The US Military-Industrial Complex

It is a long time since the structure of American Capitalism was labelled the "US Military-Industrial Complex." It was used by Dwight Eisenhower in his farewell speech as US President in 1961 saying;

we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex

General consensus is that "we" (meaning all of us - not just the US) failed.

The concept was further advanced by J. K. Galbraith in his The New Industrial State. Galbraith noted that the US was as much a planned economy as the USSR, just the planning was conducted by large corporations.

Yet another Huawei story shows this in operation. Here we have a US embassy official doing his bit to discredit a foreign competing firm.

What is the charge? That the supplier - Huawei - was less than brilliant in following through on a contract.

But let's roll the tape on Senator Conroy's quizzing Telstra at Senate estimates in 2006. He said, in part,

Perhaps I could read to you from a document, a Telstra document marked ‘Commercial-in-confidence’ entitled ‘Alcatel issues’. It is three-pager with an attachment. I will table it. It states:

Summary of Route Causes
In the last 10 years there have been a number of problems with Alcatel projects at Telstra ...
The systematic reasons behind these problems are listed below—

• Knowingly overselling capabilities and timeframes
• Short cuts taken to then deliver sub standard solutions
• Finding clauses in contracts and specifications to avoid obligations rather than delivering working solutions and / or what was sold in the first place.
• Alcatel overcharging Telstra whenever it had the opportunity
• Alcatel Australia inventing specials which then don’t fit in with worldwide Alcatel strategy
increasing the cost of the project and creating a risk Alcatel Australia would exit the project if Telstra did not continue to pay
• Poor software quality and testing—in particular poor exception handling consideration at the
design stage; poor quality processes ie peer review, configuration management and testing
• Poor system integration capability and problems managing projects requiring interfacing to
different components / vendors.

In some respects, issues such as Alcatel’s overselling of their capability in the late 90s were prevalent throughout the whole industry but Alcatel was on the leading edge of this trend.

(The actual document was tabled).

The claims about Huawei being a security threat all seem to be similarly trumped up charges motivated by Western vendors trying to exclude Huawei. To my list in itNews of transgressions by other nations, let's add Ericsson. Why should we trust a vendor from a country that many believe has trumped up charges against an Australian citizen (Julian Assange) to support the US?

Novae Meridianae Demetae Dexter delenda est

J K Galbraith

The report on ABC Radio's AM program of the death of
John Kenneth Galbraith is perhaps as good as any to lead into my own "obituary."

This is not an obituary in any meaningful sense. I can claim no special understanding of the life of Galbraith, and have only skimmed his readings. But as a major critic of what he labelled in 1958 "Conventional Wisdom" - which four years later Thomas Kuhn would have labelled a "paradigm", I share some of his criticisms of what some would call the "orthodox" view.

That said, I also diverge from his views, especially the way those views have been fed through what in the 1970s we called "political economy" to what is now called "heterodox" economics.

The History of Economic Thought website says Galbraith was considered by many as the last American Institutionalist. This description fits with the ABC segment assertion that where traditional economisrs saw individuals and markets, Galbraith saw politics and power. The latter version, however, overemphasises the political dimension. The critique Galbraith made was more that it is wrong to merely focus on the individual and markets and that the structure of markets and production were significant. More specifically that applying tools of analysis designed for studying the question of allocation of scarcity were not appropriate in a world of productive abundance.

From this came the view that rather than the consumer being "king", in reality business is creating demand, and that the consumer rather than being king, or even an equal participant, is merely the end of a production process. In this view Galbraith is largely reiterating the views of Thorstein Veblen, the person usually referred to as the first Institutionalist.

I find myself caught, because I absolutely agree with Galbraith's questioning of the institutional assumptions underpinning "conventional wisdom". However, I reject the conclusions reached and the effective jettisoning of the role of the market, the discipline of competition and the view of the disempowered and helpless consumer.

The History of Economic Thought website describes the difference between the American Institutionalists and the New Institutionalists as that the former took institutions as given and critiqued the market view, whereas the latter used the market to explain the latter. I think the reality is that it is a conjoint relationship - markets and institutions evolve together, but that the more concentrated industry becomes and the less like the "competitive ideal" of many small competing firms the real world becomes, the weaker the effective discipline of the market.

In the final analysis it is hard to disagree with the view expressed in the NY Times review (reprinted in the AFR) that "his sweeping ideas, which might have gained even greater traction had he developed disciples willing and able to prove them with mathematical models." It is not too late for this task.


Other obituaries
SMH
New York Times (free registration required, reprinted in AFR)