[shrinkermd]

Marvelous article by a marvelous man. Fortune costs a pittance but remains well written, insightful and helpful to anyone who invests or thinks about current economic and political conditions.

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[backhoe]

Information technology forces you to organize your processes more logically. The computer can handle only things to which the answer is yes or no. It cannot handle maybe. It's not the computerization that's important, then; it's the discipline you have to bring to your processes. You have to do your thinking before you computerize it or else the computer simply goes on strike.

Eerily enough, I recall a snippet from a book whose name is forgotten, written ( possibly- it's been decades ) by Roberto Vacca, which asserted that it wasn't "computerizing" a business that made it more efficient so much as it was the re-thinking of processes necessary to implement the computer's use.

A streamlining of how things were done that eliminated redundancies, cut out deadwood, etc.

[TrueBeliever9]

I attended a lecture Drucker gave at Wharton in 1990 or 91 (can't fix the date). He spoke for over an hour without one note and he was superb! You could hear a pin drop in the hall! His books are still unsurpassed in depth and thoughtfulness. Peter Drucker is an American treasurer!

[Cold Heat]

I will bump this one!

[RAY]

Thanks for the post. A very interesting take. Thought provoking - different from some of my impressions.

[hedgie]

Good article, but I think he may have it backward about owing debt denominated in USD as opposed to currency. My understanding was always that issuing debt denominated in foreign currency is what got you in trouble.

If the US issues debt denominated in dollars then those dollars have to be repatriated in the end of the day.

The vast majority of Japan's debt is denominated in Yen by the way. Dollar denominated bonds are typically issued by emerging countries.

[Lael]

In part this is because knowledge work by definition is highly specialized, and that means that the utilization of the knowledge worker tends to be very low.

Wow!!!

This slug was one of the dudes that tried, several decades ago, to "cool out the mark [manufacturing workers] by telling them to "retrain" and become Knowledge Workers.

NOW, he says Knowledge Workers are abysmally UNPRODUCTIVE and Thank G-D for OUTSOURCING!!!

Talk about Chutzpah!!

[firebrand]

He spoke at my older sister's high school graduation (his son was in her class). Little did we know who we were listening to. Most of it went right past us--past me, anyway.

[bvw]

... productivity in white-collar work ... whenever we look at it, it is grotesquely unproductive ... productivity is dismal. In part this is because knowledge work by definition is highly specialized, and that means that the utilization of the knowledge worker tends to be very low.

The inefficiency of knowledge workers is partly the legacy of the 19th-century belief that a modern company tries to do everything for itself. Now, thank God, we've discovered outsourcing, but I would also say we don't yet really know how to do outsourcing well. Most look at outsourcing from the point of view of cutting costs, which I think is a delusion. What outsourcing does is greatly improve the quality of the people who still work for you. I believe you should outsource everything for which there is no career track that could lead into senior management.

Okay. This is typical Drucker. He does identify and have an insight about a failing in business. But he misses why it is there. He brushes off a "legacy of the 19th-century belief" -- aw gee, if it were ONLY such. What other 100 plus year old faulty legacies are there in business? I can't think of ONE.

He doesn't really understand WHY the problem has lasted. In fact, given that the highest skill craft workers are also knowledge workers -- designers, tool makers, etc and those trades have been around for one hundred plus as well, you might wonder why this cultural problem in business hasn't already been addressed and healed long ago.

And failing to give a reason, to identify why the problem is sustaining, if not growing, he has no solution to it.

[maui_hawaii]

Wage cost is of primary importance today for very few industries, namely ones where labor costs account for more than 20% of the total cost of the product—like textiles. I don't know what proportion of the cost of a typical American product is attributable to labor, but it's a small and shrinking one. Take automobile parts. Because of my consulting, I happen to know the internal cost structure for one of the world's biggest auto parts makers. They tell me that it is still very much cheaper to produce in this country—or maybe in conjunction with a maquilladora plant along the Texas-Mexico border—than to import, because the parts, while labor-intensive, are also very skill-intensive to design and make. When that's the case, you're still better off producing in this country. So the belief that labor costs are a main reason for producing outside the U.S. is justified for only a very small segment of industry.

That calls for a mega-bump

The issue that I would take though is as follows:

Consequently, the industries that are moving jobs out of the U.S. are the more backward industries.

No, not really. From a sheerly theoretical perspective he should be right. He isn't taking into account market interruptions and predatory practices from one country to another.

I know we always hear about China's currency, but here's another example of that just to show a point.

Laptop manufacturers have found a way to discount the price of their wares.

If the components of the laptop yada yada make up 95% of the cost ...the components should cost the same then manufacturing should be done here.

Yet because of some economic practices in China, the computer companies are getting a 'dollar discount' by manufacturing in China.

The competitive environment between the two countries is not on equal footing.

[happygrl]

Kudos to Drucker.

I agree, he is a marvelous thinker.

He predicted the demise of the USSR simply by noting that it was the first industrialized country in history to experience a lowering of life expectancy.

He has also written that when a society experiences an influx of foreign born to where they are over 5%, it is too much to assimilate successfully, resulting in societal tension.

He's like that old commercial; when he talks, we should listen.

[Mel Gibson]

The dominance of the U.S. is already over. What is emerging is a world economy of blocs represented by NAFTA, the European Union, ASEAN. There's no one center in this world economy. India is becoming a powerhouse very fast. The medical school in New Delhi is now perhaps the best in the world. And the technical graduates of the Institute of Technology in Bangalore are as good as any in the world. Also, India has 150 million people for whom English is their main language. So India is indeed becoming a knowledge center.

Holy cow, it's because the U.S. doesn't produce anything with outsourcing being the coup de gra.

[The Raven]

Hmmm...if the unskilled labor market is dissolving - so too is the demand for political propagandists ("...watch out fo the little guy", "....tax the rich")- the Dems will need another path.

I don't see it, however. Our decades long neglect of primary educaion will bite us hard.

[Benrand]

In China, however, the likelihood of the absorption of rural workers into the cities without upheaval seems very dubious.

This is very true, you don't hear about it much, but there are scores of workers who literally INVADE cities looking for work...China is pretty screwed up.

[laredo44]

Bump for optimism over pessimism.