Peter Drucker: The Concept of the Corporation (1946)

“To understand that the modern large corporation is the representative institution of our society; that it is above all an institution, that is, a human organization and not just a complex of inanimate machines; that it is based upon a concept of order rather than upon gadgets; and that all of us as consumers, as workers, as savers, and as citizens have an equal stake in its prosperity, these are the important lessons we have to learn. To make it possible for this new social institution to function efficiently and productively, to realize its economic and social potential, and to resolve its economic and social problems, is our most urgent task and our most challenging opportunity.” In Olivier Assayas' most recent film, Summer Hours, the economist Fredric complains that his family has no interest in his work, an allusion to how Assayas has to mask his own interest in the global economy through genre film-making (Demonlover and Boarding Gate work through issues of globalization by using the thriller genre, Summer Hours through the family drama). Fortunately, economic crises have a way of making economics attractive across the disciplines and in the public sphere. Within the humanities, the recent spurt of general interest in economics might even extend to economic sociology, but management theory remains forbidden territory, the most un-sexy of all possible interdisciplinary partners. Yet Alan Liu, Luc Boltanski, and Eve Chiapello have all made compelling arguments about how important management theory is for understanding post-Fordist transformations in work (Drucker did after all invent the term "knowledge worker"), and - at times - management theory has been an important response to economic theories that have a wider intellectual circulation. Drucker's The Concept of the Corporation is a case in point. Though it is not always apparent, Drucker, who was from Austria, was heavily influenced by Viennese corporatism and Eastern European intellectual currents, especially Joseph Schumpeter's work on business cycles and entrepreneurialism. In the acknowledgements of his definitive critique of liberal economics, The Great Transformation, Karl Polanyi thanks Drucker and Drucker’s wife for being “a source of sustained encouragement, not withstanding their wholehearted disagreement with the author’s conclusions.” Appearing two years after Polanyi’s work, Drucker’s book could be read as a response to Polanyi (whom it cites three times) that investigates how the large corporation in the 20th century might allow a new form of liberal economy to satisfactorily perform for society. In doing so, Drucker shifts Polanyi's frame of analysis from general economics to institutionalism. Drucker begins by asserting that after WWII it was undeniable to all that the large corporation had become the "representative social institution" of America. According to Drucker, any representative social institution - whether a corporation or church or government bureaucracy - must serve three functions. First, it must satisfy its own specific needs of organization and survival (the corporation must be managed well and achieve the profit needed for its continued existence). Second, an institution must be able to satisfy the desires and dreams of individuals in society (the corporation must be able to provide workers with an adequate amount of dignity and status). Third, an institution must attain certain social goods (the corporation must be a force of stability and peace in society). As an economic institution, the corporation need only concern itself with the first function of achieving profit and an adequate organization. But as a social institution, the corporation must find a way to "harmonize" all three of these functions. Drucker admits the quest for profits must be a priority since it is what allows the corporation to exist long enough to satisfy the other functions. But it is vital that the corporation “should be so organized as to fulfill automatically its social obligations in the very act of seeking its own self interest." Showing some unpersuasive optimism, Drucker argues that such a harmonizing of interests is possible. He completely commits himself to the idea that in modern American society the social good can only be achieved through corporate prosperity (barring a revolution, which he quickly dismisses). Throughout the book, Drucker objects to "collectivism" such as the Russian state-planned and state-operated economy. These objections are rather unusual, however, since they are aimed less at general ideological/political differences (though these of course are at work in his argument) than at perceived problems of social institutions. Drucker argues the Soviet economy achieves many purely economic functions quite well, yet fails to satisfy certain institutional needs - the production of leaders, the satisfaction of non-economic social aspirations, the reconciliation of social and individual interest. Drucker's neo-liberal tendencies are restrained by his engagement with Polanyi's critique of liberal economics. Although Drucker believes the government should not directly intervene in the market and free enterprise, he does accept the use of government regulation to protect certain aspects of society from the market. He has in mind Polanyi's trio of labor, land, and money, three things which are only "fictitious commodities" and therefore in need of government intervention. In one note, Drucker admits he finds Polanyi's analysis "brilliant," but cryptically adds he considers Polanyi guilty of "economic absolutism." What Drucker appears to mean is that in contrast to Polanyi he believes the market does not need to become a total market society or be replaced by a non-market economic organization. By shifting from economics to institutionalism, which is evident in his preference for the term "free enterprise" to "free market," Drucker argues not only can the market be effectively constrained by political action aimed at large industries, but also the corporate form is a particularly powerful means for making the market serve the social good (he points out that a capitalist society of small businesses would be unable to satisfy many of the same social functions). Yet as Boltanski and Chiapello point out, management theory tends to be prescriptive rather than descriptive, describing corporate capitalism as it should be rather than as it really is. Though Drucker repeatedly rejects socialist collectivism as too "utopian," history has made his own corporatism seem equally unrealistic.