In this essay I will discuss whether the modern market economies are really driven by the corporate power or the sovereign power of consumers, and relate it to J.K. Galbraith’s analysis of the large corporation. I will also assess the arguments for and against Galbraith about the Transitional National Corporation. The Market economy is a system that relies on the market forces which are carried out by the consumers and companies, such as the TNC (Transitional National Corporation) and the MNC (Multinational National Corporation); which have increased significantly in the past fourty to fifty years. They are very important in the economies of many countries throughout the world, as they dominate the economy of their business environment.
There are different opinions among economists; concerning the prospect of who controls the market economy. Some economists argue that in the capitalist market overall, consumers control the market system; whereas others say it is the corporate powers that dominate the markets economy. However; according to The New Industrial State, written by J K. Galbraith in 1967, there is an argument that the market capital has two systems. The market system, for the small firms and the Planning system for the larger firms
Galbraith stated that Market systems are made up of many small firms; which are disciplined by the market as they have no control over their prices, and they are affected by the market forces. They also depend on the borrowing of money from banks to expand their corporation. This means that it will lead the banks to influence their business decisions. Market systems do not have the resources to promote advertisements on the global and/ or the national scale, although they do have the ability to inform or carry out the adverts through local radios and newspapers. Small firms do not have the power to influence the Governmental decision.
Planning systems, used by the large firms on the other hand, do have control over their prices and the markets economy; they set the price in the market, make agreements with their rival ‘tacit collusion’ and suppliers. They also replace the market and are not disciplined by the market. Large Firms use retained profits rather than bank loans to expand the business in order to maintain higher control levels over the company; this will exempt any possibility for the bank to control their business.
Also big corporations have the resources to provide TV advert campaigns which target the national and global screens. By doing so, it will help enhance the corporations reputation and shape consumers desires and appetites through these persuasive promotions. Some of the economists argue that consumers are those that drove the market economy; since they make the demands, and firms supply the demand of the consumers. They also feel that large firms cannot produce the exact amount of goods as they only know an approximation of the demands that they need; which may fall or rise, and what price they are going to charge customers for goods and services.
In early years, the market economy worked differently than how it works now, as far as producers of goods are concerned. Generally, customers pay the price for goods; and that is what determines the market value of goods. Producers firmly depend on the customers and their willingness to pay; therefore, the planning soon developed because the business is not producing what producers wanted to boost a profit. Hence, essential planning is required for a corporation to be able to predict the demand of the consumers by monthly or yearly in advance. Corporations starting to plan the amount of goods they are going to produce and the cost of those goods including labour wages may benefit in the long-term. They will also plan the price they should charge customers for the goods in order to make a stable profitable organisation.
Therefore, according to Galbraith; who believes that planning systems have the power that drive the market economy as a whole, he argues that consumers were being persuaded to purchase goods through heavy advertising by the big firms. Therefore, the whole system of production and spending, run and planned by the corporations, with customers being managed as much as the labours in those firms. Large firms also know whether their target consumers are high income or lower income customers. If the income of the household increase it will lead more demand which means more supply and by charging higher prices in general. In another words, they know when to charge higher and when to charger lower for goods, as they plan everything ahead.
Planning systems have the power to influence the government and afford to hire lobbyist to sway Government decisions on their way, for instance, the defence industry in the US. In the planning system that the Government include, however they have less intervention in the capitalist market. The government only intervenes when necessary, for example, their intervention comes when mostly when the market fails.
There are certain things that planning system can not plan or regulate by it self; therefore the Government will have the responsibility to complete the overall planning system. The big firms cannot control the overall size of the economy, thus, the Government regulates and aggregates demand. Also, the government provides security and manages the total spending to stabilize the economy, so that they can stop rising the entire price constantly. Large corporations cannot regulate inflation, the government does it independently somehow. Large firms cannot provide skilled workers they need, they cannot educate them, but they can provide training. So the Government provides the education that workers require, through funding colleges and universities.
The Government also bails out some large corporations when they fail by giving them required funding to remain in the market. For instance, Banks who supply loans to small business. If the government does not bail out Banks, then there will be massive job losses and small business will burst since they depend on Banks in the current recession. However, if the large firms made abnormal profits, it will lead to economic growth of the Government. “Government intervention may be able to rectify various failing of the market. Government intervention in the market can be used to achieve various economics objectives which may not be best achieved by the market. Government, however, are not perfect, and their action may bring adverse as well as beneficial consequences”.
TNC controls almost a quarter of the production assets in the world, and also the largest 500 TNC’s dominate 70% of the world trade and 80% of overall abroad investments. The combined revenue of 200 of the largest TNC’s is greater than the income of 182 countries; which will make around 80% of the population of the world. That is why Galbraith believed what drove the market economy is the Planning system and not the consumers. He argued that the aim of the planning system is to form a social goal. Corporations want skilled workers and the Government spends a lot of money on education to produce educated workforce.