disastrous consequences of super-free market policies become
apparent, voices are being raised in capitalist and social
democratic circles demanding state intervention to revive the
economy. But is it
really an alternative; and would a new round of state economic
intervention and debt-financing of growth have beneficial
effects for working people?
Here ERNEST MANDEL argues that traditional Keynesian
reflationary policies must be distinguished from the budget
deficit policies of Thatcher and Reagan; and that capitalist
reflation only brings short-term advantages for the working
class, and inevitably ends up in a new recession.
fundamental idea of Keynesianism is that state spending, a
national budget deficit, can be used to combat economic crisis
theoretical point of view, raising overall demand in a given
country will facilitate a recovery insofar as there is
disposable productive capacity (unemployed workers, stocks of
raw materials, machines working below capacity).
These unused resources are mobilized by the additional
purchasing power created by the budget deficit.
Only when these reserves are exhausted do you get the
fatal onset of inflation.
But there is
a snag. In order
for the budget deficit not to fuel inflation before full
employment is reached, direct taxes must increase in the same
proportion as income.
the bourgeoisie prefers to buy state bonds rather than pay
taxes, and that tax evasion by the bourgeoisie is endemic, the
higher tax burden implied by Keynesian policies falls on the
public debt grows, servicing this debt eats up a growing part of
public spending, so there is a tendency for the budget deficit
to grow without any corresponding beneficial effects on
So in the
end Keynesian expansion tends to undermine itself through
growing inflation and diminishing returns from the initial
budget deficit-driven “push;” a new recession is the result.
And the growing tax burden tends to redistribute income
towards the bourgeoisie.
historical balance sheet of Keynesian policy is clear.
The most extensive experiment, Roosevelt’s New Deal in
the United States during the 1930s, ended in failure.
rise in public spending, it ended in the crisis of 1938 when
unemployment reached 10 million.
It was the massive rearmament thanks to the war which
reduced mass unemployment.
something bizarre in the way in which neo-liberal dogmatists
contrast their ‘supply-side’ policies to those based on
creating demand through budget deficits. Never, in fact, have budget deficits been higher than under
the neo-liberals’ champion Ronald Reagan.
The same is
true to a large extent of the reign of Mrs. Thatcher.
They implemented record-breaking neo-Keynesian programmes
while all the time professing quite the opposite faith.
The real debate was not about the size of the budget
deficit but what it was to be used for.
speak for themselves. Reagan/Thatcher
neo-Keynesianism has brutally reinforced the austerity offensive
spending and spending on infrastructure have been cut; arms
expenditure has expanded massively in the USA and Britain and to
a lesser extent in Japan and Germany.
private enterprise have increased.
Unemployment and widening social inequalities have been
stimulated. In the
last 20 years the number of unemployed in the OECD countries has
social effect has been disastrous.
You can learn in any college course on economic
development that the most productive long-term investments are
those in education, public health and infrastructure.
neo-liberal dogmatists overlook this elementary truth when they
approach problems from the point of view of an ‘equilibrium’
which must be re-established at any cost.
Their favourite targets for cuts are precisely education,
health care, social security and infrastructure, with the
inevitable harmful effects, including on productivity.
mean that socialists prefer traditional Keynesianism and the
welfare state to the poisonous cocktail of monetarism and
neo-Keynesianism currently on offer? If our answer is positive, it must be heavily qualified.
Keynesianism implies various forms of the exercise and division
of power within the framework of bourgeois society.
This leads to various forms of social contract and
consensus with those who currently hold economic power, on their
This is a
purely one-way consensus and it runs counter to the interests of
the working class. Traditional Keynesianism is only the lesser evil in that
compared to a deflationary policy insofar as it promotes an
immediate and rapid fall in unemployment.
present conditions neo-Keynesianism is leading to an increase in
unemployment and marginalization of growing sections of the
population, with all sorts of reactionary consequences.
advocates of traditional Keynesian policies have to deal with a
fundamental awkward fact; the effectiveness of their approach is
being greatly reduced by the growth in the power of the
While of course it is ridiculous to say that state
intervention today is powerless, it is of course much less
powerful than during the 1930s and 1950s.
the growth of transnational enterprises, the national state is
no longer an adequate economic instrument for the dominant
factions of the bourgeoisie.
Thus, an effort is being consistently made to substitute
supranational institutions for it, the classic case being the
various institutions of the European Community.
obstacles have to be overcome if supranational institutions are
to take on the characteristics of a real supranational state,
for example in Europe.
unification remains suspended between a vague confederation of
sovereign states and a European federation with some of the
characteristics of a state, with a single currency, a central
bank, a common industrial and agricultural policy, joint army
and police forces and, finally, a central government authority.
process of European capitalist unification there is a time bomb,
which is beginning to explode in the strikes in Italy and
Greece. It is the
simple fact that the ‘budgetary stabilisation’ required for
monetary union will have an enormous deflationary and austerity
effect. This in
itself should be cause enough for the workers’ movement to
reject the Maastricht treaty.
offers nothing more than an excuse for a continuation and
toughening of austerity policies.
It is more vital than ever to continue the fight against