Introduction to the Transaction Edition
The New Society was the third and last of my books analyzing and diagnosing the industrial society that emerged out of World War II.
It followed The Future of Industrial Man (1942) and The Concept of the Corporation (1946), both also reissued by Transaction Publishers.
The first of these attempted to develop a social theory of society in general and of the industrial society in particular.
The second analyzed and presented a major industrial enterprise — the world’s largest and (then) most successful manufacturing company, General Motors in the United States.
It did so from the inside, as the result of an eighteen-month investigation during which GM opened itself to my inspection.
This, the third book, then distilled the conclusions of its two predecessors into a systematic, organized analysis, both theoretical and practical, of industrial society, its constituent elements, its major institutions, its social characteristics, its problems, and its future.
Nothing like this had been done before; and, indeed, nothing like this has been attempted since.
For The New Society not only presented analyzes of the major institutions — large business enterprise, government, the labor union — it also attempted to place the individual within this social context; and it equally tried to relate the sociology of an industrial society to the political principles of a free society.
One of the insights of this book which might surprise today’s reader, is the chapter entitled “Can Unionism Survive?”
To most readers forty years ago this was a silly question and a good many reviewers said so.
Unions then were the entrenched rulers of industrial society, the real winners, the real powers.
But it was evident to me even then, having worked with major unions for a few years, that their power base was extremely narrow and that the question of their real function in an industrial society had yet to be answered.
That management, having power, needs a countervailing power, this book clearly stated — and I believe in this as firmly as I did forty years ago.
But that the union as we inherited it from the nineteenth century — with or without Marxist flavor — is the right way to do that job, this book doubted.
Events since then have amply validated the author’s conclusion that unionism as it existed in 1949 — which is still the only unionism we in the United States really know — can survive.
Today’s reader may feel that unions are given too much space in the book and are taken too seriously.
But the basic question then raised, which is really the question of the basic political structure of an employee society, still has to be answered.
But while unions loom larger in this book than they might loom in a similar book today, one major element of modern society is conspicuously absent in this book.
And no one in 1949 — and I do mean “no one” — then saw it: the knowledge worker.
I became the first one to see knowledge work and the knowledge worker.
Indeed I did coin the term, but only eight years later, in my next book on society and social analysis, Landmarks of Tomorrow (1957; also being reissued as a Transaction book).
In retrospect it is amazing that all of us, without exception, failed to see the emergence of the educated employed middle class, the knowledge worker, who became the center of society within another ten or fifteen years.
The event that produced this shift had already occurred: the G.I. Bill of Rights of post-World War II America had opened the doors of colleges and universities to millions of returning veterans.
Some of us did indeed realize even then that this was a dramatic innovation.
I recall a paper I wrote at the time that pointed out that such a policy would have been unthinkable after World War I, and, indeed the World War I veterans would not have considered such a reward a “benefit” at all and would not have availed themselves of it in any numbers.
But that this policy signified a fundamental shift in social values and, ultimately, in social structure escaped every observer including this one and yet, in retrospect it should have been obvious.
The Industrial Society that this book depicted was then at its peak.
It looks different today.
In the first place, the economic center of gravity in developed countries has shifted from manufacturing industry to service industries of all kinds.
And within industry it has largely shifted from the very big business that was the success story of the 1930s and 1940s — and of the 1950s as well — to medium-sized business.
In the second place the center of social gravity no longer clearly lies in business; the non-profit “third sector” has become increasingly important in every developed country (excepting only Japan.)
And, as already said, the basic social problems of a developed country are no longer industrial workers; they have become secondary.
Increasingly our concerns will center on the productivity of knowledge work and on the dignity of service work, neither known to The New Society or to the time in which it was written.
Still, with these adjustments the basic approach, the basic analysis, the basic conceptual frame of this book still apply today — its discussion of basic institutions; of the role and limits of management; of the need for individual independence and yet also of community within the institutions of a developed society; of labor as a resource, the first such in the literature; and so on.
And perhaps it is relevant to report that The New Society was the first of the author’s books to have major impact on Japan, in its discussion of the role and function of profit, management, and, above all, of labor as a resource and of the need to create a plant-community.
It is still considered in Japan to have been the guide to the restructuring of Japanese industry; to the development of modern Japanese management; and, above all, to the radical reform in the ‘fifties’ of Japan’s employment and labor policies and practices.
Peter F. Drucker
Claremont, California
Preface to the 1962 Edition
THIS book has two main themes.
First, that the industrial society of the twentieth century is a new and a distinct society, world-wide rather than “Western” or “Capitalistic,” and that it is both little known and well worth knowing.
Second, that this new society has a specific social institution: the industrial enterprise with its management, its plant community and its Siamese twin, the labor union.
When this book first appeared, these assertions seemed startling and novel to a good many people.
Today, only a dozen years later, they are commonplace.
Any good Marxist for instance, would have scoffed then at the very idea of management, let alone at the thesis that there are by the nature of the industrial system unavoidable and permanent cleavages between the objective needs of production and the personal needs and desires of the individual employee — under socialism and communism as well as under capitalism.
To say this aloud is still inadvisable in the Soviet Union today.
But since Stalin’s death the organization and function of management has become the most debated domestic problem of Russian politics and economics, with the discussions startlingly similar to those of the top management people in our “decadent capitalist” system; and these problems, as well as the attempts to solve them, are undistinguishable from those which concern the top managements in our giant corporations.
Institutionally, in other words, this new society of ours presents everywhere the same appearance and has the same characteristics of structure, with the differences (and they are very great) being political and moral rather than institutional.
Similarly, the resolution of the conflict between the impersonal logic of the organization and the drives and visions of the individual has become a popular theme for the Soviet novelist and playwright.
In the United States we now hear a good deal about the “organization man,” that is, about the imposition of the industrial community on the employee.
But ten years ago the main criticism of American society and business, especially among the “liberals,” was of its too “individualistic” nature.
Yet this book, upon rereading, appears to be especially pertinent to the sixties.
There are no pat solutions here.
The aim is rather to understand, and this, apparently, appeals more to readers today than it did a scant ten or twelve years ago.
The concept of the one big solution that would put everything right was then very much the fashion.
We had learned by bitter experience that the one simple remedy of outlawing the “Demon Rum” did not, as promised, cure all the ills of society, family and person.
But the yearning for the one big shining panacea in the large economy package that led us to accept Prohibition after World War I, was still very much in evidence after World War II.
Only the labels had changed.
They read then “communism” or “free enterprise,” the “labor movement” or “world government.”
There were even a good many intelligent people who believed that the new “absolute weapon,” the atom bomb, would by itself guarantee world-wide peace, if not democracy and prosperity.
The Korean War (it broke out in June 1950, only a few months after this book had appeared) was such a deep shock to the American people largely because it dissolved this particular illusion, among others.
And with this began the disillusionment with the big, simple cure-all.
Today the quest is for understanding, especially among the younger generation, the people who have grown up since World War II and who are ready to assume leadership in government and politics, in the professions and in the sciences, in the arts and in business.
That there is no one easy answer to any real question we now know and accept.
We realize that there are facts to be faced and chores to be done.
There are risks, difficulties and compromises.
There are problems and opportunities.
We (and this “we” embraces at least all the developed nations of the world) are becoming non-utopian and even anti-utopian, in the sharpest possible contrast to our parents and grandparents.
To be sure, we are as prone to being naively complex (as for example in a good deal of “modern literary criticism” and in some of the super-refinements and super-complications of present-day personality psychology) as an earlier generation was prone to being naively simple.
And the one is as dangerous as the other.
But at least we are no longer frightened by the fact that the world comprises a great deal more than can be handled by good intentions.
And this is the central assumption of “The New Society,” which is avowedly anti-utopian and non-utopian.
This re-issue of The New Society as a Harper Torchbook cannot have the shock impact the original edition had.
But precisely because it is unlikely to shock, the book may mean a good deal more to the new readers for whom this edition is primarily intended.
It might — at least this is the author’s hope — make them say “I don’t know whether I agree or disagree, but at least I understand.”
PETER F. DRUCKER
Introduction: the Industrial World Revolution
THE world revolution of our time is “made in USA.”
It is not Communism, Fascism, the new nationalism of the non-Western peoples, or any of the other “isms” that appear in the headlines.
They are reactions to the basic disturbance, secondary rather than primary.
The true revolutionary principle is the idea of mass-production.
Nothing ever before recorded in the history of man equals, in speed, universality and impact, the transformation this principle has wrought in the foundations of society in the forty short years since Henry Ford turned out the first “Model T.”
Though “made in Detroit,” the impact of the new principle is not confined to the United States or to the old industrial territory of the West.
Indeed, the impact is greatest on the raw-material-producing, pre-industrial civilizations.
The sweep of mass-production technology is undermining and exploding societies and civilizations which have no resistance to the new forces, no background or habit-pattern of industrial life to cushion the shock.
In China the mass-production principle, swept into the hinterland from the coastal cities by the forced migration of industries during the Japanese invasion, is destroying the world’s oldest and hitherto its stablest institution: the Chinese family.
In India, industrialization has begun to corrode the Hindu caste system: ritual restrictions on proximity and intercourse between castes simply cannot be maintained under factory conditions.
Russia uses the new mass-production principle to try again where Byzantium failed: to mate Europa and the Bull, the technological fruits of Western thought with Oriental despotism, to produce a new world order which claims to be the legitimate heir to both East and West.
In our own country the Old South, hitherto least touched by industry and still living in the ruins of its ante-bellum rural order, is speedily being “tractored off.”
Indeed, conversion of the Southern farm into a rural assembly line seems on the verge of “solving” the Southern race problem in a manner never dreamed of by either Southern Liberal or Southern Reactionary: by pushing the Negro off the land into the industrial cities.
At the time of World War I, only one generation ago, industry was, by and large, still confined to a narrow belt on either side of the NorthAtlantic.
The only exception, the only successful transplantation of the machine to new soil, was in Japan.
The representative unit of industry, even in the most heavily industrialized countries, was the family-owned or family-managed medium-size factory employing fewer than five hundred workers and differing from the workshop of pre-industrial days mainly in its use of mechanical power.
Today the situation is reversed.
The areas not undergoing rapid industrialization are few and isolated; the representative, the decisive, industrial unit anywhere is the large, mass-production plant, managed by professionals without a stake in ownership, employing thousands of people, and altogether organized on entirely different technological, social, and economic principles.
The change has been so great that, in retrospect, the typical factory of 1910 seems to have been closer to its great-grandfather, the artisan’s workshop of pre-steam-engine days, than to its own son: the modern mass-production plant.
The new industrial territories, only yesterday rural and largely innocent of machine and factory, are jumping directly into the mass-production age without going through the first “Industrial Revolution.”
The geographic spread of the mass-production principle, its sweep in width, is accompanied by a sweep in dept.: the penetration of the traditional pre-industrial and nonindustrial occupations.
This aspect of the industrial world revolution is fully as important as the industrialization of the raw-material-producing countries.
The great bulk of productive work a generation ago was done in forms antedating industry by hundreds, if not thousands, of years.
Even in the most highly industrialized country, it was completely nonindustrial in character.
Only a minority of the people, though in some countries an important minority, lived and worked in an industrial world.
Even in the most highly industrialized country, the mass-production principle was still regarded generally as a mere technique, such as the assembly line, and largely confined to the automobile industry.
Two World Wars showed that the principle which underlay Henry Ford’s first plant forty years ago is completely independent of specific tools or techniques, and that it is a basic principle for the organization of all manufacturing activities.
Today it has become abundantly clear that the mass-production principle is not even confined to manufacturing, but is a general principle for organizing people to work together.
The Russian collective farm was the first application of the principle to agriculture.
Its labor organization which uses the individual as a highly specialized tool performing essentially one simple job repetitiously, its control through the state-owned tractor station, its system of compensation — all are applications of mass-production technology.
Yet the Russian collective farm is already technologically as obsolete as an automobile plant of forty years ago.
The fully mechanized cotton plantation in the Mississippi Delta, or the vegetable co-operative on the irrigated land of California’s Central Valley, have gone much further in breaking with the preindustrial traditions of, agriculture.
And in their grandiose scheme for raising peanuts in tropical Africa, the British proposed to reorganize a whole colonial empire on the mass-production basis.
Yet agriculture has traditionally been regarded as opposite to, and incompatible with, industrialization, if not as the very symbol of the pre-industrial tradition.
Without assembly line or conveyor belt, clerical operations in large-scale business enterprises are today increasingly organized the same way in which Henry Ford organized the production of the Model T.
The typists’ pool of a large insurance company, check-sorting and check-clearing operations in a big bank, the sorting and filling of orders in a mail-order house, and thousands of other operations in business and government offices do not differ in substance from the automobile assembly line, however much they may differ in appearance.
Similarly, scientific research has been organized on mass-production lines.
This has been true for many years in the engineering and chemical research carried on by American industry.
The mass-production method is now being carried into medical and biological research.
In the new Sloan-Kettering Institute for Cancer Research in New York — significantly founded by two of the pioneers of the automobile industry — concepts and methods of work are those of the assembly line.
During the War the application of this mass-production principle to scientific research resulted in the atomic bomb, which could not have been produced by any other method.
Even pure research, unconcerned with application, has been organized on the mass-production pattern in some of our most productive laboratories, such as those of the Bell Telephone System or of the General Electric Company.
The principle has even been applied successfully to work that has always been considered to be essentially personal in character.
The efficiency and effectiveness of the Mayo Clinic, for instance, rests largely on its organizing diagnosis and examination into a production line.
Henry Luce’s “group journalism,” by means of which Time, Life and Fortune are being produced, is largely assembly-line work.
Most startling, however, is the application of the principle to military organization.
Of all preindustrial types of organization, the army was the most highly formalized and apparently the most rigid.
But the great Allied invasions of World War II were prepared and carried out as mass-production processes, with each officer doing only one highly specialized and largely mechanical task.
He was seldom shifted from operation to operation, not did he usually know where his piece fitted into the total.
This application of the mass-production principle to the conduct of war was one of the most important contributions this country made to victory.
It represented a greater change in the organization of warfare than anything that had been developed since Spain’s “Gran Capitan” first created the concept of the modern army almost five hundred years ago.
«§§§»
“Industry” once meant any organization for human work.
It was only during the eighteenth and the early nineteenth centuries, the era of the first “Industrial Revolution,” that the term was narrowed to mean “manufacturing.”
With the second industrial revolution, the revolution of mass production, “industry” again reverts to its earlier meaning.
The industrial principle of today, the mass-production principle, promises to put all major organizations for group work, no matter where or of what kind, on the same basis, and to organize them according to the same concept.
It is not only the most revolutionary principle of production man has ever found but also the most general.
«§§§»
The mass-production principle is not a mechanical principle.
If it were, it could never have been applied beyond manufacturing, and independently of assembly line, conveyor belt and interchangeable parts.
It is a social principle — a principle of human organization.
What was new in Ford’s plant was not the organization of mechanical forces, but the organization of human beings performing a common task.
And this explains the shattering impact of the new principle on traditional cultures, on the relationship between man and society, and on the family.
«§§§»
Of these impacts, the divorce of the worker from the product and the means of production is the most visible.
This separation has long been recognized.
In the past it has always been blamed on the legal or economic “superstructure.”
It has been considered an accident, rather than an essential, of the industrial system.
That was, for instance, Marx’s premise and on it rest almost all his major conclusions.
It was the premise of Marx’s enemies, the Guild Socialists and the Syndicalists.
It was shared by all other critical students of the effects of the first Industrial Revolution.
It underlies the two famous Papal Encyclicals on the industrial order, “Rerum Novarum” and “Quadragesimo Anno.”
There was a general belief that the worker would have control of production if only he were given legal control over the means of production.
In the mass-production system, this belief can no longer be maintained.
The divorce of the worker from product and means of production is essential and absolute.
It has nothing to do with legal control or political institutions.
The worker by himself cannot produce.
He must have access to that highly complex organization of men, machines and tools we call a plant.
As we shall see, even the collective of the workers, such as a co-operative, a union or a syndicate cannot control this organization-except in a purely formal and entirely fictitious sense-let alone the individual worker.
In fact, the worker no longer produces, even in the plant; he works.
But the product is not being turned out by any one worker or any one group of workers.
It is being turned out by the plant.
It is a collective product.
The individual worker usually is not even capable of defining his own contribution to the productive organization and to the product; Often he cannot even point to a part or a process and say: this is my work.
This applies wherever the mass-production principle has been applied.
The most striking examples are indeed to be found outside of manufacturing.
There are apparently no “means of production” in a clerical organization; but when a bookkeeper, a computer operator, a shipping clerk, is cut off from the organization he is completely helpless and unproductive.
Similarly, an engineer or an industrial chemist is not productive unless integrated into the organization, no matter how highly trained he may be.
Here it is clear that the productive unit, the “means of production,” is the organization itself rather than any material tool.
There have always been trades and occupations where access to the organization was necessary if the individual was to be effective and productive.
It has been a long time, for instance, since the individual soldier armed with his own equipment could go out and gain a kingdom all by himself as he does in the fairy tales.
It is also true that, for his subsistence, the individual in all but a few societies is dependent on an exchange of products with his neighbor-that is, on co-operation of some sort.
But while not able to subsist independently, the overwhelming majority of the people living in any traditional society has always been able to produce independently, commanding not much more than the equipment they were born with or that they could make themselves.
This applies not only to the hunter, the husbandman and the farmer, but to the craftsman and to the professional in a traditional society.
The tailor, the wheelwright or the baker, the priest, the medicine man and the scribe-they all could function productively as individuals.
In an industrial society the situation is reversed.
It is only a very small minority of artists and professional men who can produce at all by themselves.
All the others are dependent upon access to an organization to be productive.
It is the organization rather than the individual which is productive in an industrial system.
This divorce of worker and means of production threatens the status and prestige system of any traditional society, whether of the West or of the East; it dissolves the traditional community and uproots the individual.
It also makes unemployment and the threat of unemployment unbearable-not because of their economic, but because of their social, consequences.
This in turn imposes on government the new and unprecedented task of preventing and curing depressions, a job far beyond the ability of any government yet devised by man.
Finally, the divorce of worker and means of production makes the old problem of the concentration of power infinitely more urgent because it makes possible an altogether new total tyranny.
«§§§»
If it is the organization rather than the worker which produces, then social status, social prestige and social power cannot attach to the individual’s work.
They can only attach to the individual’s job.
They can flow only from his membership, status, prestige and power within the organization.
As we shall see, it is not true that mass-production technology destroys skill and eliminates satisfaction in workmanship.
On the contrary, it would be more nearly correct to say that it tends to eliminate unskilled work.
Certainly, it requires an altogether unprecedented supply of very highly skilled men; both the number of skilled men needed and the skill required of them is steadily increasing.
But the skills of the new mass-production society are different from those of traditional society.
They are social and intellectual skills, rather than skill in handling tools and materials.
Industrialization, therefore, destroys the social prestige of traditional occupations and skills, and with it the satisfaction of the individual in his traditional work.
It uproots — quite literally — the individual from the social soil in which he has grown.
It devaluates his traditional values, and paralyzes his traditional behavior.
An industrial system is clearly incompatible with the structure, the status and class system of pre-industrial society.
Industrialization explodes the rigidities of such a society.
It will also block its opportunities.
Witness the pressure, economic as well as social, on the old middle class of the “free” professions which, in the West, have traditionally been the main channel of social advancement.
Even in the West the destructive social impact of the divorce of worker from production and product can easily be seen, for instance, in the Southern White or the Southern Negro in Detroit.
The much-publicized problem of the “second-generation American” in our big industrial cities reflects in most cases the impact of the industrial revolution on the culture and values in which that generation had grown up at home.
But it is outside of the Wet that the divorce of worker and means of production has the most shattering impact on social structure, social values and social satisfactions.
Unemployment as a Social Threat
The divorce of worker and production which is inherent in the mass-production technology explains the central importance which depression and unemployment have attained in our industrialized society.
It is not primarily the economic impact that makes unemployment the nightmare it has become for every industrialized country.
In this country we were able during the Depression of the thirties to keep the great majority of the chronically unemployed and their families on an economic level well above physical subsistence, and probably well above the level any but the very rich could have lived on only a century ago.
We managed to do this even in the first chaotic years of the Great Depression when we had neither plans nor organization to cope with the disaster.
Yet it is in this country that the Depression had the most profound psychological, social and political effects, which is simply another way of saying that the United States is today the most industrialized country in the world.
The main effect of long-term unemployment is not physical but psychological: loss of self-respect; loss of initiative; finally, in extreme cases, loss of sanity.
Denied access to the organization without which, in an industrial society, nobody can be productive, the unemployed becomes an outcast whose very membership in society has been suspended.
It is no accident that the “depression shock” was by no means confined to those who actually suffered long-term unemployment, but hit fully as hard the men who never, during the Depression, were out of a job, and who may never have been in real danger of losing their job.
For a decade they lived in the constant fear of being fired the next payday; to become actually unemployed may well have been more bearable than to go on living in constant terror.
Precisely because the industrial system permanently divorces man and production, prevention of depression and chronic unemployment has become an absolute necessity for any industrialized country.
The citizen can neither control nor understand the forces that threaten to cast him out from society and deprive him of his effective citizenship.
Unless modern industrial society can banish these forces, it will not be acceptable or rational to its members.
It must become instead meaningless, insane and demon-ridden, and turn into an obsessive nightmare.
Depression and depression unemployment are indeed economic problems, in the sense that the solution will have to be found through economic tools and economic policies.
But in their origin and in their larger impact they are not economic but social and psychological-the effect of a profound cultural disturbance.
The divorce of man from production makes impossible reliance on “natural adjustment.”
The patient may have a better chance of fast economic recovery if left alone; but he is likely to die of social shock and exposure just when he should be ready for recovery.
«§§§»
To say that the threat of depression and unemployment makes inevitable the abandonment of “laissez faire” misses the point however.
Laissez faire means the absence of restrictive regulations.
There is nothing in the threat of depression and unemployment that would demand restrictive regulations.
They require the very opposite: positive economic action.
This is something radically different from an “abandonment of laissez faire.”
It is also infinitely more difficult.
Few governments have ever even tried it on any considerable scale.
And even fewer governments have been successful in their attempts at positive economic action.
In the first place, positive government action in the economic sphere requires extraordinarily reliable and complete information, extraordinary competence and experience in the making of policy decisions and equally extraordinary administrative skill.
The government official would have to combine the best qualities of the economic scholar, of the political leader and of the trained administrator; and not merely one such paragon possessing all these qualifications-and personal integrity into the bargain-would be needed, but a good many.
It also demands either an extremely well-informed, not to say wise, citizenry, or a dictatorship that is completely independent of public opinion and pressure.
To prevent or to overcome depressions, it is necessary to stop booms.
But no government dependent on votes for its existence has been able so far to convince its constituents that it should “shoot Santa Claus.”
Even governments as independent of votes as those of Nazi Germany or Soviet Russia have never been able to take effective anti-inflationary action in the face of public opinion and pressure.
Finally, positive government action in a depression means giving orders for capital goods.
And no government so far has been able to give large enough orders for capital goods other than armaments.
An effective depression policy calls for an entirely new concept of the government in economic life, that is neither “laissez faire” nor collectivism, but one of joint responsibility.
No government can refuse to accept responsibility for such a policy; yet the demands of this new responsibility may well go beyond anything of which the institution of government is inherently capable.
The New Leviathan
The fact that the individual can now be denied access to the means of production, that he is not capable of producing by himself, also makes concentration of power infinitely more dangerous than it has ever been before.
The main problem is the power that has to be vested in government.
The individual’s dependence on access to the means of production makes possible a regime that totally controls the individual — it makes possible totalitarianism.
Control of access to the productive organization, if concentrated in one hand, can easily be used to establish control over the livelihood, the social and political status, if not the very life, of the individual.
Only in the primitive tribe, in which the member cowers in dread of the dark forces of the unknown, do we find equally absolute and complete domination.
The industrial world revolution tends to do away with the traditional inability of government to exercise complete control, which alone has enabled the individual in most societies to enjoy some liberty and privacy.
The absolute dependence of the citizen on access to the productive organization endows tyranny at the same time with a new attraction.
If freedom carries the risk of the social disfranchisement of chronic unemployment, freedom becomes unbearable and tyranny appears as the liberator.
The mass-production society must have a government strong enough and powerful enough to cope with the unbearable menace of chronic unemployment.
It must have a government weak enough and limited enough not to menace the freedom, the happiness and the private life of every citizen.
«§§§»
We have had many despotisms, many police states and many tyrannies in the history of man; but beyond the primitive level of the tribe, in which magic, taboo and ritual control the totality of human existence, we have never had a totalitarianism-that is, a regime in which the individual is completely and in all his activities submerged in the state.
That it is a tyranny is not the essence of totalitarianism.
What makes it “total” is that it completely denies the person.
This could never be done in a culture in which the individual by himself can become productive, that is, socially effective.
Any tyranny, however brutal and arbitrary, has limitations if it cannot make the whole of man’s social life subject to its commands.
In addition, as long as the individual by himself can become productive, he can arm himself against unbearable tyranny and terror.
To consider the “right to revolution” the last and ultimate safeguard of freedom was a profound insight of traditional political thought.
In a thoroughly industrialized society it is impossible for the citizen to resist a government in control of the means of production.
The “right to revolution” becomes an empty abstraction against tanks and bombing planes.
Even the “mystique” of the “General Strike” is entirely powerless against the totalitarian dictatorship.
All that is possible for the citizen is to conform outwardly and to hope to be able to salve his conscience through mental reservations.
But though a totalitarian government may not be able to control the souls of its citizens, it can control all their actions; and bow long will a faith persist if it cannot come to life in works?
In the past it appeared sufficient to curb power by legal provisions and legal limitations.
As a last resort a government violating the constitution could be resisted and overthrown by force.
But in an industrialized society, there can be no resistance against a government which makes itself absolute and total.
The best constitution in the world ‘with the most carefully worked-out balance of power would not have prevented Hitler from assuming power, let alone have stopped him once he had assumed power.
He could not be resisted; his control of the access to the means of production made it possible for him to make his power total and to control every social activity in his, an industrial, society.
Industrial society must decentralize power in autonomous hands.
But at the same time it cannot afford, in doing so, to turn itself into an anarchic society, comparable to the society of the fifteenth century, with its amorphous mass of petty principalities, free cities, exempt bishoprics and noble highwaymen.
On the contrary, it must have the power and unity for effective action against a depression.
Unless industrial society can decentralize the power of giving or denying access to the means of production, it will not remain a free society; it will be in permanent danger of becoming totalitarian.
But if it loses the power to act, it will fail to remain a society altogether.
«§§§»
In the West the problems arising from the divorce of worker and production have been the most disturbing.
At least, they are the ones of which we are most conscious.
Outside the old industrial territory of the North Atlantic community, however, the most truly revolutionary effect of the industrial world revolution is its impact on the one institution on which all others are founded: the family.
All society, from the most primitive to the most highly developed, has been based on the coincidence of biological, psychological and productive unit of human life.
The family, however much it may have its origin in the biological necessities of human survival, has been always and everywhere the carrier of emotional cohesion.
It has also been the unit of production.
With few exceptions, man and wife have always been a necessary partnership biologically, psychologically and socially; and with but few exceptions, children have always been integrated as much into the social as into the psychological unit.
Once out of their infancy, they were as much members of the productive unit as they were, by birth, members of the emotional and ritual communion.
In primitive civilization the wife gathers root crops, berries and small game while the husband goes on his hunting expeditions; the children help the mother until the sons are old enough to accompany their father.
In the civilizations of the husbandman, the woman tends the gardens or the small animals, spins and weaves, and cooks for the husband and his shepherds, while the men are out tending the beasts; the children grow up spinning and weaving until they are old enough to go out with the herdsmen.
In an agricultural society the coincidence of biological, emotional and productive unit is even stronger-perhaps the major reason for the amazing strength and resistance of the family-farm society.
The craftsman and artisan of highly developed civilizations also depends upon his wife who presides over the store and over the house, who looks after the journeymen and apprentices as well as after customers; the children are junior members of the unit, sharing in the life and the work of the family as apprentices, or at least as close observers.
This coincidence of biological and psychological with socially productive unit disappears under industrialization.
Industrialization divorces the family from society.
The place of business moves away from the place of residence: the father goes to work in the plant or in the office, miles away from the home.
Wife and children are no longer integrated into the productive work.
They may, indeed, have their own jobs and go to work themselves; but even if they should work in the same plant or the same office as the man of the family, they do not work as a family unit.
The widespread child labor in the nineteenth-century English cotton industry has always been considered the result of industrialization.
Yet when children of five and six were employed in cotton mills to card or spin, they did not really do any work children of that age had not always done, including the children of the relatively well-to-do.
The horror and degradation did not lie in the work’s being given to children, but in its being industrial work.
When transferred from the weaver’s home to the factory, it was no longer the same work.
Those children worked, indeed, next to their mothers.
But they did not work-as children within the family.
They worked next to, but not with, their mothers; even though the mother sat next to them, there was no family left.
They worked as stunted adults rather than as children.
Our reaction to the child labor of early industry was the right reaction, even though it was based on fallacious reasoning.
It is immaterial whether, as the Factory Commissions wrongly believed, child labor was an innovation, or whether the traditional labor of the family unit becomes vicious, brutal and corrupted when transposed to the factory.
The important fact is that child labor in the industrial system is destructive and vicious, and that the employment of children in industry has to be forbidden.
But this does not solve the problem of the child in industrial society.
In any traditional society, the mother of adolescent children is the very symbol of strength, fulfillment and social power.
In an industrial society the mother of adolescent children is apt to be a problem to herself and to society, even if she has something better to do with her time than to play bridge.
In a pre-industrial society the problem of the “equality of women” hardly exists.
The man may appear to hold the power legally and ritually; but outside of a very small ruling class relieved of the necessity to work for its living, the mother holds the power socially.
Economically, man and wife are necessarily equals because the production is a joint effort.
In an industrial society, however, the wife and mother is outside production, outside society.
This is brought out strikingly by the disrupting effect on the unity of the family which going to work on the part of wife or dependent children is likely to have.
The length to which the unemployed worker went during the Depression, the sacrifices he was willing to make in order to escape this extremity, shows very clearly that in the industrial age the family can maintain its unity only if divorced from production.
That one’s wife has to work is something for the man to be ashamed of; and it is very enlightening that this attitude is most prevalent in the working class.
The family is still as necessary as ever as a biological, and especially as an emotional, unit.
Its very divorce from society makes it even more essential emotionally, and leads to glorification of motherhood, of children, of the family tie so extreme as to betray the increasing tension — especially as this emotional affirmation goes hand in hand with an increasing willingness to dissolve family ties in divorce.
On the one hand, the family has become a luxury: children are no longer an economic asset but an economic liability.
It is no accident that industrialization and a decline in the birth rate run parallel.
At the same time, the emotional unit becomes increasingly precious.
Disturbances of the emotional bond which in traditional societies are not much more than minor nuisances become severe crises and the cause of “maladjustments,” “neuroses” or “complexes,” destructive alike of individual and of family life.
The pre-industrial, non-Western societies have no resistance whatever against this attack on the traditional family.
Their cultural cohesion collapses under it as under a new plague.
But even in the West, where the weakening of the family has been a very gradual process, the divorce of family and society has had profound effects.
It is this divorce which gives our industrial cities their frightening, unreal, oppressive look, the look of a built-up jungle.
This has nothing to do with poverty — indeed, the brand-new car that stands outside so many of the neat five-room bungalows in Detroit’s working-class districts, the new refrigerator or washing machine only add to the bleakness.
That the home and the family are no longer the focal points of social life is the reason for this look of furtiveness and impermanence, and for the under tow of violence and lawlessness beneath the surface gentility, which contrast so strikingly with the beauty, the order and the clear, strong rhythm of the new industrial plant.
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The industrial world revolution carried by mass-production technology will continue to spread irresistibly.
Behind it are two of the most powerful agents of social change: the desire for a higher standard of living, and the need of defense-that is, the desire for a higher standard of warfare.
The agrarian’s sermons against the evils of industrialization, as well as the intellectual’s warnings against the dangers of materialism, are not only bound to remain ineffectual in the face of the wretchedness of existence in China or India, South America or Central Russia.
They must seem mockery, if not sheer hypocrisy, and only a mask for the desire of a small privileged class to perpetuate its dominance.
In the destitution of the pre-industrial countries-the destitution in which all economies lived prior to the Industrial Revolution-the promise of the slightest improvement in material conditions is bound to be irresistible.
This does not mean that industrialization will be a fast or a painless process.
It does not mean that poverty will be abolished.
Even in the United States, and even at the height of a boom, there is real stark poverty, though mainly in the nonindustrial sector.
It also does not mean that any other country will reach the American standard of living, if only because America owes so much to special advantages of geography, raw material supply, low population density, etc.
Certainly no other country can hope, at least for a long time, to enjoy simultaneously the highest standard of living and the highest standard of warfare as the United States did during the last war.
In other words, industrialization will not bring the economic millennium.
But it promises to bring a greater rise in the standard of productivity and of living than any technological change since the shift from nomadic husbandry to settled farming.
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The rise in the standard of warfare is an equally powerful incentive to mass-production industrialization.
In most countries-Russia is the perfect example-industrialization for bigger and better warfare means that the people will not enjoy any of the benefits of a higher standard of living.
The mass-production revolution will actually result in a sharp depression of the standard of living unless we can reduce the demands war and the preparation for war make in the age of the total weapons.
Yet this will not slow down industrialization.
On the contrary, the poorer and the more defenseless a country, the greater will be the pressure to build up the industrial defense against foreign conquest.
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The social and political crisis brought about by this revolution will thus become more acute and more general.
We have been talking a good deal of the “crisis of the West.”
But the “crisis of the East” threatens to be a much more profound crisis, one of the very foundations of society and culture.
The resolution of this crisis, the development of the new institutions of a functioning and free industrial society, is the most urgent task facing the West today.
It is the pre-eminent responsibility of the United States.
Ours is the most highly developed industrial country.
Its wealth and productivity make it possible to work on problems which in other countries have become so inflamed by class war, poverty and tension that they are too sore to touch.
We are also in a perhaps more critical situation than any other country, precisely because our industrial system is so highly developed.
Indeed, all evidence indicates that we have only a very few years-perhaps a decade, perhaps a quarter-century, certainly no more-to tackle the job successfully.
Moreover, as the originator and prime mover of the mass-production revolution, this country has risen to world leadership and has become the greatest power.
So far this leadership has been confined to the realm of technology.
We have not developed the social and political institutions to go with this technology.
But precisely because mass-production technology is a corrosive acid which no pre-industrial culture or social order can resist, the world requires a working model of the political and social institutions for an industrial age.
Without such a model to imitate and learn from, the mass-production revolution can only produce decades of world war, chaos, despair and destruction.
If the model is not furnished by the West, if it is not a model of a free industrial society, the model will be that of a slave industrial society.
The United States is in the best position to serve as such a model, if only because the world’s technology is “made in Detroit.”
True, our leadership is no longer as generally accepted as it was thirty years ago, when the world believed that Henry Ford had found the answers, and when “Fordism” was a slogan of equal potency in India, in Germany or in Lenin’s Russia.
This naïve belief — reflecting Henry Ford’s own belief in “Machinery, the new Messiah” — was rapidly destroyed and finally disappeared altogether in the great Depression.
But because of its technical leadership, because of its military and economic power, but also because the United States still stands for the basic ideals of the Western World, the leadership is ours if we can only exercise it.
If this country, however, fails to serve as a working model, if it does not succeed in developing at home a functioning and free industrial society, our very technological leadership will bring catastrophe to the world and to ourselves.
It will lead to the acceptance, on a world-wide basis, of institutions and beliefs unacceptable and deeply hostile to the basic beliefs and institutions of the American tradition and to the tradition of the West.
In such a world, the United States could not maintain its own institutions and perhaps not even its independence.
No amount of military strength, no success of anti-Communist diplomacy, no Marshall Plan, could in the long run prevent this.
These, however necessary and beneficial, are stopgaps and futile in the end unless they are followed up by that assertion of world leadership which only the successful development of a Constitution for a Free Industrial Society can provide.
Conclusion: a Free Industrial Society
TO BE livable, any society today must be a free society.
In the age of the total state, freedom has become indivisible — just as peace is in the age of total weapons.
The comfortable combination of personal liberty and security with autocratic government — the “Rechtsstaat” of the European Humanist who did not want to be bothered with politics — is no longer possible.
There is no halfway point between free society and slave society.
Whether industrial society will be free or slave will depend primarily on the relationship of the State to enterprise and plant community.
If the central government is in complete and direct control of enterprise and plant community, freedom is not possible.
It is precisely this control that makes the modern tyranny a “total” tyranny; there is no resistance against such a State and no meaningful sphere of privacy, let alone, of freedom.
At the same time, the autonomous enterprise and the autonomous plant community are the firmest basis on which a free society could be built.
Indeed, free society today requires the autonomy of enterprise and of plant community.
Free society is threatened by the lack of responsible participation of the citizens in their own government.
Without their participation free government will decay from within.
A government to be free requires more than this or that right, this or that restriction on government power.
It requires citizens: men who take responsibility.
Responsible participation in government requires, however, an active local self-government.
The national government is too remote for the citizen to take a direct and personal part in it.
Only in the local community can the citizen acquire an experience of government.
The modern welfare state in particular must become both bankrupt and tyrannical unless local self-government is strong.
As long as the benefits flow from a central government, the individual will remain convinced that they cost nothing.
He will not understand that everyone of these benefits constitutes a charge on the production of the community, and that increased benefits can only be.obtained by increasing productivity and efficiency.
The very wealth of an industrial economy which makes possible these benefits is also the greatest danger to its prosperity as well as to its freedom.
It is futile to argue that the way out is to get rid of the welfare state.
What good would be our ability to produce wealth such as no age has ever dreamed of, if we could not with it satisfy man’s hope for security against the physical risks of existence?
But let us not confuse the “welfare state” with the “hand-out state.”
If the member of society does not learn that the satisfaction of his hopes depends on increasing output, increasing productivity and increasing efficiency, that, in other words, it depends on his efforts, the promise of the we!fare state will end in misery and slavery.
The people will not be willing to abandon their hope of security.
The worse things become, the more they will cling to it.
And they will force themselves into a tyranny the sole purpose of which will be to enforce the equality of misery.
The benefits of the welfare state may have to be planned nationally; but they must be administered locally.
Government should set the standards.
Government should provide subsidies to those groups that are not rich enough to provide security equal to the national standard; and it should obtain the funds for these subsidies from those groups which are wealthy and able to carry more than the average burden.
But the program itself should be a program of the local self-governing community.
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In an industrial society the only meaningful units of local government are enterprise and plant community.
The decay of the traditional local governments, especially of town, city and county, is indeed primarily the result of the shift of focus to enterprise and plant community.
Only in a society where enterprise and plant community are autonomous local self-governments, and where they carry and administer social security, will freedom be strong.
After having discussed the functional requirements of industrial order, we therefore now have to ask the question: What are the political requirements of an industrial society; what is needed to make it possible for industrial society to remain a free society?
The Rights of Property in a Free-Enterprise Society
The major political problem of a free-enterprise system is that of the rights of property in the industrial enterprise.
A free-enterprise system faces no particular political difficulty in establishing enterprise and plant community as autonomous units.
In fact the system is based on the assumption of the autonomy of the enterprise.
Both the problem of union independence from the government and that of preventing union domination of the government in the interests of one group, should be materially eased by the establishment of the autonomous self-government of the plant community.
But the right of the investor in the enterprise, “the right of the capitalist,” is a major issue.
If the legitimacy of management within the enterprise depends on the establishment of the autonomous plant community, the legitimacy of management in society, the legitimacy of its economic power, depends on the solution of the problem of the “capitalist.”
In our discussion we usually confuse two entirely different things: the legal rights of the investor and the function of the capital market.
The capital market is not “capitalistic.”
It has no more to do with “capitalism” or any other “ism” than other mechanisms such as banking or retailing.
It serves an objective function.
It insures the flexibility and mobility of the economy.
It is necessary that the successful enterprise distribute its profits, its contribution to the risks of the economy and a large part of the reserves against its own risk.
Otherwise the economy would soon become monopolistic, with a few big businesses getting bigger all the time.
It is equally necessary that old industries decline and new industries come up.
This continued process of aging and renewal is the basal metabolism of an economy.
If it is blocked, the economy will die of self-poisoning.
The only way to protect the economy against its own waste products is a mechanism that forces industries and enterprises to compete against each other for capital.
In fact, the competition for capital is at least as important to keep an economy a competitive one as the competition for markets and between products on which our economic thinking has traditionally focused.
There is, however, nothing in the function of the capital market that would require the giving of an ownership right to the investor.
All the investor has to be given is a claim to a share in the future income.
The investor himself has made it unmistakably clear that he is not interested in ownership; indeed, that he does not want it.
He has abdicated his legal right of control and he resists all attempts on the part of management to make him take an interest in the enterprise, let alone participate in its affairs.
The only purpose still served today by the legal fiction of the investor’s ownership is to make it possible for one man or for a small group of men to obtain managerial control of a huge enterprise by buying a minute fraction of its stock — absolute control in some cases rests on ownership of less than one per cent of the stock.
This is partly possible because of the wholly desirable dispersion of stock ownership in the population, as a result of which some of our largest companies have almost a million individual stockholders every one of whom owns only a few shares.
It expresses also the apathy of the stockholder and his refusal to exercise his legal rights of ownership even to the extent of voting his stock.
It might be said that in a great many cases the enterprise has benefited from such control by a minority stockholder.
But the fact that it is an able and aggressive man who is likely to take advantage of the discrepancy between the legal and the actual situation, does not make the practice any less of an abuse or any more justified.
It only shows that our present concepts cannot be maintained or defended.
There is absolutely nothing in the nature of investment that either requires or justifies ownership rights, that is, rights of control.
A future age may well regard the idea that control of a productive organization of human beings can be bought and sold for money, in the same light in which we today regard the buying and selling of human beings under slavery.
However much of a fiction the investor’s ownership has become, the principle will continue to provoke profound resistance.
It grounds the political and social authority of the enterprise in an investment of money.
But investment entails no political or social responsibility.
All it entails is an economic risk.
No case can be made out for endowing investment with political and social rights; all it is entitled to is an economic reward.
The political and social, that is, the managerial function, can be based only on the objective function which the enterprise discharges as the economic organ of society.
The best solution would be simply to legalize the de facto situation.
The investor in the large enterprise should not acquire any legal title of ownership, but only a claim to economic rewards.
We should definitely exempt from this rule investment in subsidiary companies — following the precedent of their treatment under the income tax laws.
We should also specifically exempt the investment of the founder of a business who has himself developed it from small beginnings into a prosperous company.
But his heirs certainly should not be entitled to inherit his ownership title.
Money can be inherited and can be bought and sold, but power must go only with responsibility.
Finally, we should limit the application of the new rule to the large enterprise.
We could either set an arbitrary size limit: investment in a company employing more than five or ten thousand people may not carry ownership rights.
Or we might prefer to limit the rule to companies with securities: notes, bonds, preferred shares or common shares, in the hands of the public.
Either would create a few absurdities; the second alternative would, for instance, leave the Ford Motor Company under ownership control despite its size.
But on the whole, either alternative should work equitably.
And neither is likely to discourage investors.
This does not mean that we should abolish the legal concept of ownership altogether and convert the large enterprise into a corporation of the public law, comparable to a university or to a hospital chartered by the State.
In fact, the change could be made without any change whatever in our legal concepts.
Instead of forty million shares each carrying a completely spurious claim to a microscopic share in the ownership, there would be forty million certificates of investment each carrying a perfectly genuine claim to a share in the profits and to a share in the assets in event of liquidation.
In addition, there would be certificates of ownership — or “shares,” in our present terminology — which would carry the full legal title and which would be vested in perpetuity in the Board of Directors.
The device of the “share without voting rights” is already used widely.
In many cases the sole voting power in the company is vested in a “voting trustee,” with the investors receiving only certificates of a claim to profits but no vote.
And in the Ford Motor Company, for instance, the bulk of the shares — given by Henry Ford and his son to a charitable foundation — has no vote though it participates in the income on the same basis, share by share, as the voting shares held by the Ford family.
Such a change in the legal construction of the rights of the investor should go hand in hand with a reorganization of the Board of Directors which would make it a more effective organization and make it the organ that expresses the new and tenable basis of management’s authority and power in economic function instead of in property rights.
The Board should contain representatives of the investor; for after all he has a real interest in the conduct of the business.
Management should be represented too for the same reason.
But there should not only be, as has been said before, a number of full-time “management auditors” whose duty it would be to prepare and enforce policies of management organization and management succession.
There should also be representatives of the plant community and of the communities in which the enterprise operates.
Such a Board would have the power to appoint a management or to remove it.
It would have the final say on all major capital expenditures.
But it would not be supposed to act, as under the absurd fiction of today, as the actual governing organ of the enterprise, but primarily as a supervisor and maker of policy.
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To abolish the legal fiction of the shareholder’s property right would not change much, if anything, in his actual position.
But it should remove the profound conviction that the enterprise exists to make profits for the shareholder — a conviction greatly strengthened by the traditional rhetoric of management.
It would put the shareholder politically on the same footing as the bondholder.
It is much more important, actually, for the enterprise to earn the interest on its bonded indebtedness than to earn a profit on its shares; if it cannot pay its bond interest, it goes into bankruptcy.
Yet the bondholder is not a “public enemy.”
In fact, if bond-holdership has any connotation, it has a favorable one.
The bondholders in the United States are primarily big institutions, such as insurance companies and banks, whereas the shareholders are increasingly middle-class or working-class individuals.
Yet bond-holdership is associated in our minds with the “widows and orphans,” whereas share-holdership is associated with “Wall Street” and the “tycoons.”
Finally the divorce of ownership control from investment should make it possible for the employee of the enterprise to understand that the enterprise must try to satisfy the demands of the shareholder not because he owns the company but because otherwise the enterprise will find it difficult to obtain the capital it needs to create jobs and to make these jobs attractive and secure.
The Problem of “Bigness”
There is a second problem a free-enterprise society has to solve: what is popularly known as the “problem of bigness.”
The term is actually grossly misleading.
It implies that we can do something about bigness in an industrial society.
Actually, the modern industrial enterprise has to be big — for technological reasons, for managerial reasons and in order to supply a mass market efficiently.
It implies that bigness is socially destructive.
But a resolution of the basic economic problems of an industrial society is not possible except in the big enterprise.
Research, on which our material progress has come to depend, is too expensive to be carried by any but the big and strong.
The big enterprise alone can sustain the weight of war production and can convert fast from peace to war production and back.
It alone can adopt long-range policies.
Finally only the big enterprise can afford a management.
Indeed, it is the basic weakness of the campaign against bigness that it considers bigness a cause whereas it is an effect.
And it is above all an effect of the need for a management which is grounded in the very economic and technological nature of modern industrialism.
If the big enterprises do not provide managements for industrial society, government will have to do so.
We have no choice between big and small.
All attempts to get rid of bigness represent not much more than sentimental nostalgia, and are doomed to fail.
We have only the choice between a great number of competing big enterprises and one “super-colossal” big government.
The slogan of “bigness” also implies that the big enterprises enjoy such preponderant competitive advantage as to be immune to economic changes and invulnerable.
Actually, the turnover among the very biggest enterprises is fully as great as among the smaller ones.
To be sure, a few companies have supplied the bulk of the automobile market in the United States for a long time.
But they are not the same companies today they were twenty-five years ago.
Then Ford alone had sixty per cent of the market.
Today Ford has less than twenty per cent.
General Motors — supplying twenty per cent in the earlier period — now has forty.
And the Chrysler Company, which did not even exist a quarter-century ago, sells today twenty per cent of all American passenger cars.
The same is true in practically all industries.
Indeed, the development of Ford is typical; in most major industries in this country the leading company of today has a conspicuously smaller share of the market than the leading company of twenty-five years ago.
The market has been growing faster than even the biggest company.
But there is a real problem: the problem of smallness.
It is vital to a free society — and to a functioning economy — that it be possible for small enterprises to exist side by side with the giants, and especially that it be possible for new enterprises to come into existence and to grow.
What matters is not whether the enterprises are big or small, but whether there is a steady self-renewal of the economic cells.
The problem is not one of size, but one of the basal metabolism of industrial society.
We need thus a policy that creates favorable conditions for the new, young and growing enterprise.
These conditions cannot be obtained by combatting bigness, that is, by a purely negative action.
They require positive measures in favor of smallness and youth.
Today, however, our governmental policy — whatever its protestations — penalizes and persecutes the small, and especially the young and growing, business.
The way in which we regulate business imposes a load of papers and forms which the small business cannot carry.
Our fiscal policy does not make any provision for the risks and dangers of economic infancy and growth.
To expect the young and growing enterprise to be able to carry the full burden of our taxes is very much like expecting a small boy to be able to make a forty-mile forced march with an infantryman’s full pack on his shoulders.
Especially vicious is the refusal to recognize that the young and growing business faces such extraordinary dangers and is exposed to so many childhood diseases that it must be allowed to build adequate reserves out of profits and to write off its losses over a fairly long period.
In addition, we need a determined policy — and perhaps even some new institutions — to reopen the capital market to new ventures.
Today our tax policy, in cahoots with our central-banking policy, effectively debars the new venture from access to risk capital.
A positive, energetic and courageous policy of encouraging the new and the growing enterprise is the best safeguard against the evils of bigness and of overly concentrated economic power.
If we adopt such a policy, we need not fear bigness or monopoly; we will have provided the forces that will enable the economic body to take care of these problems by itself.
It is also the only safeguard.
Any other policy would at best doctor superficial symptoms.
The Political Problems of Democratic Socialism
The political problems of Democratic Socialism are a good deal more difficult than those of a free-enterprise system.
There is a real problem of the flexibility and mobility of the economy under government ownership.
There is a real problem of the relationship between government and the trade unions.
Finally, it is much more difficult for “Democratic Socialism” to establish and maintain the autonomy of enterprise and of plant community.
Once the government owns industry, it will become very difficult to maintain the “basal metabolism” of the economy, the decline of obsolescent and the rise of new industries.
Would any government be willing to let a major industry in its direct control and ownership decline or disappear, or will it maintain an outmoded or obsolete technique in order to preserve the “people’s investment”?
In a free-enterprise society, industries that have outlived their usefulness lose their ability to attract capital and eventually go bankrupt and disappear.
But if the government is the owner, is it likely that any industry, however obsolete, will be allowed to die of capital starvation or to go bankrupt?
Even more serious is the question of new industries under socialism.
Our “planners” seem to have tacitly assumed that there will always be an unplanned and more advanced economy available whose industries can be copied.
But if Democratic Socialism becomes general or if a Socialist country aspires to be a fully developed industrial country, it’ will have to produce its own new industries.
Yet not one of the major industries in existence today would have been started in a planned economy.
In their early days the electrical industry, the chemical industry, the automobile industry, the aluminum industry, the rayon industry — to name only a few — were dubious ventures.
Their technology was primitive, the capital investment required was very great, results were very uncertain.
Would any government have been willing to gamble on the poor prospects these industries held out?
Would it even be justified in taking such a gamble with the public’s money?
In a Socialist society the need for competition is actually much greater than in a free-enterprise society.
If it is not a “free-enterprise” economy, it must all the more be a “competitive-enterprise” economy.
For the restrictive forces are bound to be much stronger.
We may even say that “planning” has much less scope in a Socialist economy.
To make Democratic Socialism work, it will be necessary to get rid of the present concept of planning altogether, and to return to the economic concepts of earlier Socialism, which focused on government determination of a few basic controls such as that of credit, rather than on the determination of production and consumption as does modern planning.
Actually, the ideas of planning are not Socialist at all in origin, but derive from the war economy of World War I. Their merger with Socialism during the last twenty-five years is likely to prove the greatest stumbling block to the realization of the dreams of the Democratic Socialists.
Democratic Socialism actually needs a free and unplanned capital market or some very good facsimile thereof.
If the decision which industries to supply with capital and which industries to starve of capital, is left entirely to the government, the economy is bound to become rapidly immobile and frozen.
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As soon as Democratic Socialism is established, the labor unions are in crisis.
They are suddenly in the management.
They can either maintain their traditional role as a special pressure group against enterprise and society and use their political power to enforce the demands of one group in society on the rest.
Or they can become an arm of the government-management and lose their function as the specific political organ of the workers.
In practice, as we have seen in any country that has tried Democratic Socialism, the unions are torn between those two tendencies and usually end up by making the worst of both.
If the unions take over the government, society will lose its economic productivity and efficiency and with that its ability to survive economically.
One result of this will be increasing resentment against the unions on the part of society.
In the end government will be forced by public opinion to suppress unionism by nationalizing it.
But this would also be the end of Democratic Socialism and the beginning of a totalitarian regime.
If, on the other hand, the unions become a part of the management and give up their function, they will lose the allegiance of their members.
“Wildcat” strikes and rebellion against their leadership will become general and the members will be drawn increasingly to demagogic groups — Communist or Fascist — that promise to restore “honest unionism” and denounce the incumbent leadership as hirelings of management.
In the end, too, government will have to suppress unionism to prevent openly subversive and revolutionary forces from gaining control of the workers.
Democratic Socialism should therefore be even more concerned with the maintenance of a truly autonomous union movement than is a free-enterprise system.
One requirement is probably that the union movement in a Socialist State cease to be associated with any one political party, if not that it abandon political activity.
In a State that owns its basic industries the unions can neither be allowed to be a part of the government nor to be a part of the opposition — in their own interest as well as in that of economy and government.
But the major requirement for the survival of unionism under a Socialist form of government is that management and the plant community are autonomous and not under the direct control of the government.
Only then can the union movement maintain its opposition function without being at the same time in opposition to government itself.
The ability to establish and to maintain the autonomy of management and plant community is the touchstone of Democratic Socialism.
If either enterprise or plant community become directly controlled by the government, a free society is impossible.
It would lead to the suppression of unionism.
It would also lead to complete government control over the private citizen.
It might not be too difficult for Democratic Socialism to establish an autonomous self-governing plant community.
But it will be very difficult indeed for it to tolerate a truly autonomous management, let alone actually to establish one.
Management must be nonpolitical.
It must discharge its objective function according to the best interests of the enterprise.
It cannot be a civil service by the very nature of its job.
Where the government is the owner and has full legal title, the temptation to assume full control will, however, be very great.
It can only be overcome if the enterprise is established as an autonomous unit, if, in other words, the government puts the same restrictions on its own property ownership that I recommended for the investor in a free-enterprise society.
«§§§»
In addition the independence of management under Democratic Socialism must be grounded in the convictions of the community.
Management must enjoy a professional standing at least equal to that of lawyer or doctor, whose independence is based on popular respect for professional competence and integrity rather than on laws.
Perhaps it must even have the standing of a genuine “aristocracy,” such as the Confucian scholar in China, the Senatorial Class in Republican Rome, or the “gentlemen” in eighteenth- and nineteenth-century England, whose title to rulership was grounded in its responsibility and accepted as such by the people.
Whether the experiment in Democratic Socialism will succeed is therefore still very problematical.
Its greatest danger are the very doctrines and illusions that propelled it into power.
Every one of these illusions will be dispelled almost as soon as Democratic Socialism starts operating.
One example is what has been happening in Great Britain during the last five years.
But the danger is great that this will not lead to a rethinking of the basic problems, and to a reformulation of the ends and means of Democratic Socialism.
It may instead lead to a grim determination to cling to the illusions which could only lead to collective persecution mania and totalitarian misery.
«§§§»
In this country there is a tendency today to regard Democratic Socialism as an aberration that must inevitably lead to a totalitarian regime.
Certainly a free-enterprise society, as the term is understood in this country, is much easier and much less risky.
But we better realize that some form of Democratic Socialism — or at least an approximation to it — is the only form in which a good part of the world today can have a free industrial society.
The motives behind Democratic Socialism in Europe and in the formerly colonial world are not understood in this country.
The tremendous dislocation crisis from which Western and Central Europe and the formerly colonial areas suffer as a result of the industrial world revolution, requires a degree of social discipline and a concentration of effort very similar to the requirements of a war economy, and likely to be attainable only under a very strict organization of resources.
If Democratic Socialism makes a virtue out of necessity, it is still a necessity.
But more important than the economic motives behind the drive for Democratic Socialism are the social and political motives.
What Americans mean by “free enterprise” is so radically different from European “capitalism” and even more from “capitalism” in the formerly colonial raw-producing areas that nothing but confusion can result in an attempt to try to project American concepts on Europe and European concepts on America.
Indeed, to call the American system “capitalism” is utterly ludicrous, considering what the term means elsewhere.
The difference is not primarily one of wealth and resources or one of technology.
It is one of social climate.
One fact alone makes American reality totally untranslatable into European terms.
In this country one out of every eight workers — other than farm hands — has a direct investment in industrial securities.
Much more important, even, is the fact that this country does not know, and has never known, a “ruling class” in the European sense.
By the same token this country has never known an “industrial proletariat” in the European meaning of the term.
Instead, the organizing concept of American society has been that of social mobility — up and down — which denies the existence of “classes.”
Other factors enter.
What is called “materialism” in the United States — actually a grossly misleading term for an attitude which values material goods as symbols of success but does not value possession as such’ — produces uniformity in the material style of life.
There is no “upperclass” dress, furniture, automobile or architecture in this country; but there is also no “lower-class” style.
The classes differ in the size and in the number of possessions, not in the basic mode of living.
Hand in hand with this material uniformity — though noticed much less often — goes the most bewildering multiplicity and variety in the cultural institutions, such as schools and churches.
In Europe, on the other hand, the unity — not to say uniformity — of the cultural tradition goes together with large variations in the material style and mode of living.
Finally, in the sharpest possible contrast to Europe, let alone to the East, social envy is absent as a motivating form of group action.
It exists to any extent only among a dispossessed minority such as the Negroes; and its manifestations, for instance in Richard Wright’s novels, come to the American as a terrific jolt, whereas they are accepted as a matter of course in Europe by both Right and Left.
However illusionary the beliefs and doctrines of traditional European Socialism, it reflects therefore genuine social and political tensions.
This is even truer of the formerly colonial areas of Latin America, India, China, etc.
In addition, European industry has on the whole proved incapable of producing genuine managers, that is, governors of the enterprise who put the in of the enterprise above their own proprietary interest.
There are exceptions: the people who run Imperial Chemical Industries and Unilever in Great Britain, Rathenau in Germany, the Philips group in Holland.
Lately, conscious efforts to build a management have been made, especially in England.
But on the whole the European industrialist has followed the pattern of the French “propriétaire,” with his emphasis on the preservation and enlargement of the family fortune, and on the barring of all “outsiders” — including the very people who actually run the business — from a full share in the economic fruits, the social prestige or the political power of the “capitalist.”
One reason for this has been the unhealthy domination of Continental industry by the big banks.
Another undoubtedly is the power and prominence of the industrial combination which concentrates the managerial decisions in the hands of the anonymous bureaucracy of the cartel or trade association.
It is a dangerous illusion of the European Left that a management will come into being automatically as the result of the expropriation of the private owners; indeed, nationalization is likely to make more difficult the development of a genuine management.
But there can be little doubt that the European “capitalist” has failed, on the whole, to provide management.
Yet modern industrial society requires a management; indeed, the need for a management is the greatest need of all countries today, far outranking their needs for dollars, raw materials, technical “know-how” or machines.
The failure to produce a management has therefore rendered the European private owner powerless to oppose nationalization on the grounds of function; he can only appeal to the right of property or, purely defensively and negatively, try to show that private ownership is the lesser evil.
The point of this analysis is not that I favor Democratic Socialism.
I regard it with the gravest misgivings — if only because of its legacy of illusions, utopian dreams, intellectual arrogance and perfectionism.
It lives in a pre-industrial world, the world of 1850 rather than that of 1950 — a world full of fabled monsters who, if they ever roamed the earth, have long become extinct.
It has absolutely no concept of modern production.
On the one hand, it believes that a mere redistribution will magically double or triple the available goods.
On the other hand, it conceives in typically pre-industrial fashion of the amount of goods and services as completely static, and as a result fails to see the possibility of creating wealth through increasing productivity.
I am opposed to its profound conviction that there is something immoral in competition.
Above all, I am opposed to the basic assumption of the Socialist that a government servant is necessarily wiser, less selfish and more honest than a private citizen simply because he is a government servant.
My point is that Democratic Socialism represents not strength but weakness.
It is not only the reaction to the barrenness of the Conservative tradition of Europe.
It is above all the European Left, that is intellectually utterly bankrupt.
All it stands for is opposition to the past.
It is both frightening and pathetic to see how completely the British Labor Government, for instance, has in five years run through the entire intellectual capital of the Fabians that it took fifty years to amass.
But for this very reason it is very important that Democratic Socialism succeed in developing on its own lines a workable and adequate policy for a free industrial society.
The danger is very great that Democratic Socialism will fail; but then the forces that are behind it will be greatly tempted to abandon their belief in freedom in order to retain their illusions of Socialism.
And if Democratic Socialism should fail to cling to its belief in democracy, this country may find itself isolated in a world hostile to it, and to our most cherished ideals.
We have to realize that we have almost as much of a stake in the success of Democratic Socialism — precisely because it is so very weak — as the countries that are actually engaged in the experiment.
«§§§»
The free industrial society that emerges from this analysis is certainly very different from what we have traditionally considered to be “Capitalism.”
It is also very different from what we have considered traditionally to be “Socialism.”
An industrial society is beyond Capitalism and Socialism.
It is a new society transcending both.
In this country we are very close to this new society, judging by actual institutions and practices.
Nothing suggested in this book would constitute a radical or a revolutionary innovation.
In fact, in some areas — management organization, for instance — the principles developed here would only codify and make general the best of current practice.
In others — the income and employment prediction or the self-government of the plant community are examples — the principles, while new, only bring out the actual, though still partly hidden, trends.
But in thinking, belief, and spirit these principles are indeed still very new and radical.
The major obstacles to a free and functioning industrial society do not lie in institutions.
They lie in the blinders habit has put on our imagination.
We do not need “social engineering”; we need courage and vision.
The real challenge is one of leadership — both to our managements and to our union leaders.
The time is ripe for courageous and imaginative leadership — but it will not wait for us very much longer.
«§§§»
This is an anti-utopian book.
It aims throughout not at the ideal society, but at a livable society for our time.
This is a more modest aim than the quest for the perfect society that will shine as a beacon through the ages.
It is at the same time a more ambitious undertaking.
It requires concrete, feasible and effective policies, policies that can be done and that will do.
This book is concerned with political action.
Such action will not cure the depravity of this age of concentration camps, police tortures and absolute weapons.
It will not overcome the profound spiritual crisis of Western man.
It will not jar us out of our frightening moral numbness.
Political action is no substitute for the great Prophet who shall call this generation to repentance, for the great Saint who shall turn our vision back to the source of all light, or for the great Poet who will sing again of the greatness and dignity of Man.
But it was not a politician but a great Saint who said: “Before men can be Christians they have first to become citizens.”
If political action cannot exorcise the manmade demons that haunt our world, it can, at least, give us the weapons to fight them, and with them courage and hope where today we walk in fear.
Epilogue to the 1962 Edition
TEN or twelve years are not a long time in history, but they are a very long period in current events, which is, of course, the subject of this book.
And the dozen years since this book first appeared (two months before the outbreak of the Korean War) have been years of rapid change.
A good many of this book’s “predictions” have come to pass sooner than the author himself would have imagined, and much sooner than his critics, a dozen years ago, would have thought possible.
This is particularly true in the field of labor relations.
An annual income guarantee, for instance, seemed utopian in 1950.
Something very much like it is today a near-reality in those union contracts providing for Supplementary Unemployment Compensation, for organized retraining, or for a systematic balancing of the number of employees against technological changes in the industry (this last was stipulated in the San Francisco dock workers’ contract signed in 1961/2 and also in contracts for glass blowers throughout the country).
Similarly, to relate wages to the cost of living and to productivity seemed a naive thought then; it became reality in the automobile industry contracts only a short time after the book was published.
Finally, we increasingly realize, as I predicted, that “fringe” benefits (such as retirement pensions or health insurance) will have to be financed out of profits rather than considered a charge against costs.
Today in a good many major benefit plans (that of American Motors, negotiated with the Automobile Workers in 196!, is one example, that of the Champion Paper Company another), this has been carried out.
More important, it is now generally accepted even within the labor movement itself that the trade union is not a primary but a secondary institution, which depends for its existence as well as for its effectiveness on management and on management’s performance.
The most discussed book on labor relations in 1951 was A Philosophy of Labor, by the Columbia University historian Frank Tannenbaum (New York: Knopf), which put forth in the most eloquent terms the labor movement’s traditional thesis, according to which the trade union is the basic and indeed the central institution and community of an industrial society.
Ten years later, in 1961, the most discussed labor-relations statement was that of a group of leading American labor experts from Princeton, the University of California, and M. I.T, who had begun a world-wide survey of economic development and industrialization in the belief that labor relations and trade unionism were its central factors and, much to their surprise, had come to the conclusion that these were relatively unimportant and that the central and determining factor was the development of management and managers.
And when The New Society had talked of a national wage policy in which the interests and needs of society would mark the limits within which collective bargaining could be allowed to operate, this was not only considered utopian but, by many people in both management and labor, a rather reactionary attack on the unrestrained freedom to bargain in the market place.
That we need such a national policy — though it is a very difficult thing to define, let alone make effective — has by now been generally recognized.
This realization underlies, of course, the labor policy of the Kennedy Administration.
And the professed tendency of this policy to be neither “anti-labor” nor “anti-management,” neither “pro-labor” nor “pro-management,” but instead “pronation,” enjoys public support, no matter how severely various steps taken under it may be criticized.
Another area where predicted events then considered most unlikely to happen have become reality is in our understanding that mere legal title cannot begin to solve the basic problems of an industrial society.
The disillusionment with nationalization of industry as the “magic wand” has become so general that (unthinkable only a few years ago) nationalized industries can be returned to private ownership without mass uprising of the workers.
Indeed, the workers in the British steel industry, in the German Volkswagen automobile company, and in the industries owned by the Austrian government seem to have been the strongest supporters of a return to private ownership — if only because it is so much easier to fight management when it represents the “wicked capitalist” than when it represents the “public” or the “nation.”
However, other things which this book expected have not come to pass.
One example would be the failure of European socialism to dominate Europe’s governments.
European socialism has proved as sterile, as devoid of new ideas, as frozen in obsolete attitudes as I originally stated (to the great scandal, by the way, of most of the book’s reviewers).
But it had seemed to me that this would not keep the European Social Democrats from capturing control of government, or at least from having to be included in a government coalition.
By and large this did not happen.
By now it seems likely that the European non-Communist left will not be able to obtain power until it has succeeded in ridding itself of the obsolete and sterile slogans of yesterday.
These are, however, not the really important things that have happened.
The really important things — as usual in an attempt to analyze and to predict — are changes which the author when writing the book fully saw but failed to perceive, fully recognized but failed to understand.
What makes predicting the future so certain of failure is not that the unexpected always happens.
It is that the expected always means something so very different.
The most disappointed man is always the prophet whose vision has come true, the pioneer who has reached the new frontier, the explorer who has found the new continent.
Four developments belong here: the dynamic developments of the last decade in our industrial society.
The first is the dramatic resurgence of Europe, its tremendous jump into economic growth and leadership after forty years of stagnation and timidity.
The second is the explosive “revolution of expectations,” the sudden demand for economic and social development throughout the whole world, especially among the totally underdeveloped, the pre-industrial, the formerly colonial areas in Africa and Asia.
The third development, equally important though entirely different, is the emergence of a middle-class employee — the “knowledge worker”as the largest and most rapidly growing group in the working population of the industrially developed countries, especially the United States.
In The New Society this group was clearly seen but not perceived.
The book still divided the industrial world into two groups, “workers” and “managers,” though emphasizing again and again that the characteristic group was a different one of technical and professional employees.
Today it is quite clear that this third group is the most important.
It is a group of “workers” though it will never identify itself with the “proletarian,” and will always consider itself “middle-class” if not “part of management.”
And it is an independent group because it owns the one essential resource of production: knowledge.
And yet it is employed and can make its knowledge effective only through access to the industrial organization.
It is this group whose emergence really makes ours a “new” society.
Never before has any society had the means to educate large numbers of its citizens, nor the opportunities for them to make their education productive.
Our society, however, cannot get enough educated people, nor can it really effectively utilize any other resource but the educated man who works with his knowledge rather than with his animal strength or his manual skill.
And finally, perhaps as a result of the three preceding developments, management is no longer something one has to emphasize and feature.
That it exists, that it has an essential role and function in society, that it is a distinct group with its own knowledge, its own area of authority and responsibility, its characteristic behavior and problems, is obvious today.
We have discovered management.
In fact, there has been something like a “management boom” all over the world, in Europe as well as in Japan, and especially in the developing countries (but also in the Soviet Union).
In India, for example, management was not even mentioned in the first Five Year Plan (adopted at the time The New Society first appeared).
The emphasis was on capital investment and the balance of payment.
The second Five Year Plan already mentioned management, though in a subordinate capacity.
But whatever success the second plan had was derived from the totally unexpected emergence of substantial numbers of managers and entrepreneurs outside of the plan, in the private economy.
And in the third Five Year Plan, adopted in 1961, the development of managers is a central task, and one to which considerable energies are being devoted.
This is typical of what has been happening all over the world.
“Management” was something the United States tried hard to transplant to Europe through the Marshall Plan.
At first the transplant did not take root.
Today Europe is full of management magazines, management associations, institutes for advanced management development, and so on.
Some of the most advanced of the new management techniques (for instance Operations Research, i.e. the application of systematic, primarily mathematical methods to management problems) have been taken up much more enthusiastically by the Europeans than by their American counterparts.
These are very important changes and in many ways they create conditions quite different from those The New Society assumed and discussed.
But at the same time they make more important, rather than less important, the analysis this book tried to present; the problems and opportunities it attempted to point out; and the conclusions it reached.
What was then still largely an American situation and an American concern — or at least one confined to the old industrial countries of the North Atlantic — has, as predicted, become truly international, and, indeed, truly supra-national.
The problems in Japan and India are similar to those in the United States or in Germany.
They are not too different in the new industries of Brazil or Rhodesia.
Judging by what information we have, they are very much the same in the Soviet Union.
And, one suspects, they are the same (only infinitely more difficult) in Communist China.
The opportunities, too, have become much greater.
This is particularly true with respect to the emergence of the “knowledge worker.”
He, more so than the manual worker of yesterday, needs the “managerial vision”; indeed without it he is ineffectual and frustrated.
He cannot obtain social status and function from membership in a protest group of the “exploited,” the proletarian class of nineteenth-century socialism.
He needs the status and the opportunities of a full member of industrial society.
And, as all our experience shows, the only way to obtain an effective organization of “knowledge workers” and full performance from them is by letting them manage their own plant community.
All the talk about “creating a campus atmosphere” for “researchers” simply means that they have to be given this responsibility for running the plant community precisely because it is so important that we obtain high performance and output from such high-quality and high-cost human resources.
Similarly, the emergence of management as a central function in our society makes all the more urgent and important understanding of this function — by managers as well as by their fellow-citizens.
It is necessary for a society to think through what power and authority management can legitimately claim and must claim, in order to perform.
At the same time we must guard against the tendency to let management claim more authority than its performance requires.
Management’s grounds for authority need to be clearly defined, for modern industrial society will only operate properly if management is seen as a central but limited organ.
What I am trying to say is that the past twelve years have seen an unfolding of the trends and ideas which this book originally tried to describe and to present.
A good deal of what was then future expectation has become present reality.
The essentials, however, remain the same, as do the main purpose and theme of this book: In the industrial society of today we have a distinct, a “new” society, and one which it is our job as citizens to understand.
It cannot be understood by applying to it the slogans of yesterday, or indeed any slogans at all.
It requires to be looked at in its own terms as something which, like any creation of Man, is both a problem and an achievement.
The New Social Order
