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Self-Governing Communities

Managements have tended to reject ideas for the self-governing plant community and for the responsible worker as an “encroachment” on their prerogatives.

Of all my work on management and “the anatomy of industrial order,” I consider my ideas for the self-governing plant community and for the responsible worker to be the most important and most original. A self-governing plant community is the assumption of managerial responsibility by the individual employee, the work team, and the employee group alike for the structure of the individual job, for the performance of major tasks, and for the management of such community affairs as shift schedules, vacation schedules, overtime assignments, industrial safety, and, above all, employee benefits.

But managements have tended to reject these ideas as an “encroachment” on their prerogatives. And labor unions have been outright hostile: they are convinced that they need a visible and identifiable “boss,” who can be fought as “the enemy.” Yet what was achieved in these areas in World War II went way beyond anything that is being trumpeted today as a breakthrough, such as the highly publicized attempt to replace the assembly line at some Swedish automobile companies. This actually goes much less far than the assembly lines that have been standard in American industry, not to mention the responsibility factory-floor work teams have assumed routinely at IBM, hardly a particularly “permissive” company.

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Goal and Vision for Work

“All my life as a musician, I have striven for perfection. It has always eluded me. I surely had an obligation to make one more try.”

I have never forgotten these words—they made an indelible impression on me. Verdi, when he was my age, that was eighteen, was of course already a seasoned musician. I had no idea what I would become, except that I knew by that time that I was unlikely to be a success exporting cotton textiles. At eighteen, I was as immature, as callow, as naive as an eighteen-year-old can be. It was not until fifteen years later, when I was in my early thirties, that I really knew what I am good at and where I belong. But I then resolved that, whatever my life’s work should be, Verdi’s words would be my lodestar. I then resolved that if I ever reached an advanced age, I would not give up, but would keep on. In the meantime, I would strive for perfection even though, as I well knew, it would surely always elude me.

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“The devil finds work for idle hands.”

Work, we know, is both a burden and a need, both a curse and a blessing. Unemployment we long ago learned creates creates severe psychological disturbances, not because of economic deprivation, but primarily because it undermines self-respect. Work is an extension of personality. It is achievement. It is one of the ways in which a person defines himself or herself, measures his worth, and his humanity.

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When Regulation Is Required

It is management’s job to get the right regulation enacted.

To make elimination of a detrimental business impact into a business opportunity should always be attempted. But it cannot be done in many cases. More often eliminating an impact means increasing the costs. What was an “externality” for which the general public paid becomes business cost. It therefore becomes a competitive disadvantage unless everybody in the industry accepts the same rule. And this, in most cases, can be done only by regulation—that means by some form of public action.

Whenever an impact cannot be eliminated without an increase in cost, it becomes incumbent upon management to think ahead and work out the regulation that is most likely to solve the problem at the minimum cost and with the greatest benefit to public and business alike. And it is then management’s job to work at getting right regulation enacted. Management—and not only business management—has shunned this responsibility.

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Inflation Versus Unemployment

Inflation is the greatest threat to retired people on pensions.

Ever since the Great Depression, unemployment has been seen as both the endemic and the most dangerous disease of modern society and economy. Under pension-fund socialism, inflation can be expected to take over both roles instead. Inflation is the greatest threat to the retired people on pensions, and an equally great one to the workers over fifty with an increasing stake in the future purchasing power of their retirement benefits. Together, these two groups constitute a near-majority of the adult population. These two groups, as a result of pension-fund socialism, have a far greater interest in preventing inflation than ever existed before. A substantial constituency of this kind, sharing a common concern, is by definition a major “interest group” in the American political system and a potent political force. At the same time unemployment is far less of a threat, if a threat at all, for the “constituency” of the pension funds, that is, retired people and older workers.

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The Business Audit

The rise of pension funds as dominant owners represents one of the most startling shifts in economic history.

Even the largest U.S. pension fund holds much too small a fraction of any one company’s capital to control it. Not being businesses, the funds have no access to in-depth commercial or business information. They are not business-focused, nor could they be. They are asset managers. Yet they need in-depth business analysis of the companies they collectively own. And they need an institutional structure in which management accountability is embedded.

I suspect that in the end we shall develop a formal business-audit practice, analogous perhaps to the financial-audit practice of independent professional accounting firms. For while the business audit need not be conducted every year—every three years may be enough in most cases—it needs to be based upon predetermined standards and go through a systematic evaluation of business performance: starting with mission and strategy, through marketing, innovation, productivity, people development, community relations, all the way to profitability.

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Test of Pension-Fund Socialism

Penalties on capital formation are a luxury that a society under pension-fund socialism can ill afford.

We have so far given almost no thought in this country to the ways in which capital formation could be increased to offset the actual “dis-saving” resulting from the rise of pension costs, which springs in turn from the growth in the number of older retired people whose consumption has to be financed out of the “pseudo-savings” of employed workers. Only one thing can be said with certainty: obstacles to, and penalties on, capital formation are a luxury that a society under pension-fund socialism—and a society in which a large number of older people have to be supported in retirement—can ill afford. But one can say definitely that capital formation rather than consumption will of necessity become the central problem of domestic economic policy in the years ahead, and the acid test of the economic viability of America’s pension-fund socialism.

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Pension-Fund Capitalism

Capital market decisions are shifting from the people who are supposed to invest in the future to the people who have to follow the “prudent man rule.”

The capital market decisions are effectively shifting from the “entrepreneurs” to the “trustees,” from the people who are supposed to invest in the future to the people who have to follow the “prudent man rule,” which means, in effect, investing in past performance. Herein lies a danger of starving the new, the young, the small, the growing business. But this is happening at a time when the need for new businesses is particularly urgent, whether they are based on new technology or engaged in converting social and economic needs into business opportunities.

It requires quite different skills and different rules to invest in the old and existing as opposed to the new ventures. The person who is investing in what already exists is, in effect, trying to minimize risk. He invests in established trends and markets, in proven technology and management performance. The entrepreneurial investor must operate on the assumption that out of ten investments, seven will go sour and have to be liquidated with more or less a total loss. There is no way to judge in advance which of the ten investments in the young and the new will turn out failures and which will succeed. The entrepreneurial skill does not lie in “picking investments.” It lies in knowing what to abandon because it fails to pan out, and what to push and support with full force because it “looks right” despite some initial setbacks.

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