Acton Institute Powerblog

Drucker on private property and the modern corporation

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This is the sixth in a series of essays on Peter Drucker’s early works.

Peter Drucker recognized the revolutionary aspect of the corporate form.

The older corporations wielded something close to sovereign authority as they essentially ruled the territory wherever they traded and planted. Other corporations followed by exploiting natural monopolies such as bridges and utilities.

But the new corporation, the corporation of the modern era, is a different sort of thing.

Modern corporations arise when individuals delegate their private property rights to the corporation, giving them what Drucker calls “legitimate power.” Drucker saw the modern corporation as a reflection of our political theory. The limited liability that exposes the corporation to greater risk than flows through to individuals mirrors the status of the Lockean man or woman in society who has transferred only part of his or her rights to the political community, but not everything. Likewise, the ability to freely sell shares tracks an individual’s right to resign from political associations via immigration.

Because of the ability to enter and exit the corporate association easily, the corporate form offers impressive accountability if participants take the opportunity. Management only has power as long as people invest it with authority through votes provided by their private property shares. As much as we may bemoan the corporation and charge it with all kinds of abuses, Drucker judged it as one of the most successful institutions in human history.

However, he also included a warning. Property rights lose some of their moral and social power when they become attenuated through passivity. The modern stockholder, in Drucker’s view, is less and less able to exert any influence over the corporation. Indeed, very often the shareholders do not want any control. They just want the income, the increased value, and so on. As a result, professional management increasingly holds the real power in a corporation.

Drucker observed that when property rights give way to professional management as the real source of power in a corporation, we have already traveled part of the way in an unhealthy direction. The Nazis and Soviets demonstrated that it wasn’t property, but control that matters. The Nazis didn’t take the property, but they did take control, achieving the same basic result.

Private property may well survive the collectivist assault (as it appears to have done), but such property will be of a weaker, more attenuated sort. Drucker noted that religious freedom is easy to come by when religion is seen as having low power and low status, but not when religion is the moving force in a society. Likewise, he wrote, “If it is understood that to own a house has as little political meaning as whether one is Baptist or Presbyterian, then there will be no objection at all against private property.” In other words, we have private property, but it may not carry the same force as an organizing principle in the political society.

We can see how easily private property defers to political priorities when we examine a case such as that of Chrysler and GM during the financial crisis of 2008-2009. The senior debt holders took a back seat to the United Auto Workers despite a clear understanding of how the law works in such cases.

Private property is one thing, but control is another.

Image: Blue Building, Business (Pixabay License)

Hunter Baker

Hunter Baker, J.D., Ph.D. is a professor of political science and the dean of arts and sciences at Union University and an Affiliate Scholar in religion & politics at the Acton Institute. He is the author of The End of Secularism and Political Thought: A Student's Guide.