This article explains how government must reinvent economic and regulatory policies to match today's marketplace.
If the challenge facing us is to design a system of government that functions without choking off enterprise, then Democrats and Republicans alike are asking all the wrong questions
We must disenthrall ourselves from the past. Otherwise it becomes a barrier to progress.
-- Abraham Lincoln
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The world we are moving away from is one that has its tentacles wrapped firmly around our minds.
-- Jeffrey Eisenach, president, Progress & Freedom Foundation
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Government -- federal and state -- must reinvent economic and regulatory policies and processes to match the realities of an altered world. Not refurbish or refine them; re- invent them.
"Every few hundred years in Western history," Peter F. Drucker wrote in Post-Capitalist Society (HarperBusiness, 1993), "there occurs a sharp transformation. . . . Within a few short decades, society rearranges itself -- its worldview; its basic values; its social and political structure; its arts; its key institutions. Fifty years later, there is a new world. And the people born then cannot even imagine the world in which their grandparents lived and into which their own parents were born. We are currently living through just such a transformation."
Drucker was writing that in 1992, when House Speaker Newt Gingrich was still a bratty congressman from Georgia and Bill Clinton was running for president as the candidate of change. The fact that politics in America has been turned on its head since then is a good indicator that Drucker knew what he was talking about. Another indicator, less grand in scale but just as dramatic because of what it says about the effects of transformation on people's lives, is what's happened to the Staffords and the business they're struggling to run, Kiva Container, in Phoenix. (See "There Are No Simple Businesses Anymore," [Article link].)
Kiva is struggling to accommodate itself to ongoing, pervasive changes that it didn't foresee, doesn't fully understand, and can't accurately predict. Some companies, like Kiva, are doing a pretty good job of responding to, if not always anticipating, those changes as they affect markets, relationships with suppliers and customers, and the technology of their business. They could do a better job if they didn't also have to contend with government policies more appropriate to the end of the last century than to the end of this one.
It's taken a couple of hundred years to invent and build the body of laws, regulations, and institutions that have seen the nation through the industrial age. The challenge facing policy makers -- which includes all of us, since this is still a republic -- is not to ask what new regulation or income-tax rate we need. Such questions assume the need for such things. Neither is the challenge to demagogue for smaller -- or larger -- government. It's not the size of government that matters but how it governs. The challenges are to figure out what we are trying to accomplish and to find the best way to get it done. Among other things, we'll need imagination, open minds, a willingness to discard old assumptions, and an ability to embrace uncertainty.
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Applying Knowledge to Knowledge
In January, just as the new Republican majority was settling into Congress, Jeffrey Eisenach opened a daylong seminar sponsored by the Progress & Freedom Foundation, which he founded and heads, by referring to "the general crisis of industrial society." It was a theme he may have picked up from futurist Alvin Toffler, the day's first speaker, who, in Creating a New Civilization: The Politics of the Third Wave (Progress & Freedom Foundation, 1994), wrote: "It has belatedly begun to dawn on people that industrial civilization is coming to an end."
Hyperbole? Hardly. It's pretty clear to anyone in business today that whatever is happening out there, it's not just more or less of the same. The by-now conventional explanation for what baffles us daily is that we're seeing a shift from a world economy based on industrial production to one based on information.
But what does that mean? Alvin and Heidi Toffler tend to hyperventilate over their own constructs: the "wave theory of conflict," for instance. Their books are good reads, but Drucker's cooler analysis is more pragmatically revealing.
Drucker divides the industrial age into two periods, both the result of a change in the nature of knowledge. Until the early 1700s, craftsmen made things -- shoes, plates, everything -- but how they made them was essentially a mystery, passed from father to son. The industrial age emerged as scholars and what we might today call engineers learned that they could collect and organize information about what people did. "The speed of technical change created demand for capital way beyond anything the craftsman could possibly supply," wrote Drucker. "The new technology also required concentration of production, that is, the shift to the factory. Knowledge could not be applied in tens of thousands of small individual workshops and in the cottage industries of the rural village."
The second phase, which didn't begin until early in this century, Drucker calls the productivity revolution, which he credits to Frederick Winslow Taylor. Taylor analyzed and reengineered the work being done in those primitive 19th-century factories. Work, after all, had been around as long as people had, but as a subject of study, it had been beneath the attention of the well-to-do. It was the lot of the less fortunate. Taylor reasoned that if you studied and understood work, then you could teach it.
Taylor's greatest impact, according to Drucker, was felt in training. A hundred years before Taylor, Scottish economist Adam Smith assumed that it would take a region at least 50 years of experience to acquire new industrial skills. But in two world wars, the United States applied Taylor's training techniques to convert farmers and housewives into productive industrial workers in just a few months' time. Drucker argues that most of the economic gains from the Industrial Revolution are due to Taylor's work: "Technologists give the credit to machines, economists to capital investment. Yet both were as plentiful in the first hundred years of the capitalist age, before 1880, as they have been since. . . . But there was absolutely no increase in worker productivity during the first hundred years -- and consequently very little increase in workers' real incomes or any decrease in their working hours. What made the second hundred years so critically different can only be explained as the result of applying knowledge to work."
