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October 31, 2006

Galbraith

It's not the biggest deal in the world, but I'm a little disturbed that neither Robert Rubin, Peter Orszag, or Jon Chait appeared to know where John Kenneth Galbraith's concept of Countervailing Powers comes from. Rubin appears to think it's from a book called "Countervailing Powers," which doesn't exist. No one else even heralds a guess. The actual book is American Capitalism, one of Galbraith's three most influential economic works (the other two were The Affluent Society and The New Industrial State.) As I said, not the biggest deal in the world, but here you have two top Democratic economists and a top liberal policy wonk, and none of them seem particularly familiar with (arguably) the greatest Democratic economic thinker of the past century*.

On the bright side, the three do seem to understand -- and this is a particularly wrenching realization for Rubin -- that Galbraith's ideas are absolutely critical in the current moment. I'm often stung by how much everything I write is simply vintage Galbraith, defrosted and mad-libbed for the current era ("Name of president here"). Take countervailing powers: Galbraith argued that capitalism's natural tendency is towards aggregation. The neoclassical concept of many different competitors all battling it out was, he thought, naive. The realities of mergers, acquisitions, and predatory practices would leave industries with a small number of very large players, most of whom would be tacitly cooperating for reasons of profit or survival.

The only way to restore balance, Galbraith argued, was other behemoths. So massive retailers would compete with massive producers (there's evidence of this happening, as Gillette joins Procter & Gamble, in part to better bargain with Wal-Mart), and both had to handle massive unions and activist government. The tension between producers and retailers would safeguard a good economy, and the power of government and unions would ensure a good society.

The extrapolations aren't hard. Unions are basically dead, the government is currently gripped by a corporatist ideology that leads them not to stay out of the economy, but to use their influence to augment corporate power, and no one who reads me will miss the resonance with Wal-Mart's virtual monopsony. I'm not one who goes in much for the conservative adoration of their philosophers and intellectual forebears, but I think the left is deeply impoverished by its essential abandonment of Galbraith's insights. For those who want to do better, you can get a rich and broad overview by reading Richard Parker's recent biography of Galbraith, this compilation of Galbraith's best writings, American Capitalism, or The Affluent Society. And that's just where you should start.

*Indeed, there's little I'm prouder of than that Galbraith was one of The American Prospect's founding sponsors.

Update: Here are some great Galbraith quotes, in including this one, which I find particularly relevant:

Liberalism is, I think, resurgent. One reason is that more and more people are so painfully aware of the alternative.

October 31, 2006 | Permalink

Comments

Take countervailing powers: Galbraith argued that capitalism's natural tendency is towards aggregation.

The only way to restore balance, Galbraith argued, was other behemoths. So massive retailers would compete with massive producers (there's evidence of this happening, as Gillette joins Procter & Gamble, in part to better bargain with Wal-Mart), and both had to handle massive unions and activist government. The tension between producers and retailers would safeguard a good economy, and the power of government and unions would ensure a good society.

Galbraith certainly had it right that corporatism's central thrust is aggregation (even aggregation that has no economic function other than being able to show investors that there is some 'growth' in stagnant enterprises).

But the countervailing powers aspects of Galbraith's thinking is dated. As Ezra points out, unions barely breathe in the current economy. And the regulatory and anti-trust aspects of government are so rusty that the tools are now useless.

Mere size alone has now grown dangerous through the ability of giants to impact public policy at all levels of government, directly and indirectly, legally and illegally. In two major industries (energy and communications), the disaggregation of earlier progressive movements (Standard Oil and AT&T) has been nearly completely overturned through mergers and acquistions. And many new behemoths have arisen: Comcast cable, Time Warner (and the other media conglomerates), and, most famously, Walmart.

The power of corporations must be broken or severely restricted, both nationally and internationally. Our focus should be on discussing which alternatives should be pursued to limit their size and power before corporatism completely rules society worldwide.

The trick is to figure out which limits to aggregation, growth and market width/depth should be put in place to create an environment where corporations actually have to compete (and control each other's power). Oligopolies and monopsonies are the dragons to slay: How can this be done?

And let's start with media concentration, whatever we do. The essential functions that a free press/media should provide to a democracy are no longer present. Break them up!

Posted by: JimPortlandOR | Oct 31, 2006 12:21:07 PM

One more thing about Galbraith. He could really write. His ideas weren't just valuable, they were expressed so that non-policy wonks like myself could easily grasp them. We could even, gasp, enjoy reading about them.

Posted by: JMG | Oct 31, 2006 12:44:38 PM

As one who studied economics in college in the '60s, we shouldn't be impatient for a quick restoration of Galbraithian concepts, as overdue as that might be. I recall that Galbraith was disdained by the very active left in the 1960s, and largely ignored by academic economists at the same time. That's a one-two punch that would stagger anyone--even as resilient a figure as JKG. Parker's book, for example, describes Galbraith's election to president of the American Economic Association in 1971 as the honoring of an icon, not an intellectual leader. This is important because this treatment helped shape the views of people like Robert Rubin, Peter Orszag, Jon Chait who were trained to see Galbraith as a peripheral, not a central figure in the enterprise of professional economics. Those views die hard. It's heartening to see a younger generation discovering Galbraith's worth.

Posted by: HBinBoston | Oct 31, 2006 1:03:37 PM

Hmmm, This month's Mother Jones has an article by James K. Galbraith on his father's The New Industrial State:

Corporations exist to control markets, and often to replace them. Business leaders reduce uncertainty not through clairvoyance (or "perfect foresight," as the economics textbooks call it), nor by confident exploitation of probability ("portfolio diversification"). They do it by forming organizations large enough to forge the future for themselves. In politics these are countries and parties; in economics, big corporations.

Posted by: darms | Oct 31, 2006 1:51:36 PM

"Liberalism is, I think, resurgent. One reason is that more and more people are so painfully aware of the alternative." ...JKG

Ezra, you might try to find time to skim thru the Crooked Timber Symposium on Social Democracy

Sheri Berman's Response

"The fact that there were some liberals back then who did not react with horror to the idea, and that there are many today who consider it unproblematic, does not mean that liberalism occupies a bigger tent than I suggest. It just means that some people who call themselves liberal are really better thought of as social democrats, whether they are prepared to acknowledge that or not." ...SB

Posted by: bob mcmanus | Oct 31, 2006 3:28:27 PM

"It's not the biggest deal in the world, but I'm a little disturbed that neither Robert Rubin, Peter Orszag, or Jon Chait"

It is a pretty big deal, and shows that the DLC crowd are liberals. Liberals can be our allies, but will almost always try for market solutions to social problems first. They are not really interested in creating countervailing powers. Even Krugman focuses more on fiscal or monetary policy.

Posted by: bob mcmanus | Oct 31, 2006 3:36:50 PM

"The positions of eminence and authority in Congress are allotted in accordance with length of service, regardless of quality. Superficial observers have long criticized the United States for making a fetish of youth. This is unfair. Uniquely among modern organs of public and private administration, its national legislature rewards senility." -- J. K. Galbraith

"Ten movies streaming across that, that internet, and what happens to your own personal internet? I just the other day got... an internet was sent by my staff at 10 o'clock in the morning on Friday. I got it yesterday... Why?" -- Sen. Ted Stevens

Posted by: Louie | Oct 31, 2006 4:36:14 PM

People wonder so much about the cause of stagnating incomes. I've always thought that the prime culprit was not any purely economic circumstance but a political-economic one, the breakdown of the old Galbraithian coutervailing powers. With the decline of unions and the failure of the government to play the honest broker role it used to, the corporate managers have stripped the wage increases from the workers and parceled them out to themselves and shareholders and schemes to increase further their market power, allowing more of the same. (They're also not afraid of the left anymore, 'cause there isn't one.) So that's pretty much what's happened, I think. And I've rarely seen anyone else put it in these Galbraithian terms, although it seems obvious to me.

Posted by: David in NY | Oct 31, 2006 10:00:41 PM

To amend my above comment: I can't read the Chait article, but I must say that it looks like somebody did bring up countervailing powers in just the context I have thought of it -- stagnating wages. So the idea is getting through somewhere at last.

Posted by: David in NY | Oct 31, 2006 10:17:53 PM

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