Customer Reviews

The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too

5 star:		(31)
4 star:		(11)
3 star:		(5)
2 star:		(1)
1 star:		(5)

 

 

I must say that this book turned what I believe about the economy on its head, but it also enlightened me about how the economy is connected to fairness and equality. I used to think that our biggest problem was deficit spending, but now I see the biggest problem is fairness. Galbraith, who is the son of the famous John K. Galbraith who wrote The Modern Industrial State, which I read 40 years ago and gave me my first insights into how the economy works, describes how inequity in wages has distorted the market and created an environment not unlike Alice in Wonderland where people disenfranchise themselves by believing that free markets are somehow all-seeing and lead to the greatest possible good. Galbraith makes a case against this hands-off approach to markets and argues that unregulated markets will lurch from one bubble to the next. Crises like global warming will never be dealth with because there is no financial incentive to do so. Planning is the only thing that can save us and will have to involve a serious political battle because the corporations have saturated the media with the belief that the markets work best when left alone, which prescription leaves most of us on the bottom level of the next pyramid scheme while the corporate executives accumulate vast fortunes for themselves at our expense. The writing isn't bad, but it can be a bit hard to see what he's driving at at times. The resolutions he offers at the end make the read worth while. This book came out in Spring of 2008. Given the financial meltdown here in the Fall, the warnings in this book are eerily prescient.

James Galbraith, this book's author, is the son of famous economist John Kenneth Galbraith. His father was an important figure in economics, with books such as "The New Industrial State" on his resume. I mention this since this volume mentions Galbraith pere approvingly on a number of occasions.

Galbraith begins by noting that our economic discussion is based on a fallacy--that free markets and competition govern our economic sphere. This idea is now the dominant view of how an economic system ought to function in the United States. He goes on to say that (Page xi): ". . .the doctrine serves as a kind of legitimation myth--something to be repeated to schoolchildren but hardly taken seriously by those on the inside." The guiding metaphor for this book, a predatory state, is outlined early on by Galbraith. He says that this refers to (Page xiii): "the systematic abuse of public institutions for private profit or, equivalently, the systematic undermining of public protections for the benefit of private clients."

He develops this thesis, beginning with a first chapter entitled "Whatever happened to the conservatives?" He begins by noting the elements of the Reagan revolution (or Reaganomics as it was then termed)--(1) tax reduction to trigger investment and economic growth; (2) tight money to halt the inflation that had sapped the energy of the economy; (3) deregulation and assaults on unions, to, once more, let market forces rule. He goes on to argue that, first, this perspective did NOT achieve what its supporters allege, and, second, that contemporary conservatives have in essence abandoned these principles to "take over" the government and use that power to enhance the interests of the moneyed and powerful class. As a result, Regan's vision has been replaced by "the predator state," which he defines as (Page 131) ". . .a coalition of relentless opponents of the regulatory framework on which public purpose depends, with enterprises whose major lines of business compete with or encroach on the principle public functions of the enduring New Deal."

If that is the problem, what would the solution be? Galbraith suggests three components of addressing the predator state. One is to institute a system of planning, to think ahead and not depend on short term profit making motives of business enterprises. Another is for government to become more involved in setting wages and ensuring a more equal distribution of pay and income (his argument is that there is no evidence that letting wealthy people get wealthier has positive economic benefits). Three, the United States is part of a world economy, and that should help to discipline and inform our policy.

His policy proposal? If you want higher wages, raise them? If you want better jobs--create them. If you want safer foods and cleaner air, mandate it. Don't depend on the market. Just do it. That won't sit well, of course, with those who advocate markets as the answer. But, then, by the terms of his argument, the market will not do that since it does not describe how things work. The final chapter examines how one might pay for his policy choices.

Plenty of examples are mentioned. This is a book that is not always clear in what it argues, although that is not a major problem. It does provoke reflection on how things work, and that is to the good. I must confess that I am not convinced by what are, generically, referred to as conspiracy theories, and this book has a flavor of a conspiracy at work. Nonetheless, in the aftermath of the economic troubles that have beset the United States and other countries, it is useful to examine alternate perspectives and see if they add anything of value to discourse.

3 1/2 stars. . . .

Searing insights into neoclassical economics (the academic standard),past conservative economic policies, and liberal acquiesence to the conservative mantra of free markets. This book is a must (so are all good commentaries)even for those that profess ignorance of economics in companionship with McCain. If you want to know why the U. S. is terribly awry and needs attention and sweat and great effort to come about to some semblance of normalcy but you didn't have the metaphors or knowledge to tackle the contortions of the past and present, read this even if you are not an economist. This is about the enslavement of our government to the will of the wealthy and the corporations and how and what can be done.
Most who pay attention know this, but do they understand it quite as well as elucidated by this great economist?

An long ago graduate in economics,and, institutional economist from, U. of Texas,Austin

When I first picked up this book, I did so because the title and sub-title was threatening and abusive to my own thinking. I had to find out what an accomplished economist knew that I didn't know about my deeply held beliefs about capitalism and economics.

What an interesting book. The American Economy was in a much different state when I began reading this book (early Sep 2008) than when I finished it (late Oct 2008). I think what I learned from this book has helped me think about possible solutions for our economic meltdown.

Here are some points from Galbraith's (yes, Kenneth's son) book. I'll give indication of my opinions on his ideas as well.

I have a full review on my blog (do a Google Blog Search for Predator State).

Galbraith says that liberals who are for the following things should reverse their thinking: balanced budgets, free trade, open markets / monetary policy, tax cuts and the importance of savings. (Hey, that's me!!)

He attacks each idea with an obvious depth of economic prowess and an even more obvious bias towards true-blue liberal thinking.

His argument against balanced federal government budgets is perhaps his most compelling. He provides a simple equation that shows that the U.S. federal government (unlike all other countries) is positively incapable of balancing its budget and should not even try. To do so results in pain for consumers and business in the U.S. Galbraith actually won me over on this point.

The equation is that the U.S. must run a budget deficit each and every year or else private industry and consumer will have to run deficits themselves. The deficits we run collectively (government plus industry plus consumer) MUST equal our countries total trade deficit. And the U.S. will always have a trade deficit as long as the U.S. Dollar is the currency of choice for emerging market countries to hold as their reserve currency (which is it).

On free trade, Galbraith isn't exactly against free trade itself, but against the unfettered access we seem to have as a goal where environmental and labor regulations aren't part of our agreements. He seems to have a fairly typical liberal view on this point, and I agree as well. He aggressively debunks the notion that the free trade agreements are even remotely linked to job loss in the U.S. Instead, he blames deregulation and union-busting for the job losses.

Galbraith deftly points out the failures of the "open market" and, in many ways, foreshadows what happened in the weeks and months after his book was published in August 2008. He was right on almost every account on this point. Just this past week we saw Alan Greenspan admitting to the "flaw" in his own thinking about markets and monetary policy. Galbraith must have had a giggle about that. He points out that the countries where open markets were most vigorously applied were dramatic failures (Argentina, Brazil, Chile). He says that Milton Friedman's motto of "freedom to choose" is actually just "freedom to shop." He shows how the big industrial companies lost their brain trusts in finance and technology to Wall Street and Silicon Valley respectively, and he details the damage this has caused. He shows how extravagant CEO pay has been a destructive force in the economy.

He says that government "planning" is needed because "markets cannot think ahead." I like this point very much.

Galbraith saw the George W. Bush tax cuts as irresponsible and, in general, the trickle-down economics as a joke. I think most people would agree these days, including me. On financial inequality in general, he says that we must use government controls to close the gap between the rich and the poor, and if we do so, we will experience a better and better economy. He uses Denmark as an example of high equality and low unemployment.

With the importance of savings, I think Galbraith is of two minds. It seems that he is opposed to supply-side economics, which emphasizes the importance of savings, but he also, later in the book, says that he is in favor of the government having some control or influence over how/when people save money, so I ended up a little confused on this point. I, personally, am a crazy saver and I think Americans need to have more of a saving/investment mindset than we currently do.

I learned a lot. Perhaps only a handful of books I've read in my life have forced a bigger shift in my thinking than this book. I cannot say that I am a far-left liberal like Galbraith himself, even after reading this book. However, I can say that I've shifted left-ward knowing what I know now, and I'm sure my opinions have also been drastically impacted by the lurchings of the American economy this fall of 2008.

This was a terrific read. Galbraith needs to be commended for having the courage to lay all this out. While I am sure that others can pick up where he left off and flesh out each area he describes in much more detail, the general premise is absolutely correct. We are not victims of the economic forces beyond our control. Our open and pluralistic society gives those who have an interest in one market or another the incentive and ability to carve out market rules to their liking. Those rules will rarely benefit "the public as a whole" because the public as a whole is woefully under-represented and under-financed in the rulemaking process. Galbraith's work is even more prescient, coming nearly six months PRIOR to the big meltdown in the fall of 2008. Our system needs to decide where best to spur this economy and make significant targeted interventions toward that end. We cannot leave it up to the "market" to fix itself.

With The Predator State James K. Galbraith brings the insightful analysis of The New Industrial State and The Affluent Society to bear on the shambles of the 21st century US economy. In part one Galbraith demolishes the standard arguments about deficits, free trade, shopping, interest rates, tax cuts, and inflation.The rest of the book builds an alternative ... a long needed alternative. I called this review The Approved Contradiction in homage to the classic The New Industrial State; in the 21st century economic freedom (the freedom to shop) is actually it's opposite. It is unfreedom. But no one dares admit it. Great book Jamie!

Galbraith began the book after Hurricane Katrina, which he called the "Chernobyl of the American System" - a disaster that exposed and laid bare the fallacies of an entire governing creed.

Galbraith's first objective is to describe the Republican myth and its consequent set of rules for policy. Katrina exposed first an erosion of capability, and more seriously, predation (the systematic abuse of public institutions for private profit, turning regulatory agencies over to business lobbies, privatization of Social Security, and creating initiatives in Medicare to benefit drug companies and trade agreements to benefit corporate agriculture at the expense of subsistence farmers in the Third World).

Reaganites offered a reduction of taxes on wealth to increase savings and investment, tight money to end inflation, and an assault on government, regulation, and unions to let market forces (private capitalists) rule. They promised an end to redistribution and catering to the needs of minorities and the poor - compassion would be redundant.

Free market devotees prefer to avoid discussions of the fate of airlines, and the S&L industry under deregulation. They have no realistic alternative to our oil addiction, imperial commitment, global warming, New Orleans recovery, fall in confidence in the dollar, or health care - merely opposition to others.

"Freedom" has become "freedom to shop" (cheap goods from China, cheap fuel), "freedom of election" (those who have money are free to buy them), "market freedom" is for business alone to command labor, price products, manage the environment.

Practically all gross investment is accounted for by depreciation and retained earnings of corporations, and by the savings of those who sell to us from overseas. Ergo, personal tax rate cuts don't matter. The main effect of tax cuts on capital income encourages firms to pay out a larger share of net income.

On Free Trade, Galbraith takes a mixed position - recognizing that great technological industries such as aviation and telecommunications require global markets for efficient operation (internal markets are too small and insufficiently demanding); however, he also sees the potential for damage from too much free trade, and offers no guidelines on where to draw the line.

According to James Galbraith, there was a time when we had true conservatives. They believed in free-market capitalism, that is to say, in the mechanism of supply and demand that allocated goods and services. Any government intervention in the economy was seen as harmful to the natural order of commerce. Regulation and taxes would inevitabaly lead to stagnation, and, worse yet, socialism. True conservatives actually believed that and the few that are still around still do.

The debate between free markets and central planning is, in my view, a false one. We have a mixed economy, partially run by the government but mostly by private enterprise. Galbraith yearns for an earlier time when government, business, and labor worked in relative harmony, eloquently described by his famous father in The New Industrial State (The James Madison Library in American Politics). That work described the America of the 1950s and 1960s. Over the last thirty years, however, the industrial state has given way to what the younger Galbraith calls the predator state.

What is the predator state? It is a coalition of corprate interests that seeks to master the state structure. Corporations and their lobbyists no longer seek to work in tandem with the state, they seek to control it. Corporations are no longer interested in the discipline of the marketplace or reducing the size of government. They like big government because they can make money from either poaching or taking over government functions. Government - the bigger the better - now wholly serves corporate interests rather than public interests.

Healthcare is a case in point. The notion that conservatives want to return healthcare to the private sector is a myth. If it were completely returned to the private sector it would collapse. Healthcare of 16% of GDP and heavily dependent on government money. Insurance and pharmaceutical company lobbyists have the politicians in their pockets and the politicians keep the public money flowing back to the corporations. One wonders how much larger a portion of GDP these predators can devour with the military and others also clamoring for more. Needless to say this system is inherently unstable as we have seen in the recent financial meltdown.

Galbraith also criticizes liberals for seeking "market solutions" to social problems. In the case of healthcare, liberals are seeking "employer mandates" to achieve universal coverage. But this is still problematic because it still goes through the insurance companies. Galbraith, not surprisingly, favors the single-payer solution, bypassing private insurance altogether.

Even though I am sympathetic to the single-payer system for healthcare, Galbraith veers too far to the left for my centrist and pragmatic orientation. He speaks rather glibly about unions setting wages and government setting prices as if globalization has had no impact. He does not seem to think that the market is the best allocator of goods and services. In fact he does not think that the market exits, just as it does not exist for the predator state. And now he is calling for liberals to abandon the notion of markets? There are some serious problems with this book.

I was impressed by Galbraith's understanding of the structure of the American economy. Over the post WW II years, he proposes, the US economy, in each sector, has been dominated by fewer and fewer corporations. Is it accurate to characterize it is a corporate republic?...a corporate state?...or, when behaving badly...as Predator State, as Galbraith does? Eisenhower warned about the military industrial complex. Has this pattern become the default setting for the US economy...and, has K Street insured its perpetuation? Has this spelled the death knell of classical market economics?

Galbraith's answer is affirmative to all these questions....and the events of the last several months expose this long obfuscated economic reality for all Americans to see.

This book presents a big picture thesis...from it, springs Galbraith's conception of economic equality...and a new social contract, somewhere along the lines of his father's book: "The Good Society".

This is a good book and a good read. Its conclusions are inescapable, and very sobering indeed.

Before they passed, both William F. Buckley and John Kenneth Galbraith agreed that something had gone seriously awry in the American economy and politics. This is an excellent book that those, of either party, should be able to grasp...and perhaps, from its conclusions, begin exploring together, some prudent new directions for the nation.

James K. Galbraith holds the Lloyd M. Bentsen, Jr., Chair in Government/Business Relations at the University of Texas at Austin. In this stunning book, he helps us to see the forces at work in the US economy.

He argues that CEOs and their bankers, lawyers and accountants have become `a predator class'. Their predator state abuses public bodies and takes public cash for private profit. The public are made to bail out the private sector. Even with tax cuts, this class's hidden creativity stays hidden.

They promote the myths of monetarism, supply-side economics, deregulation, balanced budgets (Cameron's agenda) and free trade. But spending cuts do not increase investment, savings or productivity, growth or wealth. Budget surpluses drain funds from the spending stream, ensuring a slump.

As Galbraith points out, "Deregulation of the Japanese capital asset markets set off what was, and would remain until the NASDAQ, the largest speculative bubble in human history, combining speculation in stocks and speculation in real estate to an astonishing degree."

He notes, "Ricardo was wrong. Comparative advantage has very little practical use for trade strategy. Diversification, not specialization, is the main path out of underdevelopment, and effective diversification requires a strategic approach to trade policy. It cannot mean walling off the outside world, but it is also a goal not easily pursued under a dogmatic commitment to free trade. Indeed none of the world's most successful trading regions, including Japan, Korea, Taiwan and now mainland China, reached their current status by adopting neoliberal trading rules."

Health care, higher education, housing, social security and federal, state and local spending account for more than half the USA's economic activity. Galbraith shows how predator firms seek to profit from all these: in Britain, firms want to exploit NHS `reform', the academies programme and the `reform' of the benefit system.

Waste from US private medical insurance is $350 billion a year. He writes, "from the standpoint of an entire population, selective private provision of health insurance is invariably inferior to universal public provision. Private health insurance companies would not exist except for their political capacity to forestall the creation of universal public systems ..."

He points out that a labour market does not really exist: the demand for labour, not education and training, decides the level of employment. Nor is health care a market - health care is not a commodity, not a specific thing - it is a label covering a huge class of different goods and services. Nor is there a free market in energy or carbon emissions: the energy monopolies have not cut prices; the cap-and-trade system does not cut carbon emissions.

Unemployment and inequality have risen and fallen together in the USA since 1920. As Galbraith notes, "Inequality produces unemployment. Unemployment produces inequality, Measures that reduce inequality also reduce unemployment, and measures that reduce unemployment also reduce inequality. Equality, then, is good for employment and vice versa. Reductions in both inequality and unemployment reduce waste and therefore increase economic efficiency and improve general living standards."

Taxes on high incomes and capital gains, on gifts and estates, would encourage the rich to keep their savings in corporate stock, where firms can use them to invest, and would discourage firms from increasing their dividends and stock options to CEOs. It would also discourage excess savings and dynastic accumulation.

Galbraith points out that if you are an employer in Sweden or Norway, "you are not free to cut your wages. You are not free to compete by going after cut-rate workers, either native or immigrant. You are not free to undercut the union rate. You have to pay your workers at the established scale, and if you cannot do that and earn a profit, too bad for your business. The effect of this on business discipline is quite wonderful. To succeed, businesses must find ways to compete that do not involve running down the wage standards of their workforces. They do it by keeping productivity high and investing in the search for technological improvement. This means that advanced industries thrive in Scandinavia, while backward ones die out."

He observes, "the active agent in the migration process is not the immigrant. Rather it is the employer who seeks migrant labor in order to pay less for labor and to minimize the risks of unionization ..." Enforcing labour standards, better wages and conditions, would cut migrant numbers, displace fewer native workers, and raise wages generally.

As he sums up, "Imposing standards, and enforcing them, is thus the general policy response to the rise of the Predator State, which is just a coalition of the reactionary forces within business who seek to maintain competitiveness and profitability without technological improvement, without environmental control, without attending to product or workplace safety. They are the forces behind deregulation, behind tort reform, and behind the assault on unions."

We need planning of production and of distribution of pay and incomes. As Galbraith concludes, "Planning, properly conceived, deals with the use of today's resources to meet tomorrow's needs. It specifically tackles issues markets cannot solve: the choice of how much in the aggregate to invest (and therefore to save), the directions to be taken by new technology, the question of how much weight and urgency are to be given to environmental issues, the role of education, and of scientific knowledge, and culture. Decisions on these matters involve representing the interests of the future - interests that are poorly represented by markets."