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John Kenneth Galbraith implies that corporations have already killed Adam Smith's self-regulating market. In his view, the larger a corporation grows the more it can escape from the workings of the market to become a law unto itself, thus paralyzing Adam Smith's "invisible hand." According to Galbraith, large companies can set prices more or less independently of demand, produce what they rather than consumers want, and in effect ram the products down consumers' throats by the power of advertising. If corporations cannot defy the market, they can sometimes resist it for a long time when it refuses to conform to their plans. A classic example is Detroit's stubborn insistence on building big, costly, gas-thirsty cars long after consumers had signaled a change in tastes by buying swarms of Volkswagens and Toyotas.
Yet this overall analysis is clearly hyperbolic. Corporate power is checked by what Galbraith himself in 1952 described as the "countervailing power" of unions, Government and rival big corporations. It is also checked by the trustbusters and, more important, the customers. Even in industries dominated by a few big companies (autos, oil, steel, computers, etc.), those firms compete fiercely for market shares. Advertising has failed to sell products as varied as the Edsel and maxiskirts. Strong consumer resistance can occasionally force price reductions, as the recent auto rebates proved anew. "When even the auto companies are cutting prices," cracks Okun, "then you know that capitalism lives."
Today's capitalist economies undoubtedly benefit from powerful corporations. The sheer size of modern economies and the vast number of skills that must be marshaled to design and produce such products as color-TV sets and computers—to say nothing of space rockets—make any yearning for Adam Smith's world of individual entrepreneurs an exercise in pointless nostalgia.
A special set of problems is, however, presented by the growth of multinational corporations, which now account for most of the global exchange of goods, services and investments. The multinational, as Moynihan says, "is arguably the most creative international institution of the 20th century." Multinationals have brought to many countries jobs, modern goods, common-stock ownership and the most advanced technologies and management skills. But multinationals also have a unique freedom to escape from any country's regulation.
They can—and do—disrupt currency markets by shifting huge sums from, say, dollars into Deutsche Marks. They can concentrate production in countries where tax and pollution laws are most lax, and foil national economic objectives by shifting their operations around from nation to nation. For example, multinationals poured considerable money into Germany, and hurt that country's efforts to battle inflation by holding down the money supply. Many executives of multinational corporations would welcome an international code of conduct. Capitalist countries would help their economies operate more smoothly if they agreed to treaties harmonizing the tax, pollution and accounting standards that multinational corporations must meet.
In attacking its many difficulties, capitalism faces a final danger: most of the potential solutions involve an increased role for government regulation and control of