Social Needs and Business Opportunities
by Peter Drucker in The Frontiers of Management In the early years of this century, two Americans, independently and, in all probability, without knowing of each other, were among the first businessmen to initiate major community reforms. Andrew Carnegie preached and financed the free public library. Julius Rosenwald fathered the county farm agent system and adopted the infant 4-H Clubs. Carnegie was already retired from business as one of the world’s richest men. Rosenwald, who had recently bought a near-bankrupt mail-order firm called Sears, Roebuck and Company, was only beginning to build both his business and his fortune. Both men were radical innovators. ¶¶¶ The monuments that earlier businessmen had erected for themselves were cultural: museums, opera houses, universities. In Carnegie’s and Rosenwald’s own time leading American businessmen, A. Leland Stanford, Henry E. Huntington, J. P. Morgan, Henry C. Frick, and a little later, Andrew Mellon, still followed this tradition. Carnegie and Rosenwald instead built communities and citizens—their performance, their competence, and their productivity. ¶¶¶ But there the similarity ends. The two held basically different philosophies. Carnegie shouted his from the housetops: The sole purpose of being rich is to give away money. God, Carnegie asserted, wants us to do well so that we can do good. Rosenwald, modest, publicity shy, unassuming, never preached, but his deeds spoke louder than his words. “You have to be able to do good to do well” was Julius Rosenwald’s credo, a far more radical one than that of the anarchist steelmaster from Pittsburgh. Carnegie believed in the social responsibility of wealth. Rosenwald believed in the social responsibility of business. ¶¶¶ Rosenwald saw the need to develop the competence, productivity, and income of the still desperately poor and backward American farmer. To accomplish this it was necessary to make available the enormous fund of scientific farming knowledge and farming skills that had been amassed in decades of systematic study of agronomy and farm marketing, but that, in 1900 or 1910, were still largely theoretical and inaccessible to all but a tiny minority of more affluent agriculturalists. Although his motives were partially philanthropic, he also saw that Sears, Roebuck’s prosperity was linked to the prosperity of its main customer, the farmer, which in turn depended on his productivity. The county farm agent—and Sears, Roebuck for almost a decade single-handedly supported this innovation of Rosenwald’s until the U.S. government finally took it over—and the 4-H Clubs were clearly philanthropy. But they were also Sears, Roebuck’s corporate advertising, public relations, and above all market and customer development. Their success partially explains how the near-bankrupt Sears, Roebuck became within ten years the country’s first truly national retailer and one of its most profitable and fastest-growing enterprises. ¶¶¶ After World War II, another American businessman developed yet another approach to social responsibility. William C. Norris, the founder (in 1957) and, until his retirement in 1986, chairman of Control Data Corporation, saw the solution of social problems and the satisfaction of social needs as opportunities for profitable business. He too was a philanthropist motivated by concern for his fellowman. He picked his projects (skill training and employment in the inner-city ghetto, rehabilitation and training of prisoners, teaching problem learners) by social need rather than by market demand. But he directed his investment and his corporation’s human resources where information handling and data processing, his company’s expertise, could create a business that, while solving a problem, would become self-sustaining and profitable. ¶¶¶ Like Carnegie’s philanthropy and Rosenwald’s community development, Norris’s investments in social needs aimed at creating human capital in the form of individuals capable of performance and of a healthy community able to help itself. But Norris’s social enterprises also aimed at creating economic capital. Carnegie’s public libraries were strictly philanthropies, though they did create opportunities for individual self-development. Rosenwald’s community projects were not business ventures. However much they benefited Sears, Roebuck, they did so indirectly. They were good business, farsighted investments in market development, but not themselves business. Norris’s good works or excursions into social problem solving were capital investments in new profit-making businesses, in a stricter sense. He was an entrepreneur. ¶¶¶ In its view of social responsibility much of American business and the American public still follow Carnegie. They accept, as he did, that wealth and economic power entail responsibility for the community. The rich man as social reformer, Carnegie’s innovation, established a uniquely American institution: the foundation. One after the other of the superrich, from Rockefeller to Ford, followed Carnegie’s example. And Carnegie also set the tone for what is now known as the social responsibility of business, a phrase that has become exceedingly popular. ¶¶¶ Julius Rosenwald has had far fewer followers. The best known is probably Rosenwald’s own successor as head of Sears, Roebuck, General Robert E. Wood. Even greater perhaps was the impact of James Couzens, cofounder of the Ford Motor Company, for ten years Henry Ford’s partner as the company’s financial and administrative head, then mayor of Detroit and finally, from 1922 to 1936, U.S. senator from Michigan and, though nominally a Republican, one of the intellectual fathers of the New Deal. Couzens introduced skill training into American industry as a social responsibility of business. A few years later, in 1913, he established, over Henry Ford’s strenuous objections, the famous five-dollar-a-day wage—both out of deep compassion for the suffering of an exploited work force and as a highly successful and indeed immediately profitable cure for high rates of absenteeism and turnover that threatened Ford’s competitive position. ¶¶¶ In our own time J. Irwin Miller of the Cummins Engine Company in Columbus, Indiana, has systematically used corporate funds to create a healthy community that, at the same time, is a direct though intangible investment in a healthy environment for his company. Miller specifically aimed at endowing his small industrial town with the quality of life that would attract to it the managerial and technical people on whom a big high-technology business depends. ¶¶¶ The thesis of this essay is that in the years to come the most needed and effective approach to corporate social responsibilities will be that exemplified by William Norris and Control Data Corporation. Only if business learns how to convert the major social challenges facing developed societies today into novel and profitable business opportunities can we hope to surmount these challenges in the future. Government, the agency looked to in recent decades to solve these problems, cannot be depended on. The demands on government are increasingly outrunning the resources it can realistically hope to raise through taxes. Social needs can be solved only if their solution in itself creates new capital, profits, that can then be tapped to initiate the solution for new social needs. ¶¶¶ Fundamental changes in technology and society have changed the nature of social needs. Today we are very conscious of technological change. Few people realize that what actually is changing are not technologies but the very concept of technology. For three hundred years technology has had for its ultimate model the mechanical phenomena inside a star such as the sun. This development reached its climax with a technology that replicates the mechanical processes inside the sun, that is, with nuclear fission and fusion. Now the dynamics of technology are switching to what might be called an organic model, organized around information rather than around mechanical energy. ¶¶¶ Fossil-fuel energy has been a mature, if not declining, industry since 1950, well before OPEC and the energy crisis. In all developed countries the ratio of energy usage to gross domestic product has been falling steadily and rapidly since then. Even in sectors that until then still showed an incremental energy growth—private automobiles; aviation, both civilian and military; and residential lighting, heating, and air conditioning—energy consumption per unit of output has been declining since well before 1973 and is almost certain to continue to do so, almost irrespective of cost. ¶¶¶ Biological processes progress in terms of information content. The specific energy of biological systems is information. Mechanical systems are organized by the laws of physics; they express forces. Biological systems obey the laws of physics, of course. But they are not organized by forces but by information (for example, the genetic code). ¶¶¶ As a consequence, the shift from the mechanical to the biological model calls for a shift in the resource that constitutes capital. Before the mechanical age, animal energy, that is physical exertion, constituted capital. Skill was of course highly prized. But there was so little market for it that it had to be organized as a monopoly, with access strictly controlled through apprenticeship programs and guild regulations. Skill beyond a minimum was simply not employable; there was no market for it. And knowledge was pure luxury. ¶¶¶ In the age of the mechanical model, in the last three hundred years, human skill increasingly became the productive resource—one of the greatest advances in human history. This development reached its culmination in this century when mass production converted the laborer into the semiskilled worker. But in an age in which information is becoming the organizing energy the capital resource is knowledge. ¶¶¶ This shift in the meaning of technology that is now well underway represents a far more important change than any technological change, no matter how rapid or how spectacular, and deserves even more attention than it gets. ¶¶¶ Demographic changes may be even more important. Fortunately the educational explosion of the last fifty years in all developed countries coincided with the shift in technology. In the developed countries now about half of all young people undergo formal schooling beyond secondary school, developing the human resources needed to make the new technology operational, productive, and beneficial. In turn the new technology creates the employment opportunities for the new work force of the developed countries. Which is chicken and which is egg no one, I daresay, could determine. ¶¶¶ These changes create major discontinuities and problems. First, in the developed countries there is the transition problem for a labor force trained to operate in the age of the mechanical model and left stranded in the shift to the technology of the biological model. And the remnants of what today we would call preindustrial society—for example, those in the inner-city ghettos or Chicano immigrants fleeing the destitution of overpopulated Mexico—who are prepared only to use physical strength as the resource they are getting paid for, are problems in today’s developed countries. ¶¶¶ Second, between the developed and the poorest countries there is a new and dangerous discontinuity. Up to three hundred years ago there were no “poor countries.” There were rich people in every country—not very many—and there were vast hordes of poor people in every country. One hundred years later, that is, by 1700, when the new technology of the mechanical model first began to make a difference, the world began to split into rich countries and poor countries. By 1900 average per capita income in the then-developed countries was as much as three times as high as per capita income in the developing countries. By now the gap has widened to an unprecedented and probably unsustainable ten to one, or worse. Today the poorest proletarian in developed countries has a higher standard of living than all but a minute minority of the rich in the poorest countries. The class conflict of earlier times has become a north-south cleavage, if not a source of racial conflict. There is another discrepancy between developed countries, that is, countries with a high standard of formal learning, and thus with access to the opportunities of the biological model, and countries that at best can begin to form human skill capital. One-third of humanity, in the developed countries, is ready to exploit the opportunities of the biological model, while two-thirds, in the developing countries, are just entering the stage in which their human resources are prepared for the opportunities of the mechanical model. ¶¶¶ Just as the technology of the mechanical model requires a skill base, which is slowly and painfully being built in some of the developing countries, so does the technology of the biological model require a broad knowledge base. This, we now know, cannot be improvised but requires a long period of hard work and above all a capital investment far beyond the means any but already highly developed countries. Thus for the foreseeable future the world will remain divided into societies with the knowledge base to convert the new technology into major economic and social opportunities and those without the broad base of schooled people on which the technology of the biological model rests and with a surplus of people equipped only for the technologies of the mechanical model. ¶¶¶ It is the conjunction of the shifts in technology and demographics that creates the social needs business will have to learn to transform into opportunities. ¶¶¶ Developed countries are facing a situation for which there is no parallel in recent economic history. We will have growing labor shortages and at the same time growing unemployment. A large and growing share of the new entrants into the labor force will have sat in school too long to be available for traditional manual, blue-collar work. By 1982 the proportion of Americans who entered the civilian labor force with only an elementary school education was down to about 3 percent. The proportion entering with only a high school education was down to about 50 percent. And the trend is most unlikely to be reversed. ¶¶¶ This means that the basic employment problem of the United States and of every other developed country is to create challenging, satisfying, and well-paid jobs for people with so much schooling that they are qualified only for putting knowledge to work. It also means that demand for capital formation in the developed countries will go up rapidly. In particular, jobs for which capital requirements were traditionally lowest, that is in clerical and service areas, will be transformed. Whatever the office of the future will look like, it will be capital-intensive, with capital investment per worker going from a meager $3,000 at present to something like $20,000 or $30,000 within ten years or so. Knowledge jobs, on the average, require a multiple of the capital that manual jobs, on the average, require. They require a high and growing investment in schooling before the individual can begin to contribute, and, increasingly, substantial investment in continuing or refresher education. In other words they require an investment in human resources at least matching that in physical capital. ¶¶¶ At the same time there will be redundancies of workers in traditional blue-collar employment. In developed countries traditional blue-collar manual labor will simply not be economical. This is in part because work based on information, whether this be called automation or data processing, will have so much greater value added per unit of effort. Whatever processes can be automated—that is, shifted to an information base—must be automated. Otherwise industry cannot compete, especially with the very large and abundant low-cost labor resources of Third World. It is almost certain that by the year 2010, that within twenty-five years, the proportion of the labor force he developed countries that is engaged in traditional blue-collar work in manufacturing will be down to what it is now in our most highly scientific and most capital-intensive industry, modern agriculture. Manufacturing blue-collar labor accounts for almost one-fifth of the labor force in all developed countries. But the proportion employed in modern agriculture is about one out of every twenty or less. ¶¶¶ For the transition period, the next twenty-five years, there will be highly visible and highly concentrated populations of traditional blue-collar workers who are being made redundant and now have nothing to offer except skill, or, more often, semiskills. That there will at the same time be shortages in certain places of manual, blue-collar workers, because so many entrants into the labor force will have too much education to be interested in blue-collar jobs, will not help these redundant workers. They will not be where the shortages are and will, usually, not have the skills the available jobs demand. ¶¶¶ The blue-collar workers who are being made redundant by the shift of manufacturing from work requiring brawn and skill to knowledge-intensive work are typically found in high-wage jobs in the mass-production industries. For the last fifty years these groups have been among the favored groups in industrial society, the groups that have gained the most in economic and social position with the least increase in their actual capacity to perform. They are likely to be older people; younger people move before an industry decays. They are highly concentrated in a very small number of metropolitan areas and thus both visible and politically potent. Eight hundred thousand automobile workers, for instance, are concentrated mostly in twenty counties in the Midwest, from Milwaukee to Dayton and Cleveland, and in only four states. And they tend to be unionized and to act collectively rather than as individuals. ¶¶¶ Paradoxically, the labor shortages will be as real as the redundancies. What is needed to bring the two together? Is it training? Is it organized placement? Is it moving industries in need of traditional labor into the areas where the redundancies will occur? Above all, there is need to anticipate redundancies and to organize the systematic placement of individuals in new jobs. ¶¶¶ The gap between labor shortages in manufacturing and unemployment in manufacturing may coexist even within the same geographic area. But it will be particularly sharp between different sections of the same country, between different industries and between different wage levels. Unless we succeed in bridging this gap, we will be in grave danger. Instead of promoting the new information-based industries and their employment, which fit the needs and qualifications of the young population, economic policy will focus on maintaining yesterday’s employment. We will, in other words, be sorely tempted to follow the example of Great Britain and sacrifice tomorrow on the altar of yesterday—to no avail, of course. «§§§» Government cannot tackle this problem, let alone solve it. It is a problem for the entrepreneur who sees in the available labor surplus an opportunity. Government can provide money; the best examples are probably the retraining grants of West Germany, which now amount to 2 percent of West German GNP but, according to some German estimates (for example, those of the West German Arbeitsministerium), save as much as four times the amount in unemployment and welfare benefits. But the actual training, to be effective, has to be focused on a specific job the individual can be assured of getting once he reaches the required skill level. It has to be individual rather than general, and it has to be integrated with placement. Government, we have learned in sixty years of work on “distressed industries” and “distressed areas,” going back to Lloyd George’s first post-World War I cabinet in Great Britain, cannot do either. By its very nature government focuses on large groups rather than on this person with his or her specific skills, background, and needs. ¶¶¶ Also the new jobs are likely to be in small and local rather than in big, national business. Since about 1960, unprecedented growth in the American labor force and employment has occurred. The great majority of all new jobs (between two-thirds and three-quarters) has been created in the private sector, not in large, let alone giant, companies, but in businesses employing twenty employees or fewer. During this period employment in the Fortune 500 companies actually declined by 5 percent. And since 1970 the former rapid increase in government employment, federal, state, and local, has leveled off in all developed countries. ¶¶¶ Finding workers about to become redundant, identifying their strengths, finding new jobs for them, and retraining them as needed (and often the new skills needed are social rather an technical) are tasks to be done locally and for this reason e business opportunities. But unless redundancy is seen systematically as an opportunity, and above all by existing businesses with the knowledge and capital to act, we will suffer an ever-worsening problem that threatens the future of any developed economy and especially of the American economy. ¶¶¶ Several other severe social problem areas, which offer business opportunities, are of particular interest. Within every developed country, and particularly in the United States, there the problem of the preindustrial population, which in an American context means primarily racial minorities and, above, the blacks. Only a minority of blacks by now have not been able to acquire the competence needed to become productive in an economy in which brawn is not adequate to provide the kind of living developed societies consider standard. Yet few of the many attempts to educate these groups have lived up to expectations. Part of this failure is due to the fact that training and education succeed only where there is a vision of the future. It is the lack of vision, grounded in decades, if not centuries, of frustration, failure, and discrimination, that prevents education and training from being converted into confidence and motivation. ¶¶¶ But we also know that these people work well if the opportunity is provided for them. Until the job is there, there is, however, no motivation for training, no belief that it will lead to a permanent change, and a conviction that this effort too will fail. There is thus a major task of putting human resources to work and developing their competence. Opportunities exist in all kinds of services, if only because the supply of people willing and able to do the work will fall far below the demand, whether in hospitals, in maintenance, or in repair and services of all kinds. ¶¶¶ One company that has turned this social problem into an opportunity is based in Denmark. It operates in some fifty countries of the world, mostly developed ones. It systematically finds, trains, and employs preindustrial people for maintenance of office buildings and plants, at good incomes, with a minimum of turnover, and with only one problem: It cannot find enough people to satisfy the demand. It does not “train” people. It employs them, making high demands on performance that then create self-respect and workmanship. It provides career opportunities for advancement within the competence of the individual. This company, which now has sales well in excess of a half billion dollars, started with one small crew less than twenty years ago. The opportunities are there—but is the vision? ¶¶¶ Then there is the unprecedented problem of the earthquake fault between the developed countries, with their large supply of highly educated people and shortages of people qualified and prepared for traditional manual work, and the Third World countries in which, in the next fifteen years, unprecedentedly large numbers of young people will reach adulthood prepared and qualified only for traditional blue-collar manual work. These young blue-collar workers will find employment opportunities only if labor-intensive stages of production are moved to where the labor supply is, that is, to the developing countries. Production sharing is the economic integration ahead of us. If it cannot be developed as a successful business opportunity, we face both fast-decreasing standards of living in the developed countries, where traditional manufacturing work cannot be performed both because there is an absolute shortage of labor and because the price of manual or will become totally noncompetitive, and social catastrophe on a massive scale in the Third World. No society, no matter what its political or social system, whether capitalist or communist, can hope to survive the strains of 40 or 50 percent employment among young, able-bodied people prepared for work, and willing to do work, and familiar, if only through television and radio, with the way the rich countries of the world live. «§§§» Why shouldn’t government do these tasks and tackle these problems? Governments have had to concern themselves with social problems since time immemorial. There were the reforms of the Gracchi in Republican Rome in the second century B.C. and the Poor Laws of Elizabethan England. But as part of a systematic political theory the idea that the solution of social problems is permanently a task of government and one for which no other social institution is fitted dates back only two hundred years. It is a child of the Enlightenment of the eighteenth century; it presupposes a modern civil service and modern fiscal system. It was first expressed and practiced in e most enlightened of the enlightened despotisms and, so to speak, their development lab, the Hapsburg Grandduchy of Florence where, between 1760 and 1790, the first countrywide hospital system, the first countrywide public health planning, and—first in Europe—a countrywide system of free compulsory schooling were established. ¶¶¶ The nineteenth century saw the blossoming of this new idea. From the British Factory Acts of 1844 to Bismarck’s social security legislation in the 1880s, one social problem after the other was tackled by governments—and solved triumphantly. ¶¶¶ The twentieth century and especially the last fifty years saw this idea elevated to an article of the faith, to the point where a great many people consider it practically immoral and certainly futile for a social need to be tackled any way other than by a government program, and where a substantial majority, only a few years ago, in the heady Kennedy and Johnson years, was convinced that any social problem would almost immediately yield to attack by a government program. But the years since then have brought increasing disenchantment. There is now no developed country, whether free enterprise or communist, in which people still expect government programs to succeed. ¶¶¶ One reason is surely that government is doing far too many things. By itself a social program accomplishes nothing except the expenditure of money. To have any impact at all such a program requires above all the hard work and dedication of a small number of first-rate people. First-rate people are always in short supply. There may be enough for a very few social programs at any one time (though the two most successful entrepreneurs of social programs with whom I have discussed this, the late Arthur Altmeyer, the father of America’s Social Security program, and the late David Lilienthal, the builder of the Tennessee Valley Authority [TVA], both said—and independently—that in their experience there were at most enough first-rate people available at any one time in any one country to launch one major social program). But under the Johnson administration the United States in four short years tried to launch a half dozen—in addition to fighting a major overseas war! ¶¶¶ One might also say that government is congenitally unsuited to the time dimensions of social programs. Government needs immediate results, especially in a democracy where every other year is an election year. The growth curve of social programs is the hyperbola: very small, almost imperceptible results for long hard years, followed, if the program is successful, by years of exponential growth. It took eighty years before America’s program of agricultural education and research began to revolutionize American farming and farm productivity. It took twenty years before every American at work was covered by Social Security. Would the American electorate have waited twenty, let alone eighty, years before seeing major results from President Johnson’s War on Poverty? And yet we know that learning has a long lead time before it shows massive suits. Individuals, not classes, learn, and there has to be built , one by one, a large stock of individuals who have learned, no serve as examples, as leaders, who give encouragement. ¶¶¶ Paradoxically, government that finds it hard to start small and to be patient finds it even harder to abandon. Every program immediately creates its own constituency, if only the people who are employed by it. It is easy, all too easy, for modern government to give. It is all but impossible for it to take away. The rule for failures is therefore not to bury them but to redouble the budget and to divert to them the able people who might, if employed on more promising opportunities, produce results. ¶¶¶ Furthermore, it is all but impossible for government to experiment. Everything it now does has to be nationwide from the start, and everything has to be finite. But that, in anything new, is a guarantee of failure. It is no coincidence that practically all successful New Deal programs had been pilot tested as small-scale experiments in states and cities over the preceding twenty years—in Wisconsin, New York State, New York City, or by one of the Chicago reform administrations. The two total New Deal failures, the National Recovery Administration (NRA) and the Works Progress Administration (WPA), were also the only genuine inventions without prior experiment at the state or local level. ¶¶¶ Surely William Norris was right when he spoke of his company’s social business enterprises as research and development. Long lead times, willingness to experiment, and to abandon in case of nonresults are precisely the characteristics of research and development work. But R & D is, we now know, not done well by government, for a variety of well-studied reasons. It is done best in autonomous institutions, whether university laboratory, individual hospital, or business laboratory, although the provider or source of the funds might well be government. ¶¶¶ Equally important as an explanation for the inability of government to tackle successfully the kind of social problems we face is that they are hard problems. A hard problem is one in which there are so many constituencies that it is difficult, if not impossible, to set specific goals and targets. It is perhaps here that the social problems of the mid-twentieth century differ most fundamentally from those of the eighteenth and nineteenth centuries. But the problems we face in the decades ahead will be even harder than those we now handle so poorly. Each of them has powerful constituencies with radically different, indeed mutually exclusive, goals and values, which practically guarantee that government could not succeed in solving them. ¶¶¶ “Reindustrializing America,” for instance, means to the labor union preserving traditional blue-collar jobs in traditional industries in central cities or at least slowing the shrinkage of traditional jobs. However, if reindustrializing America means restoring the country’s capacity to increase the output of manufactured goods and to compete internationally, it unambiguously means the fastest possible automation of traditional processes and in all probability a shift to new and decentralized locations. It means liquidating Big Steel in Pittsburgh and Chicago and shifting to minimills near customers. The first definition is politically acceptable for a short time. But it can lead only to failure, as the British and the Polish examples show. But can any government program embrace the second definition? Even the Japanese, who reportedly invest in winners and starve losers (at least according to a currently popular American myth), are finding that it cannot be done politically. Indeed the Japanese have found that they cannot give up support of a retail distribution system that everyone in Japan knows to be obsolete and frightfully expensive but the only social security for a fairly small group of older people. ¶¶¶ Nongovernmental institutions, whether businesses or institutions of the rapidly growing nonprofit third sector, can, however, direct themselves to a single objective. They can break down hard problems into several easy problems, each capable of solution or, at least, of alleviation. And because nongovernmental institutions can and do compete with each other, they can develop alternate approaches. They can experiment. ¶¶¶ The increasing inability of government to tackle effectively the social needs of contemporary society creates a major opportunity for nongovernmental institutions and especially for the most flexible and most diverse of nongovernmental institutions: business. Increasingly, even countries organized on what are proclaimed to be socialist principles will have to “privatize.” It will be necessary, in other words, to create conditions under which a task is outlined by government and the means to perform the task are provided for either by government (as for instance in the case of the rapidly growing private health-care insurance in Britain, which is reimbursed by the National Health Service) or by third-party payors, but in which a task is actually performed by nongovernmental institutions, especially business, locally and on a competitive basis. ¶¶¶ A good example is the American communication system, in which increasingly the tasks exclusively done fifty years ago by the post office are now carried out by a host of agencies competing with one another and with the postal service. Quite clearly, garbage removal, health care, and many other services will become privatized in such a way that the service itself is grounded in public policy and law (if only through tax advantages), while the performance is the task of competitive private business enterprises. ¶¶¶ The true mixed economy of the future will consist of three parts. There will be a private sector in which government limits itself to protection against fraud, extreme exploitation, collusion, unsafe working conditions, and deprivation of civil rights. There will be a true public sector, for defense (excluding procurement) and justice, in which government will both specify the job and do it. And there will be a mixed sector, the best example being the American hospital system, which is primarily a private system. Nonprofit community hospitals, church-affiliated hospitals, and proprietary—for-profit hospitals are increasingly organized in large and growing chains. All then compete for patients. Yet most of their income is public money, whether it comes directly from the government via the tax system or through compulsory private health insurance plans. Another well-known example is defense procurement. «§§§» In most discussions of the social responsibility of business it is assumed that making a profit is fundamentally incompatible with social responsibility or is at least irrelevant to it. Business is seen as the rich man who should, if only for the good of his soul, give alms to the less fortunate. ¶¶¶ Most people who discuss social responsibility, including its opponents, would be exceedingly suspicious of any business that asserts, as does for instance William Norris, that it is the purpose of business to do well by doing good. To those hostile to business, who believe that profit is a “rip-off,” this would appear the grossest hypocrisy. But even to those who are pro-business and who then, as did Andrew Carnegie, demand that business, the rich man, give alms and become a philanthropist, doing good in order to do well would not be acceptable. It would convert what is seen as virtue into self-interest. And for those who counsel business to stick to its last and to leave social problems and issues to the proper authorities, which in fact means to government (this is where Milton Friedman stands), the self-interest of business and the public good are seen as two quite separate spheres. But in the next decade it will become increasingly important to stress that business can discharge its social responsibilities only if it converts them into self-interest—that is, into business opportunities. ¶¶¶ The first social responsibility of business in the next decade will be one not mentioned in the discussion of the social responsibilities of business today. It is the increasingly important responsibility for creating the capital that alone can finance tomorrow’s jobs. The shift from the mechanical model of technology to the organic model will require substantial increase in capital investment per worker. The demand for capital formation will be as great as the demand was a hundred years ago when today’s modern industries emerged; and there will be equal need for a surplus to pay for the R&D needed when technology, as well as the world economy and society, is rapidly changing. ¶¶¶ We have been in a phase in which existing technologies were extended and modified with fairly low marginal costs, as a result of which there was a fairly low need for capital formation. Now we are well past that stage. To be sure, old industries are still declining or are being restructured, but more important, new industries are exploding: information, communication, biochemistry, bioengineering, and genetic medicine, for example. And with them emerge other new industries, such as the continuing education of already well-educated adults, which may well be the major growth industry of the next ten years and which increasingly is in the hands of entrepreneurs. ¶¶¶ The early growth stages make the greatest demands on capital formation. But what does capital formation actually mean, especially in a modern society in which the traditional incentives to personal savings have largely been eliminated? Savings rates in all countries tend to go down with two factors: one, an increase in the proportion of the population past retirement age, who as a rule do not tend to save but who primarily consume; and two, the degree to which Social Security takes care of the risks and contingencies for which individuals traditionally save. One example is the United States, where savings rates have gone down in direct proportion to both the aging of the population and the extension of social services to cover such risks as retirement, illness, and unemployment. Another is Japan. In the last ten years the savings rate in Japan has been going down steadily, although it is still high. ¶¶¶ Furthermore we now have conclusive proof that rising income levels for wage-earning families do not materially increase the savings rate. We know that new consumer needs, rather than investment, take over. As a result, in a modern economy the main source of capital formation is business profits. Indeed we now know that the term profit is a misunderstanding. There are only costs—costs of the past and costs of the future; the costs of economic, social, and technical change; and the costs of tomorrow’s jobs. Present revenues must cover both, and both costs are likely to go up sharply in the next twenty years. ¶¶¶ The first social responsibility of business thus is to make enough profit to cover the costs of the future. If this social responsibility is not met, no other social responsibility can be met. Decaying businesses in a decaying economy are unlikely to be good neighbors, good employers, or socially responsible in any way. When the demand for capital grows rapidly, surplus business revenues available for noneconomic purposes, especially for philanthropy, cannot possibly go up. They are almost certain to shrink. ¶¶¶ This argument will not satisfy those who believe that today’s businessman should become the successor to yesterday’s prince, a delusion to which businessmen unfortunately are themselves only too susceptible. But princes were able to be benefactors because they first took it away, and, of course, mostly from the poor. ¶¶¶ There are also those, again especially among businessmen, who feel that to convert problems into business opportunities is prosaic and not particularly romantic. They see business as the dragon slayer and themselves as St. Georges on white chargers. ¶¶¶ But the proper social responsibility of business is to tame the dragon—that is, to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth. [1984] |
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“The greatest danger in times of turbulence is not turbulence; it is to act with yesterday’s logic”. — Peter Drucker The shift from manual workers who do as they are being told — either by the task or by the boss — to knowledge workers who have to manage themselves ↓ profoundly challenges social structure …
“Managing Oneself (PDF) is a REVOLUTION in human affairs.” … “It also requires an almost 180-degree change in the knowledge workers’ thoughts and actions from what most of us—even of the younger generation—still take for granted as the way to think and the way to act.” …
These pages are attention directing tools for navigating a world moving relentlessly toward unimagined futures.
What’s the next effective action on the road ahead
It’s up to you to figure out what to harvest and calendarize It may be a step forward to actively reject something (rather than just passively ignoring) and then working out a plan for coping with what you’ve rejected. Your future is between your ears and our future is between our collective ears — it can’t be otherwise. A site exploration starting point → The memo THEY don't want you to see
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