The New Industrial State - John Kenneth Galbraith

The New Industrial State set the analytic foundations of the multinational corporation. Though he didn't name it, John Kenneth Galbraith discovered the principal-agent problem. In this book, Galbraith also dismantled the assumption that markets are composed by small price-taker units, but by large corporations who have interests of their own, including setting prices (quite obviously) but also reaching political power.

Given his style, which might be too formal for today's audiences, it is tempting to say that you can find his ideas on multinationals tempered down for the 21st century in the work of Naomi Klein. However, there is a significant difference between the two of them. Klein believes that the objective of the heads of multinational companies is to control the world, or something. Galbraith, however, makes the case that they just want to defend their vested interests (obviously in detriment of the common citizen). Evidence has been in the side of Galbraith and the same case has been made recently by conservative-turned-to-liberal-turned-to-independent thinkers like Francis Fukuyama and Fareed Zakaria.

The New Industrial State can be too burdensome at times, and is 500 pages long. If you really have to read it, you can save yourself a lot of time by reading the foreword, or even better, this article by Galbraith's son describing what the book is all about and how it is relevant today (the article was written in 2007).

This is the second book by Galbraith that I review, and I don't want to give the impression that Galbraith's work is useless today. He created the ideological framework of the American left; namely, corporations are bad (and small businesses inherently good), education will solve all of our problems, more money and resources should be devoted to liberal arts and public broadcasting (public goods in general), environment degradation is inherent to big-scale capitalism, and demilitarization should be priority number 1 in the U.S. foreign policy agenda. The fact that the American left has made mantras out of these ideas is not Galbraith's fult, but the left's, which has been unable to advance any significant part of the agenda, at least until Obama passed his health care reform.

Here is a 50 minutes interview with Galbraith done in the 80's.