Searching for the New Industrial State

...porate growth as measured in sales" (J.K...

...It is not quite clear whether Galbraith attributes this power to control important market dimensions to the sheer size of firms or to the structure of the industry...

...An important objective of the management of technostructure-oriented ~firms is the attempt to keep these plans from going awry...

...Thus agriculture is not technostructure-oriented although Galbraith views it as an unstable industry...

...Three statistical experiments in search of such a relationship were made with these data...

...And besides, what harm would be done...

...The state is strongly concerned with the stability of the economy...

...A good big window looked out on Broadway and there was a juke box with old big-band records that had probably been there for The Alternative June-September 1974 15...

...It will not be until September when you again experience that mortifying moment when, with a lubricous wink, the postman hands you your monthly issue...

...But when discussing the ability of firms to control price and to prevent other firms from upsetting the applecart, Galbraith, as would many economists, seems to emphasize the oligopolistic structure of some industries...

...He cangot he trusted to discern when a party or candidate has become the creature of special interests, and hence the nation cannot rely on his ability to vote the corrupt out of office...

...Statistically, the most significant index of technostrncture-orientation turned out to be the four firm concentration ratio, but this index was perversely related to stability...

...There is full protection against any change in requirements, i.e., any change in demand" (p...

...The potential efficacy of public financing is suspect for two reasons...

...he can hardly hope, however, to own a netwoi'k or run a labor uniom .The second argument against the potential effectiveness of public financing is that, surprisingly enough, it may actually encourage corruption...

...He is told that the reason his freedom must be thus curtailed is that he 5s a gullible sort...

...When a firm attempts to sacrifice profits for additional sales, its management is in conflict with the interests of shareholders...

...But that's the way many people who thought of themselves as literary types in the fifties acted...

...Callow...

...Later, in the sixties, it became increasingly difficult to communicate with the new breed, for they couldn't understand--no doubt with good reason--that this was a sty/e, and that in fact it was possible through this style to express great friendship and affection...

...The primary quantity adopted to measure stability is employment in an industry...

...The sample contained thirteen of the top prime defense contractors for whom defense contracts accounted for over 30 percent of sales...

...I'd go there by myself about once a week to write a short story and drink beer at a table in a small alcove...

...For instance just the other day I was weighing whatever happened to the good old days when suicide still had some meaning...

...We can safely judge Galbraith to be saying that technostructure-oriented firms or industries achieve greater stability than nontechr~ostructure-oriented firms or industries, and not that "technostructures" seek out unstable industries...

...One might well argue, however, that even if the problem is overstated, would not public financing end wh~itever corruption does result from giving the wealthy an opportunity to buy influence...

...Greater advertising expenditures or larger firm size were associated with lower values of the index measuring the degree to which profits were traded off for sales growth...

...But if no correlation, or if a perverse correlation is discovered, then there is evidence against the existence of the new industrial state...

...Control of prices is for a purpose--for the security of the technostructure and to allow it to plan...

...Conversely, he can no longer refrain from-contributing, for he is told that his earnings will he used to sponsor the campaigns of those with whom he may violently disagree...

...The pack is on the prowl for public campaign financing, and in such situations, its wishes are seldom denied...

...When discussing the sales maximization policy, he seems to stress the absolute size of the firm and its advertising expenditures, but when discussing the attainment of stability, Galbraith seems to emphasize the structure of the industry (i.e., the degree to which an industry's output is concentrated in a few firms) and advertising intensity...

...And Watergate, so highly touted as the major reason for reform, is ironically enough the scandal least related to private financing of campaigns...

...The hypothesis which claims that technostructure-oriented firms achieve greater stability in their operations can be tested by Comparing indexes of stability in operations to indexes of technostructure-orientation, and a determination can be made as to whether there is a significant tendency for the indexes to move in the same direction, greater stability being associated with greater technostructure-orientation...

...Every now and then, however, there's a sharp flash of memory--usually during~ a trip--and I remember what it used to be like...

...In thirteen out of eighteen opportunities (the number of opportunities being determined by the number of different ways of measuring stability), the capital-intensity index of technostructure-orientation was unrelated to industry stability...

...the powerful will be able to buy what they want, while the less wealthy will be gulled into electing those who have the most money with which to purchase their votes...

...These negative results confirm other testing of Galbraith's views that I presented at the 1969 meetings of the American Economic Association...

...Columbus had a great deal more corroboration for his belief that he had found the Indies that Galbraith has for his discovery of the new industrial state...

...A positive correlation between DIF and indexes of technostructure-orientation for a sample of firms would provide Galbraith with confirmatory evidence...

...The most important thing wasn't the bars themselves, but how you felt in them...

...The sales maximization hypothesis is tested by examining the relationship of indexes of a firm's technostructure-orientation to a measure of the firm's tradeoff between sales and profits...

...Peeling off was always understood, either with a girl you didn't want to share or just to be alone...

...2, May, 1970], p. 473...

...The model for the lifestyle, however, was Hemingway, especially the Sun-Also-Rises Hemingway...

...Maybe I could get John Dean to write for us...

...Galbraith...

...You gettink skinny...

...This hypothesis states that technostructureoriented firms sacrifice profits in order to accelerate growth of sales...

...These stocks over the period 1949-1964 offered to investors about 21 percent more risk, measured by fluctuations in year-to-year rates of return to shareholders, than didrandomly selected portfolios of thirteen stocks per portfolio...

...A sample of defense stocks was analyzed to see what evidence could be brought to bear on this claim...

...But whatever the reason, I spend much less time in bars than I used to...

...These thirty firms ranked high in Felicitations...

...The talk was flip, quick, slightly nasty, but never touching on things like your sex life, your family, God, how you felt, or how you related...

...PERHAPS MIDDLE age is finally winning out...

...To believe that private money doesn't cause some political corruption is naive...

...Once a candidate knows that his campaign will receive a set amount of funds from the government, an important l~u'ometer of his appeal to the voters is immediately removed...

...Each of 375 industries is associated with particular values of these variables over the period 1958 to 1970...

...Technostructure-orientation reduces instability but such orientation is not created by instability...

...measured people by some code of his own...

...The use of such planning creates a demand for stability...

...First, as Winter suggests, "restrictions on private campaign financing will not increase the political power of the people generally but will further concentrate it in already powerful segments of the community...

...The only conclusion permitted by this investigation is that Galbraith's notions are remarkably consistent in their inability to find confirmation...

...This "sales maximization" hypothesis is accepted quite explicitly by Galbraith...

...The beer was still a dime a glass and there was a steam table with greasy dishes like fat barbecued short ribs that would last you for a day and a half: Sol, the semiobese owner, a refugee from somewhere east of Vienna ("Mees-tair Coyen...

...But to believe that this corruption is so pervasive that it is responsible for most, if not all, of the nation's serious problerr~s, or that setting up the government in the campaign.funding business ~vill solve such problems, is another and more dangerous form of na'iveth...

...Nothing is so compelling as the need to survive...

...Consistency, however, is not enough...

...First, all seventy firms in the sample were used...

...Hence, absolute size seems the appropriate thing to emphasize when discussing the sales maximization hypothesis...

...Perhaps this exception to Cralbraith's style is due to the origin of the hypothesis, which, as Gal, braith acknowledges, is attributable to others, such as William J. Baumol...

...Does this fabled and well-advertised land actually exist...

...RET 14 The Alternative June-September 1974 defense output and]or advertising expenditures...

...A percentage division based on past electoral performance would not only freeze out new political movements, but would tend to preserve a particulm' division of influence among existing parties...

...bars with free popcorn or cheese or sardines to go with the beer or hot hors d'oeuvres to go with the martinis...

...In this regard, it, is interesting to note that unions and the media, particularly the latter, are among the biggest advocates of public financing...

...Since the Galbraith-Baumol sales maximization hypothesis requires that firms earn a minimum acceptable (to shareholders) profit rate before they tradeoff additional profits to gain additional sales, the third experiment would seem most relevant...

...Public financing, in short, would eliminate a major source of citizen feedback, limit the number of options presented to the voters, and lead to general stagnation among the options that remained...

...Once the safety of the technostructure is insured by a minimum level of earnings, there is then a treasure of choice as to goals...

...This difference in emphasis can be given a rationale...

...None of these experiments yielded results consistent with the Galbraith-Baumol sales izmximiz~tion hypothesis...

...A statistical comparison of these values reveals whether or not technostructure-orientation is positively correlated with greater stability of employment...

...But these would equally be frustrated by a decision by the public not to buy at the controlled prices . . . . So, int~i - mately intertwined with the need to control The Alternative June-September 1974 13 prices is the need to control what is sold at those prices" (p...

...The results fail to support Galbraith's notions about t h e operation of a modern economic system...

...Capital-intensive production gives rise to long-run planning...

...The average citizen can, at present, give money to a Candidate...

...And with its expansion and growth . . . . These are the national goals . . . . All have their counterpart in the needs and goals of the technostructure...

...A set of firms thought by Galbraith to be especially subjugated to the imperatives of modern technology, and admirably equipped to pursue these imperatives successfully, are firms that inhabit the defense industries...

...In the current atmosphere, however, one fears that the latter viewpoint will determine public policy...

...He is told either that he can no longer contribute to the candidate or party of his choice, or that his right to do so must he limited...

...Only advertising expenditures and firm size turned out to be significantly related to DIF in some of these experiments but the direction of this relationship was the opposite of that which is required to provide confirmatory evidence of Galbraith's ideas...

...Galbraith, "Economics as a System of Belief," Amer/can Economic Review [Vol: 60, No...

...The clientele was mixed---pensioners from the neighborhood, off-duty cops cruising for college girls, jocks who had briefly jumped the reservation, and literary types like Kerouac...

...Moreover, public financing threatens the continued vitality of third parties and other minority political organizations...

...Not one of the indexes measuring technostructureorientation was significantly related to DIF in the direction of relationship suggested by...

...This was the last great period of what we call contemporary Americanliterature...

...Galbraith, The New Industrial Industrial State [Boston: Houghton Mi~in Company, 1967], p. 171...

...Every summer I retire to my estate there to reflect on the year's momentous events, wondering what it all means, where it is all going to end, and if Teddy Kennedy has ever considered giving up cocktails for bonbons...

...It is important to recognize Galbraith's chain of causation...

...It is not the case that unstable industries give rise to capital intensive techniques which in turn lead to a successfully met demand for stability...

...No one bothered you, and the bartender always bought every third beer...

...When I arrived at Columbia at the age of sixteen, prepared for life'in the big city by a careful study of Hemingway and Fitzgerald, the place to hang out in uptown Manhattan was the West End Tavern...

...Measurements were made for each firm to determine the degree to which it was technootructure-oriented and these indexes were then compared to values of DIF...

...It provides contracts of long duration . . . . There is no risk of price fluctuations...

...But none did...

...But Cralbraith's views are not completely immune to study, and this is a report of an attempt to verify empirically two important characteristics of the new industrial state.* There does exist in Galbraith's work one concisely stated hypothesis...

...Very little effort, however, has been devoted to a search for the new industrial state...

...It requires stability in demand fSr its planning . . . . The practical manifestation of this process is to be seen most clearly in defense procurement . . . . the Department of Defense supports . . . the most highly developed planning in the industrial system...

...This attempt is generally successful...

...It was a neighborhood bar--odd-jobs people, old-timers, pensioners from the area--and never too full...

...Success is guaranteed by the ability of such firms to control demand through the use of advertising expenditures and by their power to control prices...

...This tradeoff is measured here by the difference (DIF) between the average annual growth rate of sales and the average annual rate of return on equity over the period 1958-1970...

...The problem that instability creates for the fulfillment of plans is discussed .several times in The New Industrial State...

...And the idea that Watergate occurred because some wealthy contributor insisted on a burglary as t h e price for his check to the campaign is, while highly colorful, patently absurd...

...I remember places with greenish pickled eggs and Polish sausages in jars on the bar...

...One bar, just down from the West End a few blocks on the other side of Broadway was called, I believe, The Gay White Way--you could still use the word gay quite innocently in the fifties...

...You now hold the most corpulent issue of The Alternative ever printed...

...And, of course, we were all writing stories and novels...

...Neither he nor his party has the same incentive, or the same opportunity, to learn, prior to election day, which issues are most important to the electorate...

...In Puerto Rico, where public financing was tried, evidence indicated that political parties, after exhausting the allotted subsidy, resorted to extorting money from governnmnt employees and other happy activities in an effort to get the edge on the opposition...

...The absence of any serious attempt to document the existence of the new industrial state partly is attributable to Galbraith' s lively prose which seldom tol(rates a cleanly stated testable hypothesis...

...But the problem is not merely that public financing will fail to achieve its stated objectives...

...The modern technology that gives power to the technostructure finds its source in the extensive use of capital...

...If it is assumed that in general the same profit opportunities confront technostructureoriented firms and firms that are not technostructure-oriented, then we should expect technostructure firms to experience higher sales growth rates relative to profit rates if Galbraith is correct...

...Finally, consider the position of the individual citizen...

...The evidence that I have been able to uncover reveals that Galbraith's work possesses to a remarkable degree one of the essential attributes of successful scien~-_~ consistency...

...fly-infested bars in Manhattan where old boozers with shaking hands always manage to get that first brimming morning shot up to their mouths for a quick slurp without spilling a drop...

...Most of those tabs were eventually paid...

...In other words, Walter Annenberg may no longer he able to buy his ambassadorship...

...And--even be~tter--it is our last until fall...

...The problem is to relate these identifying characteristics of technostructure-oriented firms--capital intensive methods of production, extensive use of advertising, oligopolistic industry structure, large firm size, and significant defense output--to the two goals of the technostructure--stability of operations and sales maximization...

...and in that case, if additional protection be warranted, the more logical way to curtail the impetus for corruption would be to end governmental authority~ to dispense such important favors in the private sector of the economy...

...A two-way split up of the public fund would of course destroy all but Republicans and Democrats...

...But price control does little to advance these goals unless there is also control over the amounts that are bought and sold at these prices...

...A reading of Galbraith's work provides guidance for measuring the degree to which managements are technostructureoriented...

...but other powerful elements of the society, whose influence does not depend on direct contributious to candidates, will step into the vacuum...

...These ex3~riments offered twenty-four chances for confirmatory evidence, and a few such confirmations could have been expected to arise by pure chance...

...And equally important, there was always a hell of a lot of time...

...For example, I there reported a test of Galbraith's belief that: "Risks that would otherwise be unacceptable can be assumed in the civilian econ only if they are protected by the much mere nearly riskless weapons economy . . . . These advantages of the weapons competition to the industrial system could not easily be sacrificed by the industrial system" (The New Industrial State, p. 339...

...Advertising and its related arts thus help develop the kind of man the goals of the industrial system require---one that reliably spends his income and works reliably because he is always in need of more" (p...

...The so-called excess cash explanation is faulty in that all the testimony to date indicates that the operation was p l a ~ before most of the money began rolling in...

...Since the firms in the sample varied in the values of the indexes of technootructure-orientation, it was possible to ascertain whether larger tradeoffs of profits for sales growth were associated with greater technostructure-orientation...

...If more technostructure-oriented managements achieve these goals in greater degree than other managements, then Galbraith's views will have found some confirmation...

...The remaining forty finns were choson randomly...

...If you passed, he let you run up a tab for as long as you wanted...

...Secondly, only those sixty-seven firms earning positive profits were used...

...These measures of stability are then compared to measures of advertising intensity, capital intensity, the importance of defense sales, and the percentage of industry output produced by the four largest firms in the industry...

...Stability is achieved through size, advertising, and industrial concentration...

...The relationship of the technostructure of the mature corporation to the state is the same...

...Advertising intensity and percentage of output going to the military were not correlated to industry stability...

...However, there is little doubt as to how, overwhelmingly, this choice is exercised: It is to achieve the greatest pos,~ible rate of cor*The complete study on which this summary report is based can be found in Economic Inquiry, March, 1974...

...Anyone attempting to validate Galbraith's discovery is forced in the main to deal with vague propositions such as the claim that the techn~tructure seeks nothing less than the "panoply of organization interests---security and autonomy of organization, growth . . . . . technical achievement, public prestige, as well as profits" (J.K...

...A second hypothesis about the behavior of technostructure-oriented firms is the desire of variousechelons of management to prevent the disruption of the firm's plans...

...Capital-intensive techniques of production bring about longer managerial planning horizons...

...The answers, I submit, are first, "not really," and second, "a great deal...

...Stability is measured in essentially two ways---year to year percentage fluctuations in an industry's employment, and fluctuations in an industry's employment about a trend in employment...

...The talk, for most o f us, was primarily about literature...

...As for Fir, even assuming that the settlement was a sell-out (Archibald Cox, among others, happens, to think the government got a pretty gobd deal), whatever corporate contributions I T r made were a/ready illegal, The same is true of corporate contributions from major milk producers...

...There was always a Lady Brett, usually a junior league dropout or a disenchanted young wife with a nice little trust fund, sufficient to pay for the booze...

...No, the barroom's in your father...

...The sample used in the analysis contains seventy firms, of which thirty were members of the Fortune Top 200 in terms of sales in 1970 and also in the Top 500 in 1958...

...Security, growth and effective planning would be jeopardized by erratic or unpredictable price behavior...

...But, given Galbraith's view, shareholders exercise less control in the case of large firms because ownership is more dispersed into many small holdings of thousands of shareholders...

...A J. K. GALBm~JTH'S views have been examined in various aspects, particularly in regard to the consistency and epistemology of his views and the soundness of the social prescriptions that he offers...

...In the fifties, bars were our meeting pFaces, our living rooms, our studies...

...Contrary to Galbraith's notions, the more oligopolistic the industry the less stable was industry employment...

...Or perhaps I'm finally becoming domesticated-my wife is pleased that after fourteen years of marriage I no longer call our bathroom the men's room...

...210...

...According to Galbraith, products and planning processes are so long-run and complex in these industries that the Department of Defense must rely on these firms for advice and must support them in fulfilling their plans...

...And he is told, ultimately, that dernocracy will simply not work if left to the citizens...

...Thirdly, only those forty-one firms earning profit rates of 10 percent or more were included...

...It is not quite clear whether this means that these firms are in the best position to avoid instability in their fortunes, or that these firms can best maximize sales at the expense of profits, or beth, although there seems to be some emphasis given by Galbraith to the avoidance of i~astability...

...If you talked about those things, or if you lost your temper, or if you couldn't hold your own (dertain rare people, who for some unexplained reason were perceived as inherently "nice," were always exempted from this requirement), then you were told to shove off, and through unspoken agreement found yourself an outcast in the West End...

...Along the Road Is my father in the barroom...

...199-200...

...In order to ascertain the validity of these descriptions of the behavior of management in the new industrial state, it is necessary to measure the degree to which firms or industries achieve these two managerial goals in comparison with the degree to which these firms or industries are likely to be guided by the imperatives of modern technology...

...piano bars just before the Liberace and the Ebb Tide school, when every good barroom pianist sounded like Eddy Duchin or Fats Waller...

...beer bars with plank floors and drunken truck drivers and boys from the alfalfa plant romancing nearsighted waitresses from the local diner with Earnest Tubb and Webb Pierce and Kitty Wells on the juke box...

...Actually I already have some ideas for our October issue, and if I can remember them long enough to have someone else carry them out we ought to have some superb articles next year...

...This hypothesis is mere purely GalbraithJan and also considerably less concise...

...I4zemingway and Fitzgerald and Faulkner were taken very seriously, and moot people modeled their prose on them...

...309-10...

...it will also seriously erode both the system's potential to respond to the electorate and the personal political freedom of the individual...

...Such philosophical roadwork generally leads to issues that are better than ever--and as more than one wag has said, how could they get worse...

...An equal division among all who wisked to run for office would be completely unworkable...