The global financial crisis has brought Keynesian economics back into vogue.
Keynes developed his economic ideas in the context of the Great Depression in the 1930s. Now, faced with mounting economic difficulties, governments have resorted to Keynesian stimulus measures in the hope of re-establishing consumer and investor confidence and boosting levels of spending on goods and services. Government expenditure on household payments and social infrastructure is designed to provide the basis for economic recovery. In many respects this is a welcome policy response. It could help to prevent the rate of unemployment rising to levels of previous recessions, while the infrastructure spending could simultaneously boost short-term effective demand and create much-needed improvements in the quality of public services. However, people concerned with progressive economic and social change also need to be thinking beyond the economics of Keynes. Important insights and implications can also be drawn from other approaches. A Marxian contribution to the crisis is particularly relevant. Marxian ideas have been ‘out of fashion’ for a long time and, of course, they are always unacceptable from a ruling class perspective. Yet, in the current context they can provide the basis for a more comprehensive analysis and systematic response to the economic situation.
First and foremost, Marxist analysis emphasises that economic cycles are endemic to capitalism. The rhythms of capital accumulation and the contradictory class interests generate systemic tendencies to periodic booms and busts. The propensity of capitalist employers to drive down the share of wages in the national income has been one element contributing to the growth of debt during the last two decades. Consumers seeking to purchase housing and other consumer durables have increased their borrowing. As Australian economist Steve Keen has emphasised, this has been a major contributory factor to the current crisis.
Second, a Marxian approach focuses on the forces driving concentration and centralisation of capital. Business failures are opening up opportunities for large firms to take over failing smaller ones; although many of the big businesses are also in trouble, seeking and receiving government support because they are deemed as too big to be allowed to fail. But it is in the banking sector that the benefits of bigness have become most apparent. The behaviour of the major banks themselves, as profit-seeking capitalist institutions, has contributed to the current crisis. Yet, the same big banks have consolidated their dominant position in the market. A Marxian analysis focusing on the role of finance capital helps to understand what is going on.
Third, the concept of a reserve army of labour is also pertinent to understanding how, in some respects, capitalism profits from misfortune. When workers are unemployed they are not directly contributing to the profits of capitalist businesses. However, the slackness in labour markets changes the power relationship between employers and employees. As unemployment rates start to rise there is already evidence of some capitalist businesses taking advantage of the situation in how they treat their employees. As Marx emphasised, the existence of unemployment and, more generally, a reserve army of labour makes it easier to exploit workers and to restructure workforce requirements in the interests of capital.
Fourth, a Marxian analysis can help to put the focus on the necessary characteristics of a socialist response. It is a healthy reminder that we need to be concerned with not just propping up the existing economic system. Crises provide political opportunities for more systemic change. Informed by socialist values - such as the need for economic planning, equity and the extension of democracy throughout the economy - we need to be thinking about radical changes. What form should they take? That is an open question, but socialist principles provide some indications of ways forward that do not remain wholly trapped within a ‘capitalist logic’. Public ownership of financial institutions needs to be on the agenda in these circumstances. These institutions have failed the needs of society. Public ownership is not just a matter of nationalising ‘lame duck’ businesses: it also needs to focus on subjecting powerful economic institutions to social priorities. Superannuation policy also requires re-thinking: the vast pool of workers’ savings held by the superannuation funds needs to be more systematically channelled into socially beneficial and ecologically sustainable investments. How best to do this deserves careful consideration: the creation of a national investment scheme is one option. The current crisis certainly shows the folly of relying on short-term profit-maximising pursuits which become vulnerable to speculation.
Keynes recognised the adverse consequences of an increasingly speculation-oriented capitalist economy. As he said, ‘speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.’
Keynesian analysis offers valuable lessons on the dangers of adopting ‘laissez faire’ principles in practice and points to the potential for more actively interventionist responses by government. However, the current economic situation requires complementing these ideas with greater appreciation of political economic history and the history of economic ideas.
It also requires consideration of environmental issues, going beyond both Keynes and Marx. We are increasingly conscious now of the threat of climate change and the need for constructive policy responses. Indeed, the economic crisis and the ecological crisis can be regarded as the twin contemporary policy challenges of the current era. Tackling them together means emphasising the creation of green jobs - restructuring industries, retrofitting buildings and changing patterns of energy and transport use in order to create a more sustainable economy.
Politically, we need to build a movement for progressive and radical reforms. As in the 1930s, capitalism isn’t working, or at least not working to serve the needs of the majority of the people. We need an economy that is more equitable, secure and sustainable. The Australian government will not directly deliver this, notwithstanding Kevin Rudd’s denunciation of ‘extreme capitalism’. It will only come though pressure from a strong people’s movement. Journals such as this seek to contribute to this process by developing radical analysis which contributes to personal empowerment.
Source: Australian Options, Issue 57, Winter 2009, pp. 1-2.