Cheezy the Wiz
Socialist In A Hurry
By the consolidation of industry, I mean that agglomeration of markets by companies which occurs by both choice, as in mergers or buy-outs, and also without, as by consumers' choice. There are obvious benefits and detractions from such an event (as there are with most things), most of which I've tried to outline below. For purposes of this thread (or at least the OP), let it be assumed that I agree with the assumptions that commonly form the folklore surrounding the logic of capitalist markets. I say this so as to save myself the time and patience of having to write a disclaimer every time I make such a statement for the purposes of framing a point, and because I don't want to get into an epic squabbling match about whether I really believe assumption X or not.
First and foremost is the question of efficiency. By definition, if one company does more business than another, and earns a larger share of the market than another, then it is more efficient. This is why consumers chose them, or why their profit is larger because of better finance management, with the end result being the same (though both are certainly required to be considered "successful") The logic of the market also assumes that this will be the best product available, because it most balances the efficiency of cost of production with the quality that satisfies consumers, as compared to the competition.
However, there comes a price with success. An expanded market for a company means an expansion of business, which means an expansion of the people who run the business. This is the beginnings of bureaucracy. There are two schools of thought on this. The first is that a larger operation is more efficient, and the second is that the larger an operation gets, the less efficient it becomes. I will address the second argument first, for its ease.
It is primarily ideology that declares bureaucracy to be inefficient. I don't mean to be facetious, since I'm trying to give different positions equal air-time, so to speak, but I really cannot think of even a caricature of an argument in defense of this position. It seems to be almost one of faith, that it is so because someone thinks so. I suppose it could be the increasing distance of decision-making from production, but I address that point very soundly in the next part, such that the only argument against the fact could be that a badly formed bureaucracy would be inefficient compared to a better-formed one, but that's basically a tautology. It's all about leadership decisions and structure, and I don't think anyone will argue with that.
As to the other side of the coin, it is a very large one. First, assuming the agglomeration above results from mergers and buyouts, there are probably less competitors in the market than before, which makes it easier for the government to regulate. The government already encourages de facto monopolies in certain industries precisely for this ease of efficacy (see: electrical companies). This consolidation is also more efficient in the use of both people and resources, as less competing firms means less redundant personnel structures and resource usage, in both production and management aspects.
There is another point as well: the above described consolidation is of horizontal businesses, but vertical consolidation is arguably even more efficient. This when a firm seeks not control of its specific market, but rather seeks to control all the various parts of the production process of its good, such that it can, from mine to market, function with relative independence from competitors. Think Standard Oil versus Carnegie Steel. This type of consolidation is arguably more efficient than horizontal, since the company can "buy" and "sell" to itself, eliminating middlemen and distributors, and streamline the entire process.
The creation of bureaucracy that results from the need to manage such an increasingly large enterprise is not, as mentioned above, a mark of inefficiency, but rather what helps make things more efficient, and this level of organization is what facilitates the increased success of a business. Weber certainly thought so at any rate. It is necessary on every level. I mentioned above the fear of possible inefficiency that results from the increasing distance of decision-making from the production process. This is the essential criticism of a centrally-planned economy such as the Soviet Union's. However, as Galbraith was careful to observe, the successful modern firm does not make this mistake, and unsuccessful modern firms often do. His pivotal example is Ford Motor Co. during the last decades of Henry Ford's life. Ford feared losing even the slightest amount of control over his company, so he refrained completely from sharing any of his decision-making power. He routinely fired people who had worked through the ranks and that he feared were, actually or possibly, arrogating some of his power or responsibility. Because of this, his company suffered enormously. Upon his death, the decision-making about essentially all parts of the company was quickly returned to the democratically-driven decision-making teams of experts at all levels of the company (except production, obviously: they weren't communists after all), and Ford Motor Co. rather quickly regained lost ground. Galbraith made the point that under Mr. Ford, the company was operating in a way essentially identical to the Soviet planned economy, with Ford playing the role of GosPlan. But FMC escaped this trap by delegating decision-making to where it needed to be: in proximity to production to facilitate changes and updates as needed. Ford Motor Company was not the model upon which this technostructure was built, but it is one highly illustrative example of how essential this "naturally-occurring" phenomenon is to modern business practice in all but the smallest of operations. I say naturally-occurring because it was a natural outgrowth across all industries as both technology and size became increasingly complex, and the need for such expert teams to manage once one person could no longer possibly be expected to be an equivalent expert in so many fields, or to handle so many decisions in an equally informed way, as these committees could. It is the way that modern productive companies function. I say that because I don't think financial firms like trading or investment firms need such expertise, but I'm sure Whomp will be happy to correct me on that. He ought to love this thread, what with me citing Weber and Galbraith (and Schumpeter, too! Just you wait).
Standardization is another obvious aspect of consolidation. The rise of Wal-Mart and Target means the end of many mom and pop shops. Is that good? Here there is real ground for contention. Some can say yes, because the product and the experience becomes more predictable, and predictability leads to greater efficiency. However, that standardization also means a loss of "local flavor," which can be considered an aspect of culture. This should remind readers of Weber's Iron Cage of social rationalization and standardization. I know I certainly choose small local restaurants over big corporate chains whenever I can. Variety is to many people the spice of life. But it is not outside of a big corporation's potential to localize production of vernacular tastes: one example is my company, whose Washington area shops are the only ones in the company to sell a specific product during the Cherry Blossom Festival, a local cultural event. Another is McDonald's sale of kosher foods in Israel, or non-beef foods in India. While neither of those examples are quite to the level of regional flavor that a locally-owned restaurant can produce, it does hint that such a thing is possible on some level.
In that direction, locally-owned businesses are more involved in their communities, because the people who own them and who work in them are from the area. That type of decentralization can be more efficacious towards local efforts to combat specific problems, or to change appearances, or whatever the case may be. It makes businesses more responsive and responsible to their local community. I doubt communities could have such an impact on a mega-corporation because of the one branch that exists in their town. But that may also be a necessary consequence of globalization, whether it occurs in one form or another.
And finally, the end result of consolidation is monopoly, the ultimate agglomeration. Being a superlative themselves, monopolies have access to being either supremely efficient or supremely inefficient. As with bureaucracy as a whole, it comes down to management and structure, but with a monopoly also purpose. A monopoly can be maximally efficient because parallel efforts within the industry have, by definition, been removed entirely. There are no directly analogous "competing" products, in the sense that a Mustang competes with a Charger, such that each product's producer has the ambition to create the cheapest/best quality product possible, to edge out the competition. However, there may certainly be internal competition between products, such as a Mustang competing with a GT or Shelby - the least or most expensive might not be what customers choose most/least, it's all about what they want. In this sense, the customer still makes the same decision about the balance of price and quality, just without the same threat of loss of money to a competitor as existed previously, though they could certainly still be deprived of money if the customer chose to purchase no product at all, for whatever reason, which still remains within the realm of possibility for all but the most essential products - electricity, food, health care, et cetera.
There is also the concern: do monopolies or near-monopolies quash innovation? The standard capitalist model is that better products continually replace inferior ones, because consumers will naturally and rationally choose them in the market. But with a monopoly or commanding share of the market, how is that possible? Similarly, the bigger a company gets in an industry, the more its internal problems become national concerns. Even if it were possible for a small firm to begin to put the enormous one out of business, that large one might have become "too big to fail," either because of its enormous payrolls, or because it provides a what has become essential to society's "way of life." This could also prevent the so-called creative destruction which replaces old industries with new ones. In an ideal world, the payrolls would just "transfer' over to the new companies as their jobs became redundant, but that's assuming that 1. they have the training to perform the new jobs, and 2. that the change is gradual and that a sudden implosion doesn't happen. Something like that, if it happened to a Too Big to Fail company, would be catastrophic for huge numbers of people.
Which begs the question: what should be done with a company that has been so successful as to now be Too Big to Fail? I see two options: one is to break them up, aka Trust Busting, and the other is to integrate it into the civil service, aka Nationalization. Personally, I favor the latter, because it acknowledges and codifies what is, by that point, essentially already the case. In some industries it may be necessary, such as electricity, transit, or health care, where having competing companies may not be in the best interest of society anyway, or may not be feasible in an efficient way. It is the ultimate reward for any company, to be deemed so successful as to be indispensable to society; but it also best protects society from being held hostage by or otherwise extorted into paying high prices and accepting low wages from such a powerful private firm. I don't think trust-busting is nearly as effective, it just kicks the can down the road, and there's no way to guarantee that the newly-formed sister companies won't behave like a cartel anyway. And if the government enforces perfect competition, isn't that really like combating capitalism to enforce capitalism?
First and foremost is the question of efficiency. By definition, if one company does more business than another, and earns a larger share of the market than another, then it is more efficient. This is why consumers chose them, or why their profit is larger because of better finance management, with the end result being the same (though both are certainly required to be considered "successful") The logic of the market also assumes that this will be the best product available, because it most balances the efficiency of cost of production with the quality that satisfies consumers, as compared to the competition.
However, there comes a price with success. An expanded market for a company means an expansion of business, which means an expansion of the people who run the business. This is the beginnings of bureaucracy. There are two schools of thought on this. The first is that a larger operation is more efficient, and the second is that the larger an operation gets, the less efficient it becomes. I will address the second argument first, for its ease.
It is primarily ideology that declares bureaucracy to be inefficient. I don't mean to be facetious, since I'm trying to give different positions equal air-time, so to speak, but I really cannot think of even a caricature of an argument in defense of this position. It seems to be almost one of faith, that it is so because someone thinks so. I suppose it could be the increasing distance of decision-making from production, but I address that point very soundly in the next part, such that the only argument against the fact could be that a badly formed bureaucracy would be inefficient compared to a better-formed one, but that's basically a tautology. It's all about leadership decisions and structure, and I don't think anyone will argue with that.
As to the other side of the coin, it is a very large one. First, assuming the agglomeration above results from mergers and buyouts, there are probably less competitors in the market than before, which makes it easier for the government to regulate. The government already encourages de facto monopolies in certain industries precisely for this ease of efficacy (see: electrical companies). This consolidation is also more efficient in the use of both people and resources, as less competing firms means less redundant personnel structures and resource usage, in both production and management aspects.
There is another point as well: the above described consolidation is of horizontal businesses, but vertical consolidation is arguably even more efficient. This when a firm seeks not control of its specific market, but rather seeks to control all the various parts of the production process of its good, such that it can, from mine to market, function with relative independence from competitors. Think Standard Oil versus Carnegie Steel. This type of consolidation is arguably more efficient than horizontal, since the company can "buy" and "sell" to itself, eliminating middlemen and distributors, and streamline the entire process.
The creation of bureaucracy that results from the need to manage such an increasingly large enterprise is not, as mentioned above, a mark of inefficiency, but rather what helps make things more efficient, and this level of organization is what facilitates the increased success of a business. Weber certainly thought so at any rate. It is necessary on every level. I mentioned above the fear of possible inefficiency that results from the increasing distance of decision-making from the production process. This is the essential criticism of a centrally-planned economy such as the Soviet Union's. However, as Galbraith was careful to observe, the successful modern firm does not make this mistake, and unsuccessful modern firms often do. His pivotal example is Ford Motor Co. during the last decades of Henry Ford's life. Ford feared losing even the slightest amount of control over his company, so he refrained completely from sharing any of his decision-making power. He routinely fired people who had worked through the ranks and that he feared were, actually or possibly, arrogating some of his power or responsibility. Because of this, his company suffered enormously. Upon his death, the decision-making about essentially all parts of the company was quickly returned to the democratically-driven decision-making teams of experts at all levels of the company (except production, obviously: they weren't communists after all), and Ford Motor Co. rather quickly regained lost ground. Galbraith made the point that under Mr. Ford, the company was operating in a way essentially identical to the Soviet planned economy, with Ford playing the role of GosPlan. But FMC escaped this trap by delegating decision-making to where it needed to be: in proximity to production to facilitate changes and updates as needed. Ford Motor Company was not the model upon which this technostructure was built, but it is one highly illustrative example of how essential this "naturally-occurring" phenomenon is to modern business practice in all but the smallest of operations. I say naturally-occurring because it was a natural outgrowth across all industries as both technology and size became increasingly complex, and the need for such expert teams to manage once one person could no longer possibly be expected to be an equivalent expert in so many fields, or to handle so many decisions in an equally informed way, as these committees could. It is the way that modern productive companies function. I say that because I don't think financial firms like trading or investment firms need such expertise, but I'm sure Whomp will be happy to correct me on that. He ought to love this thread, what with me citing Weber and Galbraith (and Schumpeter, too! Just you wait).
Standardization is another obvious aspect of consolidation. The rise of Wal-Mart and Target means the end of many mom and pop shops. Is that good? Here there is real ground for contention. Some can say yes, because the product and the experience becomes more predictable, and predictability leads to greater efficiency. However, that standardization also means a loss of "local flavor," which can be considered an aspect of culture. This should remind readers of Weber's Iron Cage of social rationalization and standardization. I know I certainly choose small local restaurants over big corporate chains whenever I can. Variety is to many people the spice of life. But it is not outside of a big corporation's potential to localize production of vernacular tastes: one example is my company, whose Washington area shops are the only ones in the company to sell a specific product during the Cherry Blossom Festival, a local cultural event. Another is McDonald's sale of kosher foods in Israel, or non-beef foods in India. While neither of those examples are quite to the level of regional flavor that a locally-owned restaurant can produce, it does hint that such a thing is possible on some level.
In that direction, locally-owned businesses are more involved in their communities, because the people who own them and who work in them are from the area. That type of decentralization can be more efficacious towards local efforts to combat specific problems, or to change appearances, or whatever the case may be. It makes businesses more responsive and responsible to their local community. I doubt communities could have such an impact on a mega-corporation because of the one branch that exists in their town. But that may also be a necessary consequence of globalization, whether it occurs in one form or another.
And finally, the end result of consolidation is monopoly, the ultimate agglomeration. Being a superlative themselves, monopolies have access to being either supremely efficient or supremely inefficient. As with bureaucracy as a whole, it comes down to management and structure, but with a monopoly also purpose. A monopoly can be maximally efficient because parallel efforts within the industry have, by definition, been removed entirely. There are no directly analogous "competing" products, in the sense that a Mustang competes with a Charger, such that each product's producer has the ambition to create the cheapest/best quality product possible, to edge out the competition. However, there may certainly be internal competition between products, such as a Mustang competing with a GT or Shelby - the least or most expensive might not be what customers choose most/least, it's all about what they want. In this sense, the customer still makes the same decision about the balance of price and quality, just without the same threat of loss of money to a competitor as existed previously, though they could certainly still be deprived of money if the customer chose to purchase no product at all, for whatever reason, which still remains within the realm of possibility for all but the most essential products - electricity, food, health care, et cetera.
There is also the concern: do monopolies or near-monopolies quash innovation? The standard capitalist model is that better products continually replace inferior ones, because consumers will naturally and rationally choose them in the market. But with a monopoly or commanding share of the market, how is that possible? Similarly, the bigger a company gets in an industry, the more its internal problems become national concerns. Even if it were possible for a small firm to begin to put the enormous one out of business, that large one might have become "too big to fail," either because of its enormous payrolls, or because it provides a what has become essential to society's "way of life." This could also prevent the so-called creative destruction which replaces old industries with new ones. In an ideal world, the payrolls would just "transfer' over to the new companies as their jobs became redundant, but that's assuming that 1. they have the training to perform the new jobs, and 2. that the change is gradual and that a sudden implosion doesn't happen. Something like that, if it happened to a Too Big to Fail company, would be catastrophic for huge numbers of people.
Which begs the question: what should be done with a company that has been so successful as to now be Too Big to Fail? I see two options: one is to break them up, aka Trust Busting, and the other is to integrate it into the civil service, aka Nationalization. Personally, I favor the latter, because it acknowledges and codifies what is, by that point, essentially already the case. In some industries it may be necessary, such as electricity, transit, or health care, where having competing companies may not be in the best interest of society anyway, or may not be feasible in an efficient way. It is the ultimate reward for any company, to be deemed so successful as to be indispensable to society; but it also best protects society from being held hostage by or otherwise extorted into paying high prices and accepting low wages from such a powerful private firm. I don't think trust-busting is nearly as effective, it just kicks the can down the road, and there's no way to guarantee that the newly-formed sister companies won't behave like a cartel anyway. And if the government enforces perfect competition, isn't that really like combating capitalism to enforce capitalism?
