Peter Drucker : On L.A. vs. San Francisco, Downsizing and Newt the Entrepreneur
In most areas of intellectual life, nobody can decide on who is the top dog. In the world of management thinking, however, there is no debate. The prize goes to a professor at the Pomona-based Claremont Graduate School, Peter F. Drucker.
Drucker is the one management thinker whom all other management thinkers kowtow to. Above all, he is one of the few thinkers from any discipline who can reasonably claim to have changed the world: the inventor of privatization, the apostle of a new class of knowledge workers, the champion of management as a serious intellectual discipline.
Drucker’s unrivaled position has a lot to do with age and industry. Now in his late 80s, he was a leading management pundit when today’s management pundits were re-engineering their train sets. Since discovering the discipline back in the 1940s, he has produced an astonishing quantity of work: 26 books, thousands of articles, tens of thousands of lectures and goodness knows how much practical advice for managers.
Drucker will be remembered for three intellectual breakthroughs. He was the first person to point out that knowledge workers are replacing blue-collar workers as the most important group in society, and that, henceforth, managers will have to engage the minds, rather than simply control the hands, of their employees. He was the first person to argue that management is as important for universities, churches and charities as it is for soap-powder manufacturers. (His consulting clients include the American Girl Scouts as well as large companies.) He was the first person to argue that treating workers well makes sense in business, as well as in human terms. “An organization is a human, a social, indeed a moral phenomenon,” Drucker notes.
Drucker thanks California for much of his extraordinary productivity, claiming that the climate is conducive to writing and that its dynamic economy has afforded him plenty of examples. But he seems strangely out of place in his modest bungalow in suburban Pomona. His courtly manners belong to the drawing rooms of early 20th-century Vienna, where he spent his childhood, rather than Californian suburbia. His accent, always strong, has grown much more Germanic with age; he litters his conversation with references to intellectuals he met in his youth, from Sigmund Freud or Isaiah Berlin.
He is not easy to talk to. His hearing is now so bad that he often finds it hard to catch questions. If you can make yourself understood, his answers are not always easy to follow, wandering off down obscure historical byways. But just when you wonder whether he has forgotten the question, he returns to the subject under discussion, and recasts it in a whole new light.
Drucker says that he hates the word “guru,” thinking it synonymous with charlatan. But, in truth, he is the one management thinker who genuinely deserves the accolade.
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Question: What do you think of the recent downsizing and re-engineering craze?
Answer: I’m going to shock you, first by saying that we have had no more turn-over in jobs in the last few years than we had before, and probably less. The statistics, as usual, leave a lot to be desired. The difference is that, one, before, we did not do it wholesale. We fired this person here and that person there. And No. 2, the way we did it has done a lot of damage. Every one of those 40- to 45-year-old, upper-middle executives in my middle-management program revises his resume every two to three months and has it in his bottom drawer. . . . Every one, without exception. . . . Downsizing has also had some very wholesome side-effects. One is that able young people go into small- and medium-sized businesses. The other is that people no longer have to put up with the boredom and bureaucracy of big companies.
But you have no idea how cynical my executive-management people are, and what really, deeply hurts them--these are engineers, psychologists, accountants and marketing people and they are very proud of their skills--is that they feel that financial manipulators treat them with contempt and that they have no respect for work or for competency. I remember my great uncle being asked whether my brother would make a surgeon. He said “No, Charlie will never learn to make the diagnosis before amputating the leg.” And that’s what most downsizing has been--cutting without any diagnosis.
Re-engineering, in many cases, has been abused as a euphemism for downsizing. Don’t blame the re-engineering people--don’t blame [authors Michael] Hammer and [James] Champy--because they preached that you first make the diagnosis, then you act. Nobody listened. Re-engineering is much harder to do because thinking is always hard and, like everything you do, you pilot it first. You don’t go in with huge, great programs without having tested them on a smaller scale. But both in re-engineering and in downsizing, in very many cases, the aim was not to have a better business but to have a higher stock price, which is not the same thing, and the method was to act too quickly. There is a high probability when you rush things that you are cutting the wrong things. I remember in the 1920s, when the first wave of slimming started, a surgeon said the quickest way to make an overweight person lose weight is to cut off his penis. That is, in effect, what many of the downsizing people have done.
Q: How would you diagnose the state of health of the California economy?
A: There is no such thing as the California economy. There are only California economies, and they are very distinct and different. . . . Southern California has a heavy concentration of manufacturing industry. Hollywood is very visible but is not very important in terms of quantity. And you have the enormous economy of the Central Valley, which, in the long term, is endangered because it totally depends on cheap water and cheap labor--and most of what it does is not conducive to mechanization. . . . Then you have the San Francisco Bay economy, which, after long years of decline, is coming back.
Q: Is Silicon Valley the wealth generator that some people imagine?
A: Silicon Valley is not the only high-tech part of California. When you look at quantity, L.A.-San Diego may be more important. . . . There are four or five Silicon Valleys in the rest of the United States. Silicon Valley is the most spectacular, because the country south of San Francisco was farmland, so they are the industry there. But, in quantity, the Boston, Minneapolis and Los Angeles-San Diego areas are not far behind.
Q: What are the most striking differences between Northern and Southern California?
A: You know the difference between Manchester and Liverpool? Manchester has communities. Liverpool never had any. That’s the difference between San Francisco and Los Angeles. In San Francisco during the Second World War, all you had to do to get an organization going was to make two phone calls--one to a prominent figure in the German Jewish community, and one to a prominent figure in the non-Jewish community. That was it. You could never get things organized in L.A. The five or six clans--they’re not communities--don’t speak to each other.
Q: Is that a disadvantage for the city?
A: It is very difficult to get anything done. I’m not saying it’s impossible, but it’s difficult. You have to build coalitions. I’m on the board of the San Francisco Museum of Asian Art, which has one of the best collections outside the Metropolitan Museum. We sat down and worked out how we were going to get representatives of each community along. In Los Angeles, it’s always one community and not the other. Here, not only do people never meet each other, but they do not know of the other kind of people’s existence. I run a class for several hundred people in executive education. They start off by introducing themselves and what they do. And you can see by their faces that this is the first time they have ever heard of such things. That would not have happened in San Francisco.
Another weakness of Southern California is the extreme decentralization of local government. When you look at New York, you see 7 million inhabitants and one city government. You have 13 [million] in Los Angeles [County] and [88] cities. The extreme decentralization is unique.
Q: Why is it a weakness?
A: Because its almost impossible to get anything done. There is an old Roman proverb that says that the slave who has three masters is a free man. Ontario airport has been overloaded and overcrowded since about 1960. For 35 years, they have been talking about expanding it. So far, they haven’t even begun because there are three local government bodies involved. Who is going to pay for what? Whose approval is needed for what? It’s bursting at the seams, and it’s a disgrace. . . . In one way, this country tends to overcentralize in government. In some ways, it’s so big and varied and diverse a country that a lot of Washington regulations just don’t fit, and there is no willingness to bend the rules . . . In that sense, this is much more a German than an English country. . . . In England, there is an extreme willingness--or was--for central government to adapt to regional needs. That’s not America . . . and that makes for things that make sense in New England but make absolutely no sense in Arizona.
But, in others ways, it is overdecentralized, overlocalized. Our school problem is, to a large extent, a result of two factors. One is that schools are financed almost exclusively by local taxes. So the schools that need money the most have the least. And the other one is that the local school board is a law unto itself.
Q: Leaving aside the rivalry between Los Angeles and San Francisco, do you see much of a future for cities?
A: The urban real-estate boom began in Japan in the 17th century, when the vi- ctorious Topoga shoguns moved their headquarters from Kyoto to Edo and forced every lord to spend half his time in Edo and half his time in Kyoto. That was followed, quite independently, by the first European real-estate boom, which was triggered by the great fire of London. And since then, for 300-plus years, there has been an urban real-estate boom with occasional setbacks--but they were setbacks--and no city has disappeared or even shrunk. But, for the first time, there is reason to believe that this is over.
The great achievement of the 19th century was the ability to make people move. The great breakthrough of this century is that we can move information and ideas easily. So, is there any reason for cities? I don’t’ travel for lectures any more. I lecture by satellite from a television station that is 20 minutes from here. One of the largest insurance companies in the world is the Metropolitan Insurance Company in New York. It has its claims handled in Ireland. Most of what goes on in big cities can probably be done elsewhere instead.
Q: What will happen to cities if they are no longer industrial or information-processing centers? Will they become theme parks?
A: One scenario is that the city will become what it was in the early Middle Ages. Take Chartres. At its peak, around 1300, Chartres had probably 1,200 inhabitants, but the cathedral was built to hold 10,000 people, who were brought in by the priests on holidays. It pulsed with intellectual and commercial life. You may see the city of tomorrow as the intellectual center and the professional center. The shopping center, I’m not sure. There is only one big city in the world where public transportation still works, and that is Chicago. Los Angeles is hopeless. New York is demeaning and London is not much better.
Q: Apart from transport, what is the biggest problem facing cities?
A: Civilizing what is left of the city, creating a community in the city, is going to be the great social challenge of the next century. There was only a comparatively short period in which cities were comparatively safe, because the people who lived in them were still rural in their mentality. The family, the village, the church, these strong communities had an iron grip. The modern city has no communities in that sense. Increasingly, it is the nonprofits--the churches, social clubs, voluntary organizations, etc.--that provide the community. When I meet my new group of executive students, as I will in a few weeks, I always ask how many of you are volunteers in a non-profit and practically every hand goes up. Sometimes, a husband and wife are both working. They do not see very much of each other. But when they work with the church or the scouts or Alcoholics Anonymous, they work together.
Q: Do you think that the current wave of immigration will pose more serious problems for assimilation than previous waves?
A: Yes and no. The father of modern statistics said in the 1690s, looking at the Liverpool of his day, no city can absorb more than 6% of its population in newcomers each year. That’s about right. If you go much above that, you create turbulence. More than 6% not only strains your services, it also makes for an unstable society for two generations, though it’s amazing how fast the assimilation goes. One difference you have in this immigration from earlier immigration is not that these are not Europeans--that makes almost no difference--but that coming here doesn’t [break] them off from their original country.
Q: What do you think of Al Gore’s reinventing-government program?
A: In many ways, Gore is the most competent man in the government, though his horizon is narrow, since he has never known anything but politics. His father was a senator. His uncle was a senator. But he’s an incredibly good man and an open-minded man. But he is making a typical mistake, which is to try to do things piecemeal. Politically, that may be the only thing that you can do, but it also means that nothing happens. Can you abolish the Department of Agriculture? I think you can. All right, the farm lobby is incredibly powerful, but its only 3% of the population. All right, because of the political structure, with every state having two senators, the farm population is desperately overrepresented, but not to the point that you can’t do anything.
I think you could probably merge agriculture and commerce and have a department of the economy. Instead of which my prediction is coming true. I predicted in 1960 that, by the year 2000, there would be more employees of the Department of Agriculture than American farmers. Mr. Gore is caught between what he knows he ought to do and political reality. Cutting back on any government service is still anathema to liberals. Add to this the fact that in every developed country today, the strongest labor unions are government employees. In this country. they are probably two-thirds of our union members. So if you are a Democratic Party dependent on labor votes, cutting government services is not exactly popular.
Q: Is Newt Gingrich closer to the spirit of radicalism necessary to deal with government?
A: Newt Gingrich is probably the first political entrepreneur in America since the New Deal. The casualty rate of entrepreneurs is very high. I think he’s finished. In part because--and this is typical of entrepreneurs--they’re egomaniacs. If they’re not, they don’t succeed. And, in part because he tried to do too many things. That is also a typical mistake of entrepreneurs. If he’d concentrated on one or two things, he might have succeeded. But he attempted, for the first time since the early 1800s, to create an organized and disciplined party--probably the most original and interesting attempt in American history in many decades--and he almost pulled it off.
But I think the moment has gone, in part because of personality flaws, in part because the American public was not ready for it, or will never be ready for it. Our politics are incredibly local. The senator and particularly the congressman--their job is primarily concerned with local affairs and not national affairs. So, theoretically, we are against subsidies but this is a subsidy for artichokes and we grow artichokes. So perhaps the idea of a disciplined national party may not just be premature but impossible.
