GEORGE BUSH IS OUR HERBERT HOOVER; MANAGEMENT CONTROL
OF CORPORATIONS LEADS TO CORRUPTION
John Kenneth Galbraith, perhaps America's most prominent economist,
was interviewed for Global Economic Viewpoint at his home near Harvard
University by Andrea Seibel of the German daily, Die Welt. His forthcoming
book is "The Economics of Innocent Fraud."
QUESTION: Are you surprised at today's economic crisis after so long
an economic boom?
ANSWER: No, because I assume the business cycle takes place. So, the
fact that we should be having another recession does not surprise me.
What I was not prepared for was having an administration in Washington
that thinks it is normal and do nothing about it and instead proposes
legislation advantageous to the big corporations and tax reductions not
only for the rich but for the very rich. The Bush administration has basically
done nothing useful to smooth out the business cycle.
Q: To many, the go-go 1990s looked very much like the Roaring '20s
with so much wealth splashing around before the crash. Were these economic
eras more similar or different from each other?
A: They are much the same. The deepest instinct of the affluent, whether
in America or Germany or Argentina, is to believe that what is good for
them is good for their country. This has been a particularly strong manifestation
in recent times here in the United States.
Nothing is more normal for people who are prosperous than thinking that
prosperity will go on forever. And nothing is more normal for prosperous
people who are facing a recession or a depression than to believe cutting
(ital) their (unital) tax burdens is what will lead to the return of prosperity.
I have now been associated with the subject of economics for around 60
years. I can honestly say that the major feature of this subject is how
little influence it has had on national economic policy. In the United
States, we still have the same problem that we had back with Herbert Hoover
on the eve of the depression.
Q: Yet, hasn't the good old welfare state, itself a creation of the
affluent postwar society, failed? It has become a burden because it can't
be financed any more.
A: It is not really so much an issue of the welfare state, at least
in the United States, as it is Keynesian economics. We had better economic
policy in the years of the Great Depression and after -- the affirmative
economics of the Roosevelt years -- than we have now. That mood has long
since passed. We assumed that countercyclical action -- and particularly
stimulus for the poor and needful so as to boost consumption -- was a
problem that had been solved forever. It now is evident, that it has not
been solved. By the time of Ronald Reagan only a glimmer of affirmative
economic policy remained. George W. Bush is well back in the 19th century.
Q: Nineteenth century or not, the market is stronger than ever --
Milton Friedman has won. Mustn't you admit this?
A: Indeed, my concern is that we will at least for a time continue
policies that leave the economy to the market -- that is, to the great
corporations. I did not foresee clearly how arrogant the great corporations
would be. Enron, Global Crossing and so on were not part of my thinking.
My new book -- "The Economics of Innocent Fraud" -- warns that
the taking of full power in the modern business enterprise by management
has distinct dangers. But I did not foresee the dangers would manifest
themselves as quickly and dramatically as they have. The temptation for
personal enrichment and wild speculation accorded by the modern corporate
structure could be too great, I was writing. And while I was making the
argument, it happened!
Q: What should, and what could, government do to at least control
modern management if it does not do so itself?
A: We have two problems there. In the United States, less so in Europe,
government is ideologically opposed to controls. Simply, the state will
not strongly recognize the possibility for misuse that lies in corporate
power. The other problem is the scale of the task. It's easy to be critical
of WorldCom or Enron or any of those companies, including General Electric.
But it is not so easy to take corrective action because these companies
are as big as some countries, and often they have more legal resources
than the state.
Q: The market is a sort of gospel in America, isn't it? Hearing your
critique, you almost sound anti-capitalist.
A: I would not say that I am anti-capitalist. (Smiles) I spent my
life on matters of personal judgment. I am one of the three or four senior
economists who shaped U.S. and, to some extent, global economic policy
during World War II and its immediate aftermath -- policies that were
highly successful. We came through that enormous period of stress and
danger with no inflation, no memory of inflation. And that was my responsibility
until my enemies outnumbered my friends. We have failed in these last
years, and particularly now, to make the adjustment to the new form of
the business cycle. This was something that President Clinton had in mind,
which we discussed. It is not something that the corporate executives,
who swarm to Washington and to President Bush, will really recognize.
Q: All governments have to cope with the main effect of globalization
-- that corporate companies act globally and can't be controlled on a
A: There are many reasons -- cultural, perhaps more than economic
-- why I want to see a world community. I have spent some of the most
instructive times of my life in Germany, in Europe, and especially in
India, in Asia. I always see the world as one economic community. But
that does not argue against national economic policy, which is necessary
to relieve economic distress or take care of specific economic dangers.
We need effective state economic policy at the national level just as
we need harmony in between countries.
Q: Joseph Schumpeter, the economic historian, said capitalism is as
creative as it is destructive. Shouldn't economic policy "civilize"
A: Schumpeter wouldn't disagree with that. I have the elderly distinction
of having been a colleague of Schumpeter for several years. I came to
know him well. He was also a fascinating teacher, and there should be
no doubt that he was one of the early scholars to identify the role of
the great business enterprise, to draw attention to it and place an emphasis
on its behavior. And there was also one other feature that I particularly
remember: He loved argument and dissent. For a long while every afternoon
he met with a group of us to express views that he thought would be annoying
to young American liberals.
Q: There is one word Milton Friedman and all the defenders of the
liberal case put in the center of their reflections: freedom. For you,
is justice more important than freedom?
A: Freedom is certainly rewarding for those who exercise it, and it
is the only way that diverse ideas can be available for economic choice.
Freedom of expression and political action is one of the basic frames
of civilized existence.
On the other hand, it is not desirable if you are a friend of freedom
to assume, as many do, that freedom consists of no public action, that
freedom exists of standing aside when public action is necessary. I am
not a friend of that kind of freedom. One of my arguments with my old
friend Milton Friedman has been on that point. For the last 40 years we
have lived in the summer in the state of Vermont. We regularly met each
summer to persuade each other. And we never succeeded.
Q: Is there a state or government you admire or would say does its
job the best way?
A: In my lifetime as a student of economics and as a teacher of economics,
there are two countries for which I have had the greatest admiration:
both Germany and Austria innovated economic thought. I have long seen
Britain socially as one of the most civilized countries in the world.
If you have to be poor, or you have to be otherwise distressed, you should
become a British subject. You will always be assisted within the context
of your personal freedom. And that is a combination which I have always
Q: At the age of 94, you have just completed a new book. Intellectual
life, I guess, never retires?
A: I don't accept the inevitability of age. You can do less, but there
are some things where age gives you an advantage.
Q: Which things?
A: I haven't heard a word yet of any major deficiency in my economic
or political views. (Smiles)
(c) 2002, Global Economic Viewpoint. Distributed by Tribune Media Services
For immediate release (Distributed 10/21/02)