U.S. President-elect Joe Biden’s foreign-policy advisors have been eager to convey that “America is back” and ready to resume leadership of the Western world. But Biden and his team may soon discover that a foundation of past U.S. leadership—a reputation for competence—has eroded beyond easy repair. Donald Trump was only a symptom of this erosion, which has developed over decades of military misadventures, financial debacles, and now the calamity of COVID-19. And underlying all these reasons, as Trump saw but could not remedy, has been industrial decline.

In America’s heyday, the dominant economic formation was the large industrial corporation. Giants like General Electric, General Motors, Ford, Bethlehem Steel, International Harvester, and IBM provided the backbone of U.S. military power and technological dominance on world markets. These firms grew up on American soil, survived the Depression, and were buttressed by the New Deal and the mobilization for World War II. In the postwar years, their power was balanced by strong trade unions, the organized voices of consumers and independent scientists, and an engaged government that weighed those voices against those of big business. This was the reality described and endorsed by my father, the economist John Kenneth Galbraith. That reality still exists out there—but America’s industrial firms are no longer the world’s leaders, and those that are, are not in the United States.

The pandemic has now put Galbraith’s global legacy into stark relief. One can now map out the rise and decline of nations simply by distinguishing between those that have continued along the lines that once defined U.S. economic success as Galbraith saw it and those that fell under the spell of illusions about free, competitive, and self-regulating markets and under the dominating power of finance. The United States today finds itself sadly in the latter group, alongside the United Kingdom, hanging on to a self-image that no longer corresponds to reality and that carries little credibility in the wider world.

My father was a creature of the last century. Born in Canada in 1908, he came to the United States in the 1930s, worked on the New Deal, was charged with price control in World War II, and was a close advisor to Presidents John F. Kennedy and Lyndon B. Johnson while becoming Harvard University’s longest-serving professor. But it was in the 1950s and 1960s that he became the world’s most famous economist and the first ever to reach a mass audience without the backing of any state. Four books in those years made his reputation: American Capitalism (1952), The Great Crash, 1929 (1955), The Affluent Society (1958), and The New Industrial State (1967). In this quartet, Galbraith painted his portrait of midcentury America as a stable system of large firms at the forefront of technology yet constrained by the countervailing power of unions, government, and the scientific estate.

The corporation, not the mythical sovereign consumer, set the terms of economic change. It designed, engineered, produced, and marketed to the masses. It was at the same time the architect of novelty and the stabilizing factor. Government helped by keeping predatory finance under strict controls and by vanquishing mass unemployment through public spending and tax reductions, in line with the ideas of John Maynard Keynes. Progress, in a certain sense, was therefore ongoing, steady, and confidently expected to continue. The main evils of this system were not scarcity, poverty, or depression but excess, blight, poor public services, and the threat of nuclear war……

Behind these disasters lies the doctrine of shareholder supremacy, advanced 50 years ago by Galbraith’s rival and detractor Milton Friedman. Put into effect with the blessings of such political leaders as U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher, this doctrine handed power over the corporation from Galbraith’s “technostructure,” the internal leadership of the big firm, back to financiers—to hedge funds, private equity firms, and bankers. CEOs, their compensation newly tied to stock prices, set about cutting costs to boost profits in the short run, at the expense of long-term resilience. When crises hit, many companies were vulnerable. Bankruptcy for private profit, closely akin to the nomenklatura looting of post-Soviet Russia, became the final outcome of the Friedman doctrine.....

As U.S. industrial corporations have declined, a new group of self-styled progressives has come to prominence in the United States. They include the writers Barry Lynn and Matt Stoller, the lawyer Zephyr Teachout, and their leading political representative, Sen. Elizabeth Warren. This group sees monopoly power as the great villain—the textbook problems of monopoly being too little output at too high a price and the squelching of new firms and new products. Their solution is to use antitrust laws to break up businesses, especially Big Tech firms: Google, Facebook, Apple, and Amazon. They presume that a promised land of optimal competition can be reached through aggressive economic decentralization, unleashing the virtues and powers of the capitalist entrepreneur. Their program is, in effect, free market romance parading as populism.

A new group of self-styled progressives has come to prominence in the United States. Their program is, in effect, free market romance parading as populism.

But this approach is a fantasy, as Galbraith well understood. The competitive world of many small producers never existed and never could. When firms were small, so were their markets; the company store tyrannized its local customers just as much as (or more than) Google tyrannizes the internet today. And the monopolistic firms that held real power—such as railroads, electric utilities, phone companies, airlines, and today Amazon, Facebook, and Walmart—all had declining costs with increasing scale. They may be rapacious, but it would not be better for their customers if they were small. Most modern examples of sustainable small producers are maintained by state policy, as family farms were by price supports for many years in the United States and as millions of small manufacturers are, in today’s China, by state-owned banks with very elastic credit standards. In the United States, many small businesses of course exist, but they are mostly in services, and even before the pandemic many were hanging on precariously as franchises and chains gobbled up their economic terrain.

Antitrust has a role. Preventing the mandatory bundling of products and services that are easily separable, for example, is a valid and sensible function. But what all big corporations really need is effective regulation to protect workers, consumers, the environment, and the public interest. This is countervailing power, and to sustain it over time will require, once again, robust trade unions, consumer and environmental movements, downsizing the finance sector, and, of course, ditching Friedman’s doctrine of shareholder value. If that doesn’t do it, there is—and should be—the option of taking over rogue firms and running them as public utilities or not-for-profit corporations.

The author of The Affluent Society understood what many American progressives have forgotten, or chosen not to acknowledge, which is that U.S. society is a wealthy one whose problems are those mainly of a rich country, not a poor one. Despite everything that has happened, most Americans continue to enjoy a privileged living standard that most of the world would envy. Though the metric is very crude, by the International Monetary Fund’s reckoning U.S. GDP per capita is, even now, 40 percent higher than in Germany, 60 percent higher than in Japan, and six times higher than in China.

The countries at the financial and technological apex of world capitalism have shown themselves unable to mount an effective public health response to the pandemic and to protect their economies and jobs.

In the Galbraithian states, the prospect is much better. They have adaptable local industries that could meet their immediate demands, less private debt, and national governments that could and did focus on the pandemic—not on the stock market—from day one. In February, when basics like face masks were becoming scarce in the United States, China ramped up production from about 10 million face masks per day to 110 million by the end of the month. In South Korea, life continued almost normally throughout the global surge in cases, as an effective system of testing, contact tracing, and isolation has limited outbreaks or brought them quickly under control. The Japanese experience is mixed but has generally been better than Europe’s and much better than in the United States, while Germany has had one of the more successful pandemic responses in Europe. All four states—as well as Taiwan, Vietnam, and some others that run along similar lines—are now enjoying economic recoveries.

The pandemic has, in short, exposed a stunning reversal of global fortunes. The countries at the financial and technological apex of world capitalism have shown themselves unable to mount an effective public health response to the pandemic and to protect their economies and jobs. Their reputations have taken a blow from which recovery may not be possible. Their capacity to protect living standards has been preserved only by financial sovereignty—the ability to make unlimited loans and grants to companies and households—and indeed by global financial power, which has maintained the value of the U.S. dollar, so far.

As Biden prepares to take office, what lessons can his team draw? The first is that the success of the Galbraithian states in coming to dominate worldwide industrial competencies is a fact. It is a fact that the United States has no choice but to accept and live with. This also means that, sooner or later, the whole Eurasian landmass will pull together into a vast economic unit—not a union but a trade and development region, based largely on Chinese capacity, Russian energy and science, and German and Japanese engineering. The time to thwart this development has passed, the capacity to do so does not exist, and the use of military power to make the attempt, short of a world-ending nuclear war, is a formula for rapid defeat and destruction of American power….

Can the United States become, once again, a manufacturing hegemon, retracing its steps and restoring local industries to compete with China, South Korea, Germany, and Japan? Galbraith did not believe the course of history could be reversed, and I think he would say it’s too late to revive the world-dominant U.S. industrial corporation—at least one that pays high wages, enforces environmental standards, and is attuned to the country’s many other social and economic problems. But such a revival is unnecessary. The United States has many needs, involving public health, economic security, infrastructure, and the environment. It needs some new productive capacity, but it should not duplicate what is already amply provided for around the world. And it still has many important capabilities—in technology, medicine, energy, and other fields; the big problem is how best to use them. Bringing back the 1960s is not possible and shouldn’t be a priority if it were.

What we cannot live with is the chaos toward which U.S. society is now headed. A perfect storm is brewing—of unemployment, foreclosures, evictions, racial injustice, deaths of despair, lost international business position, and a deepening divide between the general population and a handful of oligarchs who control the banks, the information economy, and the post-pandemic distribution networks. Not to mention the ongoing rigors of climate change. This means that the future will have to be reimagined, rethought, and built back not just better but fresh. Americans need to revitalize and expand the public sector; build cooperatives and nonprofit institutions; reprogram advanced sectors of the economy to meet pressing needs; rebuild cities to make them safe, livable, and sustainable; guarantee jobs and incomes to the millions of people who provide services, education, and care to all; and settle up and write down debts that cannot be paid.

Here the most relevant lessons are from other periods in my father’s life. Starting in 1934, he was engaged, as a very young man, in the great projects of the New Deal, the Keynesian Revolution, and the mobilization of U.S. industry to fight World War II. In later years, he opposed the Vietnam War and championed arms control and the normalization of relations with the world’s other great powers. It is that spirit—pragmatic and peaceful—that post-pandemic America will need, once again, when the virus finally recedes.