Seminar Paper on The New Industrial Estate

Seminar Paper

The New Industrial Estate by John Kenneth Galbraith

A Guardian newspaper article published soon after his death in 2006 describes Galbraith as a ‘visionary economist who defined, and defied, the 'conventional wisdom'’ (http://www.guardian.co.uk/news/2006/may/01/guardianobituaries.usa). The article also explains how Galbraith had awareness of his intelligent superiority and possessed a well developed sense of humour

Born in Canada 1908 Galbraith is remembered for his assistance in wartime price controls and for being the American ambassador to India from 1961-1963. He was a keen follower of John Maynard Keynes, the reputable name of economics and developer of selective price controls. Galbraith’s discovery differed to that of Keynes. Galbraith realised that general price controls were indeed required which were established in 1942 with the support and backing of President Roosevelt. As a result unemployment hardly existed. Galbraith understood the marriage between fixed price and income for economic stability and high employment.

Within his book The New Industrial Estate Galbraith presents the controversial message that within high industry and advances economies it is the corporate leaders and experts (which he calls the technostructure) that control everything and that they subordinate the government for their own progression and self esteem. The book presents the economy as it is, showing how everything is dominated by omnipotent corporations and that such faith is better deflated. This seminar paper looks in closer detail at a few of the chapters within The New Industrial State.

Chapter Six: The Technostructure

The dictionary definition for the term technostructure, used frequently in Galbraith’s writings is ‘the group or class of technically skilled administrators, scientists, and engineers who manage and influence business, the economy, and government affairs’ (http://dictionary.reference.com/browse/technostructure).

The firm or group being given more importance over the individual is difficult to consider since the individual protects himself form the masses and the individual has soul whilst corporations are soulless. Those in socialist power therefore, have the task of positively acquiring information from the many individuals within ‘modern industrial decision-making’ (Galbraith 1967, p. 76). Essentially a combination of highly specialised talent is required for the success of a project.

This combination is in three parts:

1. Technology itself, which dispenses the need for genius or multiple/deeply skilled employees.
2. Those who understand, manage, and plan the technology with scientific talent and specific skill, to result in the smooth and ultimate flow of information.
3. Co-ordination, the understanding that various talents must all fall and form to the same purpose. The specialist’s contributions must be tested for relevance and reliability.

Chapter Eight: The Entrepreneur and the Technostructure

The firm is subject to the market because it has no control on quantity or price of sales. There is danger in a firm growing since it results in more stockholders having a say through the voting processes and the owners having less power in decision making. Stockholders may have less knowledge than is required to make sound decision.

Large firms can tell small competitors to conform to their set prices or lose business altogether. The entrepreneur creatively conducts a system in which only a group of highly specialised and communicative people can mark the success of his business operation. Some entrepreneurs begin to resent this organisation they have created, an organisation that now their business cannot survive without. Galbraith writes that ‘Henry Ford, aging and autocratic, became increasingly resentful of the organisation without which his company could not be run. He reacted by shunning employees of specialised technical knowledge’ (Galbraith 1967, p. 104).  

                                                  

Chapter Nine: A Digression on Socialism

Power sits with those individuals who make the decisions within industrial enterprise. This power changes within the context of mature enterprise since only the group has access to the information required to make the sound decision. After the WW2 Britian lived under socialism ‘the purpose of socialism is the control of productive enterprises by the society …. none, or not many, seek socialism so that power can be exercised by an autonomous authority’ (Galbraith 1967. p. 113).

Chapter Sixteen: Prices in the Industrial System

Value theory is the way in which prices are set. The relationship between supply and demand is very crucial to good economy. However, ideally prices should be set irrespective of a corporation excelling in or being expelled from the market. Otherwise a business could influence the market for its own progression. Competition is also good, as Galbraith writes ‘competition is inherent in the animal spirits of the entrepreneur. In response thereto he advertises and merchandises his product with even greater energy and aggressiveness for not being allowed to cut prices’ (Galbraith 1967, p. 187).

There is a wasteful competition though, and this is in the case of an oligopoly. Galbraith uses the economic term ‘oligopoly’ which has similar meaning to monopoly in that it refers to a few firms dominating sales within a market. Galbraith explains that oligopoly is not as wicked as monopoly but only due to lack of ability not lack of desire. If a large firm can dictate change in price the economy cannot work properly.

Chapter Twenty Two: The Control of the Wage-Price Spiral

There must be enough buying power to support the labour force required; this is how the state aggregates. To test the success of the economy look at unemployment and see if its rate is low or high. Only a lot of aggregate demand would secure the employment, if any employment at all, of uneducated people. When unemployment is low Unions can have a field day since workers can strike knowing that they will not be replaced.

Price remaining constant is a good way to foresee and manage customer/consumer reaction. If the prices change the customer’s attitude and choice change accordingly which is not easily managed.

Bibliography

Galbraith, J. K (1967). The New Industrial Estate. Penguin Books: Middlesex

Dictionary.reference (online). Last Accessed 15 February 2011. Available at URL: http://dictionary.reference.com/browse/technostructure

Guardian (online). Last accessed 15 February 2011. Available at URL: http://www.guardian.co.uk/news/2006/may/01/guardianobituaries.usa