Some of the economists argue that consumers are those that drove the market economy; since they make the demands, and firms supply the demand of the consumers. They also feel that large firms cannot produce the exact amount of goods as they only know an approximation of the demands that they need; which may fall or rise, and what price they are going to charge customers for goods and services.
In early years, the market economy worked differently than how it works now, as far as producers of goods are concerned. Generally, customers pay the price for goods; and that is what determines the market value of goods. Producers firmly depend on the customers and their willingness to pay; therefore, the planning soon developed because the business is not producing what producers wanted to boost a profit. Hence, essential planning is required for a corporation to be able to predict the demand of the consumers by monthly or yearly in advance. Corporations starting to plan the amount of goods they are going to produce and the cost of those goods including labour wages may benefit in the long-term. They will also plan the price they should charge customers for the goods in order to make a stable profitable organisation.
Therefore, according to Galbraith; who believes that planning systems have the power that drive the market economy as a whole, he argues that consumers were being persuaded to purchase goods through heavy advertising by the big firms. Therefore, the whole system of production and spending, run and planned by the corporations, with customers being managed as much as the labours in those firms. Large firms also know whether their target consumers are high income or lower income customers. If the income of the household increase it will lead more demand which means more supply and by charging higher prices in general. In another words, they know when to charge higher and when to charger lower for goods, as they plan everything ahead.
Planning systems have the power to influence the government and afford to hire lobbyist to sway Government decisions on their way, for instance, the defence industry in the US.
In the planning system that the Government include, however they have less intervention in the capitalist market. The government only intervenes when necessary, for example, their intervention comes when mostly when the market fails.
There are certain things that planning system can not plan or regulate by it self; therefore the Government will have the responsibility to complete the overall planning system. The big firms cannot control the overall size of the economy, thus, the Government regulates and aggregates demand. Also, the government provides security and manages the total spending to stabilize the economy, so that they can stop rising the entire price constantly. Large corporations cannot regulate inflation, the government does it independently somehow.
Large firms cannot provide skilled workers they need, they cannot educate them, but they can provide training. So the Government provides the education that workers require, through funding colleges and universities.
The Government also bails out some large corporations when they fail by giving them required funding to remain in the market. For instance, Banks who supply loans to small business. If the government does not bail out Banks, then there will be massive job losses and small business will burst since they depend on Banks in the current recession. However, if the large firms made abnormal profits, it will lead to economic growth of the Government. “Government intervention may be able to rectify various failing of the market. Government intervention in the market can be used to achieve various economics objectives which may not be best achieved by the market. Government, however, are not perfect, and their action may bring adverse as well as beneficial consequences”.
TNC controls almost a quarter of the production assets in the world, and also the largest 500 TNC’s dominate 70% of the world trade and 80% of overall abroad investments. The combined revenue of 200 of the largest TNC’s is greater than the income of 182 countries; which will make around 80% of the population of the world. That is why Galbraith believed what drove the market economy is the Planning system and not the consumers. He argued that the aim of the planning system is to form a social goal. Corporations want skilled workers and the Government spends a lot of money on education to produce educated workforce.
Galbraith also agreed that shareholders do not have much control over the larger firms; however disagreed mangers have the power to run the large firms. He believes that Techno-structures are those who run aligobilistic market. Galbraith refers the techno-structure as highly skilled technical people with specialist knowledge; who are important for operations of firms at different levels with the organisation. The techno-structure includes specialists of Marketing, Human resources, Auditors, Economists, Scientists and Engineers.
He believed that the techno-structure had a different hierarchy for different goals.
Firstly, the main aim is to ensure the survival in a certain company and avoid taking any risks; which may incur losses. This is because losses are likely to damage the firms reputation; for example, Lehman Brother. Once the survival of the corporation is ensured, companies want to get the maximum growth possible, this requires that firms become more on the market; having produced solid planning for its future production and sales beforehand. The process of planning includes investing and controlling its workers through training, coordinating prices with rival firms. This would lead to a potentially maximum growth; and hence mean an expansion in techno-structure. Finally, after the growth has been achieved, the techno-structure would like the firm to focus on being an ethical company, and improving the public image as a socially responsible company.
Although many neoclassical books; which are mainstream tradition economic text books, criticise Galbraith’s argument about the power of big corporations, they state that he exaggerated more about the power of large corporations. The economist seemed to think that the big firms could ignore market forces and plan everything to suit them. He used an example of General Motoring; however, other economists argued against why some of the large firms failed in the 1980’s and 1990’s. They believed that firstly, he had made incorrect predictions about the large firms; and moreover, the techno-structure is actually no longer relevant, because in their view, top managers have a lot of power and they can choose to hire a techno-structure, but their interests are more important than any sort of techno-structure.
Some of the mainstream economists such as Friedrich Hayek also criticised this book, The New Industrial State, where he specifically argued that the economy was dominated by large corporations. He said that they control the costs which it sells its goods as well as the prices which it buys products and resources. Most economists disagreed; they stated that the largest firms will become unsuccessful, if they fail to produce what consumers want. The consumers know what they want and they can not be told what to do through advertisements as the adverts cannot shape tastes but it can be eye-catching and give them advice and a great sense of expectation. Along with other economists, Hayek also stated that we should not consider Galbraith’s book as a theory of economics; they reach as far as criticising it, and feel it is too biased and one sided.
In conclusion, I agree that the corporate powers are those who really drive the markets economy, in relation to J.K. Galbraith’s analysis of the large corporations. Galbraith clearly emphasises his view on the Transitional National Corporation; which enables us to reach a conclusion, although many economists disagree with his opinions.
The banks influence business decisions of small firms, whilst planning systems are in command of their costs. Some economists believe consumers drive the market economy; which I do not agree with because deep planning is required for a corporation to be able to succeed in the long-term.
Big corporations have the facilities to provide global television advertisements and consumers were being persuaded to purchase goods through these means. There are certain things disadvantages in planning systems though, because they cannot provide skilled workers that they need, so the Government funds educational organisations to provide training. Nevertheless, TNC’s control a quarter of production assets which is why Galbraith believed it was not the consumers but the Planning system which drove the market economy; and that shareholders do not have a great deal of control over larger firms.
Other economists such as Hayek disagreed; they stated that the largest firms will fail, given that they do not rectify what customers want. I agree to this statement to an extent, but feel that the planning system and the larger firms have the foremost control, and success and failure is in their hands.
WORD COUNT: 1958
Bibliography:
References:
– History, Nature and change: abridge.me.uk/ The new industrial state (Accessed on: 20th November 2009).
- Library of Halexandria
halexandria.org / Transnational corporations (Accessed on: 21st November 2009).
- John Kenneth Galbraith: a criticism and an appreciation
thefreemanonline.org / ideas on Liberty (Accessed on: 21st November 2009).
Galbraith, J.K: (1967) The New Industrial State: First (original) edition: London
Sloman, J. and Sutcliffe, M: (2004) Economic for Business: third edition: Financial Times/ Economics. Prentice Hall
Fuller, C: (2009) Business economics -Lecture Notes: London