By Rory Sutherland
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 always liked this assertion, and have probably quoted it once or twice. But, to be perfectly frank, I had never used it very confidently. It always seemed so contrary to the prevailing business culture of the moment (where the highest end of business seems to be cost cutting) that to use it seemed more like a deliberate provocation than a seriously held point of view. But, as I shall explain, it is a serious assertion.
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. In fact one of Drucker’s father’s best friends (and former pupils) was the Austrian economist Joseph Schumpeter. This close family connection 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 notably underrepresented in business schools and in economic teaching in general. Although ardently in favour of free markets and hostile to most government intervention in the economy, it differs from mainstream (ie neo-classical economics) in a few significant respects.
One vital distinction is the importance they attach 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 says “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, then marketing and innovation become, in a sense, the same thing. Whether you find out what people want 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 just the same. Hence Drucker’s bold claim.
The reason for this lengthy digression on the Austrian school is simple. There are few people today who would repeat Drucker’s assertion. And one major reason is that the dominant 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 as a Trotskyite.
And the Austrians are only one of the heterodox schools currently active in economics. Network economics, behavioural economics, neuroeconomics, Darwinian economics, neo-Marxian and post-Keynsian economics, econophysics, complexity economics and even a French movement called Post-Autistic Economics all offer ways of looking at the business world that are more marketing friendly than the prevailing model. The reason is simple: these heterodox schools, for all their differences, at least acknowledge that economics is and should be a social science, not a masturbatory exercise in numerical modelling which achieves a spurious mathematical neatness at the expense of stripping away from human behaviour almost everything that makes us human.
Unfortunately, these various fragmentary schools suffer from an appalling branding and identity crisis. There is nothing which allows them to unite under a common banner of opposition to the status quo. This is the big problem – since it means the very act of criticising economic orthodoxy immediately marks you out as a commie or a crank. If someone in our industry could come up with a brand identity for these people, it would be in all our interests.
All revolutionary movements need a distinct identity. Even the Anarchists somehow managed to agree on a logo.