The New Industrial Estate

The New Industrial Estate- John Kenneth Galbraith 1972

There has been a significant change in the economic sphere however America had essential features of Capitalism that remained normal throughout.

The government are more active in being participants in economy accounting 23% of production (1969). The economy when at its high level ensure minimal unemployment throughout the Keynesian measures. Before WW2 recession became serious but it was seen as a normal part of the business cycle. Since the war there was only 2 years output which failed to expand. There was a need to create the need for opportunity for a large industrial organisation.

America was free of capitalist economy and was dominated by small firms with little capital. The poor was a representative of a substantial part of the economy and was the reason many industries remain today such as the retail trade, musical composition and writing.

Nature of Industrial Planning

Planning is central in the component of the industrial system. A product taking three years in research and development to produce cant be increased in the price that the consumer is willing to pay.

Larger corporations can increase prices as they are capable of doing this due to them being capable on managing planning to this scale. After all a world without corporation is a world without technologically advanced products.

Planning and Supply of Capital

People in the economy save or spend their earnings however it is a fact that in 1969, $38 billion was saved by individuals and $99 billion by business firms. In the industrial system there is no longer a market for capital and where possible corporations save money for investment.

When investment falls below saving not all of the product of the economy can be sold. Therefore the government budget deficit stands ready to spend any differential between saving and investing.

Capital and Power

Prior to the industrial Revolution and during this period power was held by the landowners according to Smith and Ricardo. In the last fifty years the power has shifted again and Ricardo believed that the process of improving technology would increase the rent of land and all other factors would remain in the same miserable condition.

The Techno structure

Individualism is high in our culture however the decision making within the industrial system is as a group. Part of this reason is because many decisions may need to be looked at my experts in that particular field combining their knowledge with equally ordinary men.

This reduces hierarchy as someone senior may overturn a decision however someone above them may not agree. This leaves those with higher power only the decision the select the men that comprise the committee.

The Corporation

Its important to distinguish between Entrepreneurial Corporation, which is due to limited planning requirements it is still feasible for the corporation to be understood and managed by a single individual, and the Mature Corporation, in which effective control has passed decisively and irrevocably to the techno structure.

From 1954 to 1969, there was only one year in which as many as three of the hundred largest industrial corporations lost money.

The Approved Contradiction

In the competitive sector, it is assumed that profit maximisation is imposed by the market — that a lack of commitment to this goal over all others will make it impossible for a firm to remain abreast of profit-maximising competition, forcing the firm out of business. In sectors in which the corporation enjoys significant market power, the situation is recognised to be different. In such situations, it is recognised that the firm has some potential discretion in selecting its goals — it could, technically, pursue other objectives and remain in business.

The General Theory of Motivation

This context looks at why an individual would choose to adopt an organisation’s goals over their own to work on behalf of an organisation.This frame work shows the individuals reasons for adopting such goals dividing them into categories.

1. Compulsion: the stick. Bad consequences if the individual does not pursue the organisation's goals,

2. Compensation: the carrot. The individual receives money for serving the organisation's purposes,

3. Identification: the individual is convinced that the organisation's goals and/or methods are superior to his own, that working for the organisation is a more effective way of achieving his ends than working alone, and

Adaptation: the individual sees working for the organisation as an effective means of altering the organisation's goals to more accurately reflect his own.

This framework also explains the nature of labour relations under different conditions. In poor countries in an organisation employing low-skill workers compulsion will be high and will alienate the worker from his employer — identification and adaptation will correspondingly be negligible. In a richer country where workers are paid better, the element of compulsion is much smaller and it will be more useful for the employer to cultivate identification with the firm.

Shareholders

Board of Directors

Senior Management/

(Counsel, Auditors, PR)

Department Management

Division Management

Plant Management

Unit Management

The Proletariat

This separates participants by their level of commitment and investment in the corporation.

The Goals of the Industrial System

The consumer is sovereign and the producer is a servant whereas the public are put in the position of preeminent power within the production system.

Once the goals of techno structure are in forced the system can be settled to a more concrete fashion:

1.    The goal of any organisation is survival. The interference from stock holders struggles for control of corporations and are observed when faced with losses.

2.    The secondary goal of the techno structure is growth measured in sales volumes. If you needed to fire someone it must be done within the structure and doesn’t allow someone of a different social class to be dismissed unfairly.

3.    No further goals can be allowed to interfere with the first two but if both goals are met then further aims are possible. The third is likely to be virtuosity appreciated by the members of the techno structure in its own right.

4.    Similar importance to 3, an increase in the rate of dividends is amongst the corporations goals. However it is clear that this goal is not allowed to interfere with number 2.

5.     If all of the above 4 can be achieved then there will be space for the corporation to pursue any number of goals.

Regulation of Aggregate Demand

Aggregate demand can only be managed by the state. By increasing spending and/or reducing taxation, aggregate demand can be boosted when it lags, the opposite operation can reduce aggregate demand when it is excessive. This requires a large state sector to make such changes practical.

Business generally opposes social spending, but never military spending which is understood to be vitally important to the techno structure and accounts for between 55 and 60 per cent of government expenditure in the 1960s.

The nature of Unemployment and Employment

It is important to distinguish here between education and skill. Skilled and unskilled blue-collar workers alike are becoming redundant; the techno structure is composed of highly educated individuals. For those in the educational elite, skills may be reacquired relatively easily — with a college education retraining for a new job is comparatively easy. But even the most skilled blue-collar worker is in a very poor position to retrain for a different function. Formal education is flexible as a base for any of a number of roles in the techno structure — the skills of the uneducated are often vulnerable to technological advance.

In recent times education has been an advantage leaving the less fortunate behind. It reflects the relevant class distinctions in our time that we live within where the less fortunate are not helped by the more elite.

The control of the Wage-Price Spiral

Cost-push inflation or the wage-price spiral is when the economy is near full employment and aggregate demand is strong and trade unions find themselves in a strong bargaining position. Strikes cannot be replaced and the recruitment is difficult therefore the only way is for the unions to press for wage increase. It is recognised that this will prevent people from striking and make recruitment easier. This will be the same across all structures so none will miss out and the costs are passed on to consumers.

In demand-pull inflation the cost cannot be passed on to the consumer and must be paid out of the entrepreneur’s earnings.

Relationship with the State

The relationship between the state and the industrial system is far from antagonistic. As already discussed, the state meets the industrial system's need for educated talent, stable aggregate demand, controlled wages and prices and support for the most costly and risky areas of long-term development of technology. Moreover these policies are not paid for with money extracted from the techno structure — as was the case with the entrepreneur — but by taxes which can be passed on to the shareholder and consumer. These policies are of minimal value to the entrepreneurial firm.

The extent of planning and the requirements of technology ensure that services and the corporations that supply them work together in effectively permanent relationships in which real decision-making emanates from specialist committees as likely who are as likely to be composed of members of the private sector, and are as likely to perceive importance in the goals of the private sector, as they are to be public servants with purely public interests at heart. Identification and adaptation dominate the motivational systems of everybody involved — but those working, strictly speaking, in the private sector identify just as closely with the public service they are supplying as they do with their own firm, and vice versa.