Technostructure is a term coined by the economist John Kenneth Galbraith

John Kenneth Galbraith

John Kenneth "Ken" Galbraith , OC was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism...

 in "The New Industrial State

The New Industrial State

The New Industrial State is a 1967 book by John Kenneth Galbraith. In it, Galbraith asserts that within the industrial sectors of modern capitalist societies, the traditional mechanism of supply and demand is supplanted by the planning of large corporations, using techniques such as advertising...

" (1967) to describe the group of technicians within an enterprise (or an administrative body) with considerable influence and control on its economy. It usually refers to managerial capitalism where the managers and other company leading administrators, scientists, or lawyers retain more power and influence than the shareholders in the decisional and directional process.

Historical Context

The power struggle between the technostructure and the shareholders was first evoked by Thorstein Veblen

Thorstein Veblen

Thorstein Bunde Veblen, born Torsten Bunde Veblen was an American economist and sociologist, and a leader of the so-called institutional economics movement...

 in "The Theory of the Leisure Class" (1899), questioning who, among the managers and the shareholders, should control the enterprise. At the time and until the end of the 1980s, the shareholders, unable to effectively regroup and organise themselves, could not exert enough pressure to effectively counter the managerial decision-making process. After the Second World War, the rapid augmentation of shareholders further diluted their collective power. This was perceived, by Galbraith, as a divorce between the property of the capital and the direction of the enterprise.

Goals of the Technostructure

Since the technostructure is composed of an hierarchical system of influential employees inside the enterprise, its primary goal is not to maximize their profits but rather survival, continuous growth and maximal size. While it must maintain acceptable relations with their shareholders, hegemonic growth is more beneficial to the technostructure.

Decline of the Technostructure

The lack of control of the technostructure resulted in managerial abuse notably on its salaries during the economic crisis of the 1970s. It prompted support for new economic ideologies like the School of Chicago

Chicago school (economics)

The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of The University of Chicago, some of whom have constructed and popularized its principles...

 under Milton Friedman

Milton Friedman

Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

. Furthermore, the Employee Retirement Income Security Act

Employee Retirement Income Security Act

The Employee Retirement Income Security Act of 1974 is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans...

 of 1974 forced a much greater transparency from businesses and possible opposition to their decisions. In the 1980s, the rising and influential neoliberal ideology decried the divorce between the capital and the decisions. Based on the belief of a new emerging economy, neoliberal economic theories were introduced at the end of the 1980s forcing managerial capitalism to yield to the shareholders.

Results

The prime objective of the neoliberal economic theories is the maximization of the profits in order to maximize stock value. This, quite evidently, greatly differed from the objectives of the technostructure which caused massive restructuring in the 1990s. In order to maximize profits, enterprises now had to take draconian measures to cut expenses and ensure profits for the shareholders. This greatly encouraged the exportation of manual or simple tasks to foreign countries where labour is much less expensive and caused massive layoffs in developed countries. Likewise, it reduced salaries and caused a decline in income of the working class. Paradoxically, the salaries of the managers increased and the constant demand for profits played an important role in the accounting scandals

Accounting scandals

Accounting scandals, or corporate accounting scandals, are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations...

in 2002.