A Summary by Tracy R. Carpenter
As far as the economic system goes, the producers are the head honchos not the consumers. This is the main point of John Kenneth Galbraith's article The New Industrial State. Companies use strategies and planning to insure that they--one make a profit and--two have sufficient consumer support and need for their wares. Galbraith argues that certainly planning is economically motivated but planning is even more so technologically motivated. His example: If a road needs to be built, then all the ditch diggers of the town get together and make a road. No special skills are needed to dig ditches, every man helps out. Now with the new technologies that have emerged and automobiles, a simple dirt road is not sufficient. Now roads not only need to be smoother, they must go farther, overlap, and be durable. Now sophisticated machines as well as skilled machine operators are needed to keep up with the technology of roads and machines that make those roads. Corporations learn about consumer interests and that easily allows them to mold consumer interests. Galbraith says that there are 3 factors involved in the corporations' strategy for planning required to insure profit--vertical integration, production, and distribution.
In earlier times the market economy worked a bit differently as far as the Consumer-producer relationship. The consumer offered to pay some price for goods, and that is what determined the market value for goods for the producer. The producer strictly relied on the consumer and their willingness to pay. Planning soon evolved because this way of business was not producing the desired effect for the producers--profit. Planning required that corporation be able predict what the consumer will want and need by months ahead or even years. Companies must plan ahead for labor and wages for those laborers and must incorporate those costs into the price that will be charge to the consumer in order to make a profit. Planning for the needs of the consumer far in advance carries with it some risk, however. The more technological the product, the riskier the fore planning. Technology moves so fast and is so sporadic that what is in demand now might not be in demand in 6 months, 1 year, or 2 years, etc. As technology changes and become more sophisticated, the planning involved must be elaborately anticipated and arranged. The raw materials, skilled workers, and ability to pay for specialized labor must come together in harmony in order for a company to work. Galbraith put it simply: "As viewed by the industrial firm, planning consists in foreseeing the actions required between the initiation of production and its completion and preparing for the accomplishment of these actions." There are two kinds of planning involved here. There is the planning by the firm, which is its long-range accommodation to the market influences to which it is subject, and there is the planning that stipulates what its prices and production will be. The two are undeniably interrelated. A firm cannot foresee and schedule future action or prepare for contingencies if it does not know what its price will be, sales, cost, including labor and capital cost, what will be available at theses cost. Planning doesn't always prove to be foolproof. To combat this dilemma, companies become conglomerate corporations, being diverse in its goods and offering many types of goods. If one product doesn't do well at any one given time, the company has other products to fall back on, so loss is minimal. A small company offering that same product and only that product would suffer economical loss and possibly fold. Size is key here. Size is also power. Companies also do away with uncertainties by entering into purchase agreements with each other. It becomes the "I'll scratch your back, and you scratch mine" idea. The dairy farmer only gets his fertilizer from the fertilizer company and the fertilizer producer only gets his milk from the dairy farmer--reciprocity. Before you know it a lot of small farmers and businesses become matrices of contacts by which uncertainty is eliminated. The name of the economical game is profit. "Big business will only undertake such innovations as promise to enhance its profits and power, or protect it market position." "Size is the general servant of technology, not the special servant of profits." Small businesses have no need for technological innovations and can hardly afford to keep up with new technologies(as big businesses do) and therefore struggle to survive in the economical whirlwind of production and profit. The enemy is advanced technology, the specialization and organization of men and process that this requires and the resulting commitment of time and capital.