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Concept of the Corporation

Amazon link: Concept of the Corporation

by Peter Drucker

Introduction, prefaces, and epilogue

  • Introduction To The Transaction Edition
  • Preface To The 1983 Edition
  • Preface To The Original Edition (1946)
  • Capitalism In One Country
  • The Corporation As Human Effort
    • Organization for Production
      • Experience in the war
      • The problem of leadership
      • Recruiting and training
      • Specialists and "generalists"
      • Policy and initiative
      • A yardstick of efficiency
    • Decentralization
      • General Motors' policies
      • Line and staff
      • An essay in federalism
      • Central and divisional management
      • Service staffs
      • Bonuses
      • The "Sloan meetings"
      • Freedom and order
      • Base pricing
      • Competition in the market
    • How Well Does It Work?
      • The conversion to war production
      • Reconversion to peacetime work
      • Isolation of the top executives
      • Customer relations
      • Dealer relations
      • Community relations
      • General public relations
    • The Small Business Partner
      • New-car sales and the used-car market
      • The dealer's franchise
      • Loans to dealers
    • Decentralization as a Model?
      • Decentralization for other industries
      • The Fisher Body Division
      • Chevrolet
      • The competitive market check
      • The production of leaders
  • The Corporation As A Social Institution
    • The American Beliefs
      • Equal opportunity
      • Uniqueness of the individual
      • "Middleclass" society
      • Are opportunities shrinking?
      • Emphasis on education
      • Dignity and status in industrial society
      • Assembly-line "monotony"
      • The failure of paternalism
      • Can the unions do it?
    • The Foreman: The Industrial Middle Class
      • The foreman
      • His opportunities
      • The "forgotten man"
      • The drive to unionize foremen
    • The Worker
      • The worker's industrial citizenship
      • Training
      • The plant community
      • Lessons of the war
      • Flexibility of mass production
      • The worker's pride and interest
      • Inventiveness
      • "Social gadgeteering"
      • Suggestion plans
      • Plant services
      • The wage issue
      • The strike against General Motors
      • Profits, pricing, and wages
      • The annual wage
      • Collectivism not the answer
      • Worker's participation in management
  • Economic Policy In An Industrial Society
    • The "Curse of Bigness"
      • Society's stake in corporation policy
      • Monopoly
      • The old theories
      • Supply and demand
      • Efforts to regulate
      • The "curse of bigness"
      • Economics and technological necessity
      • General Motors service staffs
      • Policy-making and long-term interests
      • Social stability
    • Production for "Use" or for "Profit"?
      • Risks
      • Expansion
      • Capital requirements
      • The profit motive
      • "Creative instincts"
      • The lust for power
      • The market theory
      • Price
      • Economic wants
      • "Economic planning"
      • Social needs
      • The market as yardstick
      • Individual wants
      • The socialist counterargument
      • Self-interest
    • Is Full Employment Possible?
      • Depressions
      • The business cycle
      • Public works programs
      • The challenge to business leaders
      • The calendar year strait jacket
      • Cyclical taxes
      • Reserves for employment funds
      • Unemployment insurance
      • Union wage policies
      • Capital for new ventures
      • Economic policy for a free-enterprise society
      • The threat of total war
  • Epilogue (1983)

Flash forward to the Management Revolution

 

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Capitalism in One Country

1

This book on the central problems of American industrial society rests on the one assumption that nothing could induce the overwhelming majority of the American people to give up the belief in a free-enterprise economic system except a major catastrophe such as a new total war or a new total depression.

This does not mean that history will necessarily prove the American people right or make their beliefs prevail.

But it means that there is only one course open to American political and economic statesmanship: the attempt to make a free-enterprise system work.

For it is obvious that any attempt at organizing our economic and social system on another than the free-enterprise basis — either because the free-enterprise system fails to work or because it is considered undesirable will introduce into American society a tension between political belief and social reality, between the will of the people and their actions, which would compromise our national unity and paralyze our political and economic faculties.

The central questions of American statesmanship must thus be: how does the free-enterprise system function and what are its problems; what can it do, what can it not do; and what are the questions yet to be answered? ¶¶¶

On America’s ability to make the free-enterprise system work depends not only her stability at home but world peace.

Peace in the postwar world will not rest, as it always has in the history of the modem West, upon the homogeneity of political, social and economic beliefs and institutions, transcending national boundaries, but upon the ability and willingness of radically different political and economic systems to live together peaceably.

This — an unprecedented task — can only be achieved if each of the major countries can prove her particular system to be stable and successful.

We have gradually learned that the ability of the Soviet Union to realize a stable and successful “socialism in one country” is the prerequisite for Russia’s collaboration in the maintenance of the peace.

Should she fail in this attempt she would have to resort to isolationism, world revolution or imperialist aggression; for every development anywhere except in the direction of a communist dictatorship would have to appear to her as a direct attack upon her national security.

We will now have to learn that similarly the ability of the United States to participate in the maintenance of peace in a world of Great Powers based upon competing principles of political and social order, depends on our ability to create a successful, stable and confident “capitalism in one country.”

Thus to make our free-enterprise system function — as the basis of domestic strength and unity and as a model for others — is the most important and the most immediate contribution Americans can make to international peace. ¶¶¶

In accepting this approach this book does not intend to become an apology for free enterprise.

On the contrary, we shall often be a great deal more critical of the existing order than are its enemies.

We shall demand of it not only the performance of economic functions but the discharge of heavy social and political tasks.

But the purpose of this study is not to prove that free enterprise is good or bad but to find out the extent to which it does its job and the most promising line of approach for the performance of those jobs that remain to be done.

And if only because the American people do so, we have to assume that free enterprise can function. ¶¶¶

But what do the American people mean by “free enterprise”?

The term has become so loose that even the American Communist Party in one of its giddy gyrations could declare itself in favor of “free enterprise.”

Yet, I think that it is quite clear, on the whole, what the people have in mind when they use the term.

It does not exclude government regulation or government limitation of business; but it sees the function of government in setting the frame within which business is to be conducted rather than in running business enterprises.

It does not, however, exclude government management or government ownership of natural monopolies or of industries producing exclusively for national use such as armament plants; it is quite obvious that the American people do not regard the Tennessee Valley Authority as incompatible with their belief in free enterprise, and that proposals for the nationalization of public utilities, railroads and even of natural resources, while not received too cordially, are not felt to violate a basic principle. ¶¶¶

But public enterprise is seen not as the rule but as an exception that needs special justification and special safeguards.

And outside of this limited sphere of public enterprise, business, according to the American tenet of free enterprise as popularly understood today, is to be in the hands of men who are neither appointed by the political authorities nor responsible to any political agency other than courts of law.

And the productive resources of the country are to be owned privately. ¶¶¶

The popular concept implies further the acceptance of profit as motivating and controlling business actions.

It implies that the consumer decides what he wants to buy, and that prices are based on supply and demand in the market rather than politically determined.

Finally included in the concept of free enterprise is the acceptance of the privately-owned, independently-managed corporation producing for profit goods to be sold on a competitive market.

It is in this sense that the term will be used throughout this study; and it is out of this definition of free enterprise that the large corporation emerges as the locus of any study of American industrial society.* ¶¶¶

*NOTE ON TERMINOLOGY.

The phenomenon of an industrial society is so recent — or rather our awareness of it is so recent — that we have no generally accepted terms to describe its representative institutions.

What we have to describe and to analyze is (a) the large technically integrated unit which our technology demands, and (b) the specific legal and economic institution in which the technological unit is organized, and by means of which it becomes effective socially and economically.

The first of these is independent of the specific social, political or economic system of a specific country — it is a technological fact which is the same wherever and under whatever conditions modern industry exists.

The second is determined by a country’s specific political and economic order.

The terms available and in general use are vague, misleading and full of emotional overtones.

For the first concept we have the choice between the clumsy “integrated unit of large-scale production” and the emotionally charged “Big Business.”

In spite of all ill obvious shortcomings this book will use the term “Big Business” consistently to describe the physical and technological unit of production, whether organized in a privately-owned corporation under a competitive free-enterprise system or as a government-owned trust as in Russia.

I feel justified in this because the term, apart from being short and in common usage, means originally and literally what I make it mean.

The emotional overtones are not in the term but were added by a half-century’s struggle against abuses of modern industry. ¶¶¶

Much more difficult was the decision on a term to describe the social and economic institution in which Big Business is organized under the American free-enterprise system.

There is only one term in common usage: corporation.

Usually it is quite clear what it means as in the title of the book by Berle and Means, The Modern Corporation and Private Property.

It is also clear, however, that this use may be extremely confusing as the term has a very different legal meaning which is by no means extinct or confined to the legal profession.

Berle and Means, for instance, do not intend to include the corner cigar stores in their discussion even though in many cases they are corporations.

Nor do they mean to exclude a large business that-as may well happen-is owned by an unlimited partnership.

We have no separate word, however, for the large-scale business enterprise-usually, if not always, owned in corporate form.

Hence I find myself constrained to follow common usage and to use the term “large corporation” or “corporation” (wherever context permits the dropping of the adjective) in spite of its obvious shortcomings)  ¶¶¶

2

LESS than ten years ago it still seemed to be a vital issue of American politics whether to have Big Business or not.

Today the very question is meaningless if not frivolous.

It has become obvious that no modern society can maintain its existence or independence except as an industrial society using modern industrial technology; and it is as true as ever that survival is the first law of any society.

It has also become obvious that modem industrial technology requires some form of big-business organization-that is large, integrated plants using mass-production methods — for its operation.

Therefore Big Business is something that must be accepted in any modern industrial country.

It also has become clear that the large industrial unit is not just a concomitant of modem industrial technology but the very center of modem industrial society.

The large industrial unit has become our representative social actuality; and its social organization, the large corporation in this country, our representative social institution.

In other words, Big Business is the general condition of modern industrial society irrespective of the forms of social organization or the political beliefs adopted in particular countries.

Even to raise the question whether Big Business is desirable or not is therefore nothing but sentimental nostalgia.

The central problem of all modern society is not whether we want Big Business but what we want of it, and what organization of Big Business and of the society it serves is best equipped to realize our wishes and demands. ¶¶¶

The fact that the large corporation has become America’s representative social institution is often obscured in our political discussion today by that fallacy — so easily indulged in by democracy and so dangerous to it — which identifies the representative and determining with the numerical majority. ¶¶¶

Thus, statements are current which try to explain the dominant position of the large corporations by asserting that they employ a majority of our industrial workers, that they handle the major part of our industrial production, control the bulk of the country’s productive resources, etc.

Of course every single one of these assertions is refuted by the most elementary statistical evidence which makes it very easy and seemingly plausible to assert that the large corporation cannot be the representative institution of our society because of its minority position. ¶¶¶

But what determines the structure of a society is not the majority but the leaders.

It is not majority behavior that is the typical behavior in a society but that behavior that comes closest to the social ideal; and that, by definition, can only be the behavior of a small minority.

Only a minute fraction of the inhabitants of Victorian England were “gentlemen” in the social sense.

What is more, the great majority of the people, the lower middle and working classes, would not have wanted to be “gentlemen.”

They very definitely refused to regard this social ideal as valid and as binding on them.

Yet they not only accepted the leadership of the “gentlemen”; they expected members of their own class who had risen to positions of leadership, to become “gentlemen.”

What made the “gentleman” the representative type of Victorian England was his acceptance as such and his actual role in setting standards for the non-gentlemen, not his numerical weight. ¶¶¶

What we look for in analyzing American society today is therefore the institution which sets the standard for the way of life and the mode of living of our citizens; which leads, molds and directs; which determines our perspective on our own society; around which crystallize our social problems and to which we look for their solution.

What is essential in a society is, in other words, not the static mass but the dynamic element; not the multitude of facts but the symbol through which the facts are organized in a social pattern; not, in other words, the average but the representative.

And this, in our society today, is the large corporation. ¶¶¶

This assertion should have been self-evident even before the war; but the war has supplied proof beyond any doubt.

Some time ago a statement was given wide currency in which a government official asserted that a handful of large corporations which, before the war, had controlled only a small part of America’s production, had, during the war, managed to increase their share to almost three-quarters of the total.

This statement was not only in flat contradiction to all the known facts; it also tried to prove its point by a statistical sleight of hand which came close to sheer demagogy.* ¶¶¶

*The statement itself ran as follows: “Before the war the largest American corporations handled about 30% of the nation’s industrial production; the same corporations held 70% of the war contracts.

Therefore Big Business doubled its share in the American economy during the war.”

Obviously this is on the level of the attempt of a grade school child to subtract three apples from four cows.

In the first place, war business, even at its peak, never amounted to more than 50% of the national business; 70% of the war contracts thus equaled only 35% of the total national production at the most; and nothing was said about the development in the civilian sector of the economy in which, according to all evidence, the share of small business increased considerably during the war.

Secondly, to hold a contract is not identical with production.

As is generally known, a very substantial part of the war contracts held by the big corporations was subcontracted to medium-sized and small businesses; and every large corporation reported that it subcontracted a much larger share of its war-contracts to small and medium-sized firms than it used to do in peace times. ¶¶¶

What was interesting was, however, not the statement but the fact that it was generally accepted even though its logical fallacy was so obvious as to be spotted normally at once by any adult reader.

For it showed the general awareness of the fact that the war has brought out the large corporation as the representative institution of American society today.

The only reason why the general public could be fooled by a statement purporting to prove that the large corporation had become first in quantity during the war was that the general public had already realized as a result of the war that the large corporation had become first in importance.

The miracle of conversion to war-production was clearly wrought by the large corporation.

The war showed that it is the large corporation which determines the limits of productivity of an economic system.

It showed that it is the large corporation to which we must look for the lead in technological research and product improvement.

In other words, the war made clear that it is the large corporation which determines the economic and technological conditions under which our economy operates.

The large corporations do not employ more than a minority of industrial labor but their labor relations set the standards for the nation, their wage scale determines the national wage scale, their working conditions and working-hours are the norm, etc.

While the large corporations do not control a majority of the nation’s business, their prosperity determines the prosperity of the nation.

If we talk about economic opportunities in America we have in mind above all the opportunities offered in the modern mass-production factory and the modern large corporation.

If we talk about the American technology, we do not think of the statistical average but of the standard established by the leaders.

If we look upon the two other new social institutions of basic importance that have emerged in our society during the last half-century, the labor union and the administrative government agency, we see that they are nothing but social responses to the phenomenon of modem Big Business and of the corporation.

In fine, it is the large corporation — the specific form in which Big Business is organized in a free-enterprise economy — which has emerged as the representative and determining socio-economic institution which sets the pattern and determines the behavior even of the owner of the corner cigar store who never owned a share of stock, and of his errand boy who never set foot in a mill.

And thus the character of our society is determined and patterned by the structural organization of Big Business, the technology of the mass-production plant, and the degree to which our social beliefs and promises are realized in and by the large corporation. ¶¶¶

The emergence of Big Business, i.e., the large integrated industrial unit, as a social reality during the past fifty years is the most important event in the recent social history of the Western world.

It is even possible that to future generations the world wars of our time will seem to have been an incident in the rise of big-business society just as to many historians the Napoleonic wars have come to appear incidental to the industrial revolution.

Even today, there are observers who interpret the conflict between the ideologies of Western Democracy, Russian Communism and Fascism as primarily a conflict between different concepts of a big-business industrial society; and unless misinterpreted so as to make it appear a denial of the reality of the moral issues at stake (as does, for instance, Mr. James Burnham in his The Managerial Revolution, so widely read a few years back), this view makes a good deal of sense. ¶¶¶

Certainly, the problem of the political, social and economic organization of Big Business is not unique to one country but common to the entire Western world.

And this means that there is a wide area where it makes little difference whether we discuss conditions in the United States or in Russia, whether we assume a free-enterprise society, Communism or Nazism.

For the entire realm of social engineering is an objective realm.

Profit and profitability, for instance, fulfill the same function under any system of economic organization; they are respectively the risk premium and the yardstick without which economic life simply cannot go on.

And it is therefore an objective question — at least from the point of view of business organization — what is more efficient as a basis for measuring profitability: a system based on a free market or cost-accounting based on planned prices? ¶¶¶

Yet, social engineering alone determines nothing — except the limits of possibility.

The question always remains to what purpose the machinery is to be used.

The social engineer may, for instance, decide that profitability based on free-market prices is the most reliable yardstick; and his society may still decide to use the less reliable system of cost-accounting based on planned prices as the only one compatible with its social beliefs and purposes — which is precisely what happened in Soviet Russia.

It is indeed the first question of any analysis of a social or political institution: what is necessary to make it function efficiently, to make it survive, to provide adequate leadership?

For the first thing society demands of an institution is that it function.

But also and at the same time we must ask what requirements must the institution fulfill in order to make society function and be stable?

For the first thing the individual demands of his society is that it function.

And both questions are only posed to enable us to ask: what is the purpose for which we want to use this institution and how does it fulfill it? ¶¶¶

In this book we will be vitally concerned with social engineering; and that part of our discussion would be as applicable to Sweden as to the United States, to a Nazi trust as to a corporation in a free capitalist economy.

But we shall focus not on general principles applicable anywhere at any time, but on the United States of today and tomorrow; not on business organization in general but on the large American corporation.

Our problem is not just how Big Business functions but how the large corporation functions in America’s free society.

This is a new problem — it hardly existed before 1929 and was totally unknown before 1914.

Hence we cannot demand a final answer — we should actually be highly suspicious of anything that pretends to be that.

Promising approaches are all we can reasonably expect to find. ¶¶¶

Our study has to start with the principles involved.

Yet a discussion confined to the purely theoretical would be aimless and useless unless its conclusions were checked by, and applied to, an analysis of the concrete conditions of American social life.

Therefore, this study of the corporation as our representative social institution is focused on the analysis of one specific corporation: General Motors. ¶¶¶

There are several reasons why General Motors seems most suitable to serve as a representative example of the American large corporation.

In the first place, it is the biggest industrial corporation in this country, employing in prewar times about two hundred and fifty-thousand people, and twice that number during the peak of World War II.

It is the largest unit in the automobile industry, which is the pioneer of modern mass-production industry and therefore most representative of the conditions and problems of modern industrial society.

The main reason is, however, that General Motors — to my knowledge, alone of all American corporations — has for almost twenty-five years been consciously and deliberately working at basic problems of policy and has consciously and deliberately based its policy on the conception of the modern corporation as a social institution.

Hence, the policy decisions of the General Motors Corporation, its successes, difficulties and failures, have a general relevance for American industry. ¶¶¶

It is not intended to claim that General Motors has gone furthest in every single direction in the exploration of the social issues of modern corporate life.

On the contrary, the management of the company itself would be the first to point out that, for instance, in employee training the Bell Telephone system has done the outstanding job, that many of the financial principles of policy control which play such an important part in General Motors derive from the experience of DuPont’s, etc.

But as the result of prolonged investigation, I have come to the conclusion that while other companies may have gone farther in specific directions, none has worked on the problem as a whole as consistently and has been as conscious of the central issues as General Motors.

Hence, General Motors can be fairly considered as representative of the achievement, possibilities, problems and perils of the large corporation.  ¶¶¶

3

THE questions we shall deal with in this book are the traditional questions of politics and political analysis.

What is new in this book is their application to the large corporation.

Not that we do not have a tremendous literature dealing with business and industry.

We have more material than any man can read — often of a high order — on economic problems such as monopolies, business cycles, prices, etc.

We have a large and steadily growing literature on business management which has been freely drawn upon in this study; and while much of it deals with purely formal or with purely internal questions, the writings of such men as Chester I. Barnard, James D. Mooney and Ordway Tead, or the work done at the Harvard Business School have contributed greatly to our knowledge of the corporation as an organization.

But neither the student of economic policy nor that of business management analyzes the corporation politically, that is as a social institution organizing human efforts to a common end.

Our study, however, sees the essence and the purpose of the corporation not in its economic performance or in its formal rules but in the human relationships both between the members of the corporation and between the corporation and the citizens outside of it. ¶¶¶

Any social and political analysis of an institution has to proceed on three levels. ¶¶¶

It has to look at the institution as autonomous — governed by the rules of its own structure and determined by the desire for survival — capable to be judged in terms of its own purpose. ¶¶¶

Every institution has to be analyzed in terms of the beliefs and promises of the society which it serves.

Does the institution strengthen the citizen’s allegiance to his society by furthering the realization of society’s ethical beliefs and promises?

This is particularly important if we deal with an institution which is central to a society as by this very fact its performance in the realization of the basic social beliefs and promises is regarded as indicative of the performance of society itself. ¶¶¶

It has to analyze the institution in its relationship to the functional requirements of the society of which the institution is a part; what organization of the institution is most conducive to the survival and stability of organized society, and what conflicts exist between the purpose of the corporation as an autonomous body and the needs of the society in which it lives. ¶¶¶

There are three main problems on the first level, that of the corporation as an autonomous institution.

There is the problem of policy: An institution must have a long-term program and rules of behavior and operation.

Yet its policies must be flexible enough to allow for adaptation to new problems and to changes in conditions.

There is a whole complex of problems centering around the question of leadership: how to insure an adequate supply of leaders; how to train and to test them.

Perhaps the most difficult and most pressing of these problems of leadership is that of the conversion of the specialized technician needed in the day to day conduct of business into the well-educated personality capable of judgment who is needed for the policy-making positions.

Finally, the corporation needs an objective yardstick by which to measure the success of its policies and of its leaders — a yardstick appropriate to its business, yet independent of short-term business fluctuations and incapable of manipulation. ¶¶¶

The second level of analysis is perhaps the most difficult and most important.

It too deals with relations within the corporation but it projects internal relations against the broad canvas of social beliefs and promises.

The corporation as a representative institution of American society must hold out the promise of adequately fulfilling the aspirations and beliefs of the American people.

A conflict between the requirements of corporate life and the basic beliefs and promises of American society would ultimately destroy the allegiance to our form of government and society.

Hence, we must analyze whether the corporation is satisfying these basic demands: the promise that opportunities be equal and rewards be commensurate to abilities and efforts; the promise that each member of society, however humble, be a citizen with the status, function and dignity of a member of society and with a chance of individual fulfillment in his social life; finally, the promise that big and small, rich and poor, powerful and weak be partners in a joint enterprise rather than opponents benefitting by each other’s loss. ¶¶¶

On the third level, finally, that of the relationship between corporate purpose and social function, we analyze the corporation in society.

The central problem lies in the relationship between profit, which is the purpose of the corporation as an autonomous unit, and the maximum production of cheap goods, which is the purpose of the corporation from the point of view of society.

Is there a clash between these two premises of purpose, as has been asserted in the traditional theory of monopoly or in the more recent juxtaposition of production for use as against production for profit?

Or can the self-interest of the corporation be harmonized with the interest of society in the corporation?

Connected is the question of social stability: is there anything in the rationale of the corporation that makes necessary and even likely the recurrence of economic crises? ¶¶¶

The three levels on which we shall conduct our analysis of the problems of an industrial society are co-ordinated and equal in weight and importance.

Neither of them has priority over the others.

But while equal, the three levels are not independent.

Failure to solve the problems on one level leads automatically and inescapably to collapse of the entire structure however brilliant the achievement on the other levels might be.

In an industrial society in which the large corporation is the representative social institution, it is equally important and equally essential that the corporation be organized in such a way as to be able itself to function and to survive as an institution, as to enable society to realize its basic promises and beliefs, and as to enable society to function and to survive. ¶¶¶

All too often this interdependence of the three levels on which society and social institutions function simultaneously is overlooked; and nothing is more common than the belief that a solution confined to the problems on one level will prove the social panacea.

Indeed we would get around most of the problems of politics could we thus proclaim one of the fields of social life to be superior to the others.

Nothing is simpler than to find perfect solutions on one level only; and nothing is more difficult than to establish a political “harmony of the spheres.”

In this difficulty lies the endless challenge and the endless adventure of true statesmanship. ¶¶¶

The concept of harmony thus emerges as a basic concept of political action.

The problems of political order and organization presented on each level of politics are indeed autonomous.

But to have a functioning society they must all equally be answered by the same basic principles and policies.

It would make social life impossible if the problems of one level could only be solved by means which were inimical to the best solution of the problems existing on the other levels.

Such a society would be hopelessly torn and incapable both of survival and of the fulfillment of its basic ideals.

For no society can give up the stability of its central institution, its own stability, or its own beliefs. ¶¶¶

It follows from this that we cannot base a successful economic policy on the assumption that the interest of the corporation and the interest of society are in conflict — at least not as long as we have a society whose representative institution is the corporation.

To justify the needs of corporate survival as “concessions” and as a “lesser evil” is really to give up the claim for a free enterprise industrial society.

If the private profit system is necessary for the survival and stability of the corporation, it is a contradiction for believers in the free enterprise system to apologize for profits.

And to demand — as do a good many apologists for the large corporation — of an industrial manager that he use, out of “social consciousness,” policies which run counter to the interests of his corporation is rather ludicrous.

At the same time it is impossible to look upon society’s needs, whether functional or ethical, as “concessions” or as the “lesser evil” — the manner in which, for instance, social reforms and policies were justified during the Hoover administration. ¶¶¶

This does not mean that the corporation should be free from social obligations.

On the contrary it should be so organized as to fulfill automatically its social obligations in the very act of seeking its own best self-interest.

An industrial society based on the corporation can only function if the corporation contributes to social stability and to the achievement of the social aims independent of the good will or the social consciousness of individual corporation managements.

In the ideal society even a Simon Legree, whatever the blackness of his heart, cannot but help to promote social ends either because it is to his interest to do so or because he is so integrated into society as to be able to act only in the interest of society. ¶¶¶

At the same time the demand for harmony does not mean that society should abandon its needs and aims and its right to limit the exercise of economic power on the cart of the corporation.

On the contrary, it is a vital function of rulership to set the frame within which institutions and individuals act.

But society must be organized so that there is no temptation to enact, in the name of social stability or social beliefs, measures which are inimical to the survival and stability of its representative institution.

Failure to see this difference between the necessary task of setting the frame — genuine regulation — and violation of the functional requirements of society which, for instance, underlay Herbert Spencer’s attacks on popular education, professional fire brigades and meat inspection as “socialism,” is responsible for much of the confusion of our present day political thinking. ¶¶¶

Harmony was the great discovery — or rather rediscovery — of nineteenth century laissez-faire, enabling it to overcome the sterility of both the eighteenth century political theory of “pure reason” and the eighteenth century practice of pure Machiavellism.

It enabled the nineteenth century to develop at the same time the new beliefs and aims of secular democracy and the new institutions of the market system.

But while laissez-faire proclaimed harmony as the basis of society, it made the fatal mistake of considering harmony as established automatically in nature instead of as the final end and finest fruit of statesmanship.

To its emphasis on harmony, laissez-faire owed its tremendous vitality and attraction; even its enemies had to measure themselves against the promise of harmony which has remained, to this day, the conscience even of the dissenters.

But at the same time, the fallacy of looking for harmony in nature instead of in organized society was responsible for the refusal of practically all practicing statesmen and business leaders to act according to laissez faire.

Above all this fallacy made it impossible to justify the laissez faire system against those critics who concluded from the absence of harmony in nature the fallaciousness of making harmony the foundation of society. ¶¶¶

As a result of the crude and fallacious naturalism of the laissez-faire doctrine, political thinking during the last 75 or 100 years has largely lost again the basic understanding of the meaning and necessity of harmony.

It is not my purpose in this book to write a history of modern political thought.

But as an aside — and hence in the technical language of political theoryI should like to mention that the two rival schools which have dominated our political life since 1850 have both given up the insight that the three levels of society are co.ordinated — all equally important, all autonomous and yet all dependent on each other.

They have instead raised one level to first rank and subordinated the others to it.

In Idealism the basic aims and beliefs of society became the only level of politics in the name of which the autonomy of individuals and of their institutions is denied.

This leads inescapably to the denial both of the functional autonomy of institutions and of the ethical autonomy of the individual; and it makes enslavement, destruction and annihilation of the individual for the sake of the idea not only permissible but laudable.

At the same time Pragmatism — and its European twins such as Syndicalism — threw out all concern with the aims and beliefs of society.

Functional efficiency was raised to the rank of an absolute.

This leads straight to a concept of society as permanently on the brink of civil war, to a concept of politics as a ruthless game played only for the spoils — Who Gets What, When, How, as a popular American textbook of government is called — and ultimately to a glorification of force as the legitimate ruler of society. ¶¶¶

Today we know that neither concept is compatible with a free society.

Both lead to totalitarianism; and in the ideological fanaticism and pragmatic cynicism of the Nazis both have found their final fulfillment.

Today, therefore, it is the first job of the leaders of a free society to go back to the concept of harmony and to a philosophy of society which is neither monolithic nor pluralist but which sees the one and the many, the whole and its parts, as complementing each other.

And in this country this means that both our statesmen and our business leaders have to find solutions to the problems of the industrial society which serve at the same time equally the functional efficiency of the corporation, the functional efficiency of society and our basic political beliefs and promises.

 

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 remaining the most “capitalist” one as well. continue

 

a brainroad

 

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See My Years with General Motors (by Alfred Sloan)

 

 

 

“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 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.” …

… “Managing Oneself is based on the very opposite realities: Workers are likely to outlive organizations (and therefore, employers can’t be depended on for designing your life), and the knowledge worker has mobility.” ← in a context

 

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working something out in time (1915, 1940, 1970 … 2040 … the outer limit of your concern)nobody is going to do it for you.

It may be a step forward to actively reject something (rather than just passively ignoring) and then figure out a coping plan for what you’ve rejected.

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