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Personal view: Galbraith's concerns over power of big firms still
valid

By Tom Stevenson (Filed: 02/05/2006)

History has not been kind to the flawed brilliance of JK Galbraith.
Some of his pithy left-leaning aphorisms may have become
the "conventional wisdom", to use one of his more enduring phrases,
but many of his ideas have fallen out of fashion or been disproved
by subsequent events.

This is a shame because some of his thinking has as much or more
resonance today as it did at the height of his influence 50 years
ago. In particular, he foreshadowed the current anti-business
backlash which is sounding alarms in the boardrooms of the world's
corporate giants.


John Kenneth Galbraith
A guiding light of the Democratic Party's economic strategies for
decades, it is unsurprising that the free-trade supporting right
should dismiss his contribution. The Adam Smith Institute's Madsen
Pirie is typically churlish: "I don't regard him as someone who made
a major contribution to the theoretical understanding of economic
systems."

This is unfair. In many areas, Galbraith's thinking was ahead of its
time. In The Affluent Society, published in 1958, he argued that
America's restless pursuit of wealth was good at creating huge
corporations but at the cost of a divided nation.

In the book he famously illustrated the paradox of private affluence
amid public squalour with a family taking its air-conditioned, power-
steered car for a drive through blighted cities before enjoying a
beautifully packaged picnic by a polluted stream.

With environmentalism and the failure of ever-increasing wealth to
make people happier becoming a central part of the national debate
today, it is easy to forget what ground-breaking ideas these were
half a century ago.

As relevant today as the ideas in The Affluent Society, are those he
explored in a later book, The New Industrial State. In it, he argued
that large companies had grown to dominate the American economy to
the extent that giant companies such as General Motors had total
control of their markets.

Galbraith said that because GM built around half of all the cars in
America "its designs do not reflect the current mode, but are the
current mode". For General Motors in the Sixties, you can read Wal-
Mart and Tesco today. His anxiety about the concentration of power
in the hands of a small number of giant businesses is a very modern
concern.

The growing backlash against big business is turning out to be a
defining theme of the early years of this century and it is a wave
of opinion that should make companies worry. Fuelled by a steady
stream of books and films, the tide has turned against the
corporation.

With 1.3m employees - more than any other private employer in the
US - stores in 15 countries and worldwide sales of $312bn (£171bn),
Wal-Mart is a seemingly unstoppable phenomenon. More than 100
million Americans visit one of its shops every week.

It has been called a 'template for 21st Century capitalism', feted
on the one hand for increasing economic productivity but blamed by
many for a catalogue of modern ills, from low wages and poor
healthcare to hollowed out cities and even the trade deficit with
China, where most of its suppliers are to be found.

In a telling one-liner from one of two new books on the company,
Charles Fishman says in The Wal-Mart Effect: "Wal-Mart isn't subject
to market forces because it's creating them." Galbraith, who
believed a defining feature of corporations was their ability to
create demand where there was none, could not have said it better.

Here, Todd Stitzer, chief executive of Cadbury Schweppes, came out
fighting last week at the Institute of Directors annual shindig,
challenging big business to fight back. Companies, he claimed,
should shout about the wealth-creating, employment-providing force
for good they represent. Also on the back foot last week was Tesco,
which has been forced by a groundswell of public opinion into an
awkward charm offensive. Recently, this has seen chief executive
Terry Leahy expounding the virtues of the friendly family firm,
letting it be known that he is investing millions of his own money
in a "green" holiday development in Thailand and earmarking £100m of
the company's to identify and trial sustainable technologies in its
stores.

No one would claim Tesco is an unqualified force for good.
Allegations that it is destroying town centres and squeezing
suppliers out of existence have gained widespread credence because
there is a grain of truth in them. But the paranoia says as much
about us, and our distrust of success, as it does about the company
itself.

Galbraith's worry about General Motors 40 years ago was a rational
response to a company with an apparently unassailable position. But
he would have been surprised about how things turned out. GM is a
busted flush, defeated by unsustainable staff benefits and the
market forces it was supposed to control.

Wal-Mart, too, is having to reinvent itself as sales to its core
blue-collar market falter and its share price stagnates. In the UK,
the assumption Tesco will continue to bulldoze the rest is by no
means a given and the Competition Commission should think carefully
before pursuing a vendetta. M&S looked impregnable 10 years ago,
dominant at home and expanding overseas, but dissatisfied consumers
voted with their feet. Just because Tesco hasn't stumbled yet, it
doesn't mean it can't

conan

P.J. O'Rourke wrote a beginner's guide to economics which included some excellent advice: "Never read anything written by JK Galbraith".
JKG was a "Clause 4" man, a believer in high taxes, a preponderant public sector who admitted openly that he regretted the passing of the USSR.
He was never willing to realise - or admit - that "private wealth and public squalor" stemmed from the chronic inefficiency of the public sector. Today, after a tripling of its budget in less than 10 years, Britain's NHS kills 5000 people a year through "Hospital acquired infections", a problem unknown in the rest of the developed world - a fitting monument to JK Galbraith.

mark starr

Well written, Conan.
Capitalism has brought wealth to the peole in those countries which follow its policies.
Todd Stitzer was dead right in complaining that business is continually being knocked for creating wealth. If Governments could be half as efficient as Walmart, Tesco's, Cadbury Schweppes and all the other successful companies we would all be laughing.
Also it is fair to say that multi nationals are one of the best forces for improving living standards in developing countries that has ever been invented. They are owned by Western shareholders who always feel guilty and one of the regular points raised in AGM's is " What are our labour practices in 3rd world countries" As a result multinationals always have to set a good example. If you left it to third world Governments which try to run things then you have to feel very sorry for their citizens as they stay or slip back into poverty .
Galbraith had a nice turn of words but his views were absurd .