The Problem of Power

The Problem of Power

The problem of power. The problems of status and function would not be significant if it were not for the growth in the size of the company and the great power which this growth has brought about. There are two aspects of the power problem: the concentration of corporate power and the legitimacy of management power.

The concentration of corporate power is primarily an economic problem. Many economists believe that the ideal economy is one composed of purely competitive markets in which many small firms are closely controlled by competition. According to this view, the market performs the essential social task of economizing by channelling resources into their most efficient use and maintaining a check on production costs. Clearly industries dominated by large corporations do not have the decentralization of economic power which is the prime requisite of the economists' model of pure competition. This structural characteristic is the basis of most of the criticisms made by economists of big business. These criticisms were put into the following five categories by J. D. Glover after he made a careful survey of the economics literature attacking the large corporation:

1 Big business cannot be managed efficiently: Administration is essentially authoritarian, and it becomes despotic in the very large organization. Perhaps this is necessary to hold the large company together so that it can function as a coherent whole, but despotism does not lead to good decisions and an efficient organization.

2 Big business does not owe its growth to efficiency: The impetus behind the rise of big business was the desire for monopoly power, not economic efficiency. The promoters who put together huge industrial combinations did so not to reduce costs of production, but to take advantage of the opportunity to profit at the expense of investors.

3 Statistics show that big business is not efficient: to the extent that big business makes a poor statistical showing, that is due to its inefficiency. to the extent that it makes a good showing, that is due to monopoly economic power.

4 The economies of big business are not net for society: If a large company is profitable, it is because (a) it is able to exact monopoly gains, and/or (b) it is able to lower its own costs in a way that is of no advantage to society at large since it is simply a matter of shifting costs on to other elements in the economy.

5 Big business holds back invention: The large company has a monopoly position and therefore has little to fear from competition. Consequently the rate of technological progress is slower in big business than in smaller enterprises.

These criticisms clearly indicate the unwillingness of economists to accept the good intentions of responsible managers in place of the rigors of market competition. The existence of great corporate power is a precondition for the doctrine of socially responsible management. Without such concentrated power, it would not matter whether managers were socially responsible or not. Presumably whatever their intentions, they would be constrained by market forces to behave in ways which in the final analysis would turn out to be best for society.

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