As John Kenneth Galbraith turns 90, the American social balance which he celebrated in "The Affluent Society" has disappeared. Widening inequality and an atrophied civic culture seem irreversible, says a man who tried to turn the tideby Robert Reich / November 20, 1998 / Leave a comment
John Kenneth Galbraith has been one of the most buoyant dismal scientists of our age. Always lurking within US capitalism, he has argued, are corrective forces which will put back into balance whatever may temporarily have gone awry. In American Capitalism: The Concept of Countervailing Power (1952) he debunked the notion of a perfectly competitive modern economy, but reassured readers of the tendency within such a system towards balance between large aggregations of economic power, such as business and labour. Six years later, in The Affluent Society, he urged greater attention to the “social balance” between the production of private goods and the supply of public amenities. Rather than scold or admonish, he suggested how much better off we would all be if we embraced the same view. A rational appraisal of our situation would yield corrective action: “By failing to exploit the opportunity to expand public production we are missing opportunities for enjoyment which otherwise we might have had. Presumably a community can be as well rewarded by buying better schools or better parks as by buying bigger automobiles. By concentrating on the latter rather than the former it is failing to maximise its satisfactions… It is scarcely sensible that we should satisfy our wants in private goods with reckless abundance, while in the case of public goods we practice extreme self-denial. So, far from systematically exploiting the opportunities to derive use and pleasure from these services, we do not supply what would keep us out of trouble.”
Forty years after these words were written, however, we are unwilling to equip ourselves with what would keep us out of trouble. By some estimates, two-thirds of America’s schools are in disrepair, and too few of them are providing our children with an adequate education. Comfortable movement along public roadways and over bridges now requires the most sophisticated of automobile shock absorbers. Public recreational facilities are disappearing. More than one in five of the nation’s children lives in poverty-lacking adequate housing, clothing or nutrition. A growing number of Americans have no access to health care. Publicly-supported basic research is on the wane. After rising in the 1960s and 1970s, federal investments in education, infrastructure and research have continued to fall during the last three administrations, as shares of GDP. They represented 2.5 per cent of GDP in 1981, dropped to 1.7 per cent by the time Reagan left office in 1988 and to 1.6 per cent in 1998-a lower share than at any time since 1962.
This degeneration seems curious. If American society could be described as “affluent” when Galbraith first suggested that the problem of production had been largely overcome, it is now wealthy beyond the imaginations of early readers of The Affluent Society. The nation’s GDP in 1960 was $2.26 billion (these and subsequent numbers are adjusted to reflect the purchasing power of a dollar in 1992) and disposable personal income then averaged $8,660. By 1996, GDP had more than tripled, to $6.9 billion, and average disposable income had ballooned to $19,158. Nor, by 1996, was the nation any longer engaged in a cold war. If Galbraith was correct 40 years ago in assuming that the US could afford a better social balance, surely the nation can afford a far better balance today? And yet it has grown relatively more miserly. How can this be explained?
When the cold war ended in 1989 there was a brief debate over how to spend the “peace dividend.” But then our leaders decided that the more prudent course was to keep most of our military intact, in the event that it might still be needed. There was hope for a better social balance when Democrats took over the White House in 1993, but the new president and the Democratic Congress concluded that, before we could attend to anything else, the budget deficit would have to be reduced. We resolved to cut it by half (at the time, it amounted to approximately 4.7 per cent of GDP) before embarking on the social agenda which was the foundation of Bill Clinton’s presidential campaign. The deficit waned, but the bar was lifted again in 1995 when a Republican Congress backed by several noted Democrats threatened a constitutional amendment to balance the budget. In order to forestall such an attempt, the administration postponed the agenda once again until the budget was, in fact, balanced. As I write this article, the federal budget is balanced. There are even surpluses. But it appears that the bar has been lifted for a fourth time. We are told that we must first “rescue” social security (even though the programme could be made fully solvent for the next 75 years if small steps were taken now), and that we may then contemplate tax cuts or reductions in the federal debt. If Congress enacts a new tax on tobacco, a portion of the funds may be available for social purposes. But there is no talk of a larger agenda. Social balance is not remotely under consideration.
One part of the explanation lies in what has happened to incomes during the course of the last two decades. The nation as a whole can easily afford to pay for a better social balance, but most Americans cannot afford to do so. Average incomes have risen, yet averages do not always tell the most revealing story. Ken Galbraith and I have an average height of 5 feet 9 inches. He is very tall, and I am very short. When the distribution of anything becomes widely disparate, talk of “averages” can mislead. So it has come to be with US incomes. The US now has the most unequal distribution of income among all advanced countries, and inequality has increased further and faster than in any comparable nation.
Forty years ago, Galbraith warned liberals not to focus obsessively upon the problem of inequality lest they lose sight of the more crucial battle to improve the social balance. This was probably wise advice at the time. The left’s fixation on inequality had put it into an ideological bind. Its rhetoric and its programmes had suggested a zero-sum contest in which the less fortunate members of society could do better only at the expense of the more fortunate. In a nation uncomfortable with the idea of class, and especially in an era when Soviet communism appeared to threaten democracy and freedom, such a preoccupation with inequality was unlikely to gain many converts.
Moreover, Galbraith reasoned that the problem of inequality was fading anyway. Postwar affluence was extending to all social classes: “The first reason inequality has faded as an issue is that it has not been showing the expected tendency to get worse. And thus the Marxian prediction, which earlier in this century seemed so amply confirmed by observation, no longer inspires the same depth of fear. It no longer seems likely that the ownership of the tangible assets of the republic and the disposal of its income will pass into a negligible number of hands despite the approving sentiment of those who would abandon the progressive income tax or widen its present loopholes. Meanwhile there has been a modest reduction in the proportion of disposable income going to those in the very highest income brackets and a larger increase in the proportion accruing to people in the middle and lower brackets. Full employment and upward pressure on wages have increased well-being at the bottom.”
The Affluent Society appeared in the middle of a historic shift towards greater equality of income. Between 1950 and 1978, families in the top fifth doubled their incomes, adjusted for inflation. But families in the bottom fifth did even better-their incomes rose by almost 140 per cent. “By working together,” John F Kennedy noted a few years after The Affluent Society was published, “we have recognised that a rising tide lifts all the boats.” Kennedy understated the power of the tide. It was lifting the smallest craft even faster than it was lifting the yachts.
Between the late 1970s and the 1990s, the trend reversed itself. The incomes of families in the top fifth rose more than 25 per cent, in real terms. But the incomes of the bottom fifth dropped by almost 10 per cent, and families in the next-to-poorest fifth experienced a drop of 3 to 5 per cent. The median income, which had steadily risen in the three decades after the second world war, stopped growing. Total national income became more concentrated. By 1996 the fortunate fifth commanded 47 per cent of it, up from about 40 per cent in 1979. The top-most 5 per cent took home 20 per cent, up from 15 per cent in 1979. And the least fortunate fifth shared less than 5 per cent, from around 7 per cent in 1979. The economic tide continued to rise, but it was now lifting only the pleasure craft. The small rowboats were sinking.
Wealth became even more concentrated than income. According to the Federal Reserve Board’s triannual survey, by 1995 the top 1 per cent of US households owned almost 39 per cent of the total household wealth of the nation. Excluding the value of homes, they owned 47 per cent. The top fifth owned 93 per cent. According to the same survey, in 1995 the richest 1 per cent held half of all outstanding stock and trust equity, almost two thirds of financial securities and over two thirds of business equity. The top 10 per cent owned 82 per cent. With its huge concentrations of income and wealth, the last years of the 20th century mirrored the gilded age of a century before.
The rich are now paying more in taxes, but they are paying less in taxes as a percentage of their total wealth, or even of their total incomes, than at any time in the postwar era. All levels of government have shifted their sources of revenue in recent years from relatively more progressive ones (taxes on income, property, estate, gift and capital gains) to more regressive ones (payroll taxes, sales taxes and legalised gambling). As a result, working middle class families have been squeezed the hardest. They simply cannot afford to pay for a better social balance.
The US as a whole can afford it-because the rich have grown breathlessly wealthier, and they can afford it. A progressive wealth tax should not be beyond political imagination. And yet, somehow, it is. Which brings us to the second part of the explanation for why the US seems to have become relatively more miserly in recent years, despite the extraordinary affluence of its fortunate members. Simply put, the public has lost confidence in the capacity of government to act in the public’s best interest.
The prevailing cynicism is in stark contrast to the public mood at the time when The Affluent Society appeared. “In the last half century,” wrote Galbraith then, “the power and prestige of the US government have increased. If only by the process of division, this has diminished the prestige of the power accruing to private wealth.” Since those words were written, public confidence in government has steadily diminished. By the late 1960s, with the Vietnam war in full swing, Galbraith himself began to shift ground. His optimism about the “corrective forces” within US society remained undimmed, but he appeared less willing to rely solely upon the public sector as the means of attaining better social balance. In The New Industrial State he saw government as part of an industrial “technostructure.” Both the large US corporation and the federal bureaucracy constituted a “planning system” possessing a near-monopoly on all thought about the structure and purposes of modern society. The only way to break the monopoly was to rely on the intellectual community in general, and “the educational and scientific estate in particular,” to assume the responsibilities for political action and leadership.
Galbraith’s hope for intellectual leadership has not born much fruit. While the “educational and scientific estates” had been vocal opponents of the Vietnam war, in more recent years they have spoken neither consistently nor convincingly about the perils of a divided society and the importance of attaining a better social balance. Instead, the preoccupations of most members of the academy have grown more specialised and technical. The only discipline which now routinely expresses a normative view of society is economics, but economists as a whole have not distinguished themselves by the breadth of their social vision. By professional training if not by inclination, they have tended to overlook the values of community, mutual obligation and compassion. A theory grounded in rational self-interest may explain much that people do, but it offers only limited guidance for determining what society should try to accomplish.
A significant portion of the less fortunate members of society, along with much of the working middle class, has given up on politics as anything much more than a spectator sport. Herein lies the central dilemma of our time: there is no possibility for a better social balance unless these groups are actively engaged. Yet the sinews connecting ordinary Americans to national politics are thinning. Money buys time on television, and television advertising extolling a particular candidate or condemning another has supplanted political parties and movements. We have embarked upon a vicious cycle in which politicians must court monied interests in order to raise funds for their next campaign. This courtship, in turn, has disenfranchised a large portion of the electorate lacking such funds or the will and ability to raise them from others. The disenfranchised feel that their votes count for little, and are prone not to participate in elections. Their failure to participate makes politicians even less sensitive to their needs, thereby confirming what they had all along suspected. The “party of non-voters” continues to gain adherents.
At bottom, the issue is one of mutual dependence and social cohesion. Americans no longer face the common perils of Depression, hot war or cold war. Each of these threatened US society and culture. Each was experienced directly or indirectly by almost all citizens. In those circumstances, it was not difficult to sense mutual dependence, and conceive of responsibilities shared by all members, which exacted certain sacrifices for the common good. Today, fewer Americans remember these events or the social bonding which accompanied them. Peace and prosperity are blessings, but they do not pull citizens together in common cause.
Moreover, in the new global economy, those who are more skilled, more talented or simply wealthier are not as economically dependent on the local or regional economy surrounding them as they once were; they have less selfish interest in ensuring that their fellow inhabitants are as productive as possible. Alexis de Tocqueville noted that the better-off Americans he met in his travels in the 1830s invested in their communities because they knew they would reap some of the gains, in contrast to Europe’s traditions of honour and noblesse oblige. “The Americans are fond of explaining almost all the actions of their lives by the principle of self-interest rightly understood; they show with complacency how an enlightened regard for themselves constantly prompts them to assist one another and inclines them willingly to sacrifice a portion of their time and property to the welfare of the state.” Today, the geographic community within which an individual lives is of less consequence to his or her economic well-being. It is now possible to be linked directly by modem and fax to the great financial or commercial centres of the world.
Social cohesion also depends on “it could happen to me” thinking. Social insurance, the public provision of education, roads and so on, assume that certain risks and needs are commonly shared. Today’s wealthy and poor, however, are likely to have markedly different life experiences. Disparities have grown so large that even though some of the rich (or their children) may become poor and some of the poor (or their children) will grow rich, the chances of either occurring are less than they were several decades ago. The wealthy no longer live under a “veil of ignorance” about their futures and they know that any social balance is likely to demand one-sided sacrifice. They will be required to subsidise the poor.
People at or near the top, or even in the upper tiers, simply do not see much of the bottom half any longer. Separated geographically, economically and culturally, the poorer members of society have all but disappeared. The people who produce or talk on the television shows, who write the editorials, and who raise the money for political candidates have no reason to suppose that so many people in the US are still having a hard time of it. Marketers and advertisers do not pay much attention to them because they have little buying power. Pollsters do not pay much attention because they vote less. The people whom the elites do see are doing just fine-some of them extraordinarily well. And thus it is easy to conclude that everything is going well for everyone, in this new gilded age.
Galbraith’s analyses had happy endings because of his confidence that the “corrective forces” within US society would prevail. His most recent writings have been less optimistic. In the Culture of Contentment (1992) he wrote: “With awareness of what is wrong, the corrective forces of democracy are set in motion. And perhaps they would be now were they in a full democracy-one that embraced the interests and votes of all the citizens… Alas, however, we speak here of a democracy of those with the least sense of urgency to correct what is wrong, the best insulation through short-run comfort from what could go wrong. There is special occasion here for sadness-for a sad ending.”
An affluent society must rest on a robust civic culture if it is to respond to public needs. Otherwise, private wants dominate all discussion, and the “public interest” is understood to be little more than the sum of such private motivations. There can be no basis for claims based on fairness or social justice, or even on public welfare, because there is no moral community within which such principles have been devised and shared. Thus the dilemma we now face. Neither government officials acting on their own, nor an intellectual elite espousing moral visions, can rejuvenate a civic culture which has atrophied. The ending need not be a sad one. But the quality of leadership now required is greater and more broadly-based than it has been at any time during the years since Galbraith first put his formidable pen to paper.