Keynes enabled

Whether it was in New Delhi or at Harvard, the works of John Kenneth Galbraith were about promoting the economics of the New Deal, writes Pramit Pal Chaudhuri.

A few weeks after John F. Kennedy was elected, the US press began to speculate what was in store for the new President’s favourite economist, John Kenneth Galbraith. Some wrote Galbraith would become a senator in Kennedy’s state of Massachusetts. Kennedy, who already knew the preference of the Harvard professor, offered him the ambassadorship to India. A half-serious Galbraith asked if he would be more useful in New Delhi than “bringing decency” to Massachusetts politics. Yes, said Kennedy, “by a factor of five to one.”

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Kennedy’s response reflected the US President’s belief that the hearts and pockets of the Third World was the new Cold War battleground and the success of India relative to Maoist China was the most important skirmish.

But in a larger sense, Galbraith’s two-year tenure in India was an extension of a distinct period of American liberal thinking whose high watermark was Kennedy’s New Frontier. It was a liberalism whose economics were born of the crisis of the Great Depression, the success of World War II and affirmed by the extraordinary US economic boom of the Fifties. The high priest for this belief that government intervention could mitigate the ups and downs of the market was the economist John Maynard Keynes.

Like many of his generation, Galbraith was impressed by the mix of US government spending and regulation that helped end the Great Depression. The sentiment was only strengthened by his experience as a wartime price control czar. He kept to this creed after he left bureaucracy, dallied in journalism and, finally, settled in academia. It helped that Harvard University’s economics department was the ‘germinal point’ for the spread of Keynesian economics in the US. Among those won over: all the Kennedys.

Kennedy’s foreign policy merged this faith in the economic role of the State with a desire to ensure democratic India didn’t fall behind communist China. The consequence was a policy of enormously expanding US foreign aid to India. The man sent to implement this vision was Galbraith.

Galbraith was in India at just the right time. Jawaharlal Nehru practised a relatively benign form of socialism. Many of its elements, notably high barriers to imports and tight capital controls, were applauded by Galbraith. He was one ambassador who used to dissuade US commercial delegations from coming to India. His job was to promote aid, not trade.

During his two years in New Delhi, the good times rolled. The Indian Institutes of Technology and Management were established. PL 480 grain poured into India. Galbraith, Nehru and Kennedy shared great personal chemistry with a common interest in wit, pedigree and beautiful women.

It all fell apart within months of Galbraith’s return to Harvard. In seven months, both Kennedy and Nehru were dead. The US sank into the Vietnam quagmire. India inched closer to the Soviet Union.

Events were to relegate Galbraith and his Keynesians to the margins of policy. The Western economies sank into a decade of stagflation in the Seventies for which they had no solution. As Galbraith himself wrote, “What was politically possible against deflation and depression was not politically possible or feasible against inflation.” The elections of Ronald Reagan and Margaret Thatcher were the final repudiation of Galbraith and his ilk.

India walked a different path, taking a sharp left turn under Indira Gandhi. Wholesale nationalisation was not something Galbraith approved of. Even in the Nehru years, he complained about India’s “post-office socialism”, and its “commitment to public enterprises operated at no profit, hopefully no loss, with no particular efficiency and with no other clear purposes in mind”. In India he urged for greater autonomy for nationalised industries and the need to keep subsidies at welfare levels.

That didn’t stop him, as India began the first stirrings of economic reforms, to urge that the country be wary of the International Monetary Fund and its strictures. When I spoke to him in 1985 in the rose garden behind his Boston-area house, Galbraith seemed unbothered by the prescriptions of the World Bank. But it made some sense: the Bank had been inspired by the New Deal. The IMF he denounced as being cut from the cloth of Wall Street investment bankers.

The New Frontier is today just Old Nostalgia. Galbraith continued to write, criticising the new free-market orthodoxy for leaving behind an underclass. But his own A History of Economics had no reference to his most famous Sixties work, The Affluent Society. Galbraith’s mantle of an articulate economic gadfly today sits best on the shoulders of Paul Krugman.

But future generations may yet find something to relate to in his works.

When he was in New Delhi, Galbraith wrote a note to the Nehru government on public sector reform. It was passed on to a minister who, however, mangled the author’s name to Braithwaite. The ambassador passed on the same note to an opposition member of Parliament. The latter raised it in the chamber, urging the government to take note of Galbraith’s suggestions. The minister,
in response, said the government was more impressed by the views of Braithwaite. The debate on the merits of Braithwaite vs Galbraith proved inconclusive, but it was a comic example of how the same words can be interpreted differently. Galbraith may have passed away, but his ideas may undergo resurrection.