The era of "privatised Keynsianism" is over—and many of the big corporations that drove it are discredited. But in Britain, at least, those corporations will emerge even stronger, there is no other source of economic powerby Colin Crouch / May 4, 2009 / Leave a comment
Most people thought that the economic policy regime that succeeded Keynesianism in the late 1970s—usually called neoliberalism—was an attempt to get as close to the free market ideal imagined by neo-classical economics as possible. We now know that it wasn’t that; a part of what passed for a market system was in fact irresponsible risk trading that embodied important corruptions of the neoclassical model.
Nevertheless, the system of mortgage, credit card and other debt, backed up by secondary and derivatives markets, did also have a positive function. It enabled many people on low incomes, particularly in the US, to continue consuming and purchasing even when their jobs were insecure and wages static. This in turn kept demand stable at a time of global economic uncertainty. People in countries like the US, Britain and Ireland, with rising property markets and easy credit, benefited most directly. But they, in turn, helped Europe, Japan and the emerging economies by buying their exports. Without gross irresponsibility in the financial markets, we would all be poorer today than we are—though there is now, of course, a big correction under way.
I call this phenomenon privatised Keynesianism. Under true Keynesian policies, government took on the obligation of stimulating demand during periods of low confidence in private markets (and of doing the opposite during inflationary periods). For the past two decades this has been replaced by poor people engaging in their own deficit financing, replacing government debt with private debt. Making people with weak financial resources play a role previously carried out by governments served a useful collective purpose. But it did so because of unsustainable market distortions.
One distortion concerns information. To function properly, markets require full information among buyers and sellers about what they are trading. Serious defects in information are a form of market failure. In reality ordinary consumers rarely know enough about what we are buying, but our purchases are mostly simple enough for this not to matter. In some cases, like food additives or electrical goods, regulation and consumer advice can help; in others, we simply get duped from time to time. But the financial markets are not predominantly in the hands of ordinary consumers, but of firms with the money to pay for the best professional advice. And yet these same highly informed professionals bought bundles of what is…