MODERN ADVOCACY SCHOLARS
Galbraith and Thurow
FUTURECASTS online magazine
Vol. 3, No. 11, 11/1/01.
This is a cautionary tale for those who persist in the exercise
of advocacy scholarship twisted to support an ideological belief. As the pace of events continues to accelerate during
the 21st century, events will deal with such advocacy scholarship
with increasing brutality. Events will not be kind to those who
sell their intellectual souls for a mess of ideological pottage.
Two of the premier advocacy scholars of the last half of the 20th century were
John Kenneth Galbraith and
Lester C. Thurow.
These academic luminaries intentionally twisted their scholarship to
support their ideological predilections in favor of government management of
major economic functions. They remained in determined denial concerning the
obvious weaknesses of such government management. The stupidity of their
substantial literary outputs has now been clearly proven by events, which have
invariably refused to conform to their expectations.
A preternatural trust in government economic management:
Competition between capitalism and
socialism became a feature of intellectual discourse and the ideological
foundation of the Cold War after WW II. Profit driven, market directed
capitalism is not an utopian system and does not promise utopian
results. It is merely - clearly - the best system for the production and
distribution of goods and services. The economic freedom of capitalism
provides a rich, creative, but messy brew which many intellectuals find
disquieting. In their desire to find a better, kinder, more orderly way,
they inevitably fall prey to concepts that would substitute government
economic management for the management mechanisms of profit driven
Many scholars turn a blind eye to the obvious inherent limitations of government maangement
To sustain their ideology, they must turn a blind eye to the
obvious inherent limitations of government management. This they often do with
a broad brush writing style, influencing the credulous, but ultimately -
inevitably - suffering from the perverse refusal of events to conform to their
| Harvard economics Prof. John Kenneth
Galbraith's efforts to disparage capitalism and boost socialism produced a steady flow of absurdities
that - accumulating over the course
of about half a century - now fill entire library shelves. He pursued his ideological agenda with great intelligence and style, and an
acerbic wit with which he unsparingly skewered his ideological rivals.
Humility is not one of his intellectual traits. Nor was he ever unduly disturbed that events persisted in refuting his logic and moving in the exact opposite direction of most of his predictions. Ultimately, he was forced to admit that it was the rivals he had disparaged who turned out to be right. Here are some samples of his typical absurdities.
In the 1960s:
Large corporations control their markets and need not respond to market signals.
| Contention: Large, vertically integrated
and conglomerated corporations have decisive advantages that allow them to
control sources of supply and, through advertising, to control their
markets and eliminate uncertainty.
Contention: "Technology and companion commitments of capital and time have forced the firm to emancipate itself from the uncertainties of the market."
In 1992, after the fall of communism and the worldwide retreat from socialism:
The high real interest rates of the 1980s discourage investment for improved economic performance and for housing construction. In the longer run, less efficient, less competitive industry, a shortage of housing, and homelessness, are (and have been) the inevitable result.
Corporate bureaucracies will grow relentlessly.
The ladder of upward mobility is now broken.
The military establishment, public and private, will continue on its own authority to resist substantial reduction.
American manufacturing industry and the economy generally will concede to superior economic performance of other nations, principally Japan, Germany and the other countries of the Pacific Rim.
Prediction: The high real interest rates of the 1980s, "discourage investment for improved economic performance and for housing construction. In the longer run, less efficient, less competitive industry, a shortage of housing, and homelessness, are (and have been) the inevitable result."
Contention: The corporate bureaucracy "is relentlessly dynamic in the multiplication of personnel." There is "an intrinsic dynamic acting to increase what, by definition, is called managerial personnel."
Prediction: The "underclass" in inner cities is now permanent. The ladder of upward mobility is now broken. When this is realized, there will be riots in the streets again.
Prediction: "That the military establishment, public and private, will continue on its own authority [FUTURECASTS' emphasis] to claim a large share of its past financial support is not, however, seriously in doubt." The "military - industrial complex" problem will continue even after the elimination of the military threat.
Prediction: Galbraith's "higher probability" forecast for the U.S. economy after 1992 was not extended depression or even extended recession, but "more gradual but more definitive stasis. This is already well under way as American manufacturing industry and the economy generally concede to superior economic performance of other nations, principally Japan, Germany and the other countries of the Pacific Rim. - - - [I]n the economically more aggressive countries [macroeconomic policies] serve business investment more positively. - - - [O]ver all, [in those countries], there are attitudes and policies that serve aspirations as opposed to contentment."
Wage and price controls:
Keynesian economic policies are inherently inflationary, and they must lead to rates of inflation that will be politically unacceptable.
| Galbraith has gotten one point spectacularly
right, but predictably drew the wrong conclusion from it. He was one
of the first Keynesian economists to recognize and publicly admit that
Keynesian economic policies are inherently inflationary, and that they
must lead to rates of inflation that will be politically unacceptable.
However, rather than abandon these remedies, he proposed price and wage
controls. He insisted that they worked during wartime and would
work for indefinite periods during peacetime, too.
A public planning authority of adequate power
Individuals will have to surrender to the goals of the organization.
All surface transportation should reside in one monopoly entity covering the entire Eastern Seaboard.
| Like Karl Marx, Galbraith loves large
economic entities. It is easier to envision centralized control of
individual large economic entities than of myriads of lesser entities. In
1967 he offered the following proposals:
Proposal: A public "planning authority of adequate power" should be developed to make livable the modern city and its surroundings by buying up all land wherever it considers market influences "palpably adverse." It would be responsible for the provision of adequate housing, health care, and transportation, as well as current city services.
"[I]ndividuals will have to surrender to the goals of the organization."
This authority would have complete autonomy over its own staffing, plans and budget. Writing ten years later, he figured that this chore would require that about 50 percent of the area's GDP be taxed away or otherwise appropriated.
Proposal: All surface transportation should reside in one monopoly entity for each of the large regions of the nation, such as the entire Eastern Seaboard east of the Allegheny Mountains. Galbraith pointed out that the nation's telecommunications system was best provided by the AT&T monopoly, which had total control over its market.
The evolution of the free enterprise system will lead it to resemble socialism.
The shareholder in the modern large corporation is without power and without function.
Government should pay off such functionless stockholders in bonds and have the dividends and capital gains accrue to the public.
Stockholders are "anomalous" and should be dispensed with. Equity markets play no role in the guidance and productive efficiency of the modern industrial system.
It is illogical - part of a peculiar technocratic secular religion - that CEOs and other corporate officials routinely work six day, 60 hour weeks for the benefit of such powerless, useless shareholders.
The role of "shareholder value."
The role of "profit centers."
However, the most absurd of Galbraith's many
absurdities - a true classic - is his prediction concerning
"convergence." What separates it from his other absurdities - and makes it a
classic - is the favorable response that it received
amongst a substantial number of supposedly intelligent and learned
economists and other intellectuals. The prediction was, of course,
patently irrational and could only be seriously entertained by
those who didn't really understand economics or what makes capitalism work.
Galbraith strongly asserted that socialist and capitalist systems were inevitably converging with respect to their larger and most important economic entities.
Prediction: The evolution of the free enterprise system is in a direction that will lead it to resemble socialism.
Contention: Stockholders are "anomalous" and should be dispensed with. Equity markets play no role in the guidance and productive efficiency of the modern industrial system. Investment gains involve no work and little risk.
he asserted that shareholders and even the top management of
the larger and most important capitalist corporations had lost
effective control. Fortunately, this did not happen at GE or Microsoft.
Galbraith argued that the modern large corporation
is governed by its wide array of technocrats, who collectively
have the information and skills needed for problem solving and
decision making. They can ignore market signals because they control their
markets. Their rewards and incentives flow from advancement
and job security within their organization rather than from the
profits of the corporation, which go mainly to those "functionless"
shareholders. As long as those profits are adequate and show
some modest growth, the technocrat's real interests in job security
and advancement are taken care of.
Prediction: "Increasingly, it will be recognized that the mature corporation, as it develops, becomes part of the larger administrative complex associated with the state. In time, the line between the two will disappear. Men will look back in amusement at the pretense that once caused people to refer to General Dynamics and North American Aviation and AT&T as private business."
Delusions of intellectual grandeur:
| But that is not all. Galbraith had delusions
of grandeur for himself and his fellow academic intellectuals.
Galbraith has many good things to say about the propaganda myth created by Karl Marx - treating much of it as profound economic truth. His strongest criticism of Marx was that Communism is not the end of the line of economic evolution.
Since the technocracy is dependent on educators and
scientists for the training of additional technocrats and the
provision of scientific advances, Galbraith expected the academic
and scientific community to unite and eventually wrest substantial
economic control from shareholders in the capitalist nations,
and from the apparatchiks in the Soviet Union. This
development would thus provide a "convergence" in the
further development of the two economic systems.
Soviet socialism worked "very well" for basic industries.
Even in the 1990s, Galbraith refused total
These are just some of the highlights. There is much more absurdity than this in Galbraith's prolific writing career.
But we must leave room for MIT economics Prof.
Lester C. Thurow.
| In the 1980s, Thurow, in a string of authoritative
books, directed his ideological passions towards support for government
"industrial policy." He expressed very favorable views
of those industries nationalized or otherwise controlled by foreign
governments that could thereby be directed to fulfill various
Thurow clearly intended to achieve the same results as socialism through his industrial policy program. The privatization movement must have come as a shock to Thurow. Here's a breathtaking example of his reasoning:
"[J]ust as an army can move only as fast as its slowest unit, so the economy can only be as good as its poorest motivated, least cooperative component." Clearly, if Thurow were a general, his tactics would be as disastrous as his proposed economic policies.
Unlike Galbraith, Thurow did accept market mechanisms, albeit suitably altered by all-knowing, all-wise government policies. His elaboration on the methods and content of his industrial policy program produced a string of classic absurdities. The pace of events by the end of the 20th century highlighted these absurdities with distressing rapidity.
Volcker's tight money policies will fail to cure inflation.
Industrial policies in Europe and Japan will assure the superior performance of those economic systems, as compared to the United States.
The willingness of Japanese firms to ignore immediate profits in efforts to gain market share will earn them monopoly profits after competitors are driven out.
We will suffer for lack of engineers.
We will suffer for lack of enough savings.
Government policy should be directed at supporting our largest corporations, even at the expense of smaller competitors.
Banks should take ownership interests in their major borrowers and allocate credit accordingly.
Dividends are a capitalist rip-off.
Profits should not be the primary objective of the corporation.
Corporate employees should have tenure and be paid seniority based wages.
Since labor costs cannot be readily reduced, the economy will remain biased towards high unemployment or inflation.
Among his most absurd predictions and contentions:
Prediction: Monetary policy at the Federal Reserve Bank went wrong in 1979 (when Paul Volcker started to reign in monetary expansion). Tight money alone will fail to cure inflation.
The fight against inflation will be too painful for the public to tolerate.
Prediction: Industrial policies in Europe and Japan will assure the superior performance of those economic systems, as compared to the United States, during the 1990s.
Prediction: The willingness of Japanese firms to ignore immediate profits in efforts to gain market share will earn them monopoly profits after competitors are driven out.
Prediction: The greater number of engineers being produced in Japan will put the U.S. at a competitive disadvantage.
Prediction: A low savings rate will put the U.S. at a competitive disadvantage.
Contention: We should accept the elimination of small business as a major factor in the American economy. It is "far better that small business be crushed by big American companies than that they be crushed by big foreign companies."
Contention: Banks in the United States should have equity ties with their corporate borrowers, just like they do in Europe and Asia.
Contention: Dividends are "a capitalist rip-off," and are unnecessary.
Contention: Corporations should not be evaluated by their profitability, but by their "value added" efforts.
Contention: Workers should be entitled to tenure and wages based on seniority instead of merit.
Prediction: Since labor costs cannot be readily reduced, the economy will remain biased towards high unemployment or inflation.
Government "industrial policy:"
Adam Smith was wrong. Mercantilist policies are best.
The government knows best which corporations should be the winners and which the losers.
We should reject the "just in time" inventory management practices that modern technology makes possible.
We must buy enough oil at 1980 prices to fill our oil reserves.
Government knows best about union and management practices.
We should expend our resources in subsidy trade wars.
The independence of the Federal Reserve Bank should be eliminated and its decisions politicized.
And what type of foresight and wisdom does Thurow
believe "industrial policy" would provide us?
Industrial policy would:
The Rube Goldberg of social engineers:
Government banks to allocate credit:
Government Restructuring Board to influence corporate restructuring decisions:
Industrial Policy Board to establish industrial policy:
It's when Thurow starts to explain his system for
government "industrial planning" that we get a good
idea why we must never allow Government - with or without the assistance
of intellectuals like Thurow - to direct economic development.
He advocates a Rube Goldberg reorganization to establish political control of U.S. business organizations
and commercial arrangements.
Proposal: There should be Government banks to allocate credit.
Proposal: There should be a Government Restructuring Board, which would "negotiate" with firms as to which facilities they would be permitted to close down, and which should be restructured.
Proposal: There should be an Industrial Policy Board to direct broad economic policies.
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Copyright © 2001 Dan Blatt