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the_new_industrial_state [2009/07/16 08:55]
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the_new_industrial_state [2010/02/03 12:00] (current)
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 Savings are also, in ordinary circumstances,​ superfluous in quantity. ​ Whereas in a country such as India, capital formation is of vital importance to growth, in America a rather different situation occurs. ​ Here, the primary problem is ensuring that all of the money saved is invested --- where investment falls below saving, not all of the product of the economy can be sold, demand lags production and the economy sinks into recession. ​ The planner'​s solution is state intervention --- the government'​s budget deficit stands ready to spend any differential between saving and investment to ensure that aggregate demand rises to the level of production. ​ There are very important consequences of the abundance of capital within the industrial state, which is the subject of the next chapter. Savings are also, in ordinary circumstances,​ superfluous in quantity. ​ Whereas in a country such as India, capital formation is of vital importance to growth, in America a rather different situation occurs. ​ Here, the primary problem is ensuring that all of the money saved is invested --- where investment falls below saving, not all of the product of the economy can be sold, demand lags production and the economy sinks into recession. ​ The planner'​s solution is state intervention --- the government'​s budget deficit stands ready to spend any differential between saving and investment to ensure that aggregate demand rises to the level of production. ​ There are very important consequences of the abundance of capital within the industrial state, which is the subject of the next chapter.
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 ===== Capital and Power ===== ===== Capital and Power =====
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 There have been two broad shifts in power between factors in history. ​ Prior to the industrial revolution, and during the period in which Smith and Ricardo were writing, power was unquestionably held by landowners. ​ Malthus and Ricardo were convinced that labour would regulate its own abundance such that it would always be available at more or less a subsistence wage --- it was never conceivable that labour might have any power. ​ Entrepreneurship was of no use --- one might even say that it had not been invented yet.  And capital was of little importance --- those who had land were invariably capable of commanding the minute capital that was required to work it efficiently,​ and capital alone was of little productive use to anybody without land.  The market for land was informally controlled by a landed class who rarely traded land, preferring to pass their estates intact to their heirs. ​ In 1800, the governments of Britain and America were dominated by the landed gentry. ​ The modern meaning of '​democracy'​ initially indicated a government controlled by landed men, as the landless could not vote until later. There have been two broad shifts in power between factors in history. ​ Prior to the industrial revolution, and during the period in which Smith and Ricardo were writing, power was unquestionably held by landowners. ​ Malthus and Ricardo were convinced that labour would regulate its own abundance such that it would always be available at more or less a subsistence wage --- it was never conceivable that labour might have any power. ​ Entrepreneurship was of no use --- one might even say that it had not been invented yet.  And capital was of little importance --- those who had land were invariably capable of commanding the minute capital that was required to work it efficiently,​ and capital alone was of little productive use to anybody without land.  The market for land was informally controlled by a landed class who rarely traded land, preferring to pass their estates intact to their heirs. ​ In 1800, the governments of Britain and America were dominated by the landed gentry. ​ The modern meaning of '​democracy'​ initially indicated a government controlled by landed men, as the landless could not vote until later.
  
-This changed in the course of the nineteenth century, in the Anglo-Saxon world at least. ​ The scarcity of land was finally being broken by the new cultivation of America, Canada, South Africa and Australia. ​ Moreover, the industrial sector was growing in importance --- it was becoming possible to create economic organisation with capital, labour, the new invention of entrepreneurship and only the tiniest amount of labour.  Anybody with money could buy land.  Power was shifting from land to capital as capital became the economic "​factor [that was] hardest to obtain or replace."​((p71.)) ​ By the 1840s, capital was so represented in the British parliament that the Corn Laws were repealed, confiscating a guaranteed income to landowners and lowering industrial (subsistence) wages by driving down the cost of living. ​ By 1900, the British and American governments were dominated by industrialists and businessmen.+This changed in the course of the nineteenth century, in the Anglo-Saxon world at least. ​ The scarcity of land was finally being broken by the new cultivation of America, Canada, South Africa and Australia. ​ Moreover, the industrial sector was growing in importance --- it was becoming possible to create economic organisation with capital, labour, the new invention of entrepreneurship and only the tiniest amount of land.  Anybody with money could buy land.  Power was shifting from land to capital as capital became the economic "​factor [that was] hardest to obtain or replace."​((p71.)) ​ By the 1840s, capital was so represented in the British parliament that the Corn Laws were repealed, confiscating a guaranteed income to landowners and lowering industrial (subsistence) wages by driving down the cost of living. ​ By 1900, the British and American governments were dominated by industrialists and businessmen.
  
 The second shift in power has been occurring over last fifty years (to 1970) and is not yet finished. ​ Nevertheless it has not yet been recognised. ​ This is not particularly surprising, as the reign of capital, just like the reign of land before it, is seen as eternal. ​ Ricardo believed that the process of improving technology would increase the rent of land indefinitely,​ that all other factors would remain in the same miserable condition forever. ​ However, corporations are no longer influenced by their stockholders,​ they are able to find funds sufficient from their needs in retained earnings. ​ The following are symptoms: The second shift in power has been occurring over last fifty years (to 1970) and is not yet finished. ​ Nevertheless it has not yet been recognised. ​ This is not particularly surprising, as the reign of capital, just like the reign of land before it, is seen as eternal. ​ Ricardo believed that the process of improving technology would increase the rent of land indefinitely,​ that all other factors would remain in the same miserable condition forever. ​ However, corporations are no longer influenced by their stockholders,​ they are able to find funds sufficient from their needs in retained earnings. ​ The following are symptoms:
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 Thus, significant decision-making in all large corporations is undertaken by groups. ​ This has lead to a fundamental change in the form of bureaucratic hierarchy. ​ The main difference is that it is no longer realistic for a superior to overrule a group decision, as it is for a superior to overturn a decision made by an individual. ​ In the absence of committee decision-making,​ it is generally feasible for a manager to reappraise any decision made by a subordinate,​ assess all of the information used to make that decision personally, and overturn the decision if appropriate. ​ It is almost never possible for an individual to adequately appraise a committee decision --- otherwise a committee would not have needed to be formed in the first place. ​ Only a second committee containing a similar range of talent and expertise would be in a position to do so, and in practical terms this is almost never a remote possibility. ​ Thus, ultimate power in decision-making is now becoming firmly embedded within groups somewhere in the middle of the hierarchy of corporations. ​ Whilst upper management retains the formal power to ratify decision-making,​ in truth he cannot competently decide anything, and indeed interference in committee decision-making can be dangerous --- it can easily undermine the efficient process of group decision-making. ​ The only power that remains with those above such committees in the hierarchy is that of selecting the men that comprise the committees, constituting and reconstituting these groups. ​ The Technostructure is suggested as a collective term for all those involved in group decision-making and the organisation which they form. Thus, significant decision-making in all large corporations is undertaken by groups. ​ This has lead to a fundamental change in the form of bureaucratic hierarchy. ​ The main difference is that it is no longer realistic for a superior to overrule a group decision, as it is for a superior to overturn a decision made by an individual. ​ In the absence of committee decision-making,​ it is generally feasible for a manager to reappraise any decision made by a subordinate,​ assess all of the information used to make that decision personally, and overturn the decision if appropriate. ​ It is almost never possible for an individual to adequately appraise a committee decision --- otherwise a committee would not have needed to be formed in the first place. ​ Only a second committee containing a similar range of talent and expertise would be in a position to do so, and in practical terms this is almost never a remote possibility. ​ Thus, ultimate power in decision-making is now becoming firmly embedded within groups somewhere in the middle of the hierarchy of corporations. ​ Whilst upper management retains the formal power to ratify decision-making,​ in truth he cannot competently decide anything, and indeed interference in committee decision-making can be dangerous --- it can easily undermine the efficient process of group decision-making. ​ The only power that remains with those above such committees in the hierarchy is that of selecting the men that comprise the committees, constituting and reconstituting these groups. ​ The Technostructure is suggested as a collective term for all those involved in group decision-making and the organisation which they form.
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 ===== The Corporation ===== ===== The Corporation =====
  
-Dominant trends in the development of the corporation have been ignored by economics, although there are great differences between different types of corporation. ​ It will be useful to distinguish between the Entrepreneurial Corporation,​ in which due to limited ​requirements ​planning 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 technostructure.+Dominant trends in the development of the corporation have been ignored by economics, although there are great differences between different types of corporation. ​ It will be useful to distinguish between the Entrepreneurial Corporation,​ in which 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 technostructure.
  
 The most obvious requirement of planning is size.  This is not properly understood. ​ Economists have suggested that corporations are large because of technical economies of scale or because of a desire to use market power to inflate prices. ​ Both are partial answers. ​ Technology dictates large size but does not explain wide diversification. ​ Planning in a sense requires market power, but it is the power to control supply that is often inadequately provided by the market, the stabilisation of demand, provision of capital and the general minimisation of risk.  The larger the corporation,​ the easier this planning becomes. The most obvious requirement of planning is size.  This is not properly understood. ​ Economists have suggested that corporations are large because of technical economies of scale or because of a desire to use market power to inflate prices. ​ Both are partial answers. ​ Technology dictates large size but does not explain wide diversification. ​ Planning in a sense requires market power, but it is the power to control supply that is often inadequately provided by the market, the stabilisation of demand, provision of capital and the general minimisation of risk.  The larger the corporation,​ the easier this planning becomes.
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 > This process is highly successful in our time.  Much of what is believed to be socially important is, in fact, the adaptation of social attitudes to the goal system of the technostructure. ​ What counts here is what is believed. ​ These social goals, though in fact derived from the goals of the technostructure,​ are believed to have original social purpose. ​ Accordingly,​ members of the corporation in general, and of the technostructure in particular, are able to identify themselves with the corporation on the assumption that it is serving social goals when, in fact, it is serving their own.  Even the most acute social conscience is no inconvenience if it originates in one's own conscience and is identical therewith. ---p172 > This process is highly successful in our time.  Much of what is believed to be socially important is, in fact, the adaptation of social attitudes to the goal system of the technostructure. ​ What counts here is what is believed. ​ These social goals, though in fact derived from the goals of the technostructure,​ are believed to have original social purpose. ​ Accordingly,​ members of the corporation in general, and of the technostructure in particular, are able to identify themselves with the corporation on the assumption that it is serving social goals when, in fact, it is serving their own.  Even the most acute social conscience is no inconvenience if it originates in one's own conscience and is identical therewith. ---p172
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 ===== The Goals of the Industrial System ===== ===== The Goals of the Industrial System =====
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     - Interference from stockholders --- struggles for control of corporations are observed only when suffering losses or meagre earnings, and     - Interference from stockholders --- struggles for control of corporations are observed only when suffering losses or meagre earnings, and
     - In the absence of insufficient retained profits, the need to appeal to outside sources of investment capital invites disagreeable scrutiny of the technostructure'​s activities.     - In the absence of insufficient retained profits, the need to appeal to outside sources of investment capital invites disagreeable scrutiny of the technostructure'​s activities.
-  - The secondary goal of the technostructure is growth, measured in sales volumes. ​ This, two, is an act of self-preservation on the part of the technostructure. ​ A contraction in sales volumes in the mature corporation threatens the secure tenure of members of the technostructure. ​ Even those not immediately vulnerable to unemployment will be far more adverse ​to seeing ​member ​of the technostructure made unemployed than they would be of blue collar workers. ​ Decisions to make people redundant must be made within the technostructure itself, and "do not have the agreeable impersonality which is associated with firing someone at a greater distance, or of a different social class."​((p180.)) ​ The main defence mechanism against contraction is a modest expansion --- thus sales growth represents a solid survival strategy for members of the technostructure. ​ Moreover, growth represents a key means of maximising pecuniary return for members of the technostructure. ​ An expansion of the technostructure within the corporation provides more opportunities for promotion and usually greater remuneration,​ and those employees responsible for the growth are likely to be the favoured candidates. ​ Sales growth, far more than dividend growth, is in the personal financial interest of the technostructure.+  - The secondary goal of the technostructure is growth, measured in sales volumes. ​ This, two, is an act of self-preservation on the part of the technostructure. ​ A contraction in sales volumes in the mature corporation threatens the secure tenure of members of the technostructure. ​ Even those not immediately vulnerable to unemployment will be far more averse ​to seeing ​members ​of the technostructure made unemployed than they would be of blue collar workers. ​ Decisions to make people redundant must be made within the technostructure itself, and "do not have the agreeable impersonality which is associated with firing someone at a greater distance, or of a different social class."​((p180.)) ​ The main defence mechanism against contraction is a modest expansion --- thus sales growth represents a solid survival strategy for members of the technostructure. ​ Moreover, growth represents a key means of maximising pecuniary return for members of the technostructure. ​ An expansion of the technostructure within the corporation provides more opportunities for promotion and usually greater remuneration,​ and those employees responsible for the growth are likely to be the favoured candidates. ​ Sales growth, far more than dividend growth, is in the personal financial interest of the technostructure.
   - No further goals can be allowed to interfere with the first two, but if both of the first two goals are met, then further aims are possible. ​ The third is likely to be technical virtuosity. ​ This is often appreciated by members of the technostructure in its own right. ​ It also reinforces the position of the technostructure --- the technostructure came to power on the back of technological complexity, and ever-expanding technological complexity assures the corporation'​s ever-increasing dependence on the technostructure. ​ However, serious research and development is often risky, and a goal such as technical virtuosity cannot possibly be allowed to conflict with the primary goal of securing a minimum income. ​ Consequently,​ the cost and risk of technological development is passed off to the state.   - No further goals can be allowed to interfere with the first two, but if both of the first two goals are met, then further aims are possible. ​ The third is likely to be technical virtuosity. ​ This is often appreciated by members of the technostructure in its own right. ​ It also reinforces the position of the technostructure --- the technostructure came to power on the back of technological complexity, and ever-expanding technological complexity assures the corporation'​s ever-increasing dependence on the technostructure. ​ However, serious research and development is often risky, and a goal such as technical virtuosity cannot possibly be allowed to conflict with the primary goal of securing a minimum income. ​ Consequently,​ the cost and risk of technological development is passed off to the state.
-  - Of similar importance to (3), and with a conscious concession to economic orthodoxy, an increase in the rate of dividends is clearly amongst the corporation'​s goals. ​ However, it is clear that this goal must not be allowed to interfere with (2).  "​Nothing better suggests the primacy of growth to profit than the vehemence with which the sacrifice ​growth to profit would be condemned as unsound business practice."​((p183.))+  - Of similar importance to (3), and with a conscious concession to economic orthodoxy, an increase in the rate of dividends is clearly amongst the corporation'​s goals. ​ However, it is clear that this goal must not be allowed to interfere with (2).  "​Nothing better suggests the primacy of growth to profit than the vehemence with which the sacrifice ​of growth to profit would be condemned as unsound business practice."​((p183.))
   - If all of the above four can be achieved, then there will be space for the corporation to pursue any number of more whimsical goals to which it may be attracted:   - If all of the above four can be achieved, then there will be space for the corporation to pursue any number of more whimsical goals to which it may be attracted:
  
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 > >
 > Politics also reflects the new division. ​ In the United States suspicion or resentment is no longer directed to the capitalists or the merely rich.  It is the intellectuals --- the effete snobs --- who are eyed with misgiving and alarm. ​ This should surprise no one.  Nor should it be a matter for surprise when semi-literate millionaires turn up leading or financing the ignorant in struggle against the intellectually privileged and content. ​ This reflects the relevant class distinctions in our time. ---p248-9 > Politics also reflects the new division. ​ In the United States suspicion or resentment is no longer directed to the capitalists or the merely rich.  It is the intellectuals --- the effete snobs --- who are eyed with misgiving and alarm. ​ This should surprise no one.  Nor should it be a matter for surprise when semi-literate millionaires turn up leading or financing the ignorant in struggle against the intellectually privileged and content. ​ This reflects the relevant class distinctions in our time. ---p248-9
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 ===== The Control of the Wage-Price Spiral ===== ===== The Control of the Wage-Price Spiral =====
  
-There are two influential conceptual bases for the mechanism by which persistent inflation becomes established. ​ The only important one for the industrial system, and therefore the most important one for the industrial state, is '​cost-push inflation',​ or the '​wage-price spiral'​. ​ When the economy is near full employment and aggregate demand is strong, trade unions find themselves in a strong bargaining position. ​ There are likely to be a few unfilled positions amongst blue-collar positions. ​ Recruitment is difficult. ​ In the event of a strike, the workforce cannot be replaced en masse. ​ The unions therefore press for wage increases. ​ The technostructure fear the unpredictable consequences of a strike. ​ They recognise that wage increases will make recruitment for unfilled positions easier, and improve employee retention. ​ Further, ​because ​the corporation is not profit maximising ​--- and as is accepted by all economists --- the technostructure knows that it can pass on increased wage costs to its customers through higher prices. ​ Union arrangements are usually to some extent industry-wide ​--- all firms are likely to accept similar rises in wages and prices ​will rise uniformly across the industry, so no firm will lose out.  "And, finally, the technostructure with which the decision resides, does not itself have to pay."​((p252.)) ​ So, when aggregate demand is adequate, the technostructure will readily accept wage demands, passing on costs to consumers. ​ The price index rises as a result, leading to a further round of wage claims in the course of time.  Inflation persists.+There are two influential conceptual bases for the mechanism by which persistent inflation becomes established. ​ The only important one for the industrial system, and therefore the most important one for the industrial state, is '​cost-push inflation',​ or the '​wage-price spiral'​. ​ When the economy is near full employment and aggregate demand is strong, trade unions find themselves in a strong bargaining position. ​ There are likely to be a few unfilled positions amongst blue-collar positions. ​ Recruitment is difficult. ​ In the event of a strike, the workforce cannot be replaced en masse. ​ The unions therefore press for wage increases. ​ The technostructure fear the unpredictable consequences of a strike. ​ They recognise that wage increases will make recruitment for unfilled positions easier, and improve employee retention. ​ Further, the corporation is not profit maximisingand the technostructure knows that it can pass on increased wage costs to its customers through higher prices. ​ Union arrangements are usually to some extent industry-wide, so all firms are likely to accept similar rises in wages.  Prices ​will rise uniformly across the industry ​and no firm will lose out.  "And, finally, the technostructure with which the decision resides, does not itself have to pay."​((p252.)) ​ So, when aggregate demand is adequate, the technostructure will readily accept wage demands, passing on costs to consumers. ​ The price index rises as a result, leading to a further round of wage claims in the course of time.  Inflation persists.
  
 Outside of the industrial system the situation is different: here the concept of '​demand-pull inflation'​ is more appropriate. ​ The entrepreneurial firm already maximises profits --- wage demands cannot be passed on to the consumer and must be paid for out of the entrepreneur'​s earnings: "Again there is the special poignancy in paying when the individual has himself to pay."​((p251.)) ​ Wage claims will be fiercely resisted. ​ Prices will only rise when aggregate demand outstrips the industry'​s ability to supply, when profit maximisation leads the entrepreneur to increase prices. ​ This will not happen until aggregate demand is excessive rather than sufficient, although the definition of these points is somewhat hazy. Outside of the industrial system the situation is different: here the concept of '​demand-pull inflation'​ is more appropriate. ​ The entrepreneurial firm already maximises profits --- wage demands cannot be passed on to the consumer and must be paid for out of the entrepreneur'​s earnings: "Again there is the special poignancy in paying when the individual has himself to pay."​((p251.)) ​ Wage claims will be fiercely resisted. ​ Prices will only rise when aggregate demand outstrips the industry'​s ability to supply, when profit maximisation leads the entrepreneur to increase prices. ​ This will not happen until aggregate demand is excessive rather than sufficient, although the definition of these points is somewhat hazy.
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 > The price that the industrial system must pay for its people and the conduct of its research is the support of general enlightenment. ---p367 > The price that the industrial system must pay for its people and the conduct of its research is the support of general enlightenment. ---p367
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 ===== The Political Lead ===== ===== The Political Lead =====
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 At this moment there is a considerable if rather unfocused atmosphere of dissent amongst younger people. ​ As yet it has no coherent political leadership. ​ This ought to come from the scientific and educational estate. ​ It has the required scepticism about the industrial system'​s objectives and current trends in foreign policy under the guidance of the industrial system. ​ Since World War II, scientists have already emerged as an independent political force, especially where science imposes on foreign policy. ​ The nuclear test ban treaty of 1963, for example, would not have been achieved without the initiative of the scientific community. At this moment there is a considerable if rather unfocused atmosphere of dissent amongst younger people. ​ As yet it has no coherent political leadership. ​ This ought to come from the scientific and educational estate. ​ It has the required scepticism about the industrial system'​s objectives and current trends in foreign policy under the guidance of the industrial system. ​ Since World War II, scientists have already emerged as an independent political force, especially where science imposes on foreign policy. ​ The nuclear test ban treaty of 1963, for example, would not have been achieved without the initiative of the scientific community.
  
-> General public and political awareness of the dangers of nuclear conflict, the desirability of détente ​with the Soviet Union and the technical possibilities for disarmament owes a great deal to the scientific community. ​ It owes very little to the military, diplomatic and industrial community. ---p375+> General public and political awareness of the dangers of nuclear conflict, the desirability of détente ​with the Soviet Union and the technical possibilities for disarmament owes a great deal to the scientific community. ​ It owes very little to the military, diplomatic and industrial community. ---p375
  
 Economists are more or less useless in this role.  Where economic goals are of central importance, economists are useful --- in a wider debate that considers production against goals which cannot by analysed using the economist'​s toolbox, he ought to be marginalised,​ even if his technical understanding is greater than those with a more balanced perspective. ​ Economists are the natural ally of the industrial system. ​ Recently, so has the liberal been --- to be a liberal in recent times has meant to be an economic liberal, espousing increased production, employment, management of aggregate demand and greater equality of wages. ​ These are no longer an appropriate liberal platform --- they need no liberal advocacy to be enacted, the industrial system is more than capable of fighting their corner unaided. ​ The liberal economic programme, in other words, has run its course --- it is time to find a new one. Economists are more or less useless in this role.  Where economic goals are of central importance, economists are useful --- in a wider debate that considers production against goals which cannot by analysed using the economist'​s toolbox, he ought to be marginalised,​ even if his technical understanding is greater than those with a more balanced perspective. ​ Economists are the natural ally of the industrial system. ​ Recently, so has the liberal been --- to be a liberal in recent times has meant to be an economic liberal, espousing increased production, employment, management of aggregate demand and greater equality of wages. ​ These are no longer an appropriate liberal platform --- they need no liberal advocacy to be enacted, the industrial system is more than capable of fighting their corner unaided. ​ The liberal economic programme, in other words, has run its course --- it is time to find a new one.
the_new_industrial_state.1247730945.txt.gz · Last modified: 2009/07/16 13:00 (external edit)