Prosperity and Public Spending (Routledge Revivals) by Nell Edward;

Author:Nell, Edward; [EDWARD NELL]
Language: eng
Format: epub
Publisher: Taylor & Francis Group
Published: 2011-09-01T00:00:00+00:00

The Causes and Consequences of Hierarchy

Control and firm size

The normal processes of competition alone will tend over time to produce a highly skewed size distribution of firms, approximately log-normal in a simple model. Other factors can be expected to help this along, and, in any case, the fact that size confers power (both socio-political and purely economic) will ensure that the process of centralization of capital will always be driven by strong forces. This in no way denies the presence of inhibiting factors. Not the least of these is the fact that large firms are in continual competition with each other, both along the market, competing for sales, and across the market, buying from and selling to each other. Moreover, too great a concentration of power in one firm or cartel, achieved too suddenly, may provoke a united front of opposition among otherwise diverse and scattered competitors, customers and suppliers.

An essential part of the firm’s strategy is the attainment of some measure of control over the development of the market. This requires developing a marketing system, with a sales force, a distribution network and suitable advertising and promotion. These in turn must be coordinated with product design, production and handling of inventory. Moreover, the development and rate of expansion of the marketing system requires investment. This investment must be coordinated with that in the expansion of productive capacity—and in product design and development—and all such capital spending, of course, must be kept in line with the firm’s financial position.

As a result, the large firm must coordinate quite diverse activities, even when it produces only a single line of products for a well-defined market. Coordination becomes all the more important as the firm develops production and plans its pricing strategies in line with the product cycle; it is particularly crucial when it tries to develop by-products from the wastes generated by its industrial processes.

Nor is this coordination simply a question of ‘efficiency’. A business is in a continual struggle with competitors, suppliers, its own employees and its customers. The name of the game is making money, and in every transaction there is the ever-present feature that a higher or lower price benefits one party at the expense of the other. To control costs, to ensure revenue, every transaction must be controlled or monitored. There is potential danger at every point. Thus it is not merely a matter of proper coordination and ensuring the swift and effective mobilization of resources when the time is ripe for a market move or an investment project. It is also making certain that routines and regular procedures are strictly observed, so that no unexpected delays, costs or losses of revenue are incurred. The firm is in continuous operation and must be continuously controlled. Of course, there will be a margin of error that will be figured into the planning and coordination. But a delay or a production error—or a miscalculation of the market, as in the case of Ford’s famous disaster with the Edsel—outside this margin may result in a victory for the competition.

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