Galbraith's The Road To Serfdom '

The introduction of technology has surely made production process easier and has changed economic world ever since. It has opened new doors, enabled possibilities that humans could only dream about before and it has created new theories and terminologies. However, because not everyone, every firm could have access to technology, not all of them are directly affected positively by the holy influence of technology. Friedrich Hayek, in his book The Road to Serfdom, John Kenneth Galbraith, in his book The New Industrial State and Milton Friedman in his book Capitalism and Freedom have asserted the relationship between technology and the large corporations, who have attained higher positions in societies and economies thanks to technology. To Galbraith,
technology means “the systematic application of scientific or other organized knowledge to practical tasks” and its most important economic consequence is to “force the division and sub-division of any such task into its component parts” in order to make use of organized knowledge efficiently. (Galbraith, 14) This need of division and subdivision of tasks to bring technical knowledge into each fragments of the products and then combine all those elements of tasks into a whole complete product leads to six important consequences. Firstly, it takes longer to complete any task.
And the time span would increase if the technology needed for the process got more sophisticated and complicated. Secondly, there is an increase in the capital required for the increased output. This is a consequence of the first one. Increased time span means the increase in cost, capital and knowledge. Thirdly, since time and money increase, the process of a particular task becomes even more inflexible. Details about each task should be decided before the process and remain unchanged. This guarantees the quality of the final products, because each task is handled until perfection. Fourthly, specialized manpower is required. The people in charge need to have expert knowledge in the area they are responsible for, and strictly limited to that area. Fifthly, the need for organization increases as a result of specialized knowledge. There needs to be an organization to make sure that all the specialists working on their fields reach their best potential. Therefore, organizing also requires specialists. Lastly, all of the fore-mentioned five factors lead to the requirement of planning. Tasks must always be the same correct ways every time. The amount of capital needs to be right. The path of success needs to be drawn since the very beginning, including the possible inclusion of unexpected events in order to ensure the final planned
success. Even though technology is claimed to be for everyone, in fact not everybody could have access to it. Because of the cost and the possibility of difficulty in obtaining them, only large firms and corporations could employ technology as their basis in production process in a large scale. With its great commitment of time and capital, large firms can hardly tolerate any mistakes or unfortunate events during the course of production as failure would lead to insurmountable loss. Therefore, they need to make sure that all the resources, capital and labors employed would reach their best potential, that what they produce in the end will be wanted by customers, enough to cover their losses and earn great profits if possible. In short, “it must control what is sold, it must control what is supplied and it must replace market with planning.” (Galbraith, 27) Planning “consists of foreseeing the actions required between the initiation of production and its completion and preparing for the accomplishment of these actions. And it consists of foreseeing, and having a design for meeting, any unscheduled developments, favorable or otherwise, that may occur along the way.” (Galbraith, 29) In short, technology creates a way for planning to become the top method used by large corporations. This planning of the corporations would become difficult if the market is unstable. Therefore, it is necessary that the market is planned as well, or at least its uncertainty should be minimized. This control of the market is connected tightly with the size of the firms. Small firms have no power over their suppliers nor customers. Big firms, however, do. They have the priority to have control in the market, to become price setters and to be only one of the few who are able to do so. Also, they are able to make their advertisements more easily heard and to become trend setters in some situations. One of the most wonderful things in being big firms is that they could help each other to eliminate market uncertainty by “entering into contracts specifying prices and amounts to be provided or bought for substantial periods of time.” (Galbraith, 36) In addition, they could draw out government’s interference in cases where the technology is extraordinarily complicated, the production period is long and the commitment of capital is excessively huge. For example, in the cases of producing weapons, exploring space, creating new means of transportation or energy, including solar energy and nuclear energy, the firms involved are guaranteed price sufficient. In case of failure or absence of demand, they get fully compensated by the government. Furthermore, any sympathetic, neutral-standing individual who suggests for a consideration in alteration of the markets in order to grant small firms more power would find himself in an awkward position. Such market would be a completely opposite one with the market we are having now. It would need no planning whatsoever because the process would be simple, the capital and methods employed are so simple that the market could provide them constantly. However, it simply means that we are turning our back against technology, the thing that most of us consider as a blessing and undoing everything that we have built so far. Certainly it would not easily convince everyone. Hayek also argues on the relationship between technology and large corporations.
He stretches it a bit further by making it the relationship between technology and monopolies. With the rise of monopolies, there had been opinions that technological changes have put an end to competition and left people with a choice between control of production by private monopolies and direction by the government. (Hayek, 91) He analyzes the belief that “the alleged technological cause of the growth of monopoly is the superiority of the large firm over the small, owing to the greater efficiency of modern methods of mass production. These methods have created conditions in the majority of industries where the production of the large firm can be increased at decreasing costs per unit, with the result that the large firms are everywhere bidding and driving out the small ones; this process must go on until in each industry only one or at most a few giant firms are left.” (Hayek, 92) That’s how monopoly is born. This fits perfectly to the definition that Salvatore provides in his book Managerial Economics: In a Global Economy: “In some industries, economies of scale may operate over a sufficiently large range of outputs as to leave only one firm supplying the entire market. Such a firm is called a natural monopoly.” (Salvatore,
400) However, Hayek disclaims his own statement by walking the path of history. The fact that monopolies did not appear first in the most advanced economic system but in the young industrial countries such as United States and Germany is his argument. He states that “with the help of the state, the first great experiment in scientific planning and conscious organization of industry led to the creation of giant monopolies.” (Hayek, 93) However, he does claim that Germany indeed was on their peak in terms of modern civilization. Then followed England, who applied the use of general protection from the government. Thanks to the new policy, the growth of monopolies skyrocketed. Yet, it couldn’t have happened without the existence of technology. In England, it might have been the case that monopolistic organization grew up in spite of the strong favor of people for competition. In fact, England was just merely following Germany, who suppressed competition due to a matter of deliberate policy, which was undertaken under the name of planning. However, to Hayek, it was not the planning that was inevitable. It was the thinking that made the planning becoming inevitable (Hayek, 94). On the other hand, planning might have happened just because the complexity of the economic process has grown so out of control that there needed to be coordination from some central authority. If not, the social life would have been under great threat. However, such argument is invalid according to Hayek. The coordination mentioned can be obtained through the complexity of the division of labor under the influence of modern technology. The problem with central planning is that there are so many factors need to be taken in account, too many that a single individual or organization would never be able to collect. What is required is “some apparatus of registration which automatically records all the relevant effects of individual actions and whose indications are at the same time the resultant of, and the guide for, all the individual decisions.” (Hayek, 95) This is what the price system does, according to Hayek. And price system could only be successful under competition’s conditions, which means no individual has the power to control the price. This assures all the individuals with the chance to use their knowledge and preference to affect the price. Central planning would take away this freedom from the individuals participating in the markets. In modern terminology, it could be said that Hayek favors perfect competition rather than government regulation because he thinks that regulation would kill all the freedom as mentioned above. Another theory linking technological progress and growth of monopolies is that it is “impossible to make use of many of the new technological possibilities unless protection against competition is granted.” (Hayek, 96) Sometimes the technology introduced is so innovated, so important that not everyone could produce it at his own will. In return, it would come with some exchanges or sacrifices. However, to Hayek, such claim is not enough to say that technology makes central planning inevitable. He suggests that “it is true that inventions have given us tremendous power, yet it is absurd to suggest that we must use this power to destroy our most precious inheritance: liberty”. (Hayek, 97) Friedman talks about monopoly in the chapter 8 of his book. Yet, he mentions very briefly about technology and its relationship with monopolies. To Friedman, monopoly is greatly overestimated because of four reasons. First of all, thanks to the technology, the economies have grown and so have the enterprises and firms. However, the growth in size of the firms could be irrelevant with the growth of the market, which could have grown even further. Secondly, monopoly attracts more attention than competition. All big firms with leading technology make the headlines on newspapers every day and attract to them a huge crowd of attention. However, smaller businesses are less mentioned even though they might hold bigger importance. Thirdly, the big size of the firms tends to go along with the overemphasis of their importance. Lastly, the tendency of making industrial character the leading characteristic of the society has brought overemphasis of the manufacturing sector of the economy. All in all, the overestimation of monopolies goes alongside with the overestimation of the technological changes. The new technologies are replacing the old-fashioned values and are constantly mentioned to the people, making them become crucial parts of everyone’s life. Whoever possesses the technology would naturally become more worthy paying attention to. In conclusion, Galbraith, Friedman and Hayek all mention about the relationship between technology and large corporations or monopolies. They all acknowledge the importance of technology in creating the society we are living in today, and in changing the mechanism of economies and large corporations. However, the difference is rather obvious. Galbraith implicitly shows all the evidence proving that technology has made the large corporations become the controlling force of the market by being able to control prices and demand, tolerate market uncertainty, contract each other out of it and ask for help from the state. Technology also leads to the increasing importance of planning in societies, to make sure that big firms can do what they do best and contribute greatly to the economies. Yet, Hayek flatly rejects the inevitability of planning due to technology. To Hayek, planning is not desirable since no individual or organization holds enough knowledge to guide the market single-handedly. The competitive market already offers the price market who does its job in taking in all the information and preference from individuals, reflecting them and granting individuals with the opportunity to alternate their actions. Furthermore, central planning, and technology should not be taking away the most precious thing of human: freedom. On the other hand, the humble Friedman only argues about the overemphasis of technological changes that go alongside with the overestimation of monopolies representing the large corporations.