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(1908-2006)
John Kenneth Galbraith
 
: NPQ: New Perspectives Quarterly, Winter96, Vol. 13 Issue 1, p66, 5p
Gardels, Nathan
NEWT NOTWITHSTANDING, THE WELFARE STATE IS HERE TO STAY
NPQ | Above all else, what was the great economic legacy of the 20th century?
JOHN KENNETH GALBRAITH | Without question the most important development was the rise of the modern productive apparatus--and its continuing cyclical instability, its unerring return to boom and bust. There was the not unrelated, enormous human tragedy of the two world wars. The aggregate human suffering and fear, of people facing death and the death of loved ones, has probably been unparalleled in history.
The other matter which is central to any consideration of the 20th century is the huge steps taken in the direction of human well-being--especially in the relatively peaceful second half of the century--in nutrition, in shelter, in the enjoyments, which no one should minimize, of a modern standard of living.
Our century began with a small number of rich and a large, meager mass. The century is ending, in the fortunate countries at least, with a very large comfortable community which has, to some extent, separated itself from the poor.
In the advanced countries and in the world as a whole where we once had the conflict between capital and workers, we now have the conflict between the comfortably affluent and the poor.
There are still a good many millions who live at a greater level of impoverishment than was common for the poor in the fortunate countries at the beginning of the century. And the gap between rich and poor countries is larger at the end of the century than it was at the beginning.
If one were searching for another development in the 20th century, it would be the huge movement toward decolonization which was accomplished, in the main, quite peacefully (with exceptions such as Algeria and the Congo).
Frequently, however, this left the poor countries with the incapacity for self-government yet relieved the rich countries of any responsibility for their miserable fate.
NPQ | For example, under colonialism the imperial powers needed Bangladesh to supply hemp. Now there is no place for them in the world market. We no longer need what they have; they can't buy what we sell.
GALBRAITH | This is a very important point. Decolonization is widely thought of as an act of human compassion and political progress--in the sense that the colonial world asserted itself and became ungovernable from the outside.
We have not sufficiently emphasized the fact that, in the 20th century, economic growth, with the support of technology, transferred economic development within the fortunate countries and made them relatively independent of the former colonial world--both for raw materials and as markets. In the 20th century it came to be known that economic development was an internal matter and not dependent on external relationships.
For example, the great Dutch economist Jan Tinbergen and his team of researchers calculated that it took only two years of domestic economic growth in the Netherlands to compensate for all the loss of income that came as a result of the independence of Indonesia.
Therefore what has been attributed to good will and political necessity should also be attributed to a major economic transformation.
NPQ | Why did decolonization in some of Asia lead to favorable rates of economic growth in the 1990s, while much of Africa has fallen into a deprivation worse than in colonial times?
GALBRAITH | The most important factor in the cases of India and China is that they were prepared for independence. They had a level of education, administrative talent and an economic base that was lacking in the darkest part of Africa.
As I saw during my time as ambassador to India, British colonialism had a strongly affirmative effect on administrative structure including, for example, the creation of a strong civil service, judiciary, educational system and army. There was much less such preparation in Africa.
When the Belgians left what is now Zaire, by some estimates there were only 12 college-trained graduates.
NPQ | At the end of this century we can say that The God That Failed--Marx--is dead. Adam Smith seems to have been resurrected. And though John Maynard Keynes seems alive and well in Tokyo, where the Japanese government is spending 200 billion yen in public works to stimulate the economy, he is surely dead in Washington. Will Keynes make it into the next century?
GALBRAITH | Certainly, the welfare state doesn't inspire the enthusiasm and sense of achievement it did 50 years ago in the days of the New Deal. But there should be no doubt the welfare state is here to stay. So is some element of government support of the economy in times of high unemployment and depression. These things are not a result of the invention of liberals like Galbraith, but part of the thrust of history.
Let us take health care as an example. The struggle over public health care doesn't result from the fact that some people want it and some don't. It arises from the fact that surgery and medical care have so advanced at such enormous cost that the question must now be faced as to whether people ought to die for lack of money. This is something that no civilized country can accept. Medical care provided by the state is therefore inevitable:
When I first became aware of the problems of economic life, America was primarily an agricultural country. In an agricultural country unemployment compensation and old age pensions are not very important. There is no unemployment on the farm. Pensions were not necessary for people who had children to carry on or a farm to sell.
These have become part of the structure of modern society, not by liberal invention but by accommodation to historical change. As such, they have a permanence and immutability that is not much recognized by the present mood in Washington.
Newt Gingrich is a man of considerable energy. But he is not going to repeal the welfare state.
NPQ | If the Greek government, say, wants to stimulate its economy in this age of the global economy, won't it do little more than subsidize the purchase of Korean electronics or Romanian shoes?
GALBRAITH | This is a very important point. As we move to a more closely interlocked trade system it is essential that we have concerted action when it is necessary to expand the economy to employ more people. We cannot hope that action by any one country can do the trick, although this is to some extent still possible for the United States and maybe Japan. But it is not possible for the smaller countries that are part of the trading system.
In the future, when the heads of state get together for their mutual compliments of each other, they must talk much more about common fiscal policy than they do about common trade policy.
We will only have a workable global community to the extent we have a common macroeconomic policy. This is to some extent being recognized in Europe. We are a long way from seeing this in the rest of the world.
NPQ | Isn't there a new problem for Keynesian economics now with technological unemployment? Technology can increase productivity without creating more jobs.
GALBRAITH | This is something that is badly misunderstood. With a higher standard of living there is a movement of workers to higher levels of employment; you move from employing most people on the factory floor, for example, to employing them in areas of design or of advertising, then on to the arts and entertainment. Entertainment has become one of the big employers in the United States. It is an area where we have become notably successful. No one can compete with us in producing morally depraved television programs.
But the mindset still sees factories and the production of things. We shouldn't be surprised when those kinds of jobs diminish as other forms of employment increase.
This is coupled with the fact that the computer and the robot have the same effect on some industrial jobs that the tractor had on the horse. There is the further fact that there is in the modern trading system a tendency for traditional employment to move to lower wage countries.
One cannot wholly regret this tendency. Should we applaud greater employment only if it occurs within the boundaries of our own nation state?
I once knew Thailand as an impoverished country. You go there now and it is a small industrial marvel. Some of that has been the result of the movement of production to an eager, low-wage work force which is itself an escape from the much worse conditions of local peasant agriculture.
NPQ | What about those cast out of their blue-collar jobs as a result of technological advance?
GALBRAITH | I want to see them with a basic safety net that is good, even generous. No doubt some of them will face long-term unemployment. One can only hope that we will have an educational system that will allow their children to achieve the higher levels of employment.
NPQ | And presumably the wealth that results from the productivity gains of technological advance must be redistributed not only to pay for this safety net, but also to maintain some level of social cohesion?
GALBRAITH | There is no doubt about that. The modern market system--one doesn't use the world capitalism anymore, that is politically incorrect--distributes income in a very erratic way with a strong tendency to concentration in the upper brackets.
We've seen this in strong form in the US in recent years. We've seen a large increase in the wealth and capital assets of the top 1 percent, a big increase in the upper 10 percent and stagnation or reduction of income in lower brackets. The US now has the largest gap between rich and poor of any OECD country.
It is therefore absolutely necessary to have a tax system which imposes the cost of government in accordance with the tendency of income to accrue in the upper brackets. That was once known as "the progressive income tax."
This is, of course, in complete conflict with the present thrust of tax policy which is designed to reduce capital gains taxes on the rich.
NPQ | This is proclaimed as a revolution by Newt Gingrich.
GALBRAITH | It is a revolution of the rich against the poor. It is a revolt of the contented against the unfortunate. Newt Gingrich is the Lenin of the Party of Contentment.
What is new is that the controlling contentment and its resulting belief system are now that of the many, not just of the few. It operates under the compelling cover of democracy, albeit a democracy not of all citizens but of those who, in defense of their social and economic advantage, actually go to the polls and vote. The result is government accommodated not to reality or common need, but to the beliefs of the contented who are a majority of the actual voters.
NPQ | Can the rise of this "culture of contentment" hold, or is it just a passing historical breeze?
GALBRAITH | It certainly can't hold in the face of an aroused democracy, signs of which we are beginning to see. The tribulations of the margins will sooner or later begin to erode the contentment of the middle. Societies exist as a whole, not in parts.
NPQ | Though aiming to trim growth of Medicare and Social Security as well, the rhetoric of Gingrich and company when speaking of "the welfare state" means the "culture of dependency" of the poor who are on the dole.
GALBRAITH | This is right. I have defined this in terms of burdens. If government activity is for the affluent--agricultural price supports, bailing out the savings & loan companies, defense contracts, a wide variety of corporate guarantees for foreign investment--that is not a burden.
It only becomes a burden when it is for the poor. This is a very important fact in understanding modern political attitudes. Does anyone ever talk about the culture of dependency of American farmers, banking executives or defense contractors?
NPQ | You have written that one reason for Japan's economic success in the post-war era is that it hasn't bought into what you call "the theoretical conflict" between the state and the market.
However, the agenda in Japan today, as elsewhere, is deregulation. Is the state in Japan set to, if not wither away, at least to wither?
GALBRAITH | Deregulation is a popular topic in all of the industrial countries. There is no doubt regulation must always be kept under examination. It can be rendered necessary, or unnecessary, by economic change.
I'm for regulating the automobile industry to the extent that there is no fraud on the average buyer. But when it gets to, say, Cadillacs or the Lexus, I'm prepared to let the consumer have more risk.
There is a large area of regulation necessary for a poor country where people have very little money to spend. They need to be protected in their expenditure. That applies less to countries with a high standard of living where any given expenditure is not of great concern to the person who makes it. It will not make him or break him.
We perhaps see this most clearly in the case of the consumer movement, where there is a strong purpose in examining what is good or bad for poor consumers. It loses much of its purpose when consumers have enough money to spend tens of thousands of dollars on a luxury car because it has some kind of status value unrelated to use.
Japan has certainly prospered to the point where the old kind of regulation has less and less utility.
At the same time, especially as new developments in science and biotechnology emerge, not to speak of new financial instruments, there is a new need for regulation in order to guard against dereliction and fraud. For this reason, Japan, America and Europe will continue to be closely regulated.
So, the question is not regulation or no regulation. But what kind of regulation, for what and when.
NPQ | Given the tottering banks in Japan, isn't the state, which must rescue them, likely to become stronger?
GALBRAITH | Absolutely. If this banking problem in Japan continues, the role of the government in support of the banks will be much greater than it is today. The only thing worse than bailing out a bank is having it fail.
NPQ | What are the consequences of Japan's failing banks for the world economy? Might they spiral into a great crash?
GALBRAITH | I don't think so. The predicament of Japan's banks is indeed a misfortune, but not a potential disaster.
We could, however, be entering a period of classical speculation in the US and elsewhere as indicated by the present merger mania. There are enormous costs from legal fees to stockholder buyouts associated with these mergers. That leaves a burden of debt, as we've seen in past times, that can be very oppressive when the boom sputters out.
This is more serious than the weakness of banks. When banks get weak, they are bailed out by government. When corporations have a heavy burden of debt, they have to struggle with it themselves.
There is also an explosion of mutual funds in the US that far exceeds available intelligence about the stock market. And we've just gone through a long, long period of increasing securities prices.
The possibilities that there are elements of the boom before the bust I would not deny. But I wouldn't make any prediction other than to observe that all this fits an historical pattern we have seen before.
NPQ | Let us switch to the future of the poor countries. What can be done with those billion-plus peasants in India and China? How are they going to fit into a world of free trade and high technology? Where will they work, how will they live?
GALBRAITH | That is a question one cannot answer yet. There are too many unknown factors. One can only hope that industrialization will bring population under control, as it has begun to do in China and in some parts of India.
One can also only hope that the worldwide pressure for the multiplication of consumer goods will at some point taper off. The Dalai Lama visited me recently and asked, "What would the world be like if everyone had an automobile?" This is something you can't contemplate.
NPQ | It doesn't seem to be in what classical economists call "the rational self-interest" for the rich to give up their consumer goods or for the aspiring poor to forgo them.
GALBRAITH | No, it doesn't.
NPQ | With all these poor people around the planet--it is said that 30 million people in Brazil alone are living under the poverty level--doesn't socialism have a future?
GALBRAITH | Classical socialism involved public ownership of the means of production, both to improve production and the distribution of income. Those were the two objectives along with the diminution of the power of the capitalist.
The modern consumer-led market works in an enormously profuse way. We've just been talking about what might happen if, God forbid, this succeeds across the world as a whole.
The power associated with the ownership of the means of production has been greatly distributed. It is no longer concentrated in the hands of a few capitalist robber-barons. The age of the Morgans and the Harrimans is gone now.
These were the forces leading to socialism, and they have largely disappeared.
So, while social welfare improvements are still very much on the agenda, the classical socialist notion of taking over the means of production through state ownership is a dead letter. No question about that.
NPQ | I don't recall seeing the term "information revolution" in any of your writings to denote the enormous changes wrought by the computer and cyberspace. Why is that?
GALBRAITH | Because I don't consider what is going on revolutionary. The telephone and the telegraph were revolutionary. The computer followed in their wake as part of an enormous evolutionary change concerning the closer and easier exchange of information. This has been with us now for a century or more.
I don't easily use the word revolution. This is an evolution that will continue.
NPQ | Won't this information "evolution" have a big decentralizing, even dismantling impact on the large, bureaucratic corporation that you once wrote about as the quintessential economic organization of the 20th century?
GALBRAITH | I don't think so. The bureaucratic organization will continue. There is an inherent desire on the part of anybody in a position of authority to have someone do his thinking and carry out his policies. There is a bureaucratic dynamic that will survive any changes dished up by new information systems.
We will no doubt continue to discover that the corporation has become bureaucratic. We will continue to have downsizing. This may be different in form as information flows more readily up and down. But I don't see any major changes there.
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