Goldman Sachs: Failure of Innovation

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"How many other innovations can you tell me that have been as important to the individual?"

Volcker's remark was made half in jest, but Drucker certainly would have appreciated the sentiment. In his 1999 essay, he explained that in the two or three decades following World War II, a steady stream of innovations flowed from the banking sector, including the eurodollar, the eurobond, the first modern pension fund, and the credit card.

He also highlighted the pioneering work of Citibank's Walter Wriston, who, as Drucker described it, "immediately changed his company from being an American bank with foreign branches into a global bank with multiple headquarters." Wriston's subsequent insight, "that 'banking is not about money; it is about information,'" Drucker said, "created what I would call the 'theory of the business' for the financial services industry."

The Middle-Class Market

But ever since Wriston's day, Drucker asserted, bankers have done little to innovate, at least for the benefit of their patrons. Drucker did, though, see a possible sweet spot for the industry: servicing individual middle-class investors around the globe.

Drucker pointed out that one of his consulting clients, the St. Louis-based brokerage Edward Jones, was the first to see the potential in this market about 40 years ago. Most of the people that Edward Jones serves aren't particularly wealthy, Drucker wrote, but "the sums they collectively pour into investments dwarf by several orders of magnitude everything all the world's 'superrich' together have available, including oil sheikhs, Indonesian rajas, and software billionaires."

Today, Drucker added, the kind of customer to which Edward Jones caters "constitutes the fastest-growing population group in every developed and emerging country," including Latin America, Japan, South Korea, and the cities of mainland China. "This market," Drucker suggested, "might become the 21st century's successor to the world's first financial 'mass market': life insurance."

I can't say whether Drucker's forecast will come true. But I do know this: We'd all be better off with innovations that look more like ATMs and less like CDOs.

Rick Wartzman is the executive director of the Drucker Institute at Claremont Graduate University.

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