By Andy Moxley
In the wake of Trump’s ‘Liberation Day’ tariff announcements, the capitalist press across the globe are proclaiming the end of neoliberal globalisation.
In fact, as ISA has analysed for years, the era in which this was the dominant world process has long since unraveled. This doesn’t mean all neoliberal-type policies have disappeared, particularly in the neocolonial world. However the new epoch of geopolitics and capitalist instability has necessitated an increasing role of the state in economic affairs.
This was first previewed in the massive bailouts of the financial system in 2007-2009, but it took another decade or so to come to fully bloom. Once again, it was in response to another economic crisis (this one caused by the Covid-19 pandemic) that most clearly illustrated this.
Now, with a new shift toward imperialist rearmament and associated austerity, the idea of a more state-driven capitalism has seen its appeal begin to reemerge among sections of both the ruling class and the working class, albeit for different reasons.
This economic doctrine, known broadly as ‘Keynesianism,’ is generally defined by more significant state direction in the economy, using policies like increased levels of state investment, generally higher tax rates, more planned and coherent industrial policy including partial nationalisations and so on, in order to boost growth and demand (consumer spending). Keynesianism was the guiding theory for much of the advanced capitalist world, particularly in the post-World War II boom period to the 1970s.
From a working-class standpoint, the appeal of this idea right now is completely understandable. It’s no surprise that figures like former Citibank finance bro-turned activist YouTuber Gary Stevenson are going viral and the demand to tax the rich is coming to the forefront in demonstrations against the government’s welfare cuts. This is a demand which Socialist Alternative wholeheartedly supports.
After decades of neoliberalism has increased inequality to record levels and caused repeated economic crises, once again we are being told we are the ones that have to suffer again through rising costs and austerity. Yet the super-rich have made themselves richer and richer despite crisis for the rest of us.
A January report from Oxfam found that the top billionaires gained three times as much wealth in 2024 as they did in 2023. The same report projects that the world will have not just one, but five trillionaires over the next decade. Such a gross concentration of wealth has never existed before in human history.
It would seem ironic then that sections of the capitalist class around the world may actually support these and similar ideas. People from billionaire US investor Warren Buffett to groups like Patriotic Millionaires International have been supporting the call for higher tax rates on the wealthy for several years. In the UK, recent governments have pursued nationalisations, from the railways, to discussions around British steel now.
During the pandemic, both the Trump and Biden administrations gave direct government payments of thousands of dollars in ‘stimulus checks’ to US citizens. And in Germany, the massive new rearmament programme comes along with the idea of retooling failing businesses into war production and massive investments in related infrastructure. Their lifting of the ‘debt brake’ and suspension of the ‘basic law’ means there is now no upper limit on defence spending.
Why is this the case? First, it may be useful to delve a bit into the origins of Keynesian economics.
Historical Keynesianism
Keynesianism takes its name from its main theorist, British economist John Maynard Keynes. Coming into notoriety during the Great Depression of the 1930s, Keynes posited that government intervention into the economy through deficit spending could drive growth, prop up demand and maintain economic stability, potentially almost eliminating ‘busts’ from the boom-and-bust cycle.
This was not, however, a policy aimed at improving the conditions of working people – but of maintaining profits for the capitalist ruling class. This was first implemented in the United States in the 1930s as the ‘New Deal’ programme. It then became the basic framework in a more significant way for much of the capitalist world in the post-World War II ‘boom’ to the 1970s. Since this was an unprecedented era of economic, technological and scientific advancement, it can be misunderstood as Keynesian policies having been solely responsible for this situation.
‘New Deal’ Keynesian policies, while giving significant relief to the worst excesses of the Great Depression to millions of workers for a brief period, did not end the Depression itself. By the late-1930s, the economic picture had once again worsened. Nor did the ‘military Keynesianism’ associated with WWII, which saw shifts towards a total war economy by the major powers, in itself enable the post-war boom. It was the mass destruction and rebuilding of capital, expansion of markets under the new dominant power of US imperialism and a combination of political factors that laid the basis for the exceptional period of the post-war upswing.
This combination of factors, alongside the emergence from the war of a prestige-strengthened Soviet Union meant the capitalists were willing to make a number of concessions to the working class from higher wages, more and better housing to the creation of the National Health Service and the welfare state. Indeed, the threat of an entirely different social system – though grotesquely distorted by Stalinism – based on a planned economy and collective ownership of the means of production was a massive threat to the capitalist world order of private ownership and exploitation.
However, by the 1970s, Keynesianism began to outlive its usefulness to the ruling class. Their profits were threatened by the ‘stagflation’ crisis (a combination of inflation and stagnant growth). New technological advances pushed towards the possibility of more globalised production and smaller workforces. Political challenges arose from the revolutionary period that began to open up in the late 1960s. With this cocktail of factors, the ruling class turned towards what would ultimately become known as neoliberalism.
Massive programmes of privatisation, deregulation, financialisation and layoffs began. Essentially it was a return to the more normal ‘laissez-faire,’ ‘let the market decide,’ approach that prevailed before the Depression. This was epitomised in the UK by figures like Thatcher during the 1980s and then supercharged during the period of capitalist triumphalism following the collapse of Stalinism in the early 1990s.
The post-war Keynesian era was, in fact, a major aberration in the history of capitalism in terms of its scale. It provided a temporary bridge from one of the most economically depressed and destructive epochs capitalism had ever faced. Although Keynes thought his ideas could solve the ‘boom and bust’ cycle of capitalism, this era of post-war Keynesianism was just a ‘kickstart’ to restore profitability in the system.
It could not overcome the inherent contradictions of capitalism – particularly crises of overproduction. Thus, when it inevitably came up against the limits of the capitalist mode of production and the need to ‘tame’ a working class that had grown too confident in itself, it was just as quickly abandoned for a more clearly exploitative policy, with the working class bearing the brunt of the turn.
This sharp turn left many, even on the left, off-balance. The length and the depth of the boom, combined with what seemed like a more ‘socially responsible’ and ‘democratic’ welfare state had a disorienting effect for many on the left. Even some self-described Marxists entertained the illusion that class struggle was no longer necessary, and that the success and popularity of the Keynesian model meant a reformist road to socialism was possible. This included the leadership of the so-called communist parties in Europe at the time. Imagine their surprise when fierce class battles like the miners’ strike of 1974 broke out!
A doctrine of welfare and warfare
Keynesianism, as a doctrine erected to serve the capitalist system, also had sharp teeth. The period of the post-war boom was also the period of the Cold War, which saw the incredible arms race develop between the Western imperialist and Stalinist camps and the rise of ‘mutually assured destruction’ from vast nuclear arsenals. The capitalist leaders peddled the idea that not only was the arms race necessary from the standpoint of ‘defence,’ but also economically. As the idea went, just like other sectors of the economy, state investment in arms manufacturing could drive economic growth.
This idea of ‘military Keynesianism’ is being trotted out again today by imperialist powers and their mouthpieces in publications like the Financial Times, desperate to find a way forward for this broken system and justify their warmongering. While it may give a short- term boost, arms production is in the long-term not a sustainable engine of growth. This is because its end goal is destruction. It creates no new real value, unlike investment in socially productive sectors of the economy. This was borne out in the Cold War. Not only did the massive increase in arms expenditures not help the capitalist world avoid the economic turmoil that developed by the 1970s, but it actually became a huge burden on the economy.
By 1989, just before the fall of Stalinism, it was estimated that $1 trillion was being spent every two years on the global arms race. And much of this was being spent on the production and development of massive weapons of destruction that if ever used, could literally wipe out most life on earth. Thankfully, it never came to that, but that meant literally trillions of pounds of state investment into what amounted to very expensive and very deadly paperweights.
The main contradiction: who is in charge?
The arms example points towards the main contradiction in the Keynesian approach. The amount spent on positive social programs, wages, and the like paled in comparison to arms. In the UK of the 1950s, 9% of GDP was spent on defence – a fifth of all public spending and more than social security and health combined.
In the economy of capitalism, where everything is based, ultimately, on the private ownership of the means of production and seeking profit derived from the exploitation of labor, even nationalised industry and revenues collected by the state are used to serve capitalist interests.
Even in economies with relatively large state sectors, they are dominated by the whims and laws of private capital. For example, nationalised sectors under capitalism may be used to maintain the ability of private capitalists, who rely on those sectors, to keep making a profit. In other cases, state-owned enterprises act as a sort of competitive ‘firm’ within an otherwise privatised industry. These market-based measures act against potential corporate excesses, but they also allow and even help the capitalists to continue making profits.
As one of our forethinkers, Ted Grant, put it during Keynesianism’s heyday:
“In an economy where private ownership is the dominant form of production, production remains for the market. All taxes must come from the economy itself. Either they must come from the profits of the capitalists, or they must cut into the income of the working class… To cut into the income of the capitalist would cut into the rate of profit. Money spent by the state, taken from the pockets of the capitalists, cannot be spent by the capitalists… The worst thing from a capitalist point of view is for the state to cut into the profits of the capitalists.”
This is related to the role of the state under capitalism, which while presenting itself as a neutral arbitrator, is in the last analysis a tool of the ruling elites. Simply put, the working class cannot expect to control what it does not own.
The need to go further
Socialist Alternative supports all positive reforms under capitalism that engender a stronger and more cohesive position for the working class. This is why we campaign for things like inflation-busting wage rises, hefty taxes on the super-rich and nationalisation of key sectors of the economy. However, we also realise that these will not be enough to bring about socialism. Ultimately such gains will be rolled back whenever it is politically feasible for the ruling class to do so.
We see how nationalised models like the NHS, which in the outline of its creation represented a glimpse of a possible future socialist model of health, has been under constant attack since its inception through funding cuts, attempts and successes at partial privatisation and the like.
But even before that, in a second-rate imperialist country like Britain, questions of taxation of the super-wealthy raise the real risk of capital flight or even potential ‘capital strikes’ (complete stoppage of private investment) in response to significant political policies seen to fundamentally threaten their profits. That is why we also put forward the need for these policies to also be introduced under the democratic administration of the working class – through control, planning and management of society’s wealth and resources.
The level of development in technology and industry that we see in the world today is at a level un-conceived of before. Yet, because of the organisation of society – with its resources concentrated and controlled by private hands – we face a turn towards a new era of destruction. Climate change, underdevelopment of socially useful production in favour of wild financial speculation and the prospect of more wars threatens to send humanity backwards eons into the past.
No amount of reforms can save us from this fate as long as its source – capitalism – is maintained. It is therefore incumbent for us to fight for its overturn in favour of a democratic socialist world order where the majority of the world uses everything we produce in harmony with the planet, and to ensure a just and sustainable future for all of humankind.
