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Galbraith and Challenging the Conventional Wisdom

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"If the Democrats' proposals are rooted in notions of communal sacrifice toward a greater good in which all citizens will have a stake and a share, the terms of the debate are changed," Michael Tomasky writes in the current issue of the American Prospect.

Okay, but what does that mean?

For starters, I recommend "Report to the Owners," a new report about to be published by the Tomales Bay Institute.

The report suggests that "evidence is mounting - from catastrophic climate disruption to unprecedented disparities in wealth - that our present corporate-dominated economic system is leading to ecological and social disaster... In fact, there is an alternative, and it's on the rise. That alternative is an emerging economic sector we call the commons. It won't replace corporations, but it will complement and temper them. In so doing, it will provide benefits corporations can't supply: healthy ecosystems, economic security, stronger communities and a participatory culture. And it will curb the corporate invasion of realms we hold dear - nature, our minds, our food and our democracy."

Now I know what some of you are thinking. How quaint. As if the commons is some nice, imaginary town square where artisans and peasants can let our sheep go grazing while we trade gossip and jarred vegetables.

Wrong.

It is at the crux of many debates over the nature and shape of our political economy and the role of markets - from corporate attempts to hijack the Internet to national security.

The report challenges us to see how we've been bounded by the assumption that property rights are exclusively the equivalent of private rights contending for power in a competitive market.

In fact, there are also a variety of common property rights which, once identified, can more easily be shielded from predatory corporations. And just like private property and corporations (whose very existence and the attendant privileges conferred with their creation should be subject to much more scrutiny and public policy debate), public property forms -- like trusts -- are legal constructs requiring government oversight and protection.

That doesn't necessarily translate directly into government ownership or even regulation. No, this is something less rigid and fixed: "The state and the commons are two different things," the authors remind us, providing numerous examples - including forest trusts, WiFi zones, open source software, and funds established to protect and sustain the water wealth of states from Nestle and other companies that want to bottle it and sell it.

"The models exist. The possibilities are endless. Now we need to scale up."

At the same time, we will have to decolonize parts of the commons that have come under corporate control.

I.e. not just reclaim public parks and public stadiums and other privatized spaces. But change the laws that allow private corporations to acquire exclusive monopoly patents over our common heritage (e.g. patents on life).

Eventually, we will need to take back our national security, defining it in a manner that reflects our community values.

At some point, this means reducing the power of the war profiteers.

That sounds so beyond the "conventional wisdom" that it can't even be considered -- right?

Maybe at this point. But that should suggest how far the corporate sector has colonized the system, not to mention our thinking, because not so long ago one of the top economists of the past century actually made this suggestion in a feature piece in the NYTimes magazine.

See John Kenneth Galbraith, November 16, 1969: "The Big Defense Firms Are Really Public Firms and Should be Nationalized."

"By no known definition of private enterprise can these specialized firms or subsidiaries be classified as private corporations," Galbraith wrote. For one, "[a] very large part of the fixed capital of these firms is owned by the Government of the United States. ... Recognizing tacitly the public character of these firms, the Government extensively instructs them on their management. It tells them what costs are billable to the Government and what are not and advises them on what work is to be subcontracted and what is not."

That's when they are regulated properly, and don't overwhelm government auditors with complicated schemes that defraud taxpayers or force them to pay for technologies that are hardly needed.

Galbraith pointed out that the big defense firms are protected from competition. In 1968 ten percent of defense contracts were subject to competitive bidding and sixty percent went by negotiations to contractors which were the only source of supply. There was no market between the firm and the Government. Members of two public bureaucracies worked out agreements for supplying weapons and other war technologies.

The situation today is strikingly similar. According to a 2004 report by The Center for Public Integrity, only 40 percent of Pentagon contracts between 1997 and 2003 were conducted under what it terms "full and open competition," while only one of the top ten biggest contractors won more than half of its contract revenues through an open bidding process.

In "Economics and the Public Purpose," (1973) he made the same point about other industrial sectors. By the 1930s, he pointed out, classical economic assumptions of competition could no longer be used to describe many sectors of the economy:

"The giant corporation had become an increasingly obtrusive feature of the business landscape. Its importance was assumed everywhere except in the economics textbooks. And even the more casual scholars had difficulty in disguising from themselves the fact that markets for steel, automobiles, rubber products, chemicals, aluminum...electrical gear and appliances, farm machinery, most processed foods, soap, tobacco, intoxicants and other basic products were not shared by many producers, each without power over its prices, but by a handful of producers with a great deal of such power ... Between the competition of the many and the monopoly of the single firm there was now inserted the oligopoly of the few. And, although at first reluctantly, oligopoly came to be recognized as a normal form of market organization."

Today, the oil companies' obscene profits in the face of rising pump prices suggests how little has changed.

"It should be noted that exponents of the neoclassical system, while they have long deplored the monopolistic and hence pathological tendencies of oligopoly in principle, have never done much about them in practice. There was cancer, but one did not operate." ("Economics and the Public Purpose", 1973)

"The rise of the great corporation" extended far beyond the question of price fixing and demand-side management through advertising, to an extensive "influence [over] the attitudes of the community and the actions of the state ... They are not confined by the market. They transcend the market, use the market as an instrument and are the chariot to which society, if not chained, is at least attached." (Ibid.)

The corporatization of our society has spread much further since them, with increasing influence over our schools and universities. Entire social programs held in common trust -- e.g. social security -- are under attack.

Although many Democratic-leaning economists have been increasingly vocal about these encroachments upon the public interest, few have had the courage to challenge corporate domination over defense.

Yet for Galbraith, this was essential:

"In the United States bureaucratic symbiosis reaches its highest state of development in the relation between the weapons firms and the Department of Defense and its constituent elements."

In fact, in the NYTimes piece Galbraith describes how astonished he was that liberals were the most resistant to this proposal, especially members of Congress who had contract employees as constituents. Since 1969, of course, the dominant defense contractors like Boeing and Lockheed Martin have become even more entrenched, learning to spread their operations across the country, covering the districts of virtually every member of the key defense policy and appropriations committees.

Galbraith anticipated much of his critics' arguments, outlining a transition plan for ensuring that neither employees nor investors would not be unfairly punished. "The process of converting the defense firms from de facto to de jure public enterprises would not be especially complicated ... The defense industry is highly concentrated. If a company or subsidiary exceeded a certain size and degree of specialization in the weapons business, its common stock would be valued at market rates well antedating the takeover and the stock and the debt would be assumed by the Treasury in exchange for Government bonds. Stockholders would thus be protected from any loss resulting from the conversion of these firms to de jure public ownership. Directors would henceforth be designated by the Government and the firms, subject to any needed reorganization and consolidation, would function thereafter as publicly owned, nonprofit corporations."

As a matter of public policy-making, it's possible that public defense firms would have to openly explain the need for and defend the feasibility of certain technologies, without resorting to the use of lobbyists. So yes, there might be jobs lost in a few ancillary industries - like limousine and escort services.

Galbraith said the greatest enthusiasm for his proposal came from individuals associated with the defense firms who had witnessed fantastic waste and misuse of the nation's resources.

Of course, the military-security-industrial-think tank complex has evolved far beyond the scope and scale that existed at the time Galbraith turned his sights to the issue.

E.g. in just the last decade we've seen the rise of a private military contracting sector whose estimated global revenues are $100 billion per year, according to Peter Singer, in addition to homeland security contractors and intelligence contractors.

These companies not only rarely compete, but according to a slew of whistleblowers, they tend to so dominate the bureaucracies responsible for overseeing them that contract-related abuses are routinely ignored and favoritism pervades the ranks of those in government who dream of tripling their take-home pay after passing through the revolving door to the other side. Recall what Bunny Greenehouse said about KBR (Halliburton) and the Army Corps of Engineers. Could there be any other reason for why the companies whose employees were involved in the abuses at Abu Ghraib were never suspended from federal contracts than the fact that no one sought fit to ensure that the military had someone it could turn to instead? The culture of cronyism and corrupt contracting practices has thoroughly warped America's national security, to the point that it undermines even the most important of military missions. Think of Halliburton serving contaminated water to the troops in Iraq.

And of course the big arms manufacturers are at the center of this system. As Tim Weiner described the situation for the NYTimes, "Lockheed has become more than just the biggest corporate cog in what Dwight D. Eisenhower called the military-industrial complex. It is increasingly putting its stamp on the nation's military policies, too."

If we are ever going to restore democracy, we will have to balance the power of corporations with "countervailing powers," yet that cannot come merely through the rebirth of unions and other conventional oppositional interests, but rather through challenging the corporate influence over key questions such as national security and our common future.

Until we understand how corporations play a central role in global warming and putting the country on the precipice of economic collapse through its triple deficit, it's difficult to imagine how the Democrats can offer some BIG NEW IDEAS.

That's why it is worth taking stock of Galbraith's work once again. He was not simply a New Deal liberal, but a nimble thinker who challenged what he himself called "the conventional wisdom."

If he could be faulted by his economist academic peers for failing to provide neat econometric proofs for his proposals that could be outlined on a chalkboard, Galbraith made up for it in a lifetime of experiences in government that demonstrated how public policymaking was rarely so neat. By using his considerable skills as communicator and writer, not to mention diplomat, he demonstrated again and again that it was more important for public intellectuals to challenge the kind of abstract technocratic thinking that could advance one's career, but did little for the national interest. His relatively early experience leading the Strategic Bombing Survey after World War II must have been an important lesson in that regard.

We see these kind of connections in Richard Parker's excellent biography of Galbraith, where he points out that when Galbraith served as a close advisor to Kennedy, he pushed against an escalation of the war in Vietnam, and found it unacceptable that the Council of Economic Advisors never highlighted nor evaluated differences in the composition or end purposes of federal spending, or the economic trade-offs and aggregate implications of military spending.

Later, in "Economics and the Public Purpose," Galbraith further developed the theme that unequal development and the associated inequality of income bear no necessary relation to productivity or efficiency, but were tied more directly to the unequal deployment of power.

Though Galbraith might someday be regarded as more of a popularizer and economic sociologist than a pure economist, more akin to Veblen than, say, Ronald Coase, it is a fact that he was one of the few economists willing to address the corporate system head on, in blunt and direct terms, as the instrument of that unequal power. If his colleagues thought such a point was too obvious to bear mentioning, Galbraith was usually secure enough in his stature and graceful enough in his bearing to not have to feel the need to attack their silence as a form of complicity.

Moreover, it is certain that his work will continue to be relevant to mainstream policy debates for a long while, if not grow in importance. In the current age of "imperial CEOs" who regularly draw down salaries 500 times larger than average workers - it is in fact even more necessary than ever for economists to expose the threats that enormous private gains pose to our common interest:

"In the established economics these tendencies are mostly concealed and where not concealed are misconstrued. ... [P]ower in the modern economy lies increasingly with the great organizations and increasingly less with the supposedly sovereign consumer and citizen," he wrote in "Economics and the Public Purpose."

It seems to me misleading to suggest that Galbraith was an intellectual lightweight just because he chose to make his positions accessible to the non-specialist. That critique -- made mostly by his peers in the dismal profession -- fails to appreciate the consistency between his style and his philosophy. It might be worth comparing his work in this respect to the work of another leading public philosopher whose work is often considered of high importance to many in government today: Leo Strauss. Although he is described as the intellectual guru of the neoconservative movement, Strauss' work is difficult to penetrate. His abstruse philosophical style is consistent with his belief in the need for an elite class of superior decision-makers obliged to deceive the great unwashed in order to save democracy from itself.

Galbraith had much more faith in his fellow citizens, which is why he believed that economists "needed to turn away from pursuing the latest in technique and come back to substantive debate over public policies and the implicit relation of economics to essential democratic values." (Parker, 480).