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4. Factor markets, including transfers of capital and property in raw materials and primary commodities.

All these market structures are presumably subject to various controls in terms of public policy: consumer protection, preservation or limitation of competition, economic development strategies, military and foreign-relations policies, and concern for public welfare, collective or distributive. The nature and extent of controls therefore will vary in the degree of centralized planning and in implemented political ideologies.

The present discussion is oversimplified by distinguishing only two market structures: consumer goods and "business" relations. This distinction is fairly fundamental in terms of the conceptual organization used here. The market behaviors appropriate for the financier or investor, the entrepreneur, the distributor or salesman, all involve work roles in the technical sense, and therefore might have been discussed in Chapter 2 as "intrinsic work factors." Their treatment here, instead, is justified by our conviction that market or exchange relations may be thought of as a single locus of commitment at some level of generalization. The logic of the organization is neater with respect to consumer behavior as such.

Criteria of Performance

The minimum characteristics demonstrating involvement in markets for capital and components are transfer of property (at least control and use) rights and rational cost calculation and accounting.24 Whatever the form and degree of state control, mobility of the factors of production and capital accumulation appear to be essential for economic development. The actual mechanisms of course depend heavily on the degree of administrative regulation and control.

The sensible consumer. For the individual or household consumer, a classically "pure" market vests "sovereign" choice of goods in the buyer, subject to limits on total economic capacity and to lags introduced by the response of buyers and sellers to shifts in preferences expressed in prices. Without here arguing the various intrinsic and empirical limitations on market operation, it appears that consumers will make budgetary decisions, exercise some minimum choice among available alternatives, and base that choice on such considerations as "needs," prices, and qualities. The choice may be implemented by shop24 Weber, op. cit., pp. 267-268.

ping and possibly bargaining behavior. A planned or socialist economy presumably radically reduces the range of such preference behavior, and indeed may establish various noncompeting markets. The point of present interest is that any substantial form or degree of industrialization is likely to require a consumers' market in which monetary trading and some choice is operative. Since such behavior may be novel to early participants, commitment again becomes a problematical component in economic development.

The norms appropriate to business transactions require little comment. The institutions of property and contract are crucial, involving a "free" market resting on nominally complete transferability and divisibility of property rights and virtually complete freedom of contractual negotiation. (No viable social system could permit the complete absence of controls "in the public interest," if for no other reason than the prevention of force and fraud for the maintenance of order.) The norms, however, also include rationality of cost and profit calculation (with or without the "profit motive") and the accountability of fiduciaries.

Associated with the conduct of "business" are many interesting problems concerning the functions and ideologies of entrepreneurs, public or private; behavior and norms with reference to risk taking; and the influence of nonmarket or nonprofit considerations in business decisions.25 These cannot be pursued here, but their relevance for any analysis of factors in economic development should be noted. For example, has the rapidity of growth in the American economy rested in part on the unjustified optimism of risk takers, who thus paved the way in technical or other innovations for subsequent successful production? Will planned rapid expansions in production in newly developing areas succeed despite "sound economic principles," perhaps because of “sacrifices" and goal innovations not possible with gradual growth?

For the ultimate consumer the norms of conduct in the market are only partially those applicable to business transactions. The relevant standards include such norms as impersonality, functional specificity, and universalism ("money talks”). Honesty, credit integrity, reliability, and notions of fair dealing are likely to become institutionalized and thus sanctioned in a developed market system. Contrary assumptions

25 Reinhard Bendix, Work and Authority in Industry: Ideologies of Management in the Course of Industrialization (New York: John Wiley & Sons, 1956); Francis X. Sutton and others, The American Business Creed (Cambridge: Harvard University Press, 1956).

are not only likely to undermine the commitment of consumers to the market system, but also to threaten the system in other ways. "Unlimited" competition is a contradiction, and the principle of caveat emptor has early limits as a mode of market orientation.

The committed consumer should show a rising level of demand, both because of the increased proportion of goods moving through the market and because of a rising standard of living (crudely summarized as acquisitiveness). Consumer behavior, however, is also guided by the norms of the "needs" of the consuming unit (say, the household) collectively and individually, and these are rarely determined by market principles. The act of purchase therefore implements and symbolizes the relationship of the family (and other social units) to the economy. Thus the appropriate norms include the acquisition of relevant situs and status symbols.26

Dynamics of market purity. The norms of the consumers' goods market and of the labor market are always threatened by outright violation-fraud, manipulation, captive clienteles-and also by the intrusion of personal, diffuse, and particularistic relations. It seems probable that such intrusions increase with the persistence of relations among particular participants. (A function of "shopping" is precisely to minimize such tendencies.) It also seems probable that there are sequences of normative structure somewhat analogous to those hypothesized for the labor market. The functionally diffuse preindustrial system of exchange gets transformed into a functionally specific, “rational economic" market, which operates especially at low absolute levels of demand. An increase in "discretionary income" may introduce considerations not only of "service," convenience, "snob appeal," etc., but also of stable, particularistic loyalties between buyer and seller. Thus, the model of "rational" consumer behavior is most applicable in the early development of impersonal markets, and precisely then at greatest variance with previous expectations.

Market organization favors a highly general principle of change, namely, the degradation of status symbols. The speed of such degradation is greatly accelerated by conditions of a free market and the related expectation of status mobility. The socialized consumer will be expected, therefore, to change his buying preferences from time to time.

26 Harvey Leibenstein, "Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand," Quarterly Journal of Economics, 64:183-207 (May 1950); Thorstein Veblen, The Theory of the Leisure Class (New York: B. W. Huebsch, 1899), especially pp. 24–34.

The course of industrialization leads to competing status systems and their distinguishing symbols. Subsequent diversification of noncompeting occupational groups may lead to a relative increase of situs symbols and styles of life.27 Consumer behavior commonly identified as fads and fashions appears to be governed by these two general principles. The norms involve identification with and loyalty to particular reference groups, and correlative distinction from others.

Agencies of Commitment

In discussion of the processes of achieving and maintaining commitment to a commodity market system, keeping the distinction between consumers' goods and business relations seem appropriate. In analysis of business transactions, one must consider those structural elements and processes that form the principal content of the literature on economic development-for example, returns on investment, risk taking, the attempt to rationalize operations and procedures. In analysis of consumers' markets, one must look at phenomena that are only modestly represented in analyses of the behavior of any market system— family needs and desires, the manner and role of expansion in wants.

The conditions for business operation. From the literature on economic development, particularly that on industrial and business entrepreneurship, a few hypotheses may be presented concerning the development of markets in capital and producers' goods, and commercialized distribution. The focus here, it may be emphasized, is the commitment process and not the entire process of economic growth. For simplicity, the problem may be posed as that of the social production of the "businessman" as a type, with the understanding that this neglects the "bureaucrat" as a type important in both public and private economic enterprise.

For commitment of the businessman, certain prerequisite and predisposing conditions may be identified: (1) Political order is essential to protect fixed capital from civil disorder, to permit the physical transit of the factors of production and of finished goods, to maintain stable credit relations, and to provide reasonable certainty in the effectiveness of the laws of property and contract. (2) National economic integration is helpful, if not absolutely necessary, and is particularly important in currency, banking, and financial organization, as well as in the size of markets and the elimination of barriers to trade. (3) Negatively, it ap27 Benoit-Smullyan, op. cit.; Paul K. Hatt, "Occupation and Social Stratification," American Journal of Sociology, 55:538-543 (May 1950).

pears that businessmen may seek new opportunities when faced with diminishing returns in commercialized agriculture or preindustrial commerce,28 or when opportunities for acquisition of status are blocked in the traditional structure-for example, the inaccessibility of landed estates because of nontransferability or limits on size of holdings.29 The transitional agencies in the encouragement of businessmen include many "standard" economic prescriptions—more attractive investment possibilities, returns proportional to risks, security of returns that encourage long-term investments, as well as commercial codes and credit ratings. Organizations, such as trade associations, may not only serve common economic interests but also act as "primary" peer groups for the new class of entrepreneurs. The emergence of a new and competing status system that gives prestige to an entrepreneurial elite and to commercial success may also help destroy the monopoly of an alien or ethnically distinct trading class.30 The whole notion of business leadership rests on recognition and prestige, as well as on financial rewards. The maintenance agencies appropriate for the committed businessmen are again partly economic, partly social. The rating of business success requires the development of short-term and long-term profitability or efficiency.31 In a competitive system relative "market position" may serve as an additional rating device. In developed economic systems a complex pattern of adult socialization encourages a large measure of identification between individual and organizational success, particularly among business administrators. Thus the nonowning manager is still rewarded both psychically and materially for business success, although his activities decreasingly resemble the risk-taking entrepreneur. Within "free enterprise" systems there appears to be a trend toward the broadening of participation in capital markets, reducing the distinctiveness of businesslike investment without diminishing the prestige attached to the position of manager.

Because the standard model of business markets is one of impersonal competition, little thought or research has been devoted to the affective relations that would implement the internalization of market 28 Alexander J. Morin, “Editorial," Economic Development and Cultural Change, 1:3-7 (March 1952).

29 Everett E. Hagen, “The Process of Economic Development," Economic Development and Cultural Change, 5:209-210 (April 1957); Marion J. Levy, Jr., "Contrasting Factors in the Modernization of China and Japan," ibid., 2:161-197 (October 1953). 80 Yale Brozen, op. cit.

31 Bert F. Hoselitz, "Non-Economic Barriers to Economic Development," Economic Development and Cultural Change, 1:13-14 (March 1952).

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