Peter Drucker: Markets and Socialism

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

“The market approach is commonly called “capitalist.” But this is a misunderstanding. The market approach can equally be called “socialist.” * Whether ownership is in capitalist hands or not is no longer primary. What matters is managerial autonomy and accountability. What matters is whether resources are being allocated to produce results and on the basis of results.

“The prevailing idea that the U.S. economy is capitalistic because ownership is private is a misunderstanding. Decisive ownership of American big business is in the hands of the people – that is, the hands of the mutual funds and pension funds who are the fiduciaries for the middle class and workers. Big business in the U.S. has not been nationalized, but it has largely been socialized. In terms of the classical definition, the U.S. is, at best, a mixed and may steadily be approaching a socialist economy in which the public owns the means of production. But the U.S. manages largely on the basis of local autonomy of the enterprise and allocated resources on the basis of results. It is still a market economy” (MTRP 154).

Socialist and capitalist and their conjugates have two different meanings. In one socialism means a political theory advocating state ownership of industry, or an economic system based on state ownership of capital. In another social means relating to human society, the interaction of the individual and the group, or the welfare of human beings as members of society. Clearly Drucker means the latter here. Also, by capitalist he doesn’t mean an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state. He rather means capital is a component of production, regardless of who owns it.

Increasingly the mid-sized and large firms in American industry are being owned for the benefit of employees via retirement funds and mutual funds. By 1990 – the book was published in 1973 – such funds will own 2/3rds to 3/4ths of mid-sized and large firms. The managers of these funds are the only true “capitalists” around (MTRP 293).

* Market socialism at Wikipedia. Market socialists are generally against a free market in capital. Some believe it is fine and even advocate for workers at a company to own capital of that company, but are against other private sector people, who don't work at that company, owning its capital. They believe such others owning it would exploit the workers.