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Government and the Corporations

The New Industrial State by John K. Galbraith (Houghton Mifflin; $6.95)

Mr. Galbraith has written an economist’s version of a new constitutional order centering on the relationship of the large corporations to government. The New Industrial State is a tautly written essay, discursive and without mountains of footnotes. Change, Galbraith argues, is built into the social structure, including the “industrial system” of the large corporations and their satellites; technological imperatives generate the need for and permit the growth of the large business corporations (about 500 of them) which are the basic planning units of western economies; the market and consumer sovereignty are superseded by planning by these technostructures; and the planning requires corporations “to seek the help and protection of the state.”

The giant corporations do not “maximize” profits. To reduce risk and to insure survival, the technostructure (the center of power within the corporation) “satisfices” (the term is Herbert Simon’s, not Galbraith’s). Consumers are managed through advertising and the mass media; aggregate demand is controlled through working relationships with government; suppliers are tied to the firm by vertical integration. The values and goals of the individual are bound together with those of the enterprise and government through operation of the “principle of consistency.” The industrial system advances its interests with “subtlety and power,” and the technostructure, which “embraces all who bring specialized knowledge, talent or experience to group decision-making,” tends to become “an extension of those parts of the federal bureaucracy – notably the armed services, NASA, AEC and other agencies concerned with technological development – on which it most depends.”

Slighted in this process are services not needed or sponsored by the industrial system and the aesthetic dimension of life. The individual qua individual is submerged; the group dominates. In short, the business of America is still business, but evermore the business of the “industrial system” of the large corporations. The service sector is acknowledged to exist, but its power and importance are said to be minuscule. Galbraith calls for “the educational and scientific estate” – the intellectuals, the universities, etc. – to act so that the needs and goals of the industrial system do not swamp everything else.

In this tour d’horizon, Galbraith has had to sketch with broad strokes. Even so, his brush is not wide enough. Drawing expressly and at times implicitly upon a small group of commentators who have dealt with the “supercorporations” (Robert Heilbroner’s label, in The Limits of American Capitalism), he merely edges into a vast field.

Perhaps this is enough. To add more possibly would have risked losing the “intelligent layman.” So, while there is nothing very new in this volume for the careful student of the corporation and of government, other than novel tags for well-recognized phenomena (the “technostructure,” the “revised sequence,” the “industrial state”), it is presented with wit and insight. Those who disagree with what he says have, in his words, “the burden of proof” of showing that social changes “have left economic life unchanged.” Berle and Means years ago demonstrated the divorce of ownership from control of the large corporation; the interlocking relationship between big business and government has the imprimatur of a Republican President (the “military-industrial complex”); two years ago Don K. Price in his minor classic. The Scientific Estate, showed the power of the technostructure, and Andrew Shonfield has recently related how all modem industrial economies are planned in some degree. (Galbraith calls this the “principle of convergence.”)

If Galbraith is correct – and I am inclined to agree in large part with him – then we live in a new constitutional order, in which economic and political power is fused in fact (and often in theory), and in which we are ruled by nameless and faceless managers in the technostructures of the private governments of the supercorporations and their counterparts in the public bureaucracy. That’s an event of considerable significance.

Too little discussed in The New Industrial State are such broad noneconomic questions as the “legitimacy”of the supercorporation. Heilbroner maintains that it has achieved that status through long-accepted custom,a contention disputed by others (e.g., Grant McConnell in Private Power and American Democracy). A “person” in constitutional law, the Supreme Court in 1886 having accepted that notion without argument, is in fact a collectivity, a federation of interests, a private government, a unit of “functional” federalism more meaningful than the fifty ostensibly sovereign states. It exists as an entity intermediate between the natural person and government. Constitutional theory, despite the Supreme Court, makes no provision for it. And its power has not been legitimized in democratic theory. Galbraith likewise touches too lightly on the question of accountability. To whom is the technostructure accountable? For what decision? How? The author suggests that the members oft he corporate ruling elites are not accountable either in law or in politics (indeed politics reflects the needs and goals of the industrial system, and law is not mentioned). His call for the “educational and scientific estate” to rectify this condition is feeble at best. It may be, as he says, “that the future of what is called modern society depends on how willingly and effectively the intellectual community in general, and the educational and scientific estate in particular, assume responsibilities for political action and leadership,” but he gives no hint how this is to be done. (Some support for the burgeoning power of the educational and scientific estate might have been got from Daniel Bell, whose concept of a “post-industrial” society posits a shift in social power from the businessman to centers of learning.)

Only “the innocent reformer and the obtuse conservative,” says Galbraith, “imagine the State to be an instrument of change apart from the interests and aspirations of those who comprise it.” But are we to believe that the state represents only the interests and aspirations of the industrial system? Since the constitutional revolution of the 193o's, epitomized in the Employment Act of 1946, a new form of government has emerged – the “Positive State.” It has drives and urges of its own, which it asserts in “the public interest.” The public interest, as President Kennedy said at the time of the steel imbroglio in 1962, is more than the arithmetical sum of the private interests of the nation – even when those “private” interests have the power and position of the supercorporation. Quite possibly the jury is still out on the question of who is senior in the government-business partnership, but surely the state is vastly more important than (say) in 1900 or even in 1930. The interests that comprise it transcend the industrial system. In fact, the argument could be reversed: the supercorporations are necessary for the attainment of governmental goals, particularly if what was once called the Great Society ever gets launched (here and abroad). At the very least, it is a duopoly.

Professor Galbraith gets around to the question of the merger of economic and political power in his last few pages. Speaking of the manner in which industrial economies tend to resemble each other, he says that the “instinct which warns of dangers in this association of economic and public power is sound. It comes close to being the subject of this book.” However, those dangers are too little analyzed.

The problem of the fusion of economic and political power is fundamental. The framers of the Constitution were careful to fragment political power spatially (in the federal system) and functionally (in the separation of powers). Corporations at that time being both few and small, the founders did not foresee the rise of decentralized centers of economic power, which have altered federalism, transformed the tripartite division of powers, and progressively blurred the line between public and private. The requirement now is for theory relevant to the modern era, to the growth of pluralistic social groups, and to the relationships of those groups to the Positive State.

To produce that theory will require bringing economics and political science and law and sociology (and other disciplines) into a common crucible.

The corporation and its relations to government cannot be understood in terms of John Locke or Adam Smith or Thomas Jefferson. The tools of the economist are not adequate to the need (although Professor Galbraith has done a far better job than most). Lawyers have scarcely recognized the problem, even though the Supreme Court, which Commons in 1924 called “the first authoritative faculty of political economy in theworld's history,” in recent years has been chipping away at a theory of group association. The job of the Court, however, is to decide cases, not to produce theory.

In language serious but not solemn, Galbraith has posed some of the basic questions. He (and others) will now have to try to answer them.

The Supreme Court and American Capitalism is Professor Arthur S. Miller’s contribution to a series of essays on the Supreme Court published by The Free Press.

This article originally ran in the July 8, 1967, issue of the magazine.