The New Industrial State

John Kenneth Galbraith's "The New Industrial State" is a hallmark in economic thought. His work is both an extension and reformulation of his previous work "The Affluent Society". Galbraith spots fundamental contradictions throughout the modern field of economics. As always Galbraith is willing to attack all economists, liberals and conservatives alike, in search of the truth In "The New Industrial State" Galbraith begins by looking at the modern composition of production. With small exception the mature corporation has become the central producer in the industrialized world. The mature corporation no longer seeks to maximize profits. It seeks, first, survival and, second, absolute growth. This means that corporations are held to maintain a minimum set of profits in order to prevent external influence on future decisions. Maximizing profits, and therefore increasing risk, is discouraged because with greater risk comes a greater chance of failing to maintain a minimum level of profit. After a minimum level of profit has been achieved it is the goal of the mature corporation to grow. By growing it gains greater influence over the economy and society at large. The reason for the rise of the mature corporation is because of technology. As production processes become more complex a greater need for planning becomes necessary. Without control of supply and demand it is extremely difficult to plan for a long production schedule (ex: 5 years). If, say, disposable income or consumer desires were to change then the mature corporation would fall into risk of bankruptcy or, at the very least, external finance (which threatens autonomy). In order to minimize risk the mature corporation must try to control supply and demand. The control of supply is done through a large degree of bargaining power with suppliers of material and through the use of unions. (Ironically, unions have become docile to the demands of the mature corporation and further its will.) In order to control demand the mature corporation relies on the government to stabilize aggregate demand. On the micro level the mature corporation manufactures artificial wants through marketing and public perception. While the mature corporation does not exhibit complete and total control over supply or demand they control both to a large extent. The reason why the mature corporation can exhibit such behavior is because of the division between management and ownership. The stockholders in a mature corporation have no input on management's decisions. The board of directors, indirectly chosen by management, choose the mature corporation's management. The traditional hierarchy of management is blatantly false due to the needs of teamwork and division of labor. Instead what is created is a "technostructure". It is the (headless) technostructure that inadvertently controls the economy. Very little of the United State's economy can be considered market based. The vast majority of the

This is a superb book. It is a book, however, that has become dated. Its datedness should not dissuade potential readers. The datedness of "The New Industrial State" has only changed the books relevance and importance. When the book was first published in 1967, it accurately described how the then modern corporation functioned, its power structure, and the motivations of individuals who guided the decision making and development of the corporation. This book should be understood to be part of a publication trilogy, starting with Galbraith's "Affluent Society," "The Industrial State," and "Economics and the Public Purpose." In my opinion "The Industrial State" is the apex of the series. It is however, the most technical of the three books. The "Affluent Society" being the most accessible. For economic academia the book was revolutionary, because it radically challenged microeconomic and macroeconomic textbook accounts of markets and market adjustments. Microeconomics was challenged on several fronts. The most important being the motivation of the `power brokers' of the (then) modern corporation, what Galbraith called the "technostructure." The technostructure is a complex and imperfectly defined "collective" of (especially) "technical" and "specialized" staff members at the midrange management level. It was the decision making of the technical and specialized staff members who really determined the development direction of the (then) modern corporation. This is revolutionary because the motivation of these staffers, or technostructure, was not one of profit, but instead "identity" with the group/staff and corporation and (marginal) "adaptation" of the company's goal toward their own. At a macroeconomic level Galbraith argues that it was not his beloved Keynesian interventionism which stabilized the post-WWII economy, but the massive capital contracts the U.S. government had with industrial capital (e.g. steel, rubber, chemical, etc.), mainly though the Pentagon and NASA. These contracts allowed for industrial companies to build inventories without worrying about sales or the business cycle. Galbraith argued, the (then) modern corporation is mainly concerned with its own stability and longevity. Stability and longevity required the corporation to become as enormous as possible. The enormity of the corporation's size required "planning" become its primary development activity. The planning goes on (1) between technical and specialized staffers and midrange and upper-management, e.g. human resource planning for internal consistency; (2) for research and development and technological growth; (3) for price stability, marketing, and reliability in demand, establishing external stability and consumer relevance; (4) for balance within the corporation, via collective bargaining with worker unions and predictability of payroll costs; and (5) for contracts with the State. Small business and entrepreneurial corporations far outn

John Kenneth Galbraith didn't respect the literary conventions of economics. He didn't express himself in math, he made sweeping generalizations about society (not always backed by strong evidence), and he freely drew on the insights of history, sociology, and politics, paying little heed to interdisciplinary boundaries. For that reason, many economists looked down their noses at him. And for that reason, his books are still in print and enjoyed by readers decades after they first appeared. Galbraith was more than an economist. He was a great social critic, a great debunker of cant, and a superb prose stylist. He was the Veblen of post-World War II America. He was at the top of his powers when he wrote "The New Industrial State" in the 1960s. The book came as close as anything did to summarizing the Galbraithian "system." Parts of it are outdated, such as the assertion that financial markets have little influence on big corporations, or the strained argument that the American and Soviet economic systems were "converging." Other parts, however, are as relevant today as they were 40 years ago, such as the critique of advertising and consumerism, or the analysis of how our gigantic defense industry shapes policy and influences the Pentagon. In a time when the Federal Reserve is bailing out banks and scrambling to protect the economy from the miscalculations of the financial sector, it's good to be reminded that the private sector looks to government to keep the economy on a even keel, no matter what the official ideology of the private sector may be. Most of all, "The New Industrial State" displayed Galbraith's genius for stepping back and asking big questions. These continue to haunt economics, even though textbook writers bury them in footnotes. Why DO we treat GDP is an adequate measure of social welfare? Why DO we choose to consume higher productivity in the form of goods rather than leisure? Why DOES our pedagogy emphasize "perfect competition" when the economy is dominated by big firms? Why DO we assume that workers and managers are motivated solely by pecuniary considerations? And on and on. "The New Industrial State" is a trove of intellectual riches, expressed in masterful and witty prose. Every undergraduate economics student should read it. So should every educated citizen. It's a 20th century classic.

FROM THE PUBLISHER'S DESCRIPTION: Is it possible to offer a single comprehensive view of modern economic life and of the changes that are shaping its future? Mr. Galbraith in this volume proves that it is. He begins with the world of advanced technology highly specialized manpower, and the five or six hundred giant corporations which bring these into use. He shows how these firms supply themselves with capital, how the men who comprise them are motivated, how organized intelligence has replaced ownership as the source of power in the modern enterprise. He shows how the market has declined as a guiding influence in economic life, to be replaced in substantial measure by planned decision as to what will be produced, at what prices and for whom. Government in the industrial state, Mr. Galbraith makes clear can be understood only in light of the needs and goals of modern large-scale organization. And this profoundly shapes the prospect for trade unions, political parties, education and the larger culture itself. Only as we see the goals of the industrial system in a clear light will we avoid the danger of subordinating too much of life to their service. Only then will we exploit the opportunities inherent in well-being. ... The publisher's description goes on to herald The New Industrial State as Galbraith's "most important book." The implicit comparison is with his earlier and immensely popular work, The Affluent Society. But the two books are quite closely related, as Galbraith mentions in the foreword: "I must again remind the reader that this book had its origins alongside The Affluent Society. It stands in relation to that book as a house to a window. This is the structure; the earlier book allowed the first glimpse inside." And indeed, that is largely the truth. This book provides a framework for understanding Corporate America; its real and public purposes, its organization, history, strengths, and weaknesses. Surprisingly little of the book seems aged (of course the book exludes all mention of the last forty years, and the Soviet references seem a bit antiquated), and much of it, with minimal substitution (e.g. "War on Terror" for "Cold War" as the bogeyman for justifying the massive military outlays which feed the industrial system) is eerily applicable to the early 21st century. All of that said, this book is not for everyone. It is quite dense (especially the first third), and most of us will need a dictionary close at hand. This is a book which requires hard thinking and more than one reading. But if your purpose is to understand the type of economy we really live in, your efforts will be richly rewarded.