BOLA: Ideas of J K Galbraith

Ideas of J K Galbraith

This Canadian economist became an academic at Harvard and after being an adviser to John Kennedy's administration in the early 1960's became US Ambassador to India. By contrasting classical economics with modern US industrial capitalism he evaluated changes that had, in his view, occured up to the mid-60's. Galbraith's ideas as a precursor, set the scene, power of the global corporation, the application of computer technology to better integrate and control complex forms of production, the current vogue to down-size organisations and the potential for the virtual organisation.

The classical view holds that the market and price competition regulates the behaviour of buyers and sellers with economic power denied to any one person or firm provided that

no one producer is in a position to dominate the market
there are many buyers - no one of whom can affect the market.

In reflecting on the place of oligopoly and the rise of the large corporation, Galbraith explored how emergent countervailing powers had changed market-place regulation. Concentration of corporate power (political and economic) brings powerful buyers into play as well as sellers (a point that is often missed). Large retailing firms offset the power of oligopolist producers and consumer power is given greater voice in forms of state intervention.

In examining relationships betweenmarket-place control and technology, Galbraith felt that increased technological sophistication determined business, consumer and state relationships. He saw that:

by the 1960's the lead time between developing and launching a new sophisticated product (a car or a drug) had increased substantially.
technological sophistication requires more capital investment. Technological time and investment reduce organisational flexibility. Once committed it is difficult to back out of an investment project.
technology requires a technostructure of skills. Technologists drive the projects and hence derive power. They need to be co-ordinated and controlled.

In the early 1990's costs of computer power have fallen to such a degree that highly skilled IT experts can develop software (more than hardware) products and enter markets very quickly. World-wide telecommunications and computer intercomnnectivity have enabled small, technologically oriented, entrepreneurial firms to thrive by providing specialist products and services to more dispersed markets. The success of Netscape, makers of the market leading browser for Internet communications, is an example. However without government intervention, the Internet itself would not have been possible.

Microsoft itself was such a minnow. Given scope because of IBM's lack of vision about PC developments grew to undermine the monolithic corporation's dominance of the market. Now there are fears that Microsoft may come to monopolise and control the "free realm" of the Internet. How? By integrating its own browser software as a free feature of its main products and through convenient linking of this to its own Internet conection service come to dominate and control.

Corporate Stability, Reliability and Predictability

Galbraith's case for large corporations is that risks are involved in the application of new technology. The failure of Rolls Royce to control the RB211 engine development brought into receivership. The prestige, uneconomic Concorde project was only concluded by continual injects of state cash. To Galbraith at the time, only large businesses could raise the capital and mobilise the technological skills needed. Corporations thus need conditions of stability and reliability and must intervene to minimise market unpredictability. How?

via marketing and other means of making consumers dependent on the corporation
by market share - to guarantee a market.

Market share can be acquired by acquisition, vertical integration (the manufacturer acquires sales outlets, the retailer offers credit cards) and contractual tieing together of buyers and sellers.

For large scale national infrastructure projects: space, military, motorways, pipelines, tunnels - Galbraith noted the contribution of state intervention. Corporations recognise that economic well-bring and purchasing power is needed - a consumer society of affluent, customers who feel-good and want desireable products. They thus make contributions to societal stability and in return the state ensures price stability, the capacity for disposable income and the provision of an environment condusive to investment. Where high-tech projects require levels of investment that even the largest company cannot fund, the state intervenes to encourage collaboration, act as underwriter of costs and/or provide the funds itself (American space programme, European Fighter aircraft). In the case of the Channel Tunnel - the state offers guarantees of long-term income to investors.

Is the day of the large corporation over? Highly unlikely - and quyite the opposite.

Large corporations - following the 'stick to the knitting', 'focus on the core business' recommendations of Peters and others - have down-sized and/or de-integrated. Such a strategy is an extension of the classic investment dilemma of either make- it-yourself or buy-in products or services from others.

Computer-aided manufacture and IT-based communications offer cost and labour saving benefits that did not exist at the time Galbraith was writing. Today corporations can lease computing capacity and buy-in facilities management skills and services from smaller, specialist companies which need not be local. British Airways for example buy-in much computing expertise from Indian companies. Although smaller in terms of the number of employees, large corporations remain able to retain reliable, predictable control through contractual service level agreements. The post-Japanisation successes of US and UK industry, Wilkinson suggests, was supported substantially by their ability to co-ordinate and control complex operations. Such events of the 1990's merely up-date Galbraith's thesis.

He tended to stress that because of the demand for capital, technological application and complex organisation

the corporation becomes integrated into state administration.
the regulative features of mature industrial societies would tend to converge as they reflect these mechanisms.

Galbraith and the Economy of the 1990's

The public sector's role in demand management remains clear in terms of taxation, control over inflation and government as a purchaser of goods and services.
Integral to this is state funding of education to equip the workforce with the skills needed by corporate technostructures. Ensuring the effectiveness of the educational system in delivering these skills is a governmental role. The imperatives of the National Curriculum, quality inspection of schools, the Dearing Report into 16-19 year-old education and National Vocational Qualifications may be set against the backcloth of Galbraith's analyses.
Computer technology has enabled product development times to be compressed. Computer-aided design enables new products to be conceived, prototyped, tested as computer-models and integrated with flexible manufacturing systems. With competition between global economies substantially increased. Large corporations are forced into collaborate ventures to share costs of research and development, join manufacture and distribution systems.
It is possible for a large global company, if it is to locate overseas and thus add an "off-shore&qut: country's gross domestic product and exporting potential, to require the host government to offer investment funding or local cost reductions (land, planing permissions, infrastructure services). This position is clearly evident today in the British economy of the mid-1990's. Although the Thatcherite free market, de-regulatory approach has freed up some corporation-government dependencies nevertheless the UK government's promotion of inward foreign investment - illustrate Galbraith's large corporation-government dependencies very clearly. Indeed these represent commercial competition between governments for foreign investment.

This resource was written by Chris Jarvis who maintains and develops BOLA.