THERE WAS DURING THE 1980s and 1990s a counterrevolution--or perhaps more accurately, a counterreformation--in both economic policy and economic theory. The two developments were inextricably linked. The restrictive monetary and fiscal policies were in effect a regression to the pre-Keynesian orthodoxies of the 1920s. But they were justified by new evidence, as well as additional theoretical and policy work, that sought to promote the theory of monetarism as a guide to government economic policy. The supposed connection between the money supply and the price level was presented as a technocratic economic law. In reality the economic effects of the resulting monetarist policies were far from technical processes. Insofar as they "worked," this was through, first, their effects on levels of unemployment and, second, the associated legislation that was pursued in various forms within most of the countries that adopted the monetarist path, including anti-trade-union legislation and privatisation. Together, these p olitical, economic, and social changes helped shift the balance of power away from organised labour at the macro level, "restoring management's right to manage" at the micro level.
This paper argues that the "new political economy" has failed to analyse these developments. Indeed, it has moved in precisely the wrong direction, away from what might more justifiably be considered to be political economy, and instead has adopted an individualistic and technocratic view of processes that in reality reflect social and political factors, and whose economic component can only be properly understood by recognising their collective nature.
The Counterreformation in Economic Theory
THE SPREAD OF JOB INSECURITY and work intensity in the 1990s, despite economic recovery and rising employment, is explained by the fact that the process of work reorganisation and job shedding is now continuous and not just a function of the trade cycle as it might have been previously. Firms in the private sector have been exposed to substantial trend increases in financial and other pressures resulting from growing demand from customers' requirements for improved products and services at lower prices and from the stock market for higher profits and more capital gains, intensified domestic and foreign competition, industrial concentration, and globalisation. For public sector organisations, privatisation, tight budget constraints, and government pressure to improve quality have had financial effects similar to increasing market pressures.
These processes are being justified and indeed driven by a counterreformation in economic theory. Faced with an inflationary crisis in the 1970s, the conventional economic wisdom-and the policy it informed-reverted to the pre-Keynesian beliefs that money determines prices and the market determines everything else. In industrial countries, especially the English-speaking countries, unemployment and the consequential labour market deregulation and social welfare reforms have shifted the balance of power in favour of capital and against workers. The result has been a growing polarisation of incomes. Concurrently, product and capital market deregulation, privatisation, and the liberalisation of trade have led to an international relocation of production to sources of cheap labour, a multiplication of the size and speed of international capital movements, and a growing concentration of global economic power. Everywhere, governments have been under pressure to scale down the level of their activities and to cut tax in a situation in which, because of growing poverty, demands on government expenditure have been increasing. The response, again especially in English-speaking countries, has been a switch in social welfare away from protecting and toward coercing the unemployed and the poor. Privatisation has changed the ethos in hitherto public provision away from public service and toward gain for shareholders, a switch replicated on behalf of taxpayers in the public sector by managerial reorganisation along private sector lines. …