JOHN KENNETH GALBRAITH
From the icy sidewalks of Francis Avenue, Cambridge, Massachusetts, the booklined libraries of Harvard professors look warm and inviting on a brisk January Saturday. One of these libraries belongs to John Kenneth Galbraith. It contains all 20 of the books he has written, and above one bookcase there is a needlepoint with the author’s operating philosophy inscribed: MODESTY IS A VASTLY OVERRATED VIRTUE. Despite his legendary vanity, Galbraith has always occupied a special place for Canadians, another local-boywho-made-good. Born in Ontario, he went on to academic stardom at Harvard, to advise and consort with the Kennedys, and to become the most visible, celebrated economist since John Maynard Keynes. Since Prime Minister Trudeau’s introduction of wage-price controls and his subsequent mutterings about a “new society,” Galbraith is of even greater interest to Canadians, because,as Trudeau himself has said, the thinking of Galbraith has “permeated my thoughts.” His books, including The Affluent Society, The New Industrial State, and Economics And The Public Purpose, are standard reading among Trudeau’s advisers. When Maclean's Ottawa Bureau Chief Robert Lewis visited Galbraith, now retired from teaching, he was treading familiar territory. Lewis was a Time magazine correspondent in Boston for a year. Indeed, when Lewis arrived for the interview, Galbraith greeted him with a “welcome back.”
Maclean’s: McGill University economist Jack Weldon says that Prime Minister Trudeau tends to run with economic fads, that he is a Galbraithian today, but that in fact he is not tied to any particular economic theory.
Galbraith: That’s the commonplace response of a good establishment professor. Their tendency, alas, is to believe that anything that has been said since Alfred Marshall, or possibly John Stuart Mill, is a fad. All the establishment economists have not yet embraced the necessity [of controls]. Thus they react adversely to them. It is very understandable: everyone tries to protect his property, intellectual or otherwise. Maclean’s: Don’t you do the same thing? Galbraith: No. I’ve never written a textbook. People are allowed to forget my books.
Maclean’s: Is the program in Canada a viable test of the theories you have written about?
Galbraith: I’ve always assumed the tyranny of circumstance, rather than the opportunity for choice. The tyranny of circumstance is the capacity of strong corporations to raise prices, effective unions to force up wages beyond what can be paid out of productivity gains. What Canada is doing is not different from what Britain has been forced to do. It is not different from what the Germans, the Swedes, the Swiss and the Low Countries do in a slightly different form. In those countries trade union negotiations have always taken place in the context of what can be afforded in the present state of export markets. This is the ceiling on wages. Their prices, then, are set in terms of what is competitive abroad, so they have had a de facto ceiling on industrial prices. Now the British and Canadian governments have done these things in slightly more formal terms. Maclean’s: What you ’re saying is that controls have to be imposed.
AS LONG AS WE HAVE LARGE CORPORATIONS AND LARGE UNIONS, WE ARE GOING TO HAVE THE CONTROLS
Galbraith: Sure. Nobody resisted it more strongly than former President Nixon and his economists. In 1971 Nixon said that he certainly wasn’t going to have wage and price controls, even though, as he put it, they were being advocated by some extremists, like Galbraith. He went on very nicely to say, “I’m not criticizing these people, I’m just describing them.” About two weeks later, he imposed wage and price controls. He did so, not for reasons of ideology but, given the circumstances, it was his only way of getting through the election. When the election was won he listened to the establishment economists again, abandoned controls, and we had the worst peacetime inflation in our history. Maclean’s: You have written that a “new socialism” is “urgent and indispensible.” Trudeau ’s talk about a new society, with different values and more state intervention, has evoked the spectre of the socialist state. He has been called everything from a fascist dictator to a socialist, and a lot worse. Galbraith: One always has that rhetoric. It’s always struck me that Canadian political rhetoric, on the whole, is on the calmer side. A reference to socialism isn’t quite as alarming in Canada as it is in the States. Maclean’s: But if you lay on top offears about socialism a fairly widespread cynicism about politics which developed after Watergate, doesn’t that make it difficult to sell a program, no matter how excellent? Galbraith: Government wasn’t meant to be easy. One thing I hope isn’t being overlooked in Canada is that virtually every Democratic candidate, with the singular exception of George Wallace, is running in this country with roughly the same program that Trudeau has put into effect. Sargent Shriver, Stewart Udall and Henry Jackson have all come out explicitly for this kind of program. It’s an indication again of the driving force of circumstance. I’m not given to excessive modesty on these matters, but it would be a mistake to suppose that this is my influence. These men wouldn’t follow my advice on anything as difficult as this. The candidates have learned that there is no other way, except having a large amount of unemployment, to keep inflation under control. Maclean’s: I don’t see much support among corporations and big labor in Canada. How do you achieve that?
Galbraith: The acceptance comes from the discovery that the alternatives are worse. We see this process most clearly in Britain where one has a trade union movement of high intelligence, great honesty, great stubbornness of thought—but which has now come to accept that a comprehensive system of wage restraints is better than having unemployment or inflation. The AFL-cio in the United States accept the same policy on incomes. The Swedish trade unions, the Benelux trade unions, the German trade unions have been bargaining within this context for years. They have been recognizing that if they go beyond a certain point they limit exports, and that the repercussions hurt their own members. The step that the British and Canadian governments have taken, which the Democratic candidates are coming around to in this country, is a big one: a major modification of collective bargaining as it has always been known; the abandonment of private price-making by large corporations as it has always been known; a public policy toward other incomes. This is the largest step in economic policy since the Keynesian Revolution, perhaps larger even than that. This was a step that had to come gradually, that had to wait for the kind of consensus that grew out of the fact that the alternatives—unemployment and inflation—were worse.
Maclean’s: Don ’tyou feel the visceral reaction we’re seeing now in Canada might be a potent force at the ballot box?
Galbraith: That it is visceral rather than cerebral is, I think, the point. When people transfer the process from their colon to their brain, they see that there isn’t any alternative.
Maclean’s: Since Trudeau’s comments at the end of the year about a new order, a new society, many people perceive afairly radical change taking place in the way they live in the future.
Galbraith: In the United States, and I think also in Canada, the voice of privilege is much louder and much more articulate than that of the people at large and tends to be mistaken for the voice of the masses. Maclean’s: Aren’t the masses most resistant to fundamental changes in society? Galbraith: Unquestionably not. They’re influenced by circumstances. People go into the supermarket with a limited supply of money and have to take food back to the shelves because they don’t have enough money to pay for it. Or else they lose their job and can’t find another. That has a marvelous way of bringing home to people the ineffectiveness of the traditional means of controlling inflation.
Maclean’s: You have suggested that there could be more government spending and higher corporate and personal income taxes. Galbraith: If one accepts that the essence of a system of inflation control is a system of wage restraints, combined with the appropriate fiscal and monetary policy, one cannot single out the blue-collar trade union worker. There has to be control of professional income. There must be some regulation of incomes that are not subject to restraint through controls. The only way of achieving it is through the progressive income tax. A more egalitarian income distribution, brought about by a more progressive income tax, is also part of this larger policy. If anyone supposes that this is going to produce cheers from people in the upper income brackets, they are exceptionally optimistic. Again, their complaints will be confused by many people with the voice of the masses. As to higher public spending, we need to spend more money on schools than on television sets, and more money on keeping the streets clean than on keeping the houses clean. The crime situation in most large cities is such that one better not be economizing on the police forces and on the courts. Maclean’s: A lot of people wonder what’s wrong with bigness. Doug Peters, the chief economist of the Toronto-Dominion Bank, puts it this way: “What’s wrong with big companies and big unions? Do they make too much money: governments get half of that. We have to have differentials to enGalbraith: If I was the economist of a large bank and dependent on it for my livelihood, I suppose I would be making the same case, too. There is some difference between being head of General Motors at $11,000 per year and being head of General Motors at $800,000 a year. These are distinctions that one would expect a good banker to be able to make. I have long accepted the inevitability of big corporations and big unions. In the United States and to a lesser extent in Canada there has always been a romantic view that one could break up the big corporations, break up the unions and return to the world of Adam Smith. This I do not believe. The antitrust laws in this country have been a sink pit for liberal and progressive emotion. When you abandon that faith and decide to live with the large corporations, then you are forced to the question of how to impose controls that stop abuse. Galbraith: I don’t have any such confidence. All I would ever ask is that we accommodate to circumstances as they develop. Government involvement does not depend on prediction. The first rule of all people, in all countries—one that is increasingly accepted—is to suspect government prediction. President Ford’s economists do not predict what they expect to happen; they always predict what they need to have happen. We don’t ask perfection in these matters. Countries that are as rich as the United States or Canada have a certain margin for error. The test of success in Britain or Canada is not a perfectly stable price level. Both countries import far too much of their inflation for that to be possible. You cannot control imported prices. The test in Canada is that Canadians do not have more inflation than the United States—or more unemployment.
THE COMPLAINTS OF THE PRIVILEGED ARE TOO OFTEN CONFUSED WITH THE VOICE OF THE MASSES
Maclean’s: It seems to me that what you are saying is that helpful government intervention is what is required. You are not talking about massive intervention where small businesses operate.
Galbraith: I’m really saying there are three major industries of very great importance to modern urban society which do not work well under private enterprise. One of them is housing, the other is health care, the third is transportation. One should recognize this and recognize that there is a socialist imperative there, not growing out of choice, but growing out of the fact that people have to have houses, they want health care and that cities are particularly dependent on mass transportation. In Western Europe, including Britain, it is taken for granted that these are areas of state responsibility. In the United States and to a lesser extent in Canada, we are still living on the hope that some miracle will cause private enterprise to provide good transportation, good health care and good housing. We better not wait much longer. Maclean’s: The anti-inflation program in Canada is virtually a perfect mirror of some of the suggestions you have made, except for one point: you advocate permanence to controls, which the Canadian government has not.
Galbraith: I have only advocated or urged what circumstances require. If the market still works as it does in most small retail trade—the individual retailer has no power and no unions—or in agriculture, or in service trades or in small manufacturing, I would never dream of urging controls there. You can have inflation in those areas, but that is the result of a general excessive demand in the economy. The proper control for that is through fiscal and monetary policy. A massive bureaucracy would be required if you were regulating every price down to Iona Station, Ontario, where I was born, with a population of 25 when they were all home, and which I believe has not grown greatly since. As to the question of permanence, I expect that as long as we have competitive trade unions, they are going to be reaching out for higher wages than the other unions. This process is going to lead to wage climbs well in excess of what can be paid for out of improved productivity. This is going to start the inflationary spiral and strong corporations will protect themselves by passing it on to the public. As long as we have strong unions and strong corporations—which I accept, being a conservative on these matters, not being romantic—we are going to have the controls. The hope that somehow or other there will be a blessed day when they become unnecessary is also romantic. Maclean’s: What makes you confident about government’s ability to regulate our lives or predict the future?
Maclean’s: Trudeau, in fact, fought an election campaign in 1974 against controls. He said that Canada’s inflation was largely a function of world forces.
Galbraith: There’s no question that this is substantially true. No one should ask for stable prices in Canada if they’re rising in the United States or rising in the rest of the world. One can ask that Canadian inflation not be worse than elsewhere, as it was showing signs of becoming.
Maclean’s: One of the problems the government has in Canada is that the Anti-Inflation Board has not been all that effective in demonstrating clout with prices and dividends. Obviously, it is much easier to control wages at the outset than it is prices. Galbraith: That’s true. There is a real danger, where one has a very broad system of collective bargaining, that the wage control will be more effective than the price control. As I read the Canadian regulations, which I haven’t done with great care, I see a provision that if the cost of living is less effectively controlled than wages there will be the appropriate adjustment in wages. That seems to be a very wise provision. There is also the fact that, since agricultural prices cannot be controlled and since they are subject to the vagaries of weather, Russian wheat purchases and Chinese wheat purchases, the cost of living may rise or fall in accordance with the market. One is deliberately leaving that to the market. The Canadian government is perhaps fortunate that these prices are falling for the moment.
Maclean’s: Many people like the products that big companies make and interpret controls as government telling them what they should buy.
Galbraith: I look at television commercials and I am simply appalled at the health of the American people. So far as one can tell they all need Aspirin, they all need laxatives, they all need hair restorer, they all need mouth wash, they all need something either to complement or inhibit their sexual tendencies. The mood of the modern television commercial is not to persuade but to instruct. If a public official comes along in the United States or Canada and suggests that maybe people are more in need of some public service than they are of some of the things that exist only by this repetitious instruction of the television commercial, should we be too shocked? In a society that spends billions of dollars promoting wants for private gain, there is a real danger that we will have an imbalance between private production and the kind of urgent, civilizing things, ranging all the way from education through sanitation and health care to the administration of justice, that are provided by the state. The state on occasion promotes its services, but it doesn’t engage in anything like the propaganda on their behalf that the private sector does. Maclean’s: Economic columnist Don McGillivray of Southam News Services has suggested that you might make a good finance minister for Canada.
Galbraith: I do not know what my constitutional position in Canada is. I’m certainly prepared to think that the job had better be held by some permanent resident. I would remind you that Congressman Bingham has recently introduced a constitutional amendment in the United States called “the Kissinger-Galbraith Amendment” to lift the barrier against foreign-born becoming President in this country, so I have to wait that out. I hasten to add that this part of the conversation is not to be taken seriously even by the more sombre-minded of my former compatriots in Canada.^