Write 8 page essay on the topic Modern Market Economies.Download file to see previous pages... This is where the overlap between the rising influence of the modern corporate entity (i.e. the business

Write 8 page essay on the topic Modern Market Economies.

This is where the overlap between the rising influence of the modern corporate entity (i.e. the business organization) and the Galbraith's concept of the neo-Keneysian institutionalist theory occurs.

Galbraith discussed extensively the concept of "dependent effect' which refers to the power of the business organization to influence the decision of the consumer. Thus according to him wants are created by the corporate entity and the consumer depends on the latter for satisfaction of his/her wants (Stretton, 1999). In short these wants are necessary for the consumer to achieve a higher degree of satisfaction that in itself is created by the business organization. Galbraith touched the nerve center of neo-classical theory by asking how the free market could bring about an optimum in resource allocation through the satisfaction of the sovereign consumer's demand when it's the very system that creates those wants anew.

The dispensation of the capitalist economic system according to Galbraith is basically focused on the creation of affluence through the imposed requirements for goods and services by consumers. According to Galbraith the ownership and the management of the firm are divorced and therefore the average stockholder or shareholder has very little or no say in the day-to-day affairs of the company (Harvey, 1990). All big business organizations are run in this fashion while the shareholder has to be satisfied with whatever the dividend or interest at the end of the year. Indeed this idea about the big business organization acting like a behemoth with little re4gard for the society in which it operates is old-fashioned now. Despite the agency problem which illustrates how the composition of the capital structure of the firm causes divisions between agents (i.e. managers) and owners (i.e. shareholders) and costs, Galbraith's view of the firm has very little relevance to the modern analysis of the firm as a socially responsible entity located in the midst of the very society in which it operates (Michael, 2004).

On the other hand the neo-classical theory of the firm holds that its main aim is to maximize profits. Therefore it's obvious that it (the firm) would not hesitate to buy resources at the lowest possible cost so that it might be able to maximize the difference between cost and the selling price (Galbraith, 1963). Galbraith counters this assumption by saying that this is something which can be accepted in the market sphere but not in the planning sphere. In the market sphere even the smaller firms can survive the onslaught of bigger corporations because they are well managed but not so in the planning sector where as shown above the firm is controlled by managers who are paid hands with their own private agendas.