68 MONOPOLY CAPITAL
generates pressures which force corporate managers to cut costs
and improve efficiency. We know that this is the case in the
competitive system: as Marx expressed it, ''competition makes
the immanent laws of capitalist production to be felt by each
individual capitalist as external coercive laws."15 Is this true of
the kind of competition that exists among giant corporations?
Or must we say about them what Adam Smith said about joint
stock companies, which he identified with monopoly: ''Monop-
oly is a great enemy to good management, which can never be
universally established but in consequence of that free and
universal competition which forces everybody to have recourse j
to it for the sake of self-defense."16
These are extremely important questions for an understand-
ing of monopoly capitalism, and we must be careful in answer-
ing them not to take at face value the literature which ema-
nates from the corporate establishment itself. We know that
the managers of giant corporations and their spokesmen have
every interest in projecting an image of technological progres-
siveness and organizational efficiency. We also know that such
images are often mere rationalizing ideologies. What needs to
be determined is not what corporate managements want us to
believe but what modes of behavior are imposed upon them by ·'
the workings of the system itself.
There are, it seems to us, two aspects of non-price competi-
. tion which are of decisive importance here. The first has to do
with what may be called the dynamics of market sharing. The '
second has to do with the particular form which the sales effort
assumes in the producer goods industries.
To begin with, the firm with lower costs and higher profits ,
enjoys a variety of advantages over higher-cost rivals in the [
struggle for market shares. (This fact seems to have been ,'
largely overlooked by economists, 17 but it is perfectly clear to··~
businessmen.) Tl1e firm with the lowest costs holds the r
15
Capital, Volume 1, Chapter 22, Section 3.
16
The Wealth of Nations, Book 1, Chapter 11, Part l,
17
Duesenberry is an exception; see his Business Cycles and
nomic Growth, especially pp. 124-125.
THE TENDENCY OF SURPLUS TO RISE 69
whip hand; it can afford to be aggressive even to the
point of threatening, and in the limiting case precipitating,
a price war. It can get away with tactics (special dis-
counts, favorable credit terms, etc.) which if adopted by a
weak firm would provoke retaliation. It can afford the advertis-
ing, research, development of new product varieties, extra
services, and so on, which are the usual means of fighting for
market shares and which tend to yield results in proportion to
the amounts spent on them. Other less tangible factors are
involved which tend to elude the economist's net but which
play an important part in the business world. The lower-cost,
" higher-profit company acquires a special reputation which
enables it to attract and hold customers, bid promising execu-
tive personnel away from rival firms, and recruit the ablest
graduates of engineering and business schools. For all these
reasons, there is a strong positive incentive for the large corpo-
ration in an oligopolistic industry not only to seek continuously
to cut its costs but to do so faster than its rivals.
Here is where the self-defense factor considered so crucial
by Adam Smith comes into play. Any company which falls
behind in the race to cut costs is soon in trouble. Its power to
fight back against attack is undermined, its freedom of maneu-
ver curtailed, its ability to use the normal weapons of the com-
petitive struggle weakened. Playing a more and more passive
role, it finds its position progressively deteriorating, and even-
tually it is faced with some unpleasant but unavoidable alter-
natives: it can merge, on unfavorable terms of course, with a
stronger firm; 18 it can attempt a reorganization and comeback,
18
The stronger company may be in the same industry, or it may be a
~uccessful corporation in an entirely different line which has capital to
~nvest and is therefore on the lookout for opportunities to buy into
industries where a well-managed subsidiary could be expected to carve
ou.t a profitable niche for itself. Run-down companies which have been
ruined by inefficient management, and the securities of which are often
grossly undervalued eve11 compared to the liquidation value of their as-
:;:ts, are ideal vehicles for such expansion programs. In recent years
0
any lar.ge conglomerate corporate empires, spread-eagling up to a dozen
r more industries, have been built up in this fashion.