Bhaduri, Amit, The Economic and Labour Relations Review : ELRR
Like vegetation that changes with climatic conditions, economic policies too change with another kind of climate, the climate of economic opinion. Although similar to the extent that both are consequences of industrialism, changes in the climate of economic policy impact more directly and immediately on our everyday life. And yet, they are seldom noticed and rarely commented upon critically. The change in the climate of opinion is usually brought about by governments, a sufficiently pliable media beholden to them, and their equally pliable economic experts who enjoy proximity to political power and influence by association. The changes in policy and the economic reforms are then presented to the public as compulsions of the day. The changes can then go largely unopposed under the syndrome of TINA (There Is No Alternative) (Thatcher 1987).
Things are more direct when political power is heavily concentrated. Fascism required state power to be under the control of big business, official communism wanted it under 'the dictatorship of the proletariat' (read the Communist Party). Between these extremes lies the spectrum of liberal democracy which comes in an almost bewildering variety, from social democracy inclined towards economic activism of the state and regulation of markets to the minimalist state inclined towards laissez faire and unrestrained freedom for the market.
Nevertheless the various shades of capitalist democracies have one common underlying presumption which has been at the core of the wide-spread legitimacy it enjoys. The state, it is assumed, would maintain a sufficient degree of neutrality to balance conflicting interests of contending classes and groups. The game of liberal democracy cannot be played unless there is a referee. And, the state has to act as the referee to let the fortune of conflicting class interests fluctuate within manageable limits. Like a pendulum it would swing, but the swing will be calibrated, avoiding extremes.
Both market capitalism and political democracy are celebrated as widening the scope of choice. The freedom to choose in an unregulated market is considered a necessary concomitant to the freedom to choose the government. In popular imagination coloured by the media one does not exist without the other. And yet, the logic of the market depends on 'one dollar one vote' which gives the rich disproportionate power; whereas political democracy of 'one adult one vote' depends on the majority. The two coexist in a market democracy without severe tension when the state acts as a relatively neutral referee among contesting classes and groups in the society.
It was on this assumption of relative neutrality of the state that the theory of demand management in capitalist democracies was developed. It is associated with the name of the British economist John Maynard Keynes, although it was formulated independently around the same time by the Polish economist Michael Kalecki. The theory in a sufficiently vulgarised form became conventional wisdom for statecraft ('We are all Keynesians now' remarked former U.S president Richard Nixon). The theory says that a high level of economic activity, output and employment, can be maintained by the government by keeping aggregate demand at a sufficiently high level. And, aggregate demand can be kept high whenever necessary through government spending financed by budget deficit or borrowing. The political implication of the theory is remarkable for capitalism. High output and employment would benefit both the classes--employers and employees, captains of industry as well as workers; even the self-employed would benefit from a buoyant state of the market. Capitalists and managers can look forward to high profit resulting from high capacity utilisation and a larger volume of sales. Workers can expect larger pay packets and easy availability of jobs at high employment. It is the economic recipe for cooperative rather than conflictive capitalism and provides the ideal setting for class harmony in a liberal democracy. …