The Rise of the Keynesian State - I Nationally

“Keynesian” State The term “Keynesian” derives from the name of the economist John Maynard Keynes The term “Keynesian” derives from the name of the economist John Maynard Keynes Keynes developed an economic theory of the planning state for active government intervention Keynes developed an economic theory of the planning state for active government intervention Even when policy makers were not consciously Keynesian, his theory dominated policy for 30 years Even when policy makers were not consciously Keynesian, his theory dominated policy for 30 years As Keynesian policies failed in the late 1960s both the Keynesian state & his theories entered crisis As Keynesian policies failed in the late 1960s both the Keynesian state & his theories entered crisis

Keynesian “State” “State” usually understood as “nation” state “State” usually understood as “nation” state  i.e., national government But “state” can be understood more broadly But “state” can be understood more broadly  governments, plus  set of all institutions organizing a particular social order Keynesian “state” exists at several levels: Keynesian “state” exists at several levels:  sub-national (regional, muncipal)  national  supra-national

Elements of Analysis in this Section Historical Sketch of Emergence & Development Historical Sketch of Emergence & Development Social & political character of Rise Social & political character of Rise See how “economic” is rooted in social & political See how “economic” is rooted in social & political See how “economic” is social & political See how “economic” is social & political

Prelude & Source: Great Depression Great Depression = crisis of earlier order Great Depression = crisis of earlier order Earlier order involved: Earlier order involved:  Business cycle as growth regulator  Taylorism, Fordism to control labor  Repression of trade unions  More limited government regulation of economy  More laissez-faire  Quasi-gold standard (at int’l level)

Business Cycle as Regulator when wage  exceeded  of productivity, when wage  exceeded  of productivity, profits dropped (often generated financial crisis) profits dropped (often generated financial crisis) business cut back on I   total output business cut back on I   total output downturn  increased unemployment downturn  increased unemployment  downward pressure on wages  downward pressure on wages  restoration of profits, investment & growth  restoration of profits, investment & growth

Crisis of Business Cycle In Great Depression downturn didn’t produce an upturn In Great Depression downturn didn’t produce an upturn Downturn produced Stock Market Crash of ‘29 Downturn produced Stock Market Crash of ‘29 Economic activity & prices fell, stayed down Economic activity & prices fell, stayed down Unemployment rose dramatically, stayed high Unemployment rose dramatically, stayed high Wages fell, but increased profits din’t raise I Wages fell, but increased profits din’t raise I Investment fells, stayed down Investment fells, stayed down

Behind Persistence of Depression Depth of unemployment despair Depth of unemployment despair Generated a collective refusal of suffering due to impersonal forces Generated a collective refusal of suffering due to impersonal forces Rise of new form of labor organization Rise of new form of labor organization  waged labor forms industrial unions, CIO  unwaged, unemployed demand support  unemployment compensation to finance adjustment  social security in face of financial collapse New demands for full employment, rising wages New demands for full employment, rising wages

Capitalist Adaptation - I At the level of theory: Keynes At the level of theory: Keynes  From classical view of wages as cost  To understanding that both wages & profits can    wages =  costs but also  demand   pressure for I to raise productivity and reduce costs Economic theory extended to social sphere Economic theory extended to social sphere  e.g., human capital theory, growth theory  provided logic for investment in education, R&D, welfare, etc.

Capitalist Adaptation - II At the level of policy: New Social Compact At the level of policy: New Social Compact  Progressive response (unlike Nazis, Stalinists)  Accepted unions, imposed bargaining,  wages  Subsidized I to  productivity (WWII+)  Strict financial regulation (to avoid crises)  Socialization of adjustment costs in UI & Social Security

Capitalist Adaptation - III Post-war gifts of productive assets to private industry Post-war gifts of productive assets to private industry Full Employment Act of 1946 Full Employment Act of 1946 Fordist production, fordist education Fordist production, fordist education Restoration of patriarchal nuclear family Restoration of patriarchal nuclear family Racial hierarchy on job and off (ghetoization) Racial hierarchy on job and off (ghetoization) Cold War, Point IV Cold War, Point IV

Capitalist Adaptation - IV Post-1950s investment in education & central cities Post-1950s investment in education & central cities Post Sputnik Space Race Post Sputnik Space Race Civil Rights Act Civil Rights Act Peace Corps & Vista Peace Corps & Vista Green Berets Green Berets Cuban Missle Crisis Cuban Missle Crisis Bay of Pigs Bay of Pigs

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The Rise of the Keynesian State - II Internationally

Preoccupations of US Policy Makers, During & After WWII Planning for reconstruction of world order began during WWII, Planning for reconstruction of world order began during WWII, Before resolution of war was clear Before resolution of war was clear Basis was Keynesianism rather than Nazism or Stalinism (assuming the Allies won) Basis was Keynesianism rather than Nazism or Stalinism (assuming the Allies won) Primary Aim: Stability for trade & investment Primary Aim: Stability for trade & investment

Stability Stability desired vis à vis instability of Great Depression Stability desired vis à vis instability of Great Depression  Depression, int’l circulation of depression  breakdown in gold standard & int’l trade  Controls on capital flows  Defaults on int’l debts Stability desired vis à vis WWII Stability desired vis à vis WWII  Disruption of int’l trade  Disruption of int’l investment

No Going Back Refusal to return to Gold Standard Refusal to return to Gold Standard Refusal of Free Markets in Currencies Refusal of Free Markets in Currencies Refusal of Keyne’s proposal for int’l currency to be regulated by independent global central bank Refusal of Keyne’s proposal for int’l currency to be regulated by independent global central bank

Solutions: Economic & Political Bretton Woods Agreements: fixed exchange rates  national foreign exchange reserves Bretton Woods Agreements: fixed exchange rates  national foreign exchange reserves  International Monetary Fund (pool of reserves)  Keynesian Nation state handles adjustment  Keynesian Nation state handles adjustment GATT toward free trade GATT toward free trade Free mobility of capital (for investment) Free mobility of capital (for investment) United Nations (to avoid war & foster int’l cooperation) United Nations (to avoid war & foster int’l cooperation)

Implementation US occupation and re-engineering of management of Germany & Japan, e.g., land reform & union busting US occupation and re-engineering of management of Germany & Japan, e.g., land reform & union busting Marshall Plan in Europe as a whole Marshall Plan in Europe as a whole Emergence of multinational corporation as major vehicle of int’l investment Emergence of multinational corporation as major vehicle of int’l investment Replacement of colonial empires being torn by independence movements Replacement of colonial empires being torn by independence movements Pax Americana & nation/elite building Pax Americana & nation/elite building

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