Keynesianism will not save the world

Nostalgia for the supposed “golden age” of mid-20th century capitalism carries with it an assumption that we can simply go back to a Keynesian world. Yet this is not a matter of simply of switching horses for nobody decreed that we shall now have neoliberalism and nobody can decree we shall now have Keynesianism.

There are structural reasons for the neoliberal assault. It is the logical development of capitalism; “logical” in the sense that the relentless scramble to survive competition eventually closed the brief window when rising wages were tolerated and government investment encouraged. The Keynesian policies of that time was a product of a specific set of circumstances that no longer exist and can’t be replicated.

Mid-20th century Keynesianism depended on an industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies. A vicious circle arises: Persistent unemployment and depressed wages in developed countries and inadequate ability to consume on the part of underpaid workers in developing countries leads to continuing under-consumption, creating pressure for still lower wages by capitalists who can’t sell what they produce and seek to cut costs further because there is no incentive for them to invest in new production.

Counter-intuitively, the turn toward neoliberalism is a also a response to declines in profitability. The rising wages of the post-World War II era were tolerated by capitalists because profits and the potential for further expansion were both high. Pent-up demand across the global North and the massive destruction of capacity in Europe enabled U.S. manufacturers to gain an unprecedented, and unrepeatable, opportunity. Capitalists in Europe and East Asia used state investment to rebuild their economies and regain their competitiveness.

Workforce of the future?

Workforce of the future?

The Keynesian compromise was not necessarily what capitalists would have wanted; it was a pragmatic decision — profits could be maintained through expansion of markets and social peace bought. When markets could no longer be expanded at a rate sufficiently robust to maintain or increase profit margins, however, capitalists ceased tolerating paying increased wages.

Competition is now carried out on a global scale, and where in the past local monopolies tended to cohere within national or regional borders, corporate globalization has put the world well down the road of international monopolization. The same tendency toward a handful of corporations dominating a market is now being reproduced on a larger scale, a single global world system, replicating the processes that previously led to monopolizations within individual countries or regions.

This is part of the “grow or die” dynamic of capitalism. It’s not only grabbing market share, it’s a mad scramble to “innovate” to increase profitability. That can be new production techniques but it is especially cutting costs — in the first place, wage costs. Thus robotics and automation to reduce the number of workers needed, which also “deskill” work to make workers more expendable, putting downward pressure on wages. Work speedups are part of the extraction of more profits, or an attempt to stave off declines in profit rates. And when these are finally insufficient, the work begins to be moved to new locations with lower wage levels and weaker regulation. “Free trade” agreements negotiated in secret that bring corporate wish lists to life both accelerate this tendency and are a product of it.

The capitalist that cuts costs first gains an advantage, but competitors follow, eroding the advantage. So the next step, and the next step, is carried out, intensifying these processes. The personality of the capitalist does not matter; he or she is acting under the rigors of competition. There is no way to put a human face on this or to permanently reverse the logic of capitalist competition. The present era of austerity and neoliberalism is the product of capitalist development. Even if a massive movement becomes sufficiently strong to effect significant reforms, eventually they would be taken back just as the reforms of the mid-20th century have been taken back.

(Mural by Ben Shahn)

(Mural by Ben Shahn)

Not only does the scope for expansion that existed during the Keynesian era no longer exist, the environmental limits and global warming that the world did not then face can no longer be avoided. Humanity is consuming far beyond the world’s replenishment capacity and changing the climate at a faster rate than ever before known. We can’t turn back the clock (and the “golden age” of capitalism wasn’t so golden if you were a woman, a Person of Color or a working person in a developing country) nor is it environmentally sound to ramp up production and consumption on the scale that a global Keynesian initiative would require.

Alas, this is a variation on the theme of “green capitalism” — the idea that the same system that has brought the world to its present state of crisis, a system that requires infinite expansion on a finite planet, that has turned to financialization because speculation is more profitable than production, that treats pollution and waste as external costs to be ignored will somehow now save us. Tinkering with the machinery of capitalism — which is what Keynesian nostalgia amounts to — would ameliorate conditions somewhat for a while, but offer no solution.

The days when it was still possible to believe capitalism can be a progressive force are behind us; the neoliberal assault is the “new normal.” When capitalism has penetrated into every corner of the world, there is nowhere else to expand: The only route for capitalists is to reduce wages and benefits. The only route for the 99 percent is an entirely different world.

13 comments on “Keynesianism will not save the world

  1. Alcuin says:

    Yep. What I find interesting is how TPP figures into this. I’m not sure that I read, in your previous posts on TPP, the link between advanced capitalism and “free trade.” You make that link quite clear in this post, though. Thanks.

    • Thanks for the kind comments, Alcuin. The mad scramble to re-locate production and services to places with ever lower wages and weaker regulations requires that capital, raw materials and finished goods be shipped around the world without barriers or tariffs, and that pesky laws protecting labor be knocked down.

      So-called “free trade” deals facilitate this corporate need. And while they are at it, they insert as much of their wish lists on other topics as possible. There is a reason that corporate lobbyists are the only people to see the text as “advisers,” and that the trade negotiators are government officials in between corporate jobs.

  2. Eventually, corporate Capitalists are going to run out of workers to rape.

    I used to do sales work in the corporate world. As part of my job, I would often be inside the factories with which we supplied cleaning and maintenance supplies. I would look at the machinery and people, frantically turning out thousands of whatever they produced, and wondered to myself, “What happens when everyone has one of these? Then what?” or “Just how many of these do they think that people need? Do they expect that every person on the planet will want one?”

    I understood at that time, long before I realize that Capitalism is a corrupt and dying system, that there is a limit to the ability to grow as a corporation. We are flooded with crap, so much so that there is a booming market in used products which competes with and causes havoc to the market for new things.

    Yet all I hear on NPR and other radio programs is about how the Stock Market continues to grow?
    To where??

    • The stock market is growing toward its next collapse. But because financial speculation is more profitable than production — in part because so many markets are “mature” to use corporate lingo — the performance of the stock market is more disentangled from the real economy than it was in past eras.

      So what do manufacturers do? They introduce planned obsolescence so we have to buy more stuff, sooner, and they cut costs. And so here we are: productive capacity sitting idle and persistent high unemployment.

      • crocodilechuck says:


        re: ‘mature’ markets, & this post

        Read this classic on the history of capitalism & over investment in industry by Rob’t Brenner, historian @ UCLA:

        Cheers, and thanks for your posts. V good.

        • I hope to read through it when I have some time. I did read the first couple of pages, and saw this succinct explanation:

          “The fundamental source of today’s crisis is the steadily declining vitality of the advanced capitalist economies over three decades, business-cycle by business-cycle, right into the present. The long term weakening of capital accumulation and of aggregate demand has been rooted in a profound system-wide decline and failure to recover of the rate of return on capital, resulting largely—though not only—from a persistent tendency to overcapacity, i.e. oversupply, in global manufacturing industries.”

          There is an ongoing debate on root causes; some Marxist economists insist the falling rate of profit is the real culprit. Then there are over-capacity versus under-consumption models. Personally, I don’t think we need choose one culprit. Multiple developments are going on and reinforce one another. Robert Brenner’s analysis, based on my quick look, appears to meld together multiple factors, which I think is a healthy approach.

  3. I think most people intuitively grasp that the capitalist party is over – even if they don’t understand the theoretical basis for its demise.

    • Most people certainly do realize the economy has gone bad and are pessimistic that life will soon get easier. But you are also correct that very few grasp why. The younger generation is more open to answers, fortunately, then their elders, and my proof of that is those polls I’ve seen that show people younger than 30 prefer socialism in almost equal numbers to those who prefer capitalism. We are very far away from any anti-capitalist consensus today, so much work to be done.

  4. dhenryb says:

    This is one of the best essays I’ve ever read on the whole picture of the dynamics of why there has been a slide into no growth in wages, lower levels of employment, poorer benefits and the inevitable disasters of the system caused by the unchecked greed of the capitalists. I wonder if you see your ideas reflected in the work of Richard Wolff, who also initiates this disaster from the 1970’s with the rise of automation, the sending of jobs abroad and the moving of women into the workplace (not a bad thing, but without good jobs to take them in)/ He sees wages growing for 150 years from 1820 to 1970 then flatlining due to these factors and the absolute greed of the owner class. I believe you demonstrate very clearly that the capital will move to the “young” markets available for making money until they are used up. And the “mature” markets will just suffer a press downward on wages and working conditions. Wolff notes that the UAW just signed an agreement to give FUTURE workers $14/hour, one half of what the past workers could expect. This is right in line with what you write. Thank you for your fine essay.

    • Thank you for your most kind comments. I am very familiar with the work of Richard Wolff, both through his weekly radio show and having attended several of his lectures. He has a gift for communicating complex economic concepts in clear, accessible language. I’ve also reviewed one of his books, Democracy at Work: A Cure for Capitalism. So, yes, his work has been influential on me, among many. I’d also recommend the work of Monthly Review.

      The dual-wage-scale contract signed by the United Auto Workers is emblematic of the downward pressure of wages, and also the unwillingness of unions to put up a fight. It would be unfair to put all the blame on unions for three decades of givebacks and retreats — unions are not responsible for the relentless dynamics of the world capitalist system — but selling out new workers is not the way to build long-term solidarity, without which our future is hopeless.

  5. Indeed, it sure won’t! Keynesianism has simply lost its objective basis for flourishing. The ferocious crisis of the world capitalist system is compelling ruling classes the world over towards brutal measures variously described as neoliberal.

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