Beyond the “Keynes Solution”

Abstract

Keynesianism has enjoyed a major resurgence since the outbreak of the current global crisis. Among activists and scholars opposed to neoliberalism it is perhaps the single most important alternative to the project of “rethinking Marxism.” In this paper a representative example of contemporary Keynesianism, Paul Davidson's The Keynes Solution: The Path to Global Economic Prosperity, is subjected to critical examination. Davidson proposes a series of reforms affecting trade relations, the financial sector, and the international financial architecture. I argue that Davidson's call for a “civilized” global economy is incompatible with his continued acceptance of capitalist social relations. The limits of the “Keynes Solution” point to the continuing theoretical and practical importance of “rethinking Marxism.”

Keywords:

• Crisis
• Keynesian Economics
• Overaccumulation
• Uneven Development

Notes

¹There are a wide variety of forms of Keynesian thought, some more radical than Davidson's, some less. There is not space here to comprehensively review them all or to investigate their complex relationships to Keynes's own work.

²IMCUs, unlike gold or dollars, would simply be units of account in the books of the international agency, a global fiat money. The ability to deny access to the dominant form of world money would provide the international agency with a very effective power, in Davidson's view.

³There are a variety of Marxian accounts of the slowdown of the 1970s beside the one provided here. (See, for example, Moseley 1992, which stresses the rise of unproductive labor.) I believe that many of them are broadly compatible, although there is not space to develop that point here. A helpful and comprehensive survey of leading accounts is provided in Dunn 2011.

⁴In the United States, for example, after 1979, “The value of labor power fell for the remainder of the century (as productivity grew but hourly real wage rates for production workers did not), so that the rate of surplus value (the ratio of money surplus value to the wages of productive labor) increased by about 40%” (Mohun 2009, 1028).

⁵It would be quite mistaken, however, to overlook the way in which the “financialization” of neoliberalism required new forms of government regulation rather than simple deregulation (Panitch and Gindin 2010). Changes in legal codes enabling pension funds to invest in more risky financial assets were, for example, an absolutely crucial part of the story (Toporowski 2000, Blackburn 2002).

⁶“Let us sum up: traders are borrowing at negative 20% rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius—even if they are just riding a huge bubble financed by a large negative cost of borrowing—as the total returns have been in the 50–70 per cent range since March” (Roubini 2009).

⁷Further arguments for this conclusion are developed in Sotiropolos 2011 and Callinicos 2012.

⁸Specific measures in this direction are proposed and defended in Lapavitsas et al., 2011.

⁹States are not unified agents, and they do not exercise agency. The use of language suggesting otherwise here is shorthand that should not be taken literally.

¹⁰In this context it is worth noting that, despite China's unprecedented levels of growth in recent decades, wages have been a declining percentage of GDP, just as in the U.S., Europe, and Japan. In fact, according to The Economist, no region suffered a bigger decline in the ratio of wages to GDP during the rapid growth period 1992–2006:

Table

“The decline in the ratio of consumption to GDP … is largely explained by a sharp drop in the share of national income going to households (in the form of wages, government transfers and investment income), while the share of profits and government revenues have risen” (“A Workers’ Manifesto for China,” 11 October 2007, http://www.economist.com/business-finance/economics-focus/displaystory.cfm?story_id=E1_JJQQSDP, accessed 11 March 2012). More recently, the tremendous expansion of coastal regions in China has led to labor shortages and wage increases. In response, investment by both Chinese and foreign firms has begun to shift to inland regions, where wage levels remain low, and to countries like Vietnam, where wage levels undercut even the dismal Chinese standards.

¹¹If an increasing proportion of research and development were shifted to poorer regions to take advantage of lower costs of scientific-technical labor, nothing essential would change as long as units of capital based in wealthy regions continued to direct that research and control the implementation of its results.

¹²This statement refers to units of capital from these regions taken collectively. There are, of course, no guarantees that specific units will be able to reproduce their position from period to period. The possibility of specific regions shifting their places within the hierarchical world system should also not blind us to the stability of the hierarchical structure itself (see Arrighi 2002).