Wall Streeters Had It Coming, Veteran Guru Drucker Says
Peter F. Drucker, the celebrated observer of corporate America, Wednesday likened Wall Street traders to “Balkan peasants stealing each other’s sheep” and said that their lack of restraint made the recent stock market plunge inevitable.
“I expected it somewhat earlier,” he said, “and not for economic reasons--but for aesthetic and moral reasons. The last two years were just too disgusting a spectacle. Pigs gorging themselves at the trough are always a disgusting spectacle, and you know it won’t last long.”
Drucker, 77, is a professor at Claremont Graduate School and is viewed as a luminous intellect and a pioneer in the study of modern management. He has written more than 22 books, mostly about how companies should be led and run. He spoke to The Times on a day that Claremont dedicated its graduate management programs in his name. During the interview, he downplayed his knowledge of the stock market, but went on to make clear that he had strong convictions about it, nonetheless.
“With this kind of behavior you need almost nothing to set off a panic,” said the good-natured scholar, “especially if nobody in the (Wall Street) crowd uses what he has between his ears--if they have anything.”
A former securities analyst himself--the Vienna native worked as a young man in the financial world both in London and Frankfurt--Drucker described Wall Street brokers as “a totally non-productive crowd which just is out for a lot of easy money. When you reach the point where traders make more money than investors, you know it’s not going to last.”
Lacing his remarks with provocative metaphors and allusions, he stressed two points in particular: that any speculative bubble must burst, and that the inexperience of many youthful brokers was one of the factors that has led to the recently unstable market.
“The average duration of a soap bubble is known--it’s about 26 seconds,” said Drucker, who wears two hearing aids but appears vigorous and just returned from a trip to China. “Then the surface tension becomes too great and it begins to burst. For speculative crazes, it’s about 18 months.”
The recent bull market had lasted five years. To many observers, however, the speedy appreciation of stock values during the last two years had seemed out of line with economic fundamentals, therefore threatening a collapse.
The bubble had to burst, Drucker said, “partly because there is no foundation there. Partly because there is no thinking there, and partly because their horizon has become the next 10 minutes. And then anybody who cries ‘fire’ sets off a panic. You don’t even have to cry ‘fire.’ If somebody leaves the house, they (traders) suspect there is a fire.”
Expresses Sympathy
Drucker, who speaks with a European accent and in a low-pitched voice that is vaguely reminiscent of Henry Kissinger’s, pioneered modern corporate analysis with his 1946 “Concept of the Corporation,” which focused on General Motors. During his lengthy career, he has worked as a newspaper reporter, banker, writer, consultant and teacher. He joined the Claremont graduate faculty 17 years ago, and has taught about Oriental art at the undergraduate level.
In the interview, he spoke critically yet sympathetically about the many young stockbrokers who profited mightily from the market, but who had no experience to guide them through the recent financial tempest.
“When you look at who dominates the scene, they are mostly people who weren’t there five years ago--and have absolutely no judgment.” He said that such individuals typically “keep endless hours, but that is not the same thing as doing any thinking or doing any work.”
But Drucker, who departed the financial world in the 1930s because “it bored me to tears,” added that it is not the trader’s role to be thoughtful: “Good traders don’t think; good traders react.” And he expressed understanding for young people who hold lucrative financial jobs: “When they (students) come to me with three job offers and say, ‘Which one should I take?’ I always say take the one which pays the most. Because that’s all you know. The only solid fact is salary, the rest is fiction.
“Don’t blame them--here you are, 25, and the big management consulting firm or the big brokerage firm offers $140,000 plus bonus. . . . Don’t even blame their employers. The delusion was general--but these things never last.”
But Drucker acknowledged that the growing prevalence of astronomical salaries has caused him to reconsider his long-held view that taking the most money was the wisest move for a young person, because “some of the salaries are corrupting.”
Stresses Fundamentals
Asked about the role of business schools in providing well-rounded financial leaders, he said that business schools have failed to provide leadership in their field, “but this is nothing new. It’s typical of professional schools in their first 100 years.”
Later, speaking to a group of reporters, Drucker added that Claremont’s management studies, which are integrated with a strong liberal arts curriculum--including such areas as history and philosophy--makes him enthusiastic about the school--and the role business schools can play in helping provide well-rounded business leaders.
And he said that recent market events shouldn’t distract those corporate managers who have been doing a good job from sticking to their course: “One always manages the fundamentals,” he said. “One doesn’t change. Well-managed businesses are terribly boring. Only badly managed companies are dramatic.”
