The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too by James K. Galbraith

Author:James K. Galbraith [Galbraith, James K.]
Language: eng
Format: epub
Publisher: Free Press
Published: 2008-08-05T00:00:00+00:00

CHAPTER NINE

The Corporate Crisis

A standard story told round the liberal campfire is of the destruction of the New Deal and the Great Society in the years of Ronald Reagan and George W. Bush. These ogres were, in turn, the instruments of hidden hands and dark forces, the tools of corporate power.

The truth may be nearly the reverse. As we have seen, though each did damage here and there, neither Reagan nor Bush fundamentally undid the American social compact. Those institutions—health care, higher education, housing, and retirement—still largely survive, and so (despite much talk of its disappearance) does the middle class those institutions largely created. Yet compared to its world-dominating position in the 1960s, the American industrial firm is not in such good shape. And both ultraconservative presidents presided over important phases in its decline, fall, and corruption.

When my father published The New Industrial State in 1967, the great industrial enterprise seemed a stable, even permanent, and largely self-stabilizing element of the postwar American scene. My father’s purpose was to build an entire economics suitable to a world dominated by such organizations, and he saw the corporation as largely a replacement for the market: an entity that planned out future technologies, managed the production of current ones, reduced uncertainty in the supply chain, and attempted to ensure a stable source of “specific demand” for its products. This was an economics of the economy as it was. And what it was, at that time, was a system ruled by large organizations for purposes of their own.

But the system of large organizations as my father described it was far less stable than it seemed. Already in the 1970s, it began to suffer the intrusion, on its home markets, of a competing system: the rising industrial colossus of Japan. The Japanese challenge particularly undermined two major interlocking citadels of midcentury American industry, steel and automobiles, each home to a powerful union. Those rising competitors had new designs, lower costs, and new production methods; the famous just-in-time method for cutting inventories in automobile manufacturing, known as the Toyota system, was coming into existence. The Japanese (and the Germans too) were also developing an important presence in industrial machinery, construction equipment, agricultural implements—mainstays of manufacturing production, blue-collar employment, and industrial unionism in the Upper Midwest.

Thus, when Reagan took office in 1981 and Paul Volcker launched his assault on inflation, the great American industrial firms built during the halcyon years from the 1940s to the 1960s were already intrinsically vulnerable. Monetarism would, in effect, blow them apart, for the double-digit interest rates Volcker and Reagan brought on in 1981 had three catastrophic effects on these sectors. First, it destroyed their export markets, sending Third World economies in Latin America, Africa, and parts of Asia into a tailspin from which they would not recover, in some cases, for twenty years. Second, the recession destroyed (though more briefly) their home markets. And third, they drove up the value of the dollar, by around 60 percent in relation to U.S. trading partners.

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