The Development of Neocapitalism

During the mid-twentieth century, "classic" entrepreneurial capitalism gave way to a neocapitalist system, marked by its bureaucratic organization, technological complexity, large size, and, most importantly, its emphasis on planning. These two forms of capitalism differ in several notable ways, and the distinctive components of the neocapitalist firm illuminate its fundamental nature and goals, as, while personal accumulation is the central object of the capitalist entrepreneur, the neocapitalist firm places its own autonomy, predictability and ability to plan as its primary aims. Unlike in entrepreneurial firms, which can rely on relatively simple and nondescript machinery and could be supported by a single investor, the technology of modern industry requires large initial investments, specification, and coordination. This is feasible because the features of the neocapitalist allow it to become autonomous and control the fate of its products with minimal uncertainty through processes of planning and rationalization. One feature of the neocapitalist structure that allows it to maintain its autonomy is its large size, as size allows the corporation to exert market control, support a complex infrastructure, and insulate itself from hostile or unforeseen forces. Thus growth becomes important to the neocapitalist firm, and corporations often attempt to grow even if it is not financially beneficial to do so. Additionally, a corporation requires rationalization, creating greater organization and specialization in its 'technostructure' of trained professionals, allowing it to function more smoothly and predictably, something which works to protect the corporation from the unexpected. The complexity of the organization makes it important to control and predict demand before the actual products are created. This is accomplished through the systems of product research and advertising and through the state. These factors interact with each other to produce a system that is very different from the entrepreneurial capitalism from which it derives.

As technology becomes more complex, specialized, and expensive, it is necessary to supplant the traditional entrepreneurial firm with the bureaucratically organized 'mature firm'. As older firms used simple, unspecialized technology, machines could quickly be restructured and production changed in order to conform to market needs. When Ford made his first automobiles, he could have easily changed production from cars to bicycles or from gasoline engines to steam engines (15). However, as technology becomes specialized, "the commitment of time and money tends to be made ever more inflexibly to the performance of a particular task. That task must be precisely defined before it is divided and subdivided into its component parts. Knowledge and equipment are then brought to bear on these fractions, and they are useful only for the task as it was initially defined" (14 - 15). Specialization is not only necessary for the machinery, but for knowledge as well. Any single individual, no matter how talented, cannot be expected to accumulate the wealth of specialized knowledge that is required for such a complex organization or oversee the entire firm. It is necessary that the mature firm can employ and coordinate various individuals who understand the different facets of production. The need for specialized machinery and knowledge causes the firm to become inflexible to change and thus makes planning necessary for the firm's operation.

Size is an important component in the bureaucratic mature firm as it plays a vital role in protecting the autonomy of a corporation and aids in planning. Size "allows the firm to accept market uncertainty where it cannot be eliminated; to eliminate markets on which otherwise it would be exclusively dependent; to control other market in which it buys and sells" (77). A large firm does not have to that a fluctuating market might hurt its ability to plan, as it is able to use its size and importance to set prices "secure in the knowledge that no individual buyer, by withdrawing his custom, can force a change" (31). Because the neocapitalist market consists mainly of oligopolies, individual firms are able to maintain prices in a system that benefits all parties, and thus the firm "has made the market subordinate to the goals of its planning" (117). In addition, the size of a firm allows it to insulate itself from unforeseen problems without falling into disaster, since the corporation is able to draw upon its own resources when money is lost. Size is also necessary to support the mature firm's complex technological infrastructure. While small businesses "require that we have simple products made with simple equipment made from readily available materials by unspecified labor" (34) a large firm can accommodate technological innovation. A large firm with capital to draw on is able to invest in specialized machinery. "Size is the general servant of technology" (34), and it allows for rationalized, coordinated machinery that become increasingly important as corporations become more advanced. Finally, size works to protect the neocapitalist structure from investor control, as a large number of investors and a high stock value prevent any single individual from taking control thus protecting the system from outside influence. If "the corporation is safely large, creditors cannot intervene and stockholders cannot be aroused. And the stock will have a unit and aggregate value that places it beyond the threat of a takeover" (86). Size and growth become matters of concern for the mature corporation, which works to pursue growth, often at the cost of profits.

In addition, as a corporation grows must necessarily become bureaucratized, as the magnitude of the undertaking is too large to be effectively controlled by any one entrepreneur. As entrepreneurial firms compete by consolidating and becoming larger, they are wrested from the control of a single businessman and placed in the hands of the organization itself. This is not only the case with goods that require specialization to produce, but with simple products as well. "The act of combination added new plants and products and therewith the need for specialization by function and knowledge. Sooner or later came more complex tasks of planning and control . . . [and] what the entrepreneur created passed inexorably beyond the scope of his authority . . . What the entrepreneur created, only a group of men sharing specialized information could ultimately operate" (94). The need for a bureaucracy to control a large enterprise is illustrated by the cases of Henry Ford and Sewell Avery, two entrepreneurs who attempted to control their firms and faced disaster because of this. When Ford prevented the creation of a bureaucratic order so that he could maintain a monopoly of power, "he was defeated despite his complete ownership of the company. On his death, the technostructure was reconstituted by Ernest Breech. The company promptly retrieved lost ground" (96). Sewell Avery's attempts to take control of Montgomery Ward led to similar results: "the stockholders finally coalesced and ousted him . . . Power was then lodged firmly with the technostructure" (96). These cases demonstrate that, once a firm becomes sufficiently large, control can no longer be exercised through a single entrepreneur, and the corporation must change from an entrepreneurial to a mature firm.

A necessary component of the mature firm is the technostructure in which the firm's personnel are organized. As the size and technology of an enterprise enlarge its scope beyond individual control, it becomes necessary that individual specialists fill positions in the firm, acting as parts of the rationalized "machine" of the corporation. The mature firm "tak[es] quite ordinary men, inform[s] them narrowly and deeply and then, through appropriate organization, arrang[es] to have their knowledge combined with other specialized but equally ordinary men. This dispenses with the need for genius" (64). Individual employees are not particularly unique, but are individuals of normal talent who are trained to fill a spot and who can be replaced without damage to the corporation, allowing the firm to maintain itself. Members of the technostructure bring their specialized training and knowledge to the group, and it is the group, rather than any individual, that makes the firm's decisions. Through group decision making, there is coordination of talent, and the group "reaches a decision by receiving and evaluating the specialized information of its members" (72). As a result of this transformation, specialists replace land and capital as the most valuable commodity, making education the means in which to earn or pass on social status.

Paradoxically, the rationalization of the corporate system eliminates the individual's ability to make rational decisions, as the system is actually impeded by individual decisions. "The efficiency of the group and the quality of its decisions depend on the quality of the information provided and the precision with which it is tested. The last increases greatly as men work together . . . The sudden intervention of a superior introduces information, often of dubious quality, that is not subject to this testing" (72). Even when leaders take the "public mantle of the entrepreneur" (97) and take credit for decisions, these decisions remain the product of organized intelligence, which the leader cannot challenge or second-guess. As the mature corporation replaces the entrepreneurial firm, the lack of individual control or initiative affects the society as a whole. Once groups have replaced individuals as the mechanism of decision-making, it is less likely that the employee will be able to find his or her identity through work, and the job becomes a means of earning the money through which identity can be expressed.

In order for the technostructure to maintain itself, it is important for the firm to insulate itself from outside influence through various means, so as to protect the decision-making process from outside interference. As mentioned previously, large size and growth prevent the possibility of stockholder control or a takeover bid. A secure, predictable flow of earnings prevents control from banks, as "no banker can attach conditions as to how retained earnings are to be used. Nor can any outsider" (85). Additionally, expansion and growth, both in terms of the firm's size and technological advancement, can prevent the loss of employees, maintaining as well as improving the corporate decision-making apparatus. "Expansion of output means expansion of the technostructure itself. Such expansion, in turn, means more jobs with more responsibility and hence more promotion and more compensation" (179). As they serve the goals of the technostructure expansion and innovation become primary goals, even taking precedence over the entrepreneurial goal of profit maximization.

Planning also requires that there is a predictable amount of consumer demand for the corporation's products. Unlike the market, planning "incorporates within itself no mechanism by which demand is accomodated to supply and vise-versa. This must be deliberately accomplished by human agency" (36). Because the advanced technology involved makes it impossible for the corporation to use current market demand to decide what products to pursue, it is necessary for the corporation to make this decision long before the products themselves are sold. In order to survive, the corporation must act to ensure that there will be individuals who have the resources to consume as well as a need to do so. This is in part accomplished by the corporation's use of research and advertising. Through the process of research and development, a firm is able to predict "what the consumer wants or will want" (27). This process informs the corporation's schedule of production and allows the corporation to plan more effectively. The corporation's use of advertising plays a similar role as a planning aid. Through advertising, "consumer demand becomes subject to management" (5), and thus can ensure a market for corporate products. The use of advertising also marks a shift in how the society is motivated. "This communication, combined each day with the effort on behalf of countless other products, becomes, in the aggregate, an unremitting argument for the values of consumption. In turn, inevitably, this affects social values. A family's standard of living becomes an index of its achievements" (39). In this manner, the values of consumerism replace those of work.

The state also aids the mature firm in planning. Firstly, it allows the corporation to predict demand. As a major consumer, it provides a stable source of demand for corporate goods. Through industrial research, space exploration, and especially military expenditures, the state "provide[s] underwriting for advanced technology and, therewith, security for the planning of the planning system in areas that would otherwise be excluded by cost and risk" (240). These investments help to dilute the risks of planning. The state's institution of a gradated income tax also serves as an aid to planning. The tax allows private expenditure to remain fixed, "provid[ing] the wage and price regulation without which prices in the planning system are unstable" (307). Far from harming the mature firm, the state acts as a necessary aid to corporate planning, increasing the autonomy and stability of the corporation.

All the necessary elements in the neocapitalist corporation are tied together by a common thread; the corporation must insulate itself from outside influence, in order that it act as an efficient, rationalized entity. This autonomy can be maintained through the means of growth and expansion. It is also necessary that the firm can plan as effectively as possible by using research, advertising, and the state, thereby maintaining its stability and, by extension, its autonomy. These various elements interact dynamically to create the neocapitalist economy.

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