The limits of Keynesianism

Absolutely clear thinking from Walden Bello.


“For one thing, Keynesianism is mainly a tool for reviving national economies, and globalization has severely complicated this problem. In the 1930s and 1940s, reviving industrial capacity in relatively integrated capitalist economies revolved around the domestic market. Nowadays, with so many industries and services transferred or outsourced to low wage areas, the effects of Keynesian-type stimulus programs that put money into the hand of consumers to spend on goods has much less impact as a mechanism of sustained recovery. Transnational corporations and TNC-host China may reap profits, but the “multiplier effect” in de-industrialized economies like the United States and Britain might be very limited.

Second, the biggest drag on the world economy is the massive gulf — in terms of income distribution, the pervasiveness of poverty, and the level of economic development — between the North and the South. A “globalized” Keynesian program of stimulus spending, funded by aid and loans from the North, is a very limited response to this problem. Keynesian spending may prevent economic collapse and even spur some growth. But sustained growth demands radical structural reform — the kind that involves a fundamental recasting of economic relations between the central capitalist economies and the global periphery. Indeed, the fate of the periphery — the “colonies” in Keynes’ day — didn’t elicit much concern in his thinking.

Third, Keynes’ model of managed capitalism merely postpones rather than provides a solution to one of capitalism’s central contradictions. The underlying cause of the current economic crisis is overproduction, in which productive capacity outpaces the growth of effective demand and drives down profits. The Keynesian-inspired activist capitalist state that emerged in the post-World War II period seemed, for a time, to surmount the crisis of overproduction with its regime of relatively high wages and technocratic management of capital-labor relations. However, with the addition of massive new capacity from Japan, Germany, and the newly industrializing countries in the 1960s and 1970s, its ability to do this began to falter. The resulting stagflation — the coincidence of stagnation and inflation — swept throughout the industrialized world in the late 1970s.

The Keynesian consensus collapsed, as capitalism sought to revive its profitability and overcome the crisis of overaccumulation by tearing up the capital-labor compromise, liberalization, deregulation, globalization, and financialization. In this sense, these neoliberal policies constituted an escape route from the conundrum of overproduction on which the Keynesian welfare state had foundered. As we now know, they failed to bring back a return to the “golden years” of post-war capitalism, leading instead to today’s economic collapse. It is not, however, likely that a return to pre-1980’s Keynesianism is the solution to capitalism’s persistent crisis of overproduction

Perhaps the greatest obstacle to a revived Keynesianism is its key prescription for revitalizing capitalism in the context of the climate crisis, namely the revving up of global consumption and demand. While the early Keynes had a Malthusian side, his later work hardly addressed what has now become the problematic relationship between capitalism and the environment. The challenge to economics at this point is raising the consumption levels of the global poor with minimal disruption of the environment, while radically cutting back on environmentally damaging consumption or overconsumption in the North. All the talk of replacing the bankrupt American consumer with a Chinese peasant engaged in American-style consumption as the engine of global demand is both foolish and irresponsible.

Given the primordial drive of the profit motive to transform living nature into dead commodities, capitalism is unlikely to reconcile ecology and economy — even under the state-managed technocratic capitalism promoted by Keynes.

In other words, Keynesianism provides some answers to the current situation, but it does not provide the key to surmounting it. Global capitalism has been laid low by its inherent contradictions, but a second bout of Keynesianism is not what it needs. The deepening international crisis calls for severe checks on capital’s freedom to move, tight regulation of financial as well as commodity markets, and massive government spending. However, the needs of the times go beyond these Keynesian measures to encompass massive income distribution, a sustained attack on poverty, a radical transformation of class relations, deglobalization, and perhaps the transcendence of capitalism itself under the threat of environmental cataclysm.”

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