Keynesianism, growth, distribution:

Confronting the political economy of

the future

Gary Dymski
Professor of Applied Economics, Leeds University Business School
Co-Leader, Cities Research Theme, University of Leeds

X Encontro Internationale da Associação Keynesiana Brasileira,

Universidade de Brasilia, 19 August 2017
 Map
1.  Keynesianism: a safe haven in the capitalist
storm?
2.  From national capacity limits to global
processes of deconstruction?
3.  Policy feedback from Planet Austerity
4.  Hiding in plain sight: the fragmentation of the
nation-state
5.  Are we in a post-capitalist world?
6.  The political economy of the future
1. Keynesianism: a safe haven in the capitalist storm?
Three questions motivate this talk:
1.  What is Keynesianism today?
2.  What does Keynesianism have to say about growth and
distribution?
3.  What Keynesianism do we need?
Keynesianism has multiple faces, as Hamouda and Harcourt
(1988) wrote: US (Davidsonian); UK Cambridge (Harrod,
Sraffa); and Sraffa.
•  So this gives us theoretical elements: uncertainty, real time, the
primacy of aggregate demand, stock-flow consistency or
inconsistency, and so on. But how to use them?
•  Here we focus initially on Keynesian macroeconomics.
1. Keynesianism: a safe haven in the capitalist storm?

•  Neoclassical macro model: Y = αf(N,K)

•  Keynesian responses to global deconstruction using the
same elements…
–  Models of growth and distribution: debates about
recapturing the past possibilities
–  Harrod’s warranted rate: gw=(s/v), wage- vs profit-led,
etc.
•  Behind this veil: the Polanyian double movement – the
eternal dance of state and market
•  The class bargain before the class bargain: Geoffrey Mann’s
In the Long Run We are all Dead (2017, Verso).
 2. From national capacity limits to global processes
of deconstruction?
Keynesian debate has centred on the nation state and its uses.
Specifically, can national economies adopt policies that
respond to the changing constraints on national well-being?
•  Hegemony to post hegemony – exchange-rate volatility,
global financial speculation
•  Climate change – the need for ‘green investment’ to
permit mitigation or adaptation
•  Productivity crisis – the need to rethink industrial policy,
focus on infrastructure, education
•  Inequality – the need to renew national “social contracts”
But are these processes providing new policy imperatives, for
the nation state, or deconstructing nation-states’ capacity?
 3. Policy feedback from Planet Austerity
•  Recently the IMF and Bank of England and ECB have
argued that monetary policy cannot do ‘everything’
needed to overcome austerity – secular stagnation.
•  But these [largely neoclassical analysts’] advice is
cautious – every suggestion that more policy activism is
necessary is followed by a caution about debt limits.
•  In effect, there are limits on the use of fiscal policy and
monetary policy, due in part to pressures from global
financialization at many scales.
•  And these observations lament global imbalances,
without recognizing that these imbalances underpin
what remains of global ‘prosperity.’
Two arguments for austerity macro policy in
the developed economies
1. Is there a 90% threshold for sovereign debt/income?
Barry Eichengreen, Hall of Mirrors (2015), p. 10:
•  No. Especially when borrowing is cheap and there are
underemployed resources.
2.  Is there evidence that austerity has expansionary macro
effects?
Eichengreen, 2015, p. 10:
•  No. The cases referred to in academic work are special
cases, whose conditions are not now replicated.
 New arguments for expansionary fiscal
policy in the developed economies
1. Does expansionary fiscal policy have a multiplier greater
than 1?
IMF (Cottarrelli, Gerson, Sanhadji, Post-Crisis Fiscal Policy,
2015)
•  Under two conditions: (a) a very deep recession, such as the
US or UK experienced in 2008-09; (b) in a mild recession or
under stagnation, only if there is coordinated multilateral
expansionary policy.
2.  Can monetary policy do it all (stimulate growth, avoid
inflationary pressure)?
Claudio Borio (BIS), Richard Fisher (Federal Reserve)
•  No; more on this below.
There is less policy space for developing countries, which lack
lender-of-last-resort capabiility and must carefully consider
exchange-rate vulnerabilities. The lenders they must bargain with
are often – not always - backed by too-big-to-fail guarantees
back-stopped by lender-of-last-resort central banks.
 4. Hiding in plain sight: the fragmentation of the
nation-state
How do macroeconomists think of economies? As nations:
Y = αf(N,K) (1)
[Y = GDP, N = labor, K = capital]
C+I+G+X = W+π + R (2)
[C = consumption, I = investment, G = government expenditure, X =
exports, W = wages, π = profits, R = rent + interest
I + (G-T) = SD + SF – ΔR (3)
[T = taxes, SD = domestic saving, SF = foreign saving (or, if negative, capital
inflows, ΔR = changes in reserves]

They give us formulas for thinking of constraints (eqn (3)) or the

elements with which to debate about growth.
 4. Hiding in plain sight: the fragmentation of the
nation-state
But developments are reducing the solidity of these relations,
destabilizing them.
•  The global factory: from trade to global supply chains
•  TBTF banks and the unchaining of global financialization
–  Shadow banking and securitization
–  Trade in financial services,
–  KIBS (knowledge-intensive business services)
–  Consulting firms, public-private partnerships,
–  The real-estate financial complex
•  Technical change – the digital revolution
–  Fintech – the increasingly crowded space of competition to buy
and sell financial products, services, advice
–  Robotization
 The digital divide reconsidered: Technological
disruption and “the home”
•  The “digital divide” has been defined to refer to those without
ready access to emerging digital technologies, and without the
skills to use them.
•  Let’s broaden this term: this divide also changes the supply of
and demand for jobs: more jobs for “digitally included”
people, fewer for “digitally excluded” people.
•  This is a moving target: new technologies come on-line
continually. These require infrastructure investments, and these
are more likely to be installed in “digitally included” spaces.
•  Disruptive change originating anywhere affects lines of access,
inclusion/exclusion in urban living. It undercuts links between
workers, employment, and homes.
 4. Hiding in plain sight: the fragmentation of the
nation-state
Implication: It is now no longer growth and distribution,
but growth vs. distribution.
–  For example, the “Smart City”: redesign urban space for the
co-location of information-industry firms and the workers
who want to be connected; displace the rest
–  For example, the “Creative City”: make urban space
attractive for mobile urban professionals; displace the rest
–  You need more workers with the right skills, but you cannot
afford to educate those without skills who live where you
are. So:
–  That is: widen the inequality gap if you want to grow. And
this leads to the global mobility of labor
 Inflows of foreign popula<on by year and region for OECD countries, 2000-15
4,000,000
Australia and New Zealand

3,500,000
European Union (not in EMU)
Eurozone
3,000,000 Canada
UK
2,500,000 US

2,000,000

1,500,000

1,000,000

500,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
 Ou/low of foreign popula;on by year and region for OECD countries, 2000-15
1,600,000
Australia and New Zealand

1,400,000 European Union (not in EMU)

Eurozone
1,200,000
Canada

1,000,000 UK

800,000

600,000

400,000

200,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
 Stock of foreign popula<on by year and region for OECD countries, 2000-15
50,000,000

45,000,000

40,000,000

35,000,000

30,000,000 Australia and New Zealand

European Union (not in EMU)
25,000,000
Eurozone
20,000,000 Canada
UK
15,000,000
US
10,000,000

5,000,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
 Banks' cross-border claims, selected global areas, 1999-2015
(in trillions of US$) Source: Bank for InternaJonal SeKlements
3.5

2.5

1.5
United States Euro area
Asia-Pacific LaJn America
1
Emerging Europe

0.5

0
Mar.00 Mar.01 Mar.02 Mar.03 Mar.04 Mar.05 Mar.06 Mar.07 Mar.08 Mar.09 Mar.10 Mar.11 Mar.12 Mar.13 Mar.14 Mar.15
 OuSlow of RemiKances by Country or Global Area, 1991-2013 (US$B)
Source: World Bank remiKance/migraJon data
140

120 Europe US and Canada

Gulf and oil-exporJng naJons Russia
100 India China

80

60

40

20

0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
 OuSlow of RemiKances for countries in 3 European areas, 1991-2013
(US$B) Source: World Bank remiKance/migraJon data
70

60 Northern European non-Euro naJons

Northern Euro-area naJons
50 GIPSI Euro-area naJons

40

30

20

10

0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
 Inflow of RemiKances for Major Recipient Countries, by Global Area,
1991-2013 (US$B) Source: World Bank remiKance/migraJon data
250

Asia Europe
200
LaJn America Africa, Middle East, Gulf
Russia and former Soviet bloc US and Canada

150

100

50

-
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
 Inflow of RemiKances for Recipient Country Groupings within Asia,
1991-2013 (US$B) Source: World Bank remiKance/migraJon data
80

70
India
60 Pakistan, Bangladesh, Sri Lanka, Nepal
China
50
East Asia (excl Japan)

40

30

20

10

-
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
 Inflow of RemiKances for Recipient Country Groupings within Europe,
1991-2013 (US$B) Source: World Bank remiKance/migraJon data
70

60
Northern Europe Euro-area countries

50 Northern Europe non-Euro countries

GIPSI Euro-area countries

40

30

20

10

0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
 Inflow of RemiKances for Recipient Country Groupings within Europe,
1991-2013 (US$B) Source: World Bank remiKance/migraJon data
35

30
Sub-Saharan Africa Northern Africa
25

Middle East and Gulf

20

15

10

-
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
 3. Are we in a post-capitalist world?
Now, can we opt out?
•  Paul Mason, Post-Capitalism: The value of material commodity
trade is falling, much trade is now virtual, that is, zero-marginal
cost. So the capacity of MNCs to extract rents is falling. State
regulation can protect local communities and reduce the scale of
the market, permitting a flourishing of the local, the community.
•  Tim Jackson, Prosperity without Growth: The key to making this
transition is getting out of the trap of status-based competition,
so that innovation in commodities drives the consumption cycle
and generates ever-new rounds of waste in a finite-resource
world.
But who, in these depictions, is “we”? How does the urbanizing
Chinese or Vietnamese resident get onto the global map? This
circularity assumes a base level of comfort…
 5. Are we in a post-capitalist world?
Capitalism is a moving target, which has survived different phases:
•  Mercantilist capitalism (Thomas Mun)
•  City-state/long-distance merchant capitalism (Braudel)
•  Smith/Ricardian capitalism: Makers’ guilds, division of labor,
comparative advantage
•  Marx Chapter-10 capitalism: Factory-based exploitation
•  Fordist capitalism: the historic capital/labor compromise after WWII
- Mass production, mass consumption with Verdoorn cycles
•  Neo-mercantilist capitalism:
–  Japanese “hub and spokes” variation (now Korean, Chinese)
–  East Asian “late development” variation – education step-up plus
urbanization and trade/production zones
“Varieties of capitalism” idea: these can co-exist, feed off each other.
 5. Are we in a post-capitalist world?
•  But these different phases of capitalist formations exist in
global space populated by flows of capital, labor,
commodities, traded goods, traded services.
•  Global-imbalances are always increasing or decreasing
with time, due to geopolitical forces and global capital.
•  There is no end-point, no final contradiction.
–  For example, the response to the Asian model was reactive
MNC investments: Japanese (Korean, Chinese) companies
investing in US and Mexican factories, US companies in East
Asian factories.
–  The consequence: the global distribution of productive
capacity, spread of process, fragmentation and specialization –
global supply chains in a just-in-time world
•  Wolfgang Streeck’s “Buying Time” depicts the crisis of
capitalism caused by these neoliberal disjunctures.
 5. Are we in a post-capitalist world?
•  Maybe the key is to shift the social relations of production and
reproduction. Ben Fine (2016) shifts attention from exchange to use
values. Fine (2016):
social reproduction can be [understood] through the system of
provision [SoP] approach, in which how the elements in the
value of labour power are defined and delivered are seen to be
contingent upon specific, “vertically” organised chains of
structures, processes, relations and agencies. Thus, attention is
drawn to pension, housing, food, health systems and so on,
each with its modes of production and reproduction, and
corresponding norms that reflect both the value of labour
power and the social as well as the economic reproduction in
which it is embedded.
 5. Are weSession
in a post-capitalist
1 Map world?
•  But then we have taken a giant step away from assuming
everything must be understood in terms of capitalist relations.
Fine continues:
One key element in redefining the value of labour
power, ... are the processes of commodification and de-
and re-commodification. … decommodification can be
the result of removing provision either to domestic or to
state responsibility (as non-commodity producers), …
•  All these post-capitalist visions end in arguments that nation-
states must have the power to control social and economic
flows within their borders. They require that the state have
power, and then taking state power, using it.
 5. Are we in a post-capitalist world?
•  How about, then, going “circular”?
•  Well, how circular can we be, when a vast number of goods are
integrated across space and countries? Further, when this process
is controlled by global companies whose loyalty is to rate-of-return
considerations, not any nation’s people or well-being?
•  Is it a question of enough people ‘dropping out of the system’
that these global supply chains break down?
•  And in any case, if production were centralized and circularized in
prosperous places, wouldn’t this simply make the problems of
social reproduction – sustainability – more acute in less
prosperous places?
•  How then does the local relate to the global, and how can
‘prosperity’ replace ‘growth’ without passing through ‘capital
accumulation’?
 6. The political economy of the future
We need an economics that permits us to:
•  Understand processes operating at micro, meso, and macro levels
– simultaneously, interacting in complex ways
•  See macroeconomic relations in spatial and temporal (‘real time’)
terms, locked into disequilibrium processes, with attention to
cross-border flows of people, capital, goods
•  See institutions as constraints on action and as in continual
transformation, as locii of power, negotiation, and/or compromise
•  See microeconomic mechanisms fueled by diverse incentives due
to asymmetric information, principal-agent structures, resources
Models that describe partial realities are crucial; none can describe
wholes. And theorists must build bridges to one another’s work, rather
than setting up ‘lock-in traps’ as has mainstream macroeconomics.
 6. The political economy of the future
How then Keynesianism can survive?
•  By generating the insights, models, empirical results, and policy ideas
that respond to this agenda.
•  By building models with multiple, interacting layers: micro-meso-
macro, models that insist on the non-reducibility of these levels
•  By building models that, by implication, insist on the irreducibility of
space, and that allow for heterogeneity and inequality
•  By building models and work that incorporates history, institutions,
geo-political forces, and that visibilize and critique relations of power
•  By building models that communicate with other approaches, from
Marxian to Neoclassical traditions
•  By building models and work that insists on the primacy of social
justice as a criterion for evaluation and action.
•  The hungry wolf hunts best: