Social democracy promoted by the late Harvard political economist John K. Galbraith is the future of capitalism with its emphasis on equity and responsibility alongside prosperity.

Social and economic ills of our time are predictable outcomes of the ideological dismissal of a functional theory of capitalism in the Anglo-American tradition: Social democracy. Those who went through the mills of mainstream economics education are familiar with names like Adam Smith, David Ricardo, John S. Mill, Karl Marx, John M. Keynes or Milton Friedman. Right alongside these great thinkers, however, there are numerous others who could not earn the celebrity status despite making as significant contributions. A leading one of these social theorists is late John K. Galbraith. This Scottish American theoretician who passed away in 2006 at the age of 97 was an exceptional intellectual who does not occupy the space he deserves in economics textbooks today. One of the rare progressive presidents in the 127-year history of the American Economics Association, Galbraith who taught mostly at Harvard, was a recipient of numerous prestigious awards including the Presidential Medal of Freedom.

Galbraithian economics was a version of social democratic theory, which combines capitalism with a regulatory welfare state that balances out private interests with the public interest. It was based on the concept of persuasion as a determinant of economic behavior.  The central role he paid to power and social influence departed substantially from utilitarian individualism in the neoclassical orthodoxy. He concentrated on “producers’ manipulation” and “mutually dependent choices” rather than “consumers’ autonomy” and “individualistic rational choice”. Income and wealth disparity are treated as factors of financial instability instead of motivational tools that rewards hard and innovative work. Negotiations between corporations, government and labor, which are not touched upon in the neoclassical theory, are presented in Galbraithian social democracy as an inflation controlling tool.

Galbraith argued that the relationship between economic growth and life quality would be same-directional only up to a certain level of prosperity in an economy. Once a country passes that income level, unrestrained governance of self-interest that had allowed the economic expansion until then begins to jeopardize the sense of social responsibility and eventually the well-being of the society as a whole.  His 1958 masterpiece The Affluent Society took note that industrial capitalism embraces unlimited production, and requires unlimited consumption. Corporations use mass media to compel, if not brain wash, the public with an ideology that “more is better”. Consequently, the society turns into a collection of narcissistic hedonists who believe that happiness is an outcome of personal consumption. Sentiments of community; care for one another, and appreciation of public goods and services are often subordinated to radical individualistic ideals in such a society. Galbraith urged people to consume towards satisfying their needs rather than desires, and press their political leaders to improve what really contributes to their well-being –namely; better housing, education, arts and environment.

Galbraith laid out his vision of a capitalist system that works for the people, not just the wealthy. For him, the first thing that needs to be appreciated was the idea that economics is an evolving body of knowledge. Assumptions, priorities and concepts of the neoclassical approach no longer served the needs of the American economy that entered its “period of prosperity” in the 20th Century. For instance, neoclassic theory that treats consumer demand as an independent variable is incapable of addressing the problems of monopolization and oligopolization that emerge in prosperous economies.  As a result, mainstream economics functions as an irrelevant ideology that serves no purpose than legitimizing large corporations’ systematic manipulation of culture in the United States. This “imagery of choice”, as Galbraith called it, creates a problematic coexistence of corporations and the state.  To remedy this problem, public interest has to be expanded and “technological elitism” must be prevented by public ownership of strategically important sectors of the economy such as energy or health care. A regulatory state must restrict the influence of corporations by using price and wage controls, and curb excessive consumption by applying high tax rates on consumption. Galbraith urged his peers to demonstrate the courage to produce unpopular ideas instead of expanding the neoclassical literature that is more convenient and lucrative for them. Galbraith emphasized the importance of a bottom-up economics with a well known phrase that “trickle-down theory is a less than elegant” argument that falsely claims “if one feeds the horse enough oats, then some oats will pass through to the road for the sparrows”.

For American economy to reverse its course of declination and reclaim its vitality, ideas of heterodox economists like John K. Galbraith must be examined thoroughly. Social democracy promoted by conscientious iconoclasts like Galbraith is the future of capitalism with its emphasis on equity and responsibility alongside prosperity. It is only then that a sensible competition emerges against corporatist ideologues who keep business interests above everything else and their romantic communist critics who are mobilized by Karl Marx’s criticisms of capitalism and land on a wrong conviction that communism offers a better alternative to humankind.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.