Equilibrium versus Understanding: Towards the Restoration of Economics as Social Theory

A likely answer to the question of how a planner, or the manager of a business, approaches the location of production facilities is that he does so in the course of planning an investment. The decisions that have a bearing on a firm’s location are matters that have to do with managing production capabilities: whether it is worth acquiring new production facilities; whether to rationalise or reorganise what already exists; whether to reduce the production capacity; or to extend the existing facilities. So in order to comprehend the nature of location decisions, it is necessary to understand investment decisions. Understanding why such activities are contemplated means examining how particular individuals—the managers and planners—assess their situation. Senior management may have decided to diversify in the light of exceptionally strong growth, or to rationalise when faced with declining profitability, or they may have decided to buy out the competition. Each of these decisions will have different implications for the location of production facilities.

Decisions to build a new factory, to purchase one, or to extend existing production facilities, will be regarded by the people managing the organisation as ‘strategic’; as part of the process of planning which shapes the organisation itself and how and where it does business. ¹ Strategic plans might revolve around all or some of the following: diversification into new markets; restructuring the management of the enterprise; or developing alternative distribution channels for products. Measured in terms of the financial capacity of the company, the consequences of strategic decisions are usually costly. Because they may result in changes in the way an organisation is managed, or may involve an upheaval as far as the production activities are concerned, strategy formulations are likely to be accompanied by a large-scale planning exercise involving various people or departments in the organisation. By studying the ‘character’ of investment plans—the circumstances under which they are made, the nature of the plans themselves, and the sorts of considerations which bear upon the way in which the decision-maker thinks about an investment—my object is to throw light on how locations

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