The New Industrial State and Economics

The Great Depression of the American 30's made one thing clear, a new approach to economics was needed. Into this gap stepped Keynes, whose work made him an economic god in 50s & 60s, a time of great prosperity. The basis of the theory was that a state of equilibrium needed to be achieved between goods and money. Where one was more common than the other, the economy struggled. Keynes acknowledged that the economy must rise and fall, and believed that in times of recession, it was both right and necessary for the government to step in.

Keynes believed that government spending was capable of stimulating economies in recession, by creating more jobs, getting more money into people's pockets, that they can then spend, and so the economy grows. He also believed that in times of austerity, the interest rate should drop, which of course again puts more money into pockets and therefore back into the economy. 

The government spending needs to be carefully considered however, so as not to negatively impact existing businesses. This is why military spending is such a constructive approach in the Keynes model. If a government can find an excuse to go to war (say the threat of WMD's in Iraq), then they can spend an enormous amount of taxpayers money funding that war, and create thousands of jobs along the way. Manufacturing weaponry, military intelligence projects, and the soldiers themselves, there are a lot of positions to fill when the country is at war. This instant job creation lowers unemployment, and the greater proportion of the population in paid work, then the greater the proportion of the population spending money frivolously on coca-cola and marlboro lights, boosting the economy. And as the army isn't an private sector business, such as a soft drink manufacturer, there is no risk of crushing another business, you simply create business. And jobs. So everyone's a winner. Unless of course you live in the middle-eastern country being invaded as an elaborate act of economy-boosting. There is also the additional benefit that many goods and services that are researched and development for an act of war can transfer into civilian society, such as the internet, aircraft, and 4x4s, a long term boost to the economy.  

In Galbraith's key work, 'The New Industrial State', he investigates the growing dichotomy between a free market and an oligarchic market. The old model of supply and demand is no longer relevant for the large corporations, who are capable of dictating the demand for their goods and services to match the supply, through advertising and marketing. Many of these companies also utilize vertical integration, meaning that they own every step of the production process, from the raw materials through to the product itself. This strength places such corporations outside classic economic constraints. These corporations are controlled by a technostructure (lawyers, scientists, and various experts) , which acts not to increase profit (an activity that involves risk), but rather to maintain and expand the corporation. With this diminished risk approach and the power of such corporations, free market possibility is greatly reduced, as smaller companies cannot compete, and thus 'perfect competition' is removed. This creates an oligarchic market, where the few dominate the market, and shape it to benefit themselves, and open competition is near impossible. The technostructure therefore can essentially dictate the wants and needs of an economy. The experts contained within this technostructure are the same experts turning up as advisers to political parties, newspapers etc, meaning that a very small minority have a great deal of power. This technocratic system is ultimately aimless and nihilistic, an economy dictated by the few, strengthened by military spending, and existing to some extent to create meaning for the public. Rather than handing out boxes of £20 notes to everyone, creating jobs to give us all something to do.