries respond to the

challenges of this transition period, the post-capitalist period -

their intellectual leaders, their business leaders, their political

leaders, but above all each of us in our own work and life. But

surely this is a time to make the future - precisely because every-

thing is in flux. This is a time for action.

From capitalism to

knowledge society

Within 150 years, from 1750 to 1900, capitalism and technology

conquered the globe and created a world civilization. Neither cap-

italism nor technical innovations were new; both had been com-

mon, recurrent phenomena throughout the ages, both in West and

East. What was brand new was their speed of diffusion and their

global reach across cultures, classes and geography. And it was

this, their speed and scope, that converted capitalism into

'Capitalism' and into a 'system'. It converted technical advances

into the 'Industrial Revolution'.

This transformation was driven by a radical change in the

meaning of knowledge. In both West and East knowledge had

always been seen as applying to being. Almost overnight, it came

to be applied to doing. It became a resource and a utility.

Knowledge had always been a private good. Almost overnight it

became a public good.

For a hundred years - in the first phase - knowledge was

applied to tools, processes, products. This created the Industrial

Revolution. But it also created what Marx called 'alienation' and

new classes and class war, and with it Communism. In its second

phase, beginning around 1880 and culminating around World

War II, knowledge in its new meaning came to be applied to work.

From capitalism to knowledge society 19

Capitalism with a capital C soon permeated and transformed all

groups in society wherever it spread.

From earliest times in the Old War new tools, new processes,

new materials, new crops, new techniques - what we now call

'technology' - diffused swiftly.

Few modern inventions, for instance, spread as fast as a thir-

teenth-century one; eyeglasses. Derived from the optical experi-

ments of an English Franciscan friar, Roger Bacon (died 1292 or

1294) around 1270, reading glasses for the elderly were in use at

the Papal Court of Avignon by 1290, at the Sultan's Court in Cairo

by 1300 and at the Court of the Mongol Emperor of China no later

than 1310. Only the sewing machine and the telephone, fastest-

spreading of all nineteenth-century inventions, moved as quickly.

But earlier technological change, almost without exception,

remained confined to one craft or one application. It took another

200 years - until the early 1500s - before Bacon's invention had its

second application: eyeglasses to correct nearsightedness. The

potter's wheel was in full use in the Mediterranean by 1500 BC.

Pots to cook, and to store water and food, were used in every

household. Yet the principle underlying the potter's wheel was

not applied until AD 1000 to women's work - spinning.

Similarly, the redesign of the windmill around the year AD 800

which converted it from the toy it had been in Antiquity into a

true machine - and a fully 'automated' one at that - was not

applied to ships for more than 300 years, that is, until after 1100.

Until then, ships were oared; if wind was used at all to propel

them, it was an auxiliary and only if it blew in the right direction.

The sail to drive a ship works in exactly the same way as the sail

that drives the windmill. The need for a sail that would enable a

ship to sail cross-wind and against the wind had been known for

a long time. The windmill was redesigned in Northern France or

in the Low Countries, that is, in regions thoroughly familiar with

ships and navigation. Yet it did not occur to anyone for several

hundred years to apply something invented to pump water and

to grind corn, that is, for use on land, to use offshore.

The inventions of the Industrial Revolution, however, were imme-

diately applied across the board, and across all conceivable crafts

and industries. They were immediately seen as technology.

James Watt's (1736-1819) redesign of the steam engine between

1765 and 1776 made it into a cost-effective provider of power.

20 Post-capitalist Society

Watt himself throughout his own productive life focused on one use only: to pump water out of a mine - the use for which the steam engine had first been designed by Newcomen in the early years of the eighteenth century. But one of England's leading iron masters immediately saw that the redesigned steam engine could also be used to blow air into a blast furnace and bid for the second engine Watt had built. And Watt's partner, Matthew Boulton (1728-1809), right away promoted the steam engine as a provider of power for all kinds of industrial processes, especially, of course, for the then largest of all manufacturing industries, textiles. Thirty-five years later, an American, Robert Fulton (1765-1815), floated the first steamship on New York's Hudson River. Another 20 years later the steam engine was put on wheels and the loco- motive was born. And by 1840 - at the latest by 1850 - the steam engine had transformed every single manufacturing process - from glass making to printing. It had transformed long-distance transportation on land and sea, and it was beginning to transform farming. By then, it had penetrated almost the entire world - with Tibet, Nepal and the interior of tropical Africa the only excep- tions.

The nineteenth century believed - and most people still do - that the Industrial Revolution was the first time a change in the 'mode of production' (to use Karl Marx's term) changed social structure and created new classes, the capitalist and the proletar- ian. But this belief too is not valid. Between AD 700 and 1000 two brand-new classes were created in Europe by technological change: the feudal knight and the urban craftsman. The knight was created by the invention of the stirrup - an invention coming out of Central Asia around the year AD 700; the craftsman by the redesign of water wheel and windmill into true machines which, for the first time, used inanimate forces - water and wind - as motive power rather than human muscle as Antiquity had done. The stirrup made it possible to fight on horseback; without it a rider wielding a lance, sword or heavy bow would immediately have been thrown off the horse by the force of Newton's Second Law: To every action there is a reaction.' For several hundred years the knight was an invincible 'fighting machine'. But this machine had to be supported by a 'military-agricultural complex'

- something quite new in history. Germans until this century called it a Rittergut, a knight's estate endowed with legal status and with economic and political privileges, and containing at