The IMF now calls for state intervention to stimulate the ailing global economy. And many on the left also propose Keynesian-style policies. So, does this mean the IMF would welcome a Corbyn-led government in Britain? If not, why not? In this article considers the economics and politics at play.
From the 1980s onwards neoliberal economics have reigned supreme. Now, eight years after the world economic crisis began, its obituary is being written, at least by some capitalist commentators. That conclusion has been drawn as a result of calls by the International Monetary Fund (IMF), evangel for neoliberalism for decades, for "forceful action" to get out of the "low-growth rut" which it says is feeding popular discontent.
First on its list of possible actions is to increase state investment through public works. With the caveat, "where there is fiscal space", the IMF argues that "record-low interest rates make for an excellent time to boost public investment and upgrade infrastructure". This is a call for Keynesian measures - broadly defined as government intervention into the economy in order to stimulate demand with the aim of ameliorating or even preventing capitalist crisis.
Based on this shift some on the left have drawn the conclusion that the political space for a left-wing government to introduce Keynesian policies has increased dramatically compared to the previous period.Jeremy Corbyn, they assert, would if elected be far freer than left Labour prime ministers of the past to implement his policies. Paul Mason, for example, argued that "we are at the other end of the neoliberal era, and as an economic model it is broken". Further, that "today is the right time for the idea that neoliberalism is over; that the state should shape, control and sometimes suppress the market; that austerity is self-defeating; that more expeditionary warfare cannot put right the chaos and injustice Bush and Blair injected into the Middle East". ('The Parallels Between Jeremy Corbyn And Michael Foot Are Almost All False', The Guardian, 15 August)
As far as the potential popular support for a Jeremy Corbyn-led Labour government is concerned, Mason is 100% correct. However, he means more than this. He suggests that there would also be less opposition to such a government by the capitalist state: "... the rule of law is stronger now. Everybody involved in the Bennite movement sensed that Britain's legal institutions were so weak, its police, security services and judiciary were so politicised, its constitutions so malleable, that the scenario in Chris Mullin's novel, A Very British Coup, was not paranoia. Today, though the secret state is large, it is under much stronger legislative control. Should a left-wing Labour government come to power - either on its own or in coalition with left nationalists - it is likely to be able to govern relatively free of politicised sabotage from the state".
Yet this rosy view of the future is not backed up by the empirical evidence of recent months. The invective that has rained down on Jeremy Corbyn from the capitalist media (not least the state-owned BBC), the Tory party and the pro-capitalist wing of the Labour Party do not indicate the slightest acceptance of the possibility of a Corbyn-led Labour government. On the contrary, it is clear that, as Tony Blair put it, they consider it would be "too dangerous an experiment" and are determined to try and prevent it.
Nor does the attitude taken by the capitalist courts indicate neutrality. In a desperate attempt to undermine Corbyn's vote, three Court of Appeal judges unanimously overturned a legal decision to allow 130,000 people who had joined the Labour Party since 12 January 2016 to vote in the Labour leadership contest. One indication of the absence of real 'neutrality' by the courts was that one of the three, Lord Justice Sales, was recruited as a junior counsel of the crown by Blair himself back in 1997 and was the highest earning lawyer of the New Labour government. He went on to provide legal justification for Blair's opposition to an inquiry into the Iraq war!
Shadow chancellor John McDonnell summed up what lies behind the hostility towards him and Jeremy: "To be clear, this is nothing to do with Jeremy Corbyn as an individual, this is about you. This is the establishment saying to you, how dare you elect a socialist as a leader of the Labour Party. This is the 1% telling the 99% to get back in line, get back in your box... They want to get back to a politics that is simply a rotation of the political elites, cut off from the real world but dominated largely by the City of London and big finance and capital". (The Guardian, 13 September)
In fear of a mass movement
So why is it that, on the one hand, the IMF is calling forKeynesian measures and, on the other, Jeremy Corbyn is being lambasted for proposing them? His policies - including a £10 an hour minimum wage, mass council house building and free education - have enthused hundreds of thousands of people. In reality, however, they consist of quite a limited Keynesian programme, which we support but argue should go further. The policies of Labour under Michael Foot went considerably beyond Jeremy Corbyn's today. The 1983 general election manifesto, for example, called for the "return to public ownership [of] the public assets and rights hived off by the Tories, with compensation of no more than that received when the assets were denationalised". Yet the 1983 manifesto was more limited than the Alternative Economic Strategy which the left of the Labour Party, including Jeremy Corbyn, supported at the time. Its programme included the public ownership of financial institutions.
Jeremy Corbyn's demands today include the renationalisation of the NHS and of the railways (gradually, as the existing franchises expire), but not any of the many other industries and services that have been privatised since the early 1980s. He does not call for the nationalisation of the banks. Meanwhile, his policy for a publicly-owned national investment bank which invests £500 billion in high-speed broadband, energy, transport and homes is exactly the kind of 'forceful action' that theIMF claims to want.
The point is that, when the IMF calls for action to prevent the growth of 'popular discontent', it means in order to prevent a movement which could threaten the capitalist system. The IMF understands, at least dimly, that the enormous growth of inequality, combined with the impoverishment of the majority, is preparing a revolt against the system it defends. The capitalist class fear that the movement in support of Corbyn could become just that. They are correct. It is an expression of the enormous accumulated anger felt by millions at their experience of capitalism over the last eight years. Wages in Britain have fallen by more than 10% - of the advanced capitalist countries, only Greece has seen a bigger fall - while public services and benefits have been butchered. A million people are now dependent on food banks.
The capitalist class are correct to fear that the upsurge that has thrust Jeremy Corbyn into the leadership of the Labour Party could be just the beginning. The surge in support for a Corbyn-led Labour government, particularly if it came to power against the background of renewed economic crisis, could push it to go far further than Jeremy's current modest programme, compelling it to take socialist measures that could threaten capitalist rule. It is not illogical, therefore, that the capitalist class are virulently opposed to even the most modest policies put forward by Jeremy Corbyn.
Pressure on left-wing governments
Just as they are fighting tooth and nail to prevent him becoming the next prime minister, they would do all they could to sabotage his government if it came to power. It would be naive to imagine that the enormous pressure to capitulate and accept austerity which was exerted on the Syriza government in Greece, not least by the IMF, would not be repeated against a left-led government in Britain. It is true that being one of the weakest economies in the eurozone was a major lever which was used by international capitalism to bully Alexis Tsipras and co, but that does not mean that international capitalism would shrug its shoulders if Britain, the fifth largest economy in the world, elected a left-wing government.
This does not at all mean that socialist policies could not be implemented. With a determined movement of the working class and a clear-sighted leadership, the capitalist class would be unable to prevent a socialist government implementing its policies. In Greece too, the outcome could have been entirely different had the leadership of Syriza not capitulated but shown the same determination as the Greek working class and poor.
The pressure would be comparable to the experience of the Parti Socialiste government, led by president François Mitterrand, in France in 1981. Swept to power on a wave of enthusiasm, Mitterrand's election led to celebrations on the streets. The government's programme included a 10% increase in the minimum wage, the introduction of a 39-hour week, increased pensions and the nationalisation of a number of major corporations and banks. Initially, a number of these reforms were implemented, but the government came under wholesale attack from French and international capitalism and from the markets. After only a hundred days in office the government went into reverse.
The Financial Times reported: "The French government has embarked on a campaign to soothe employers' fears over a socialist administration and to try and boost investment. There was no question, [Mitterrand] said, of interfering with the decision-making power of the heads of companies or imposing on them a veto over dismissals". (8 September 1981) This was the beginning of a headlong retreat. After months of capital flight, the government twice devalued the currency. In June 1982, a freeze on wages was introduced and public spending was cut by 20 million francs as a part of a general turn to what today would be called austerity.
In Britain from 1974-76, when Harold Wilson's Labour government, far more modestly than Mitterrand, attempted merely to increase taxation on the major corporations, the capitalist class conducted a huge campaign against it, including threatening a strike of capital. The result was the proposal being watered down so far it was effectively annulled.
The neoliberal era
Paul Mason argues that these experiences are less relevant today because they came at the beginning of a global turn to neoliberalism, whereas today that era is in its death throes. This is a misreading of the situation. It is true that Mitterrand's government came precisely at the time when, globally, capitalism was turning towards what is now called neoliberalism. Worldwide, the capitalist class set out to reclaim concessions made to the working class in the period of the post-war economic upswing (1950-73).
The Keynesian policies of the post-war period were jettisoned and replaced with the new mantra of neoliberalism which sought to restore profits by driving down wages and privatising and cutting public services. This assault on the working class was combined with technological changes which facilitated massive globalisation and a dramatic increase in the dominance of finance capitalism and, in the same period, a significant victory for capitalism in the stagnation and then collapse of Stalinism.
Decades of neoliberalism later, the pendulum has swung a long way towards the capitalist class. There are numerous policies benefiting the majority in society which the capitalists then reluctantly accepted but now consider unacceptably radical. Jeremy Corbyn for example, has continued to make the very popular call for free university education despite trenchant opposition from Labour's right wing. Yet this demand, which is considered 'extreme' today, was accepted by everyone up until New Labour first introduced tuition fees in 1998. At the time, the previous Tory prime minister, John Major, warned Tony Blair he was in danger of going too far by introducing the fees.
Over the last 30 years, the share of wealth taken by the working class has decreased dramatically. For example, in Britain the share of net (after-tax) income received by the top 1% of taxpayers rose from around 4% in 1978 to 10% by 2000. In stark contrast, the share of national income of the bottom three-fifths of the population fell from 40% to 33% between 1977 and 2008 (Stewart Lansley, The Cost of Inequality). Since then the process has gone even further. Globally, Oxfam has reported that the wealthiest 62 individuals on the planet own as much as the poorest 50% of the world's population. This has been achieved through a sustained assault on the working class and poor. Work has been casualised. The privatisation of public services has taken place on a massive scale. The mantra of austerity dominates.
The change from Keynesian policies to neoliberalism was not as a result of some abstract 'policy switch'; capitalism doesn't work that way. It is a blind system driven empirically by the maximisation of profit. It was the post-war economic upswing reaching its limits and the resulting squeeze on profits which led to capitalism abandoning Keynesianism. Nor was it the case, as many Keynesian economists imagine, that Keynesian policies created the post-war upswing. Rather it was a combination of factors.
The increased strength of the working class at the end of the second world war, combined with the strength at that stage of the planned economies (albeit grossly distorted) of the USSR and eastern Europe, compelled the capitalist class to make concessions to the working class. The systemic threat to capitalism represented by Stalinism also forced the major capitalist powers to smooth over the contradictions between them, with the US overseeing and partly financing the re-emergence of Japan and West Germany as world economic powers.
In addition, for a temporary period, high and sustained demand combined with new methods of mass production (many of which had existed for decades but could only be implemented successfully following the destruction of old industry during the war) stimulated a prolonged investment boom and high profits, despite increased taxation. That brief 'golden period' for capitalism was exceptional. Since it ended the capitalist class have successfully restored their profits by attacking the working class.
They did not, however, restore the wellbeing of their system. On the contrary, the contradictions were exacerbated, ultimately leading to the devastating economic crisis which began in 2008 and from which capitalism has not recovered. Prolonged stagnation is now the best the capitalists can hope for. They preside over an increasingly ailing system. The period from the end of the post-war upswing to the 2008 crisis was marked by generally lower growth and a contraction of manufacturing in the advanced capitalist countries. Productivity growth (output per worker), which is a vital indicator of capitalism's health, remained low since the mid-70s.
Keynesianism for the rich
Profits were restored by increasing the share of the capitalist class at the expense of the working-class majority. This, however, aggravated the already existing problem of a lack of demand, as the cut in workers' living standards left them less able to 'buy back' the goods they had collectively produced. For a period, this seemed to be overcome by a tidal wave of cheap credit, allowing workers to spend far beyond their means. This huge bubble in the economy was linked to the enormous growth in financial speculation by the capitalist class, which they increasingly turned to as the most profitable outlet available to them. The result was a series of bubbles which, as we warned repeatedly, would burst at a certain point leading to a devastating world economic crisis.
Unlike the aftermath of the 1929 crash, after 2008 the capitalist powers initially took coordinated action in order to try and ameliorate the effects of the crisis. Governments stepped in to nationalise banks to prevent their collapse. Ultra-low interest rates have been combined with pumping huge sums of cash into the economy. Between 2008 and 2015, the US Federal Reserve bought bonds worth $3.7 trillion. In Britain, the government pumped £375 billion into the economy between 2009 and 2015 via quantitative easing, and this August pledged to buy another £60 billion worth of government bonds.
If the £375 billion had been handed out to the population it would have meant £24,000 for every family in Britain. Instead, it went largely to the 1%, or more accurately the 0.1%. This 'Keynesianism for the rich' was combined, from 2010 onwards, with a new and savage round of neoliberalism for the rest of us. While stock markets rebounded and profits soared, the 0.1% has used the economic crisis to justify further increasing its share of the wealth at the expense of the majority. Austerity has exacerbated the underlying crisis of capitalism but has increased the profits of the capitalist class, at least in the short term.
Pump priming dilemma
Now, facing shrinking global growth prospects and fearing a new stage of severe crisis, the measures available to the major capitalist powers to fight the previous stage of the crisis have largely been used up. Hence the IMF is hunting around for new options, and even encouraging more traditional Keynesian measures. Capitalist governments, however, are proving reluctant to act on the IMF's advice. Many Keynesians look back approvingly at the 'New Deal' in the US in the 1930s as being, at least, the starting point for what is needed today. At the time, the US was the only capitalist country with enough fat to be able to afford such measures. Although the US is still the most powerful capitalist country, it is much weaker and cannot easily afford to implement a serious Keynesian programme.
Any attempt to make the 1% pay for such measures through increased taxation would be resisted vehemently by the capitalist class. Yet the 'nationalisation of the debt', which the US and governments worldwide carried out to prevent the collapse of the financial system, has left them heavily indebted. Any new stimulus, on a scale sufficient to have a real effect on the economy, would add considerably to those debts, most of which would never be repaid. There would be a real risk that the markets would immediately punish any country that attempted to seriously 'prime the pump', possibly even triggering a new world financial crisis.
In addition, no national government (including the US) wants to be the first to implement meaningful Keynesian policies, fearing spending money on stimulating demand only to have other capitalist powers reap the benefits by selling goods to their population. The fact that such reluctance exists to prime even domestic pumps shows how utopian was the demand of the Syriza government in Greece for a new Marshall Aid plan. Tsipras called for a debt relief conference "similar to the one that took place in London in 1953 which relieved Germany of around 60% of its debt". (The Guardian, 10 December 2013) The US today is far feebler than then - yet the sums involved in bailing out Greece are tiny compared to the Marshall plan. From 1948-52, it amounted to 5% of the USA's 1948 GDP. Greece's entire economy only accounts for around 0.3% of world GDP!
The refusal to write off Greek debt by the troika - the IMF, European Central Bank and European Commission - was because of a fear of sending a message to workers across Europe that austerity could be resisted. However, it also reflected a world situation where there is no longer one capitalist superpower which dominates the globe and takes a certain responsibility for it. The collapse of Stalinism removed the glue of a common threat to all capitalist countries and has unleashed growing inter-imperialist rivalries.
Nor would Keynesian measures be sufficient to solve the capitalist crisis. Keynesians believe that the key to solving the crisis is to stimulate demand which will then kick-start the system and encourage the capitalists to increase investment. There is no doubt that by shrinking demand through vicious austerity, the Tories (for example) have worsened the economic crisis. By contrast, if they had increased workers' incomes by implementing Keynesian measures that would have eased the situation. However, it would not necessarily have led to significantly increased investment by the capitalist class. Not lease because even in the period before 2008 when demand was inflated by cheap consumer credit, investment remained low because the capitalist class did not see it as sufficiently profitable.
Does this rule out more serious Keynesian measures being carried out by the capitalist class in the future? Absolutely not. When faced with mass movements of the working class that put the existence of their system under threat, the capitalist class can be forced to accept more far-reaching policies. John Maynard Keynes himself recognised that his theories were designed to avoid revolution. Nonetheless, it is a serious mistake to imagine that the capitalist class in Britain and worldwide would not do all they could to prevent a Jeremy Corbyn-led government carrying out its programme. To successfully implement it would therefore require extra-parliamentary action, that is, the mobilisation of the working class in support of the government's policies.
To effectively defend the government against the inevitable sabotage of the capitalists it would be necessary to go further. The banks and finance houses would have to be nationalised - not bailed out and propped up by taxpayers for the benefit of the financiers - and run under democratic workers' control and management. This would ensure the credit required to develop all sectors of the economy. There would also have to be capital controls to prevent any flight of capital. Such measures would undoubtedly meet the entrenched resistance of the capitalist class. State intervention in favour of the working class would unavoidably raise the need for nationalisation of the major corporations, to form the basis of a democratic plan of production run by elected representatives of the workers and the wider community.
Any government carrying out such a policy would need to mobilise the working class in support of its policies and to have an international perspective, collaborating with the workers' movement in other countries to develop socialist planning at an international level. However, in a globalised world, the enormous similarities between the struggles facing the working class in different countries mean that such a government would have a very immediate and widespread resonance. If, for example, a Jeremy Corbyn-led government was to conduct Brexit negotiations on the basis of socialist policies it would electrify Europe. A socialist government in any country of Europe that acted to break with capitalism would immediately receive enormous support from workers across the continent, above all in those hardest hit by austerity.