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December 7, 2018

Keynes and the welfare state

Opinion

December 7, 2018

Faced with some tough questions about the variegated political notions of the welfare state propounded by Imran Khan, an economist ventured into discussing Keynesian economics on a TV talk show a few days ago.

The economist tried to substantiate through, what he called, the Keynesian lens the current government’s claims of turning part-feudal and part de-industrialised Pakistan into a welfare state. He asserted that the PTI’s conception of a welfare state is a well-conceived idea, with the intellectual underpinnings of a Keynesian state. According to him, “all good welfare states are influenced by Keynes – the leading economist of the 20th century who provided the social-policy roadmap of the government’s role in the economy”.

Now this was too much to digest and even Keynes himself would be rolling in his grave to see his seminal work on the economy from the 1930s misquoted. What the economist referred to as the Keynesian state model had nothing to do with Keynes in any way and even a beginner in economics would be surprised by this comparison.

For a sensible reader of the modern history of international economics, the actual story of Europe’s successful economic recovery from the Great Depression would be an attribution to the inherent flexibility of capitalism to reshape itself. Nonetheless, the story of economic recovery without John Maynard Keynes would always remain a partial truth. Keynes’ contributions to economic theory are immense. But he is among those fortunate economists to be less understood and his actual work has been put to oblivion at a great peril.

What is interesting about the story of economic recovery is the glorification of Keynes as a supra-historical character, with some divine wisdom to fix all the ills of Europe during the Great Depression. It goes without saying that the restoration of economic order was the primary concern of the Keynesian idea of demand management without dislodging capitalism. Keynes was, of course, a better economist than Friedrich August von Hayek for his ability to apply his theory of demand management in the Great Recession when Europe was in tatters.

From the perspective of the challenges to economic recovery amid unemployment and hyperinflation, Keynes stands above many of the contemporary bigwigs of economics.

Contrary to our perception, Keynes was not an advocate of state interference in the economy, with an altruistic motive of public welfare and social protection. Instead, he was only in favour of state intervention for the recovery of the ailing capitalist economies of Europe. His idea of demand management implied the allocation of public funds to increase consumption to help trigger economic growth. The state had to play the role of a stabiliser to protect the capitalist class in the face of inflation and the dwindling purchasing power of the people.

The economic recovery programme of the 1930s was essentially a political detour from the laissez-faire policies to seek popular support for a benign bailout package to salvage the bourgeoisie class. In the absence of viable economic alternatives and an impending political turmoil, the Keynesian economic model worked well to restore the order of economies in Europe.

When Keynes asserted that “in the long run, we all are dead”, he was referring to the fallacy of the mainstream economists of his time who believed that growth in the long run would usher in prosperity. Growth economics was all about having no state intervention, even during times of economic meltdown.

Beyond his economic theory, Keynes wrote a great deal about the future of humanity and a vast array of prospects of wellbeing and prosperity as a combination of economics and sociopolitical structures. The much-talked-about quality-of-life indicators as a measure of prosperity have actually been drawn from the Keynesian framework of benign capitalism. Quality-of life-indicators provide the lynchpin of our contemporary theory of inclusive development, which is founded on the assumption of making capitalism more humane than its naked face of profit maximisation.

In reality, capitalism is not driven by greed and a self-centeredness to accumulate wealth. It is a mode of production structurally designed to accumulate to survive. Capitalism can never look humane until there is a serious crisis to its existence like the Great Depression of the 1930s.

Keynes was not primarily interested in human welfare when he proposed a framework of benign capitalism. He was rather drawn to protect and promote a capitalist system that was capable of expanding the basket of choices to allow flexibility to overcome the shortfalls of the vertical-growth model adopted by most of the leading capitalist economies.

The fallacy of growth economics to attribute the successful expansion of capitalism to a vertical, market-driven approach was busted in the 1930s. The market fundamentalism of the vertical growth model was indeed one of the key determinants of the crisis in the 1930s when economic returns on investments started to plummet. When profits started to deteriorate, wages were also curtailed and there were huge lay-offs, which resulted in the low consumption of the goods produced.

Capitalism suffered from overproduction. It was, therefore, important to rethink the role of the state to manage demand and restore profit margins as return on investments. In his most important work titled ‘The General Theory of Employment, Interest and Money’ (1935), Keynes argued that if the economy is left to the inflexible devices of the market it can slip into long-term underemployment equilibrium from which it can only be rescued by government policy .

Keynes saw a rather scary future, with unemployment and mass starvation, if the government doesn’t intervene to create demand. It is here when he argued that the theory of prosperity propounded by growth economics will actually lead to famine and leave us dead in the long run.

Keynes had apprehensions that the crisis of capitalism may lead to its destruction through revolutionary upheavals across Europe. Keynes was, of course, only an ardent defender of capitalism and, therefore, the idea of social welfare attributed to Keynes in our contemporary development literature is misleading.

Some enthusiasts of the welfare state also cite the Keynesian model as a framework of social protection without thoroughly understanding it. In Pakistan, we have discovered many strange models of the welfare state under the present political regime, ranging from an archaic village-based welfare system to a post-industrial Scandinavian model. Some enlightened economists in the current government also refer to the Keynesian model as the most appropriate economic policy to turn feudal Pakistan into a welfare state. These are the best economists that the government has as they at least have some sense of Keynesian economics. But imagine the economic acumen of the proponents of an archaic and pre-modern model of the welfare state.

Our metaphysics of the welfare state transcends all conceptual and historical frameworks of economic policy. This makes us a unique nation with handy solutions to our longstanding political and economic mess. Our political jargon of the welfare state is actually a euphemism to masquerade a failing economy that has lost its direction.

In our case, it is not going to take that long to be discredited as a basket-case of economic failure if we don’t learn soon to do some serious policy introspections to set national development priorities and overcome our homegrown problems. It doesn’t take misreading Keynes to be a good apologist. One can easily do that without troubling the mind too much.

The writer is a senior social

development and policy adviser, and a freelance columnist based in

Islamabad.

Email: [email protected]

Twitter: @AmirHussain76

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