Decomposes the management theorist’s postwar oeuvre, exposing key tenets of his ‘social ecology’. Much influenced by Bagehot, Drucker’s views reflect his time in Weimar Germany as well as his interests in the contemporaneous emergence of management and the knowledge economy. Notable principles:
• The strongest argument for business as a social organization is the function of loss: efficient abandonment
• There are three models of the corporation: the German, which emphasizes the social market; the Japanese, which favors the social; and the American, which prioritizes the economic
• Management creates development, not capital or labor. The proper direction of human energies generates progress and wealth (p. 56), whereas central planning cannot master information and its productive use
• Management is a practice, drawing from other disciplines as well as its own precepts. It must emphasize the whole – focusing on the parts obscures the objective of serving customers
• The question ‘what is our business?’ can be answered only by outsiders, for the purpose lies in society, and its mission is to create customers
• A theory of a business entails assumptions about its environment (society, marketing, custom, technology); its mission (what are the expected results); and its core competencies. A business audit comprises mission and strategy, the relevant market, innovation, productivity, people development, and profitability
• The innovator makes most of the profit, and profit is short lived. Nonetheless, he has best seen the future, which has already happened
• Schumpeter always asks: is there sufficient profit to re-invest? That is, to pay for the cost of creative destruction
• Leadership lifts men to higher ends. Day-to-day management should therefore emphasize strict conduct and responsibility, performance standards, respect for an individual’s work. Leadership multiplies strengths. Its requirements are listening, communicating, not making excuses, and subordinating itself to (its share of) the task (i.e., management by objective)
• Authority and responsibility should be congruent
• The first task in assessing knowledge work is to define quality
• The most effective route to self-renewal is to pursue unexpected success
• Focus on strengths, improve strengths, reduce disabling habits
• Decisions: start with what’s right, not what’s acceptable. There are two compromises, when half is better and when the compromise does not reach the boundary condition. Then build action into the decision: who has to know? who’s to act? what are the objectives of action?
• Managers set objectives, organize, motivate and communicate, measure, and develop people. Manage to objectives, using control, that is the discipline of reaching excellence
• The organizational unit must be single-minded or its members become confused
• To measure knowledge-work productivity, measure EVA (economic value added): value added / expenses. Capital investment should be assessed by ROI, payback, cashflow, and discounted present value
Month: January 2022
22. Duggan, A Concise History of Italy (27 Dec 2018)
Narrates Italian history since unification in 1861, when Piedmont-led monarchists annexed republican southerners. Through the 1990s, government alternated between idealism and materialism, but generally operated as a one-party state compromised by the burden of southern economic development. Italy traditionally lacked the agriculture of Europe’s northern plain, has no navigable north-south rivers to facilitate trade and communications, was for many years plagued by malarial swamps that forced people into the hills, and until 1850s, silk was its only major industry. Italy’s ruling class was small, with comparatively fewer commercial interests and more landowners. Roman cities persisted into the medieval ages, presaging a tradition of communal autonomy. Venice, Milan, Genoa, and Florence (along with Paris) were the five great cities of the early 14th century, the Florentines and Venetians being strongly republican, with imperial (Ghibelline) vs papal (Guelf) rivalries also prominent. Charles V’s 1530 conquest brought the Catholic Church patronage: the Counterreformation revitalized 16th-century Rome; the opening of Atlantic trade marginalized the great trading cities. The Napoleonic era resurfaced the national question. 1848’s failed uprising against ruling Austria showed lack of unity among federalist moderates and democrats. Over the next decade, Piedmont king Victor Emmanuel accepted the principle of the executive answering to parliament, not the crown. Prime minister Cavour, seeing the need for an ally, struck a secret treaty with France and then provoked Austria in 1859, drawing in the French, who won a minor engagement at Solferino and then concluded an armistice; Savoy and Nice were traded in exchange for Piedmont’s annexing Lombardy; the central states were to revert to Austrian-supported rulers but instead asked join Piedmont. Separately, Garibaldi’s volunteers swept the south and then conceded at Teano. Unification was completed by Prussia’s 1866 defeat of Austria, which gifted Italy the Veneto, and 1870 victory over France, which brought Rome. Northerners dominated government; with the latifundi frustrating reform and excluding southern peasants from voting, legitimacy was a problem. One-quarter of manufacturing jobs were in textiles; emigration was widespread; an economic surge in the first decade of the 1900s depended on remittance. Giolotti, the predominant figure prior to Mussolini, failed to ‘transform’ the socialists into a parliament party, to build intellectual support of the liberal state. Followers of Croce’s neo-idealist, anti-socialist La Voce and the Futurists paved the way for corporatist fascism. Italy entered World War I by result of secret diplomacy; the effect of the war was to increase fragmentation; Italy overreached at the Paris peace conference and so didn’t get Dalmatia or Fiume. D’Nunzio’s 1924 occupation of the Adriatic city forced the one-time socialist Mussoilini to move rightward. Mussolini wasn’t part of the March 1922 march on Rome – his appointment was constitutional – and until 1927 he was forced to alternate between conciliating the establishment and movement faithful. The Acerbo bill legally provided the fascists 2/3ds parliament. Fascism was never an ideology, never strong enough to do more than temporize. By the 1930s, the Romantic, rank-and-file angry young men (or junior WWI officers) had become a church-going family man. But as they were unqualified to run the state, the liberal machinery was never abolished, the bureaucracy never aggrandized, the police independent (until 1940). Italians believed they gained security in exchange for loss of freedom. Mussolini’s economic policy was hodge-podge, despite controlling 20 percent of industry (second-highest in Europe, behind the USSR), and there were no gains in the south. Consequently, although jealous of Hitler, Mussolini was ill-prepared for war and performed poorly in Greece. The slowness of 1943’s Allied counterattack mean partisan resistance formed in the north (unlike southern liberation). After the war, the monarchy was narrowly abolished but general amnesty granted, so fundamental disagreement remained. The Christian Democrats ruled an essentially one-party state via Church support (against the PCI) and southern clientelism; the lightly planned economy favored northern industrialization (i.e., rising employment and materialism) as well as EEC membership. Notwithstanding legislation to break up the estates, the price was continued southern subordination. Regional autonomy (from 1970) introduced a degree of leftist influence (in the red zone of Tuscany, Umbria, and Emilia-Romagna, while post-1968 industrial unrest was channeled into constitutional forms, marginalizing the Communists. The postwar system collapsed in the 1980s; the northern separatists Forza Italia (and Berlusconi) rose in 1994, via the latter’s domination of mass media. The country just squeaked into the Euro, potentially exacerbating an internally conflicted nation.
23. Buchholz, New Ideas from Dead Economists (25 December 2021)
A laymen’s portraiture of the giants of classical economy, coming to dwell on Keynes’ 20th-century predominance. Since Smith, the field has sought for a Newtonian (i.e., physical or cause-and-effect) set of laws governing socioeconomic activity but instead settled on a more Darwinian (biological or dialectical) approach, premised on any number of phenomena.
• Ricardo: specialization is determined by whomever has the lowest opportunity cost. Therefore, prudential reshoring is simply a revaluation of cost – it cannot be left to agency bust must be principally viewed (but see also ‘transfer earnings’)
• Mill: positive economics describes (predicts) the world as it works, as it should normatively govern a set of morals or ethics. When otherwise, there is need for reform. Following Burke, he sought for equality of opportunity; equally so, it is government’s obligation to demonstrate the likelihood of an intervention’s improving matters.
• Marx: economic changes are cause-and-effect, social changes (in the so-called superstructure) are ideological and potentially revolutionary. The Marxist focus on labor value shortchanges capital including ideas (entrepreneurship) and delayed gratification, which are not free goods
• Marshall: marginalism asserts the past is over, what counts is what’s nest. Microeconomics hold actors take new steps only if benefits outweigh the costs: man is not a constant. Look at one factor at a time, impound the rest
• ‘Old’ institutionalists hold that large (private) firms belied marginalism. ‘New’ institutionalists use Marshall’s neoclassical tools to study how firms influence society. For example, does efficiency equate to justice? The latter also identified the principal agency problem
• Keynes: when consumers boost savings and investment, so will merchants, thus decelerating the economy in times of crisis. Say’s Law (production creates demand) is false. He was, however, a capitalist: not robber barons but national actors cause slumps. Keynes’ multiplier theory (government pump priming) is contemporary economic evidence of progressive belief in expertise.
• Monetarism holds velocity is more stable than in Keynes’ view, so money supply is government’s foremost tool. Government spending does not influence price unless money also changes. In the 1980s and afterward, saving reduced velocity, as did inflation’s fall. Friedman (not Hayek, who gets little attention) is emblematic
• Public choice: government too is self-interested. Keynes seemed to be aware progressivism undermines popular sovereignty but offered no answer to the principal-agency problem. Instead he felt the bureaucrats meant well.
• Feldstein, Boskin, Krugman, Summers et al focus on aggregate supply, coalescing around government and productivity, toward improved living standards, which requires investment, which entails tuning the tax regime
• Deduction seeks conclusion in incontrovertible laws; induction in recognizing more limited patterns and unprovable hypotheses that lead to predictive models. Put another way, the more or the more importance that can be attributed to law, the more deduction pertains; the less, the more induction holds. Relatedly, Friedman observed the test of a model is its predictive value not its ex ante accuracy
The author touches on ‘rational expectations’, a somewhat nihilist approach, and behavioralism; the book is too early for modern monetary theory. Using a droll style, large free of technical terms (and no charts), the author often projects a protagonist’s conclusions forward to the 1980s and 90s.