The New Economics

¶ … New Economics

Recipient of the National Medal of Technology, international consultant, and author of Out of the Crisis, W. Edwards Deming is an established economist and statistician. In the New Economics, Deming offers a vision for industry, government, and education based on effective knowledge and information management and sustainable growth. Deming's book is therefore more humanistic than would be expected of an economist. The author is profoundly optimistic and forward-thinking in his views of knowledge, human potential, and the capacity for positive transformation. Deming extends far beyond the scope of textbook economics too, discussing issues related to human welfare and well-being.

The New Economics is succinct: less than 250 pages including the index. Accessible in its tone and layout if not its writing style, the book remains viable as a trade book but its author's background and credibility and his theoretical underpinnings make the New Economics required reading for students, scholars, and professionals. The crux of the New Economics is what Deming calls "A System of Profound Knowledge," which he outlines in detail in Chapter 4. The book is divided into ten sections plus an appendix and index.

In Chapter One, "How are We Doing?" Deming summarizes the "ground rules of knowledge for change," (p. 2). These ground rules reveal Deming's core philosophy and the basis for his new economics. Deming also evaluates the United States and finds that although the United States once contributed enormously well to world trade that the economy has been on a steady decline for decades. An inability to acknowledge a changing world and different value systems has caused the United States to fall back on its contributions to profound knowledge.

Deming champions the necessity for trade and an understanding of the ground rules for trade in the global marketplace. The global marketplace has, according to Deming, placed a greater emphasis on quality. Moreover, the pervasiveness of trade in all societies leads the author to claim even a "spiritual" function for the exchange of goods and services. Deming's seemingly New Age vision of world trade fizzles when he portrays consumers as sheep who "expect only what you and your competitor have led him to expect," and who "generates nothing," (p. 7). Deming's intention is not arrogant, however. He points out fallacies in the American model for organizational culture that have hurt our economy and our society as a whole. Many of Deming's observations seem ironic. For example, Deming observes that strong monopolies are in most cases the most robust and healthiest organizations with potential to "be of maximum service to the world," (p. 75).

Innovation is the hallmark of organizational health, according to the author. Managers need to continually stimulate innovation by thinking about potential products and services to offer consumers in the future. Preservation or improvement of quality depends not on floor supervisors but rather, on upper-level management. According to Deming, only senior management can ensure the quality of the goods and services offered by the organization. If an organization faces financial losses or other hardships it must first look to a transformation in managerial culture.

In Chapter 2, "The Heavy Losses," the author sets out to present a new model for management. The new model begins with an examination of the sources of waste within an organization. Waste may be quantifiable losses but Deming refers also to the inefficiency of short-term thinking and ineffective time management. Throughout Chapter 2, Deming offers at-a-glance charts outlining the drawbacks of present practices alongside the benefits of new management theories. As in other sections of the New Economics, Deming also divides the chapter into subheadings.

The transformation of management theory into one that embraces profound knowledge incorporates long-term visionary planning and a thorough revision of company culture. Deming emphasizes theory over practice, advocating the total transformation of organizational culture. For example, Deming criticizes incentive pay and claims that "reward for good performance may be the same as reward to the weather man for a pleasant day," (p. 28). A merit system, according to the author, destroys both morale and quality: one of the cornerstones of the new economics. Deming advises that American organizations learn from the Japanese model, which values human resources by offering job security and encouraging company loyalty and employee morale. The current American model presumes each member of the organization is an "individual profit center" rather than a participation in a grand project. A systems theory would renovate organizational culture to foster positive growth. Furthermore, numerical measures can no longer be the sole benchmark on which to base company success or individual performance. Deming recommends the abolition of commission-based sales and substantiates that recommendation by noting that number-based systems permit the distortion of facts. In sum, Deming claims that America has fallen pray to a "goals without method" mentality.

Chapter 3 begins Deming's offer of a solution to our culture's short-sightedness: "The Introduction to a System." In addition to transforming corporate culture, a new systems theory would also help transform the educational and public service organizational cultures. Deming calls his system the system of profound knowledge. The system of profound knowledge has definable goals and definite and manageable methods to achieve those goals. Moreover, the goals must remain foremost in the mind of all managers, at the risk of losing sight of core values. Deming makes the analogy of the consumer need for mobility and not necessarily for automobiles or airplanes (p. 51). In order for the system to succeed, it must be managed by people: systems when left to themselves will fail. Managers guide systems, steering them toward their goals and navigating them through potential potholes. Interestingly, Deming includes competitors into the system, calling on managers to view systems as having discreet boundaries as well as definite goals. To support his argument, Deming notes real-world examples of successful systems and failures that help illustrate his point.

The "System of Profound Knowledge" is based on the principle of cooperation, and is outlined in Chapter 4. Again sounding New Age, Deming claims that the individual, "once transformed," will "move into the new philosophy without a feeling of guilt about the past," (p. 93). In fact, the author admits that his theory of profound knowledge stems in part from an understanding of human psychology. Deming advocates interdependence and urges self-reflection and "rational prediction," (p. 102). In keeping with his advice in Chapter 2, Deming claims that an overemphasis on quantifiable goals has profoundly hurt the American educational system. Grades in school create an apathetic, competitive educational environment. Deming's assessment of educational culture also parallels what the author claimed in Chapter 3 regarding the inefficiency of competition. Intrinsic motivation and the cultivation of deep and genuine pride in one's work are the goals of Deming's new economy.

In Chapter 5, "Leadership," Deming claims that an understanding of profound knowledge will help transform management. The leaders in the new economy transform their organizations and their culture through theory, personal pride, and systematic pursuit of goals. Leaders with ambitious goals need also to learn how to communicate their goals to others in succinct, simple ways. Deming offers real-world and personal examples of successful leaders.