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Dean of Faculty William May, of NYU’s business school, begins the symposium welcoming Peter Drucker back to NYU for his session, and handing over the platform to Dean of Students Bob Hawkins and Dale E. Zand. Zand begins the session discussing how international trade and monetary systems are affecting productivity. He then moves on to ponder what productivity actually means in the context of a particular nation’s political, economic, social, and cultural system, before giving a more extensive introduction to Peter F. Drucker and his career. Drucker begins his session discussing the necessity of examining productivity, and how the decline in productivity is not an American phenomenon but a worldwide phenomenon of all developed, as well as rapidly industrializing and developing, countries. Specifically, productivity is greatest behind the Iron Curtain. In the rest of the developed world, the rate of productivity decrease is about the same, with the fastest rate of productivity decrease being Japan. Specifically, the productivity of capital in Japan has been going down twice as fast as America’s. He then states that none of the explanations for the decrease can be accepted, because all of them look at national factors. The shift to service employment is one possible cause of the decrease in capital’s productivity in America, but there has been no such shift in the U.K., Soviet Union, or Japan, so such an explanation cannot account for all decreases. The second possibility is that productivity can enlarge substitutes--in other words one can trade more capital investment against higher labor productivity and less labor, and vice versa, although, as Drucker notes, the evidence for that possibility has always been shaky. There are enough examples, Drucker says, to prove that total automation leads to greater productivity and more competitiveness than anything based on even the cheapest labor. If automation can really happen, then one is more productive. Productivity, he states, is not the productivity of just one factor, but of all factors, and proceeds to identify three: money, key physical resources, and time. We are not really easily able to measure it, but one must work at each component of productivity separately in order to effect progress, while any tradeoff decisions have to be made as expedient ad hoc decisions. One has to work at productivity, and this is what the generation of 1930 did not understand--because the moral imperative was lost, people stopped working hard. So, this is why productivity must be constantly worked at. Using the example of eighteenth century France, Drucker argues that, while government cannot promote productivity, macroeconomics will destroy it, as productivity is a microeconomic phenomenon. So, productivity is a local phenomenon, and can only be hampered by governmental policies. Money requires both working harder and working smarter, while key physical resources always require working harder, and people always require working smarter. Thus, one must begin with money, because one has two approaches. Each resource requires its own approach but each resource also requires being worked at. Facilities management is a way of integrating people, money, and key physical resources in the space that is a working space. The last thing known about productivity is that the only things that work are unspectacular things. A continuing effort is necessary and is what makes change in productivity happen. All management books, Drucker observes, essentially talk about planning and setting objectives--things that are major efforts, which then energize a long follow up, which is not the way one should work on productivity. For productivity, one should work the way the drill sergeant of old drilled recruits, that is, motivating the individual employee to do the same thing every day with success. The sergeant is effective because he knows what the finished recruit should be able to do in a given amount of time, and most of his subordinates will accomplish it. The same principle and procedure applies to increasing productivity, so waiting for Uncle Sam to increase productivity is foolish. Finally, it is not genius, Drucker says, that makes resources productive, but a sense of moral responsibility. Robert Hawkins then begins his talk discussing how he agrees with the conclusions of Drucker but ascribes a certain degree of pessimism to Drucker’s views, because, if executives are going to rely on moral responsibility to improve productivity, he hopes that it proves to be successful in spite of his skepticism. He goes on to outline what he intends to speak on, stating that he agrees with Drucker’s emphasis on the importance of capital and productivity and proposes to examine some of the dimensions of productivity and its apparent slowdown since 1969 in the United States as well as its worldwide slowdown in the 1970s and 1980s. Most of the studies referred to in the popular press tend to focus most attention on labor productivity, since it is the easiest thing to measure. Hawkins notes that it has declined from the 1960s through the 1980s. If one examines productivity in the total economy, Hawkins says, the service sector appears to be inefficient, not because real productivity changes slowly, but because the value of services are actually the value of input into those services, especially government. In the U.S. economy, as government has grown, productivity has not been able to grow with it. Also, the measured productivity increase tends to decline. Secondly, it turned us to shifts from the agricultural sector to the industrial sector, and, third, the change in the structure of the labor force in the U.S. has contributed to an apparent decline in productivity, with women and low-wage labor jobs for youth becoming standard. Hawkins notes that the U.S., alongside Japan and continental Europe, leads the world in these demographic changes. Finally, the imposition of environmental worker protection and consumer protection regulations have raised costs and utilized inputs without raising measured outputs. To summarize, he says, the U.S. economy has undergone changes into 1970 that have caused productivity, however measured, to grow at a lower pace than earlier simply because of the way productivity is measured. While this does not mean the U.S. is worse off or poorer, it does mean that measures of input and output are imperfect and, at times, misleading. It is in these respects, Hawkins notes, that he and Drucker share common views. Capital formation and low savings is essential to maintain and improve labor productivity, but also essential to maintain and improve capital productivity to utilize such a mix or combination of labor and capital. Hawkins goes on to note that, with respect to capital, the United States, the United Kingdom, and a few other countries, have been dismal failures in accelerating capital formation. As a result, the low level of capital formation and savings is a macroeconomic manifestation of the macroeconomic problem of maintaining and accelerating productivity. A second phenomenon is OPEC, and the changes in the terms of trade, which has resulted in actual decline in real output as measured relative to inputs, or lowered aggregate productivity growth, in all of the oil-importing countries. Third, there has been a crisis in managerial business decision-making, which has produced more emphasis on the trading of assets and less on research and development, long-term capital formation, and long-term projects, all of which have resulted in a lowered real productivity growth. Finally, Hawkins emphasizes litigious society and the underground economy as factors in the slower observed activity growth. In terms of what can be done about productivity, given these revelations, the question is what can be done about real productivity growth, and the answer must address a very broad range of social ills, beginning with the small steps of tax reform and deregulation. Whether the environment is permanently and dramatically changed remains to be seen--to expect productivity growth in real terms is unlikely except over a long horizon. Any high productivity growth in the short term will not be permanent, as a permanent solution requires a next economics of analysis and economic policy, as well as a moral responsibility. Drucker then offers some commentary on Hawkins’s presentation, and Hawkins responds. They then begin a question-and-answer portion of their talk, and Drucker is given a question concerning manufacturing firms and where one should start with a productivity improvement program. He responds that the one thing he would not do is make a policy statement. First, Drucker states that he would make sure that those in management don’t fool themselves--that they know their own facts before adjusting for inflation. Second, Drucker recommends treating future expenses as nicked of inflation. Third, he would charge every department head interest for his money and business and prime plus three percent. Fourth, Drucker suggests accepting the fact that the biggest unused resource, and the area in which the Japanese are ahead of the U.S., is in placement responsibility. Last, Drucker recommends organizing the abandonment process. Hawkins closes the session emphasizing that managers should do a real estimate of the real cost of capital and the real cost of replacement in maintaining that capital.
Drucker, Peter F. (Peter Ferdinand), 1909-2005 New York University New York University. Graduate School of Business Administration Hawkins, Bob Zand, Dale E International trade Productivity Developed countries Development and underdevelopment Underdeveloped countries Less developed countries Emerging nations Newly industrializing countries Iron curtain lands Japan United Kingdom Soviet Union Service (in industry) Capital investments Labor productivity Automation Factories-Automation Competition Money Time Hard work Macroeconomics Microeconomics Planning Goal (Psychology) Motivation in industry Work motivation Employee motivation Uncle Sam (Symbolic character) Government policy Agriculture Agriculture and state Tax reform Deregulation Manufacturing industries Manufactures Management by objectives May, William Physical resources OPEC (organization of petroleum exporting countries) Symposia Placement responsibility
Original recording, April 21, 1981; Drucker Archives; Box 68