Public goods and market products – and what else?
John Kenneth Galbraith in “The Affluent Society” wrote how the obsession with production was getting out of hand and that there had to be a rebalancing between social goods and products. The absence of this balancing would be seen by ever growing debt burdens as individuals chased products which provided ever diminishing value to them. At the same time, social goods – such as education, street lighting, rubbish collection – would suffer because the focus was always on products. Debt burdens would end only with economic depression – before rising again as the economy improved.
“The Affluent Society” was written in 1958 and revised in 1973. Forty years’ later, much of the book reads as if it was written today – or, at least the analysis section of the book. Galbraith’s analysis was right as far as it went, but the prescriptions for change were never likely to be implemented.
Galbraith’s focus was on products and how our wealth was fixated on production – production that the “market” determined was needed. As wealth grew, so the market for goods is increasingly the subject of corporate advertising in order to promote goods that we may not need – but believe we do.
Public goods – such as education and anything produced by the public sector – was deemed wasteful and could never compete with corporate advertising. So, taxation (whether national or local) was harmful in most eyes as it deprived the payer of marketed products and was spent on ill-conceived public goods (such as education, waste collection and keeping the streets clean – or, worse, providing a baseline of income for those most in need). Other than defence spending, which Galbraith believes is wasted, he contends that a “social balance” is needed between the market for products and social goods.
He also saw the problems caused at the intersection of public sector and the market – two estranged bedfellows who often wake to find themselves in the same bed but unable to understand why or how to cope.
A good example of this was recently seen in London’s Heathrow Airport where lines / queues at customs on entry were up to 3 hours. Businesses impacted by such horrors in the year of the Queen’s Jubilee and the 2012 Olympics were outraged at the inefficiency of Government – who control customs. Heathrow is a business – a travel and shopping centre. It is also the key entry point for people from across the world and Government is responsible for who enters the country. This intersection of the two clearly shows the difficulty of creating the “social balance” between government and the market.
Galbraith’s Missing Elements
Forty years ago, four, major elements were missing from or only sidelines in Galbraith’s analysis – issues which have become more central over time:
Global trading – or the Global Social Balance
The errors in GDP accounting – quantity vs quality
Global Social Balance
The world is a different one from 1958 or even 1973. We trade globally and the developed nations increasingly use labour from the undeveloped nations to do low-cost, manual work (often in conditions we would not tolerate in our own countries). It is a 19th Century state of work but internationalised– where now, international companies tend to operate as the mill owners of old.
From a micro-economic sense that is understandable – each company is different and many act responsibly. However, from a macro-economic viewpoint and from an international political viewpoint, there are limited mechanics for equalizing health and safety laws let alone education and pay scales.
Galbraith’s concern was that we produced too much and that we should be able to make less in a country like the USA. When the work goes international, the responses to the problem have to as well.
Production by numbers: quantity versus quality
In an affluent society, production is made the cornerstone of all we do (the economy is central to all our decisions) because work is needed to secure income. Even in an affluent society, income at a certain level is deemed to be critical. Products of progressively less use (or utility) are sold (often solely on the back of advertising) and we buy them and this is meant to keep us in work and more buying goes on.
Of course, in an international labour market, that won’t always work (as Gandhi found out in the early 20th Century when England produced most of the cotton garments sold in India) and it has become harder to focus just on one country.
However, the global economy does not mean that products become more useful – much of what we make is simply wasting energy and resources. However, it is keeping people in work in many developing nations.
But, growth is measured by GDP and GDP is a poor measure of quality of life or even production. Quality of education, for example, is measured in GDP by its cost (an input) not an output. A £500 handbag is deemed worth the same as £500 worth of essential foods – no difference in utility is assessed.
The felling of a rare tree is “valued” at the cost of felling or its price in the market as a table. The value of a river is missed completely – unless over-polluted when its clear-up costs may enter as a cost in a nation’s GDP.
It is production by numbers, quantity versus quality.
While mentioning the issue of environment, the main topic of “The Affluent Society” is the social balance between public goods and market production. All these are made by people – so, the environment in which we live is ignored. The trade-off is not, of course, that simple (even though the Galbraith trade-off has never been seen to function). The environmental trade-off (our need to maintain our natural capital) is now being understood but remains relatively hidden in economic debates. Natural capital needs to be brought into any debate on affluence in society – our quality of life as opposed to the quantity of life.
To Galbraith, the game is between the market and the public sector and to most, this battle still exists as the only one. There was not much mention of civil society – where most of us spend most of our time – except through discussion of leisure time. Here, the trade-off was between productive working and spare time. I expect that this assumes that all non-productive time is spent on hobbies or watching TV.
The creativity and value of civil society – a huge array of organisations from sports to international development, from charities to women’s institutes – is normally missed completely by economists and thinkers on society. The problem is that it does not fit easily into econometricians’ computer simulations: more of the “if you can’t count it, it doesn’t exist” syndrome.
Of course, for centuries, people have been undertaking “good deeds” – the history of the 19th Century is full of examples of charitable activities. However, society is changing fast and as politics loses its appeal for so many (with parties genuinely fearing for their future), the role of civil society is growing and, in affluent societies, taking back more from the state that it lost to the state in the 20th Century.
This escape from the centre is to be applauded, but needs to be better understood.
Complete reliance on the market or on the centre (libertarianism or communism) may still appeal to some. The reality is that complexity is the norm. Society is a mixture of competing ideas and competing structures – out of which we muddle through and where individuals take centre stage and form organisations to make their voice louder.
Nevertheless, we should learn from history and our mistakes. Centrism is a doctrine of the defeated; totalitarianism a doctrine of the damned. There is no one answer but a constant mix of opportunities that society provides and where changes are constant in the way we answer our problems.
The mix of competing answers does no longer rest between public and private sector in an affluent society – that is a 20th Century doctrine or response. The response now has to take into account the social balance we want from our lives between products, social value, natural capital and civil society relationships in a global context not a rigidly national one.
This means being adult about the causes of change and grown-up about the challenges – it means being international in approach and understanding the complexity of the problem – not something that can be understood wholly by quantities or computer simulations.
As we grow materially (i.e. through the quantity of products we are able to manufacture) and bump up against the troubles of environmental degradation and massive disparities of wealth and conditions (on a global scale), the question to be addressed is how does a complex society best form itself to take the decisions it needs to maximize the value we all give and receive from this “affluent society”.