From “Keynesian” neoliberalism



Current moves to restructure the relationship between market and state

Is this an oxymoron? Well, it is suggested here that this term formed of opposites, although unprecedented, better characterizes the phase of capitalism after the 2007-08 crisis.[I] But this disparate combination, an unexpected integration, does not go smoothly. Perhaps this new moment of neoliberalism should be characterized, as will become clear later on, as “pseudo-Keynesian” – and not simply as Keynesian, even in quotes. To begin to clarify this question posed here, it is necessary to start by presenting a quick historical record.

As is known, post-World War II capitalism itself went through two well-known phases: the first, which lasted from 1945 to the end of the 1970s or shortly after, can properly be called Keynesian; the second, which clearly began in 1982 and prospered until the great crisis at the beginning of the XNUMXst century, is usually called neoliberal. Both, each in its own historical moment, aimed to guarantee the survival and even the greatest possible prosperity of capitalism. As these two successive forms of governance eventually petered out, another, not entirely new, had to emerge. To show how these two forms are now coming together, a sequence of distinctions must be presented.

According to the precise formulation of Dardot and Laval,[ii] neoliberalism consists of a rationality based on the very norms that govern the competition of capital. This normative reason asserts that human action should be conducted by maximizing results in all spheres of life; for that, human beings must behave like mercantile companies, they must see themselves as human capital. Here, it aims to broadly conform – if not completely – the behavior of social actors in general, rulers and ruled, capitalists and workers, whether the latter are salaried or self-employed.

Its introduction was due to the pressing need of capitalism at the end of the decade in the 1970s to create conditions for an increase in the rate of profit. Posted politically, institutionalized by administrative means, it ended up imposing itself through diffusion into social life in general. Although it appears as a gain in freedom and self-determination, it is, after all, a way of subsuming not only work, but workers themselves as intelligent living beings, to capital. However, instead of being posed through explicit domination, it imposed itself because it was capable of giving a destination to the desiring drives, thus shaping the way of being of social subjects.

In this general sense, this intrusive political form has not yet been overcome. According to the two cited authors, “neoliberalism is the very reason of contemporary capitalism”. However, the survival of capitalism cannot be based only on the propagation of a rationality, of a new spirit of the world. This also requires an ideology that encourages certain practices and a social and economic policy that obeys the guidelines of that ideology.

This is how, in the first phase of neoliberalism, there was a rehabilitation of the belief in the efficiency and effectiveness of markets – no longer, however, as attributes of a natural order, but as predicates of a moral order. Behold, in this way it was justified to take this normativity as the one that should characterize the human in the individual struggle for survival. For it to become effective it was necessary to reform private and state institutions according to market models. It was necessary to deregulate economic activities; it was necessary to make the workforce cheaper, it was necessary to privatize state companies.

Neoliberalism, as is known, came to replace Keynesianism as normativity that configures society. The latter guided for over thirty years, almost uncontested, social and economic policy in the center of capitalism, with important impacts on the periphery. It reigned from the end of World War II until a sharp drop in the rate of profit in the 1970s overthrew it.

Keynesianism, unlike the long tradition it replaced, never relied on the self-regulation of markets; if left to themselves, they operate – they say – almost always below the advertised maximum possible efficiency and effectiveness. It contemplates, therefore, a certain action by the State to support economic activity. This regulatory intervention, however, does not aim to replace, but to replace liberalism and, thus, better preserve capitalism. In general, this current defended the need for the system to be constantly regulated through economic policy with the main objective of guaranteeing full employment and keeping inflation under control. But it also welcomed indicative planning and, thus, industrial policies. State-owned companies were accepted and even recommended when they came to fill “gaps” in the mesh of intersectoral relations.

Keynes, as we know, in the face of the turbulences observed in the past, theoretically assumed that the economic system was inherently unstable, that it constantly generates uncertainty, that it fluctuates periodically because investment retracts, causing, as a result, crises to follow one another . Furthermore, he was aware of the possibility that he could lose legitimacy at such times, and could then be shaken by waves of dissatisfaction, revolts and even revolutions. His theory was not only concerned with the poor functioning of the economic system, but also with the lack of consensus and even with the fraying and ruptures in the social fabric. He preached, therefore, that the State should take care not only of the level of effective demand, but also to strive to improve the distribution of income, seeking to a certain extent “social justice”.[iii]

Now, it was precisely this last character of Keynesian economic policy that most contradicted the right-wing liberals who had gathered since 1947 in the Mont Pelerin Society. Keynesianism together with social democracy co-opted workers, especially union members, through the welfare state, however, according to these believers in the “spontaneous order” of markets, this undermined the foundations of mercantile freedom and, thus, opened the way to socialism. This was defined very broadly by Hayek, the leader of neoliberal intellectuals, as the claim to achieve social justice through the State.

While Keynes accepted sacrificing part of the “free market” in order to obtain relative social peace, the supporters of the first economist did not accept any restriction on the privileges of capitalists. While the latter fly the banner of negative freedom, the Keynesians raise the banner of prosperity for all – even if not full equality. Behold, the latter would be incompatible with the “monetary economy of production”.

Neoliberalism is not liberal in the political sense of the word, but rather illiberal. He not only despises egalitarianism, solidarity beyond the family, as well as a social protection system that covers workers in general, but he also distrusts the popular vote. The great problem of contemporary society for them is to limit democracy so that it cannot shake the systemic and individualist foundations of the “market economy”. [iv] They suspect that the popular masses can, with their votes, bargain rights and benefits with agents and political parties to the detriment of both the public budget and the moral order that sustains capitalism.

The financial crisis of 2007-08 first and then the crisis of 2020-21, produced by the new coronavirus pandemic, came to show that neoliberal policies were insufficient, or even inadequate, to support capitalism. Austerity, for example, could not be maintained when GDP could plummet another 10 percent in a year. Therefore, typically Keynesian policies began to be accepted as a way of guaranteeing the level of economic activity, namely, fiscal expansion to create effective demand and accommodative monetary policies. Now, this seems to imply that a transformation is underway in the relationship between the market and the State in the central countries of the capitalist West.

Governments in Europe and the United States even started to challenge the logic of the “free market”, putting in practice industrial policies directed towards certain objectives. Just as authentic Keynesianism had failed in the 1970s to streamline the economic system, its historic successor proved incapable of avoiding the supervening collapses both in industrial production in a broad sense and in the financial pyramids that have not stopped growing since the 1980s. Furthermore, with the stagnation of globalization and the explicitness of imperialist rivalries, certain imperatives of competition on an international scale emerged, as well as the demand for clean energy, digital technologies, etc., which began to demand State intervention.

Such Keynesian policies were resumed, but without any concern for social justice and public protection for workers. Behold, the class conciliation policy is no longer possible now as it was in the post-World War II period. If in that historical period the average rate of profit in value-generating sectors was at a very high level, now it is downgraded to a minimum incapable of robustly stimulating investment. If then there was a wide horizon of opportunities to maintain accumulation at high levels, the situation now is one of overaccumulation of industrial and financial capital.

The economic policy of the original neoliberalism, therefore, started to be contradicted, but only with the intention of using the power of the State in the eventual recovery of the profitability of the capital. It is, therefore, the adoption of certain economic policies recommended by the tradition created by John M. Keynes, but under the aegis of neoliberal normativity. This has been present for the last four decades and will continue to be for the foreseeable future. That is why this “new” Keynesianism is better explained as a pseudo-Keynesianism.

In the face of the climate threat, in the face of technological competition between the United States, China and Europe, given the excessive accumulation of financial capital (behold, the total assets now add up to five times the world GDP), in the face of relative de-globalization, the national States from the center of the system are creating economic development plans, which risk being mere mirages in the not too distant future. Among them, there is, for example, the Green New Deal, a strategy to fight global warming that, at the same time, supposedly creates good jobs for a significant part of the populations of these countries.

According to Mavroudeas,[v] one cannot believe the propaganda and marketing of the current rulers of capitalism, who are afflicted with difficulties that are difficult to face. Here, capitalism seems to have created barriers to its own development that it does not seem to be able to overcome, such as the “metabolic rupture” and financialization. According to him, “the Green New Deal it is part and parcel of the capitalist restructuring being carried out by neoconservative, social-liberal forces. (…) O Green New Deal consists of a crypto-protectionist strategy aimed at the cutting-edge industry that aims to support Western capital in the face of the challenge of China and emerging markets”. The plans, given the present situation of capitalism, do not foresee the resumption of the welfare state or even a wave of increases in real wages, even if part of the left dreams of it.

As a result, to finish, it is interesting to record here a pertinent question by Hugo Fanton, a professor at USP, and the answer given to him by Wolfgang Streek in a recent interview.[vi] It points, questions the first, “to the possibility of changing the orientation of macroeconomic policy, a new logic to govern the center of capitalism, announcing the end of neoliberalism in a progressive perspective. What would be your assessment of measures to stimulate economic recovery, whether in the US or the European Union? Can we enter a new phase that gives survival to 'democratic capitalism'?

The answer given by Streeck to this question is clearly opposed to the optimism of part of the left in Brazil and in the western world. Here's what he said: “(…) depends on what you mean by 'a new logic of capitalism' and what you call the 'survival of democratic capitalism'. Capitalism has been permanently evolving (…). What has not changed is its fundamental nature: a political economy driven by an intrinsic compulsion for the endless accumulation of private capital capable of generating more private capital. There is no reason to believe that fiscal economic stimulus, regardless of its size, would represent a break with this logic”.

Well, that being so, it would still be necessary to better study how this compulsion is taking shape now, either through a redirection of the accumulation process or in terms of institutions and forms of governance, in this new period of the sunset of capitalism. As mentioned, in particular, a restructuring of the relationship between the market and the State seems to be in the process of being constituted.

* Eleutério FS Prado is a full and senior professor at the Department of Economics at USP. Author, among other books, of Complexity and praxis (Pleiad).


[I] Cédric Durand's article, “Joe Biden's economy – reversal from 1979”, published on the website the earth is round, presents an alternative view of what has been happening in capitalism after the 2008 crisis and, mainly, after the effects of the coronavirus pandemic, which started in 2020.

[ii] See Dardot, Pierre and Laval, Christian – The new reason of the world – Essay on neoliberal society. Sao Paulo: Boitempo, 2016.

[iii] See about this Prado, Eleutério FS – What is Keynesianism? In: the earth is round, 11/07/2021.

[iv] See Slobodian, Quinn – The new right (neoliberals and ultra-right: the single trunk)

[v] See Mavroudeas, Stavros – On the pandemic and it is consequences on the economy and work. In: Stavros Mavroudeas blog. Original in Italian: Bolletino Culturale, 24 July 2021.

[vi] Fanton, Hugh. Old capitalism, new crises. Folha de S. Paul, July 25, 2021.

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