Friday, Jan. 06, 1967

Burying Free Enterprise

Britain was the cradle of both the industrial revolution and, with Adam Smith, the science of economics. With that in mind, Harvard Economist John Kenneth Galbraith, 58, went to London to deliver on BBC radio the famed Reith Lectures (a series of six) on "The New Industrial State." He entered a plea for a sort of diplomatic immunity.

"Once the heralds of bad tidings were hanged," joked Galbraith. "Now such a reaction is regarded as lacking in delicacy." Galbraith's tidings: the free-enterprise economy, which he called one of the "minor branches of theology" in the U.S., is all but dead.

Basic to Galbraith's new industrial state is a thoroughly planned economy -- with technocrats in very large corporations in control. Government is not much more than a manservant, performing tasks that industry cannot or does not care to manage by itself. In some fields, the line between the public sector and the private sector is already "nearly imperceptible," and before long "men will look back in amusement at the pretense that once caused people to refer to General Electric, Vickers or Du Pont as private business."

"Fairy Tale." Conflict between business and government, said Galbraith, has disappeared along with classical capitalism. "No Ford executive will ever fight Washington as did Henry I." The new industrial state is the product of technology. Since World War II, technology has pushed the price of introducing new goods so high that no company can risk its investment on anything so old-fashioned as a simple supply-and-demand marketplace --which is little more than a "fairy tale" anyway. To eliminate risks, droves of technocrats set minimum prices, ar range orderly supply and virtually dictate demand through advertising.

Big Business, said Galbraith, has freed itself from a lot besides marketplace chance-taking. For one thing, owners can rarely bother the managers. Ownership is so broad that the individual stockholder is a "passive and functionless figure." Even bankers can be held at arm's length, because corporations, to an ever-increasing degree, can finance themselves through retained earnings.

Charades & Spinsters. When the corporate planners do not, for whatever reason, provide for themselves, continued Galbraith, the state comes through "a little too miraculously." When more technocrats are needed, government steps up educational spending. The state also provides demand for the "more risky technology," such as the SST and other "misfortunes." Antitrust is a slick "charade," killing unimportant mergers but not touching established giants.

Most important, the state sets maximum limits on wages and prices--through "guideposts" in the U.S., the "freeze" in Britain--in order to protect the corporate-planned economy from inflation. Galbraith found it amusing that such control, though a reality, is nonetheless still approached "with great caution and circumspection, somewhat in the manner of a Victorian spinster viewing an erotic statue."

Cynicism & Sophism. Mixing his sophism with some cynicism, Galbraith explained that such shyness will be outgrown before long. Corporate technocrats and government bureaucrats work in concert, he said, because they have the same aims--not a national goal or even maximum profits, but "the promotions, enlarged opportunities, higher salaries and prestige which go with growth." Moreover, since technology-oriented planning is common to both Western capitalism and Eastern European Communism, the two economic systems are "not startlingly different."

And with no "irreconcilable difference between economic systems," asserted Galbraith, there is no basis for a "weapons competition," which in both the East and the West really serves only the "underwriting of technology."

Galbraith's notions met with astonishment even in socialist Britain. The Economist said that the "Galbraithian heresy" about the end of the marketplace "sits rather oddly beside the experience of the past 20 years, which have seen a wider array of entirely new consumer goods than in any other two decades before." The Daily Telegraph editorialized that Galbraith's propositions were based on "sleight of mouth." Economist Colin Clark was amazed at Galbraith's "grand and illusory dreams of all-powerful industrial corporations untouched by competition," and suggested that he observe a "cautious unwillingness to extend theory beyond its safe limits."

Out of Bounds. Galbraith's ideas seemed rather out of bounds in the U.S.

too. That there is a vigorous marketplace is obvious, as witness the giant Ford Motor Co.'s unplanned flops (the Edsel) and galloping successes (the Mustang). What is more, any steel, aluminum or copper-industry executive who tried to raise prices this year--and got a jangling phone call from the White House for his trouble--knows that the tale about the government acting like a Victorian spinster is as tall as the 6-ft.

8-in. Galbraith himself.

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