Friday, 4 March 2011

The New Industrial State

John Kenneth Galbraith was born on October 15th 1908 in America. He was an economist and a Keynesian.

Keynes (Galbraiths influence), opposed the original ideologies of Laissez-Faire Capitalism which believed that the market would achieve balance by itself. He instead believed the Government should step in to increase spending whenever and wherever the case may be.

In Galbraiths book The New Industrial State, written in 1967, he talks of a large firm called the Techno-Structure. This Techno-Structure should supposedly be something like a human entity, being fairly self-sufficient. These changes in the industry, from manpower to a technology led market were brought to the forefront after World War II when changes to the economic life were far greater than anything that had come before it. However, Galbraith argues that this modern technology reduces the reliability of the market, since so much more needs to be managed, monitored, and avoided. One tiny fluctuation in the system could bring the Techno-Structure to a grinding halt. Also the whole system is much more inflexible as situations need to be known far in advance and not changed.

Before this technology was introduced, products were far less abundant, but far more necessary. Products such as loaves of bread or medicine were in short supply but there was no question of them being constantly needed as they were everyday objects that maximised the consumer’s satisfaction levels. But with nowadays industry being able to produce products at a high rate, items such as beauty products or games need an element of persuasion if they are to be brought. Although they may maximise one persons satisfaction level, it may not apply to everyone and in order to shift the levels of product the structure has produced, elements like advertising come into play. Since in recent times, people were becoming less and less poverty stricken, those with low levels of literacy were joining the classes of people with excess money to spend. Therefore television and radio advertising were key to reaching these specific individuals.

The regulation of Aggregate Demand became a recognised policy during the 1930’s and was advocated by John Maynard Keynes. It was put into effect by the Roosevelt Administration and was thought to be a move on behalf of the Labour Party, and was immediately opposed. The reasons being that during the 1930’s most industry was led by Entrepreneurial Corporations who did not have a need for it. This was down to the fact that they were using simple technology with little to no planning involved. They could simply lay off workers if demand was to fall and they had a much smaller Techno-Structure. Of course the more Mature Corporations were desperately in need for the regulation as that sort of planning would offer them security and safe planning. They were vulnerable to a fall in earnings which would curtail the whole business and one mistake could “disintegrate the very brain of the enterprise”. Of course the more Mature Corporations won out in the end and technology continued to expand.

Aggregate Demand needs to be regulated as correct production (not going into un-necessary excess) creates large amounts of savings. These savings are then stored and used to fund further production. If these profits and savings are not made then they cannot meet the need of Aggregate Demand, therefore monitoring is imperative as the whole system depends upon one another. This sort of monitoring prevents unpredictable fluctuations in demand, sales and production in which case planning would be impaired, technology would have to be used more cautiously and the whole Techno-Structure would be far less secure.

The Techno-Structure is essentially just one big well oiled machine in theory. Men who work for these large organizations agree to lose all individuality for it and even rival firms within the structure avoid competition because situations like price-cutting would threaten its survival.

“Mutually destructive behaviour is banned”

Whether this infinite structure is actually in control or not is another question. Most people will argue that there is such a thing as Consumer Sovereignty, where the consumer governs the uni-directional flow from purchasing an item from the market, where this information will then reach up to the industry. Meaning the Techno-Structure can monitor what people are buying and respond to the customer’s choices. This is called The Accepted Sequence, and it sustains the idea of industries trying to understand what produces the most customer satisfaction.

However, The Accepted Sequence may be becoming less and less so as the producing firms reach out to control the markets, manage behaviour and shape the social attitude of the consumer. Mainly with aspects like advertising and heavy persuasion as to what is good for them to purchase.

In terms of consumers buying products, not only is it important for them to do so, it is equally as important that they have the money to spend in the first place. Spending is a physical need, even within the techno-structure itself. When it comes to situations like increased incomes or maybe a slight depression; the Techno-Structure uses taxes to keep demand under control. When income increases, so do taxes. This prevents people from spending ridiculous amounts and spiralling demand out of control. Likewise, when incomes decrease, so do taxes. Freeing up more money for people to spend and therefore keeping demand high. Taxes must be large in regards to income to have any sort of effect and Taxes are purely there so as to direct consumer spending.

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