All this economy needs is a good revolution



With economic bombs falling daily and consumer confidence diving for cover, it's tempting to consider quick-fix remedies for what are actually long-term problems.

For today, at least, you'll be spared my usual sermons on some of these demons -- the deficit, the federal desertion of American cities and our adoption of cultural values that place educating our children somewhere below the joys of still being able to get Roy's fried chicken at Hardee's.

Instead, you'll get Peter Drucker, teacher and management expert extraordinaire. Mr. Drucker's latest musings on what ails America are in the upcoming issue of the Harvard Business Review. The article opens with this chilling paragraph:

"The single greatest challenge facing managers in the developed countries of the world is to raise the productivity of knowledge and service workers. This challenge, which will dominate the management agenda for the next several decades, will ultimately determine the competitive performance of companies. Even more important, it will determine the fabric of society and the quality of life in industrialized nations."

Productivity, usually defined as output per hour of labor, is important because it's the essential component of improved living standards in industrial countries. Without figuring out ways to make more for less, there would be no real way for salaries and incomes to rise while also reducing working hours and creating more leisure time.

Improving productivity among knowledge and service workers is necessary because they increasingly dominate our post-industrial societies. Among manufacturing employees, annual U.S. productivity gains continue to compare favorably with international competitors, Mr. Drucker notes. But with manufacturing accounting for only 20 percent of the industrial world's economies, it's clear the competition for superior productivity will be played out in service companies.

The social part of Mr. Drucker's message may be less apparent. Simply put, the "haves" in a knowledge-based economy form an educated elite that will command increasingly disproportionate shares of national income. Unless ways are found to increase productivity and incomes among lower levels of this knowledge pyramid, social alienation and unrest will worsen.

Interestingly, Mr. Drucker writes, similar predictions of the demise of capitalism were made by Karl Marx and others. But productivity experts of the 19th century, principally Frederick W. Taylor, were able to engineer tremendous gains in workplace efficiencies that, in turn, supported major income increases for blue-collar workers.

"That, in turn, sparked the revolution that allowed industrial workers to earn middle-class wages and achieve middle-class status despite their lack of skill and education," Mr. Drucker said. "By 1930, when, according to Marx, the revolution of the proletariat should have become a fait accompli, the proletariat had become the bourgeoisie."

Mr. Drucker's prescription for a 1990s' version of this revolution is a pragmatic series of steps to "work smarter" that include accurately defining the task of the work (no easy matter in many service settings), making sure the work that's done focuses on achieving that task and closely analyzing what productive performance actually means in carrying out a particular job.

To these, he would add the fourth element of a partnership between employer and employee that recognizes that the people who do the work are often the best information sources for improving the quality of that work.

All these measures are much, much easier to say than to do. But the cost of not doing them may be unacceptably high.

"Unless the productivity of service workers rapidly improves, both the social and the economic position of that large group of people . . . must steadily go down," Mr. Drucker said. "At a minimum, this raises the prospect of economic stagnation; more ominously, it raises the prospect of social tensions unmatched since the early decades of the Industrial Revolution."

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