Markets and Morals

This is the third in a series of archival excerpts in honor of the magazine’s 150th anniversary. This installment is introduced by Joseph Stiglitz, a professor of economics at Columbia University and a winner of the Nobel Prize in economics.
The Age of Social Transformation
November 1994
by Peter F. Drucker

As the twentieth century drew to a close, management expert Peter F. Drucker hailed the advent of the knowledge worker.

This century of ours may well have been the cruelest and most violent in history, with its world and civil wars, its mass tortures, ethnic cleansings, genocides, and holocausts. But all these killings, all these horrors inflicted on the human race by this century’s murderous “charismatics,” hindsight clearly shows, were just that: senseless killings, senseless horrors, “sound and fury, signifying nothing” …

It is the social transformations, like ocean currents deep below the hurricane-tormented surface of the sea, that have had the lasting, indeed the permanent, effect. They, rather than all the violence of the political surface, have transformed not only the society but also the economy, the community, and the polity we live in. The age of social transformation will not come to an end with the year 2000—it will not even have peaked by then …

The newly emerging dominant group is “knowledge workers.” The very term was unknown forty years ago. (I coined it in a 1959 book, Landmarks of Tomorrow.) By the end of this century knowledge workers will make up a third or more of the work force in the United States—as large a proportion as manufacturing workers ever made up, except in wartime. The majority of them will be paid at least as well as, or better than, manufacturing workers ever were. And the new jobs offer much greater opportunities.

But—and this is a big but—the great majority of the new jobs require qualifications the industrial worker does not possess and is poorly equipped to acquire. They require a good deal of formal education and the ability to acquire and to apply theoretical and analytical knowledge. They require a different approach to work and a different mind-set. Above all, they require a habit of continuous learning. Displaced industrial workers thus cannot simply move into knowledge work or services the way displaced farmers and domestic workers moved into industrial work. At the very least they have to change their basic attitudes, values, and beliefs …

The shift to knowledge-based work poses enormous social challenges. Despite the factory, industrial society was still essentially a traditional society in its basic social relationships of production. But the emerging society, the one based on knowledge and knowledge workers, is not. It is the first society in which ordinary people—and that means most people—do not earn their daily bread by the sweat of their brow. It is the first society in which “honest work” does not mean a callused hand. It is also the first society in which not everybody does the same work, as was the case when the huge majority were farmers or, as seemed likely only forty or thirty years ago, were going to be machine operators.

This is far more than a social change. It is a change in the human condition.
Volume 274, No. 5, pp. 53–80

Building Wealth
June 1999
By Lester C. Thurow

In 1999, MIT economist Lester C. Thurow explained how great fortunes are made.

The rich see opportunities to work and invest in situations where great disequilibriums—imbalances or openings in the economy created by new circumstances—exist. Something, usually a new technology, has opened up opportunities to jump to new products with very different capabilities or to new processes with much higher levels of productivity. This was as true for John D. Rockefeller as it is for Bill Gates. For both of them lifetime savings constituted a small fraction of total wealth. Carefully saving money and investing in normal equilibrium situations can make one comfortable in old age but never really wealthy …

Real wealth is the ability to produce more with less—to generate a flow of goods and services without having to sacrifice something else of equal value. It is not created by taking time away from other activities and devoting it to money-making …

Entrepreneurs see sociological opportunities to change human habits. Starbucks persuaded Americans to replace their fifty-cent cup of coffee bought at a local restaurant with a $2.50 cup of coffee bought at a coffee bar …

Entrepreneurship … is a fundamental human characteristic but, despite its creative and destructive powers, an extremely fragile one. Among most peoples in most times and most places entrepreneurs do not exist. The economic possibilities exist, but they are not seen, the energy to realize them is lacking, or the risks they involve seem too great …

When societies aren’t organized so that the old vested interests can be brushed aside, entrepreneurs cannot emerge. Social systems have to be built in which entrepreneurs have the freedom to destroy the old. Yet destroying the old can too easily be seen as a step into chaos. Societies that aren’t ready to break with the past aren’t willing to let entrepreneurs come into existence …

Great persistence is needed to bring a truly new idea into the market. Steam toys have been unearthed in the archaeological exploration of ancient Greece, and the ancient Egyptians had steam-powered temple doors—yet the steam engine did not emerge as a source of power for economic production until the eighteenth century. The right sociology had to be in place for revolutionary new products to emerge …

Successful societies create and manage a tension between order and chaos without letting either of them get out of hand. New ideas are easily frustrated if societies are not receptive to the chaos that comes from change, yet societies have to maintain an appropriate degree of order to take advantage of creative breakthroughs.

At the individual level these same forces show up as a tension between tradition and rebellion. Einstein dropped out of high school at the age of fifteen; renounced his citizenship a year later; lived on the margins socially, economically, and morally; and called himself a gypsy and was viewed as a bohemian. His life was in some sense a search for order in disorder, both scientifically and socially. Great creativity requires hard facts, wild imagination, and nonlogical jumps forward that are then proved to be right by working backward to known principles. Only the rebellious can do it.
Volume 283, No. 6, pp. 57–69

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