[Paleopsych] TLS: Whatever happened to the New Industrial State?

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Whatever happened to the New Industrial State?
http://the-tls.co.uk/archive/story.aspx?story_id=2085192
[Letter to the editor appended.]

11 October 1996
The Good Society, By John Kenneth Galbraith, The humane agenda 152pp.
Sinclair-Stevenson. £12.99. 1 85619 509 0.

It is hard to be critical of someone who writes as wittily and pithily
as John Kenneth Galbraith. But any temptation to undue leniency on
this score should be resisted. An economist's track record is more
important than his style, and Galbraith's is not good. Twenty years
ago, he was urging on us an economic system close to communism.
National economies should be centrally planned to reflect the "public
purpose". International planning should co-ordinate national planning
policies. The aims of the planners would be enforced by a mixture of
public ownership of the commanding heights (as well as the
disorganized depths) of the economy, wage and price controls, high
minimum wages, selective protectionism, and "the most vigorous use of
the progressive income tax . . . for promoting equality".

The justification for this enormous extension of state powers was
developed over a number of books. The main claim of all of them was
that the market system lauded by mainstream eco-nomists was a fiction.
In American Capitalism: Concept of countervailing power (1952),
Galbraith claimed that the economy was controlled by blocs of
balancing powers, represented by big business, big unions and big
government. This argument had a big influence on British Labour Party
revisionists like Anthony Crosland, as it seemed to deny the case for
wholesale nationalization to redress the "balance of power" in
economic life. In The Affluent Society (1957), whose theme was
"private affluence, public squalor", Galbraith doubted whether the
economy was quite as balanced as he had supposed: the consumer was
manipulated by advertising, and the public sector was starved of
funds. In The New Industrial State (1967), Galbraith dropped the
doctrine of countervailing power altogether. Economic life was
dominated by a small group of giant private corporations, controlled
not by their nominal owners (shareholders) but by a
technical-managerial class which he called the "technostructure". The
chief aim of the techno-structure was security for itself and the
growth of the firm as measured by sales. Giant firms were able to
secure their "immortality" (an uninterrupted level of earnings) by
controlling the social environment in which they operated. They could
set prices, control decisive costs through power of purchase, manage
demand through advertising and defence contracts. They were also well
placed to suborn the "educational and scientific estate" to their
goals. The multinational corporation was simply a device for extending
this system of control to international trade - the modern form of
imperialism. This thesis was subject to damaging criticism when it
appeared. Specifically, Galbraith was held to have exaggerated the
power and efficiency, while distorting the motives, of the largest
companies; to have played down the importance of markets and the
autonomy of consumers and governments; never to have explained how
individual company plans added up to a "private planning system"; and
to have postulated a linear trend towards business concentration when
none existed.

Nevertheless, Galbraith pressed on. In Economics and the Public
Purpose (1974), he used his model of corporate price setting to
explain inflation, and added a new argument for state control. He
accepted that there was a "market sector" as well as a planned
corporate sector, but asserted that the technostructure was able to
manipulate the terms of trade in favour of itself, thus forcing
squalor and poverty on the un-organized part of the economy. The
"public purpose" required redressing the balance between the corporate
sector and the rest of the economy by nationalizing the leading
companies in the corporate sector and the weakest industries in the
market sector, and extending the planning system to the whole economy,
so as to equalize rewards in the two sectors.

From today's standpoint, what shines through is Galbraith's belief in
the superiority of planning to the market. It was the planning aspect
of corporate life - the application of organized or collective
intelligence to technical problems - which excited his admiration. The
only problem was that the planning was being done for the wrong - or
at least too limited - purposes by the wrong people. Galbraith was
advancing the claim of an alternative elite - the "intellectual and
scientific estate", detached from commerce - to take over the planning
system and direct it to higher purposes. He did not doubt that there
existed a self-evident public purpose whose achievement could safely
be entrusted to the "collective intelligence" of Platonic guardians
like himself.

Galbraith perfected two argumentative techniques for disarming his
critics. The first, already mentioned, was to attribute all
counter-arguments to a "belief system" - he called it the
"conventional wisdom" - which served the needs of the technostructure.
Included in this system were the Soviet threat, used to justify large
defence expenditures, and neo-classical economics, which disguised the
fact that the market system no longer existed. Thus he could present
himself as an isolated, if not persecuted upholder of the "public
purpose" against a powerful congeries of self-serving private
interests. His second appeal was to historical, particularly
technological determinism. The private planning system was driven by
the demands of mass-production industry; the "new socialism" was
"compelled by circumstance" not by ideology. The trouble is that the
first technique is merely diverting; while the second is vulnerable to
a change in the facts. It has been Galbraith's fate to survive into an
age when practically all his assumptions, projections and remedies
have been made obsolete by history with a capital H. History was the
one line of attack against which he did not guard himself.

In the light of all this, Galbraith could write one book which would
be well worth reading: an account of why he believed the things he
did, where he was right to believe what he did, and where he went
wrong. It need not be a mea culpa; it could even be an apologia,
provided he made an attempt to engage honestly with his past. It would
contain the kind of mature reflection we have the right to expect, but
almost never get, from ancient sages, and would be worth a dozen
blueprints for a better world.

The slim volume under review is not that kind of book; I doubt whether
Galbraith could write it. Its aim is to preach: "to tell what would be
right". Indeed, the ratio of preaching to analysis and specifics has
gone up. Its skeletal chapters give the game away. They reflect not
just the toll which age takes on intellectual energy, but also the
fact that the march of events has torn the heart out of his familiar
analysis of the capitalist system. The controlling technostructure has
vanished (Galbraith no longer uses this word) to be replaced by a
"democracy of the fortunate". (This recapitulates the main idea of his
last book, The Culture of Contentment, 1992.) "Monopoly power" has
"surrendered to international competition and the explosive force of
technological change". Modern corporate management is "committed to .
. . profit maximisation"; far from being immortal, even the largest
firm is subject to the discipline of actual and prospective
bankruptcy. In the past a keen advocate of the Indian planning system,
Galbraith now condemns autarkic development policies as a "major
error". The multinational corporation, far from being an agent of
"privately sponsored imperialism", is an almost benign source of
inward foreign investment and technology transfer. In fact, Galbraith
writes, "for the first time in history . . . there is no tangible
manifestation of imperialism . . . ."

As the familiar analysis is rejected, so is the remedy. There is no
mention of economic planning, public ownership, the "new socialism".
Wage-price controls are out too: "the most that can now be urged is a
sense of responsibility on wage-price negotiation." In other words,
the market system is up and running. All this is said with a straight
face. Galbraith has quietly slipped on a new set of clothes, without
giving a hint that he had ever worn anything else.

So we are left with a modest "humane agenda", which reflects reduced
expectation of the benefits of state action. Essentially, the role of
the State is to fill the gaps and contain the excesses of the market
system. It should sub-sidize scientific research and infrastructure,
protect the environment, regulate financial markets and fill the gaps
left by parents and families in caring for the young. Because the
"good soci-ety" needs "substantial and reliable economic growth",
there is a role for counter-cyclical fiscal policy within a "relevant
framework" of rules. Equality is not realizable, because people don't
want it, "and the good society must accept men and women as they are".
But progressive taxation and minimum-wage legislation can be justified
as reducing the poverty that conduces to social disorder, and
producing a "reliable flow of expenditure". (Galbraith implausibly
suggests that a progressive income tax will cause the affluent to work
harder to maintain their after-tax incomes.) Shareholder power
(previously dismissed as a myth) is also now invoked to minimize
excessive managerial rewards. To help the "poor of the planet",
Galbraith advocates im-migration into rich countries, and aid
programmes channelled into education. In the more distant future, a
"transnational authority" will be needed to reconcile the conflict
between nationalism and internationalism.

Much of this is sensible, social-democratic stuff. I agree with him on
the need for stabilization policy. He writes: "A call for
better-prepared workers as the remedy for recession-induced
unemployment is the last resort of the vacant liberal mind." This is
Galbraith at his best. His plea for the "setting aside of sovereignty"
by the United Nations when indigenous governments break down, and
populations are subject to genocide and famine, is worth serious
attention. But there is that awful track record, and some vestiges of
it still undermine confidence in our chastened guru. In the years of
Communism, Galbraith writes, "it is not clear that one would wisely
have exchanged the restraints on freedom of the resident of East
Berlin for those imposed by poverty on the poorest citizen of the
South Bronx . . . ." Who is that "one"? Is it Galbraith, or the
resident of East Berlin, or the poorest citizen of the South Bronx?
Galbraith has never accepted that freedom is freedom: there are not
different kinds of freedom to be traded off against each other for the
sake of some superior "public purpose". He has never faced the issue
of government failure or welfare dependency; he simply pulls faces at
those who have. He continues to combine a quasi-Marxist faith in
economic determinism with a strange belief in the efficacy of his own
persuasion. So while there are some wise and perceptive things in The
Good Society, there are too many gaps in his understanding to make him
a reliable guide to the future.

Lord Skidelsky is Professor of Political Eco-nomy at Warwick
University. His books include The World after Communism: A polemic for
our times, published last year.

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http://the-tls.co.uk/archive/story.aspx?story_id=2085081&window_type=print

'The Good Society'
18 October 1996

Sir, - It's a bit rich for Robert Skidelsky (October 11) to chastise
J. K. Galbraith for his "awful track record", when just about the
entire political mainstream in Western societies used to think much
the same way. The point is well made in the two pieces which sandwich
Skidelsky's. David Marquand reminds us that Gaitskell and other
right-wing Labour revisionists "believed in state regulation"; while
you yourself, Sir, quote Schumpeter's certainty that "capitalists ...
will eventually cease to function".

Even Lord Skidelsky used to be of some such persuasion. More recently
we have all trimmed to other gales, and no doubt much of Galbraith's
analysis no longer has the purchase it once did. But at a purely
descriptive level, his epithet "Private affluence, public squalor"
seems to grow more accurate, not less, as a characterization of our
brave new world. Given the discontents spawned by such conditions, it
might be premature to write off the likes of Galbraith; just as it
turned out to be with Hayek. The wise are wary of all teleologies,
whether yesterday's corporatism or today's market anarchy.

AIDAN FOSTER-CARTER 17 Birklands Road, Shipley, West Yorkshire.