24.03.2011

Not our solution to their crisis

The economic crisis is far from over. But does Keynesianism offer a way out? No, argues Jack Conrad. Keynesianism is thoroughly elitist, anti-working class and pro-capitalist

Surprisingly for many observers, myself included, most governments in the advanced capitalist countries have responded to the ongoing economic crisis by adopting swingeing programmes of austerity. Given the grim lessons of the 1930s and how slump led to chronic unemployment, social dislocation, Nazism, World War II and threatened the existence of capitalism itself, one might have expected the ruling class, especially its more enlightened sections, to have engineered a return to the policies associated with John Maynard Keynes (1883-1946).

Keynesianism was the dominant economic theory of capitalism from the 1940s till the mid-1970s. Keynes’s most important book, The general theory of employment, interest and money, appeared in 1936: that is, during the tail end of the great depression. Soon afterwards he was credited with ushering in a “revolution” in economic thought. Keynes and his growing band of co-thinkers defined themselves as against so-called “classical economics”: eg, Say’s law, the comforting notion that markets are self-adjusting and supply creates its own demand.

Laissez-faire doctrines served capitalism well in its 19th century heyday, but were subsequently torn to shreds by events. World War I necessitated massive state intervention. Government dictats were substituted for market-determined allocation, and not only in war industries. Each belligerent country ran up enormous debts in order to sustain their killing machines. Certainly the 1930s widely discredited Say’s law. The complacent assumption that unemployment could only be “voluntary” or “frictional” lost all credibility. Keynes readily acknowledged the existence of “involuntary” unemployment.^[1]

While mainstream opinion in Britain, including big business and the treasury, initially derided Keynesianism as the “raving of wild and irresponsible extremists”,^[2] a rather strange mix of political forces found “scientific” vindication. Eg, both fascists in Nazi Germany and Fabian socialists in Britain enthusiastically embraced Keynesianism because it purported to offer a cure for all the failings of capitalism, while leaving wage-slavery intact.

Albeit not explicitly, ‘official communism’ bought into Keynesianism in the 1970s. In collaboration with left Labourite allies the old CPGB conceived, developed and gave birth to the Alternative Economic Strategy. The AES was a classic example of nationalist reformism, which, given the needs of the times, had on occasion to be dressed up as a “revolutionary strategy”.

Eg, the Eurocommunist, Sam Aaronovitch (1919-98), excused the AES because he claimed it was designed to “advance towards fundamental change in the class and property relationships in society”.^[3] In fact what the AES proposed was the election of a reformist left government committed to democratising industrial relations, widespread nationalisation and a large-scale investment programme. Such measures, its advocates promised, would “regenerate Britain”.

The AES would necessitate, of course, imposing draconian protectionist measures, such as import controls, and “leaving” what was then the European Economic Community. In other words the AES was a reformist utopia, which if put into practice could only but end in disaster: ie, isolation, economic collapse, population exodus and social regression.

Alex Callinicos

Showing to what degree the far left has lost its bearings and has moved to the right, we now hear similar left Keynesian proposals routinely spouted by organisations as diverse as the Labour Representation Committee, Socialist Party in England and Wales, Respect, Scottish Socialist Party and the Socialist Workers Party. As with the Eurocommunists, their collapse into left reformism has to be dressed up as Marxism or at least what passes for Marxism - especially when it comes to internal consumption.

Hence we have Alex Callinicos, abusing his considerable talents, providing an ‘orthodox’ cover for the Irish SWP (amongst others). Its People Before Profit Alliance electoral front proudly issued an “Alternative Economic Agenda” in April 2009.^[4] While many of its demands are eminently supportable, democracy, state power and the aim of socialism are noticeably absent.

Without doubt the AEA considerably overlaps with the old AES. Callinicos in honest enough to admit that much. However, those who want to “dismiss” it on such grounds “ignore the radically different context from that of the 1970s”. The comrade cites “deregulation” and the “devastating economic slump”. Recognising the banality of that non-argument, Callinicos latches on to the claims of his youth: the old AES was “a reformist attempt to rescue capitalism”. True, not that the ‘official communists’ ever openly admitted any such thing.

Renegade

The last resort of the renegade is to invoke “transitional demands”, as “understood by the early Communist International and by Trotsky”. Then, almost by magic, “everything changes”: and that, of course, is exactly what Callinicos maintains.^[5] Nevertheless, Keynesianism remains Keynesianism, whether advocated by Nazis, Fabians or fake Marxists.

Surely letting the cat out of the bag, Callinicos’s Irish comrades write that they wish to “prevent the bulk of the pain of the economic crisis falling onto the shoulders of the working class”. Moreover, their AEA enviously looks to the “stimulus packages” in “the US and some EU countries”, which are designed to “revive their economy”.^[6] Ireland, they argue, should follow suit.

Needless to say, Keynes was no socialist. A vulgar materialist, he displayed an uninhibited optimism about technology, capital accumulation and expert knowledge. With the right men at the helm, all problems could be solved within capitalism. In that elitist spirit he scorned the writings of Karl Marx. Eg, Capital was dismissed as an “obsolete economic textbook”. The “decent, educated, intelligent son of western Europe” will reject it out of hand unless “he has first suffered some strange and horrid process of conversion which has changed his values”.^[7]

Nor was Keynes a friend of the proletariat. When it came to the “class struggle”, he was perfectly candid. He knew which side he was on. He came from and fully identified with what he described as the “educated bourgeoisie”.^[8]

So how did Keynes propose to tackle capitalism’s periodic crises? Crudely put, to save the system, governments ought to greatly extend state powers and spend money they do not have (eg, through issuing bonds and other forms of borrowing). Namely, fiscal and monetary stimulants - eg, arms spending - which soak up unemployment and boost aggregate demand. According to Keynes, that approach would produce a “multiplier effect” (a ratio between investment and total employment generated, first introduced into bourgeois economics by Richard F Kuhn in 1931).^[9]

With higher levels of employment “effective demand” expands and revives profits. Extra taxes skimmed off by governments would in turn pay off debts. Seemingly a virtuous circle, which if dutifully followed supposedly eliminates, or at least substantially ameliorates, the negative effects of capitalism’s periodic economic downturns.

As an unintended consequence, however, such measures devalue money and reduce the system’s ability to discipline the working class through unemployment and what Marx called “commodity fetishism”: ie, the supposed naturalism of the law of value. Hence, on balance, we can say that Keynesianism is a means whereby capitalism manages its own secular decline through increasing the role of organisation as against the role of the market. Markets, including the market in labour-power, are retained, but are thoroughly bureaucratised.

Under such circumstances, internal contradictions must mount up. Eg, economics is politicised and objectively the power of the working class grows at the expense of capital. Hence from top to bottom the system visibly malfunctions … and that is exactly what happened from the late 1960s onwards. Inevitably the ruling class, crucially in the Anglo-Saxon world, broke with Keynesianism, callously encouraged unemployment to grow, downgraded productive capital and sought salvation in financialisation.

Bailout

Of course, in 2008 and 2009 the financial system was bailed out in true Keynesian fashion. George W Bush twinned himself with Gordon Brown. Britain alone poured in over £500 billion of government money to prevent a meltdown. Banks and insurance companies were nationalised or part-nationalised one after the other (eg, the Royal Bank of Scotland and Lloyds TSB and in America Goldman Sachs and Citigroup). Chrysler and General Motors were also rescued from bankruptcy through the $700 billion Troubled Asset Relief Program or Tarp).

The mainstream media, not least the conservative right, were full of laughable accusations that Bush had gone over to “socialism”. Thoroughly enjoying the humiliating ideological U-turn, Hugo Chávez ironically called him “comrade”. The Venezuelan president mockingly announced that “Bush is to the left of me now”.^[10]

However, there was a grain of truth in the media accusations. Across the world, but especially in North America and Europe, the huge losses suffered in 2008-09, at least for those concerns deemed ‘too big to fail’, were socialised. The sums involved head into the trillions of dollars. Hence the subprime, banking and insurance crisis metamorphosed into the sovereign debt crisis.

Though borrowing, as a proportion of GDP, is perfectly manageable, at least for the core capitalist countries, and, far from being unprecedented historically - eg, the 1940s and 50s saw comparable debt levels - a suffocating consensus has emerged. There is no alternative. Debts must be reduced as soon as possible through deep cuts in government spending programmes. So it is back to the future.

As shown by Osborne’s much trailed budget speech on March 23, there is to be no change of course. Benefits, higher education, local government, etc are all to be butchered. Simultaneously, taxation levels, retirement ages and pension contributions are being ratcheted up. The crumbs he threw to home buyers and car drivers might delight the Daily Mail, but his main aim remains cutting government borrowing: he hopes to oversee a drastic reduction from this year’s projected £146 billion to £122 billion next year, then £101 billion in 2012-13, £70 billion in 2013-14, £46 billion in 2014-15 and £29 billion in 2015-16. Towards that end Osborne - the “poster boy of fiscal hawks around the world” - is committed to £81 billion of cuts.^[11]

There has been nothing comparable to Osborne’s age of austerity since the ‘Geddes axe’ of the early 1920s. The coalition government of prime minister David Lloyd George was determined to drive down the debt inherited from World War I. Eric Geddes and his committee duly obliged by recommending cuts totalling £87 million - about 10% of the country’s entire GDP at the time. That translated into a 35% reduction in the number of civil servants and the abolition of entire government departments, including “labour, mines and transport”.^[12]

Revealingly Osborne’s Con-Lib Dem programme is welcomed by the CBI, IMF, Bank of England, etc. Not that Labour is much different. While Ed Miliband made much of the pain and how the programme is not working, he too is committed to austerity. Labour cuts would be slightly slower and slightly less deep. But pain, it is agreed, cannot be avoided.

This austerity consensus now includes France - which for a while appeared determined to resist German demands for savage cuts throughout the euro zone. Last year Christine Lagarde, France’s finance minister, gave the go-ahead for a deficit reduction plan “worth €40 billion”.^[13] A package that will see the loss of 97,000 civil service jobs. And, of course, Germany’s chancellor, Angela Merkel, is insisting that Ireland, Greece and Portugal - “peripheral” members of the euro zone - impose even harsher austerity measures.^[14]

Obama

Even Barack Obama’s administration in the United States is busily watering down the soft Keynesianism admired by the Irish SWP. This month Obama offered the Republicans stop-gap cuts of $6 billion in exchange for a congressional vote to keep the federal government working until April 8. However, the Republicans - now commanding a congressional majority - clamour for cuts worth $61 billion. Supposedly a first step in tackling the “runaway” $1.1 trillion federal deficit. Paradoxically, this goes hand in hand with Republican calls, especially from its Tea Party wing, for yet further tax breaks for big business and the mega-rich.

The claim is that such a policy will stimulate economic growth to benefit the entire population: the so-called ‘trickle-down effect’. Such ‘voodoo economics’ are particularly associated with the class-war presidency of Ronald Reagan and his budget adviser, David Stockman.

Needless to say, the theory has been comprehensively disproven, not least because the result, when put into practice in the 1980s, was far from being to the common good. True, the rich got richer. Much richer. Meanwhile, however, the living standards of the rest, the great majority, either remained static or actually shrank.

The austerity consensus, plus the Arab reawakening, plus oil price hikes, plus the Japanese earthquake, plus general global instability can only but press down on aggregate demand ... and increase discontent. Indeed Derek Barnett, president of the Police Superintendents’ Association, recently warned that the Con-Lib Dem austerity measures are likely to lead to rising “disaffection, social and industrial tensions”.^[15]

Under the coalition government an estimated 226,000 public sector jobs are set to go, according to the GMB union. Official unemployment is expected to “hit 2.65 million towards the end of 2012”.^[16] The real figure is reckoned to be much higher. At least 5.5 million.^[17]

How to explain the austerity consensus? I think there are two main factors at play.

• The financial crisis of 2008-09 was, of course, bad news for the entire capitalist class. It was not only a blow to profits. Neoliberalism was reduced to a busted flush. As an ideology it no longer works. However, the crisis, especially the debt crisis, was greeted in certain quarters as a golden opportunity to further roll back the post-World War II social settlement. Once the madcap dream was of restoring a pristine capitalism. Nevertheless, working class living standards - the share labour takes from the social product - can be driven down. Not only wages paid by employers, but the social wage too. Necessarily that means yet more attacks on trade unions and new authoritarian restrictions. Anyhow, the rate of exploitation is to be intensified under the patriotic rubric of balancing the nation’s books.
• The capitalist class is increasingly irrational. Its leading sections are acting in a way that not only hurts the majority of the population, but runs counter to their own interests. What the noted Financial Times columnist, Martin Wolf, colourfully called the “risk” of the “mother of all meltdowns” has not gone away. Determined to exploit the debt crisis, the bourgeoisie appears not to see the dangers. Not only might the cuts trigger a double-dip recession, but there is also the likelihood of a social explosion. Greece, Spain and France have already seen protest general strikes. Surely only a hint of things to come. The bourgeoisie has abandoned its old Keynesian methods of managing capitalism’s decline in a relatively civilised manner. As a class it remembers the 1940s-70s and is agreed - never again. However, the austerity consensus objectively puts revolution and the necessity of socialism back on to the agenda. Do the bourgeoisie really want to be hung up on lampposts?

Notes

1. JM Keynes The general theory of employment, interest and money New Delhi 2008, pxxi.
2. A Bullock The life and times of Ernest Bevin Vol 1, London 1960, p437.
3. S Aaronovitch The road from Thatcherism London 1981, p115.
4. www.peoplebeforeprofit.ie/files/PBP%20Alternative%20Economic%20Document.pdf
5. International Socialism No129, winter 2010.
6. www.peoplebeforeprofit.ie/files/PBP%20Alternative%20Economic%20Document.pdf
7. JM Keynes, ‘A short view of Russia’ (1925) Essays in persuasion New York 1963, p300.
8. JM Keynes, ‘Am I a liberal?’ (1925) Essays in persuasion New York 1963, p324.
9. JM Keynes The general theory of employment, interest and money New Delhi 2008, p102.
10. The Daily Telegraph October 16 2008.
11. Financial Times March 18-19 2011.
12. K Grieves Sir Eric Geddes Manchester 1989, p104.
13. Financial Times September 14 2010.
14. Financial Times March 12-13 2011.
15. The Daily Telegraph September 14 2010.
16. www.ft.com/cms/s/0/318aa73a-5da6-11df-b4fc-00144feab49a.html#axzz1GhDhdlGQ
17. www.marketoracle.co.uk/Article18838.html