In Europe, farmers and small business people look at the late Harvard economist John Kenneth Galbraith as a prophet on opportunities for entrepreneurship provided by the consolidation of big business. If the Europeans are right, it means great opportunities await Minnesota entrepreneurs.
That’s because in Europe and some parts of rural Minnesota, a slang definition of Galbraith’s “countervailing power” is restated as this: “The beast has weak ankles.”
What that boils down to is the concept that the more industry sectors consolidate into larger and fewer hands, the more they expose weaknesses that open opportunities for startup businesses and entrepreneurs
Part two of a series. See part one here.
This opens the way for well-focused and well-managed entrepreneurs to provide better products and services, or launch new ones, for a community or regional market. This occurs when the market is not well served or is abused by one buyer – a monopsony – or by a just a few buyers – an oligopsony; or on the other side of the market, by one seller or a few sellers who have monopoly or oligopoly powers.
Recognizing these imbalances has made cooperatives popular market-correcting business models in much of Northern Europe and in various parts of North America, especially in Upper Midwest states and Canada’s Prairie Provinces. The large numbers of agricultural co-ops, mutual insurance companies and finance organizations, including credit unions, reflect this.
Ever-increasing consolidation provides — at least in theory — similar opportunities for individual entrepreneurs and inventors. What the startup entrepreneur or innovator lacks, however, is easy access to capital–currently helping market “beasts” grow even larger and dominate even more supply chains.
For that reason, this series offers a double dose of Galbraith wisdom. We’re looking today at the late John Kenneth Galbraith’s work. But his son, James K. Galbraith at the University of Texas, also provides contemporary thoughts on reviving Minnesota’s economy through public policies that promote innovation and entrepreneurship.
The senior Galbraith wrote American Capitalism: The Theory of Countervailing Power, in 1952. It focused on how large buyers in downstream markets impose price concessions on suppliers. It touched off endless studies by business professors and economists worldwide about market power and its use by different players in the supply chain – which continue to this day.
The Galbraith concept inspired small businesses and farm cooperatives, and that remains the case in Northern Europe and to a lesser extent in Minnesota, Wisconsin, North Dakota and Iowa.
Granted, more people will recall Galbraith’s witty social comments than his complex economic concepts. For example, “Under capitalism, man exploits man. Under communism, it’s just the opposite.”
A week out from elections in Minnesota and across the nation, monopsonists and oligopsonists have filled the airways with campaign advertising aimed at trying to convince consumers, workers and small business people that state-sanctioned imperfect markets might be good for them. Or, as Galbraith once put it:
“The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”
Galbraith is best remembered as an advisor to President Franklin D. Roosevelt and subsequent presidents. He’s celebrated as a theorist on the “political economy,” not the business economy. But in developing the countervailing power theory, he informed public policy makers throughout the world how to level the so-called “playing field” and curb influential players’ market power abuses.
That work isn’t done. If a new Minnesota is to emerge from the lingering financial crisis and past recession, we will need to explore ways public policy can assist entrepreneurs in capital formation and in research and development.
Going forward, however, we need to remember Galbraith’s warning, “Nothing is so admirable in politics as a short memory.” That may help us all overcome another of his spot-on observations: “The conventional view serves to protect us from the painful job of thinking.”