Published: Tue 22 November 2022
Updated: Tue 22 November 2022
By steve

In Markets.

The rise of the administrative state

I recently finished reading “The Managerial Revolution” by James Burnham. It’s not a business book, but a book about political theory. It was written in 1941, in the middle of the second world war, when it looked as though Hitler would win, and at a time when the USA had suffered over a decade of depression with a very mixed success of the “New Deal” of FDR.

Burnham, like many of his contemporaries, had been a communist, presumably because of the visible failure of capitalism revealed by the terrible economic suffering of the West during the Great Depression. He rejected communism, but believed that capitalism could never deal with the problem of unemployment and was for this reason on the way to being supplanted by some other system, just as feudalism had been four hundred years previously.

The point at which his ideas departed from those of Marx was that he did not believe that socialism, as envisioned by Marx, would ever come about. He observed that the practical obstacles to devolving power down to the masses, without any sort of ruling class, were insuperable. So he concluded that the result would be what he could see was happening in Germany, a sort of rule by bureaucrats. Power would be balanced by a complex web of patronage from the political centre, but the capitalists would hand over the control of physical capital and would lose control of how the product of that capital was distributed. He gave the example of the large corporates in Germany, whose factories had been turned over to war production. He predicted that the capitalists’ fond ideas that their factories would be returned to their control at the conclusion of the war was unrealistic, and that whatever the legal form of ownership, actual decisions about production and distribution would be made by a cadre of administrators, for their benefit, rather than for the benefit of the capitalists, or, for that matter the benefit of the proletariat. (He did concede that enough output would need to be allocated to the masses to prevent social unrest, though.)

Although the book (amazingly) was a best seller at the time, the fact that it assumed that the Axis powers would win the war presumably made people doubt the accuracy of Burnham’s other predictions. Although in detail he was not that accurate, I think the broad outline of his predictions were correct. In 2020 the UK government spent around 60% of GDP. Most business activity now is subject to huge numbers of regulations, which are administered by an army of bureaucrats. They are not plutocrats, but they are pretty well paid compared to the median worker. As Burnham himself pointed out, it took a very long time for capitalism to fully replace feudalism, and that many of the individual nobles and aristocrats who benefited from feudalism mutated into capitalists. I feel we have some way to go before capitalism is dead, but I don’t think it will last forever, and Burnham’s ideas about what will replace it seem as good as any I’ve come across.

It occurred to me that Burnham might have influenced Eisenhower’s thinking about the dangerous rise of the ‘military-industrial complex,’ which is a perfect example of the what Burnham was talking about: a cadre of unelected officers taking control of very large resources and directing the value-added to a selected group. Nowadays it’s more like the military-industrial-intelligence agency complex though.

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