A Post-Keynesian Political Economy for the Left

A Post-Keynesian Political Economy for the Left

An Article by Adrian Pabst, Lecturer in Politics, University of Kent, published at Policy Network on June 18, 2012

The current crisis of financial capitalism and representative democracy illustrates the many excesses and unintended consequences of socio-economic liberalism. For this and other reasons, a genuinely new ‘post-liberal’ political economy is needed.

Across Europe and the US, the left seems to be winning the economic argument. As the UK and much of the eurozone have fallen back into recession, the rejection by social democrats and moderate socialists of austerity-induced depression in favour of careful spending cuts and a proper growth strategy is finally being seen as a better solution to the Global Financial Crisis.

However, as the pamphlet A Centre-Left Project for New Times recognises, Ed Miliband, leader of the British Labour Party, and the French President François Hollande, who have led this charge against austerity are still struggling to develop an alternative political economy.1 

In an age of austerity, politicians and pundits on all sides of the political spectrum remain prisoners of outdated socio-economic orthodoxies. Indeed, for the past thirty years, left- and right-wing thinking has extended little beyond the ‘privatised Keynesianism’ of the Reagan-Thatcher and Clinton-Blair years.

As we have seen in recent years, by privileging consumption over investment, the reallocation of income over the distribution of assets, and encouraging the convergence of states and markets this ‘privatised Keynesianism’ helped fuel a bubble cycle of boom and bust that burst with devastating consequence in 2008.

As such, the genuine alternative to the more statist and the more marketised model of Keynesianism now clearly lies in a political economy that promotes investment in productive activities, distributes assets and re-embeds the global ‘market-state’ in the human and social relations that constitute society. Such a political economy requires a fundamental rethink of the dominant orthodoxies: just as the right has been almost exclusively wedded to free-market economics, so too the left has focused too much on statist politics. In so doing, both right and left have ignored the real problem. The challenge now is not between States vs Markets, but rather how to defend both community and society against the double-headed hydra of states and markets. If the left wants to shape the next political paradigm, then it must uphold the primacy of the social over the economic and the political.

In turn, this means a turn away from the dominant models of modernisation that are unrestrained economic and social liberalism. Both types of liberalism champion ‘negative liberty’ (that is the unfettered freedom from external constraint). Decades of liberalism have contributed to the erosion of the social bonds and civic ties on which vibrant democracies and market economies depend. Socio-economic liberalism engenders paradoxical societies that are simultaneously more atomised and yet more interdependent. As the philosopher Michael Sandel puts it, “in our public life we are more entangled, but less attached, than ever before”.2

The current crisis of financial capitalism and representative democracy illustrates the many excesses and unintended consequences of socio-economic liberalism. For this and other reasons, a genuinely new ‘post-liberal’ political economy is needed.

Far from being nostalgic and reactionary, post-liberalism appeals to perennial principles like the common good, the good life, mutuality, reciprocity, participation and association.3 Here one can argue that such notions can translate into transformative practices of reciprocal giving, mutual assistance and cooperation across the public, private and ‘third’ (voluntary) sector. Thus, a genuinely post-liberal political economy encompasses the state, the market and civil society.

Politically, post-liberalism advocates pluralising the state by: Firstly, rebalancing the relations between government, parliament and the courts; Secondly, by devolving power to regional, local, communal levels as well as European and global stations (in accordance with the principle of subsidiarity which stipulates action at the most appropriate level in order to safeguard human dignity and the flourishing of the person); Thirdly, associating all the mediating institutions of civil society (professional associations, universities, manufacturing and trading guilds, etc.) to public policy and decision-making. Concretely, this would involve a greater role for assemblies, guilds and professional ethos in order to counterbalance the writ of the executive, political parties and the managerial bureaucracy of the central state.

Economically, post-liberalism argues for the mutualisation of markets to shift the emphasis from short-term profits and pure price competition towards longer-term, sustainable profitability and competition centred on quality and their wider social impact (including the so-called environmental ‘externalities’).

Linked to this are principles and practices of cooperation beyond pure self-interest and the distribution of assets (e.g. asset-based welfare, employee ownership and cooperatives, including in the public sector). Crucially, mutualising markets involves abandoning the current separation of profit and risk between, investors and money-lenders on the one hand, and customers and employees on the other, in favour of alternative arrangements whereby debt is converted into equity and both profit and risk are shared more equitably rather than divorced from one another. Examples include, mortgages with long-term, fixed interest rates; debt equitisation schemes for over-leveraged banks and corporations; and the introduction of growth warrants in addition to ordinary national or corporate bonds.

Socially, post-liberalism promotes the active association and participation of citizens – individually and in groups – in the governance of the public realm. Here the guiding principle is in some important sense Aristotle’s notion of ‘mixed government’ where the rule of the ‘one’ (the nation), ‘the few’ (virtuous elites in all professions and sections of society) and ‘the many’ (the populace) are blended in mutually balancing and augmenting ways. Whether Edmund Burke’s ‘little platoons’, or G.D.H. Cole’s guilds, ‘the few’ could mediate between families, households, communities, localities on the one hand, and national state and transnational markets, on the other hand. So configured, ‘the few’ would have a constitutional role that helps secure the autonomy of the mediating institutions that constitute civil society.

As the German historian Otto Gierke remarked, guilds “embraced the whole man” and represented “for its members a miniature commonwealth (Gemeinwesen in Kleinen)”.4 Likewise, guilds have sought to develop and protect standards of excellence and honourable practices – if necessary by means of punishment and exclusion based on an ethos of combined extensive rights with strict duties and moral codes. Frequently organised as confraternities, craft-guilds participated in the life of the polity based on their own distinct ‘legal personality’.

As such, if the left truly believes in worker self-organisation, it must encourage the introduction of a constitutional status for professional and other associations. This, coupled with a pluralised state and mutualised markets, can help build a civil covenant that blends proper political representation with greater civic participation. At the EU level, the UK and others could argue for a ‘European commonwealth’ as an alternative to the rival projects of a Franco-German federal super-state or an Anglo-Saxon glorified free trade area. A European commonwealth based on a genuinely post-liberal political economy would form a new compound wherein communities, localities, cities, regions and nations are given a proper voice in the governance of the public realm. The Left needs to move beyond the outdated socio-economic orthodoxies of the last thirty years. It is time for a Post-Keynesian political economy.

1 Olaf Cramme, Patrick Diamond, Roger Liddle and Michael McTernan, The Amsterdam Process – A Centre-Left Project for New Times. Confronting the challenges of electability and governance, Policy Network, 2012, p. 15-19.
2 Michael J. Sandel, ‘The Procedural Republic and the Unencumbered Self’, Political Theory Vol. 12, No. 1 (Feb. 1984), pp. 81-96, quote at p. 94.
3 A Centre-Left Project for New Times pp. 11-14.
4 Otto Gierke, quoted in Antony Black, Guild & State. European Political Thought from the Twelfth Century to the Present, rev. ed. with a new intro. (London: Transaction Publishers, 2003), p. 12.

Published at: http://www.policy-network.net/pno_detail.aspx?ID=4197&;title=A+post-Keynesian+political+economy+for+the+left