John Kenneth Galbraith - The New Industrial State

The New Industrial State

THE JAMES MADISON LIBRARY IN AMERICAN POLITICS
Sean Wilentz, General Editor

The James Madison Library in American Politics of the Princeton University Press is devoted to reviving important American political writings of the recent and distant past. American politics has produced an abundance of important worksproclaiming ideas, describing candidates, explaining the inner workings of government, and analyzing political campaigns. This literature includes partisan and philosophical manifestos, pamphlets of practical political theory, muckraking exposs, autobiographies, on-the-scene reportage, and more. The James Madison Library issues fresh editions of both classic and now-neglected titles that helped shape the American political landscape. Up-to-date commentaries in each volume by leading scholars, journalists, and political figures make the books accessible to modern readers.

The Conscience of a Conservative by Barry M. Goldwater

The New Industrial State by John Kenneth Galbraith

The New Industrial State

John Kenneth Galbraith

With a new foreword by James K. Galbraith

PRINCETON UNIVERSITY PRESS
PRINCETON AND OXFORD

Copyright 1967, 1971, 1978, 1985 by John Kenneth Galbraith

Foreword 2007 by James K. Galbraith

Requests for permission to reproduce material from this work should be sent to Permissions, Princeton University Press

Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540

In the United Kingdom: Princeton University Press, 3 Market Place, Woodstock, Oxfordshire OX20 1SY

All Rights Reserved

First edition, 1967

First Princeton edition, with a new foreword by James K. Galbraith, 2007

Library of Congress Cataloging-in-Publication Data

Galbraith, John Kenneth, 19082006.

The new industrial state / John Kenneth Galbraith ; with a new foreword by James K. Galbraith. 1st Princeton ed.

p. cm. (The James Madison library in American politics)

Originally published : Boston : Houghton Mifflin, 1967.

Includes bibliographical references and index.

ISBN-13: 978-0-691-13141-2 (pbk. : alk. paper)

ISBN-10: 0-691-13141-4 (pbk. : alk. paper)

1. IndustriesUnited States. 2. Industrial policyUnited States. I. Title.

HC106.6.G35 2007

338.0973dc22 2006052864

British Library Cataloging-in-Publication Data is available

This book has been composed in Sabon with Helvetica Neue and Didot display

Printed on acid-free paper.

press.princeton.edu

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

For Andrea Williams

Contents

General Editors Introduction

John Kenneth Galbraith was the most renowned and, arguably, most influential liberal economist in the United States during the decades after the Second World War. The New Industrial State is Galbraiths most comprehensive account of modern economic life. Written mainly during the years he served Presidents John F. Kennedy and Lyndon B. Johnson, and published in 1967, the book describes the vastly more sophisticated, technologically advanced business enterprises that had arisen since 1945. Galbraith presented both a fresh analysis of a thoroughly changed economic landscape (where perfect competition operated mainly as a myth) and a reasoned plea for government action to insure that too much of life is not subordinated to the requirements of powerful corporations. The book is also a thoroughgoing effort to displace older but still powerful neoclassical economic orthodoxies.

Galbraith wrote The New Industrial State with his characteristic pith, energy, and wit. As in all of his major works, he coined new terms and categories for describing the brave new world he wanted to understand, including the technostructureterms which, like his earlier inventions such as countervailing forces and conventional wisdom, remain essential parts of our vocabulary. But the book is also a serious warning to all who would continue to approach the realities of economic life with the simple categories and nostrums of yesteryear. That warning caused immediate controversy, then fell by the wayside in the 1970s and after, as proponents of promarket, small-government, antiregulation, and low-tax policies gained the political initiative. Now, though, it is arguable that The New Industrial State has the tinge of prophecy.

The James Madison Library in American Politics aims to revive classic works connected to American politics in up-to-date editions. The New Industrial State is certainly a classic, but one that illuminates the past while also raising subjects for debate about the present and the future. Thanks to the provocative and instructive new introduction by James K. Galbraith, the authors son and himself a preeminent economist, readers can now appreciate the book in its proper intellectual and historical context, as well as judge its continuing relevance.

Sean Wilentz

Foreword

James K. Galbraith

The New Industrial State was my fathers great work of theory. First published in 1967, nearly a decade after the triumph of The Affluent Society, The New Industrial State went beyond criticism of orthodox economics, beyond Marx and beyond Keynestoward a full alternative, a complete substitute for neoclassical thought. In this book, John Kenneth Galbraith forged a vision of the business firm as organization, and of an economics of organizations that together form the planning system.

The economics of organizations stands in opposition to the economics of markets. In what Galbraith called the accepted sequence, consumer preferences come first. Firms place their products before a discerning public, sell what they can, discount the rest, and then repair to study how it might be done better next time. In his own revised sequence, large firms start with the design and technology of new production. They see what is possible, they conduct market research, they decide what they like. They then engage their advertising and consumer-finance staffs to ensure that the result can be sold.

For Galbraith, this was reality; he did not oppose it. Complex technology dictates that markets must be controlled. The products that define modern lifeautomobiles, jet aircraft, electric power, microchips, and cable televisioncannot be produced except over long lead times and by the integration of vast networks of engineering talent. This requires planning. Sometimes the planning goes wrong, and sometimes a company must strike out into the unknown. But not often.

Large business firms often even replace the market altogether. This they do by integration: replacing activity previously mediated by open purchase and sale with activity either internal to the corporation, or between a large, stable enterprise and its small, specialized suppliers, to whom risk is transferred. People reduce uncertainty neither through clairvoyance (perfect foresight), nor by confident exploitation of probability (portfolio diversification). They do it by forming up into structured groups large enough to forge the future for themselves. In politics these are countries and parties; in economics, corporations.

Once control passes to the organization, Galbraith wrote, it passes completely; the economics developed to describe the small firm and its owner-entrepreneur becomes obsolete. That form of economics celebrates the rational act of maximization, which consists of finding the shortest path to a given destination. But organizations do not have destinations. They have members, participants, stakeholders, all with a diversity of talents, interests, and purposes. Decisions are made by committees; the leadership of those on top is circumscribed by the need to get the underlings to go along. Individuals, the very focal point of traditional economics, no longer matter very much. Power in the firm belongs to what Galbraith called the technostructure.