Galbraith’s vision

June 22 1987

Galbraith’s vision

June 22 1987

Galbraith’s vision


Economist John Kenneth Galbraith has enjoyed a varied career. He has taught at the University of California at Berkeley, Princeton University and Harvard, where he retired from full-time lecturing to become the Paul M. Warburg Professor of Economics Emeritus in 1975. During the Second World War Galbraith, a native of Iona Station, Ont. —SO km southwest of London—was the organizer of wartime price controls for the United States, and he later served on the presidential campaign staff of John F. Kennedy. In 1961 Kennedy appointed Galbraith—who became an American citizen in 1937—ambassador to India, a post he held for two years. Galbraith, 78, has also published 26 books, including The Great Crash of Nineteen Twentynine in 1955. Maclean’s Washington Bureau Correspondent Ian Austen recently spoke to Galbraith, a proponent of a Canada-United States free trade deal, in his Cambridge, Mass., home:

Maclean’s: Are the concerns that Canada may lose some sovereignty through a free trade deal justified?

Galbraith: I don’t think so. Canadian sovereignty has survived now very well for a long time with Canada being very close to the United States. I’ve never regarded it as being that fragile. Bear in mind that Canada is in a very strong trading position with the United States, with a huge

‘American business will attack almost 01 ything. But that sho Lu be a source of amusement, enjoyment and contempt’

trade surplus. This is not a case of Canada coming to this out of weakness. It is coming to this out of strength. Maclean’s: Will American business try to bring Canadian thought into line with its own under a trade agreement? Galbraith: I think American business will certainly attack almost anything. But that should be a source of amusement, enjoyment and contempt. One

doesn’t have to yield to adverse comments. I have been substantially under attack by one section of the American business community most of my life and I’ve never found it a bit damaging. Maclean’s: Where would growth for Canada come under a trade agreement? Galbraith: Canada has a strong position in resources. I would see no reason why the trading position shouldn’t be strong in manufactured products. There is an undoubted future in tourist trade, entertainment, services. One can’t specify particular areas, but I would think Canadians can be reasonably optimistic. Maclean’s: With many U.S. industries such as breweries suffering from surplus manufacturing capacity, is there a danger of Canada opening itself up to a flood of U.S. goods while sending few manufactured exports back in turn?

Galbraith: There are always risks. Some time down the way somebody could lose money as others make money. But it is my definite impression that the free enterprise system—as those who pay it morning obeisance along with their prayers would agree—doesn’t guarantee everybody a profit. No arrangement can do that. It is not a case against free trade that some Canadian brewery might have serious competition some time in the future.

Maclean’s: But what about the employees ofthat brewery?

Galbraith: There isn’t any way of ensuring everybody employment. But what is true at the present time is that far more —

Canadians are working on exports to the United States than Americans are working on exports to Canada. I would suppose the case for free trade is the possibility of enlarging that advantage. What has been an advantage with tariffs should be a larger advantage without them.

Maclean’s: What do you think of the statements of some U.S. officials that there are not significant cultural differences between the two countries?

Galbraith: I don’t take that argument seriously at all. There are areas that Canadians should protect. I would protect the CBC. I would not allow takeovers of Canadian newspapers or magazines by American raiders. But it is nonsense to suppose that the real symbols of Canadian culture—Robertson Davies, MargaGalbraith: ‘Canadians can be reasonably optimistic’ ret Atwood, Alice Munro and the rest—would be damaged by free trade.

What a fantastic thought. The cultural achievement that really counts makes its own way to an audience far beyond the borders of Canada. I personally have no desire to read any author that is so

parochially Canadian that he or she is read only by Canadians.

Maclean’s: Are Canadians governed much differently than Americans? Galbraith: I have always felt that Canada was a better-governed country than

the United States. It has some advantages in being smaller. We’ve seen in this world that small countries—Holland, Belgium, the Scandinavian countries, Austria, Switzerland—are generally better governed than the large countries. And on the whole, the Canadian government tradition is superior. Maclean’s: In your January, 1987, article in The Atlantic magazine you warned of parallels between the current U.S. economy and that preceding the crash of 1929. What are the most dangerous similarities? Galbraith: The most dangerous similarity is the notion that a brilliant new generation of financial operators is engaged in brilliant innovations in securities trading and financial structures. In 1929 it was the pyramiding of holding companies and investment trusts; now it is the magic of mergers and acquisitions and leveraged buy-outs and junk bonds and mutual funds. We’ll wake up one morning to discover that yesterday’s genius is today’s congressional witness—or resident in one or another of our minimumsecurity institutions.

Maclean’s: Why has no one apparently

learned anything from 1929? Galbraith: The financial memory is not more than about five years. It is one of the great mysteries of life that any association with money carries with it an impression of intelligence. The reality is very different from the impression. Maclean’s: Is it reasonable to hope that a modern collapse will be less severe? Galbraith: I hold to that view. After 1929 there was nothing to prevent a free fall, and the controlling economic idea did not give responsibility to the government to do anything about it. It was only in the United States, with the arrival of President Franklin Roosevelt, and in Canada, with the reforms under Prime Minister R.B. Bennett, that the government assumed responsibility for welfare. When it did so, a floor was placed under farm prices, and the social security system was set up in 1935 to accord income to the unemployed and to the old. Later there was aid to families with dependent children and support in the form of health care. Perhaps as important as anything was insurance of bank deposits so that people didn’t panic and rush to the banks for their money. All of this would lead me to believe that the modern economy is somewhat safer than it was in the early 1930s. Maclean’s: But what happens to the Third World during a crash?

Galbraith: I spent a good deal of my life

in the less-industrialized world and I don’t have any doubt that it suffers even in good times. And to the extent that it depends on commodity exports to the industrialized world, it suffers even greater misfortune when times are bad in the industrial countries. That is one of the tragedies of our time.

Maclean’s: Is there any hope for change? Galbraith: One sees some improvement in parts of the Third World. Some countries on the Pacific Rim are doing very well—better in some respects than the United States. And I would have no doubt that the economy of India, particularly its development of food production, is far stronger than it was when I was ambassador there 25 years ago. But we must face it: much of Africa and some of Central and South America are still a continuing tragedy. I think we should provide financial help and, in Africa certainly, food and assistance on disease control. But no matter what we do or should do, there is not going to be a happy situation in those countries. Maclean’s: Is the West facing that reality?

Galbraith: No, I don’t think so. I would like it to do much more. But I have no great hope. The capacity for psychological denial where other people are suffering is very great.

Maclean’s: Do you see any trend in American economic thinking?

Galbraith: There’s no question that the monetarist experiment is over, I think for good. We learned that a regime of murderously high interest rates, which was the main product of monetarism, can bring inflation to an end. But it does so by bringing high unemployment, a disastrous weakening of the employing corporations and a consequent weakening of the trade-union movement. The whole effect was a remedy that was more painful than the disease. The question of what takes its place hasn’t arisen because we haven’t had a recurrence of inflation. If we do have a recurrence, as we will, we should move in an entirely different direction. We should dry up excess purchasing power, if that is the problem, by higher taxation. Lower defence expenditures is something, of course, that we should follow anyway. And the wage-price spiral, as a cause of inflation that economists have been reluctant to recognize, we must meet as the other industrial countries do—by a broad convention that wage increases must be what can be alforded within the present price structure. That is the broad design that we must take when we face the inflation problem again. Maclean’s: What should U.S. industry be doing to improve?

Galbraith: We should address ourselves much more strongly to the things that will give us advantage in newer production areas. We should support much more strongly modernizing investment in some of our older industries. We should recognize that some of our larger corporations, including the automobile industry, have been relaxing in the past few years in a kind of satisfied euphoria in their own achievement. And we should look to the quality of our education system and to joint efforts with the trade unions. All must be designed to making ourselves more competitive or, what is more important, to exploiting our advantages in the areas where we are still strong: new products, new technology—and particularly in the field of entertainment and services. To take one small example, nobody can compete with us in socially depraved television programs.

Maclean’s: What will be President Ronald Reagan's legacy?

Galbraith: I think he is going to leave behind a deep suspicion of Hollywood as a training for government. He is going to leave a quite appalling debt. He is going to leave a shaken confidence in our public administration, as witness the activities of Lt.-Col. Oliver North and the late William Casey, former director of the Central Intelligence Agency. Maybe we have learned something from that and will keep government more strongly in the hands of professionals. And I have no hesitation in saying I hope his principal legacy will be a return to effective government by good Democrats.^