• Strategy
  • The Economist

Survey: The Near Future

Peter Drucker explains how it will differ from today, and what needs to be done to prepare for it.

Given this competitive struggle, a growing number of highly successful knowledge workers of both sexes — business managers, university teachers, museum directors, doctors — “plateau” in their 40s. They know they have achieved all they will achieve. If their work is all they have, they are in trouble. Knowledge workers therefore need to develop, preferably while they are still young, a non-competitive life and community of their own, and some serious outside interest — be it working as a volunteer in the community, playing in a local orchestra or taking an active part in a small town’s local government. This outside interest will give them the opportunity for personal contribution and achievement.

The Manufacturing Paradox

How do you get far more output with far fewer workers?

In the closing years of the 20th century, the world price of the steel industry’s biggest single product — hot rolled coil, the steel for car bodies — plunged from $460 to $260 a ton. Yet these were boom years in America and prosperous times in most of continental Europe, with automobile production setting records. The steel industry’s experience is typical of manufacturing as a whole. Between 1960 and 1999, both manufacturing’s share in America’s GDP and its share of total employment roughly halved, to around the 15% mark. Yet in the same 40 years manufacturing’s physical output doubled or tripled. In 1960, manufacturing was the centre of the American economy, and of the economies of all other developed countries. By 2000, as a contributor to GDP it was easily outranked by the financial sector .

The relative purchasing power of manufactured goods (what economists call the terms of trade) has fallen by three-quarters in the past 40 years. Whereas manufacturing prices, adjusted for inflation, are down by 40%, the prices of the two main knowledge products, health care and education, have risen about three times as fast as inflation. In 2000, therefore, it took five times as many units of manufactured goods to buy the main knowledge products as it had done 40 years earlier.

The purchasing power of workers in manufacturing has also gone down, although by much less than that of their products. Their productivity has risen so sharply that most of their real income has been preserved. Forty years ago, labour costs in manufacturing typically accounted for around 30% of total manufacturing costs; now they are generally down to 12-15%. Even in the car industry, still the most labour-intensive of the engineering branches, labour costs in the most advanced plants are no higher than 20%. Manufacturing workers, especially in America, have ceased to be the backbone of the consumer market. At the height of the crisis in America’s “rust belt”, when employment in the big manufacturing centres was ruthlessly slashed, national sales of consumer goods barely budged.

What has changed manufacturing, and sharply pushed up productivity, are new concepts. Information and automation are less important than new theories of manufacturing, which are an advance comparable to the arrival of mass production 80 years ago. Indeed, some of these theories, such as Toyota’s “lean manufacturing”, do away with robots, computers and automation. One highly publicised example involved replacing one of Toyota’s automated and computerised paint-drying lines by half a dozen hairdryers bought in a supermarket.

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