Five Economic Revolutions

Five Economic Revolutions

Five Economic Revolutions

The five economic revolutions in the twentieth century have transformed the structure and functioning of the UK economy and undermined the profit ethic. Most economists now consider the assumptions underlying the classical theory of economics to have been originally oversimplifications at best. The gap between the assumptions and social and economic reality has widened steadily in the twentieth century, however, so that what at first were merely oversimplifications are now invalid and misleading generalizations. Findings in sociology, anthropology, and social psychology have made it difficult to believe that immutable natural laws control man's social relations and his destiny. The decline of price competition in capitalist countries and the rise of other non-competitive economic systems have challenged the assumption of universal competition. Increasing knowledge of the complexities of human motivation has destroyed the economic-man concept. The assumption of harmony of interests has lost ground in democratic societies where there is a desire to bring conflicts between individuals and groups into the open in order to resolve them peacefully.

It is no longer widely believed that if individuals use their powers, resources, and energies to pursue self-interest the best overall social result inevitably will be produced. We recognize that there are conflicts between private and public goals. In conducting his professional affairs the business man, like the senator, general, and bishop, is expected to consider the public interest ahead of his private interest if they are not the same. Few people still believe that the businessman necessarily furthers social economic welfare by making as much money as possible.

Economists who have studied management behaviour in recent years reject the idea that managers have no goal other than profit maximization. Among other goals, they have found the desires to remain financially liquid, to maintain a share of the market, to grow and expand, to be conservative in financing, to attain a high level of efficiency, and to protect existing profit levels. Although these goals could conceivably contribute to long-run profits, a second type of personal "non-profit" goal of managers does not. Not consistent with the profit ethic are the desires of managers to substitute leisure for work, to be their own bosses, to be free from worry, to retain control of the enterprise, and to consider matters of public welfare in administering the enterprise.

Some economists conclude that there are technical obstacles to prevent managers from maximizing profit (e.g., problems of computing costs), but that even if this were not the case, they would not maximize profits because of moral scruples.4 Most managers today would probably agree.5 They do not have the demand and supply data required to rationally determine price and output levels which maximize profits. Furthermore, there is a diffusion of decision making in modern business not taken into account in economic theory.

A balanced view is that profit is an important goal of business but managers need not maximize profits. Profit is necessary to the survival of the enterprise and is needed to attain other objectives. But most managers are content to earn a satisfactory level of profit rather than hold out for the maximum obtainable. In the press of modern business where decisions must be made rapidly and often from sketchy data, it is too difficult to determine the profit-maximizing decision or policy. Most managers "muddle through" and do the best they can. This approach is known as "profit satisficing"6 as compared to "profit maximizing."

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Talking Business for Londoners

The stage was set for the decline of mercantilism by the Industrial Revolution in the late eighteenth and early nineteenth centuries.