Tuesday, October 6, 2009

The Predator State and the Battlegrounds of American Politics by James K. Galbraith

The metaphor of predation is evolutionary, and its origins are to be found in evolutionary economics, specifically in Thorstein Veblen's Theory of the Leisure Class, first published in 1899 and a classic of American thought. Veblen wrote that predation is a phase in the evolution of culture "attained only when...the fight has become the dominant note in the theory of life"

In the "higher barbarian culture', Veblen wrote, the industrial orders comprise most of the women, servants, slaves, and other chattel, plus the craftspeople and a smattering of engineers. These people are underlings, and they alone perform what in modern societies is called work. Only for them, therefore, is it appropriate to think of wages and salaries as compensation for the drudgery of toil. Those who are higher up in the pecking order take a different view.

The nonindustrial order comprise the leisure class: warriors, government, athletes and priests. Captains of industry are an outgrowth of the warrior caste, they do not work. Rather, they hold offices. They perform rituals. They enact deeds of honor and valor. For them, income is not compensation for toil and is not valued mainly for the sustenance it makes possible. Income is, rather, a testament by the community to the prestige it accords the predator classes, the esteem in which they are held. It is a way, in other words, of keeping score.

The leisure class is predatory as a matter of course: predation is what it does. The relation of overlords to underlings is that of predator to prey. The categories of Veblen's economics include prominently the absentee landlords and the vested interests, who live off the work of others by right and tradition, and not by their functional contribution to the productivity of the system.

The ecology of predator-prey relationships is one of mutual interdependence. Predators rely on prey for their sustenance, but they also require and must motivate their assistance. The normal function of the clan, tribe, family unit, or company is not to enrich the owner or master at the expense of the underlings, but to enrich him at the expense of the surrounding clans, tribes, families or companies. In this contest, the underlings naturally must enjoy some benefit both to motivate their cooperation and illustrate the success of the collective enterprise. The success of the enterprise also depends in turn on keeping the predators sufficiently in check. If in their compulsion to fight, they lay waste to the environment, then neither they nor their prey will survive.

Thus, contrary to Marx, in Veblen's scheme of things the industrial orders are not driven to the brink of subsistence. On the contrary: the success of the predators depends in part on a healthy prey. And to a degree, their prestige also depends on it. Wives and servants are therefore fed and decorated to reflect the stature of their masters; engineers are kept comfortable with "full lunch buckets" so as to keep the industrial machinery running smoothly. Since the lower orders generally understand this, those who are included within the program also realize that their position could be worse than it is. For this reason, they are not intrinsically revolutionary or inevitably destined to become so.

Veblen himself had very little interest in the process of social reform. Though he toyed with the prospect of a society ruled by "a soviet of engineers" he never seriously believed the conditions under which they might be induced to cast off the gilded chains of the predatory and unproductive classes were likely to take effect. And he died, in 1929, before the Great Depression started to give rise to the social transformations of the New Deal.

My father admired Veblen. But he was also formed in the Depression and by the New Deal and by the great mobilization of World War II. In some ways for his generation, the soviet of engineers was no fantasy at all; it was their experience of the world created during their youth. That world had virtues, including counter-veiling power and the mastery of advanced technology. Its vices- private affluence and public squalor, environmental decay, the manipulation of consumers- were the consequence of unbalanced power. It was a world in which Veblenian predation was possible, but in which the predatory instinct might come under enduring political and organizational control through progressive business practices, labor unions, government safety nets, tax codes and regulatory agencies, particularly in the fields of banking and finance.

But after the initial challenge of the Great Depression, W.W. II and the great post-war expansion, the project of taming the predatory classes through enlightened corporate governance and the partnership private and public interest gradually began to fail. Power was again dispersed to finance and the C.E.O's. This dispersion led to the reconnection of power with particular persons and the result would not have surprised Veblen: the reemergence of predation, predatory conduct and pathologically predatory conduct as the central theme in business life.

This is the Predator State. It is a coalition of relentless opponents of the regulatory framework on which public purpose depends, with enterprises whose major lines of business compete with and encroach on the principle public functions of the enduring New Deal. It is a coalition, in other words, that seeks to control the state partly in order to prevent the assertion of public purpose and partly to poach on the lines of activity that past public purpose has established.They are firms that have no intrinsic loyalty to any country. They operate as a rule on a transnational basis, and naturally come to view the goals and objectives of each society in which they work as just another set of business conditions, more or less inimical to the free pursuit of profit. They assuredly do not have any of society's goals as their own, and that includes the goals that may be decided on, from time to time, by their country or origin, the United States. As an ideological matter, it is fair to say that the very concept of public purpose is alien to, and denied by, the leaders and operatives of this predatory coalition.

The major battlegrounds of American domestic politics today emerge clearly once there is an understanding of the Predator State. They do not consist in the bipolar argument to which so much thought and argument is directed- that of "government" versus "the market". They do not for the most part consist in a perpetual war, as many are led to believe, over whether the frontiers of the state should expand or contract. Rather, they assume that over time, the role of the state will gradually grow. At some deep level, everyone with a serious role in policy debate agrees on this. The politics consists in a continuing battle over who gets cut in on the deal- and a corresponding argument over who gets cut out, and how, for there is profit in both cutting in and cutting out, and profit is all that really matters.


  1. Thus, health care. The politics of health care in our time does not revolve around any grand conservative scheme to return medical care to the private sector; it is immediately apparent that without state funding, both the medical sector and the overall economy would collapse. (Without Medicare, the life savings of many elderly would be quickly depleted, and their life expectancies would also fall). Nor does any serious politician propose drafting American doctors and transforming American hospitals into a replica of Britain's National Health Service. Such a move, if it reduced American health care costs to British levels, would entail reducing total health care spending by nearly half. No less than complete privatization, that would also cause the medical sector to collapse and the economy to implode.

    Instead, the health care battle is waged in ways that tend to expand the system; the issue is on what terms and with how many concessions to existing predators. A major liberal goal is to extend the coverage of health insurance, particularly to children.The private insurance companies are opposed to this. Why? Because they stand to lose part of their existing clientele: better-off families with small children. Their economic function is uncomplicated: it consists in marketing to people who are relatively unlikely to need health care, while not selling it to those most likely to get sick. Reform wold be less profitable, and the health insurance companies have both profits to defend and resources (those very profits) to defend them with. The political battle is over nothing else.

    Does the country benefit in any way from having such families with children under private insurance? Does it benefit from having any families under private insurance? No. To insure the whole population without screening would be economically efficient. It would save the resources now devoted to screening. Among other things, more resources could then go to actual health care. The bureaucratic waste from private insurance is estimated to be around $350 billion per year- just under 2% of gross domestic product, and more than half the cost of the defense budget. The "employer mandate" model for reform rest on the same impeccable political logic: avoid challenging insurance firms stranglehold on health care. But it is economic nonsense. The reliance on private insurers makes universal coverage unaffordable.

    The struggle is epic because it is zero sum. Here we see the immense power of the legitimating myth: by discussing it as though the issue had something to do with the efficiency of markets or the freedom of consumer choice, the defense of a functionless pool of profits can be made to seem a legitimate political position.

    The expansion of Medicare to provide a drug benefit to senior citizens illustrates how the system works when a compromise is reached. In this case, a new benefit was delivered, meeting a need that had grown greater over the years as the composition of medical share shifted increasingly towards chemical and pharmaceutical therapies. But the program was done in such a way as to make payments to drug companies as large as possible. The Medicare drug benefit help to ensure that a monopoly price on pharmaceuticals would be paid, while shifting the burden of paying it to the general taxpayer...

    Schools are also on the front-lines of the Predator State, as is Social Security, Housing Finance, Trade Policy and National Security...

    "The Predator State; How Conservatives Abandoned the Free Market and Why Liberals Should Too" by James K. Gailbraith; Free Press, 2008.

  2. James is the son of John Kenneth Gailbraith who was in charge of price controls in the Roosevelt Administration during the war, ambassador to India under Kennedy, noted author and professor of economics at Harvard University. His other son Peter was active in the Vermont Democratic Party as a youth but subsequently developed a career as a diplomat. He was recently relieved of his post with the U.N. in Afghanistan for privately questioning the legitimacy of recent elections too vigorously for the taste of the head of that mission.

    In his Acknowledgements James recounts that

    "On Wednesday, April 26, 2006, I visited my father in his room at Cambridge's Mount Auburn Hospital for what would prove to be the last time. I told him a little bit of what I'd been working on, and he said, "You should write a short book on corporate predation. It will make you the leading economic voice of your generation." Then he paused and added, with his usual modesty, "If I could do it, I would put you in the shade."

    On both counts, this is undoubtedly true.

  3. One of the more important points that James makes in his book which stuck in my mind and perhaps can be explained more briefly in my own words is the following:

    In considering the problem of CO2 emissions and its effect on Climate, rather than instituting a complex financial solution like 'cap and trade' which focuses on creating new financial instruments like mortgage derivatives which can be traded on the stock exchange in a speculative manner with all the accompanying, margins, fees and C.E.O bonuses associated with such activity- but are unlikely to make significant inroads into the overall quantity of emissions on a global basis- it would be better to simply institute tighter control by way of specific regulations against the chief offenders in industry.

    The point of this approach is that it provides competitive advantages to progressive corporations with a long term view over reactionary corporations who are intent of pursuing 'business as usual' with the emphasis on short-term profit. This provides a strong constituency apart from environmentalists and no-growth idealists- progressive corporations- for the legislation itself.

    As an example of how well this can work, though not entirely as we might have preferred, was the fuel efficiency standards placed on automobiles in the 70s. Japan and then Korea took up the challenge with respect to their sedans and now dominate the U.S. market whereas the American companies concentrated on the loopholes provided for RVs, vans and light trucks and are, as a consequences, now pretty clearly on the verge of bankruptcy and are only able to survive with mass infusions of public assistance.

    Needless to say, my own Korean passenger car, manufactured nearly ten years ago gets the same gas mileage which is being touted in the American manufacturers latest models as 'gold standard'. Twenty years wasted and a whole industry brought to its knees!

    James calls his suggestion the New Deal approach to U.S. economic and social problems. It does not repudiate a competitive market, it just sets reasonable, public interest guidelines as to how that market should operate.