The AIG debacle brings to life Peter Drucker's warning about how societies can suddenly unravel, writes Rick Wartzman
Soon after I was hired as the director of the Drucker Institute a couple of years ago, one of my board members passed along a short piece that he described as "the keystone" of Peter Drucker's work and told me to pay close attention to what it said.
It was the preface to the 1973 edition of Management: Tasks, Responsibilities, Practices. Drucker entitled the composition "The Alternative to Tyranny."
I read it over a couple of times and then zipped off a note to Bob Buford—a cable-TV pioneer, social entrepreneur, author, and a dear friend of Drucker's—thanking him for having shared the essay with me.
But the truth is, I didn't really appreciate what it was all about—at least not until this week, when the firestorm erupted over AIG (AIG).
Trusting "Large Organizations"
"Our society has become, within an incredibly short 50 years, a society of institutions," Drucker wrote. "It has become a pluralist society in which every major social task has been entrusted to large organizations—from producing economic goods and services to health care, from social security and welfare to education, from the search for new knowledge to the protection of the natural environment.
"To make our institutions perform responsibly, autonomously, and on a high level of achievement is…the only safeguard of freedom and dignity" in a society like ours, Drucker added. "But it is managers and management that make institutions perform. Performing, responsible management is the alternative to tyranny and our only protection against it."
Frankly, this last passage had always struck me as more than a little over-the-top. Sitting in sunny Southern California, the prospect of totalitarianism seemed awfully remote. I couldn't even begin to fathom how we'd ever slip into such a state.
But then AIG, the insurance giant bailed out by Uncle Sam, decided to pay out $165 million in bonuses to many of the same employees who'd wrecked the company's fortunes in the first place and nearly undermined the nation's financial system in the process. Suddenly, Drucker's words made sense.
"Appalled by the Greed"
Let me be clear: I'm not at all suggesting that we're about to fall into the grip of some 21st century strain of Stalinism. Let me be equally clear that what AIG did—making "all kinds of unconscionable bets" on the housing bubble, as Fed Chairman Ben Bernanke has put it, and doling out these outrageous "retention payments"—should not be countenanced in any way.
And I am confident that Drucker would have felt the same. "I am appalled by the greed of today's executive," he declared in 2000, referring to those more interested in generating short-term gains than building sustainable businesses.
Yet Drucker, I think, would not only be disgusted by AIG's conduct; he would also cast a nervous eye at some of the reaction to it.
Indeed, the fact that so many have been clamoring for the government to abrogate unilaterally the contracts covering those AIG bonuses (maddening as they are); that Representative Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, asserted we should "forget about the legal matter here for a second"; that armed guards have been posted at AIG's offices in the face of death threats; that a U.S. senator (Charles Grassey—R-Iowa) has called on AIG executives to "resign or go commit suicide"—it all goes to the heart of what Drucker was getting at. When managers are irresponsible, when major institutions fall apart, we as a society leave ourselves open to unforeseen and sometimes extreme responses.
"Crisis of Belief"
Drucker's unease grew straight out of his early experiences in Europe, where he watched the Nazis rise to power. His first major book, 1939's The End of Economic Man, explored how "a society built around the market (the major social institution of the 19th century)…had failed, and that this had 'destroyed the belief in capitalism as a social system,'" Drucker's biographer, Jack Beatty, has noted. "The Great War and Depression made this crisis of belief a reality for millions."
Wrote Drucker: "These catastrophes broke through the everyday routine which makes men accept existing forms, institutions and tenets as unalterable laws. They suddenly exposed the vacuum behind the façade of society."
Looking for a miracle, the masses turned toward what Drucker termed the "abracadabra of fascism."
The U.S., as I said, is certainly in no real danger of sliding into dictatorship. But this week, we got the tiniest glimpse of what Drucker was writing about in that preface to Management—and a warning about what could happen if we keep going down the road we're on.
If nothing else, we'd be fools to take for granted that our way of life will always be here, undisturbed. "We are learning very fast," Drucker said in a far-seeing 1996 interview, "that the belief that a free market is all it takes to have a functioning society…is pure delusion."
For me, the AIG debacle has made it plain: As our managers go, as our institutions go, so goes the health of our economy—and maybe our democracy, too.