All Keynesians now? (2011)

Book Review from the November 2011 issue of the Socialist Standard

The Political Economy of Development. Edited by Bayliss, Fine and Van Waeyenberge (Pluto Press) 2011

The subject of this book is the World Bank. Along with the International Monetary Fund, it was created by a UN conference at Bretton Woods USA in 1944. The original purpose of the Bank was to encourage post-war investment for reconstruction and development by making loans to governments. The Bank, based in Washington, went on to develop financial aid packages for the less developed countries around the world. Critics complained that this aid was conditional on accepting the ‘Washington Consensus’ on the need for implementing neo-liberal ideology – deregulation of markets, privatisation and a reduced role for the state. Since 1998 this has been replaced by the ‘Post-Washington Consensus’ in which the Bank promotes the market through state intervention. As the authors explain, ‘neo-liberalism has never been short of state intervention’. What is new, they argue, is the state-sponsored expansion of private financial institutions and services over the last three decades.

This book challenges the neo-liberal assumptions which still guide the Bank, and they provide detailed evidence of its failures. But what is the alternative? The authors pose the rhetorical question ‘Are we all Keynesians once more?’ with the clear implication that it is the only alternative. However, this conclusion lacks historical perspective. Keynesian economics (after the economist JM Keynes) is basically the belief that governments should intervene in the economy to spend their way out of trouble, and its failure to solve the problems of capitalism led to its replacement by faith in the market in the 1980s. (In practice, governments – even those who have formally repudiated Keynesianism – have intervened to prop-up their markets when necessary; especially in the current recession.) Neo-liberal faith in the market was bound to end in disillusion, but that does not vindicate an equally misplaced faith in Keynesian economics. Keynesianism and neo-liberalism are merely two policies for running capitalism.

Lew Higgins