Galbraith Opposes Cronyism
By David Henderson
In John Kenneth Galbraith: His Life, His Politics, His Economics, Richard Parker writes:
The following year , at the invitation of Puerto Rico’s reform-minded governor, Luis Munoz Marin, Galbraith and a small team of researchers paid repeated visits to the island. With the Korean War on, Munoz Marin and Galbraith understood there was little likelihood of major new funding from Washington, so the question became how to raise basic living standards quickly in some other way.
The answer was substantially to remake Puerto Rico’s import and retail system. The island was classically underdeveloped: its economy was heavily dependent on sugar production [DRH note: this is not per se a sign of classic underdevelopment], and it relied on the United States for food, medicine, and basic consumer goods [DRH note: nor is this], which arrived via an import system controlled by a cozy handful of wealthy San Juan-based businessmen who, in time-honored tradition, exacted substantial profit by marking up their basic costs without fear of challenge or competition [DRH note: this is]. Further markups were added by the small retail merchants, well tutored in the “company store” legacy from the old sugar plantations. Nowhere could be seen anything so debilitating as price competition. By U.S. mainland standards, Galbraith observed, “the ultimate prices were frightful.”
Marketing Efficiency in Puerto Rico, by Galbraith and Richard Holton–“by a substantial margin the least known of my books on economics,” Galbraith has noted–sparked the formation of a government commission, on which he served, charged with implementing the practical reforms outlined in it. San Juan’s port facilities were expanded to increase competition among the importers, and new grocery chains and consumer cooperatives were encouraged to provide competition with the small retailers. Within a decade, the average difference between mainland and island retail prices had narrowed by more than half.
Parker doesn’t give us enough detail for us to understand what the word “encouraged” in the last paragraph means. Does it mean “subsidized” or “given special privileges?” Somehow I doubt it. My guess is that it means that such chains and consumer cooperatives were allowed or deregulated whereas before they had either been disallowed or heavily regulated. If so, then this would be like what Charles de Gaulle did in France in the late 1950s and early 1960s, deregulating so that things like supermarkets could exist.
It would be interesting to see if Galbraith ever took a position, much later in his life, about whether Wal-Mart should be allowed in various locations. Had he followed his earlier thinking in Puerto Rico, he would have said yes. [For more on Wal-Mart’s huge positive effects, see here and here.]