Compassion comes before contentment

American advice for Tony Blair. JK Galbraith outlines his concept of the Good Society to Andrew Marr

Professor Galbraith, why do you think people have lost faith in government? Is it because they are stupid, or greedy, or is it because somebody has lied to them about government?

Well, I don't think the faith has been entirely lost. A very large number of people, very large sectors of the British and American population depend on government, one way or another. I covered these matters in The Culture of Contentment where I argued that we have now a large community of well- being which doesn't need the state, which has political voice, and that what we call public opinion is the opinion of what I called the culture of government.

You've talked, as you say, about the comfortable class, or the culture of contentment, but have you changed your mind at all about that in recent years? It seems to me there are a lot of people who are white-collar middle- class, who over the past few years have become increasingly uncomfortable. So I wonder how much that comfortable class, that great smug group in the middle, is breaking up?

I quite agree. There has been introduced into the culture of contentment an insecurity. One of the visible manifestations of that has been the paring off of corporate bloat, so that a lot of people have seen some diminution in their well-being.

In The Culture of Contentment, there was a certain distaste for the comfortable class, and I wonder whether it was fair entirely to equate people who have become, for whatever reason, sceptical about state action with people who are no longer feeling any sense of community with people who are poorer than they are. If you are sceptical about the state, are you necessarily on the wrong side of the argument?

Oh no, I don't think so. In the comfortable community, there is a large concerned body that does see the affirmative role of the state in everything from basic welfare to health care to education. I'm not suggesting that I'm the only comfortable person who has identified the responsibilities of well-being.

Turning to The Good Society, which is your book coming out later on this year, can you explain to me what it would feel like to live in the good society?

To summarise: everybody has a sense of personal security, a basic income, basic health care, basic protection against unemployment, and we have a tolerant attitude toward immigration. We see the enormous importance of education, not purely in technical terms, but as a way of deepening the enjoyment of life. And going on to a sense of responsibility in the rich countries for what is happening in the poor countries.

To what extent does this involve a return to the principle of redistribution of wealth, which has drifted away, and about which the left has been very cautious in recent years, largely for electoral reasons?

I'm not cautious about that. I see an enormous increase in the United States of the well-being of the top 10 per cent, and particularly the top 1 per cent. At the same time there has been a diminution in income and wealth at the bottom of the scale. And I think we have to conclude that the modern market system (we use the words "market system" because capitalism has become politically incorrect), by its nature distributes income very badly, very unequally. And therefore progressive income tax is one of the great civilising influences of our time. And there's always the possibility that if one has my high marginal rates, people work harder to maintain their after-tax income.

It has always been argued the other way round, that high marginal rates of tax stop people working hard.

I don't believe that for a moment. I think motivation is unaffected by progressive income tax. I think that motivation is inherent rather than externally compelled, particularly when you get above a certain level of income.

Do you recognise any danger that the top 1 per cent are effectively out of the clutches of government tax inspectors and collectors, that there is now a global ruling class, an elite who really can't be got hold of, who will simply move from one country if the marginal rates are too high and set up somewhere else?

Oh, we have some of that, there's no question. We have a small colony down in the Caribbean of people who have given up their American citizenship in return for an escape from income tax. I don't think they're any great loss, and I don't worry about it very much. I don't think that we're going to have an international escape from taxation.

I'm unclear to what extent you think that the Keynesian state has died away, or been challenged. Or whether you think it's still here, but that it's been captured by the wrong people.

The greatest Keynesian of modern times was Ronald Reagan, who stimulated the economy through the Eighties by large government borrowing, large deficits, and strong expenditures based on defence. Keynes would not have recommended that, I think. But there's no doubt that the notion of government employment in recession and, then, restrictive government policy in good times has proven very difficult. I still urge it, but I no longer think that this is an easy solution.

To what extent do you think that the old Keynesian model of demand management in one economy, one country, has been made impossible by globalised economics?

The multiplier effect is lost to other countries, no doubt about it. In my new book I argue for a much larger common effort, so that when we have recession, we will have a general effort to employ people. At the same time, we will have a co-ordinated policy in good times of keeping control on expenditure, and avoiding the reduction of taxes, keeping a restraint on demand. This will mean that Maastricht, for example, will have a global aspect.

World Keynesianism?

Keynesianism in its global aspect, yes. I would agree with that language. So, I think, would Keynes.

Returning to the size of the state, one of the big arguments that you hear these days about the reasons why the state must shrink, both in terms of its share of national wealth, and in what it does, is that we're all now part of a global market, that we're facing above all the Asian tiger economies which don't have large welfare states and which have relied upon a more familiar structure of social support. Easternisation, as it's sometimes called, requires the West to cut back the size of its state and to carry on cutting back. Now is that just an excuse by people who used to be called the capitalist class?

This is an excuse. This is a justification for what they want to see happen in their favour. One of the curious things of our time is that the rich in the United States, and I think this is true also in Britain and Europe, do not want to defend themselves as rich. They want to have a larger moral case, and the idea that Taiwan, Singapore and China are threatening Western economies is a wonderful way of escaping from selfishness into something that seems on the whole vaguely plausible.

And you don't regard that Asian threat, so-called, as something that we need to be very worried about?

I certainly do not. This is part of the larger process of economic development, and it is something to be welcomed. We must face the fact that certain industries will move to the newer countries, to the lower-cost countries.

Would I be right in saying that the pessimistic note at the end of The Culture of Contentment is something that you've changed you mind about, that you feel less pessimistic than you did then, and that you feel in some degree the tide of neo-liberal ideas which poured across the West so strongly in the Eighties and early Nineties is receding?

I would agree. I speak with more confidence about the United States than I would of France. We see the increase in the prospects of the Labour Party in Britain. And I think in the US we're seeing some diminution in the enthusiasm that brought us the new Congress a year ago. We have passed the crest of the recession, and are seeing that what we call the welfare state was not the invention of socialists and not the invention of liberals, but an accommoda-tion to the larger thrust of history.

But what we haven't seen is a strongly moralistic assertion of the importance of the state, of welfarism, of progressive taxation, except from a very few people, of whom you are the most eminent. Do you think that you are in a way more of a moralist, more the Ontario moralist than a Harvard social scientist?

Oh, I suppose that's possible, I grew up in the liberal community of Ontario, Canada, and was very much a part of the New Deal generation. I don't think that I've ever escaped from my past.

You've talked about the way that economists tend to disguise their own value system behind a facade of statistical truths. What is your value system?

My value system is to hope and believe that it is possible for everybody to have a decent, happy, and generally rewarding existence. I've had it, and I would like to think that I was not peculiar in this respect. I would like to think that it was generally possible.

If you were called to become an adviser to Tony Blair, or Bill Clinton in his second term, what would you tell them now about how to get elected and how to behave after they've been elected to ensure that they didn't let down the people who'd elected them?

I would strongly urge a compassionate base to sustain well-being, so that people have, even though there is some abuse, a basic income, basic health care and that we have strong and concerned investment in education, not just for the productivity of education, but for the enjoyments that come from education.

Extracts from 'The Big Idea', to be shown on BBC2 on Wednesday, 10 January, at 11.15pm.

John Kenneth Galbraith

born: 15 October 1908, in Ontario, Canada

career: economics professor, Harvard University, 1949-1975

US ambassador to India, 1961-1963

adviser to Adlai Stevenson and John F Kennedy

selected books:

American Capitalism (1952)

The Affluent Society (1958)

The New Industrial State (1967)

The Culture of Contentment (1992)

John Kenneth Galbraith has been the most prominent and distinguished liberal in the US for four decades. In the Fifties, his expression "private affluence and public squalor" was a catchphrase which summed up what had gone wrong with American capitalism, and his writings underpinned the economic policies of the Kennedy and Johnson presidencies.