Posted on: August 13, 2009
New attitudes and thoughts influencing human society are often stalled by heavy inertia. It is for this reason that historically every new piece of revolutionary knowledge has been met with strong resistance, if not hostility, in almost every case of new knowledge that has emerged in the past. Among avant-garde thinkers and those who come up with original and revolutionary new knowledge, many have had to make major sacrifices in support of their beliefs. History is replete with examples of those who bore torture, ostracism and even death on account of beliefs that were based on knowledge, which may have gone against conventional attitudes and perceptions. Perhaps, the most lamentable example of this sacrifice was the case of the Italian philosopher, mathematician and astronomer Giordano Bruno who was burned at the stake in the year 1600 after the Roman Inquisition found him guilty of heresy. The strength of his work and the value of his beliefs was realized and hailed centuries after his death. It is believed that his thinking went far beyond the theory of Copernicus identifying the sun as just one among the infinite number of independently moving heavenly bodies. Even Isaac Newton had to counter several disputes about his theory of gravity, but since this theory did not conflict directly with prevalent dogma or belief, its acceptance was relatively smooth.
In the case of economic science there have been sharp differences between the Keynesian theorists beginning with Lord Keynes himself on the one hand and neoclassical economists best identified with the work and philosophy of Milton Friedman on the other. Yet, today there are serious reasons for questioning the efficacy of unbridled capitalism and neoclassical theory on which it rests. Presumably, the growing problem of environmental damage and degradation worldwide can be explained in terms of market failure wherein the negative externalities imposed by producers and consumers of goods and services are not reflected in the pricing system. This represents a form of market failure which if corrected would certainly lead to optimal utilization of natural resources on a sustainable basis. Part of the problem arises from the fact that property rights and evaluation of costs of services provided by the global commons are hardly evaluated, much less allocated on a rational basis to those agents who are responsible for their use. While the world has accepted the strengths of free market economic systems and policies, there are lingering questions about the manner in which capitalism has been allowed to evolve and grow in several parts of the world. These questions have been voiced far more frequently and strongly with the recent collapse of major financial institutions and controversies involving the questionable ethics of some of the icons of the free market system. Much of this questioning has occurred because of the overall global meltdown of the economy that we are still going through.
One particular economist who was hardly accepted by his peers and the votaries of neoclassical economics was John Kenneth Galbraith. I had the privilege of meeting Prof Galbraith on two occasions, and the second time was when he was past 90 years of age. It was a unique experience to talk to him on the occasion. His voice was not as strong as it used to be and quivered quite understandably, but his mind was as sharp as it would have been 30 years earlier. I was particularly impressed with his recollection of detail from several encounters and discussions that he had in the past. He believed that the entire approach and thrust of neoclassical economics has been divorced from reality. His earliest work brought out the unhealthy strengths of big business, big labour and a government that often succumbed to pressure from hidden sources. He termed the reaction of lobby groups and unions as “countervailing power”. In his earliest book entitled ‘American Capitalism’ he analysed the pre- depression era when big business had a relatively free hand in running the economy. In retrospect, his views were not only insightful and relevant but proved to be almost prophetic because part of the reason why we have had, perhaps, the worst economic crisis since the great depression is not only because of this countervailing power of big business, big labour and colluding governments but also several free market operations in crucial sectors being conducted without adequate regulations or oversight. Galbraith also questioned the power of corporations, which through advertising and other methods created a demand for their products and services and then expanded their operations to meet such demand and maximize their profits. He was particularly wary about the power of the corporation that was able to generate a demand for its goods and services through advertising and promotion. Overall, his analysis has much that relates to today’s world. It is not that the impressive technological developments which have taken place, bringing a whole range of benefits to the doorstep of every consumer have not been largely for the good of the human race. But it is quite another issue to look at the capitalist drive for greater and greater consumerism as a self defeating system, because the impacts of greater consumption of goods and services are resulting today in the problem of climate change, massive loss of biodiversity and certainly degradation of ecosystems across the planet.
It is unlikely that neoclassical economics will be able to give us any new answers to these problems which policymakers can pick up and implement. There is a greater possibility of some of the Keynesians and non-neoclassical economists coming together, so that they can arrive at a new form of capitalism which while using the efficiency of the market also addresses the market failures of the capitalist system. These are not only resulting in critical forms of environmental damage, but also leading to growing disparities in income and wealth and highly inequitable distribution of the benefits of growth and development which cannot be ignored much longer.
Prof Galbraith died on April 29, 2006 at an age of 97 years. He was a dominant voice during the 20th century, but I wonder if his views and philosophy will be seen as far more relevant to the 21st century. If so, he might be hailed and eulogized in the coming decades far more than he may have anticipated in his lifetime and far more than his peers would have granted when he was alive and active.
