MULTINATIONAL MONITOR: In your study of the 1929 crash, you talked about how the U.S. economy had fundamental problems then: bad income distribution, a floodtide of corporate larceny, problems with the balance of trade, problems with the structure of the banks and what you called bad 'economic intelligence.' Would you say that in any of these or other ways the economy today is fundamentally unsound?
JOHN KENNETH GALBRAITH: There are broad similarities. We have had a worsening of income distribution in these last years with tax reductions similar in character to those of Mellon in the 1920s but larger in amount. In both cases, one of the consequences was to push more money into the stock market. It was supposed to go for building new enterprises, [but] in fact, a lot of it went into speculation. There are two even broader similarities. There were then, as now, a lot of people in the market, a lot of institutions in the market that thought prices would go up forever or ... that they would get out themselves before it went down.... That is a fundamentally unstable situation, because anything can trigger a rush to get out, in October, 1929 and in October, 1987. But there were differences. The banking system then was more fragile than now. Deposit insurance for both the banks and the savings and loan associations does make a difference. There was, at that time, no cushioning effect from unemployment compensation, old age pensions, Social Security--which is now of substantial importance. We had then a basically agricultural economy with nothing to prevent a free fall in farm prices. Now agriculture is much less important with a structure of farm income supports.... The most important difference is that now there is a macroeconomic obligation by the government to come to the support of the economy which didn't exist then. That is the legacy of John Maynard Keynes, one that is equally important for right and left and accepted by both.... My instinct was and is to believe that we face a less serious situation than in 1929, but whether there will be a depression or recession, we simply do not know.

MM: What are the implications of the international debt situation?
GALBRAITH: There are differences from 1929 in the international picture, two of which are of prime importance. In 1929, we were a creditor nation, not a debtor nation, so we were not subject to the uncertainty of people in other countries who combined their fear of what might happen to the stock market or real estate investments with their fear of what might happen to the dollar. There is a double uncertainty there, some of which was manifested on October 19, 1987. Secondly, there is now a much heavier burden of international debt. There was a substantial burden in 1929, both that of Latin America and also the so- called war debts, but the international indebtedness is much more serious now and is something on which there needs to be immediate action. And that means a massive write-down.

MM: Is there a risk of an international banking crisis?
GALBRAITH: Could there be a run on the international banks that would shove them under?

MM: Or some kind of shock which works itself through the banking system.
GALBRAITH: There was such a run on Continental Illinois and that was one of the reasons it had to be taken over. There was great uneasiness on the part of its foreign depositors. But I would say the international situation is just a larger extension of the national situation. I wouldn't attribute any great additional importance to it.

MM: So even if the debt of the Latin countries and the other debtor nations is simply written off, you don't think that has many dangerous implications for the international situation?
GALBRAITH: If this puts some of our big banks in trouble, the Federal Reserve and the FDIC [Federal Deposit Insurance Corporation] would come to their rescue. This you can take as an established fact.

MM: Is there the possibility now for the emergence of any kind of countervailing power on the international scene since labor has been so weakened by the mobility of capital and the ability of companies to go overseas?
GALBRAITH: I don't see that likelihood, I confess. The labor movement is not in a dynamic mode, and the internationalization of the labor movement is a rather distant hope. I am less impressed by the operations of countervailing power now than I was 35 years ago. At that time we had strong, domestically oriented corporations and unions were getting strong. There was an apposition of power which was very evident at that time. Since then, we have had the emergence of Japan, Korea, the Pacific Basin countries and West Germany dispersing the power that was once enjoyed by the steel companies and the automobile companies and the chemical companies. We have discovered that to have strong unions you need strong corporations. If you have weak corporations, as in the case of the steel companies or Chrysler in the past, union strength diminishes and unions are forced into not demanding higher wages but keeping the company going with givebacks.

MM: But don't strong companies that still enjoy some monopoly returns also have the opportunity to weaken their unions simply by moving overseas or threatening to move overseas?
GALBRAITH: To some extent, yes. But we have learned in these last years that it is far better for a union to have to contend with a strong company than a weak one.

MM: Mobility of capital means that the labor pool for many companies has expanded from a country to the world. What does that mean for the long-term strength of unions?
GALBRAITH: If you are a union in El Paso, of which there are not very many, you're handicapped severely if the plant jumps across the river to Jaurez and not less so if it goes to Taiwan or Korea or some subsidiary there. The long run effect is evident: it weakens the union position here and in developed high-wage countries and, of course, has some effect on wages in the countries where you are drawing people out of very low-wage agriculture into low-wage but still higher-wage industry.

MM: Even though they are often subjected to a very severe government control to prevent them from forming unions?
GALBRAITH: Unions are not all that vulnerable. The extraordinary thing is that under most circumstances where unions are needed they come into existence.

MM: How do you define a circumstance where a union is needed?
GALBRAITH: Where there is a clear exploitation of the workers and privileged revenues are obtained for management and owners.

MM: Why have unions not come into being in many Third World countries where you have precisely that situation?
GALBRAITH: I would say that while there is a lag there is a fairly reliable tendency for organization to develop. This is true in much of Latin America and you see the beginnings of it in Korea, Taiwan, even Hong Kong. There is no reason to think that the process of union organization there will be slower than it was in the United States. If you drop back 100 years you would have said there wasn't much prospect here, either.

MM: Aren't workers exploited in the countries in Central and South America, where you have large agro-export sectors with large planters who run very profitable operations?
GALBRAITH: All experience shows that unionization is a lot more difficult in agriculture. There are a variety of reasons. You have a less stable labor force, less stable employment and the possibility of more cohesive action on the part of employers than in the widely distributed agricultural labor force. There is no question about it, agricultural workers are very hard to organize. Also, agricultural employers have been more effective in using their political influence against unions than industrial employers. We see that very clearly in the United States. They have been much more effective at resisting the minimum wage, and resisting the application of the National Labor Relations Act than have employers in industry.

MM: Why have they been more successful?
GALBRAITH: [Partly] because they are more numerous, they swing more political weight at state legislatures than Congress. There is a traditional fear on the part of members of Congress and state legislators of the agricultural influence.

MM: How important do you consider the fact that it is now possible to shift fairly advanced high-tech production overseas?
GALBRAITH: We have discovered that technological change, which we had somehow assumed was a special advantage of the United States or the highly developed countries, really does move with lightning speed to new and lower-wage countries. This will have a restraining effect on wages here which, indeed, we are already seeing.

(balance of this article omitted here; unscannable)