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Capitalism Without Tears

John Kenneth Galbraith has not enjoyed the regard of his fellow economists to anything like the degree that he has enjoyed the acclaim of the public. Indeed, to a substantial number of economists, particularly those of the conservative and prestigious “Chicago school,” his name is very nearly anathema. One of the deans of this school saw fit this winter to write an editorial column for The New York Times, the only purpose of which seemed to be to attack Galbraith. The authors of a recent textbook found it useful to include as a student exercise a quotation from “an economist serving as American ambassador to India,” instructing the student to “Explain why every sentence of that quotation—except the third and fourth—is wrong, non-sensical, or irrelevant.” A colleague of mine, discussing a list of books that might be useful for a graduate seminar in Political Economics, simply shrugged off American Capitalism and The Affluent Society as works that serious people could not take seriously.

This virtual rejection of Galbraith by his peers1 is offset only by their general admiration for his style, even when, as is often the case, they are the objects of its shafts.

Corporate executives with an over acute sense of persecution [Galbraith writes] have sometimes supposed that economists, in the ideas they advance, are their enemies. In fact, the economics profession is strongly in the service of the beliefs they most need. It would, prima facie, be plausible to set a limit on the national product that a nation requires. The test of economic achievement would then be how rapidly it could reduce the number of hours of toil that are needed to meet this requirement. Were economists to advocate this goal, with the revolutionary effects that it would have on the industrial system, there would be grounds for complaint. None have been so uncooperative.

There are few economists who will not wince at these sentences, and fewer still who would not like to write their rejoinders in prose as cutting.

Yet I think the academic critics are wrong on both counts. To my mind, Galbraith is an economist of considerable merits, who seeks to infuse economics with a social relevance that is, on the whole, egregiously missing from most of its current output, particularly from that of the Chicago school. At the same time, I believe that the celebrated style, far from being an expression of Galbraith’s power and boldness, is in fact his fatal weakness.

I shall return to the matter of style in due course. Meanwhile, The New Industrial State comes as an interesting out-growth of Galbraith’s previous books. In all of them Galbraith has been wrestling with a major problem of great difficulty, although, alas, of little interest to most economists. This has been to find a systematic explanation for the way in which American capitalism operated in fact, rather than an explanation of how it was supposed to operate in theory. To put it differently, he has been searching for a new theory that would handle the realities of corporate power as satisfactorily as the prevailing textbook theory handled the make-believe world in which that corporate power was largely ignored.

In his first major book, American Capitalism, Galbraith explained the workings of the system in a way that incorporated his emphasis on bigness and power with the orthodox view of the system as a self-regulating mechanism. American Capitalism was traditional in its picture of the economy as a self-regulating entity, but it struck out on its own in describing the regulative force as no longer that of the competitive market. Instead Galbraith placed at the center of his analysis a supposed tendency of the system automatically to balance off masses of power in one area with the creation of “countervailing” masses elsewhere.

THE BOOK was in many ways a perceptive appraisal of capitalism. (It contained, for example, the stunning sentence: “The foreign visitor, brought to the United States, visits the same firms as do the attorneys of the Department of Justice in their search for monopoly.”) But its “theory” was not very successful. Various economists, including the aforementioned dean of the Chicago school ripped into it with relish, losing sight in the process of the intransigent problem that lay behind Galbraith’s effort: Was it possible to describe the operation of the economic system in terms closer to reality than the orthodoxies of classical economics?

The Affluent Society dropped the problem of the balance of power among industrial giants to examine the balance between the industrial sector as a whole and the public agencies. The “theory” was that the economic order bred a persistent imbalance between overproduction of private wares and the underproduction of public ones, leading to many of the malaises peculiar to “affluent” societies. Unlike the first book, The Affluent Society did not claim to discover an internal balancing mechanism, but frankly left the redress of this inherent tendency to deliberate public intervention. It was this, of course, that again earned for Galbraith the distaste of the Chicago school.

The New Industrial State goes a step further in this unwelcomed direction. The traditional line of demarcation between public and private, says Galbraith, is in economic fact, if not in economic theology, rapidly becoming blurred or even erased. “Men will look back in amusement,” he writes, “at the pretense that once caused people to refer to General Dynamics and North American Aviation and A.T.&T. as private business.” The reality is that a new economic order is emerging, characterized by very large industrial organizations that maintain economic order among themselves, and between their interests and those of the government, by an even more nearly complete, albeit carefully camouflaged and stoutly denied, network of planning.

This planning does not take the form of the social and economic blueprints dear to the reformer. Rather, it consists of the more or less uncoordinated efforts of each of these corporations to secure for itself an environment of order and stability in which it can work effectively. Thus planning assumes many disguises. In part it is visible in the union contracts that eliminate for the corporation the uncertainties of a free or unruly labor market. In part it is visible in the highly developed arts of advertising, through which the corporation creates a state of consumer “demand” sufficiently reliable and loyal to enable it to plan ahead with reasonable confidence. In part it is manifest in a curiously symbiotic relationship with the government, to which, however ritually berated (although the ritual is diminishing in fervor, Galbraith notes), the corporation looks for assurance of a continuing level of high aggregate demand.

IN OTHER WORDS, the reality of the Industrial System, Galbraith shows us, is the opposite of everything that is highlighted in the textbooks. The play of the market is carefully and effectively minimized, not maximized. Enterprises are no longer passive entities impinged upon by the all-powerful and independent activities of consumers and suppliers of services, but corporations that radiate lines of power to create orderly and acceptable behavior of both suppliers and buyers. In a word, “the corporation” is more and more the name for an integrated sequence of operations that converts resources into salable commodities, and this sequence is insulated as much as possible by the controllers of the corporation from the disruptive force of the market-place.

Needless to say, this kind of planning is not the deliberate creation of a social engineer. “The imperatives of technology and organization, not the images of ideology, are what determine the shape of economic society,” writes Galbraith. The “imperatives of technology” are clear enough: The long integrated sequence of operations requires time, capital, specialized manpower, and an assurance of stability if it is to be used efficiently. But what are the “imperatives of organization”?

This brings us to Galbraith’s view of the entrepreneurial function in the semi-planned Industrial System—or, rather, to his explanation of what now fills the role of the entrepreneur, who is still represented as the active agent of the system in the standard textbook accounts. There are such entrepreneurs left, Galbraith admits, but they are no longer typical of the mature corporation, which is the bastion of the system. The locus of power is no longer a single person, but a “technostructure,” an interlocking structure of specialists, technicians, experts, and organization men who collectively guide the giant corporation. It is part of the mythology of capitalism, says Galbraith, that we still cling to the notion that power is wielded most effectively and efficiently by the single entrepreneur. In fact it is the committee system, with its combination of impersonality, specialization, and bureaucratic procedure, that have proven indispensable to the corporation’s goals.

What are these goals? First, autonomy—freedom from interference either by “the owners” or government (as far as this is possible). Second, safety and longevity for the enterprise. Third, growth of the institution with which their lives, as well as their material fortunes, are identified. Note that among these goals, the textbook paradigm of simple “maximizing of profits” is notably absent.

Thus the Industrial System appears as an almost self-contained system within the larger society. Its operation moves toward an ever more highly organized society, responsive to the direction of an ever more independent “technostructure.” To be sure, the entire operation depends for its success on the acceptance of the final products that emerge. But this is more or less assured by the management of product demand through advertising, and the support of total demand through government policy.

At the same time, of course, the system, by virtue of its efficiency, also enhances the level of productivity, so that along with the endless force feeding of the consumer comes the possibility of using the energies of the economy for other, non-industrial purposes—“the expansion of public services, the assertion of the aesthetic dimension of life, widened choice as between income and leisure, the emancipation of education.” If these ends are to be superimposed on the state, however, it will have to be done by some force outside the Industrial System. Galbraith suggests that this force can be provided by the entrance into politics of a group that is perhaps the ultimate source of power in the modern world—the scientific and educational estate that is, in the end, responsible for the creation of the technostructure itself. Thus finally we are left with an undecided question. In the default of effective leadership by the enlightened members of society, there is the specter of the self-sustaining, self-justifying industrial state to whose purposes the rest of society will have to be fitted, willynilly. If the enlightened minority can seize control, however, the industrial state may yet fall into its proper role as the servant rather than the master of man.

THIS IS a difficult book to deal with critically: in part, because the book contains more than I have indicated—a discussion of the integration of the Industrial System and the Cold War, a theory of motivation, a disquisition on the relevance of classical profit maximizing to the actions of the giant firm, and more besides. The book thus invites piecemeal criticism (of which I do not doubt it will receive more than its share from the economics profession), especially in its attack on the maximizing of profits, where I must say Galbraith is not very convincing.2

But there is a more fundamental difficulty. It lies, I think, in the level of abstraction of the work, which hovers between a very generalized schema and an empirical study, and is not quite either. As a result it suffers on the one hand from the absence of the solid empirical demonstration that would convince us of the conceptual validity of the technostructure as the new power center of capitalism, while on the other it is not quite reduced to the fundamental level of generalization that served to make Schumpeter’s theory of capitalism so impressive.

Take, for example, the central contention of the book—that the strategic group within the economic system has shifted from the possessors of wealth to the possessors of collective expertise. I do not doubt that Galbraith is right in stressing this basic trend and in assigning its cause to the fundamental forces of technology and science. The trouble is that this tendency is treated as if it were already an accomplished fact, and this is doubtful. It is my belief that even in the most “mature” corporations (i.e., those in which the technostructure is most clearly visible), there is still a final level of decision-making power that is lodged firmly at the top, and this top upon examination often turns out to be a small group of powerful stockholding interests or their representatives. The technostructure may propose, but in the end it is the Directors, or a small number of top officers, who dispose.3

Thus the technostructure is much too diffuse a term to describe hierarchies and groups within which there continue to reside all-important distinctions of power. Further, it masks the fact that there is going on within American capitalism a contest between the forces of science and technology and the older forces of wealth and ownership. I believe, with Galbraith, that the future lies with the ascendency of the professional elites, but the tension between the. Old Guard and the New needs to be brought to the fore4 not hidden behind the undifferentiated screen of the technostructure.

I am not convinced either by Galbraith’s prescription for social reform. Surely if history teaches us anything it is the futility of appeals to the educated elite. As Galbraith himself lamely writes, following his advice to the educational community to cut itself free from the industrial system:

The first inclination of most educators will be to dismiss these pages as another hortatory exercise. It can only be hoped that reflection will lead to a more useful response.

It is, I fear, a frail hope. If, as Galbraith so boldly (and I think correctly) maintains, the “imperatives of technology and organization” will shape society, then he must have the courage to carry his theoretical model into the future, whatever its course. It was precisely this that gave to Schumpeter’s analysis its power, for he unflinchingly extended the implications of his analysis to the end, even though he disliked the conclusions to which it led. Galbraith’s model is important and original, and by comparison with the pale stuff of so much contemporary economics, powerful. But his grand outline is weakened by an unwillingness to press home his analysis to its bitter conclusion—a conclusion touched on lightly in the vision of a self-perpetuating and self-serving Industrial System, but, then blurred by conclusions that are, I believe, just “another hortatory exercise.”

This final reluctance to allow the model to reach its ultimate destination may well be related to the curious problem of Galbraith’s style. Last summer, in Raymond Williams’s Culture and Society, I came across a telling critique of R. H. Tawney, one of the master stylists of historical exposition and a towering figure of Fabian Socialism. Calling attention to Tawney’s predilection for irony and to a certain “filigree” in his marvelously constructed sentences, Williams discovers a weakness in Tawney’s stance. “It is,” he writes, “a device for lowering tensions, when, however, tension is necessary. It is a particular estimate of the opposition to be expected, and it is, of course, an underestimate.”

So, many times magnified, with Galbraith. The much envied style is aphoristic, terse, above all mocking. But just as Tawney’s magisterial prose causes him ultimately to hold back expression of the anger he feels, so Galbraith’s mocking irony causes him in the end to avoid a clear moral commitment with regard to the problems he raises.

Is such commitment necessary? “The economy for its success requires organized public bamboozlement,” writes Galbraith flatly. The word “bamboozlement” is the clue. Any other—“deception,” “fraud,” “untruth”—would amount to a declaration of war. “Bamboozlement” allows an issue of the most searching importance to be passed over in a mood of raillery. The next sentence in the text reads: “And at the same time it nurtures a growing class which feels itself superior to such bamboozlement and deplores it as intellectually corrupt.” Galbraith is himself a member of that class—and, indeed, in his public life has lived up to his own prescription in speaking out for ends and ideas that differ considerably from those of the technostructure. Yet in this book, as indeed in his previous books, his position vis à vis the society he criticizes remains essentially ambiguous. Rather than producing clear judgment, the moral power of his argument is, finally, dissipated in wit.

  1. 1

    After The Affluent Society appeared Elmo Roper polled the economic community to ascertain its feelings about the book. A slightly larger percentage (10%) “disagreed totally” with Galbraith than “agreed totally” with him (8%); almost as many (28%) “mainly disagreed” as “mainly agreed” (33%); while 21% found as much to disagree as to agree with. (Saturday Review, June 6, 1959).

  2. 2

    Let me add a footnote for economists. Galbraith demonstrates (or rather, asserts) that corporations do not act so as to maximize their profits in the short run. But the goals he specifies (security, autonomy, and, mainly, growth of sales) are by no means incompatible with profit-maximizing in the long run. The issue here is the time-horizon over which profits are calculated. Profit-maximizing is an operational concept only insofar as it allows us to predict behavior. If the time-horizon is short, as in very competitive firms, the maximizing postulate allows us to predict price and output decisions. But if the horizon lengthens, it is no longer possible to declare that one and only one policy will maximize net revenues. The critical issue, in other words, is not that of the motive, but of the actions that will be taken to achieve a given end. See A. Lowe, On Economic Knowledge, pp. 47-48.

  3. 3

    Let me refer to two studies of this subject: Gabriel Kolko’s Wealth and Power in America (pp. 61-62) and Don Villarejo’s “Stock Ownership and the Control of Corporations,” New University Thought (Autumn, 1961 and Winter, 1962).

  4. 4

    A problem I have tried to deal with in The Limits of American Capitalism.

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