/ 12 January 2009

Keynes, not Marx, raised from the dead

As the real world recession kicks in, the ideologues of capitalism are scaring themselves with spectres.

”He’s back,” the London Times warned its readers over a portrait of Karl Marx.

Marx’s analysis of capitalism has been hailed by everyone. The crash has certainly exposed deregulated capitalism as bankrupt and its ruling elites as greedy and inept.

But it is the free-market model, not capitalism, that is dying.

That is reflected in public opinion: a Financial Times-Harris poll conducted across the capitalist world in October found large majorities believe the financial crisis has been caused by ”abuses of capitalism”, rather than the ”failure of capitalism itself”.

It is not Marx who has been rehabilitated, but John Maynard Keynes. After the largest state economic intervention in capitalist history, politicians are having to make a virtue of it.

”Much of what Keynes wrote still makes sense,” Alistair Darling, the United Kingdom chancellor of the exchequer, declared as he announced plans for large capital projects and Prime Minister Gordon Brown defended higher borrowing to counter the falling demand.

The official return to Keynesianism is symbolically significant. It’s 32 years since the UK’s Labour prime minister Jim Callaghan, three years before Margaret Thatcher came to power, told his party conference: ”We used to believe we could spend our way out of a crisis, but I tell you … it’s no longer possible.”

Faced with a full-scale slump, such misconceptions have been abandoned. But claims that the current crisis signals the end of capitalism or the rebirth of socialism are similarly deluded.

Socialism as a systemic alternative is not on the agenda anywhere, with the arguable exception of Latin America.

Both the post-communist collapse of confidence and the weakening of the working class as a social and political force prevent the left from exploiting capitalism’s failures. That has led some to conclude that the main beneficiaries of the crisis will be the right, as in the 1930s.

There’s a risk of right-wing populism on the back of unemployment, but if the new enthusiasm for Keynesian intervention and public ownership can be channelled to protect those most vulnerable, that need not happen.

What the crisis will do is increase the demand for alternatives within capitalism. It has already discredited the free-market model that has dominated the world for a generation.

For most of the world, growth was faster and far more equally shared in the Keynesian post-war decades.

Political leaders can now use the meltdown to reshape the economic system. –