What he was writing in the 1960's seems to fit the facts of the large American corporations like IBM, AT&T Bell, Ford, etc... Also, back in the 1960's management didn't get the outrageous remuneration they get these days. Galbraith didn't envisage the rise of the CEO class or the "executive compensation" rationalisation, just like he didn't envisage that Friedman, who Galbraith derided as a hopeless romantic, would rise to be one of the most (devastatingly) influential economists of the 20th century.
So this got me thinking... I think what happened since Galbraith wrote his book was that the Owner class realised they had lost control of the corporations to professional management, and so the scions of the Owners rather than idly sit on their portfolios got MBAs and seats on boards of directors and started appointing each other as CEOs and giving themselves and each other outrageous remunerations and invented "executive compensation" as a rationalisation for what amounted to looting the corporations they were running. And the best part is that they no longer needed to actually own shares in the companies they managed/looted, all they needed was to have CEOs appoint board members and boards appoint CEOs, both within and across companies (through "institutional" cross-ownership). Meanwhile, shares with (as Galbraith already observed) little decision power and decreasing (as a result of looting by the CEO class) profit were dumped on pension funds and retail investors. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
The average board of directors has nine members, and the total population of board members of public companies traded on the NYSE, NASDAQ and AMEX stock exchanges is about 53,000. A USA Today analysis of corporate reports found a high degree of inter-relation: of the 15 largest companies in the United States, 11 of them have two board members that sit together on another company's board four of those 15 share at least two board members with another of the 15 more than 1000 board members sit on four boards or more; 235 board members sit on more than six boards major banks are at the center of many of the overlapping ties
More particularly, the thesis of The Visible Hand is that, counter to popular dogma regarding how capitalism functions, administrative structure and managerial coordination replaced Adam Smith's "invisible hand" (market forces) as the core developmental and structuring impetus of modern business.
Does anyone know the history of the concept of "executive compensation"? When was it invented as a rationalisation for looting? Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
