Keynesianism, Neoliberalism, and Copenhagen
Source Hans Ehrbar
Date 10/02/14/12:41

The End of 'Cheap Ecology' and the Crisis of 'Long Keynesianism'
Farshad Araghi
Economic & Political Weekly (India) VOL 45 No. 04 Jan 23, 2010

It is the crisis of negative Keynesianism that is at the heart of the
current critical point, and which is leaving its global institutions
- -- the World Trade Organisation, the International Monetary Fund and
the World Bank -- with no solution other than transferring the costs
to the South (and to the South within the North). By adopting this
logic, the United Nations climate summit in Copenhagen followed
exactly in the footsteps of these institutions. The failure of the
Copenhagen climate talks is indicative of the depth of the crisis of
"long Keynesianism" that has exhausted its positive and negative ways
of dealing with the "unsustainability" of global capitalism.

Something is rotten in the state of Denmark -- Shakespeare, Hamlet,
Act 1, Scene 4

IF EVERYONE ON earth consumed like the average American, the Global
Footprint Network (2009) calculates, it would take the resources of
five planets to sustain it. If everyone lived like the average
European, it would require the capacity of 2.5 planets. The United
States and Europe are responsible for 80% to 90% of the greenhouse gas
emissions that are currently in the atmosphere. Yet in Copenhagen, the
United States tried to lead a compliant Europe towards a climate
agreement that would have shifted the costs and burden of the climate
crisis from the overconsumption hubs of the world economy to the
low-wage regions of forced underconsumption. This bizarre
contradiction was expressed in the statement by Todd Stern, the lead
US climate negotiator in Copenhagen. As if confession absolves
responsibility, he said: "We absolutely recognise our historic role in
putting the emissions in the atmosphere up there that are -- you know,
that are there now. But the sense of guilt or culpability or
reparations, I just -- I categorically reject that" (Broder 2009). In
the true spirit of neoliberalism, the climate summit turned into a
convention for shifting costs to the weaker competitors and
privatising solutions to the climate crisis such as the global
commodification of pollution rights through carbon trading.(1) That
this was a battle about "accumulation by redistribution" can be seen
in a recent Wall Street Journal (2009) editorial which observed in a
camera obscura fashion:

"More than anything else, Monday's walkout revealed the real reason
that the developing world is in Copenhagen in the first place: They
see climate change as a potential foreign-aid bonanza, and they are at
the tableto leverage the West's environmental angst into massive
transfers of wealth."

If this shows the unreality of the upside-down world to which the last
remnants of neoliberals are clinging, the real limits of bourgeois
solutions to the climate crisis can be seen in the hopeless wavering
of the neo-Keynesians between an all-out support for a vast global
commodification of pollution rights (in the cloak of cap and trade
environmentalism) on the one hand, and the imposition of a carbon tax
on the other.(2) The "great lacuna" in Keynesianism, to borrow Bello's
words (2009), is that it has never understood (or never had to
understand) the ecological contradictions of high consumption
capitalism. National Keynesianism was always a model that worked
within a definite "timespace". Over the "long time", as Kalecki
(1943) presciently predicted, it would lead to (wage) inflation, and
over the "long space", it would lead to ecological disaster.

The 'Long Keynesianism'

Keynesianism, nonetheless, has been reemerging as the alternative to
neoliberalism (Davidson 2009; Skidelsky 2009) -- an alternative that
is being embraced too uncritically by the progressives who everyday
become more disappointed by how closely Obama follows in the footsteps
of his predecessor. As I will argue, Keynesianism today, especially
when it comes to the future of world ecology, is theoretically and
practically as unpromising as its neoliberal "counterpart". Those who
construct "global Keynesianism" as a counteralternative to "global
neoliberalism" disregard that both perspectives have a shared history
of externalising the environment. Part of the problem stems from the
relatively undertheorised status and vagueness of the term

Historically, as Hartwich (2009) shows, the term was first used in
Germany in the interwar period to denote "a third way" between
laissez-faire capitalism and socialism, or what became known in
Germany in the post-war period as the "social market economy". In more
recent usage it was seen as the bundle of economic policies such as
privatisation, deregulation, trade liberalisation, removal of
subsidies, and free flows of capital that were adopted in the
1980s. In this sense the term came to be associated with the so-called
"Washington Consensus" (Williamson 1990), or more critically as
"Market Fundamentalism" (Stiglitz 2002; Somers and Block 2005). In
Polanyian (2004) interpretations, neoliberalism refers to state
policies that undermined the post-war "embedded liberalism" (Ruggie
1982; Blyth 2002; Harvey 2005). While Marxist critiques have specified
the social content of neoliberalism as "accumulation by dispossession"
(Harvey 2003), "accumulation through encroachment" (Patnaik 2008) and
"accumulation by displacement" (Araghi 2000, 2009), its exact
relationship with Keynesian economics has remained ambiguous. Indeed,
those who extract a theory of "cyclical determinism" or "pendulum
shift" from Polanyi's historical account of the "double-movement"
(from economic liberalism to protective regulation) construct
neoliberalism as the opposite of Keynesianism. "Global Keynesianism",
in these accounts, appears as a rational alternative to global
neoliberalism (Mead 1989).

Challenging these positions, this paper argues that neoliberalism is
neither the opposite of Keynesianism, nor is global Keynesianism a
possible alternative to global neoliberalism. I pose "neoliberalism"
as a moment within Keynesianism and show that from being an antithesis
to it, neoliberalism was the Keynesian response to its own
contradictions. Reacting to wage inflation and stagflation at home and
unruly developmentalism abroad (Arrighi 1994; McMichael 2008), it used
the state (and supra state) intervention to shift the basis of demand
management from wage contracts and the "development compromise"
(Araghi 2009) to micro and macro credit and debt-based globalisation.

It was this strategic shift from "positive" to "negative" means of
managing effective demand, rather than abandoning the Keynesian system
altogether that was a core element of the neoliberal "innovation". In
the United States, the shift in the basis of effective demand
management involved abandoning wage contracts with built-in mechanism
for negotiated wage increases through collective bargaining to wage
deflation (via de-unionisation, "flexibilisation", and globalisation)
coupled with financing of the effective demand through socialisation
of credit. These two strategies of demand management were not mutually
exclusive, but they expressed the historical meaning of demand
management under productive and finance capitals respectively.

A similar case can be made for the second pillar of Keynesianism, that
of state deficit spending, which has been a constant feature of
negative and positive Keynesianism (in the form of military
Keynesianism in both periods, public spending in the first period and
subsidising the private sector in the second period). Much has been
made of the term "deregulation" as an anti-Keynesian feature of
"neoliberalism", but it was not deregulation as much as negative
regulation that characterised the ending decades of long Keynesianism.
Indeed, the rhetoric of anti-Keynesianism and "deregulation" was more
a discourse about dismantling national-developmentalism in the
postcolonial world and the wage contracts and welfare states in the
North rather than an actual abandonment of Keynesianism. As Paul
Krugman (2001) acknowledged:

"It wasn't true when Richard Nixon said it, but it is true today: We
are all Keynesians now -- at least when we look at our own economy.
We give anti-Keynesian advice only to other countries. When it comes
to the US economy, everyone -- including people who imagine that they
have rejected Keynesianism in favour of some doctrine more congenial
to the free-market faithful -- in practice views the current slowdown
in terms of the intellectual framework John Maynard Keynes created 65
years ago. In particular, everyone thinks that during a slump what we
need is more spending."

In the Long Run Keynesianism Is Dead

Hence just as negative Keynesianism, that is, wage deflation
accompanied by financialisation of demand management in the North (and
"forced underconsumption" in the South) expressed the contradictions
of wage inflation and stagflation under positive Keynesianism, the
current global crisis expresses the contradictions of negative
Keynesianism. The current crisis, in other words, should be seen as a
moment within the crisis of the long 1970s when "negative
Keynesianism" in free-market clothing (or what became known as
"neoliberalism") was the political response of capital to the
contradictions of "positive Keynesianism" (wage-labour contracts and
effective demand management leading to "wage inflation", amidst
competitive pressures and expansion of democratic rights). "Negative
Keynesianism" was negative in the sense that it broke up the post-war
wage/social contracts and violated the "development compromise" in the
postcolonial world; it was Keynesian in the sense that it continued
with effective demand management via socialising credit as a component
of wages and the global debt regime as a component of restructuring
the postcolonial nation state based divisions of labour. This
involved, as is now well known, the rejection of the (positive)
Keynesian social contract via "globalisation", i e, special and
temporal mobilisation of capital, flexibilisation, de-unionisation,
and casualisation on the one hand, and the massive expansion of
indebtedness as a solution to mass consumption with low wages on the
other. Debt became the continuation of policy by other means, as
credit and microcredit substituted wages to solve the Keynesian
effective demand problem.

This characterisation of "long Keynesianism" (as a contradictory unity
of liberalism and neoliberalism) would allow a better exploration of
the relatively undertheorised phenomenon: The global institutions of
positive Keynesianism (the World Bank and the International Monetary
Fund (IMF)) were transformed under negative Keynesianism from
development institutions to enforcers of a global debt regime aimed at
the construction of mutually dependent export-based and consumption-
based economies.

It is precisely the crisis of negative Keynesianism that is at the
heart of the current crisis, and which is leaving the global
institutions of negative Keynesianism (the World Trade Organisation
(WTO), the IMF and the World Bank) with no solution other then
transferring the costs of the crisis to the South (and to the South
within the North). By adopting this logic, the UN climate summit in
Copenhagen followed exactly in the footsteps of the institutions of
negative Keynesianism. In doing so, it also adopted the WTO's recent
past as its own future. In fact, Yvo de Boer, the executive secretary
of the United Nations perspective Framework for Climate Change made
the explicit comparison between the WTO and the future of the climate
talks: "The worst case scenario for me is that climate becomes a
second World Trade Organisation", he said in an interview last year
(quoted in Monbiot 2009).

His worst case scenario came through in Copenhagen. More directly, the
failure of the Copenhagen climate talks is indicative of the depth of
the crisis of "long Keynesianism" that has exhausted its positive and
negative ways of dealing with the "unsustainability" of global
capitalism. The fantastic desire for a pendulum shift, in the form of
a return to positive Keynesianism, fails to see that post-war
Keynesianism was (1) an externalising regime fundamentally standing on
the shoulder of the "cheap oil regime" of 1953-73, and (2) that the
mass consumption component of high wage Keynesianism in the North was
always standing on the shoulder of "forced underconsumption" in the
South (Araghi 2003; cf Patnaik 2008). Precisely for these reasons,
green and global Keynesianism is a contradiction in terms.

The Crisis of 'Long Keynesianism'

What the experience of Copenhagen shows is that global capitalism has
even deprived itself of short-term and reformist remedies. Copenhagen
was to the world what the healthcare reform was to the United
States. What Obama has called a "meaningful and unprecedented
breakthrough in Copenhagen" is a non-binding 12-page document that
proposes to restrict global warming to a two-degree temperature rise
with no timetable. As a recent study by a team of geophysicists from
Harvard and Princeton shows, "an additional two degrees of global
warming could commit the planet to 20 to 30 feet of long-term sea
level rise. This rise would inundate low-lying coastal areas where
hundreds of millions of people now reside" (Barnes 2009). Produced
behind closed doors, it is a document that highlights the condition of
a falling hegemon: all demands but little to give, self-referential
and unable to lead. The US would readily offer trillions of dollars to
its banks in two years, but in Copenhagen all it could offer was "to
work with other countries towards the goal of jointly mobilising $100
billion a year by 2020". As the Wall Street Journal (Ball 2009)
pointed out: "As for the $100 billion a year by 2020, US officials
said the vast majority of it would come from the private sector, in
particular through the buying and selling of 'carbon credits', and not
from government coffers". Ironically, whatever the US contribution to
this joint mobilisation, it will probably come from borrowing from

What was rotten in Copenhagen is what is rotten about a social system
that is parasitically consuming life, labour, and nature as it is
dying. Cancerous growth and parasitic consumption, the two pillars of
historical capitalism cannot provide a solution to the dual crisis of
the world economy and ecology (Foster 2000). It is time to pose global
eco-socialism as an alternative to both positive and negative


1 For an excellent and well-documented discussion of carbon trading as
commodification, see Lohmann (2005, 2006).

2 See the recent exchange between James Hansen (2009) and Paul Krugman
(2009) in the New York Times.


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Farshad Araghi ( is with the Department of Sociology,
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