A Functioning Society and Management as a Liberal Art — Peter Drucker’s Beliefs and Values

Minglo Shao

PUBLISHED:

June 20, 2020

“To make our institutions perform responsibly, autonomously, and on a high level of achievement is thus the only safeguard of freedom and dignity in the pluralist society of institutions. Performing, responsible management is the alternative to tyranny and our only protection against it”. - Peter F. Drucker


World-renowned as “the father of modern management”, Peter Drucker believed that although he was famous for establishing management as a discipline, he was actually a “social ecologist”, and his real concern was the individual’s existence in the social environment. In Drucker’s view, management was a newly emerging tool for improving society and life. He was the author of 39 books, only 15 of which dealt with management. The others were related to community, society, and polity. Only two books —Management for Results and Innovation and Entrepreneurship —were devoted to business management.


Drucker knew that human nature is imperfect, so nothing humans create, including the societies they design, can be perfect. He didn’t hold high expectations or ideals for society; he only hoped that it could be less painful and more tolerant. However, a society still has to have basic functions; it has to provide the people living in it with the conditions for normal life and work, and it has to give individuals identity and status. These functions or conditions are necessary for a society in the same way that normal functions are necessary for a living body.


It is worth noting that society is not the same as nation-state, because “nation-state(government)” and “family” cannot provide the necessary functions of a society. This is evidenced by the fact that some powerful countries have only fragile and fragmented societies. In Drucker’s view, in the industrial age, a normal functioning society must consist of at least three types of institutions: government, business, and non-profit, each of which plays a different and unique role. Individual organizations within each of those categories must have distinctive performances, which requires them to have power centers and decision-making mechanisms. The power centers and decision-making mechanisms should give each individual a place within the organization, allowing them to use their strengths, to play a part and contribute, therefore obtaining livelihood, identity, and status. In the past, nation-state did not have such power centers or decision-making mechanisms; in other words, “management” is the new “polity”. (Drucker collectively refers to all three power centers as “polity”: management systems of business, management systems of nonprofit institutions, and governmental systems of nation-state, because these three sectors all hold power but each has different objectives. Business and non-profit organizations have the power to allocate society’s resources in order to provide specific products and services; the government has the power to arbitrate and intervene to maintain fairness and justice throughout society).


Near Claremont University in the United States, there is a small Drucker memorial — the Drucker House Museum — in what was once Peter Drucker’s California home. On entering the museum, one sees a famous quote in a prominent place facing the entrance of the living room:


“To make our institutions perform responsibly, autonomously, and on a high level of achievement is thus the only safeguard of freedom and dignity in the pluralist society of institutions. Performing, responsible management is the alternative to tyranny and our only protection against it”.


When the museum opened, the Drucker Institute’s colleagues asked themselves, if they were to choose a quote from Drucker’s publications that sums up the significance of his work to the world, what would it be? They eventually chose the above passage.


If you are familiar with Drucker’s life and how his beliefs and values were formed, you’ll surely agree with their choice. From The End of Economic Man, his first book, to A Functioning Society, the last volume that he completed independently, a common thread runs through all his work: resistance to totalitarianism and defense of the individual’s freedom and dignity.


There is a great difference between totalitarianism and authoritarianism. It was not until the 20th century, with the rapid advancement of human knowledge and capabilities, that conditions arose for the centuries-old tradition of authoritarianism to mutate into totalitarianism. Totalitarianism seeks to thoroughly manipulate and control every human being, flesh and spirit, to expunge their compassion and conscience, transforming them into humanoid machines that fulfill the dreams of individual totalitarian rulers. Under totalitarian rule, loyalty to leaders is everything; personal thoughts, feelings, desires, and goals are superfluous and must be eliminated. The 20th century brought wars, revolutions, and movements that caused unprecedented disasters and human suffering. Whether Nazism (National Socialism), Fascism, or Communism, all are “masterpieces” of totalitarianism. The rise of Hitler and Nazism, which the young Drucker lived through, is among them. To best understand how Drucker’s experiences influenced his beliefs and values, read his Adventures of a Bystander. To see what totalitarianism is and why the masses support it, read his The End of Economic Man, with the subtitle “The Origins of Totalitarianism”.


Fortunately, history’s evolution has not always been so dispiriting. Since the Industrial Revolution, especially from the 1800s onward, in the last 200 years, productivity has increased dramatically, not only creating vast material wealth but also bringing profound changes in the social structure. Eighty years ago, Drucker perceived and pointed out the formation of a new pluralistic, organizational society: Emerging enterprises and nonprofit institutions fill the gaps and empty spaces between “nation-state” (government) and “family” in the social structure of the past.


Based on that foundation, universal education and the rise of the knowledge worker are creating a knowledge economy and a knowledge society, and information technology has accelerated all these changes. It should be noted that “knowledge society” and “knowledge worker” are terms Drucker coined. “Knowledge workers” broadly refers to those who possess and apply specialized knowledge and work to create useful products and services for society. This includes entrepreneurs and executives, professionals, and technicians in any organization, as well as independent professionals, such as accountants, lawyers, consultants, trainers, and so on. Today, in the 21st century, owing to the development of knowledge and the ever-widening area to which it is applied, individuals and individual institutions are no longer alone and helpless. Having mastered certain types of knowledge, they have freedom of choice to decide where and how to work and the power to influence others. Knowledge workers and the knowledge-based organizations they formed no longer resemble traditional intellectuals. Knowledge workers’ unique characteristics are their independence and autonomy. They can integrate resources, build their own organizations or start new businesses, create value, and foster economic, social, cultural, and political changes. Traditional intellectuals depended on and were subject to government authorities, and could only act on platforms provided by those authorities.


This is an epoch-making, far-reaching change that has taken place not only in Western developed countries, Japan, and other democracies but also in many developing countries still under authoritarian or even totalitarian rule, such as in today’s China. In totalitarian countries, rulers instinctively and inevitably treat independent and autonomous organizations and knowledge workers as potential threats, suppressing or even banning them. But this can have only one consequence: the hollowing out of society and the economy, which in turn will undermine the basis on which any regime depends, ultimately leading to totalitarianism's collapse. To put it in popular terms, the wave of freedom and democracy now sweeping the world is irresistible; totalitarian rulers, no matter how ostensibly powerful and arrogant, will inevitably be drowned by it.


A healthy modern society is made up of pluralistic organizations. Of the three organizational categories — government, business, and nonprofit; businesses and nonprofits are comparatively more constrained by the market, the public, and the government. Therefore, their managements are less likely than the government to take the road to totalitarian rule (except for businesses and nonprofits that are de facto government proxies). That’s why, in Drucker’s view, businesses and nonprofits are more important and worthy of hope than governments. Nonetheless, they may still fail to achieve the “performing, responsible” operation that Drucker expects, either due to lack of management or mismanagement, providing space and opportunity for totalitarian governments to monopolize social resources and strip individuals’ rights. The rise of knowledge workers in all organizations, including the Internet-era’s virtual work community, has provided the foundation and conditions for a new era of management, posing a challenge to the traditional “carrot-and-stick” approach to management. In response to this reality, Drucker researched, established, and constantly strove to improve the discipline of modern management.


On January 18, 1999, when he was almost 90 years old, Drucker answered the question, “What is my most important contribution?” This is what he wrote:


“That I focus this discipline (management) on People and Power; on Values, Structure and Constitution; AND ABOVE ALL ON RESPONSIBILITIES - that is focused the Discipline of Management on Management as a truly LIBERAL ART”.


Dubbing management discipline a “liberal art” was Drucker’s brainchild, reflecting his unique perspective on management. This is obviously important, but in his many works, there is little further explanation of it. The most complete exposition is found in the fifteenth chapter of his book The New Realities, entitled "Management as Social Function and Liberal Art”:


“Thirty years ago, the English scientist and novelist C.P. Snow talked of the ‘two cultures’ of contemporary society. Management, however, fits neither Snow’s ‘humanist’ or his ‘scientist.’ It deals with action and application; and its test is results. This makes it a technology. But management also deals with people, their values, their growth and development—and this makes it a humanity. So does it concern with, and impact on, social structure and the community. Indeed as been learnt by everyone who, like this author, has been working with managers of all kinds of institutions for long years, management is deeply involved in spiritual concerns—the nature of man, good and evil.


Management is thus what tradition used to call a liberal art: ‘liberal’ because it deals with the fundamentals of knowledge, self-knowledge, wisdom, and leadership; ‘art’ because it is practice and application. Managers draw on all the knowledge and insights of the humanities and the social sciences—on psychology and philosophy, on economics and on history, on the physical sciences and on ethics. But they have to focus this knowledge on effectiveness and results—on healing a sick patient, teaching a student, building a bridge, designing and selling a ‘user-friendly’ software program”.


As one who has many years of practical management experience and has read nearly all of Drucker’s works, I have often pondered why Drucker called management a “liberal art”? I finally realized that this was not just a beautiful and unconventional act but was a characterization of management; it revealed management’s essence and pointed out the proper direction for managerial efforts. At a minimum, this includes the following implications:


First, the most fundamental management issue, or the key to management, is how managers and individual knowledge workers regard and handle the relationship between people and power. Drucker was a Christian. His faith and his life experiences were mutually confirming and had a profound impact on his research and writing. In his view, man should not have power. Only humankind’s creator, God, master of all things, has power. The Creator is always superior to humans. After all, human nature is weak and cannot resist the temptation to acquire power or withstand its trials. Therefore, a person can only possess authority. He is authorized by the Creator because of his character, knowledge, and ability, which are effective only at a certain stage and in certain actions. This is true not only for individuals but for the entire human race. In democratic countries, “the people are sovereign”; their power is also a kind of authorization granted by the Creator. Under this authorization, human beings are only “tools”—they have free will but must also accept responsibility. Human beings are the Creator’s tools and they cannot become masters; They cannot manipulate and control fellow humans according to their own intentions, nor should they become tools for the manipulation and control of others. Only by recognizing this will people gain both humility and a sense of responsibility; only then will fairness and justice—which the Creator alone commands and which can only summon and be revealed to humans—guide their actions. Moreover, people must constantly examine themselves and willingly conform to society's norms and constraints. 


Second, although human nature is imperfect, every person comes from the Creator and bears his image and good intentions. In this sense, they are all equal to each other, all have their value, their creative abilities, and their functions, and should be respected, and encouraged to create. As stated in the American Declaration of Independence, all men are created equal, and every person has innate, self-evident and inalienable rights. The fundamental reason why “Drucker’s” management discipline can make a difference stems from just this conviction. Does one believe that every person has goodwill and potential? And does one thus really treat people equally? These core values and convictions ultimately determine whether one can respond to Drucker’s management knowledge and whether one can understand and implement it.


Third, in knowledge societies and knowledge organizations, every worker, to some extent, is both a knowledge worker and an executive. In that, they can use their expertise to authoritatively influence other people and organizations — knowledge is power. But power must be governed by responsibility. And performance and results indicate how effective an executive has been in exercising responsibility. Power that accounts to performance and results is legitimate, that is, it is represents authorized authority; otherwise, it becomes “might”, which Drucker is firmly opposed to. The importance of performance and results lies not only in economic and material aspects but also in the psychological aspects that people tend to overlook. If managers and leaders continually fail to solve real issues, a despairing public will irrationally choose to rely on and obey powers that promise a “perfect society”, and willingly surrender their freedom and dignity. This is why Drucker repeatedly warned that if a management fails, totalitarianism will take its place.


Fourth, does management have other responsibilities besides getting organizations to achieve performance and results? Or to put it another way, are performance and results limited to quantifiable economic gains and wealth? In addition to providing customers with inexpensive, high-quality products and services, and earning reasonable profits for shareholders, can an industrial or commercial enterprise become a good, responsible “social citizen”? Can it help its employees enhance their character and competence, turning the organization into a “moral community”? This might seem too demanding, but it is reasonable. More than ten years ago, I worked with a multinational logistics corporation that asked itself and found it was possible to put it into practice. This means that we must learn to design moral and ethical demands and economic goals into the same workflow, the same set of weighing systems, and into every method, tool, and model of operation. Today, it is gratifying that more and more organizations are beginning to take this issue seriously and responding positively to it in their respective fields.


Fifth, “博雅技藝的管理” (management as a liberal art) or “博雅管理” (liberal-art management) are lovely Chinese translations, but they’re a bit problematic. Judged from the three requirements of translation — 信 xin (fidelity), 達 da (clarity and flow), and 雅 ya (elegance), the rendering is elegant but is not faithful enough to the original. Translated directly into Chinese, “liberal art” would be “free art” (自由的技藝); that is, freedom from restraints, a liberal art that lets people throw off restraints and attain spiritual and physical freedom. To put it another way, to become a free person, one must master an art. In ancient Greece and Rome, only “freemen” were permitted to learn such knowledge and skills; slaves neither needed nor were permitted to study them, because only “freemen” bore the exalted responsibilities of a citizen. However, in the earliest traditional Chinese-character editions of Drucker’s works, “liberal art” was translated as 博雅藝術 boya yishu, probably to take advantage of the positive connotations that terminology has in the Chinese language. I feel that “自由的技藝” (free art) is closer to the original English meaning. “Liberal” is freed. “Art” can be translated as 藝術 yishu, but management must be applied, it must perform and produce results, so it is first and foremost a “skill (技能)”. On the other hand, the management’s object is people’s working. When dealing with people, managers must face the good and evil inherent in human nature, as well as people's ideas — emotional and rational — which can change on a moment’s notice. They also must face the same issues within themselves. When viewed from this angle, management is an “art” involving subjective judgment. Therefore, “art” is more suitably interpreted as技藝. “Liberal” (自由) and “art” (技藝) combined is “liberal art” (自由的技藝).


Finally, I’d like to say, the reason I've taken such pains in translating “liberal art” is not just to produce a “correct” Chinese equivalent. More importantly, it’s to stress that management is not what people commonly mistake it for: a study of how to succeed, either personally or organizationally. Its aim is not to help an enterprise make money or achieve the highest efficiency in production; nor is its aim to help a non-profit organization win a good public reputation. Management aims to allow every person to live in a healthier, less harmful and painful human society and community. It is to allow every worker to freely choose the responsibility one is willing to bear in that society or community, according to one's innate goodwill and potential, to freely use one's talents to create value that is useful to others, thus fulfilling one’s responsibility. Moreover, in the process of that creative work, to live out human dignity and grow into a better and more capable person: They have pragmatic knowledge and skills, but are not arrogant or vain; they pursue psychological and spiritual sublimation, but are not jaded or cynical; they revere the sanctity of natural creation, but are not callous or cold-hearted. As a “social ecologist”, this is what Drucker defined and anticipated —"Management as a Liberal Art” or “liberal-art management”, the terms’ true meaning.


Minglo Shao

Licensee of the “Peter F. Drucker/Peter Drucker” brand in Taiwan and China

On Decisions and their “Agents”

By Richard Johnson Ph.D. • December 17, 2025
This essay was inspired by an article recently published by Karen Linkletter and Pooya Tabesh (2025). They were in search of the meaning of “decision” in the works of Peter Drucker. To this end, they used Python to identify and locate all the times the word, “decision”, came up in Peter Drucker’s oeuvre . They then characterized the contexts (“themes”) in which the word came up. The result was a nuanced but very clear characterization of the evolution of his thinking on the topic. Here, we will focus on a key theme for Drucker: the case where your decisions involve other people’s decisions and actions . For present purposes, we can start with their statement: One of Drucker’s valuable contributions to the literature on decision-making is his adamance that implementation be built into the decision-making process.” (Linkletter and Tabesh 2025 8) To be clear, “…it is not a surprise that his integration of implementation of and commitment to decisions is part of his process of decision-making. He argues that a decision “has not been made until it has been realized in action.” (2025 8) The question, therefore, is how to make this happen, how to turn an organization from an aggregate of individuals whose decisions may or may not be aligned, into an agent—an entity that makes decisions, implements them, and then ascertains that what was done was, in fact, what was decided, as we try to do when making purely individual decisions. Let’s look at the matter more closely… A few years ago, I read a story about a road crew that was painting a double-yellow line on a highway. In their path was a dead raccoon that had been hit by a car or truck. It was lying right in the middle of the road. The crew didn’t stop. Someone later took a picture of the dead raccoon with a double-yellow line freshly painted right over it. The picture is below. It went viral on the Internet.

Paul Polman: Management, Sustainability, and Stewardship as a Liberal Art

By Robert Kirkland Ph.D. • December 17, 2025
When Paul Polman became CEO of Unilever in 2009, he did not inherit a troubled company. He stepped into a large global enterprise with familiar consumer brands that sat on shelves in cities from Amsterdam to Manila. Even with that scale and reach, the business rested on foundations that were beginning to crack. Public faith in multinational firms was fading, climate change was moving from a distant worry to a financial reality, and investors were increasingly locked into the rhythm of quarterly results that encouraged short term decisions and discouraged real strategy. Polman’s answer was surprisingly philosophical for a leader of such a company. Rather than defend profitability as the central corporate purpose, he attempted to redefine what the company was for. His response may suggest a contemporary expression of Peter Drucker’s idea of Management as a Liberal Art. Drucker described management as a moral undertaking that must be anchored in judgment, responsibility, and service, not only in efficiency or cost control. Redefining Corporate Purpose Soon after taking the role, Polman stunned many investors by ending quarterly earnings guidance. He went further and encouraged investors who focused only on short term returns to place their money elsewhere (Polman and Winston, 2021). The gesture appears to have been meant to reset the company’s relationship with financial markets. Drucker consistently argued that true leadership cannot be tied to the emotional fluctuations of short term financial reporting. By refusing to follow the ninety day cycle, Polman gave Unilever enough breathing space to think about long term issues. He also sent a powerful message inside the company. Unilever would no longer place shareholder extraction above every other consideration. Drucker might say that Polman was returning management to a place where purpose and meaning had priority. Drucker had long argued that institutions must be run for durability and social legitimacy, not just for quarterly outcomes (Drucker, 1946). The Unilever Sustainable Living Plan In 2010, Polman introduced the Unilever Sustainable Living Plan, which attempted to grow the company while reducing its environmental footprint (Unilever, 2010). The plan contained measurable goals for carbon emissions, water use, waste, sustainable sourcing, health, hygiene, nutrition, and economic livelihoods in the supply chain (Unilever, 2018). This was not presented as charity. It was presented as the business model itself. This approach fits well with Drucker’s view that a company must justify its existence through contributions to the common good (Drucker, 1946). Polman noted that a company serving billions of consumers could not thrive in a world marked by climate disruption, fragile supply chains, and social instability (Polman and Winston, 2021). He reframed sustainability as a competitive requirement. There are many examples of how this mindset influenced operations, such as targeted efforts to stabilize incomes for small farming communities or reduce water dependency in detergent production. Drucker would likely describe this approach as a return to institutional citizenship, which is the idea that power involves obligation (Drucker, 1989 and 1993). Human Dignity in Management Drucker believed that effective management is inseparable from human dignity. He argued that organizations must offer people both identity and contribution (Drucker, 1946). Polman appeared to take this to heart. Under his leadership, Unilever pushed for higher wages, safer working conditions, and expanded training programs across its vast networks of suppliers and small scale producers (Unilever, 2018). He also shifted language in a revealing way. Polman preferred speaking about farmers and families rather than vendors and suppliers (Polman and Winston, 2021). This change hinted at a deeper moral view of business. It positioned Unilever as a partner invested in the stability of the people who provided its raw materials. That reading fits closely with the idea of management as a liberal art, which sees leadership as an act of stewardship for the growth of people, not just the supervision of tasks (Drucker, 1989). Climate Leadership and Ethical Risk Management Drucker warned that management cannot be reduced to engineering efficiency. Managing also requires wrestling with consequences (Drucker, 1990). Polman pressed Unilever to treat climate risk as a direct business issue. He connected environmental damage to cost volatility, to consumer trust, and to the company’s long term future. Under his leadership, Unilever accelerated its use of renewable energy, sustainable materials, lighter packaging, and lower water use in many products (Unilever, 2010 and 2018). Polman’s climate agenda blended science, logistics, ethics, psychology, and an understanding of global politics. Drucker described this type of synthesis as central to Management as a Liberal Art. Responsible executives, he argued, must integrate many forms of knowledge into decisions (Drucker, 1989 and 1993). Polman framed sustainability as fiduciary responsibility rather than philanthropy. His influence is still visible in the way many global firms now treat environmental commitments as strategy rather than charity. This framing closely reflects Drucker’s view that corporate social responsibility must be rooted in a firm’s core mission, capabilities, and day-to-day operations rather than treated as a separate act of goodwill. By embedding sustainability into Unilever’s strategy and value chain, Polman demonstrated Drucker’s argument that responsible management integrates social obligations into how the business competes and performs, allowing ethical action and profitability to reinforce rather than undermine one another. Reviving Stakeholder Capitalism Polman helped restore credibility to the idea of stakeholder capitalism. He insisted that corporations must serve employees, consumers, suppliers, communities, and the environment rather than focus only on investor returns (Polman and Winston, 2021). He also pushed Unilever to evaluate brand performance partly through its social or health impact (Unilever, 2018). Under this model, brand equity included moral equity. This aligns with Drucker’s view that corporate legitimacy must be earned and never assumed (Drucker, 1989). For Polman, consumer trust was a survival requirement. When customers believe that a firm contributes to a worsening world, the company risks losing not just reputation but also the permission to operate (Drucker, 1990). Moral Leadership and Institutional Courage Polman spoke in moral terms more openly than most executives. He frequently challenged governments that fell short on climate commitments and he encouraged other business leaders to adopt fair labor standards and responsible tax behavior (Polman and Winston, 2021). Drucker argued that real authority is moral before it is positional. Polman’s conduct fits that idea well (Drucker, 1989 and 1990).  Inside the company, Polman asked employees to see themselves as contributors to social improvement and not merely as managers of brands or operations (Unilever, 2010). This practice reflects MLA. Drucker believed that people should find meaning and contribution through their work, not only wages (Drucker, 1989). Performance, Profit, and Purpose Some critics argue that purpose oriented leadership reduces profitability. Polman countered this by pointing to performance. During his tenure, Unilever posted steady growth, especially in emerging markets, improved margins, and delivered strong long term returns (Unilever, 2018). He argued that long term value and social value reinforce one another (Polman and Winston, 2021). Drucker had long dismissed the idea that ethical leadership conflicts with economic effectiveness (Drucker, 1999). Even with strong performance, tension remained. Certain investors disliked the refusal to play the quarterly guidance game. Some environmental advocates believed Unilever could have moved faster on issues such as plastics. Drucker never said that Management as a Liberal Art would eliminate conflict. He said that it would give leaders a moral compass for navigating conflict in a transparent way (Drucker, 1989). Polman seemed to follow that guidance by making tradeoffs visible and by emphasizing choices that protected dignity, stability, and ecological viability (Drucker, 1990). Building a Network of Responsible Institutions After leaving Unilever, Polman co founded Imagine, an organization that works with senior executives to accelerate progress toward the United Nations Sustainable Development Goals (Polman and Winston, 2021). This next step reinforces the idea that sustainability for Polman is a theory of governance rather than a branding strategy. Drucker believed that modern society relies on networks of responsible institutions. These include corporations, governments, and nonprofit organizations that understand their interdependence and act accordingly (Drucker, 1946 and 1993). Polman’s post CEO work attempts to strengthen that network. He is essentially trying to rebuild the trust and cooperation among institutions that Drucker warned could erode in a fragmented society (Drucker, 1999). The Legacy of a Modern Druckerian Paul Polman’s leadership at Unilever provides one of the clearest contemporary examples of Drucker’s idea of Management as a Liberal Art. He treated the corporation as a civic institution rather than a simple profit generator. He wove climate stability, labor dignity, and social inclusion into the core of strategic planning. He asked brands to earn moral legitimacy. He emphasized supply chains as human communities. He took personal risks by arguing that corporations hold responsibility for the future of the planet on which their operations depend (Polman and Winston, 2021). In Drucker’s language, Polman practiced stewardship. He demonstrated that management concerns human beings, the communities they inhabit, and the ecological systems that support them (Drucker, 1989 and 1990). In an era shaped by climate upheaval, inequality, and declining institutional trust, Polman shifted the central question. Instead of asking whether companies can afford to care, he asked whether they can survive if they refuse to care at all. References Drucker, P. F. (1946). The concept of the corporation. New York: The John Day Company. Drucker, P. F. (1989). The new realities: In government and politics, in economics and business, in society and world view. New York: Harper & Row. Drucker, P. F. (1990). Managing the non-profit organization: Practices and principles. New York: HarperBusiness. Drucker, P. F. (1993). Post-capitalist society. New York: HarperBusiness. Drucker, P. F. (1999). Management challenges for the 21st century. New York: HarperBusiness. Polman, P., & Winston, A. (2021). Net Positive: How courageous companies thrive by giving more than they take. Harvard Business Review Press. Unilever. (2010). Unilever Sustainable Living Plan. Unilever PLC. Unilever. (2018). Sustainable sourcing and livelihoods progress report. Unilever PLC. World Business Council for Sustainable Development. (2019). Business leadership for a net-zero economy.

From a Functional to a Free Society-- The End of Economic Man: Drucker's Diagnosis of Totalitarianism

By Bo Yang Ph.D. • December 10, 2025
Peter Drucker suggested that readers view his first three books as a unified body of work: The End of Economic Man(1939), The Future of Industrial Man (1942), and Concept of the Corporation (1946). These works share a common theme: politics. Drucker did not think about politics like scholars who strictly follow modern social science norms. Instead, he viewed politics as part of social ecology and understood political events through the dynamic changes in social ecology. Despite having "corporation" in its title and using General Motors as a case study, Concept of the Corporation is indeed a book about politics. In this work, Drucker attempts to address the main issues that industrial society must resolve: the legitimacy of managerial authority, the status and function of managers and workers, and the power structure of society and organizations. In Drucker's own words, this is a book exploring the specific principles of industrial society. Corresponding to these specific social principles, Drucker had earlier attempted to develop a general social theory, which was the aim of The End of Economic Man and The Future of Industrial Man. The subtitle of The End of Economic Man is "The Origins of Totalitarianism." The book focuses on how society disintegrates in industrial societies and how totalitarianism rises. For Drucker, the real challenge of this topic isn't explaining how Hitler and Mussolini came to power, nor the actions of Germany and Italy in government, military, and economic spheres. Rather, it's understanding why some Europeans accepted clearly absurd totalitarian ideologies, and why others seemed potentially receptive to them. Drucker's writing style is argumentative. He clearly knew that to effectively advance his arguments, he needed to engage with popular theories of his time. Back then, there were two main explanatory approaches to Nazism and Fascism, which Drucker termed "illusions." Some viewed totalitarianism as ordinary political turmoil similar to previous historical revolutions. In their view, totalitarianism was characterized merely by cruelty, disruption of order, propaganda, and manipulation. Others considered totalitarianism a phenomenon unique to Germany and Italy, related to their specific national characters. Drucker thoroughly refuted explanations based on "national character." He believed that any historical approach appealing to "national character" was pseudo-history. Such theories always emphasize that certain events were inevitable in certain places. But all claims of "inevitability" negate human free will and thus deny politics: without human choice, there is no politics. If the rise of totalitarianism were inevitable, there would be no need or possibility to oppose it. Viewing totalitarianism as an ordinary revolution is equally dangerous. This thinking merely emphasizes how bad Nazis and Fascists were. But the real issue is that Europeans were not merely submitting out of fear—they were actually attracted to totalitarianism. And those attracted weren't just the ignorant masses but also well-educated intellectual elites, especially the younger generation. The world cannot defeat totalitarianism through contempt alone, especially if that contempt stems from ignorance. Understanding the enemy is a prerequisite to defeating it. Drucker identified three main characteristics of Nazism and Fascism (totalitarianism is a social type, with Nazism and Fascism being its representatives in industrialized Europe): 1. The complete rejection of freedom and equality, which are the core beliefs of European civilization, without offering any positive alternative beliefs. 2. The complete rejection of the promise of legitimate power. Power must have legitimacy—this is a long-standing tradition in European politics. For power to have legitimacy means that it makes a commitment to the fundamental beliefs of civilization. Totalitarianism denied all European beliefs, thereby liberating power from the burden of responsibility. 3. The discovery and exploitation of mass psychology: in times of absolute despair, the more absurd something is, the more people are willing to believe it. The End of Economic Man develops a diagnosis of totalitarianism around these three characteristics. Drucker offers a deeper insight: totalitarianism is actually a solution to many chronic problems in industrial society. At a time when European industrial society was on the verge of collapse, totalitarians at least identified the problems and offered some solutions. This is why they possessed such magical appeal. Why did totalitarianism completely reject the basic beliefs of European civilization? Drucker's answer: neither traditional capitalism nor Marxist socialism could fulfill their promises of freedom and equality. "Economic Man" in Drucker's book has a different meaning than in Adam Smith's work. "Economic Man" refers to people living in capitalist or socialist societies who believe that through economic progress, a free and equal world would "automatically" emerge. The reality was that capitalism's economic freedom exacerbated social inequality, while socialism not only failed to eliminate inequality but created an even more rigid privileged class. Since neither capitalism nor socialism could "automatically" realize freedom and equality, Europeans lost faith in both systems. Simultaneously, they lost faith in freedom and equality themselves. Throughout European history, people sought freedom and equality in different social domains. In the 19th century, people projected their pursuit of freedom and equality onto the economic sphere. The industrial realities of the 20th century, along with the Great Depression and war, shattered these hopes. People didn't know where else to look for freedom and equality. The emerging totalitarianism offered a subversive answer: freedom and equality aren't worth pursuing; race and the leader are the true beliefs. Why did totalitarianism reject the promise of power legitimacy? One reason was that political power abandoned its responsibility to European core beliefs. Another reason came from the new realities of industrial society. Drucker held a lifelong view: the key distinction between industrial society and 19th-century commercial society was the separation of ownership and management. The role of capitalists was no longer important. Those who truly dominated the social industrial sphere were corporate managers and executives. These people effectively held decisive power but had not gained political and social status matching their power. When a class's power and political status don't match, it doesn't know how to properly use its power. Drucker believed this was a problem all industrial societies must solve. Totalitarianism keenly perceived this issue. The Nazis maintained property rights for business owners but brought the management of factories and companies under government control. This way, social power and political power became unified. This unified power was no longer restricted or regulated—it became the rule itself. Why could totalitarianism make the masses believe absurd things? Because Europeans had nothing left to believe in. Each individual can only understand society and their own life when they have status and function. Those thrown out of normal life by the Great Depression and war lost their status and function. For them, society was a desperate dark jungle. Even those who temporarily kept their jobs didn't know the meaning of their current life. The Nazi system could provide a sense of meaning in this vacuum of meaning—though false, it was timely. Using the wartime economic system, the Nazis created stable employment in a short time. In the Nazi industrial system, both business owners and workers were exploited. But outside the industrial production system, Nazis created various revolutionary organizations and movements. In those organizations and movements, poor workers became leaders, while business owners and professors became servants. In the hysterical revolutionary fervor, people regained status and function. Economic interests were no longer important, freedom and equality were no longer important; being involved in the revolution (status) and dying for it (function) became life's meaning. The Nazis replaced the calm and shrewd "Economic Man" with the hysterical "Heroic Man." Though absurd, this new concept of humanity had appeal. What people needed was not rationality but a sense of meaning that could temporarily fill the void. Those theorists who despised totalitarianism only emphasized its evil. Drucker, however, emphasized its appeal. He viewed totalitarianism as one solution to the crisis of industrial society. From 19th-century commercial society to 20th-century industrial society, the reality of society changed dramatically. 19th-century ideas, institutions, and habits could not solve 20th-century problems. Capitalism could not fulfill its promises about freedom and equality, and neither could Marxism. It was at this point that totalitarianism emerged. Nazism and Fascism attempted to build a new society in a way completely different from European civilization. Drucker said the real danger was not that they couldn't succeed, but that they almost did. They addressed the relationship between political power and social power, proposed alternative beliefs to freedom and equality (though only negative ones), and on this basis provided social members with new status and function. The war against totalitarianism cannot be waged merely through contempt. Defeating totalitarianism is not just a battlefield matter. Those who hate totalitarianism and love freedom must find better solutions than totalitarianism to build a normally functioning and free industrial society. Totalitarianism gave wrong and evil answers. But they at least asked the right questions. Industrial society must address several issues: the legitimacy of power (government power and social power), individual status and function, and society's basic beliefs. These issues became the fundamental threads in Drucker's exploration of industrial society reconstruction in The Future of Industrial Man. The Future of Industrial Man: From Totalitarian Diagnosis to General Social Theory Both The End of Economic Man and The Future of Industrial Man feature the prose style of 19th-century historians. Even today, readers can appreciate the author's profound historical knowledge and wise historical commentary. For today's readers, the real challenge of these two books lies in Drucker's theoretical interests. He doesn't simply narrate history but organizes and explains historical facts using his unique beliefs and methods. In The End of Economic Man, Drucker developed his diagnosis of totalitarianism around three issues: power legitimacy, individual status-function, and society's basic beliefs. In The Future of Industrial Man, he also constructs a general social theory around these three issues. In "What Is A Functioning Society," Drucker explains three sets of tensions that exist in social ecology: 
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