The New Industrial State

by John Kenneth Galbraith

With searing wit and incisive commentary, John Kenneth Galbraith redefined America's perception of itself in The New Industrial State , one of his landmark works. The United States is no longer a free-enterprise society, Galbraith argues, but a structured state controlled by the largest companies. Advertising is the means by which these companies manage demand and create consumer "need" where none previously existed. Multinational corporations are the continuation of this power system on an international level. The goal of these companies is not the betterment of society, but immortality through an uninterrupted stream of earnings.First published in 1967, The New Industrial State continues to resonate today.

Genres: Economics, Nonfiction, Politics, History, Business, Philosophy, Sociology

Paperback

First published January 1, 1967

About the author

John Kenneth Galbraith was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism and democratic socialism. His books on economic topics were bestsellers in the 1950s and 1960s. A prolific author, he produced four dozen books & over a 1000 articles on many subjects. Among his most famous works was his economics trilogy: American Capitalism (1952), The Affluent Society (1958) & The New Industrial State (1967). He taught at Harvard University for many years. He was active in politics, serving in the administrations of Franklin Roosevelt, Harry Truman, John Kennedy, and Lyndon Johnson. He served as US Ambassador to India under John F. Kennedy.

He received the Presidential Medal of Freedom twice: one in 1946 from President Truman, and another in 2000 from President Clinton. He was also awarded the Order of Canada in 1997, and in 2001, the Padma Vibhushan, India's second highest civilian award, for strengthening ties between India and the USA.

Reviews

[Peiman E iran · Rating 3 out of 5]

‎دوستانِ گرانقدر، میتوان گفت که این کتاب شاخص ترین اثرِ <جان کنث گالبرایت> میباشد که در آن به بررسیِ مکانسیمِ کارِ شرکت هایِ غول آسا و تأثیر آنها بر جامعه پرداخته است
‎دوستانِ عزیز، هستهٔ ماشینِ اقتصادی در جوامعِ امروزی را تقریباً تعدادِ کمی از شرکتهایِ غول آسا تشکیل داده اند که احتمالاً این شرکتها حکومت مطلق اجتماع را نیز بدست خواهند گرفت... هرکدام از این شرکت ها گرچه به صورتِ قانونی به صدها هزار سهامدار تعلق دارد، امّا به وسیلهٔ یک بوروکراسی که به جاودان سازیِ خود می اندیشد، اداره میشوند
‎امروزه اتحادِ بینِ تجارتِ خصوصی و دولتی چنان درهم آمیخته شده است که دو جز این اتحاد را به سختی میتوان از یکدیگر تشخیص داد و دلیلِ پیشرفتِ کشورهایی همچون چین، میتواند همین موضوع باشد
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‎امیدوارم ریویو مفید بوده باشه
‎<پیروز باشید و ایرانی>

[Trevor · Rating 5 out of 5]

I’ve been reading a lot of books on economics lately – and like popular books on any of the sciences they have tended to start by telling me that what they are saying is the cutback, easy version of their subject for people who (like us, dear reader) haven’t the depth of knowledge needed for a fuller and more comprehensive understanding of the subject. With the hard sciences (physics, chemistry and so on) I can more or less roll with the punches on this score and am even prepared to blame myself for not going on with mathematics. I understand, for example, that quantum theory is a theory spoken in the language of mathematics and if I don’t speak that language then any translation into a language I do understand is always going to be incomplete and possibly even a bit confusing. There is no point my complaining that I don’t understand if I haven’t made the effort to learn. But I often plod on regardless, though suitably chastised, after saying “Mia culpa” three or four times softly to myself.

Economics, at first glance anyway, should be somewhat easier. I know they build models and then talk as if they are physicists, but this is only a somewhat embarrassing thing people like to do in the social sciences – a kind of maths envy, I guess. There is no need for such humble prostrations, though, for as Galbraith says in his addendum on economic method at the end of the book, ‘In the physical sciences – chemistry, physics, biology – change is associated only with discovery. The matter being studied does not change. In economics, as in the other social sciences, there is change both in the state of knowledge and in what is being studied’.

The main problem I have been having with the books on economics I’ve read is that they begin by explaining the market and market forces and then tell me two things as articles of faith that seem to be complete nonsense. The first is that free markets provide the best of all possible worlds and the second is we live in a society in which free markets have proven their superiority over planned markets and for this we should be truly grateful.

Before I start I need to tell you the problem with this review. I read the second edition of this book and only learnt that this was a problem when I was nearly finished reading and noticed a preview copy of the fourth edition in Google books. If you are going to read this book then I really recommend you read the most recent edition – I have stuffed up, but there is no reason for you to stuff up in the same way.

In the second edition of this book Galbraith was still referring to our new industrial state – the one in which we find ourselves – as ‘the industrial system’ – a confusing phrase which really doesn’t express what he is describing at all. In later editions he changes this to the much more sensible and much more clear ‘the planning system’. This is an improvement for reasons that should become obvious as I go on, but in short it is because Galbraith sees planning as the core to understanding modern corporate capitalism (in fact, to understanding any modern economic system that produces elaborately complex manufactured goods).

Right, deep breath. Free markets are wonderful things because they don’t depend on what people what to sell, but rather on what people want to buy. If there is a desire for something in society then someone will find a way to satisfy that desire. If few people are actually satisfying that desire the cost of having that particular itch scratched will be high – but the fact that the cost is high will attract into the market other suppliers who will be able to meet your want at increasingly lower costs. Eventually this will all stabilise somewhere near the cost of production of your want. Markets are driven by the people with money in their pocket, and markets are the most efficient means of organising an economy because in seeking to extract the money from their pockets the dream-makers need to find ways to best serve your desires. No wonder everything in the garden is rosy…

That, in one paragraph, is my version of the glorious story of free market economics. There are some minor problems with free markets that are sometimes also mentioned – mostly to do with the market being blind about certain things, like the effect of supplying your desires which then might have a cost to the environment – these are referred to by the not terribly helpful name of ‘externalities’. For example, I sell you a boom box, you play the said boom box at 3am, the lack of sleep your neighbour suffers is an ‘externality’ to our free market transaction – a cost someone has to pay not covered in the economic transaction we have made.

My main problem with this story of the wonders of capitalism is that, to me, it only seems to work if our needs and the means to satisfy them are both simple. Galbraith does not believe either of these are simple and their complexity therefore requires corporations to exercise much more control over the markets they operate in. This book has the frightening habit of answering questions for me that I’ve wondered about for years, but even more disturbing yet, of also telling me things that really are now blindingly clear that I didn’t have the gumption to wonder about. This book has been a revelation and, as you can see from the five stars I’ve given it, it is a book that I think is well worth reading.

Galbraith’s argument against the myth of free markets begins with technology. Let’s say, as a society, we don’t just want to come up with a new orange juice or breakfast cereal, but rather to fly to the moon or to build a computer or develop a telecommunications system. These things require elaborate and complicated production following extensive planning. So much planning is needed for their development and production that the difference between a free market economy and a planned economy in delivering these suddenly becomes trivial and unimportant. What is important is that the needs of a high technology economy are such that a number of things first need to be addressed if such a society is ever to be successful. For example, there must be consistency of supply of the raw materials that go to producing whatever it is that the corporation produces. So corporations are probably going to be interested in some form of ‘vertical integration’ – if they produce cars they will want to control not just the manufacture of the cars themselves, but also of the steel, rubber, and all of the other various raw materials that go into making a modern car. They will want to do this because they need to invest lots of money in the design and production of a new model of car and the last thing they need is to be held ‘to ransom’ by some supplier who digs stuff out of the ground and then refuses to sell it at a reasonable price. They need to be able to control the price of producing their products to a level that will ensure a market for it once it is produced. And they need to, as much as they possibly can, control the demand for the products they produce. If they are going to invest many millions of dollars developing a new type of car, one that requires bringing to bear the full extent of the productive forces available to them in its development, then they must also be as assured as possible that there will be a demand for that car once it has been produced. And that may be only after two years of costly research, development, design and so on; rather than say, two weeks.

To help ensure demand corporations turn to advertising. Economists I’ve read rarely mention advertising, as if the billions spent on it was a bit of a mistake. But it is hard to imagine corporations spending quite so much money on something if they didn’t think it worked. Given that most of what corporations produce today does not go to addressing needs (i.e.,like food, shelter or clothing) but wants (PDAs, Ipods, BMWs) advertising serves the purpose of not only directing us towards what we ought to buy, but in creating the desire to purchase in the first place things that we don’t actually need. Corporate capitalism requires an ever expanding market and since corporate capitalism supplies (in the main) all of our needs it therefore has to find ways to create new wants.

The interesting thing about those who talk about the joys of the free market is that the examples they give are never examples of the sorts of things that most interest us as a society. They make their points about the benefits of the free market by talking about two little boys selling lemonade – but they never talk about the things that make our society an advanced capitalist economy. They don’t talk about computers or supersonic planes or automobiles. And why? Well, none of these could exist in their current form under a truly free market system. This was a radical thing to say in 1965 when this book was written, but the remarkable thing is that it is still a radical thing to say today. That it remains a radical says more about the ability of economists to believe their own bullshit than it says about the world.

The myth at the time that this book was written was that there were two world economic systems, the socialist and capitalist systems. These were fundamentally different due to how they organised production – socialism was heavily planned, capitalism left things to the invisible hand of the free market. Capitalism, in the end, had the advantage because the people who ran the business were interested in growing their business and that was because they were the ones most likely to make money out of the business. Investors, in the shape of shareholders, were the key to any capitalist venture because they supplied the cash needed to get things started and keep things going.

Galbraith points out that all of this is completely undermined by the growth of large corporations deploying advanced technology to produce elaborately complex goods. As corporations become increasingly larger their reliance on the money they receive from shareholders diminishes. Generally, their annual turnover in sales makes the money initially invested by shareholders look pathetic and is more than enough to fund their growth and to invest in innovation and development (that is, when this is not supplied virtually free of charge by the state). Shareholder power diminishes proportionately to the decreasing need of the corporation to require ongoing financial investment.

This is clearly another link to the need for ‘vertical integration’ mentioned above, as the corporation will also want to ensure its own capital security (and not depend on the whims of stockholders and other investors when it needs funds to grow). Companies are no longer run by shareholders via stockholder meetings, they are run by the CEO and other people who belong to what Galbraith calls the ‘technostructure’. These people are referred to in Filthy Lucre Economics for People Who Hate Capitalism, for example, as being remarkably altruistic – but this is only because that book is written by someone so obsessed with the myth of the ‘free market’ they are unable to see the true nature of what they are looking at. Management are supposed to work very hard at increasing the profits of a company for a salary when these profits then ultimately go to a series of stockholders whom the managers either don’t know or are unlikely to ever know. But appeals to altruism aren’t necessary. Keeping shareholders happy is clearly no longer the key consideration for large, technologically driven corporations. Do you want proof? Joseph Heath in Filthy Lucre Economics for People Who Hate Capitalism says (while trying to make quite another point), ‘Microsoft, for instance, paid no dividends at all to shareholders between 1986 and 2004 – so obviously its predatory behaviour (including significant violations of law in both the United States and Europe) cannot be blamed on a thirst for profits.’

If these violations cannot be blamed on a thirst for profits, then what can they be blamed on? If Microsoft paid no dividends for the twenty years that it was perhaps most profitable and had the least real competition (remember, it was being investigated for monopoly behaviour), when does a corporation dole out its profits to its shareholders? Galbraith’s answer is that the corporation today is not run to maximize profits only, but to ensure its continued existence and expansion. While profitability may be one measure of a corporation’s success, it is certainly not sufficient in and of itself.

Galbraith’s vision is that there is a technological class that is increasingly independent of both capital and traditional manual labour (which has been mostly replaced by technology). To survive, this class needs to ensure a supply of capital from savings (the vast majority of these are savings held by corporations themselves and an ever diminishing amount from traditional stockholders). A large and growing sector of the economy have no savings at all and these people (read, us lot) are constantly instructed in the need to fulfil their highest function, that is, to work and to buy – such are the joys of advertising. He points out that income increased substantially between the 1920s and 1960s – in fact, on average, I think he says it doubled in the US - and yet people didn’t do less work, didn’t trade their productivity for more leisure, they did more.

Many of the arguments Galbraith uses are so prescient that they took my breath away. His analysis of why unions inevitably have less of a role to play in society was one such moment. But most strikingly was his idea that we could expect, in the new high technology world, people to work longer hours and for them to work for more years. That he predicted this in the 1960s was profound enough to make me recommend reading this book for that analysis alone.

I have gone on for too long, and yet there remain a million other things I need to say about this book – I really do recommend it. It has so many remarkable ideas and is so beautifully written that it really is a joy to read. If you are sick to death of the simple-mindedness of radical free market economics and find the standard Marxist view (based on the increasing alienation of labour and the total impoverishment of the proletariat) somewhat contradicted by our increasing wealth in society – then this book may be of some help. At the very least it will present you with some hurdles to think your way over – and that has always got to be a good thing.

[Czarny Pies · Rating 4 out of 5]

The New Industrial State is a great liberal pipe dream in which Galbraith argues that America has become a paradise administered by big business and big government. Galbraith's thesis was that America's large corporations were managing the economy in a highly benevolent fashion. Their control over resources and consumer wishes was such that they effectively could manage demand. Thus the era of Schumpeter's creative but destructive free market economy was over..

The role of government was to manage the Keynesian economy by increasing purchases of goods and services in times of recession and decreasing them in booms to prevent the economy from overheating.

It took less than 10 years for events in the real world to prove that this was all a lot hogwash. The first petroleum crisis in 1974 proved that the American economy was still highly vulnerable to fluctuations in international commodity prices. At the same time the first wave of Asian competition arrived in the form of the Japanese who in less than a decade destroyed the American consumer electronics industry and did profound lasting damage to both the automobile and steel industries which had hitherto been considered as immortal titans.

At the same time, twenty years of undisciplined Keynesian management of American government finances had turned the cyclical deficit of American governments into profound structural deficits.

Read this book for the portrait that it gives of the mentality of America's smug corporate and government elites on the eve of a profound humbling.

[Maureen · Rating 5 out of 5]

John Kenneth Galbraith gave me a copy of this book in the Atlanta airport. What happened was this: he had come to make an address at the University of Georgia shortly after the publication of The New Industrial State. The faculty member who was driving him back to the airport asked me if I wanted to join two male students in accompanying him to Atlanta. I knew a lot about Galbraith, not only because I admired his work with the Kennedy administration, but because I read the New York Times and the Washington Post. I knew all about his and his wife's close friendship with Jackie O., and that he had been at the famous Black and White Ball, which had just taken place at the time.

Conversation in the station wagon on the way to the airport was pretty stilted. The guys wanted to talk economics, and I could tell that JKG was bored to tears. When we stopped for gas, the two guys and the professor got out of the car. I turned to JKG and said, "Tell me all about the Black and White Ball. I want details!" The next thing I know, JKG is dishing the dirt on the party, and how George Plimpton organized a touch football game in the ballroom at the Plaza, and who got too drunk, and who was wearing what. Then I turned the conversation to Jackie O. Things really took off when he showed me the book on India that he had written, and that Jackie O. had edited. She had called him the night before, and he told me all about the phone call. For one brief, shining moment, I was in Camelot.

As if that weren't enough, when we got to the airport, we all piled out of the car, and JKG and I went on talking like old friends. We went inside and escorted him to his gate. When we got there, he said, "I want to give you something." He reached inside his briefcase and pulled out a copy of The New Industrial State, which he autographed and presented to me. Then he literally swept me off my feet, gave me a huge hug, grinned, winked, and went to get on the plane.

On the way back to Athens, I started reading my new book. It was hard, though, because the guys kept breaking my concentration, saying ,"How did you do that? What did you just do?" So the first lesson I learned from this book, just by being given this copy of it, is that no matter what their station in life, people just want to be treated like people. Everyone has a fascinating story to tell. You just have to ask them for it.

And, by the way, this book has a serious message about how soulless megabusiness has overtaken government, leaving the will of the people and their welfare behind in tatters. Time has vindicated Galbraith's position in this ground-breaking work.

[Erik Graff · Rating 4 out of 5]

I read this enjoyable work alongside its companion volumes, American Capitalism and Economics and the Public Purpose, for the course in Capitalism, Democracy, Socialism taught under David Schweickart of Loyola University Chicago's Philosophy Department in the first semester of 1981/82. The culmination of the courss was 'a great debate' betwwen classmembers divided between the three systemic categories. Dr. Schweickart himself primarily represented the socialist camp, having promoted a form of worker-managed, market socialism in several books. Naturally, this was a draw for some students. Milton Friedman was the lead source for the defenders of capitalism. Galbraith was a vaguely intermediate figure. I joined the Galbraithian group despite having most sympathy for the worker-control socialists.

In fact, in the third volume of the trilogy of which this was the second, Galbraith comes out as a democratic socialist, rather along the lines of Germany and the Scandinavian states, in other words a mixed economy and what Galbraith considered a realistic possibility for the United States. Frankly, I saw defending that attitude of reformism more challenging than advocating for an ideal model unlikely to be realized--except, of course, in something like a Galbraithian system which might allow, even promote, such attempts.

[Hans G. · Rating 5 out of 5]

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 outnumbered the several 100 enormous corporations. The actual economic and business activity was dominated by the minority big/enormous corporations. This meant the American system was dual in institutional structure. One sector where big business predominated and the dynamics of "planning" ran supreme. The other where small business and the dynamics of the profit motivate ran supreme. This was a situation that businessmen well understand, but that policy economists and politicians failed to appreciate the full relevance and policy implications.

In its fortieth anniversary publication, the institutional structure of the American economy has radically transformed. The technostructure is still necessary, but its power has been greatly, perhaps absolutely, diminished.

Technological shifts and socioeconomic policy shifts have moved history and the world beyond Galbraith's "The New Industrial State." However, the book's importance has not been diminished, but merely shifted. The book's importance is no longer in describing the institutional structure of American capitalism, but understanding from were the now current system evolved.

To draw a Darwinian metaphor, "The New Industrial State" is the missing link between the "just-in-time" production corporation and the entrepreneurial capitalists of Adam Smith (1776) thru Karl Marx (1867). "Just-in-time" production corporations contract significant portions (if not all) of their production from subcontractors. The prevailing role of the "planning" of The New Industrial State has been demoted. The corporation does not have to plan because a subcontractor can almost always be found, the subcontractors planning is only as long as the contract with a Wal-mart, or some other mega-corporation. This institutional shift toward "just-in-time" production does not make the technostructure obsolete, but it does diminish their power role within the corporation.

It will be Galbraith's "The New Industrial State" which will allow us to fully understand the "Post-Industrial State."

The "New Industrial State" should receive a wide and new generation of readers. It is an important book to understand a previous era, and a specific relationship between citizens, workers, business, and the public sector, a type of symbiotic embeddedness between each group. It is also an important book to understand how that specific relationship has be reconfigured, generating a type of disembeddedness between citizens/workers and business/public sector. "The New Industrial State" helps us understand why big moneyed lobbyists have come to dominate Washington, and how it could be, and was, different.

[Patrick Peterson · Rating 1 out of 5]

I read this book in High School while I was taking economics or political science.
My memories are that the book was not well written, quite dull and full of ridiculous critiques of basic economics and history.

The most ridiculous quote I remember from this book (or possibly from The Affluent Society, which I read not long afterward and may have confused with) was his statement that "that's the exception that proves the rule."

Think about that for a second.

Exceptions do NOT prove any rules. They don't do anything, except perhaps DISprove a rule. Yet here is an eminent prof. of econ. at Harvard, in his "classic" (best selling) work on American Capitalism telling people that the exception to his "rule" about American big business being able to control their markets, due to their size, and advertising power, such as Ford and it's somewhat stable "control" of 22-25% of the US auto market, could foist on the American public whatever new car model design it wanted, and the public would just buy it, regardless. The exception he was trying to not just belittle, but actually literally make into an extra reason why his "rule" was true, was of course the too obvious to ignore case of Ford's Edsel model, which flopped. People would not buy it. It was a huge loss for Ford. Everyone knew about it back then.

So, again, I urge you to think about the tactic that Galbraith used to turn this obvious contradiction to his bogus theory, into a rhetorical flourish that looked like it backed up his theory, hoping the audience just does not care about logic and facts.

The main thrust of the book was to push his idea that the "technocracy" his loosely defined term of the top management of private companies which control major technology was in charge of the economy and would continue to be in charge, since competition was a sham. This was written in the days (1967) of the Detroit "big 3" auto companies "controlling" about 80-90% of the auto market since WWII, in the days when IBM controlled a huge percent of the computer (mainframe) market, and a few other companies were also very predominant in their respective markets.

Any particular market can have a selective snapshot taken of it and appear to not have much competition or innovation and the present dominant companies look like they may never be dislodged. But that is not the way the world works. That is a false and misleading view of what is really happening and what forces are working to provide new and better value for the consumer. AND just as importantly, it does not explain the very negative effects of government intervention in the economy. Interventions take away value from the consumer, prevent new value from being created, lock-in the managements and corporate structures that then exist, and help slow down new and better entrepreneurs from changing things to satisfy unmet consumer needs and desires.

The biggest things MISSING from the book are:
1. A decent understanding of entrepreneurship, which serves the consumer and disrupts the fat, lazy, old, inefficient, too expensive or too chintzy companies and management. Galbraith totally missed the entrepreneurial competition that was brewing for the companies he was touting. He totally missed the importance of DEC, Data General, HP, VW, Toyota, Honda, etc. of the day. And he had no inkling of the vast further changes and improvements coming with Intel, Compaq, Dell, Apple, Microsoft, Sun, Nissan, Hyundai, let alone the bankruptcies of GM, Chrysler, etc. Just think how completely all these companies have or are being upended and their profits drained away by the newer breed of massive consumer services companies such as Google, Facebook, Uber, Amazon, etc.
2. A simple appreciation of what government actually is, what a negative force it is in society, if it goes beyond it's basic, important, yet necessarily restricted purpose - to keep the peace and adjudicate disputes. Galbraith exhibited virtually no knowledge of or appreciation for the fact that government is force. That taxes are TAKEN by the threat of (or actual us of) force. That the only proper use of that force is defensive: stopping or catching robbers, murderers, rapists, terrorists, etc. Stopping foreign enemies from attacking the country or fighting them if they do. Adjudicating disputes among parties who cannot agree and may resort to force if they don't have some third party to settle the matter if they can't.

All of these subjects can and should be explored in greater depth and clarity. Galbraith gave none of that, but just hot air about his fantasy world of "concentrated economic power."

If the reader is serious about finding out what the real forces are that make our lives better and worse, I highly recommend he/she read Ludwig Mises, Murray Rothbard, Friedrich Hayek and a growing host of others who have training and insights in what free markets are all about.

[Steven H · Rating 5 out of 5]

HAS THE ‘TECHNOSTRUCTURE’ REPLACED THE ‘MARKET’ IN THE UNITED STATES?

Economist John Kenneth Galbraith wrote in the Foreword to this 1967 book, “I started this book ten years ago… ‘The Affluent Society’ was nearing completion… Presently another and larger world began obtruding itself on my thoughts. This was a world of great corporations in which people increasingly served the convenience of these organizations which were meant to serve THEM. It was a world in which the motives of organization members seemed not to fit the standard textbook mold. Nor did the relationship between business and state. Nor did markets. Especially markets. So far from being the controlling power in the economy, markets, were more and more accommodated to the needs and convenience of business organizations… I became persuaded… that these parts belonged, indeed, to a much greater and very closely articulated process of change.” (Pg. vii)

He observes in the first chapter, “modern economic life is seen much more clearly when, as here, there is effort to see it whole… the forces inducing human effort have changed. This assaults the most majestic of all economic assumptions, namely that man in his economic activities is subject to the authority of the market. Instead, we have an economic system which… is in substantial part a planned economy. The initiative in deciding what is to be produced comes … from the great producing organization which reaches forward to control the markets that it is presumed to serve and… bend the consumer to its needs. And, in so doing, it deeply influences his values and beliefs… there is a broad convergence between industrial systems. The imperatives of technology and organization… are what determine the shape of economic society.” (Pg. 6-7) Later, he adds, “Technology… leads to planning… Technological compulsions, and not ideology or political wile, will require the form to seek the help and protection of the state.” (Pg. 20)

He notes, “Where a firm is especially dependent on an important material or product… there is always danger that the requisite supplies will always be available only at inconvenient prices. To have control of supply---to rely not on the market but on its own sources of supply---is an elementary safeguard. This does not eliminate market uncertainty; the large and unmanageable uncertainty … is replaced by smaller, more diffuse and more manageable uncertainties as to the cost of labor… and … raw materials.” (Pg. 28)

He observes, “In the western economies, markets are dominated by great firms. These establish prices and seek to insure a demand for what they have to sell. The enemies of the market are … not socialists. It is advanced technology and the specialization of men and process that this requires and the resulting commitment of time and capital.” (Pg. 33)

He states, “In a society which so emphasizes consumption and so needs capital, the decision to save should obviously be removed from the consumer and exercised by other authority… In the formally planned economies, although there is some slight reliance on voluntary savings by individuals, the basic decision on how much is to be saved is taken by the state. The decision is then made effective by taxation.” (Pg. 38)

He asserts, “With the rise of the modern corporation… the entrepreneur no longer exists as an individual person in the mature economic enterprise… It replaces the entrepreneur … with management. This is a collective and imperfectly defined entity… It includes… only a small proportion of those who, as participants, contribute information to group decision… It embraces all who bring specialized knowledge, talent or experience to group decision-making. This, not the management, is the guiding intelligence… of the enterprise. There is no name for all who participate in group decision-making or the organization which they form. I propose to call this organization the Technostructure.” (Pg. 71) Later, he adds, “it will be necessary to distinguish between corporations … which … still accord power to an individual … and those where the technostructure has taken over. I will refer to the first at the Entrepreneurial Corporation and the second as the Mature Corporation.” (Pg. 92)

He continues, “there is no longer, a priori, reason to believe that profit maximization will be the goal of the technostructure.” (Pg. 111) He goes on, “The technostructure does not supply capital, but specialized talent and organization. There is, a priori, no reason to believe that it will maximize the return to capital. More plausibly it will maximize its success as an organization.” (Pg. 121) He goes on, “the technostructure is compelled to put prevention of loss ahead of maximum return. Loss can destroy the technostructure… [If] the maximization of revenues invites increased risk of loss, then the technostructure … should forego it.” (Pg. 168-169)

He adds, “Much of what is believed to be socially important is, in fact, the adaptation of social attitudes to the goal system of the technostructure… These social goals, though in fact derived from the goals of the technostructure, are believed to have original social purpose. Accordingly, member of the corporation … are able to identify themselves with the corporation on the assumption that it is serving social goals when, in fact, it is serving their own. Even the most acute social conscience is no inconvenience if it originates in one’s own.” (Pg. 163)

He states, “If advertising affects the distribution of demand between sellers of a particular product is must also be supposed that it affects the distribution as between products… along with the other arts of demand management, it allows the firm a decisive influence over the revenue it receives. What seems to the traditional market economists a sense-deadening struggle between the detergent-makers leading only to stalemate serves a deeper and highly important purpose.” (Pg. 205)

He points out, “Modern military and related procurement and policy are, in fact, extensively adapted to the needs of the industrial system… And the line dividing the state from what is called private enterprise, or at least from the highly organized part of it, is a traditional fiction.” (Pg. 232)

He notes, “Here we have yet another of the interlocking developments which so admirably serve the industrial system. Advertising and salesmanship---the management of consumer demand---are vital for planning in the industrial system. At the same time, the wants so created insure the services of the worker. Ideally, his wants are kept slightly in excess of his income. Compelling inducements are then provided for him to go into debt. The pressure of the resulting debt adds to his reliability as a worker.” (Pg. 273)

He says, “The nature corporation … depends on the state for trained manpower, the regulation of aggregate demand, for stability in wages and prices. All are essential to the planning with which it replaces the market. The state, through military and other technical procurement, underwrites the corporation’s largest capital commitments in its area of most advanced technology. The mature corporation cannot buy political power. Yet, obviously, it would seem to require it.” (Pg. 308)

He argues, “Where there is a conflict between industrial and aesthetic priorities, it is the state which must assert aesthetic priority against the industrial need. Only the state can defend the landscape against power lines, advertisers, lumbermen… Only it can rule some patterns of consumption---the automobile in the downtown areas of the modern city is a prominent possibility---are inconsistent with aesthetic goals. The state alone can protect radio and television from contrived dissonance… That one must pause to affirm that beauty is worth the sacrifice of some increase in the Gross National Product shows how effectively our beliefs have been accommodated to the needs of the industrial system.” (Pg. 350)

He explains, “In quite a large area outside the industrial system---the world of the small retail entrepreneur, repairman… barber, market gardener… the market does work adequately or well… However there are also products and services, some of them of the highest convenience or necessity which cannot be called into being by the market… The clearest case is urban and interurban surface transportation of people… had there been no planned provision … it seems unlikely that telephonic communications could have survived… The most painful consequences from assuming the competence of the market are in urban and suburban housing, commercial and other real property development… no natural superiority can be assumed either for the market or for planning. In some places market responses still serve. Over a very large area such responses cannot be relied upon; the market must give way to more or less comprehensive planning of demand and supply.” (Pg. 355-361)

He concludes, “If we continue to believe that the goals of the industrial system… are coordinate with life, then all our lives will be in the service of these goals…. Our wants will be managed in accordance with the needs of the industrial system… All other goals will be made to seem previous, unimportant or antisocial. We will be bound to the ends of the industrial system. The state will add it moral, and perhaps some of its legal, power to their enforcement. What will eventuate … will be the benign servitude of the household retainer… But it will not be freedom. If, on the other hand, the industrial system is only a part, and relatively a diminishing part, of life, there is much less occasion for concern… Intellectual preparation will be for its own sake and not for the better service to the industrial system. Men will not be entrapped by the belief that apart from the goals of the industrial system… there is nothing important in life… we may, over time, come to see the industrial system … as an essentially technical arrangement for providing convenient goods and services… If other goals are strongly asserted, the industrial system will fall into its place as a detached and autonomous arm of the state, but responsible to the larger purposes of the society.” (Pg. 398-399)

This, and Galbraith’s other books, will be “must reading” for those seeking a liberal/progressive view of economics.

[X]

DNF on p. 30. I thought this might be interesting based on the subject matter and/or as a kind of historical insight into views on big business. However, it reads very pop-economics; there’s not enough substance to keep trying it.

[Sean Lynch · Rating 4 out of 5]

“There are agnostics who do not place their trust in God. But a deeper faith reposes trust in the market.”

This book has going for it what so many other economics texts don’t: a connection to reality. “The New Industrial Sate” is an excellent, though definitely dated, book. Galbraith examines how power in the American economy moved from land owners to capitalist entrepreneurs and finally to the technostructure in the post-WW2 economy. The entrepreneur in Galbraith is almost reduced to an impotent anachronism, like Henry Ford struggling for any power he could put his hands around at the end of his life. He argues that the technostructure is motivated not primarily by pecuniary advancement but by identification and adaption. The lust for profits in the new industrial economy is subservient to the technostructure’s need to maintain itself. As a result, the owners play a symbolic role while the managerial class maintains the power by actually making decisions. Lip service is paid to the role of markets, but in reality the market is suspended by business and government whenever possible. Galbraith argues that a technologically advanced economy needs the stability that only planning can provide. Decisions have to be made by those with the specific knowledge to make them. Thus, he argues for the efficiency of bureaucracy (public or private) in a technologically advanced economy: “The real accomplishment of modern science and technology consists in taking ordinary men, informing them narrowly and deeply and then, through appropriate organization, arranging to have their knowledge combined with that of other specialized but equally ordinary men.”

He shatters the myth of the benefits of the free market by stressing the efficiency of the technostructure and explaining how the post-WW2 economy was one of excessive planning where aggregate demand and prices were planned by essentially blurring the line between public and private enterprise. Even seeming legal contradictions, like the way antitrust laws prohibit price fixing for small suppliers while excusing tacit price fixing by oligopolies, are designed, or at least have the effect of, providing for the kind of planning necessary for the technostructure to thrive and control wage-price problems. Investment in military R&D and the space program served as much for defense as it did to promote the kind of technological advancements that can only be undertaken by the public sector. In his time, the Cold War was a convenient tool for allowing this type of big public investment. While concentrating on the present, he foresees a future where education and scientific advancement win out, where an educated public even asserts an aesthetic judgment in tempering the goals of industry. Of course, we know unfortunately what happens instead.

It’s a shame that his brand of sensible economics lost out. What he certainly didn’t foresee was the transfer of power from the technostructure to the financial sector. And what a shame that since the time of his writing, market fundamentalism reigns supreme, a God we are all taught to bow before no matter how many times he smites us.

[Andrew · Rating 4 out of 5]

The New Industrial State by John K. Galbraith, is a classic work of economics written in the decades following WWII. Galbraith was a well known economist in his time, and the New Industrial State is his seminal work. Galbraith looks at the structure of power from the point of view of the economy, at times making predictions, or forecasting, and at times critiquing the system as it was at the time of writing.

Galbraith examines a number of concepts that relate to power and the state. He examines corporate structure, and what he saw as the centralization of power with Wall Street and financial institutions, a concept that we all have experienced during the 2008 economic crisis. Galbraith examines the planning system, and criticizes the view that government power and business power are separate concepts. Galbraith sees that many systems in both fields are intertwined, and indeed inseparable. The reward system is examined, with Galbraith positing that a fair wage and good benefits offered by a corporation are excellent ways to motivate employees, and move them away from labour and into corporate loyalty. Galbraith also looks deeply at the wage system, and motivation and management systems. Specific industries, like the arms industry, are also examined in detail.

Galbraith's book was a very accessible look at the economic structure of a state in modern times. Price controls, R&D, military, employment, corporate structure and the design and function of the planning system are all examined in great detail, and with great clarity. Galbraith also makes some very accurate predictions, touching on the importance of forecasting, which is quickly becoming a major industry in modern times. The centralization of monopolistic power with large corporate organizations is also posited, and indeed is very accurate in modern times, if one looks at the telecommunication industry, for example. Some of Galbraith's predictions did not play out as intended, however. He saw at the time the collection of power within an organization at the managerial level, with both stockholders and CEO/Board of Directors acting largely as lesser powers. This has yet to occur. He also saw the destruction of union power as a positive, but in the 4th edition (the one I read) he corrects this and sees it again as a negative. Even so, union and labour power has declined steadily over the past decades.

Galbraith's book is easily accessible, and one can see why it has become an influential title in its field. Galbraith takes economics from a Neo-Keynesian standpoint, arguing for increased state power, but also advocating for status quo in certain corporate sectors. Galbraith's book is an excellent look at the "middle road" and indeed, he was labeled as a socialist in his time by his opponents. Galbraith's book is a must read for those interested in economic theory, or in political economics. It is wonderfully interesting, and only contains a few forecasting issues which are of little consequence. A great read.

[Mauro G. · Rating 4 out of 5]

The New Industrial State is one of the more interesting economic books I’ve read recently, in part due to the fascinating conclusions Galbraith draws, but also for showing the general psyche of the Keynesian progressive/social democrats of the era. The book being released in 1967, one year before Nixon’s election and the rise of neo-conservatism in the United States is poetic in many ways. Galbraith was a man of his era, having gotten his start in government in FDR’s administration. He wrote this at a time where it seemed like the United States could very well become a German or a British pre-Thatcher style-social democracy, or at least a progressive welfare state. The progressive-labor wing of the Democratic party (to which he belonged) was still particularly strong, and the New Deal Coalition was alive and well.

Many of the conclusions within the book reflect the optimism of those from that wing of the party. His vision of government, union, industrial, educational, scientific, and artistic interests being able to be in homeostasis after a certain point is reminiscent of the efforts of Olaf Palme in Sweden. In his vision, as government, unions, and industry start to rely more on each other for day-to-day functions (industry needs trained professionals that only public education can give; the government needs contractors to develop technology and taxes only industry can give; unions need government-backing to stay afloat; and both industry and unions need predictive pricing and wages for stabilization) their goals will combine.

The question is whether the industrial system will subject the government to its vision, or vice-versa. Galbraith throughout the book warns of what happens when public life - including goals of education - are subjected only to industrial wants: the destruction of the environment; (more relevant than ever now) horrible-looking cities; a population that is industrious but is unquestioning of industry’s wants.

Galbraith had a rosey future though: that it was possible to end industrial control over education and public desire via government action. He admits that while it is a time-consuming process, it’s possible and can be done. He was somewhat of a moderate socialist himself, and stated that due to the increased planning used by both corporations and the government, the capitalist West was transferring to something akin to socialism, although it would rely on a reformed education system (see above), and a greater welfare state. Over 50 years on, where wages haven’t been adjusted to inflation or productivity in decades, this seems like a bad joke.

Those are the major weaknesses of the book, but I believe his discussions on the future of the industrial state are the least important aspects of his work. Some say of Marx that while he was a bad fortune-teller, he was a great journalist of the industrial system. I say the same of Galbraith.

In plain English he describes the development of planning in capitalist societies, the decline in entrepreneurial capitalism, and the state of the modern workforce. As technology becomes more complicated, a greater degree of planning is needed. For example, a Model T had 3,000 parts and could be assembled in 90 minutes. A modern car has something like 30,000 parts and is assembled in at bare minimum 10 hours. Each one of those parts are incredibly complicated and needs teams of experts to produce, test, market, and so forth. The company, in view of this, needs highly-educated technical staff. And as production technology gets better, needs less manual labor. Thus there’s a switch to technical work. As all of these processes need specific, technical knowledge, decisions can’t really be made on say, marketing or what tires will be made out of by the shareholders. All decisions are made deep within the firm - by a group Galbraith calls the “technostructure”. Engineers, marketers, accountants, designers, attorneys, managers - anyone with specific technical skill. These are the people who make decisions.

As production starts involving more and more people and capital, planning becomes a necessity. Logistics, production of specific parts, marketing, and so forth become parts of a complex machine that can’t be changed immediately. Thus, in its best self-interest, the technostructure brings planning to the firm. When things are getting produced, how much, where. And in particular importance: prices. A company cannot take the risk of producing, say, an all new luxury car and just letting it be thrown into the market to see what the consumer thinks, and hopefully make a profit. Thousands of people and millions of dollars were included in production. In order to make a profit you need to determine pricing beforehand, and make the consumer want it via extensive advertising. The consumer doesn’t subject the market who subjects the firm - for Galbraith, it’s a two way street. The firm relies on market and consumer feedback, in order to try to align the market and firm in its favor. Much of the time it works, some of the time it doesn’t. So while businessmen rail against “planning” - the firm does it itself.

The term “knowledge worker” has come into vogue recently, but Galbraith’s technostructure pre-dates that by several decades. Similarly, along with some of his contemporaries like Daniel Bell, discussed the end of class conflict/ideology decades before thinkers like Slavoj Žižek addressed it, although from a differing angle. As a greater percentage of the workforce becomes white-collar, fewer identify with the proletariat (even if a low-level office worker has more in common with a factory worker, than either with a boss) and instead there is a cross-identification with the company instead. People no longer think or themselves in terms of working class or upper-class, they just think of themselves as a loyal worker to the company. For Galbraith this explains the decline of union membership (arguably, it’s a two-way street) and the move beyond class-conflict, and towards instead an anti-intellectualism that could be in the future led by “semi-literate businessmen” (wonder who that is like...)

If you are of a Marxist variety and believe ideological conflict boils down to conflict over material conditions (or a perception of it), there is a clear similarity between this and Žižek’s and Mark Fisher’s “capitalist realism”. Or for a more real world example: notice how American politicians never talk about the “working class” it is always the nebulous “middle class” and “working families” lines. No one wants to talk about class anymore.

Over all, this is a fantastic (if at points dated) book. If you’re of a progressive/Marxist temperament, you’ll probably enjoy the surprising amount of humor in the book. Some complain that he is repetitive, but as someone who has a horrible memory, I honestly appreciate the recaps throughout the book. There is no math in the book, and relies more on the “conventional wisdom” of the reader he was known to preach about.

[James Henderson · Rating 2 out of 5]

I read this when it was first published in 1967. As part of my freshman Honors Econ course I wrote a blistering critique of what I still consider one of the worst books I have ever read. I argued from the point of view shared by Milton Friedman and other free market thinkers that Galbraith believes in the superiority of aristocracy and in its paternalistic authority, that consumers should not be allowed choice, and that all should be determined by those with "higher minds" - never mind the choices of the individual consumer. Today Paul Krugman, who in ironic fashion criticized Galbraith as well, represents a similar strain in aristocratic economic thought. In this book Galbraith demonstrates the best example of an advocate of "bad" economics.

[DoctorM · Rating 4 out of 5]

A book from another century and another age, but one that still bears reading. JKG's account of the transformation of market capitalism into something more bureaucratised and rigid owes a great deal to both Max Weber and Joseph Schumpeter, and, despite the way that IT and finance seemed in the last thirty years to owe so much to nimble start-ups, JKG's basic premise holds: large successful entities dominate markets and want stability far more than they want innovation. "Free enterprise" is all well and good as a rallying cry, but winners want the fruits of their success. A book that still bears reading, half a century on.

[Mattias Rytting · Rating 4 out of 5]

The New Industrial State is one of Galbraith's most influential works and builds upon the Affluent Society. Galbraith describes how the reliance on technological advances and hyper-specialization allowed the modern corporation, through industrial planning, to bypass the free market. Similar to the Affluent Society, Galbraith warns against the onslaught of want creation and corporations in American society. This, however, wasn’t the part of the book that struck me. Galbraith briefly remarks on anti-intellectualism regarding class conflict; reading this in the middle of new throngs of anti-intellectualism following the past election is mind-blowing. Decades have passed since this book was published, and Galbraith was once again right, Galbraith, however, does not go into much detail on this point.
In regards to the economics Galbraith poses, specifically the oligopolistic character of the industrial state, Galbraith draws a few stark contrasts from the economics we are taught in school. This comes in the form of Galbraith’s discussion of the inefficiency of the oligopolistic firm and how economists bypass this inefficiency by claiming firms are only inefficient on the micro level and that on the macro level, their effect is negligible. I have just recently begun reading more economics outside of my class. I am but a wee undergrad, but I find it reassuring that strict neo-classical economic thought isn't the only way. I enjoy reading Galbraith specifically because he discusses important topics that I see in my textbooks and offers insight that I feel is lacking from the content I study at University.

[Ed Terrell · Rating 5 out of 5]

The New Industrial State was first written in 1967, before Enron, the lost decades of Japan, and the rise of China's economic muscle flexing. It however still manages to enthrall in its ability to challenge current thought and to add clarity to gain a better understanding of the driving forces of American Capitalism. The "counter vailing forces" squashes attempts at monopolies more firmly than any government could. The thrust of the book is to document the change from entrepreneurial firms to the technostructure, the planning system and management of consumer demand. It is with the technostructure that power today lives.

[Jayden Davidson · Rating 4 out of 5]

The diagnosis of the state of the economy is insightful and thorough - truly an incredible book by this standard. However, some aspects of it have become quite dated, especially since the 1980s and 90s. Additionally the last quarter of the book turns to solutions which I found somewhat disappointing - though it might be asking too much to expect a book describing a revolution in the operation of the economy to also fix all its problems. Regardless, a worthwhile read.

[Dorian Gray · Rating 5 out of 5]

A fantastic book, really insightful and deeply analytical. It is not perfect - it's now somewhat dated - but you can enjoy it as a portrait of mid-20th century business (sort of like Hitchcock's main characters) and reflect on the changes since. I think they've generally been for the worse. But in analysing deep trends in business and economic activities and going beyond the conventional, this is outstanding.

[джаймс X · Rating 4 out of 5]

Interesting artifact from a time when Keynesianism reigned. Still relevant (in my opinion) and good for tracing some economic/power developments. The central thesis has been revealed with time to be overly optimistic (or perhaps instead it was diplomatic/savvy framing) about a faltering grip of capital as the decisively powerful factor of production. Contains relatively fair (but dated) dialogue with Marxism from the centrist/establishment perspective.

[Eoin Hoey]

It should be noted that I've read the 1974, paperback, Pelican 2nd ed., revised, of this book (ISBN: 0 1402.1082 2). This edition contains 414 pages.

Incredibly dull, utterly bloated, so verbose that I think a third or more of the page count could be lost with sufficient editing for clarity & parsimony. Certainly a product of its time.

[Jeff Keehr · Rating 3 out of 5]

Galbraith was a fine stylist; his writing could be a little difficult to follow but in the end it was worth it. And he was a liberal with experience in government, which gave him a great deal of insight into what was wrong with America. I loved his dissections.

[Rahul Deodhar · Rating 4 out of 5]

The book is a slog but it has interesting ideas. It needs to be simplified for common audience. The summary provided by JK Galbraith's son in later editions is quite good. But there are interesting nuggets and ideas hidden in the discussions.

[Chris Tschirhart · Rating 5 out of 5]

Shaped my notion of capitalism and the market economy of North America.

[Richard Dean · Rating 4 out of 5]

This book posited the idea that the New Industrial State would be driven by Big Business, Big Labor, and Big Government. The reality that developed was that Big Business along with Big Government defanged Big Labor. Labor unions were undermined by the development of "right-to-work" legislation in states.

[noblethumos · Rating 5 out of 5]

The New Industrial State is a book written by John Kenneth Galbraith, a renowned economist, writer, and public figure. The book was published in 1967 and is a critical analysis of the nature and functioning of the modern industrial economy.

In The New Industrial State, Galbraith challenges the conventional wisdom of the time, which held that the market was the primary driving force behind economic activity and that the role of the state was to create the conditions for the market to operate freely. Galbraith argues that the modern industrial economy is characterized by the dominance of large corporations, which he calls "planning systems," and that these corporations are able to exercise a significant degree of control over the market and the broader economy. He contends that the planning systems, which are able to operate beyond the constraints of the market, are the primary drivers of economic growth and development, and that the state plays a crucial role in supporting and regulating these systems.

The New Industrial State is a thought-provoking and influential work that has had a lasting impact on economic theory and policy. It remains a widely read and discussed book, and is considered a classic of economic literature.

GPT

[Julie · Rating 3 out of 5]

Galbraith informs us that the success of the managed economy in its core sectors from the commanding heights, will unfortunately produce more workers, than the state can find jobs for.

A pretty significant contradition.

[Sandeep · Rating 5 out of 5]

A detailed yet sweeping examination of the structure and operation of the modern U.S. economy. It's a refreshing change from contemporary economics writing, which, with its absurd assumptions and detachment from the messy real world, often does little more than rationalize existing injustices.

[Mark · Rating 3 out of 5]

The first half is great, the second half starts to repeat itself.

[Daniel · Rating 5 out of 5]

I loved this concept - at the time - so did John Kennedy and so did Galbraith but even he admitted later that all of it simply did not work.

[Robert · Rating 3 out of 5]

It's hard to understand how such a witty person can be such a dull writer. And his business commentary hasn't stood up very well either.