Economics and the Public Purpose
It would be interesting to trace the development of John Kenneth Galbraith’s ideas, beginning with American Capitalism (1952) and culminating (so far at any rate) with Economics and the Public Purpose, which has just been published. Such a survey would show, I think, that Professor Galbraith is very sensitive to the moods of the moment, moving with but little resistance and even less acknowledgment from a kind of Panglossian optimism in American Capitalism (and the same year’s famous New York Times Magazine article “We Can Prosper Without War Orders”), through increasing skepticism in the middle books (The Affluent Society and The New Industrial State), to something which now displays what is at times ill-concealed alarm. That all this goes along with, and in Galbraith’s mind no doubt stems from, a basically not much changed vision of the American economy and American society, is a noteworthy fact which may tend to suggest that the correspondence between this vision and the reality is not altogether perfect. It is to this aspect that I should like to direct attention.
To begin with, Galbraith’s newest critique of neoclassical (or orthodox or received) economics contains little that is new. It has been repeated, with variations and changing emphases, in all his works. And for the most part it is entirely justified. Economics as the subject is taught in establishment educational institutions has little relevance to reality and is thoroughly apologetic in effect if not in intent. I will not dwell on this: those who are not already familiar with Galbraith’s critique will find it well presented, with some new angles (Galbraith emerges this time as something of a middle-class women’s liberationist), in Economics and the Public Purpose. What I wish to focus attention on is the “model” (the term is almost de rigueur these days) which he puts in the place of his version of the neoclassical picture of a consumer-dominated and producer-powerless self-adjusting market system which fails to perform satisfactorily only when deluded intellectuals and ignorant politicians meddle with it.
Galbraith’s present model differs from his earlier versions in that he now divides the economy into two parts which he calls the “planning system” and the “market system.” The planning system, as he acknowledges on page 217, is merely a new name for what is traditionally called the “monopolistic or oligopolistic sector.” It comprises a thousand or so giant corporations which produce three-quarters or more of the country’s industrial output. The market system is the rest of the private economy, with agriculture, services, and retailing as its principal subdivisions. Having identified these two “systems,” Galbraith proceeds to analyze the functioning of the economy as a whole as it is affected by their interaction with each other and with the state or public sector.
According to this analysis, the dominant part is the planning system. It is here that the driving force of the economy (the savings-and-investment process) is centered. Given its over-whelming monopoly power, the planning system is able to exploit the largely competitive market system, enforcing on it unfavorable terms of trade in the manner of a metropolis and its colonies. This disparity in power is also reflected in the relations of the two systems to the state: the planning system has easy access to all branches of government and establishes effective control over most of them, while the market system is for the most part left out in the cold.
“The modern state,” he tells us on page 172, “is not the executive committee of the bourgeoisie, but it is more nearly the executive committee of the technostructure.” (The “technostructure” is Galbraith’s term for the controllers of the large corporations: we shall return to this presently.) The result of this lopsided distribution of power is that the planning system gets what it wants, especially money, from the state, while the market system is starved. This sets up a process of growing inequality between the two systems.
Here we may note the striking change in Galbraith’s view as compared to those in his earlier books, most notably The Affluent Society. In that work he contrasted private affluence with public squalor, and treated inequality as a problem of diminishing importance no longer worth seriously worrying about. Now his argument is not that the public sector as such is starved (armaments and highways do very well for themselves), but that the allocation of resources going to the public sector is contrary to the “public purpose.” And inequality is now seen as one of the greatest and most pervasive evils of the society. It would have been gracious of the author to acknowledge that those who have been saying so all along were right and he was wrong. But that would require a modicum of humility, which is not exactly Galbraith’s specialty.
Compared to neoclassical theory, this two-systems model is undoubtedly an improvement. It integrates monopoly and state power, the dominant forces in the US economy today, into the analysis of the system as a whole (neoclassical theory is artfully designed to avoid doing precisely this), and it succeeds quite well in offering plausible diagnoses of some of the system’s major problems. One of these is the already mentioned allocation of resources to and within the public sector. Another is inflation, which Galbraith recognizes to be endemic to the system, impervious to control through fiscal and monetary policies, and compatible with persistent high levels of unemployment.
I believe, however, that in many respects Galbraith’s model is seriously flawed and ends up as a kind of new, streamlined apologetic for monopoly capitalism. Since to develop this theme satisfactorily would require much more than a brief review, I will confine what follows to highlighting what seem to me to be some of the gravest weaknesses of his analysis.
The Planning System. Every economic enterprise, from the smallest to the largest, of course has to do a certain amount of planning. But as a group the large corporations do not do any planning together, and do not constitute a system in the usual sense of a collection of entities strongly interrelated among themselves and more weakly related to their environment. Galbraith as much as admits all this in numerous passages, as for example when he speaks of the need for measures “to ensure the inter-industry coordination of which the planning system is incapable” (p. 251), or treats the energy “crisis” as precisely a symptom of the planning system’s inability to plan (Ch. 31). Apart from in-firm planning, which is real enough but not peculiar to Galbraith’s planning system, what he seems generally to mean by “planning” is the power of the big corporations to throw their weight around in their relations with consumers and government, something which of course is emphasized by all theories of monopoly capitalism without any need to invoke the language of planning.
Why, then, is Galbraith so wedded to the notion of the planning system? The reason, I think, is that it gives him one of the tools he needs for conceptualizing the US power structure in a manner convenient to his own predilections and reform program. To explain this we need first to understand another of Galbraith’s key concepts.
The Technostructure. It is pretty generally accepted by now that the typical big corporation is not controlled by majority vote of its shareholders or even by its board of directors but by what it is usual to call its management, i.e., its top officers, who (except in time of financial trouble) are normally a self-perpetuating; group which selects the board of directors rather than vice versa. It is important to recognize that this does not mean what it is often taken to mean, that ownership and control are separated in the large corporation. Quite apart from cases in which management is picked by and represents large stockholders (majority or minority), executives of large corporations are with few exceptions wealthy men, owners of substantial amounts of stock in their own, and other corporations. Far from being separated from ownership, they are simply the most active echelon of what C. Wright Mills called the corporate rich who own a large part of the country’s wealth. This being the case, one would naturally expect them to run their corporations with an eye out for maximum profit and the most rapid feasible accumulation of capital.
For reasons which will become clear as we proceed, however, this conclusion does not suit Galbraith’s purposes at all. He would like to abolish the capitalist altogether, but since this is impossible, the next best thing is to transform him into a functionless (and relatively powerless) rentier. But this, as we have already seen, is not accomplished by the theory of managerial control: the managers are in fact capitalists in the fullest sense of the term. So Galbraith is driven to invent a new theory, the theory of the techno-structure.
The gist of his argument is that corporate managements, in the sense defined above, are not really in control at all. They lack the necessary knowledge, and knowledge is the basis of power. This knowledge is possessed by a large group of specialists. “To perfect and guide the organization in which the specialists serve,” Galbraith writes,
also requires specialists. Eventually not an individual but a complex of scientists, engineers and technicians; of sales, advertising and marketing men; of public relations experts, lobbyists, lawyers and men with a specialized knowledge of the Washington bureaucracy and its manipulation; and of coordinators, managers and executives becomes the guiding intelligence of the business firm. This is the technostructure. Not any single individual but the technostructure becomes the commanding power. [P. 82]
In this way management is buried in and subordinated to the much larger technostructure, which derives its power from specialized knowledge and is in no way beholden to ownership.
The next step is to endow the technostructure with a set of purposes, which Galbraith divides into “protective” and “affirmative.” The protective purposes are security and freedom from outside interference such as by creditors or trade unions; the affirmative purposes boil down to increasing the power of the technostructure as such. To achieve these goals the technostructure strives for 1) “a certain minimum (though not necessarily a low) level of earnings” (p. 94), sufficient to pay “reasonable” dividends to stockholders, avoid pressure from creditors, and finance growth; and 2) a maximum rate of growth measured in sales, resulting in steady expansion of the power base and job opportunities for the technostructure. Galbraith is emphatic and repetitive that profit maximization in the manner of what at one point he calls the “original capitalist” (p. 247) is not an aim of the technostructure. We shall return to this.
It is only necessary to add that the technostructure is in charge of the planning system (the two terms indeed are often used interchangeably), and that to achieve its purposes it mobilizes all the power of the planning system to control prices, manipulate the consumer, and dominate the state. Since, as we already know, the planning system also dominates and exploits the market system, it appears that we have here a complete picture of the power structure of American society. The technostructure sits at the center and runs the whole show.