THOSE OF you who are, like me, only dimly familiar
with the writings of Peter Drucker will at least know
one of his most famous pronouncements: “There
are only two things in a business that make money –
innovation and marketing. Everything else is a cost.”
I have probably quoted this assertion once or twice
but, to be frank, I had never used it very confidently.
It always seemed so contrary to the prevailing
business culture (where the highest end of business
seems to be cost cutting) that it seemed more like a
deliberate provocation than a seriously held point of
view. But, as I shall explain, it is a serious claim.
I had lazily assumed Drucker was German or
Swiss. He was, in fact, Austrian. The distinction is
important here. For Drucker grew up in the Vienna
most famous for Freud and Klimt, but which was
also home to a remarkable dissident tradition in
economics. One of Drucker’s father’s best friends
(and former pupils) was the Austrian economist
Joseph Schumpeter. This helps explain why Drucker
spoke out so confidently in favour of marketing.
Today the Austrian school of economics still has
some adherents in the US, though fewer in Europe,
and is underrepresented in business schools and
economic teaching in general. Although ardently
in favour of free markets and hostile to most
government intervention, it differs from mainstream
(neo-classical) economics in a few significant respects.
One vital distinction is the importance it attaches
to psychology. Ludwig von Mises, among the
most influential of Austrian economists, believed
that economics as a discipline was subordinate to
psychology. He proposed a science of human decision
making and action, which he called praxeology,
to some extent foreshadowing what has become
behavioural economics and neuroeconomics.
Drucker obviously agreed. Attending a
Cambridge lecture by Keynes in the 1930s, he
wrote: “I suddenly realized that Keynes and all
the brilliant economic students in the room were
interested in the behaviour of commodities, while I
was interested in the behaviour of people.”
Another Austrian tenet is the ‘subjective theory of
value’, which asserts that the only value of anything
is simply what someone is willing to exchange for
it at any given time. Hence they do not distinguish
between tangible and intangible value. To von Mises,
“there is no sensible distinction to be made between
the value a restaurant creates in cooking the food,
and the value the restaurateur creates by sweeping
the floor”. One job produces the food, the other
creates the context in which it is possible to enjoy it.
The two are inextricable.
Once you believe this, marketing and innovation
become, in a sense, the same thing. Whether you
find out what people want and then devise a way to
manufacture it, or find out what you can manufacture
and devise a way to make people want it – or a
combination of both – you have created value.
There are few people today who would repeat
Drucker’s assertion. One major reason is that the
neoclassical model of economic thinking which
dominates business today is deeply inimical to
marketing. Unlike the Austrian approach, it assumes
a model where individual consumers with perfect
information and constant preferences make decisions
to maximise their own individual utility. This is a
model in which marketing has no place at all.
But the Austrian approach gives marketers a
platform from which to criticise the current business
assumptions without being labelled a Trotskyite.