Before we explain what the planning system is we must first say why there was a need for it in the first place. Galbraith thought that the planning system had developed due to the world becoming increasingly technical. During the 1900’s the gestation period from when a product was being developed to actually getting the product on the market was only a few months. Little workers and very few specialised machinery were needed to produce the product, however fast forward 60 years later to the time Galbraith was writing, the gestation period had widened. Now the time from preparation to production of for example cars, takes years. Also much more workers are needed and the number of specialised machinery has increased greatly. Due to the fact it takes several years to manufacture goods, the cost to the large corporation is a lot higher, than if it were to be several months. Suppose after years of preparation, a product would hit the market and not sell. For this and many reasons Galbraith said that large corporations dealt with the uncertainty of their market environment by ‘planning’. This way they could have control over their prices, consumers’ tastes and their costs. Galbraith thought that the bigger the firm the bigger the need to plan, and the more freedom they had from the company’s shareholders and the company’s financier.
The planning system is made up of very large firms and the government. ‘Planning’ refers to a term Galbraith coined which indicates the corporation’s attempts to first of all predict and then shape the company’s future and their market environment.
Firms in this system work hand in hand with the government. These large firms are often transnational or multinational in size. Galbraith argued that this “planning system” drove the economy. Firms in this system have the resources and the ability to make decisions and as a result they control and often dominate their market environment. Due to their size they have control over their prices, their suppliers and even their rivals. They are not dependent on banks (as small firms are) because they are able to use there retained profit for expansion. Consequently they are not affected by market forces.
They are able to afford national and global advertising campaigns and as a result can not only inform but also shape (through persuasive advertising) consumers wants and needs. They can also afford to hire lobbyists to influence, and sway government decisions in their favour. ……US defence industry example
As mentioned above the planning system also includes the government. This is because there are certain things that even very large firms cannot plan or regulate, so the government will step in to complete the overall planning process. Large corporations cannot control the size of the economy, so the government have the power to control aggregate demand (total spending in the economy). Large firms also cannot control inflation; this is another job for the government to complete. Lastly, large firms can train but they cannot educate workers, so the government supply the skilled persons they need through university funded education.
Galbraith believed that these large corporations were not run by managers of the firms as it is popularly believed and so the term technostructure was coined. This term refers to a group of highly skilled technicians which Galbraith believed were the real puppet masters of large corporations. Accountants, economists, marketers, lawyers, scientists, engineers and lobbyists all belong to a technostructure. Galbraith held that the technostructure had considerable power over the company’s “decisional and directional process” as managers had to consult the technostructure before making any decisions about the company’s future. In his book ‘The New Industrial State’ he argues that unlike neoclassical economics there goal for the company is not to maximise profit (due to the simple fact that they are paid a salary). Instead their aspirations were of three hierarchical phases. Firstly, their goal was to make certain of the company’s survival. In lehman’s terms, avoid losses at all costs and take no risks. This is because taking risks could mean job cuts and consequently damage to the techonostructure which are described as the ‘brain’ of the big corporation. Job security is therefore on top of the agenda for the technostructure. Their second goal is to maximise growth. This means economic growth and could consist of expansion. Expansion could lead to a larger technostructure, and a larger technostructure leads to a more solid planning process. In this process the firm plans its future and increases its workforce (through training). Also it strengthens its relationship between its rivals, its consumers (through advertising and lobbying) and the government (also through lobbying).
Lastly, after growth has been accomplished the technostructure will concentrate on creating a public image of being a socially responsible company or one for technical excellence.
Galbraith believed that it was the ‘planning system’ and not the ‘market system’ that drove capitalist economies. He said that the aspirations of large firms shaped societal goals. This he thought was evident in the fact that firms want growth and government consequently want economic growth. Also where firms want skilled talent and the government consequently expands higher education.
If Galbraith’s vision was correct he implied that there was a corporate ‘planning system’ where the technostructure ran the company, and firms were impervious to market forces.
The relevancy of Galbraith’s work is debatable. Some if not most neoclassical economists saw Galbraith as completely irrelevant and felt he often exaggerated the power of large corporations and some went as far as to say Galbraith’s book ‘The New Industrial State’ was not considered to be “real economic theory”. Others just came to the conclusion that he was relevant at the time of writing but now his works are outdated. Let’s discuss the case against Galbraith’s teachings.
Firstly, as we now know, Galbraith thought that firms were unaffected by market forces and could plan everything in their favour. They would also avoid making losses at all costs. If this was so, why do some firms fail?
He also said that consumers’ tastes could be controlled by the large corporation through advertising. Most notably we can cite the Ford Edsel case in defence of this argument. The most famous thing about this case is the fact that the Ford Edsel (a new breed of cars made by Ford) failed “despite Ford’s investment of $400,000 into its development”. (www.wikipedia.org). It can be said that this was so because consumers are not stupid, and they cannot be forced to acquire goods they don’t want. Also just because firms advertise, doesn’t mean it actually works!
Galbraith also said that the technostructure was highly important to the corporation and damage to them would have been damage to the ‘brain’ of said corporation. He argued that it was them and not really the manager that was in charge of the organisation, however it could be argued that this view is wrong. Firstly, the technostructure is hired by the manager and at the end of the day could also be fired by the manager. Also, in the 1980’s and 1990’s some firms had massively downsized their workforces after making losses. Two points can be made about this argument. Number one: Galbraith had said that the technostructure could not be easily fired because they were the ‘corporate planners’ of the organisation. Number two: firms making losses? Hadn’t Galbraith said that the technostructure would ensure survival at all costs?
Let’s us now consider the case in support of Galbraith’s work. Above it was mentioned that the power of large corporations was exaggerated however there is more concern now than ever about the power of large firms. It can be argued that there is a lack of social responsibility where large corporations are concerned and this time it is globally. Let’s consider the evidence. ⅔ of the world’s population are now surviving on $2 a day or less. ½ of the earth’s forests have been entirely destroyed, and ½ of the world’s rivers are in a dire state due to contamination and depletion (www.wikipedia.org). They are often referred to as sadistic psychopaths not caring about anything and anyone but how have TNC’s and MNC’s gained so much power and affluence you ask; well many governments have removed trade barriers however in the process have also failed to balance this with creating rules and guidelines to prevent the mistreatment of the environment and neighbouring communities. Some may say that guidelines are adhered to however in realty these guidelines are usually ‘weak and un-enforced’.
In a nutshell Galbraith states that the long-established system of supply and demand has been replaced by corporate planning by firms, using techniques like advertising. Although it has been argued against this belief, the evidence in support of it is overwhelming and if he can be criticised it will be for not delving deep enough into the power of large firms over aspects such as culture and human interactions.
In my opinion Galbraith was a giant, both literally (at 6ft 8) and metaphorically in the world of economics and his views will stay with us for decades to come.
http://www.guardian.co.uk/world/2004/jul/15/usa.iraq
Exacerbate
