The Corporation and the Twentieth Century by Richard N. Langlois;

Author:Richard N. Langlois;
Language: eng
Format: epub
Publisher: Princeton University Press
Published: 2023-02-27T00:00:00+00:00

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In short, “the entrepreneur no longer exists as an individual person in the mature industrial enterprise.”434 It goes without saying that the “appropriate organization” that brings together specialized knowledge is not the market but the vertically integrated firm, in which the Whiz Kids of the technostructure can rationally plan the future: “The modern large corporation and the modern apparatus of socialist planning are variant accommodations to the same need.”435 Rather than calling forth a dystopia, however, for Galbraith the rise of the technostructure merely implicated greater recourse to Progressive New Deal–style social policy. Keynesian planning in Washington is just corporate managerial planning writ large.

In 1956, a quartet of prominent economists went looking for “the American business creed.” What they found was that alongside the “classical” creed of markets and private enterprise, there was a growing managerial strand that “emphasizes the fundamental transformation of the past fifty years, and sees in the present economic system a radical break with the past.” Indeed, they discovered, those who hold the new managerial creed “see the break with the past as so sharp that the whole system is moving toward a new kind of homogeneity—of large professionally managed, socially oriented enterprises.”436

It was easy for economists to understand the behavior of the sole proprietor who maximized profits. But how to understand the behavior of managers who are insulated from conventional market forces behind the ramparts of the organization? Heavily influenced by the workings of the new digital computer, a group of management theorists at the Carnegie Institute of Technology began to see the organization as a complex cybernetic system. For writers like Herbert Simon, Richard Cyert, and James March, managers—indeed all participants in the organization—could be understood as guided by routines and heuristics.437 Economists were less willing to give up the idea that managers maximize something; so if it could not be profits, perhaps managers were maximizing the growth of sales revenue or even ultimately their own power, prestige, or professionalism.438 This approach came to be called the managerial theory of the firm.

In most of these accounts, the key to managerial discretion is retained earnings. If a corporation has to go hat in hand to the capital markets, managers must pay some attention to the interests of capitalists. As we saw, early in the century capital markets were mediated through the great banking houses like J. P. Morgan. The New Deal diminished the role of the banking houses. At the same time, the industrial corporations themselves became large and well-known entities capable of conjuring directly with capitalists. Better yet, growing postwar corporations could finance their activities through retained earnings, obviating capital markets entirely. When it possesses cash, Galbraith noted, a company “no longer faces the risks of the market. It concedes no authority to outsiders. It has full control over its own rate of expansion, over the nature of that expansion and over decisions between products, plants and processes.”439 The economist Robin Marris formalized this idea by making the accumulation of retained earnings an argument in the manager’s utility function.

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