IT #2 Knowledge Economy

#KnowledgeEconomy #KnowledgeAge #KnowledgeWorkers #Economy #SocialSystems #BoringBackground

This article explains what knowledge economy is and provides the background info necessary for that explanation.

Preface

In 1959 “the father of American corporate management” Peter F. Drucker introduced a term “knowledge workers” in his book “The Landmarks of Tomorrow”. Basically, he noticed that since the World War II, we’ve got a lot of workers who could not be managed in the old, Industrial Age, ways. “Scientific Method” of Taylor1 simply did not work anymore with these workers. And the suggestion was to manage them differently. Later a lot of other people contributed to how it could be done, and it’s still very much work in progress.

Adding to that statement, it’s fairly clear why it did not work. Tailor’s method was to split a complicated process, like creation of optical lenses or arsenal workers. With knowledge workers splitting work into tiny steps on one project did not work, because on another project it was completely different. To be precise, multiple attempts to do so were made like Waterfall software development model, but they all were found to be not viable.

Long story short, the management ended up with a lot of workers with whom they did not know what to do, and those of them who thought they knew did not show good results.

Social Systems

History

The theory of social systems is not new. One of the first attempts comes from Karl Marx, but since then a lot of people contributed both to development and alternatives. For example, a popular belief was that what we do in US is capitalism, what they did in Soviet Union (and some Western European countries like Sweden) was socialism, and China was doing communism. The latter made a lot of sense, since communism was supposed to be a form of Kingdom to Come on Earth, and there, if you argue with the Big Guy, you are shot straight to hell. But kidding aside...

Marx noticed that the population of all countries is divided into the majority producing material goods, and minority who does decision making, strategy planning, large scale trading, and gets most of those material goods. Marx called it “an exploitation”. He also noticed that it starts when a worker produces more than he needs for basic survival, recovery, and supporting his family to produce the next generation of workers. The extra, which may be expropriated from the worker, he called a surplus product.

Another thing he noticed was that that process is not infinite. Sometimes, those of the second kind find that they cannot do that anymore. This is what happened in the late Rome, when it was conquered by barbarians, in France during the French revolution, in Russia in 1905-1917, and in America during the Great Depression. While you may think of the latter two examples as opposite, they surprisingly have a lot in common. Introduction of a central power to control financial flows in the country, prohibition of gold ownership (in both cases, except as collectibles), introduction of government-controlled pensions and other social standards...Why? A new social system.

Marx was materialist, so in his theory a new social system does not come from nowhere or some decree by King or People. It comes from technological development. Marx called those “production forces”. The idea was that with a sudden leap in technology development, the old way of expropriating the “surplus product” stops working, and a new one has to be invented. Examples?

Slavery

The oldest social system before hunters-gathers and patriarchal is slavery.

• Masters: slave owners.
• Slaves: slaves.
• Why: slave owner owns the slave.
• Where: houses, craft workshops, fields.
• Who enforces it: owners and slave drivers.
• Tools: simple and inexpensive hand tools.

Small location where a single slave driver can control dozens of slaves. A similar environment was possible in the British American colonies like Caribbean and future South United States, which were reduced by British policies to agricultural appendixes of the empire.

Feudalism

But time passed. People invented wheel plough which allowed to plow hard soils of Northern and Eastern Europe and get good harvest there. These territories could not be cultivated by slaves because they were just too large. A single peasant had to cultivate too big territory to control dozens of then with a single slave driver. And now feudalism was born.

• Masters: feudals (owners of feuds).
• Slaves: peasants.
• Why: feudal owns the land.
• Where: large territories with villages and large fields.
• Who enforces it: a small group of professional soldiers under the feudal.
• Tools: still simple and inexpensive hand tools.

Capitalism

Again, time passed, new inventions came. For example, loom in England. They started to produce a lot of fabric, so they needed new markets to sell those. They needed a lot of wool to make that fabric, so they needed a lot of land for sheep. And they’ve got colonies, producing food, so they did not need so many peasants, but they needed sailors and workers, in metropolis and colonies. Here comes capitalism.

• Masters: capitalists.
• Slaves: factory workers.
• Why: capitalist owns the factory.
• Where: large factories.
• Who enforces it: the state.
• Tools: expensive and complicated machinery.

The space is again fairly small, but you cannot do that with slaves, since you, capitalist, need the freedom to fire a lot of them at once if needed, and then hire back those who survived outside of your gates once the economy recovers. You need them to be literate at least to be able to read “Danger! Don’t go in!”. Hence, we’ve got the universal secondary education.

Socialism

Now we have come to where Marx has not. Ok, capitalism. What’s next? Mass production. Industrial age. Even more workers. Even more expensive and complicated machinery. Larger buildings that hold those workers and machinery.

In capitalism, a capitalist was walking across his factory and kicked the lazy... ones. Now the factories are too large and have too many people. Now a capitalist cannot do that personally. He needs a help. Assistants. “Ass kickers”, in a business sense. Managers. And once there are enough managers, they need to be organized into a hierarchical structure.

Now, where is a capitalist in this picture? Most large companies belong to other companies which in turn belong to other companies and so on. Maybe in the end there are some really rich people, but how much can they impact a company 4-5 levels down in the chain of ownership? That’s not to mention that a significant share of most companies belongs to pension funds. I don’t even mention some poor thing that has a few shares and hopes to have some money in retirement years.

There is no real capitalists today. The companies are controlled by C-level managers. Who, not counting their golden parachutes, own nothing but control everything. Again, own nothing, control everything. Does it remind you of something? Yes, Soviet state and party brass. They owned nothing but controlled everything. And harvest all the benefits. Strange, isn’t it? But that’s what we have.

That’s not capitalism anymore. We have different classes. A different way of production. A different social system.

Socialism. Industrial Age. Industrial Economy. Industrial Society.

• Masters: top-level managers.
• Slaves: the rest of the folks on hire.
• Why: managers control the business, even if they don’t own it.
• Where: large companies.
• Who enforces it: the state.
• Tools: very expensive and complicated.

But then something even more bizarre happened.

Knowledge Economy

Of course, that’s not something that Marx wrote about. However, Peter F. Drucker did. Technology and systems become so complex that a technological process does not fit anymore into a single human head. Now managers are not really in control, because they don’t even know precisely what to do. Now this is the function of their employees.

The managers cannot anymore simply order, they only can show direction. Some called it “leadership”.

However, the system is still stuck in the Industrial Age, a.k.a. socialism. C-level execs still collect the lion’s share of a national pie all over the World. Workers are still treated as expendable material, subject to massive layoffs at a signal from the City of London investment fund owning less than 1% share of the company. The system is still maintained by the State. But the required knowledge is now too large. The tools are too complex. The people who can handle those tools are too rare. Something has to change.

This has multiple and serious consequences. See my other articles on this site like “What teams are for?”, “Tom Sawyer Inc.”, “Office evolution” and more. So, earlier or later this will have to change. Forward or backward.

How can it change backward? Look at the former Soviet Union. They were hitting this problem full speed. Their economy became unmanageable. So, they just cut their production forces, their technology, and returned back to the Industrial Age, or maybe even feudalism, where their methods work. I hope those who control our economy and our countries won’t do the same.

New social systems don’t come out of nowhere. Most evident examples are the Russian early XX Century revolutions and the French revolution of 1790s. Both happened when in a feudal society a significant number of capitalists were established. So, we still have Industrial Age feudals. Do we have enough Knowledge Age workers and, more importantly, future Knowledge Age masters?

Revolutions, whether peaceful or not, don’t come from workers. They come from future masters. That were the future feudal kings who plundered Rome. That were future captains of finance, trade and industry who got rid of French kings and executed King Charles I in January 1649 in England.

Notice that both Russia and USA still have hunter-gatherers on their territories. New social systems don’t wipe out the past, they just become dominant ones among several coexisting. We still will for quite a while have auto factories and banana plantations.

The change is coming. Will it be tough. Sure. Will there be any violence? We already had it in 2020 elections. But we still don’t know what comes next.

•  Masters: for now still top-level managers. Will it hold? Unlikely, see “Tom Sawyer Inc.”
•  Slaves: highly educated folks who can handle new tasks.
•  Why: for now same as in the industrial age. But hierarchical management fails more and more often. I don’t know what will be next.
•  Where: large companies. Or maybe not. New models already exist in companies like BP.
•  Who enforces it: the state. But likely through new enforcement mechanisms, like social capital.
•  Tools: extremely expensive and complicated. Most of the population cannot handle them on the base level.

Is that all?

But wait! Life as usual is even more interesting. Because time accelerates, we are already on the brink of the next society: the Discovery Economy. But I will write about it in the next article.

[1]  Frederick Winslow Taylor “The Principles of Scientific Management”, 1911 

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