When social historians look over the past couple of centuries, I’ll bet that they see this period as the “Era of the Manager,” as these decades witnessed the rise of a new occupational class. Certainly, there are contemporary thinkers who would share these sentiments. In his influential 1977 opus, The Visible Hand: The Managerial Revolution in American Business, Alfred Chandler discussed a transformation of American business that took place in the nineteenth and early twentieth centuries. Beginning with the railroads, larger organizations tended to displace many smaller businesses, and this trend accelerated after the Civil War. The size of these new corporations improved their ability to exploit the large national market and newly available technologies. These increasingly integrated and complex business organizations required professional managers to operate and maintain them. Peter Drucker took up this story in the 1993 volume, Management: Tasks, Responsibilities, Practices, noting that even domains formerly distinct from management, such as educational leadership, have imbibed the managerial ethos. Likewise, Henry Mintzberg, in his 2011 book, Managing, also discusses the importance of managers in modern life.

These sorts of observations set one to thinking – Where will it all end? How far will the managerial revolution take us? Organizational scientists might be surprised to learn that an attempt was made to answer this question in a famous book, though it is better known in political science departments than in business schools.

In 1941 James Burnham published The Managerial Revolution: What is Happening in the World. Dr. Burnham
explored the place of corporate managers within the larger society. He came to a stark conclusion – the former would soon control the latter. Professor Burnham’s revolution would result in the managerial class becoming the dominant group in all advanced societies. They would not only be running business organizations, they would soon be planning and directing the entire economy.

As you might have noticed, things didn’t quite work out that way. Managers are every bit as important as they were in the 1940s, but there are other powerful actors as well. Apart from managers, elected political leaders, teachers, investors, community activists, clergy, military officers, and others have considerable influence. Perhaps because Burnham’s predictions were unsuccessful, The Managerial Revolution is no longer discussed as much as it once was. That’s too bad, because it is worth understanding why the managerial revolution stalled where it did. For social scientists, it’s okay that a prediction fails, so long as we learn something from it. For that reason, we need to study failures as closely as we study successes. The Managerial Revolution seemed reasonable to many people in the early 1940s. What have we learned since then that renders Burnham’s ideas less plausible?

In this essay, we’ll explore one possibility. I strongly suspect that our management-run future failed to materialize for a rather subtle, epistemological reason – knowledge is not organized in the manner that Burnham believed. To understand why this is so, we first need to look at Dr. Burnham’s implicit theory of knowledge, and then we will consider a competing theory that has been articulated and promulgated by Dr. Thomas Sowell.

Let us begin with a very loose summary of Burnham’s thinking. According to Burnham, the managerial class was coming to prominence because capitalism was caught between two pinchers. On the one hand, the rise of large corporations, which were necessary to pool resources, thoroughly diluted ownership so that stockholders had little day-to-day control. For this reason, management would have decidedly more strategic authority than would have been expected in the days before publically traded corporations. (In modern parlance, we would call this the “system-agent problem.”)  And, on the other hand, running a large organization had become a substantially more complex undertaking than it had been during earlier years of capitalism.  For this reason, the distinct class of administrative specialists would grow stronger as “the functions of management become more distinctive, more complex, more specialized” (page 82). Putting these two historical points together, shared ownership gave managers power and specialized knowledge gave them expertise. Hence, they are emerging as a distinct class that will control future societies.

More generally, Burnham argued that both capitalism and socialism were receding into history. Their successor would involve large-scale central planning and control of the entire economy (and much else) by technocratic experts. Burnham anticipated a completely new socio-economic world order, which is post-capitalist but also post-socialist. Incremental steps, such as the American New Deal, only scratch the surface. As Burnham put it, “New Dealism is not, let me repeat, a developed, systematized managerial ideology.” He even went so far as to assert that “Fascism-Nazism and Leninism-Stalinism (communism or Bolshevism) are types of early managerial ideologies which have been given organized expression and have already had great success” (pages 191-192).

Burnham believed that his managerial ruling class was arising because it really could do a better job. As we have seen, the emerging dominance of the managerial class would rest, at least to a large degree, on its special knowledge regarding the production processes. By deploying their expertise, managers’ central planning would provide a future that was more prosperous, though perhaps less free, for the mass of humanity. In other words, the managers were using their “know how” to displace the less effective alternatives.

Notice that this argument contains a sneaky assumption. It tacitly assumes that there is only one type of knowledge pertaining to the production process, and that more of it is better. To state the matter a little too starkly: Dr. Burnham is writing as if there is only a single variety of knowledge relevant to commercial activity, understood as technical expertise, and the more you have the better you will be at running a large organization or, for that matter, an entire economy.

Or so, Burnham thought. To my thinking the most damning counterargument came from the economist, Dr. Thomas Sowell. In his 1980 (updated in 1996) book, Knowledge and Decisions, Dr. Sowell maintains that there are two types of knowledge necessary for successful economic decisions. Let’s walk through each of these.

The first type, which was emphasized by Dr. Burnham, is general, abstract, systematically articulated, reasonably stable, and authenticated through an intellectual process (e.g., logical argument). This is the type of knowledge we acquire in the classroom or in books.  If all knowledge were of this intellectual kind, then government by technically trained managers would, at least in principle, be possible. The experts would simply go to school long enough to acquire the necessary knowledge, or at least they would make use of a big database that would keep what they need to know accessible.

There is also a second type of knowledge, which Dr. Sowell believed was equally or more important than the first. This type is local, concrete, often disorganized, dynamic, and not thoroughly vetted. A small boutique owner, making judgments of next year’s fashions would fit into this category. Technical training, whatever virtues it may have, will build one kind of knowledge but will do little for the other. Moreover, this second type of knowledge cannot be adequately acquired by formal training and smoothly transferred into a specific situation. At least to some extent, it needs to be acquired in a particular context and though direct experience that includes unambiguous feedback.

In other words, Sowell argues that economic success is a matter of the kind of knowledge, not (only) the amount. By extension, Burnham’s system of managerial control won’t work because it emphasizes only one sort of knowledge while de-emphasizing the other. Dr. Sowell’s point is intuitively appealing but, like many big ideas, easiest to grasp with an example.

If you visit us in Boulder, Colorado, and walk down the Pearl Street Mall, you might wish to stop by the Boulder Book Store. Founded in 1973, the Boulder Book Store is an independent, full-service book seller. It is also a landmark for bibliophiles on the Colorado Front Range. But the question for the moment is more basic – How does the Boulder Book Store manage to compete with low cost internet sellers, such as

The answer wouldn’t surprise Dr. Sowell. The owners and managers of the Boulder Book Store have a thoroughgoing and detailed knowledge of the Boulder community, including their customers’ variegated interests and needs. They stock numerous hard-to-find books that are of interest to local readers – the sort of volumes you wouldn’t think of reading until you saw them in the shop. They have even incorporated a used book section to compete with the resale market. Likewise, the Boulder Book Store hosts various events, such as reading times for children, signings, and meetings of book clubs. (Once, I eavesdropped on a creative writing class.) As the tastes of Boulder’s readers evolve and grow so do the store’s offerings. When I moved back to Colorado after a ten-year absence, I noticed that the Boulder Book Store had begun co-sponsoring yoga classes. In other words, the Boulder Book Store is part of the Boulder community. People shop there, and are willing to pay a little more for their books, because the store is able to anticipate and meet customer needs proactively. (Besides, it’s a cool place if you like to read.)

This is Dr. Sowell’s understanding of knowledge, and it brings us all the way back to The Managerial Revolution. Suppose there was a central planning office in Washington, D. C. Using experts with statistical training, it might be decided to insert a local book store into every town in America. It would be difficult, probably impossible, for them to craft outlets as responsive to their customers as the Boulder Book Store. Because the independent sellers are embedded within their communities, they are in a better position to anticipate and respond to the ever changing local needs. The agency could not effectively gather enough information to accomplish this. Even if they could, by the time this costly data collection was completed the situation would have changed.

If we put these pieces together, we can see that Dr. Sowell is making a bold statement. For economic decisions, large scale central planning of the type discussed by Burnham will often be less effective than decentralized decision-making. This is because central planners have access to one type of knowledge but lack the other. And this will always be the case because technical training won’t provide administrators with the rich type of understanding obtained by direct experience and feedback within a particular setting.

Dr. Sowell further develops these ideas in his 1987 (updated in 2007) book, A Conflict of Visions. Not only
will central planners lack much (Sowell might say “most”) of the information they need, but their top-down decision processes often make matters worse by impeding decision-makers’ ability to obtain the second type of knowledge.

According to Dr. Sowell, many, many people have pieces of knowledge, but no one of us has very much.  Or, to state the matter more precisely, compared to all there is to know, each of us are fundamentally ignorant. With this humbling realization, societies should prefer “systemic” decision processes that pull together the bits and pieces of scattered information into a more complete picture of realty. An effective systemic decision-making process allows each individual to indicate his or her preferences. These preferences become signals that are transmitted throughout an interconnected set of people. As such, they provide direct feedback, allowing people to respond to the choices made by others.

For Dr. Sowell, the quintessential systemic process is the marketplace. People make decisions about how to spend and invest their money. As a result, some prices begin to go up, while others begin to go down. Actual managers (not the über-managers of Burnham’s reckoning) make use of this sort of information when rendering decisions. They subsequently receive additional feedback, often in the form of profits or sales, which allows for further refinements. Notice the elegance of the price signal. The chief operating officer of a textile manufacturer, for example, might not be aware that a drought in North Africa lowered the supply of cotton and thereby raised the price. She may not even know that less cotton is available. What the COO knows is that her supplier is charging more and so she might need to substitute cotton for a cheaper alternative or, failing that, may wish to raise costs to wholesalers.

In this way, systemic decision processes, at least to Dr. Sowell’s thinking, incorporate vast amounts of information and do so in a flexible way. The system as a whole behaves rationally, adjusting itself organically to shocks and strains, while the individuals who are part of the system need to understand only the smallest part. Herein we find another concern with large-scale central planning. By implementing a top-down system, the planners inadvertently block the flow of market signals, such as prices. Absent this information, planners lack the feedback to optimize their decisions.

Dr. Burnham had the intellectual’s trust in abstract and technical knowledge, and so he didn’t show enough respect for knowledge that was concrete, widely dispersed, and local. For that reason, he underestimated the challenges that managers faced, while overestimating how much they could know in a particular decision environment. To be sure, a powerful government can always impose top-down decision-making on its citizens. Soviet Russia and Nazi Germany certainly did so. However, in the long run this will be an ineffective strategy for creating prosperity, and this is why the Soviet Union and the Third Reich, contrary to Dr. Burnham’s predictions, are no longer with us.