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The symposium continues with a question-and-answer session between Peter F. Drucker and Donald E. Nicholson and the audience. A question is addressed to Nicholson concerning debts and trade deficits, how such issues may parallel those of 1929, and what could cause a significant change in the current pattern. Nicholson responds that the debt problem is a problem, though, perhaps, not as big as other people make it out to be. On the other hand, he notes that simple economics over long periods of time is what really works, stating that no nation or country can go on forever in debt without some form of repayment. Over long periods of time, there will have to be an accommodation of that debt. In terms of 1929, Nicholson observes that, yes, there are similarities occurring which resemble those of the past, but there are more cushions in place that would prevent a repeat of the stock market crash of 1929. He then states that a concern people, perhaps, cannot see, but that should concern us all, is the tremendous supply of and velocity with which money is moving around the world through technological innovation, which may have ramifications that no one can understand. Drucker then responds to a question from the audience concerning free trade and its barriers, and what the United States should do. He states how it is conceivable that the U.S. is moving in the direction of two core existing systems, in which trade is only one part of the system and the other is based on investment. Investment no longer follows trade; instead, trade follows investment. Drucker notes that Japanese economic insularity, for example, is not a result of protectionism as much as it is a problem of Westerners refusing to integrate non-Western societies, and contends that free trade is a form of imperialism. In terms of exchange of goods, relationships will be based on reciprocity and capital investments, and movement of people. Another audience member asks about decline in manufacturing employment, and Drucker responds that there is no decline in manufacturing employment. The audience member then states that statistics indicate there has been a decline, and Drucker retorts that this is false. He argues, instead, that statistics indicate there has been a decline in the proportion of people in the economies of the developed countries that are employed in manufacturing, but, in the U.S., manufacturing employment has not gone down in the last fifteen years--in fact, it has gone up a slight bit. Drucker goes on to predict that manufacturing, and other types of blue collar work in developed countries, will not be around in 2010--it will have joined the status of the domestic servant in the scheme of history. However, manufacturing production is likely to be up to three times what it is now because the current growth sectors are sectors in which the U.S. is leading, and the American labor force remains unbelievably mobile and adaptable. Drucker then cautions that one should not look at manufacturing employment as an index of the industrial health of a country--in developed countries it is the opposite, and Drucker cites the U.K. and Japan as evidence to support his claim. Drucker states that the real problem is the rapidly growing indebtedness of America, because paying interest is a major problem--the largest budget problem for the American government is interest. He proceeds to note how, for the first time in the history of the world, the U.S. is the major debtor in the world and owes in its own currency. The remedy to these circumstances, he says, is either severe inflation or selective expropriation, in which the U.S. no longer pays interest to foreigners. Drucker then notes how the Japanese are supreme realists and know that Americans are not going to pay their interest. It is only after either inflation or selective expropriation is pursued that the U.S. will face the fact that it is living beyond its means. A new question from the audience concerns what has catalyzed the move toward decentralization and when it will stop. Drucker responds that one of the contributing factors to decentralization is that we have learned that we can manage smaller things. Once it was learned by many organizations across different fields that they could manage small and medium sized institutions, as well as large ones, the larger ones no longer had economy of scale. He also states that knowledge work, in general, is not done in very large numbers, so the shift to decentralization is to be expected. Furthermore, Drucker states that the shift from manual worker (skilled or unskilled) to knowledge work (skilled or unskilled) indicates that the old forms of integration no longer work. Knowledge work, he argues, cannot be very vast and can only be directed. What this means is that organizational models basically consisting of people all doing the same non-knowledge work no longer applies. Drucker then responds to another question concerning poverty, and what the discontinuity between humanity’s natural state of poverty and marketing is. He states that the hope of the Truman years, that the entire world could be lifted out of poverty, was unattainable one, but that more progress has been made in this area than most people would like to acknowledge. Drucker then remarks that the socialists’ enormous contempt for peasants is one of the great poisons in the modern world. Developed countries tend to assume that poverty can be minimized to the point where it isn’t a problem, and that the poor are not a problem. In contrast to most other countries, the U.S. has a problem with a middle class that has come to depend very heavily on tax preferences and transfer payments, a political problem for which there is no tradition. Nicholson then responds to a question concerning U.S. interest and investment in global markets, stating that the supply is mainly located in Japan, and that without Japanese involvement, American interest rates would be much higher today. However, the system is not perfect, and that is what capitalism entails. Currently, the Japanese have accumulated more capital than they can actually use in Japan, so the Japanese export it to places like the U.S., which, in turn, exports its debts to the Japanese. Drucker adds that when the U.S. was in Japan’s position a few years ago, the U.S. exported their capital to Brazil.
Drucker, Peter F. (Peter Ferdinand), 1909-2005 New York University New York University. Graduate School of Business Administration Stock Market Crash, 1929 Great Depression Debt Economics Technological innovations Free enterprise Investments Investments, Foreign Investment banking Japan--Economic policy Japan Protectionism Imperialism Capital investments Manufacturing industries Statistics Blue collar workers United Kingdom Interest Inflation (Finance) Decentralization in management Manual work Manual workers Poverty Marketing Truman, Harry S., 1884-1972 Socialism Marx, Karl, 1818-1883 Middle class Taxation Taxes Global economy and development Globalization Capitalism Capital Capital market Capital productivity Brazil Free trade Money circulation Reciprocity Manufacturing employment Indebtedness Debtor nations Expropriation Knowledge work Symposia
Original recording, April 30, 1987; Drucker Archives; Box 68