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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Thursday, June 12, 2008

Alfred Chandler: A Critique

Alfred Chandler, like Joseph Schumpeter and John Kenneth Galbraith, was thoroughly sold on the greater efficiencies of the large corporation. Like them, he equted large size both to greater efficiency and greater innovativeness.

He argued that the modern multi-unit enterprise arose when administrative coordination "permitted" greater efficiencies. The chief efficiency of the multi-unit enterprise was a reduction in transaction costs: "internalizing," under administrative control, the activities that were previously conducted by free contract among a number of independent businesses.

Such an internalization gave the enlarged enterprise many advantages. By routinizing the transactions between units, the costs of these transactions were lowered. By linking the administration of producing units with buying and distributing units, costs for information on markets and sources of supply were reduced. Of much greater significance, the internalization of many units permitted the flow of goods from one unit to another to be administratively coordinated. More effective scheduling of flows achieved a more intensive use of facilities and personnel employed in the processes of production and so increased productivity and reduced costs. [Alfred D.Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge and London: The Belknap Press of Harvard University Press, 1977), pp. 6-7.]

In discussing the internal efficiencies achieved through large-scale production and internal hierarchy, Chandler's enthusiasm fairly jumps off the page:

Organizationally, output was expanded through improved design of manufacturing or processing plants and by innovations in managerial practices and procedures required to synchronize flaws and supervise the work force. Increases in productivity also depend on the skills and abilities of the managers and the workers and the continuing improvement of their skills over time. Each of these factors or any combination of them helped to increase the speed and volume of the flow, or what some processors call the "throughput," of materials within a single plant or works....

Where the underlying technology of production permitted, increased throughput from technological innovation, improved organizational design, and perfected human skills led to a sharp decrease in the number of workers required to produce a specific unit of output. The ratio of capital to labor, materials to labor, energy to labor, and managers to labor for each unit of output became higher. Such high-volume industries soon became capital-intensive, energy-intensive, and manager-intensive. [p. 241]

They achieved "economies of speed" from "greatly increasing the daily use of equipment and personnel." [p. 244] (Of course, Chandler starts by assuming the need for a capital-intensive mode of production, which then requires "economies of speed" to reduce unit costs from the expensive capital assets).

This model of production resulted in the adoption of increasingly specialized production machinery, one of the main sources of the "asset specificity" by which Oliver Williamson explains the substitution of hierarchy for the market:

The large industrial enterprise continued to flourish when it used capital-intensive, energy-consuming, continuous or large-batch production technology to produce for mass markets. [p. 347]

Along with these changes, the large corporation also brought with it Taylorism and the deskilling of blue collar labor:

In production, the first modern managers came in those industries and enterprises where the technology permitted several processes of production to be carried on within a single factory or works.... In those industries, output soared as energy was used more intensively and as machinery, plant design, and administrative procedures were improved. As the number of workers required for a given unit of output declined, the number of managers needed to supervise these flows increased. Mass production factories became manager-intensive. [pp. 485-486]

Needless to say, anyone looking for even a smidgen of libertarian-left sympathy for worker empowerment or self-management in Chandler will be sorely disappointed. The man was a New Class technocrat to the core.

Chandler's account also resembled, with his assumption of managerial capitalism as the only possible response to objective technological necessity, the transposition of the Whig theory of history to the industrial realm. As Yehouda Shenhav describes it,

...[C]apitalists came to realize that they needed a much more systematic control mechanism for efficiency purposes.... The advent of the first integrated enterprises during the 1880s and 1890s "brought about" new problems, such as an increase in the volume of output, that "led" to the building of the first administrative systems.... To Chandler, "the appearance of managerial capitalism has been... an economic phenomenon", and not a political one.... Administrative systems were adopted as rational responses to problems of economic reality confronting capitalists. In Chandler's analysis, the development of systems had no reference to power, politics, and interests. Although Chandler was vague about agency ("led", "brought about"), he attributes the rise of business administration to employers' and managers' (alike) attempts to meet the strategic challenges facing them.... [Yehouda Shenhav, Manufacturing Rationality: The Engineering Foundations of the Managerial Revolution (Oxford and New York: Oxford University Press, 1999), p. 103.]

Chandler's Achilles Heel is his admission (although he does not recognize it as such) that achieving productive efficiencies through such "progressive" innovations required the preexistence of a high-volume, high-speed, high-turnover distribution system on a national scale.

...[M]odern business enterprise appeared for the first time in history when the volume of economic activities reached a level that made administrative coordination more efficient and more profitable than market coordination. [p. 8]

...[The rise of administrative coordination first] occurred in only a few sectors or industries where technological innovation and market growth created high-speed and high-volume throughput. p. 11]

The railroad and telegraph, and the central banking system, in Chandler's view, were what made possible this steady flow of goods through the distribution pipeline.

The railroad and the telegraph provided the fast, regular, and dependable transportation and communication so essential to high-volume production and distribution. [p. 79]

...[The local branches of the Second Bank of the U.S.] provided an administrative framework that permitted the transfer of funds and credit throughout the country by means of a series of accounting transactions between branches controlled and supervised by the Philadelphia headquarters. [pp. 30-31]

The primacy of such state-subsidized infrastructure is indicated by the very structure of Chandler's book. He begins with the railroads and telegraph system, themselves the first modern, multi-unit enterprises. [pp. 79, 96-121] And in subsequent chapters, he recounts the successive evolution of a national wholesale network piggybacking on the centralized transportation system, followed by a national retail system, and only then by large-scale manufacturing for the national market. A national long-distance transportation system led to mass distribution, which in turn led to mass production.

The coming of mass distribution and the rise of the modern mass marketers represented an organizational revolution made possible by the new speed and regularity of transportation and communication. [p. 235]

...The new methods of transportation and communication, by permitting a large and steady flow of raw materials into and finished products out of a factory, made possible unprecedented levels of production. The realization of this potential required, however, the invention of new machinery and processes. [p. 240]

In other words, the so-called "internal economies of scale" in manufacturing could come about only when the offsetting external diseconomies of long-distance distribution were artificially nullified by corporate welfare. With transportation costs fully internalized, reduced unit costs of production would have been more than offset by increased distribution costs at a very modest level of output. The prerequisites of large-scale production are an artificial state of affairs.

From Chandler's perspective, of course, all the above simply means that the state's role in creating centralized infrastructure facilitated the introduction of organizational forms that were inherently more efficient.

But despite his touching faith, there is in fact no such thing as generic or immaculate "efficiency." One method or another is only more efficient given a particular package of input costs that determine which inputs are to be economized on. Subsidies are subject to what might be called The Law of Conservation of Costs: costs can be shifted, but they cannot be destroyed. In other words, as the saying goes, There Ain't No Such Thing As A Free Lunch. The overall cost of a good from a giant factory two thousand miles away does not become less than that of a good from a small factory twenty miles away, just because part of the cost is collected by the IRS instead of by the retailer. If the total cost amounts to more than the product's worth, the product doesn't become a net social good because some items on the cost side of the ledger don't show up in retail price.

Chandler's version of history, turned rightside-up, can be restated thusly: transportation subsidies and internal improvements were primary in creating the low distribution costs and resulting artificially large market areas without which large scale production would have been impossible. Given the artificial inflation of this high-volume distribution system, and given the resulting artificial profitability of large organizations, hierarchy becomes necessary to manage those organizations. And given these artificial conditions, the pioneers of the multi-unit corporation did indeed come up with some great accomplishments. Their great feats of administrative innovation were a rational way of carrying out an inherently irrational task (but not necessarily the most efficient even for this, as Waddell and Bodek showed regarding the inefficiencies of the DuPont/Sloan system that Chandler makes so much of). But that is not, by any means, the same as saying that artificially cheap transportation is a public good because it "permits" administrative coordination which is absolutely more efficient than the market. Large size did not grow from the superior efficiency of large-scale organization; rather, the techniques of large-scale management were adopted as the least inefficient alternative given the large size which already existed as a result of artificially large market areas. No doubt some Gosplan apparatchiks also performed superhuman feats in making an inherently over-centralized and inefficient process as manageable as possible, given the impossible situation in which they were placed by the starting assumptions of a planned economy.

As Chandler himself admitted, the greater "efficiency" of national wholesale organizations lay in their "even more effective exploitation of the existing railroad and telegraph systems." [p. 215] That is, they were more efficient parasites. But the "efficiencies" of a parasite are usually of a zero-sum nature.

He also admits, perhaps inadvertently, that the "more efficient" new production methods were adopted almost as an afterthought, given the artificially large market areas and subsidized distribution:

...the nature of the market was more important than the methods of production in determining the size and defining the activities of the modern industrial corporation. [p. 363]

Despite all this, Chandler--astonishingly--minimizes the role of public policy in creating the system he so admires:

The rise of modern business enterprise in American industry between the 1880s and World War I was little affected by public policy, capital markets, or entrepreneurial talents because it was part of a more fundamental economic development. Modern business enterprise... was the organizational response to fundamental changes in processes of production and distribution made possible by the availability of new sources of energy and by the increasing application of scientific knowledge to industrial technology. The coming of the railroad and telegraph and the perfection of new high-volume processes... made possible a historically unprecedented volume of production. [p. 376]

Chandler's statement also reflects an unquestioned assumption that what Lewis Mumford called "paleotechnics" (i.e., the large-scale factory production of the coal and steam age--about which more in Part Four) were more efficient than the decentralized, small-scale production methods of Kropotkin and Borsodi. The possibility never occurs to this technological determinist that massive state intervention, at the same time as it enabled the revolutions in corporate size and capital-intensiveness, might also have tipped the balance between alternative forms of production technology.

Despite all the state intervention up front to make the large corporation possible, state intervention was required after as well as before in order to keep the system running. These great corporate paragons of efficiency were unable to survive without the government guaranteeing an outlet for their overproduction, and protecting them from market competition.

The ruling elites of the corporate-state nexus perceived, as early as the depression of the 1890s, that overbuilt industry could not dispose of its output, operating at full capacity, without government help. This problem was first addressed, as thinkers ranging from J.A. Hobson to Lenin to Schumpeter have described, through imperial adventure to secure foreign markets. The system, in Schumpeter's phrase, was "export-dependent monopoly capitalism." It gave rise to what W.A. Williams called "Open Door Empire," institutionalized through the Bretton Woods agencies of FDR and Truman, and remains the basis of U.S. foreign policy to the present day. (See, for example, Joseph Stromberg , "The Role of State Monopoly Capitalism in the American Empire").

Another approach to the problem of overproduction was the creation of mass advertising and consumer credit. Although this was somewhat less state-dependent than imperialism, it had a large state component. For one thing, the founders of the mass advertising and public relations industries were, in large part, also the founders of the science of "manufacturing consent" used to manipulate Anglo-American populations into support of St. Woodrow's crusade. For another, the mass advertising market depended heavily on the creation of the broadcast mass media, in which the state played no inconsiderable role. And finally, the state's own organs of propaganda (through the USDA, school home economics classes, and the like) put great emphasis on discrediting "old-fashioned" atavisms like home-baked bread and home-grown and -canned vegetables, and promoting in their place the "up-to-date" housewifely practice of heating stuff up out of cans from the market. This is the theme, for example, of Stuart Ewen, Captains of Consciousness: Advertising and the Social Roots of the Consumer Culture (New York: McGraw-Hill, 1976).

Jeffrey Kaplan described this, in a recent article, as the "gospel of consumption":

[Industrialists] feared that the frugal habits maintained by most American families would be difficult to break. Perhaps even more threatening was the fact that the industrial capacity for turning out goods seemed to be increasing at a pace greater than people’s sense that they needed them.

It was this latter concern that led Charles Kettering, director of General Motors Research, to write a 1929 magazine article called “Keep the Consumer Dissatisfied.” He wasn’t suggesting that manufacturers produce shoddy products. Along with many of his corporate cohorts, he was defining a strategic shift for American industry—from fulfilling basic human needs to creating new ones.

In a 1927 interview with the magazine Nation’s Business, Secretary of Labor James J. Davis provided some numbers to illustrate a problem that the New York Times called “need saturation.” Davis noted that “the textile mills of this country can produce all the cloth needed in six months’ operation each year” and that 14 percent of the American shoe factories could produce a year’s supply of footwear. The magazine went on to suggest, “It may be that the world’s needs ultimately will be produced by three days’ work a week.”

Business leaders were less than enthusiastic about the prospect of a society no longer centered on the production of goods. For them, the new “labor-saving” machinery presented not a vision of liberation but a threat to their position at the center of power. John E. Edgerton, president of the National Association of Manufacturers, typified their response when he declared: “I am for everything that will make work happier but against everything that will further subordinate its importance. The emphasis should be put on work—more work and better work.” “Nothing,” he claimed, “breeds radicalism more than unhappiness unless it is leisure.”

By the late 1920s, America’s business and political elite had found a way to defuse the dual threat of stagnating economic growth and a radicalized working class in what one industrial consultant called “the gospel of consumption”—the notion that people could be convinced that however much they have, it isn’t enough. President Herbert Hoover’s 1929 Committee on Recent Economic Changes observed in glowing terms the results: “By advertising and other promotional devices . . . a measurable pull on production has been created which releases capital otherwise tied up.” They celebrated the conceptual breakthrough: “Economically we have a boundless field before us; that there are new wants which will make way endlessly for newer wants, as fast as they are satisfied.”

Running overcapitalized industry at full capacity, in Chandler's account, meant keeping the distribution pipeline flowing, and the result was what contemporary thinkers call the "push" economy. His model of "high-speed, high-throughput, turning high fixed costs into low unit costs," and Galbraith's "technostructure," are (leaving aside their worshipful tone) practically identical to "push" distribution. Here's how it was described by Paul Goodman:

... in recent decades... the center of economic concern has gradually shifted from either providing goods for the consumer or gaining wealth for the enterpriser, to keeping the capital machines at work and running at full capacity; for the social arrangements have become so complicated that, unless the machines are running at full capacity, all wealth and subsistence are jeopardized, investment is withdrawn, men are unemployed. That is, when the system depends on all the machines running, unless every kind of good is produced and sold, it is also impossible to produce bread. [Paul and Percival Goodman, Communitas: Means of Livelihood and Ways of Life (New York: Vintage Books, 1947, 1960), pp. 188-89.]

The same imperative was at the root of the hypnopaedic socialization in Huxley's Brave New World: "ending is better than mending"; "the more stitches, the less riches."

One can't help thinking of Peter Drucker's maxim: "There is nothing so useless as doing efficiently that which should not be done at all."

Because of the imperative for large industry to operate on round-the-clock shifts, to spread the cost of its expensive machinery over the greatest possible number of units of output, the imperative of ensuring consumption and keeping the pipeline of goods open is equally great.

Integration of mass production with mass distribution afforded an opportunity for manufacturers to lower costs and increase productivity through more effective administration of the processes of production and distribution and coordination of the flow of goods through them. Yet the first industrialists to integrate the two basic sets of processes did not do so to exploit such economies. They did so because existing marketers were unable to sell and distribute products in the volume they were produced.


Central to the growth of the mass production, mass advertising, push economy was the change from demand-driven commodity distribution, with competition centered primarily on price, to an economy based on brand name specification and competition in cosmetic features. The older economy that the "push" distribution system replaced was one in which most foods and drugs were what we would today call "generic." Flour, cereal, and similar products were sold in bulk and weighed and packaged by the grocer. The producers geared production to the level of demand that was relayed to them by the retailers' orders. Drugs, likewise, were typically compounded by the druggist on-premises to the physician's specifications, from generic components. But in the twenty years before Borsodi wrote The Distribution Age, the ratio went from roughly 95% bulk to 75% package goods. [Ralph Borsodi, The Distribution Age (New York and London: D. Appleton and Company, 1929), pp. 217, 228] Under the new "push" system, the producers appealed directly to the consumer through brand-name advertising, and relied on pressure on the grocer to create demand for what they chose to produce.

It is possible to roughly classify a manufacturer as belonging either to those who "make" products to meet requirements of the market, or as belonging to those who "distribute" brands which they decide to make. The manufacturer in the first class relies upon the natural demand for his product to absorb his output. He relies upon competition among wholesalers and retailers in maintaining attractive stocks to absorb his production. The manufacturer in the second class creates a demand for his brand and forces wholesalers and retailers to buy and "stock" it. In order to market what he has decided to manufacturer, he figuratively has to make water run uphill. [Borsodi, p. 110.]

The consumer, under the new regime of Efficiency, paid four times as much for flour, sugar, etc., as he had under the old "inefficient" system.

Brand specification "lifts a product out of competition." [Borsodi, p. 162] Although competitive markets prevail to a large extent in the supply of raw materials for resale,

in the buying of finished products, the prevalence of brand specification has all but destroyed the normal basis upon which true competitive prices can be established. [Borsodi, pp. 216-217]

As Barry Stein described it, branding

convert[s] true commodities [i.e., goods essentially generic in nature] to apparent tailored goods, so as to avoid direct price competition in the marketplace. The distinctions introduced--elaborate packaging, exhortative advertising and promotion that asserts the presence of unmeasurable values, and irrelevant physical modification (colored toothpaste)--do not, in fact, render these competing products "different" in any substantive sense, but to the extent that consumers are convinced by these distinctions and treat them as if they were different, product loyalty is generated. [Barry Stein, Size, Efficiency, and Community Enterprise, p. 79.]

Competition between identifiable producers of bulk goods enabled grocers to select the highest quality bulk goods, while providing them to customers at the lowest price. Brand specification, on the other hand, relieves the grocer of the responsibility for standing behind his merchandise and turns him into a mere stocker of shelves with the most-demanded brands.

Bulk commodity distribution, today, prevails only in natural foods and other food-buying cooperatives. But its effect, where practiced, is to make "[c]ompetition... descend from the cloudy heights of sales appeals and braggadocio generally, to just one factor--price." [Stuart Chase and F. J. Schlink, The New Republic, December 30, 1925, in Borsodi p. 204.]

But that would be the worst nightmare of the oligopoly manufacturer and the advertising industry, as indicated by this quote from Naomi Klein:

At the anual meeting of the U.S. Association of National Advertisers in 1988, Graham H. Phillips, the U.S. Chairman of Ogilvy & Mather, berated the assembled executives for stooping to participate in a "commodity workplace" rather than an image-based one. "I doubt that many of you would welcome a commodity marketplace in which one competed solely on price, promotion and trade deals, all of which can be easily duplicated by competition, leading to ever-decreasing profits, decay, and eventual bankruptcy." Others spoke of the importance of maintaining "conceptual value-added," which in effect means adding nothing but marketing. Stooping to compete on the basis of real value, the agencies ominously warned, would speed not just the death of the brand, but corporate death as well. [Naomi Klein, No Logo (New York: Picador, 1999), p. 14.]

The overall system, in short, was a solution in search of a problem. State subsidies and mercantilism gave rise to centralized, overcapitalized industry, which led to overproduction, which led to the need to find a way of creating demand for lots of crap that nobody wanted.

Government tried in a third way to solve the problem of overproduction: the increasing practice of directly purchasing the corporate economy's surplus output, through massive highway and civil aviation programs, the military-industrial complex, the prison-industrial complex, foreign aid, and so forth.

Parallel to these trends, the state also played a major role in cartelizing the economy, to protect the large corporation from the destructive effects of price competition.

American manufacturers began in the 1870s to take the initial step to growth by way of merger--that is, to set up nationwide associations to control price and production. They did so primarily as a response to the continuing price decline, which became increasingly impressive after the panic of 1873 ushered in a prolonged economic depression. [p. 316]

The process was further accelerated by the Depression of the 1890s, with mergers and trusts being formed through the beginning of the next century in order to control price and output:

the motive for merger changed. Many more were created to replace the association of small manufacturing firms as the instrument to maintain price and production.

In other words, trusts and mergers had less to do with internal efficiencies than with maintaining the scale of distribution that economies of speed depended on.

Chandler's account of the trust movement ignores one central fact: the trusts were less efficient than their smaller competitors. They immediately began losing market share to less leveraged firms outside the trusts. The trust movement was an unqualified failure, as big business quickly recognized. Subsequent attempts to cartelize the economy, therefore, enlisted the state. As recounted by Gabriel Kolko, the main force behind the Progressive Era regulatory agenda was big business itself, the goal being to restrict price and quality competition and to reestablish the trusts under the aegis of government. Although Chandler treats the post-WWI stability of oligopoly markets as the result of some natural weeding-out process, [p. 345] it was actually, as Kolko argued, because the Clayton Act's "unfair competition" provisions finally restricted price competition enough to make the world safe for oligopoly.

In short, as Richard Du Boff and Edward Herman point out, Chandler's treatment of the managerial corporation as a passive response to objective technological necessity leaves out a good many relevant issues. "Government is treated as an exogenous force, not as part of a symbiotic relationship with private capital...." Moreover, Chandler "effectively denies us the means by which we might assess the impact of the corporate system on the population at large and the social costs produced by the needs of that system." "...[T]here is no intimation that technology affords a potentially wide spectrum of choices...."

For example, Chandler notes Carnegie's concern almost exclusively with labor costs, but "does not discuss the implications for technological choices or the consequences for labor (wage rates, output requirements, unemployment)." [Richard B. Du Boff and Edward S. Herman, "Alfred Chandler's New Business History: A Review," Politics & Society 10:1 (1980), pp. 87-110.]

Chandler's entire body of work can be described, with little exaggeration, as an exercise in polishing the turd of Sloanism. Of course, he carefully neglects to mention GM's heavy reliance on federal highway spending and other subsidies to the car culture, or GM's getting its ass kicked by the Toyota production system.

Chandler's book on the tech industry is a telling illustration of just what he meant by "organizational capability." For Chandler, "organizational capabilities" in the consumer electronics industry amounted to the artificial property rights by which the firm is able to exercise ownership rights over technology and over the skill and situational knowledge of its employees, and to prevent the transfer of technology and skill across corporate boundaries. Thus, his chapter on the history of the consumer electronics industry through the mid-20th century consists largely of what patents were held by which companies, and who subsequently bought them. [Alfred D. Chandler, Jr., Inventing the Electronic Century (New York: The Free Press, 2001), pp. 13-49]

Galbraith and Chandler had things exactly backwards. The "technostructure" can survive because it is enabled to be less responsive to consumer demand. An oligopoly firm in a cartelized industry, in which massive, inefficient bureaucratic corporations share the same bureaucratic culture, is protected from competition. The "innovations" Chandler so prized are made by a leadership completely out of touch with reality. These "innovations" succeed because they are determined by the organization for its own purposes, and the organization has the power to impose top-down "change" on a cartelized market, with little regard to consumer preferences, instead of responding flexibly to them. Chandler's model of innovation is based, not on finding out what people want and providing it, but on inventing ever-bigger hammers and then forcing us to be nails. The large corporate organization is not more efficient at accomplishing goals received from outside; it is more efficient at accomplishing goals it sets for itself for its own purposes, and then using its power to adapt the rest of society to those goals.

Indeed (as Galbraith argued), "organizational success" requires institutional mechanisms to prevent outside society from doing what it wants, in order to provide the levels of stability and predictable demand that the technostructure needs for its long planning horizons. The Galbraith/Chandler view bears a striking resemblance to the Whig theory of history, or to Hegel's dictum that the real is rational: oligopoly capitalism is "successful" because it is the most efficient at achieving the ends of oligopoly capitalism. It's a bit reminiscent of the old doctor's joke that a dead patient is a "healthy tumor," or that "the operation was a success, but the patient died." Our society, unfortunately, has no shortage of such "successes."

Chandler starts out with the technocratic assumption that a centralized national economy with a centralized transportation system is a Good Thing, and defines "efficiency" in terms of the administrative mechanisms necessary to make it possible without interference from the market.

Chandler's version of "innovation" means, in practice, 1) developing processes so capital-intensive and high-tech that, if all costs were fully internalized in the price of the goods produced, consumers would prefer simpler and cheaper models; or 2) developing products so complex and prone to breakdown that, if cartelized industry weren't able to protect its shared culture from outside competition, the consumer would prefer a more durable and user-friendly model. Cartelized, over-built industry deals with overproduction through planned obsolescence, and through engineering a mass-consumer culture, and succeeds because cartelization restricts the range of consumer choice.

Chandler's corporation is a roaring success indeed, if we start with the assumption that society should be reengineered to desire what the technostructure wants to produce. Robin Marris described this approach quite well:

The "bureaucratic" environment of the large corporation... is likely to divert emphasis from the character of the goods and services produced to the skill with which these activities are organized.... The concept of consumer need disappears, and the only question of interest... is whether a sufficient number of consumers, irrespective of their "real need" can be persuaded to buy [a proposed new product]." [Quoted in Barry Stein, p. 55]

The marketing "innovations" Chandler trumpeted in Scale and Scope--in foods the techniques for "refining, distilling, milling, and processing"--were actually expedients for ameliorating the inefficiencies imposed by large-scale production and long-distance distribution: refined white flour, inferior in taste and nutrition to fresh-milled local flour, but which would keep for long-term storage; gas-ripened rubber tomatoes and other vegetables grown for transportability rather than taste; etc. Every you fill up your grocery cart with refined white flour, hydrogenated oils, and high fructose corn syrup, say a little prayer for the soul of Alfred Chandler.

I should mention, in passing, that I risk charges of rhetorical excess or facetiousness in referring to the "push" model as "find[ing] a way to create demand for lots of crap that nobody wanted." Therefore, I will read Jeremy Weiland's caveat into the record:

In the parts where you address the management of consumer demand according to institutional interests, you're not suggesting that consumer demand plays no role in the decisions about what to produce, right? I don't mean to be so blithe but that seems patently false... the issue is that consumer demand is moderated and channeled into demand for things that corporations decide they can produce most profitably given a rigid institutional structure. The way you frame the issue seems extreme... as if there is no role for consumer demand, rather than a substantially neutered and manipulated one. Even with demand management, PR, advertising, etc. it seems obvious to me that there are still instances of new choices introduced by competitors from outside the established oligopoly responding to demand. It's simply that these choices would be more plentiful without statist intervention, right? I'm concerned your argument is too sweeping and ignoring a much more fine and important point - that consumers aren't just lacking choices but are being manipulated subtly.

That's a pretty good way of putting it, without all the snark. When I say the corporate economy tries to create demand for lots of crap that nobody wants, it's just a colorful way of saying that consumer demand is "substantially neutered and manipulated," that it's "moderated and channeled into demand for things that corporations decide they can produce most profitably given a rigid institutional structure."

9 Comments:

Blogger Bunty said...

On a related note, there's this from Monbiot suggesting that small farms are considerably more efficient than larger ones: http://www.alternet.org/environment/87832/.

In addition there's Ayers' work in trying to fix economic theory of its invalid assumptions. From http://www.cge.uevora.pt/aspo2005/abscom/ASPO2005_Ayres.pdf

Yet the origins of physical production in the neoclassical paradigm remain
unexplained, since the only explanatory variables are abstract labor and abstract immaterial
capital (Figure 3). The realism of the core assumption – that only capital accumulation drives
growth – was sharply challenged in the early 1950s. Research based on reconstructions of
historical time series of the supposed factors of production (labor and capital) drastically
reduced the apparent role of capital accumulation as a driver of economic growth (Abramovitz
1952, 1956; Fabricant 1954). For example, Fabricant estimated that capital accumulation only
accounted for 10 percent of per capita US economic growth since the middle of the 19th
century.

June 12, 2008 1:47 PM  
Anonymous P.M.Lawrence said...

That's misleading. On closer inspection you will find that US growth in the 19th century made heavy use of European capital, and the USA then rigged the system to expropriate the investors. So, there was small use of US saving, but heavy use of wider savings.

June 12, 2008 5:50 PM  
Anonymous Anonymous said...

Kevin,

Extremely brilliant post. I can't wait to read your new book from start to finish.

Three quick questions:

(1) Which Mumford book would you recommend that someone interested in the transitions from eotechnic to paleotechnic, and then to neotechnic? I purchased one called the Myth of the Machine, I believe, which appears to be a follow-up work to the one I should have started off with?;

(2) Could you point me to some sources on the common origin of PR and propaganda/"manufacturing consent"?; and,

(3) Where has The Art of the Possible gone, again?

Thanks,
Araglin

June 13, 2008 8:43 AM  
Blogger Kevin Carson said...

Thanks for the references, bunty. That last quote, especially, was a gem. It certainly flies in the face of the dogma at Mises.Org: the way to increase the average person's standard of living is to make rich people richer, which causes them to invest more in capital accumulation, which increases the productivity of labor and hence wages.As crudely cartoonish as the idea sounds--that more capital-intensiveness and roundaboutness, as such, means greater productivity, and that there's virtually no point of diminishing returns when it comes to adding capital to a process--you do in fact see it in that quarter all the time.

Thanks for the kind words, Araglin. Mumford presents his historical schematic mainly in Technics and Civilization. My first introduction to the whole subject of "Manufacturing Consent" was a chapter on controlling public opinion in democracies in Chomsky's *Deterring Democracy*. The best historical account is probably Alex Carey's *Taking the Risk Out of Democracy*, although Stuart Ewen has an excellent account of the rise of mass advertising and push distribution in *Captains of Consciousness*.

I think AOTP just went down when they changed servers. It's up again now.

June 13, 2008 10:44 AM  
Anonymous Jamesey said...

Hi Kevin,

Another great post that proves how incosistent the economic assumptions of neoliberals are.

I'm in debt to you for making me aware of a credible economic philosophy thats more aligned with my values and which could deliver the just and equitable society that I strive for.

Theres actually been an independant documentary screened on AltTV here in New Zealand recently called Zeitegeist where I learnt the roots of the elite's use of propoganda and spin, which was used not only by major corporations to elicit new desires in "consumers", but also for propoganda purposes in support of elite goals.

The leading authority in the early 20th Century was Edward Barnays who actually was the nephew of Sigmund Freud. He was a reflection of the contempt and fear of the "unwashed masses" that afflicts the ruling class.

I've just read your column,
Fighting the Domestic Enemy: You,

In it you highlighted how the elite political and business classes became frustrated over their loss of control and wanted to abandon the Fordist/"Great Society" Social Contract.

They knew that their austerity measures wouldn't be palatable for people so they had to engineer a crisis in order to convince the populance it was for their own good.

They accomplished it through the rather convenient OPEC embargo in 1973 and Jimmy Carter's imposition of an oil embargo subsequent to the Iranian Revolution in 1979. So that the Reagan Administration could claim credit for resolving the crisis and their compatriots in the Big Oil could make wind fall profits, whilst destroying their only credible competitors for world dominance, the Soviet Union, though they weren't perhaps as hostile to the Soviet Union as they pretended.
http://www.brusselsjournal.com/node/865

Note how Ronald Reagan successfully negotiated for the freeing of the Tehran Embassy hostages until the election campaign and then traded weapons for oil in the Iran-Contra deal. It all seems far too coincidental to me.

Take into consideration that U.S. and British oil corporations would have made windfall profits thanks to the both Oil Crisises, because it wasnt't until 1980 that the Saudis nationalised ARAMCO.

In light of this excerpt from a publication from the Council on Foreign Relations written in 1977 its a little coincidental, isn't it?

The obvious danger in such a regime resides in its potential instability. Some limited loosening is by no means unequivocally undesirable. It can be seen as a rational response to the earlier tendency, which was most manifest in the 1960s, for economic integration to run far ahead of both actual and desired political integration, thereby forcing countries into suboptimal policy choices. A degree of controlled disintegration in the world economy is a legitimate objective for the 1980s and may be the most realistic one for a moderate international economic order. A central normative problem for the international economic order in the years ahead is how to ensure that the dis-integration indeed occurs in a controlled way and does not rather spiral into damaging restrictionism."
Alternative to Monetary Disorder (Fred Hirsch and Michael Doyle, CFR)

Well they've certainly achieved their aim didn't they?

June 15, 2008 1:16 AM  
Blogger Bunty said...

Another interesting angle on the real effect accumulated capital has..

Just watched http://www.oilcrashmovie.com/index2.html, which really seems rather dated now (there's people on their speaking with slight incredulity at the possibility of $50 a barrel oil, and $5 a gallon petrol).

It did however contain the interesting factoid that 1 barrel of oil is roughly equivalent (in energy terms) to 23,200 hours of human labour. A little further back-of-an-envelope type math suggests, that if we treat that energy as abstract labour, then the current world consumption of ~80 million barrels a day is the equivalent of having 184 billion slaves working a 10 hour shift, each day.

That's one gosh-darn heck of a lot of invisible hands right there, pushing up the standard of living and industrial progress.

Admittedly that's rather more of a generalisation than it's possible to make, but it's certainly indicative.

From that though, the question would arise, not why we have progressed so much in the last couple of centuries, but why so little.

Probably quite a lot of which is down to the fact that research and progress in general is far far less profitable than ransoming an existing discovery (or means) for as long as possible. For big business/capital change is a threat.

July 12, 2008 8:50 AM  
Blogger Bunty said...

just a slight addendum to the previous comment, to put things in perspective.

184 billion, means about 30 'slaves' for each and everyone on the planet.

http://www.lifeaftertheoilcrash.net/Research.html#anchor_71 -- reference for BTU to labour conversion.

http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption -- oil consumption figures.

July 12, 2008 8:54 AM  
Anonymous Promotional Pens said...

For us Chandler's writings (complementing those of economists Ronald Coase and Oliver Williamson) offer greater insights into the information economy, the evolution of the web and innovation than those of digital gurus such as Nicholas Negroponte, Kevin Kelly or Don Tapscott.
As yet there has no major biographical study of Chandler or collection of his correspondence.

A helpful concise account is found in The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business (Boston: Harvard Business School Press 1988), edited by Thomas McCraw. The book includes a complete bibliography up to 1987.

September 11, 2008 5:49 PM  
Anonymous rj said...

Kevin, you say chapters 15 and 16 are the final chapters. What of chapter 17 - mutual aid?

September 28, 2008 2:52 PM  

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