The Economy as a System of Power

Corporate Systems

George Sternlieb

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351483308
• Edition: 2
• Topic: Business
• Subtopic: Business General
• Index: Business

The articles in this volume address the fact and use of economic power in the American economy. The institutional economists' perspective exhibited here reflects a century-long focus on and concern with economic power begun by Thorstein Veblen. This volume presents a new generation of institutionalist scholars who add to that tradition a fresh and penetrating analysis of contemporary power centers and assessments of their use of power.

PART I

THE ECONOMY AS A SYSTEM OF POWER

Introduction to Part I: The Economy as a System of Power

The opening paper, by Philip A. Klein, argues that political economy is not yet, but must more fully become, an analysis of valuation instead of an analysis of allocation. Effectual consideration of the nature and use of economic power must rest on a clear recognition of the importance of this shift. Through an extensive critique of neoclassical microtheory, Klein demonstrates that the traditional contention that unfettered market operations reflect individual choices and that these can be aggregated to generate a social choice giving direction to the economy, simply cannot be sustained. Allocation through the price system is but a “small corner” of economic analysis. Traditional neoclassical analysis has tried to ignore the fact that nonmarket choices are continuously being made and that they are important. Indeed, choices that would appear initially to be simple market choices often reflect recourse to market influence or power. For example, corporate decision makers have considerable value-reflective control over the formation and character of consumer demand. In the public sector, value-based judgments determine economic and social priorities, and set military budgets. In all these areas where the nature of consumer demand, externalities, and social priorities relating to health, welfare, and progress intrude on the orthodox research program and psyche, choices reflecting valuation are, and must be, made. Power is held by corporations; power is held by other private bodies; power is held by the government. Concerning public sector allocation, Klein observes that “although the resources so allocated have prices attached to them, they are not fundamentally allocated by prices, but by fiat. The fiat comes from the political economy in the form of decisions to tax and to spend which are made by various officials.”¹ In such cases, those with discretion and power make choices reflecting value positions and generate consequences for the economy. In sum, “only when economic theory concentrates on the meaning of the political economy—the problem of value—will we be able to assess the adequacy of our curent allocation… to accomplish the evolving ends which the participants in the economy currently set for it.… The frontier of the political economy, therefore, is to be found in developing criteria by which economies can be judged in terms of their ability successfully to express the emergent values of society.”

Philip A. Klein builds on and extends his analysis of the treatment of economic power in political economy in the article that follows. Whereas Anthony Downs originally, and public choice theorists more recently, have “tried to use [neoclassical] economic logic and economic methodology to dissect the operation of the political system,” Klein inverts the inquiry relationship and applies elements of political science to the study of economic power. “Power,” for Klein, “can most simply be defined as disproportionate control over the decision-making process.” “The distribution of both concentrated power and powerlessness… conditions the way in which the economy functions.” Accordingly, economists would gain substantial realism and relevance if they confronted the fact of economic power directly, as political scientists do. The latter see the function of governments as that of making “binding (authoritative) allocation of values.” “The political system both influences and is influenced or shaped by the values (priorities) of its participants and has the authority to force all participants in their roles in the system to abide by the commonly held emergent values.” A demonstration device used effectively by Klein is the presentation of detailed characterizations of three paradigms—mainstream, institutionalist, and political science perspectives. He finds, “many striking parallels between the assumptions, perspective, attitudes, and presumed results emerging from the latter two.” They see “the deployment of power in the economy and the polity as it is—not as one might wish it to be.” And that deployment indicates that “virtually all economic decisions are affected by concentrations of wealth and power, either indirectly, directly, or both.” But institutionalists, in Klein's view, “do not argue for a system of imposing values from normative Big Brothers on the rest of the community. They argue for developing a system in which information flows are open, discussion is free and candid, alternatives are presented and known, and decision-making channels can reflect the outcome of all these deliberations. That would produce the economic equivalent of representative democracy.”

Arguments introduced by Klein are reinforced and extended in the paper by Thomas R. De Gregori. “It is the contention of this article,” he writes, “that the normative interpretaion of market behavior is a major element in our current ideological confusion that frustrates effective government economic and social policy.” The inability in recent years to resolve successfully major economic problems may be laid, in large measure, at the door of conventional economists who have an “obsession with the market” and insist that markets have the ability to generate “unhindered price signals to channel resources to problem areas”— energy, poverty, and development—and, therefore, that deference to market judgments is the best policy posture whatever the problem. Such economists impute “causal or creative attributes to markets,” presume that price measures value and that market judgments are therefore moral, and therewith justify “grossly unequal distribution of income.” But “those who would have us rely almost exclusively on market decisions neglect the role of power in shaping market behavior.” Economic power derives not only from differential income receipt but from “position, prestige, and prejudice” as well. Therefore, the alleged “neutrality” of price theory is a sham. Private power is used to define human “needs,” and to shape the public agenda. “We tend not to notice… public decisions if they tend to further the economic interests of the powerful.” De Gregori draws on the work of Clarence Ayres, to establish an alternate institutionalist perception of how to get beyond the infinite wants-scarce means dictum of orthodoxy and the derivitive deference to market judgments that follows therefrom. It is Ayres's “theory of technological change as an explanation of the process of growth” that De Gregori finds most promising. With it, De Gregori can redefine the technological and cultural sources of economic progress, the nature of human needs, the promise of abundance, and the threat of “conspicuous waste.” He concludes that “the power of vested interests and its corollary, the neglect of power by economists, is slowing… progress on economic problems that we face.” The needed rethinking of “basic issues” should begin with the work of Ayres.

In the next paper, Seymour Melman objects both to the belief that technology “has an autonomous momentum and direction,” and, by implication, to the assumption that technology can be taken as given, as in conventional economics. He sees the introduction of technology as an exercise of economic power by discernable people. He shows “how the specific design and selection from among technological alternatives is controlled decisively by the industrial managers, private and governmental, on whose behalf technologies are researched, developed, and produced.” Defining technology as “the application of science and invention in the service of some social requirement,” Melman contends that it is “economic decision makers who determined which technology… was most serviceable to their business advantage.” He illustrates his analysis of technological determination by analyzing the ways in which the automobile industry has organized production. For example, he denies “that dehumanized and alienating conditions of work are intrinsic to the use of mass-production machinery” in automobile production. These conditions are not inevitable; they reflect “choices of economic decision makers and hence [are] subject to alteration given changed criteria and ways of decision making.” Industrial managers “are confronted with the problem of choosing from among many alternative tools, devices, and machines available for accomplishing the given task.” The usual decision criterion employed is cost-minimizing. As the wage level tends to grow faster than the price of machinery, the use of this criterion leds to displacement of workers with machines. Thus, “capitalist economic criteria” dominate such decision making. Even the division of labor reflects choices concerning the organization and integration of workers in the production process. Negative attitudes of alienation among workers derive, argues Melman, from the “absence of workers' decision power over their work.” In conclusion, man and society have not “become the creatures of the machine.” If one wants to alter technologies, “the place to look is… to the social structure… especially the economic rules of who decides on technology.”

With the paper by Wallace C. Peterson, the focus shifts from concern with industrial managers' power of decision over technology to questions of corporate power and its bearing on the quest for stability and adequate performance in the economy. It is Peterson's opening contention that “power exists, that it is widespread, and that it is a phenomenon as “natural” to our economic order as is competition.” His inquiry object is to explain “how power enters into the economic process and how it affects that process.” His special contribution is to show how “the critical interplay among economic growth, income distribution, and power as it operates in the market side of the economy… has been the major source of the economy's unsatisfactory performance.” Through an extensive analysis of the extent and character of economic growth in the U. S. since World War II, in part based on Keynesian theory, Peterson traces the emergence of a growth myopia in which mass production, in a high-intensity market society, is thought sufficient to resolve all other economic concerns. Emulation of a high-consumption lifestyle is urged; the “product becomes the determinant of the need, not… the other way around”; “wants accelerate more rapidly than output” generating a contrived and continuing scarcity. Corollary is an evidential demonstration that patterns of income distribution, since World War II, have remained heavily skewed toward inequality. In consequence, an “aspiration gap” appears where people perceive their relative income to be insufficiently high to share fairly in this expanded growth, especially of invidious display goods. This, in turn, generates pressure for people to gain increasing control over their income levels in order to enlarge their share. The quest for power is largely a quest “whereby people and business firms gain control over their own incomes.” Peterson then turns to an extensive analysis of how economic power is attained. Drawing on the work of Adolph Berle, Gardiner Means, and John Kenneth Galbraith, he shows how corporate enterprise has, through administered pricing, target return pricing and other techniques gained substantial control over its own income flow. Consideration of the implications of this power reality, in the pursuit of noninflationary growth, concludes this paper.

The final paper in this section, by William M. Dugger, serves well both as a capstone for the preceeding papers and as an introduction to the concluding section of this volume. He offers “a holistic (institutional) framework for analyzing power.” “Power,” he contends, “shall refer to the ability to tell other people what to do with some degree of certainty that they will do it. When power wielders must coerce others, power is tenuous and obvious. When coercion is unnecessary, power is secure and unnoticed. In twentieth-century United States, coercion is minimal.” People have the illusion of “individual choices and autonomy” of judgment. The reality is that economic institutions dominate the culture, patterning roles, imposing positive and negative sanctions, and conditioning people to accept such dominion. Of economic institutions operating, the modern corporation has nearly unrivaled hegemony. “The corporation… uses other institutions as means for its own ends.” It penetrates educational, military, family, political, and religious institutions in quest of its own values and goals. The hegemony of the modern corporation rests, not on conspiracy, but on four “social mechanisms” through which it gains and retains domination: “subreption, contamination, emulation, and mystification.” “Subreption ties all institutions together so that noncorporate institutions are used as means to corporate ends. Contamination puts corporate role motives into noncorporate roles. Emulation allows corporate leaders to gain acceptance, even respect, in noncorporate leadership roles. And mystification covers the corporate hegemony with a protective… cloak of the most-valued American symbols.” Thus the source of power for the corporation is “institutional position,” not “individual strength, will, or cunning.” “Powerful individuals” do not “acquire their ends independently of the institutional roles they performed on their way to the top.” Indeed, “both the ends and the means of their power are institutionally determined.” In brief, the “processes and the structure of power they support (corporate institutional hegemony) are laid bare through an institutional not an individual framework of analysis.” If that achieved power is to be democratized, it must be accomplished through change in “the institutions and processes that create and support it.”

Notes

1All quotations in these introductory comments throughout the volume are from the respective author's paper being discussed.

1

Economics: Allocation or Valuation?

Philip A. Klein

“Whether or not it continues to be a science of price, economics must be a science of value.”

Clarence E. Ayres

Theory of Economic Progress

Among the social sciences, economics long has suffered from a superiority complex. The economist's view of his field has been of a discipline that was rigorous and precise, with an advanced and pragmatic methodology leading to a highly developed theoretical structure. All this left far behind the imprecise and murky theoretical strivings of political scientists, sociologists, anthropologists, and historians.

The promised land which economic analysis made possible was known as equilibrium.¹ What sociologist or political scientist or anthropologist could offer any piece of analytical apparatus which for sheer beauty, precision, and logic could equal it? True, psychologists kept insisting that the behavioral assumptions of conventional economic theory—maximizing behavior, hedonism, rationality—all the characteristics of “Economic Man” which economics always has relied on for convenience, were fatally oversimplified. But economists mostly have ignored the complaints of psychologists (who after all had problems of their own). Moreover, the psychologists were only too willing to follow the economist down the quantitative primrose path. Both disciplines once worried about their ancient roots in philosophy and could never quite rid themselves of the nagging suspicion that questions of subjective valuation could not be eliminated entirely so as to render each a 100 percent pure science. Both embraced mathematics as the true methodological Messiah come at last.² Together economists and psychologists measured all visibly quantifiable variables, developed models for all problems, and achieved intellectual orgasm through the contemplation of the possibilities of the electronic computer. By enshrining quantification, they believed they had set a standard of scientific excellence sufficiently ahead of their laggardly sister social sciences to enable them to continue virtually indefinitely to play the role of superego to the lowly id of sociology or history.

Without in any way demeaning the very real accomplishments of quantitative procedures in advancing knowledge in critical areas, I should like to suggest that at least in the case of economics, schizophrenia always has been latent in the discipline and has been kept that way only by sweeping under the rug important problems which increasingly have crept out to disturb the neat world of economist and econometrician alike. We can cope with any number of variables in ever more elaborate models, but we cannot cope with underlying questions of direction and meaning, of goals and objectives for the system. The excessive preoccupation with tools with which to cope with problems at best comprising a small corner of economics, and the obsessive need to believe these tools coped with the heart of economics, long has characterized the discipline. Facing up to this obsession involves the fundamental question of whether economics is a science of allocation or a science of valuation. For most of its existence economics has managed to equate the two, and there is a long and bloody literary road devoted to establishing that economics as a “science of price” thereby was coping with all the value problems with which it need legitimately concern itself.

Economics as a Science of Allocation

The central core of economic theory—at least microeconomic theory—was spelled out by Adam Smith and elaborated upon by the well-known nineteenth-century mainstream economists. The culmination was its restatement by Alfred Marshall, who not insignificantly changed the name of the descipline from political economy to economics. The profound changes of the past eighty years have left remarkably untouched much of the field which Marshall defined as “a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.”³ Marshall added that economics “concerns itself chiefly with those motives which affect most powerfully and most steadily man's conduct in the business pa...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Introduction
• Part I: The Economy as a System of Power: Introduction
• 1. Economics: Allocation or Valuation?
• 2. Power and Illusion in the Marketplace: Institutions and Technology
• 3. The Impact of Economics on Technology
• 4. Confronting Power in Economics: A Pragmatic Evaluation
• 5. Power and Economic Performance
• 6. Power: An Institutional Framework of Analysis
• Part II: The Corporate System: Introduction
• 7. The Problems and Prospects of Collective Capitalism
• 8. The Rise of the Corporate State in America
• 9. Organizational Structure, Technological Advance, and the New Tasks of Government
• 10. An Institutional Analysis of Corporate Power
• 11. Social Value Theory, Corporate Power, and Political Elites: Appraisals of Lindblom's Politics and Markets
• 12. Transfer of Control in Large Corporations: 1905-19
• 13. Centralized Private Sector Planning: An Institutionalist's Perspective on the Contemporary U. S. Economy
• 14. Political and Policy Implications of Centralized Private Sector Planning
• 15. Oligopolistic Cooperation: Conceptual and Empirical Evidence of Market Structure Evolution
• 16. Idealism and Realism: An Institutionalist View of Corporate Power in the Regulated Utilities
• 17. Corporate Power and Economic Sabotage
• 18. Corporate Size and the Bailout Factor