Book Review: Whatever happened to the New Industrial State?

The Good Society
By John Kenneth Galbraith
Sinclair-Stevenson. £12.99

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.