Challenges of the New Millennium

• Author: John Kenneth Galbraith talks with Asimina Caminis
• Position: Professor of Economics Emeritus at Harvard University, discusses the major events of the past century and takes a look at the challenges ahead, in this conversation with Asimina Caminis, Senior Editor of Finance & Development

What do you consider to be the most important events of the twentieth century and the greatest challenges facing us as we enter the twenty-first century?

The twentieth century was marked by three great disasters-the two wars and the Great Depression. Speaking in the most general terms, the major lesson to be drawn from the past hundred years is of the things to be avoided. Most people, at least in the more developed world, suffered more from death and hunger in the wars than from the depression. In a world equipped with atomic weapons, war is what we must, above all, seek to avoid. This is especially a lesson for the United States, because we are particularly vulnerable to any use of atomic weapons. (One bomb in downtown New York, I note, would rob a very large number of people of their possessions and any record of what they own.) So I begin by saying that the two greatest needs we have now are peace and the avoidance of another world depression.

In your book The Good Society, you speak of both the benefits of globalization and the potential conflicts between globalization and the domestic policies of nation-states. Do the benefits of globalization outweigh its costs?

I begin with a minor point. I'm an advisor to the American Heritage Dictionary on language use and I will not allow the word globalization. It is a very ugly term! That we will have closer international relationships in such areas as economics, culture, the arts, travel, and communications I strongly hope, because one of the sources of disaster in the century just past was uncontrolled nationalism, which I would like to see less of in the future. Trade, along with cultural exchange and travel, lessens that risk. If you are an international corporation doing business in various countries, you are not inclined to stir up trouble between governments as has been the case in the past-particularly before World War I, when the heavy industries were military allies of governments and exponents of nationalism. I'm a committed supporter of closer international relationships.

The trend toward greater integration of countries into the world economy has aroused certain fears-for example, that industrial countries will lose jobs to the developing world, where labor is cheaper. Are such fears justified? Do you think they will lead to a backlash?

The loss of jobs is inevitable. It is something we must live with. We should bear in mind, among other things, that this loss of jobs is to people who are also very much in need of work and for whom employment is an escape from severe poverty. There are things we can do internationally to support wage standards, and I'm in favor of that, but I'm willing to accept some transfer of employment to people who are even more in need of work. When we talk about the low wages in Thailand, we forget how much worse off are the people who do not have those wages.

As developing countries become more integrated into the world economy, how can they reduce their vulnerability to external shocks? What lessons would you draw from the recent financial crisis in East Asia?

I have a very different view of that. We should take for granted that there will be economic crises, and especially in the young countries. History offers many examples of financial insanity in newly industrializing countries-among others, the American colonies or, indeed, the United States of the nineteenth century; Britain during the eighteenth century at the time of the South Sea Bubble; the Netherlands during the Tulipomania that swept the country in the seventeenth century; and France at the time of the great speculation for gold in Louisiana, which, sadly has not yet been discovered. Future crises are likely. There are some things we can do-that the IMF can do-to alleviate the damage, but I make two points: capitalism is inherently unstable and it is especially unstable in early youth. This is inescapable.

Subsequent to the Asian crisis, Malaysia, for one, adopted capital controls, and some economists began to argue that capital controls might be justifiable under certain circumstances.

There may be certain circumstances when one sees something particularly reckless being done, but the...