The Technostructure vs. the Techonomy

I just finished reading the New Industrial State by John Kenneth Galbraith. It's a book that manages to be dated and prescient at the same time. Unusually for an economist, Galbraith attempts to describe the world in a relatively unreduced fashion. t is inevitable that the economic landscape has changed much since Galbraith wrote The New Industrial State. But it's to his credit that he does not retreat into the comforting simplicity of widgetland. In fact, he is hilariously scathing in his attacks on the economists who choose to study the parts of reality that are amenable to being fitted to theoretical models while leaving out parts that might actually be rather important.

Classical economic theory holds that individual profit maximization results in optimal societal welfare as long as the state stands back and let the market do its thang. An interlocking wheel of assumptions is required to prove this happy state of affairs. Galbraith is very good at pointing out the places where the cogs of the wheels just don't fit.

Galbraith's description of what he calls "the technostructure" could not be more relevant in the aftermath of the global financial crisis of 08/09. We need a reminder that in our capitalist system, it is not actually the capital that is holding the reins of our corporations. Galbraith patiently explains with wit and verve what, really, any fool with eyes could see. It is the managers who are in charge of the companies and the boards of directors are their tools. Stockholder power is immensely dilute. The individual interests of the managers are frequently not aligned with the the well-being of the company in the long run. Given the power, they will maximize profit for themselves, not the company. Food for thought when considering executive compensation. He's also very good at describing the insidious phenomenon of government and big business aiding and abetting each other. He does this with a fairly value-neutral shrug of the shoulder.

But looking around in 2010, it's also clear that the technostructure is not the whole story. For instance, General Motors, which Galbraith repeatedly uses as the example of an industrial titan destined to expand ever onwards outwards like a benign tumor, would almost certainly have faced corporate death last year without a bailout from the taxpayer. While technology is a bigger story than ever, a important part of the story is coming not from the established titans with monolithic research and development departments, but upstarts like Google who are aggressively poaching on the turf of bigger players. Who knows how things may shake out in the future, but for the time being, it seems there is a decent amount of game-changing afoot. The other staggering change since Galbraith's day, of course, is the increasingly agressive globalization in goods and services. The technostructure still rules a good part of our lives. But nobody is completely immune to competitive forces.

David Kirkpatrick et. al. coined the term "techonomy" to describe the part of the economy that is continually driven by technical innovations and entrepreneurial zeal. They cast the techonomy (including companies/entities as diverse as Google and the Federal Reserve!) as part of the answer to humanity's problems. I'm not quite sure about that, but it does seem to be a good addition to the vocabulary. GlaxoSmithKlein, GM and NBC seems to me very much part of the technostructure -- gliding along on corporate powess for better or for worse. Google, Zappos and the now defunct pets.com, on the other hand, belongs to the techonomy.