A Reviewer's Notebook - 1967/11


The New In­dustrial State

I was once a co-worker with John Kenneth Galbraith on Fortune Mag­azine. Presumably, in the course of carrying out writing assign­ments, we must have been subject­ed to similar influences. But what he saw, I failed to see — and vice versa. In his amiably sardonic way he used to refer to myself and to John Davenport as "Puritan" econ­omists, meanwhile reserving for himself the adjective "Rumanian." By this he meant that he had no interest in the economizing func­tion, which would attempt to use scarce means in the most produc­tive way. To Galbraith as to Thur­man Arnold, an overloaded payroll was simply a means to the end of spreading leisure and sharing a fixed amount of wealth among more people. He welcomed stagnation as a release from creative tension.

The Galbraith ideas have now been worked up systematically in a long, somewhat repetitive book called The New Industrial State (Houghton Mifflin, $6.95). I read it with considerable interest for reasons that are largely autobio­graphical. For Galbraith has em­braced every belief that seemed revolutionary — and therefore ex­citing — to my own generation thirty and even forty years ago. He is the perfect Veblenite, even to his habit of seeking out the phrase that will best combine suav­ity and immeasurable scorn. Here is the "conventional wisdom" of the 1930 radical, preserved under a bell jar for consignment to the nearest museum of antiquated ec­onomic curiosities. Yet Galbraith thinks he is a red-hot ideological innovator! Never has such self-delusion received such a respect­ful hearing (though the good re­views, one notices, have come not from the economists but from literary critics who are almost totally innocent of the history of economic ideas).

Veblen’s Influence

Galbraith’s theory is that the commanding influences in modern economic life dictate a suspension of market forces. We all believed this back in the late twenties and early thirties when we were talk­ing about Veblen’s The Engineers and the Price System and eagerly awaiting the publication of the gospel according to Berle and Means. The big corporation sup­posedly was in a position to sus­pend "pure" competition. It could dictate its prices, control its sources of supply, and reach out, via the advertising skills of Bruce Barton and Roy Durstine, to bam­boozle the customer into taking whatever the corporation stylists ordained for the so-called "mar­ket."

When I went to work for For­tune Magazine in 1936, I was a Veblenite par excellence. After writing corporation stories for six years, however, I wondered how I could ever have been so inno­cent. In support of his thesis that the modern "technostructure" keeps itself in power in the big corporations by controlling the future despite restless stockholders and the menace of competitive change, Galbraith cites the mis­adventure of the Ford Company with the Edsel as the exception that proves his rule. I might have believed this myself if I hadn’t been forced by Harry Luce to visit Detroit, Toledo, Pittsburgh, and way stations to look at changing factory routines and to talk to peo­ple who, with an air of conspira­torial confidence, told me about the thousand dodges that enable a mem­ber of a "big two" or a "big three" to steal business from an "oligop­olistic" competitor. My conclu­sion from a novitiate in writing for Fortune was that the system even at its most "oligopolistic" was shot through with competition, both open and hidden. But Gal­braith, writing for the same mag­azine, apparently listened only to the front-office fellows who be­lieved the propaganda of their own trade associations about "sharing" markets.

Galbraith is at great pains to prove the singularity of the Edsel story. But just how singular was this episode? I recall writing about the dilemma faced by General Mo­tors in the year of the "pregnant Buick," when the GM stylists were suddenly confronted with a car which few people wanted. Some years later GM committed itself to the rear-engine compact called the Corvair. This was a conces­sion to the popularity of the Ram­bler American on the one hand, and the invasion of the American market by the Volkswagen on the other.

Alas for the planning of the GM "technostructure," the Corvair fell foul of two sets of assassins. One of them was Ralph Nader. But the other was the American con­sumer, who, when a predicted de­pression failed to materialize, de­cided that he didn’t need to worry too much about the cost of sup­porting a more commodious car. For a few short months George Romney, as head of American Mo­tors, seemed to be making consid­erable hay with his propaganda about the "gas-guzzling dinosaurs" which required so much money for operation and upkeep.

But where is the American Mo­tors Company today? Its good ideas were imitated, its shortcom­ings live to plague it. As for the consumer, he cannot be compelled to any single style of car. His general preference seems to be for the rakish lines pioneered in Eu­rope at a time when Madison Ave­nue thought it had bamboozled the car-buying public into accepting jello-mold features forever, but —who knows? — maybe the balloon-roomy style will be back in vogue tomorrow.

Consumer Pressure

Galbraith wants to eat his cake and have it, too. He pictures the industrial "technostructure" as a group which is in thorough control of the situation: it can set prices, manipulate the minds of buyers, bribe the workers by progressive wage increases, and cajole the state into underwriting the purchasing power of the masses by vari­ous inflationary devices. Yet this same technostructure is pictured in savage competition for the bet­ter scientifically trained manpow­er. There is a contradiction here, for if the management of big industry had the power which Galbraith ascribes to it, why the eternal scrabble of corporate "ivory hunters" for inventive minds and processes? The truth is that the big company which fails to innovate goes under, as such studies as A.D.H. Kaplan’s Big Enterprise in a Free Society and the works of Schumpeter have so abundantly proved. The innovator moves to the unseen prod of the consumer, who may not know pre­cisely what he wants but does know that he wants variety as his own share of the national income increases.

Pure and Imperfect

Galbraith makes great propa­ganda with his insistence that the modern market does not represent "pure" competition. But, save in the case of such identical things as wheat measured by the bushel, there has never been a "pure" mar­ket. "Workable" competition was the order of the day when the firm of Boulton and Watt was "admin­istering" the prices of steam en­gines and when the better car­riage makers were quoting what they intended to charge for the more expensive equipages. The tailors who sold to Beau Brummel put in an extra charge for fashion, which was the equivalent of the fee exacted by Madison Avenue fashion-makers today.

As Hayek and Schumpeter have both said, if we had "pure" com­petition in the Galbraithian sense, there would be no competition at all. For if everyone had such things as equal access to the mar­ket and equal foresight, nobody would have an edge over anyone else in the money-making process. Perfect foresight for all competi­tors would mean an end to profits. It is the very imperfection of the market that keeps innovators on their toes, results in new products, and aerates human existence.

In Galbraith’s world the con­cept of "workable" competition plays no part. As David McCord Wright has said in a paper read at the recent colloquy of the Mont Pelerin Society at Vichy, France, Galbraith is a prophet of stagna­tion. He is the first "hippie econo­mist," as his friend Al Capp, the cartoonist, has had the effrontery to point out.

But surely, the reader might say, Galbraith’s book cannot be totally devoid of interest. It does have the incidental virtue of argu­ing that leisure has its place in life, and that the claims of esthet­ics are no less valid than the claims of economics. Moreover, Galbraith is an acute student of the psychology of the team. It is perfectly true that an IBM or a Chrysler Corporation does better when its employees have a loyalty to their organization that approxi­mates the loyalty of the Harvard football team to its coach, captain, and alma mater. Money is not everything, and people work for more than the pay check.

But surely this is a "convention­al wisdom" that is as old as Cae­sar’s legions, or the builders of Chartres Cathedral. It is an amus­ing commentary that where Gal­braith is good, he echoes a con­ventional wisdom that is virtually as old as civilization itself.


November 1967

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