I’ve been rethinking some of my earlier writings (this is almost always true), and have changed my views on the political economy of Keynesian fiscal policy.
Old view: Keynes offered the twentieth century’s most influential example of an economic policy that depended on, and also galvanized, a coalition between workers and employers. By recognizing that workers are also consumers and that profits depend on consumption, expansionary fiscal policy à la Keynes identified a common interest in high levels of employment, and therefore wages. While it would not be in the individual interest of any employer to raise the wages of his or her own workers alone, it is at least potentially in the collective interest of the class of employers to enlist worker-voters to support an economy-wide program to bolster worker incomes. This coalition has atrophied for a number of reasons during the past generation or so, and seriously expansionary policy is invoked only in times of economic distress.
New view: Keynesian fiscal policy was central to class coalitions in the liberal, English-speaking world, as above. In the main non-liberal capitalisms coalitions formed over policies to achieve high employment through high levels of investment. This was pursued through public ownership, public-private partnerships, worker and public stakeholder influence in corporate investment policy, and other “microeconomic” mechanisms. As long as these policies worked, additional stimulus via fiscal deficits, at least during non-recessionary times, could legitimately be criticized as inflationary. This helps explain why fiscal expansion has a bad reputation in Germany and Scandivia and a dubious reputation in France. These investment-centered coalitions have proved more durable than consumption-centered ones, although the current crisis, which may yet result in a prolonged period of dampened investment, could put them to the test.
How does Japan fit into this story?
I don't know about Japan, but it is a widely forgotten fact that for a long time both the UK and Sweden usually ran budget surpluses. This meant that expansionary fiscal policy was a matter of reducing the size of the usual surpluses.
ReplyDeleteA story I read was that the Japanese economy got into trouble when the government used an expansionary fiscal policy to bail out the US (ie provide an increased market for the US TNCs and by doing so reduce the US trade deficit).
ReplyDeleteThere is such an extraordinary high level of intra-corporate trade between the US and Japan that such a scenario is conceivable.
Hate to be a party crasher but you are a little late. See:
ReplyDeleteUnions, Employers, and Central Banks
Macroeconomic Coordination and Institutional Change in Social Market Economies.
Although it should be kept in mind that Sweden did use devaluation until the 80s as a back-door form of accommodation. And in Germany well the fear of inflation I suspect rests mostly on Weimar.
Looks like a great book, but more on the intersection of monetary policy and wage bargaining than industrial and fiscal policy.
ReplyDeleteI agree that there are many country-specific factors that should be taken into consideration, but I think overall that one can distinguish between investment- and consumption-led macropolicy.
Investment-led growth was also export-led by its very nature. It worked because of buyers-of-last-resort in the international system. These policies are and continue to be popular because they result in high profits for exporters and lots of industrial employment. They also, as a secondary effect, lead to a poor trajectory of global demand as profits and wages become repressed system-wide through the intensification of system-wide competition.
ReplyDeleteThus, the creation of a buyer-of-last-resort in the Bretton Woods and post-BW orders was the primary antisocial act that undermined the Keynsian consensus. Restoration can only be accomplished by a removal of this function from the system.
Yes, US, I'm talking about you.
Peter, I would agree. Everything from the high rates of unionization and the robust training regimes points in the direction of very capital intensive export sector that is highly competitive and where below average producers are forced out. But that is (was) the key with the political economy of both the Swedish and German macro models they are (were) predicated on a very dynamic export sector. It should be little surprise then that globalization began to undermine the particular post war class compromises in the two countries.
ReplyDeleteThe other thing is that I do not know what you mean by non-liberal capitalisms. They certainly were not socialist as in workers as the owners of their means of production, nor state capitalist.
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