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Capitalism in Crisis

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Keynes revisited

Unison Local Government strike on 16-17 July in Lincoln, photo Lincoln Socialist Party

Unison Local Government strike on 16-17 July in Lincoln, photo Lincoln Socialist Party

The era of the deregulated 'free market' associated with Thatcherism is dead. Nonetheless, governments will still use neo-liberal measures such as privatisation against the working class as is shown by Peter Mandelson's proposals to part-privatise the Post Office - at the same time as the banking system is being part-nationalised! However, we are entering a new phase of history.

For many workers this will mean turning towards socialist ideas. For the representatives of capitalism, however, it will be a question of trying to find a way to restore the profits of world capitalism as quickly as possible.

In order to do so they have dug up Keynes - whose economic theories had been dismissed as irrelevant by those in power, for thirty years.

As Keynes himself once aptly put it: "When the facts change I change my mind. What do you do sir?" New Labour has taken this advice.

The measures they have taken so far seem to have prevented a complete collapse of the banking system.

However, they have not, and will not, prevent a devastating recession. Keynes argued that the state should respond to a recession by increasing spending in order to stimulate demand.

In Britain, the ideas of Keynesianism are most associated with the post-war upswing - the long period of economic growth from 1950-73.

The current situation, however, bears no resemblance to that.

It was for particular historical reasons - including the massive destruction of capital in Europe and the deaths of 55 million people during the second world war - that capitalism grew extremely rapidly for these few decades.

While Keynesian policies helped to prolong the upswing, they did not create it. In fact, when the economic upswing reached its limits in the early 1970s, Keynesian policies began to exacerbate all the problems in the system, leading to massive inflation.

The Keynesianism that may develop in the coming years in Britain and worldwide has more in common with the New Deal implemented by Franklin D Roosevelt in the US in response to the Great Depression of the 1930s.

The US's government spending increased by 80% but was against the background of the beginning of a revival in the economy.

The economy is in a very different stage today and it is likely that, even if the representatives of capitalism are compelled to carry out Keynesian policies on a large scale, these policies will have a very limited impact.

Even the New Deal, although it did have some effect, could not solve the scourge of mass unemployment.

With all its associated horrors, only the onset of the second world war brought about close to full employment, with increased call-up to the armed forces and men and women pulled into the war economy.

Nor did the Keynesian policies instituted in Japan in the 1990s prevent its 'lost decade' of economic stagnation.

The larger the 'financial stimulus' packages implemented, the greater will be the increase in the national debts of governments.

Sooner or later the working class will be expected to pay for this via increased taxation and future cuts in public expenditure.

In Britain the government deficit is likely to hit 100 billion next year. Brown's 40% rule - that public sector borrowing should never exceed 40% of GDP - has been ripped up; in fact it is likely to hit 50% or more.

Even without increased spending the situation will get worse in the coming months as a result of falling tax revenues and increased spending on unemployment benefits due to the recession.

In the last recession from 1989-92 the then Tory government's budget plummeted from a 3% surplus to a 7% deficit.

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