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William Guth begins the talk introducing Peter F. Drucker and the format of the proceeding talk. Drucker then takes over and discusses the postwar period and how capital is moving very freely, and in developed countries a freedom of access is available in a way that was not even available before World War I. One reason for this is performance; the other is the way the Japanese government changed their government operations. As a result, the postwar expansion of the economy is the fastest the world has ever seen. However, Drucker makes it clear that the question of the structure of an advanced industrial economy was only postponed, not solved. Drucker labels this structure issue a crisis of legitimacy due to unexpected success and prosperity, and it remains most pronounced in the United States. Modern management in the large corporation, Drucker highlights, was really the first successful governance in the world that prospered without being accountable to a boss. He proceeds to discuss how the pension fund appeared to settle the social problem of the nineteenth century by socializing ownership in the large, publically-held corporation without nationalizing it, concluding that it has been the greatest success of any social innovation in a very long time. Drucker argues that the pension fund will have to solve America’s social problem, especially as the country moves to a society of non-blue collar workers who want to identify with enterprise. He then states that management is forced to operate in terms of short-term pension fund earnings, and that management should not just be focused on long-term earnings vs. short-term earnings--its ideal job and priority is a balance between the two, and there is no formula for this balance. Drucker states that the oldest lesson of financial history is that profitability is not the sum of profits--it is distinct and different from profits. Furthermore, short-term results accumulated do not give long-term results because all short-term results, if not in balance, are a delusion. He then states that American competitiveness is doing quite well, and its growth industries are doing similarly well. America’s problem, on the other hand, is a government surplus that almost demands a trade deficit. Without it, the U.S. would either have a major depression, a raging inflation, or both. Drucker then gives the example of Harper and Row to demonstrate how, fundamentally, the ownership of a company is limited because the pension fund does not guarantee ownership. Effectively, ownership has been eliminated without an effective substitute for it. In addition, elimination of accountability of management has also occurred, leading to, potentially, despotism within an organization and the possibility of hostile takeovers. However, Drucker notes that hostile takeovers may be a thing of the past not only because they will become increasingly difficult legally, but also because they rest on asset values not having been adjusted to inflation, which is largely over. Drucker states that one cannot manage businesses through reports and good intentions--one has to know what they are doing. Drucker lastly raises the question of whether or not a new organ can be created, or if existing organs can be made effective enough so that managements have a boss (for accountability), but also to make sure they are accountable for the performance of the enterprise. Fashioning the next step in making free enterprise something that is a social as well as economic institution must be the priority in the coming years.
Drucker, Peter F. (Peter Ferdinand), 1909-2005 New York University New York University. Graduate School of Business Administration Guth, William D Capital Postwar economic studies World War II World War II United States World War I Economic development Economy and society Management Pensions Pension funds Pension trusts Ownership Short-term business financing Long-term business financing Profit Blue collar workers White collar workers Competition Industrial productivity Industrial management Accountability Despotism Assets (Accounting) Inflation (Finance) Surplus (Economics) Harper & Row, Publishers Surpluses, Trade Trade deficits Takeovers, Corporate Bosses (Supervisors)
Original recording, April 29, 1987; Drucker Archives; Box 68