World in Flux

By George Russell

Consider an extraordinary world in which:

-- Raw-material costs have long ceased to have much effect on industry.

-- The global food supply is outstripping the increase in the number of hungry people, pointing to an era in which producers will savagely compete for the last remaining market, the Soviet Union.

-- A steady boom in manufacturing leads to, and in fact requires, an equally steady decline in blue-collar jobs.

-- A new "symbol" economy of financial flows outweighs the "real" world economy of traded goods and services by a ratio of more than 35 to l.

Such a place already exists, according to Peter F. Drucker, 76, prolific author, consultant and master thinker on management problems. Writing in the forthcoming issue of the quarterly Foreign Affairs, Drucker, currently a professor of social science and management at California's Claremont Graduate School, claims that all the conditions he describes are the products of the modern world economy. It is also a world in which classical economic theory and traditional economic policy are fast becoming irrelevant. The U.S. and other countries, he says, will only continue to prosper if they recognize that fact.

Drucker's article is an attempt to capture a number of fundamental changes that in his view have altered the global economy and created some startling paradoxes. Only a decade ago, he notes, the influential Club of Rome predicted that the world would suffer a desperate shortage of raw materials by 1985. Instead, resource markets are glutted and stockpiles are still growing despite the lowest prices for commodities since the Great Depression. Food supplies have likewise increased, in large part because of heavy subsidies for production and dramatic improvements in agricultural techniques. Only the Soviet Union among major nations needs to import more and more food, but even so, Drucker notes, world agricultural surpluses are so large that prices may stagnate indefinitely.

That condition -- what Drucker calls the "uncoupling" of the primary- products economy from the industrial economy -- is largely due to technological changes. Modern industrial processes in both high-tech and traditional industries, he notes, require far fewer raw materials and far less energy than before. Despite much talk about the "deindustrialization" of the U.S., Drucker notes, the manufacturing sector still holds steady at roughly 23% of American GNP -- about the same level as 30 years ago. Nor is the U.S. really suffering as an exporter of manufactured goods: its world market share increased from 17% to 20% between 1978 and 1985.

Instead, the U.S. has shed blue-collar jobs -- 5 million since 1975 -- as it experienced an accelerated substitution of knowledge and capital for manual labor. Without such a substitution, Drucker argues, no modern nation can hope to remain competitive. Says he: "The attempt to preserve . . . blue-collar jobs is actually a prescription for unemployment."

The most disturbing development that Drucker describes is the burgeoning "symbol" economy. By that he means the intangible realm composed of capital movements, foreign-exchange transactions and credit flows, which have ballooned enormously since the leading Western industrial nations decided to abandon the system of fixed exchange rates in 1971. Drucker warns that Washington's use of high interest rates to finance its budget deficit through foreign borrowing has caused a dangerous "politicization" of the symbol economy, a trend that he sees other countries starting to imitate in, for example, their selective manipulation of currency exchange rates.

What are the implications of those changes for government and business? Drucker warns that all companies engaged in trade must find better ways to hedge themselves against sudden swings in exchange rates and other pitfalls of the international economy. In the same vein, he advises countries that they must give top priority to their international competitive position, rather than to domestic economic considerations. Moreover, he says, governments should avoid trying to tinker with the workings of free markets like the currency exchanges. Drucker's musings may be well founded. But they are also, unfortunately, the kind of economic advice that is all too often easier to give than to receive.