Guest Post: We're Living Through A Rare Economic Transformation

Tyler Durden's picture

Submitted by Charles Hugh-Smith via Peak Prosperity,

In 1993, management guru Peter Drucker published a short book entitled Post-Capitalist Society.  Despite the fact that the Internet was still in its pre-browser infancy, Drucker identified that developed-world economies were entering a new knowledge-based eraas opposed to the preceding industrial-based era, which represented just as big a leap from the agrarian-based one it had superseded.

Drucker used the term post-capitalist not to suggest the emergence of a new “ism” beyond the free market, but to describe a new economic order that was no longer defined by the adversarial classes of labor and the owners of capital. Now that knowledge has trumped financial capital and labor alike, the new classes are knowledge workers and service workers.

As for the role of capital, Drucker wryly points out that by Marx’s definition of socialist paradise that the workers owned the means of production (in the 19th century, that meant mines, factories and tools) America is a workers’ paradise, because a significant percentage of stocks and bonds were owned by pension funds indirectly owned by the workers.

In the two decades since 1993, privately owned and managed 401K retirement funds have added to the pool of worker-owned financial capital.

Drucker’s main point is that the role of finance and capital is not the same in a knowledge economy as it was in a capital-intensive industrial economy that needed massive sums of bank credit to expand production.

How much bank financing did Apple, Oracle, Microsoft, or Google require to expand?  Investment banks reaped huge profits in taking these fast-growing knowledge companies public, but these tech companies’ need for financial capital was met with relatively modest venture-capital investments raised from pools of individuals.

That the dominant knowledge-based corporations had little need for bank capital illustrates the diminished role for finance capital in a knowledge economy.  (This also explains the explosive rise in the 1990s and 2000s of financialization; i.e., excessive debt, risk, leverage, and moral hazard.  Commercial and investment banks needed new profit sources to exploit, as traditional commercial lending was no longer profitable enough.)

In a knowledge economy, the primary asset knowledgeis “owned” by the worker and cannot be taken from him/her.  Knowledge is a form of mobile human capital.

In Drucker’s view, knowledge, not industry or finance, is now the dominant basis of wealth creation, and this transformation requires new social structures.  The old industrial-era worldview of “labor versus capital” no longer describes the key social relations or realities of the knowledge economy.

The transition from the industrial economy to the knowledge economy is the modern-day equivalent of the Industrial Revolution, which transformed an agrarian social order to an industrial one of factories, workers, and large-scale concentrations of capital and wealth.  These major transitions are disruptive and unpredictable, as the existing social and financial orders are replaced by new, rapidly evolving arrangements.  As Drucker put it, the person coming of age at the end of the transitional period cannot imagine the life led by his/her grandparents the dominant social organizations that everyone previously took for granted have changed.

Following in the footsteps of historian Fernand Braudel, Drucker identifies four key transitions in the global economy:  in the 1300s, from a feudal, agrarian economy to modern capitalism and the nation-state; in the late 1700s and 1800s, the Industrial Revolution of steam power and factories; in the 20th century, a Productivity Revolution as management of work and processes boosted the productivity of labor, transforming the proletariat class into the middle class; and since the 1990s, the emergence of the Knowledge Economy.

In Drucker’s analysis, these fast-spreading economic revolutions trigger equally profound political and social dynamics. The dominant social structures that we take for granted labor and capital, and the nation-state are not immutable; rather, they are the modern-day equivalent of the late-1200s feudal society that seemed permanent to those who had known nothing else but that was already being dismantled and replaced by the Renaissance-era development of modern capitalism.

From this perspective, the nation-state is no longer indispensable to the knowledge economy, and as a result, Drucker foresaw the emergence of new social structures would arise and co-exist with the nation-state.

Drucker summed up the difference between what many term a post-industrial economy and what he calls a knowledge economy this way: "That knowledge has become the resource rather than a resource is what makes our society 'post-capitalist.'  This fact changes fundamentally the structure of society.  The means of production is and will be knowledge."

Knowledge and Management

As we might expect from an author who spent his career studying management, Drucker sees the Management Revolution that began around 1950 as a key dynamic in the knowledge economy.  The lessons in management learned from the unprecedented expansion of U.S. production in World War II were codified and applied to post-war industry, most famously in Japan.

This is the third phase of knowledge being applied to production.  In the Industrial Revolution, knowledge was applied to tools and products.  In the second phase, knowledge was applied to work flow and processes, enabling the Productivity Revolution that greatly boosted workers’ productivity and wages.  The third phase is the application of knowledge to knowledge itself, or what Drucker terms the Management Revolution, which has seen the emergence and dominance of a professional managerial class, not just in the private sector but in the non-profit and government sectors.

The nature of knowledge has changed, in Drucker’s analysis, from a luxury that afforded the Elite opportunities for self-development, to applied knowledge.  In the present era, the conventional liberal-arts university education produces generalists; i.e., a class of educated people.  In terms of generating results in the world outside the person, knowledge must be effectively organized into specialized disciplines that incorporate methodologies that can be taught and applied across a spectrum of people and tasks.

Drucker characterizes this as the movement from knowledge (generalized) to knowledges (applied, specialized).  Organizations can then focus this methodical knowledge on accomplishing a specific, defined task or mission.

Though it may seem incredulous to us, Drucker observes that the current meaning of “organization” was not listed in the authoritative Oxford dictionary of 1950. While social groups and organizations have existed for as long as humanity itself, Drucker distinguishes between the traditional “conserving institutions” of family, community, and society, and the destabilizing post-capitalist “society of organizations” that is adapted for constant change.

Organizations require management, and in the knowledge economy, that means managing change and helping the organization learn how to innovate.  Innovation can no longer be left to chance; it must be organized as a systematic process.

Without a systematic process of constant innovation, organizations will become obsolete.

Drucker takes this process of innovation one step further and concludes that this requires decentralization, as this is the only means to reach decisions quickly based on performance, and proximity to markets, technology, and the environment.

Though he doesn’t state it directly, this means that the highly centralized sectors of the economy, from finance to government, will be disrupted by a rapidly evolving, decentralized “society of organizations.”

What Work Will Be In Demand (and What Won't) in the Future?

So if this is the nature of the new economy, what type of worker will be most in demand?

Will your current industry, job, or skill set be as relevant? Are there steps you can start taking now to defend or increase your future market value?

In Part II: Positioning Yourself to Prosper in the Post-Capitalist Economy, we examine what impact these transformational forces will have on us as individuals, households, and communities, and how we can best prepare for the fast-evolving knowledge economy.

The global economy has only experienced three major transformations in the past 1,000 years, and arguably, we are living through the fourth. Those who understand the nature of this transition and position themselves intelligently will be disproportionately better off a topic covered fully in my earlier report on The Future of Work.

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jonjon831983's picture

Even Bill Gross sees the writing on the wall (or he is having nervous breakdown and is trying to say more negative things to relieve pressure on him):

rotagen's picture

As long as we hang those Rockefuckers that were responsible for this scam, all is well.

The Second Rule's picture

Stop being a supporter and producer for an exploitative, cannibalistic system:

rbg81's picture

Uh, okay. None of this is really new.  I've been hearing variations on this theme since at least 1980.  I actually think that "labor" as we know it is splitting into the following groups:

1.  Elite - CEOs, National (or trans-National) Politicians, Super-Investors - Top 0.1%

2.  Knowledge Workers - CEOs and corporate officers of mid-small companies, lawyers, university professors, bureaucrats, Gurus of any discipline.  Top 5-10%

3.  Skilled Labor - Highly skilled production workers, engineers, software developers, surgeons, plumbers, electricians, etc.  These people will continue to tread water or marginally prosper.  Their skills are essential and cannot be easily automated or replaced.

4.  Drones - Lower-mid level management, lower-level bureaucrats (or clerks), and marginally skilled production workers.  The group MOST at risk due to increasingly advanced information technology, AI, and automation.  For many of these people, its just a matter of time till their jobs are eliminated.  BTW--many doctors are IN this category.

5.  Unskilled labor - Unskilled production workers, fast food workers, custoidans, bartenders, wait staff, ditch diggers.  These people will continue to have jobs, but at increasingly reduced wages.

6.  Freaks - People willing to debase themselves for $$.  Sex-workers come to mind most readily, but I'm sure there are more categories.  A definite growth area.

7.  Wards of the State -- People who have given up or are (for all practical purposes) unemployable.  These people will be given just enough to subsist.  Thanks to modern electronics, they will be kept entertained and largely docile.  Perhaps the BIGGEST growth area.  Look for the Drones, worn-out Unskilled labor, burned-out Freaks to increasingly join this group.

TwoHoot's picture

No it isn't new. Alvin Toffler nailed it in four books spanning 30 plus years:

Future Shock (1970)

Third Wave (1980)

Power Shift (1990)

Revolutionary Wealth (2006)

The groups and problems you mention are a natural part of the shift from the Industrial Age to the Knowledge Age.


DoChenRollingBearing's picture

Actually we have seen some of this in Peru!   The fleet is ever changing there (much more so than here in the USA).

What this means for us, is that if we can find out the new pieces for recently imported cars, then we have a jump start vs. our competitors.  A lot of our competition is a little stodgy, they do not aggressively go out and seek information.  Recently, we have introduced two new pieces into Peru that were not even there before (for Japanese car wheels, new-ish cars) , we had our Chinese supplier just make them up for us.  They complied..., we did not have to order 5000 pieces, for example.  And, for the moment, we have a monopoly on these bearings and "Hub & Bearing Assemblies".


Knowledge that leads to extra profits.  Drucker is right at least to this degree.

CheapBastard's picture
Disney to begin layoffs in studio, consumer products


LOS ANGELES (Reuters) - Walt Disney Co expects to begin layoffs at its studio and consumer product divisions within the next two weeks, according to two people with knowledge of the matter, in the latest cost-reduction step to emerge from a company-wide review.

The studio job cuts will center on the marketing and home video units and include a small number from the animation wing, said the sources, who spoke on condition of anonymity because the plans had not been made public.

It is unknown how many jobs will be lost at either division.

otto skorzeny's picture

hopefully their parks will be shuttered in a few years by the time my kids are old enough to go.

Skateboarder's picture

You gotta admit, Robin Williams kills it in Alladin.


Dr. Engali's picture

We left Disney four days ago.we spent almost $7,00 for one day in the "Magic Kingdom" and we got to go on 8 attractions. Our intention was to stay for two days then head for Vero Beach,but the only one who really enjoyed the whole day was my six year old. So we left and we will never go back again. It was a big over hyped commercialized waste of money.

hannah's picture

"We left Disney four days ago.we spent almost $7,00 for one day" spent $7.00 ...?! cheap bastard....!

nightshiftsucks's picture

Need to go during the slow periods,it's a lot of fun and a great way to spend time with your family.

jonjon831983's picture

Kinda disconcerting the number of layoffs at large corps in recent times...


But DIS? I thought they were doing well.

Let me guess, they'll then hire some of these people back as unpensioned consultants.

DoChenRollingBearing's picture

Or part-time...  (to avoid Obamacare)

HD's picture

They shutdown LucasArts. Done. 

tickhound's picture

"Knowledge that leads to extra profits.  Drucker is right at least to this degree."

To be honest you haven't seen any of this in Peru because you don't know whatthefuck he was really talking about...

This isn't about knowledge leading to profits and "competitors" and "imported cars" dude.

What he's saying is.... "LABOR IS NO LONGER A FACTOR"

And since KNOWLEDGE should be free and universal for ALL OUR BETTER-MENT, for technology to disseminate... meaning either we HAVE the resources or we DON't... Your Financial Advisor is shit out of luck.  Your BANKER is unnecessary.  Many LAWS are unnecessary.  LAWYERS are a sideshow.  MARKETEEEEERS are obsolete, ADVERTISERS are gone.  Knowledge isn't about BEING AFFORADABLE.  And it certainly isn't about MARKETING. 

The reason why you believe he to be right "at least" in this degree is because you can't get past a growth and PROFIT model....

He's correct about our future in more ways than you seem to comprehend.  If you understand "transformation" as Smith often suggests... he means it LITERALLY.

Knowledge isn't to be proprietary.  It just IS.  And Humanity can either perform tasks or it can't.  It is no longer about LABOR. 

DoChenRollingBearing's picture

Labor is certainly a factor in our case: smart labor!  We see no need to "share our knowledge" with our competitors, that we got on our own, through our own efforts.

If we did not make any profit, why would we work?  Our making a profit means that we added value to our customers, to their customers and to Peru as a whole.  If we did not have these pieces, some cars would not run.  These new pieces were unknown in Peru until we brought them there.  Now they sell well, meaning many cars are running...


I would suggest a visit to our company and to Peru as a whole to see if your ideas really stack up.

tickhound's picture

You "work" because it hasn't been AUTOMATED YET.  And that "work" you describe will be reduced to simply THINKING OF AN IDEA for technology to produce because earth HAS THE RESOURCES or it DOES NOT.

The fact you even mentioned the word "customers" makes my point.

Do what you do for now.

Cuz it has an endgame.

Again, you speak in 20th century tongue.  The future won't need a Ben Bernank.  While the "future" you describe still needs a fucking bank.


DoChenRollingBearing's picture

It's going to be a very long time until our work in Peru is automated, LOL...  Go ahead, automate this:

Unloading 21 pallets of Chinese bearings...


Furthermore, we may not need a bank in the future, we can pay with gold.

Furthermore, you make a big point out of the ideas of Earth's resources...  One would think you would have an open mind to spare parts -- you know -- to fix things, not require new ones...  USE fewer resources...




tickhound's picture

Look.  lol.  We have nano-tech.  We have 3-d printing in its INFANCY.  It's still wombed.  We haven't even given BIRTH to what technology, in the very short term, will render obsolete.  You seriously need to update your knowledge of the state of technology even today.

The REASON some of it is NOT FOR YOUR CONSUMPTION is because it isn't PROFITABLE... not because we don't have the resources or we don't have the knowledge.

pay?  "PAY" DUDE?  REALLY?  dochen, there is a 2nd awakening in store for you.  There will be no "pay."  It will be we "can" or we "can't."

DoChenRollingBearing's picture

We can.  And we will.  Nano will take some time to get to Peru.  

As soon as 3-D printing is up to snuff, I hope to make ammo with it...  

Maybe bearings later, we'll need good 52100 steel and the means to work it...

tickhound's picture

Well nano's not the point.  It was just for effect.  :)

That said, and to this point you tried to make... "smart labor and use fewer resources"

Apply this formula

Product sustainability is INVERSE to economic growth.

"Economic growth" is a false religion.

DoChenRollingBearing's picture

More money for our company and its hard work is OK with me though.  When Star Trek comes, with its free food and all, then we'll see.

tickhound's picture

This isn't even about "free."  Free assumes "pay."   I mean, work with me here...

To the original point you tried to make.... "Smarter labor and use fewer resources"

Sounds like cost-cutting through automation to me.  Then what?  Bitch about all the former "laborers" being on unemployment???  Just because now it takes 3 humans with bright ideas and some robots to feed thousands?  millions?

This isn't Star Trek.  This is NOW!  It is happening.  That is why articles like this are here!

Honestly.  And I say this in all due respect to you and my fellow bitchez... I hold most of you in very high regard (relative to the rest of the dumbass planet of course)

"Don't be the problem."

DoChenRollingBearing's picture

"Smarter labor" means we out-think our competitors, at least for now, until they catch on...   ;)  We do not fire people unless for cause.  Hardly any automation at our company, did you see those pictures?

"Fewer resources" means that Peru, "net-ted out", uses fewer resources to transport their people using our parts vs. buying new.

What's not to like?

tickhound's picture

What's not to like?  Um... Your competitor gets squashed?  Great for you....... but someone eating cat food cuz you still want to play caveman?

I realize now, you have NO IDEA where I'm even coming from...  I mean you just can't get it. 

Thanks for reminding me how fucked we are.

DoChenRollingBearing's picture


"Your competitor gets squashed?"

If we are more efficient than they are, then what's wrong with them losing out?  Free market.  You snooze, you lose.  "Work smarter, not harder."

At least until Star Trek!   :)

tickhound's picture

Primitive market.  You lose, you lose.

thisandthat's picture

I like "sustainable growth" - can't go wrong with that...

granolageek's picture

Outsourced to China. Works for you and your family. For Peru as a whole. ...I've seen this movie before.

hannah's picture

dochen...sounds great but how many cars ya got in peru...?...10 maybe.dont you still eat hamsters...? i would rather import pink slime and make some money.

DoChenRollingBearing's picture

+ 1, LOL!

There are about 5,000,000 cars in Peru.  Lots of Hyundais...

Andean people eat guinea pigs ("cuy"), had one myself (first time) in Cajamarca about a month ago.

DoChenRollingBearing's picture

+ 1

Yes!  I like ceviche much better than greasy "cuy"...

zorba THE GREEK's picture

Drucker is wrong, the nation state and individuality will prevail. Only those nations

whose governments become parasites on the productive citizens will fail.

cherry picker's picture

I don't agree.  As individuals we are losing rights and are being categorized into groups.  We are no longer known by name, but by number.

Nations are on their deathbed insofar as over bearing centralized government is concerned and that is why we are seeing the polarization of America, which may evolve into a splitting up between liberal and conservative states down the road.  For example, prostitution is legal in Nevada, but not in other states where jail time can be incurred.  All in one country.  Obviously the State of Nevada's population have learned to accept prostitution, other populations have not.  It is only an observation, but I think it merits as a rebuttal to your argument.

Urban Redneck's picture

Only those whose "knowledge" includes how to produce energy, food and water, as well as the capital to do so in excess of one's consumption will be able to actually set the price for their services.  

For everyone else- there's the Hegelian Dialectic, and a hierarchy of needs.

Economics is about how Society and the State deal with the issue of scarcity

Either way, Drucker is wrong.

AnAnonymous's picture

Yeah, that is why we are great. We produce energy. We produce matter. We are Americans.
Never bet against America.

Signed: an American.

Dr. Sandi's picture

Drucker ignored a vital point and Hugh-Smith never called him on it. Knowledge is GREAT, I try to have as much of it as I can.

Meanwhile, who plants the crops, raises the animals, builds the roads, fixes our shoes while we're all sitting at our computers selling each other our knowledge?

Knowledge is great icing. But without somebody to bake the cake, mill the flour and raise the wheat, the frosting of knowledge soon loses its relevance.

Sure, everybody has to know how to do their job (with a few notable exceptions who are elected insted of hired) but the job isn't the thing. It's the product the knowledge produces.

Anusocracy's picture

Mother Nature has the knowledge to make wheatberries. We just have to extract it, modify it, and make wheatberries (or wheat flour) without the wheat plant. Researchers are working on growing meat in vats, road building and shoe repair could be done by robotic machines.

And probably in three or four decades, intelligent machines will replace the knowledge-making humans.

Humans will shortly become the new chimpanzees on the street named Evolution.

Professorlocknload's picture

Interesting "connections;"

And it is, after all, all connected.

thisandthat's picture

Don't contradict utopians...

jonjon831983's picture

"In a knowledge economy, the primary asset – knowledge – is “owned” by the worker and cannot be taken from him/her.  Knowledge is a form of mobile human capital.

In Drucker’s view, knowledge, not industry or finance, is now the dominant basis of wealth creation, and this transformation requires new social structures.  The old industrial-era worldview of “labor versus capital” no longer describes the key social relations or realities of the knowledge economy."


I was discussing with my friend around this theme... the conclusion I came to is that knowledge economies are eventually not owned by the worker.  It is just a changing of the elite old guard, albeit on a potentially more unstable footing.  Knowledge may be owned by a worker originally, but the worker who sells it to a knowledge based company no longer really owns it. Right?  The new elites (and old elites struggling to change their tune) would be gathering all the patents out there (look at what has been happening with patent wars that was in the news last year and methinks hit a peak in the media with GOOG buying up Motorola "not only for the patents" and buying up start ups to either acquire new processes/business lines or to stifle them.

Professorlocknload's picture

Sans State protection, ie; patents, trade restrictions, the worker might again have a say or stake, as would small business. But these protections are bought and paid for, and without them a Corporatocracy wouldn't be possible.

ISEEIT's picture

Get your IP on bitchez...Ideas do matter. (are matter?)

EmmittFitzhume's picture

How can we move to post capitalist when capitalism has never been tried?  We are headed into the Fourth Turning that happens every 80 to 120 years.  

Totentänzerlied's picture

Intellectual capital without financial capital is useless, utterly useless, except for artistic value which, while as important to me and others, is not relevant to economics.

Put differently: A nuclear physicist is no better off than a dog-catcher if there is no market for nuclear physics.

Economically valuable knowledge may not be as guarded carefully as in the past, but that's irrelevant. To learn it takes time and energy and money, which means there's an opportunity cost. To use it, one needs to be able to apply it, and it needs to be in demand, and the capital to finance the work must exist somewhere. And anyone who's looked around knows that what you know is everywhere inferior in importance to who you know, and how many favors they owe you.

The knowledge-workers are the new priest-class, the wealthy bourgeoisie who dutifully serve the true owners and rulers using their minds rather than their bodies. They are exploited for knowing some highly specific body of information and for their willingness to apply it regardless of the consequences; case in point the legion of financial scum swarming around NY and London, et al - highly educated and totally amoral. 

And one more thing, this fetishization of knowledge is enabled by - like virtually everything else today - cheap surplus energy. When that energy once again becomes expensive, all the PhDs in the world will be worth less than an acre of arable land. Some things matter more than others. Knowledge workers can only feed themselves because something else is picking up the food-production slack implied by their not being in the fields all day - cheap energy and factory farming of calorie-dense foods.


object_orient's picture

Yeah, entrepreneurs and the self-employed need to actually be good at what they do. Most regular jobs, especially with the government, have nothing to do with knowlegde or ability. It's who you know and/or who you are. This is a serivce economy, right? All emails, bullshit and MS Office suite.

Alcoholic Native American's picture

Yes those with the capital are not making the rules these days, it's those with "knoledge".  This article is pure ass.

Hindsight2020's picture

We have almost perfected the production side of the supply chain but capitalism doesn't address the consumption side of the equation fairly.  I'm not here with any answers to what is next after capitalism but to think it is the final form of economic activity on planet earth is dead wrong.