"Rising mass incomes as a condition of

capitalist growth: a new model of the

transition to capitalism in history, as well as

in the newly industrializing countries and

BRICs today, and its relevance for

historical positioning of the current crises".

13th Post-Keynesian Conference, University of Missouri, 15 to 18 September 2016

Panel: "Secular Stagnation: Causes and Remedies" 2:00 PM on Thursday, Sept. 15th, 2016.

Hartmut Elsenhans

(Leipzig University, Germany, helsen@rz.uni-leipzig.de)

1. Overcoming the defensive posture of Keynesianism in the actual debate

on the future of capitalism as a condition for an efficient and meaningful

application of the basic ideas of Keynesianism for preserving and reforming

capitalism.

The innovations in the understanding of capitalism which we owe to Keynes have their origin

in the controversies surrounding money and its possible role for compensating disequilibria in

the real economy. Monetary policy is expected in mainstream Keynesianism to move the real

economy back to full employment growth trajectories thus smoothing the cyclical ups and

downs in capitalist growth and employment. Enter here the debate between Keynesians and

classical economists, like Hayek, in overcoming economic downturns..

Keynesians could be heard louder because some traditional mechanisms which had led to the

overcoming of crisis by capital destruction and subsequent relaunch had disappeared and

become unreliable during the world economic crisis of the 1930s. There was no longer the

effect of real wages increasing because of prices falling more rapidly than nominal wages

(Keynes 1939, Richardson 1936: 3430f.). Waiting for the end of the crisis was no longer

acceptable given the political rise of the lower strata of the population and their political

mobilization which constituted a threat for the established political order.

Avoiding comparable deep crises became a point of agreement between different schools of

Keynes’ followers and enlightened classical economists. They converged on necessities of

observing the business cycle and global demand management, complemented especially in

Europe by those concessions in social policies which had become inevitable given the total

dependence of the antifascist elements of the privileged classes in continental Europe on the

working classes for victory against Nazi-Germany and the continued appeal of the Soviet

planned economy and its performance in the 1930s. This configuration of challenges was met

by pragmatic class collaboration and without a considerable theoretical effort in explaining

the movement of capitalist economies in the business cycle. Concentration on fiscal and

monetary policies allowed for the maintenance of a large consensus despite controversies in

details. There was no discussion on the long-term imbalances which threatened capitalism.

When such discussions arose in the 1960s, Keynesian approaches were relatively absent, and

this field was left to neo-Marxists who had no interest in transforming capitalism by

maintaining its essential civilizational contributions.1

The monetarist synthesis claimed steady growth without important cyclical breaks provided

that monetary and fiscal policies were well managed. In European continental countries,

management of fiscal and monetary policies was complemented by coordination of the

government with the main social and political groupings, a configuration called neo-

corporatism. It was explained by its apologists as a class compromise where enlightened

capitalists had made concessions to the working classes sacrificing growth opportunities by

accepting some redistribution.

The compromise became unstable when the form of financing this redistribution, especially in

the realm of improving living conditions by provision of public services, ran into debt. This

dysfunctional raising of finance for government spending became yet more felt when

indebtedness could no longer be smoothened out by inflation. Additional household incomes

were increasingly saved, even by normally high propensity spending low income households.

Stagflation and financialization were the results (Elsenhans 1998). Keynesianism became

discredited: It was no longer part of the historic block in power to which it had been co-opted

in the early 1940s, and not only that, Keynesians were no longer replaced in academia by

Keynesians and they were ignored from the public debate being labeled at best as old-

fashioned but very often as intrinsically wrong. Keynesians were seen as having compromised

themselves, and found themselves outside of the important discussions of how to maintain the

social equilibria and conditions for benefiting from the technical efficiency of capitalism

without having to accept its destabilizing tendencies.

2. The macroeconomic conditions for the Keynesian working of capitalist

economies.

Keynes presented a theory where surpluses acquired in the form of income in the monetary

channels of the economic system were not transformed into effective demand for goods and

services. The main pillars of the theory were a critique of Say’s Law, showing that monetary

1 For this deduction of rising mass incomes from a political compromise imposed on the capitalists cf. Schmidt 1980 and Streeck 2009, esp- 16-46 on its demise. This type of argument takes away from labor the justification of its position that it does not depend on the good weather situation for capitalism when receiving higher wages, but that labor creates the good weather situation for capitalism by acting against big business’s false claim that for relaunching the economy lower wages are required.

incomes could be used other than for demand for goods and services and that supply does not

create its own demand i.e. that shortfalls in aggregate demand are possible. Kalecki (1942)

completed the approach by showing that profit depends on spending on investment without

any relation to the average efficiency of investment. There is no danger for the system from a

long time decrease of the marginal efficiency of capital as the rate of profit does not depend

on the rate of technical increase of investment efficiency but on the rate of accumulation:

“Capitalists get what they spend for investment and consumption, workers spend what they

get”. The difference becomes visible when the effect of the capital-output ratio is discussed.

At a constant growth rate of production, an increase in the capital-output ratio will lead to a

rise of the share of capital in total income despite declining capital productivity. A higher

“organic composition of capital” or an increasing capital intensity of production will raise the

rate of profit instead of pushing it down. Marxists and classical economists had assumed quite

the opposite: Rising spending on capital, i.e. a rising capital-output ratio, would launch the

tendency of a falling profit rate. XXXX

That technical progress reduces unit costs in every circumstance has to be qualified (Okishio

1960, Bortkiewicz 1907: 456-458). If existing products are concerned, the argument is

correct. In the case of new products, which are no substitutes to other products, no condition

for the decrease of the minimum costs can be formulated. The only condition is that there is

demand for the new product. This requires that total demand in relation to total production

increases. This can be realized if some, and not necessarily the new products, have decreasing

prices in relation to available income for demand. Cheaper luxuries can fulfill this condition

as much as cheaper basic products. Here the Rosa Luxemburg (1912: chapts. 6 and 7)

discussion on the role of demand is instructive: under the conditions of competition between

the members of the privileged income strata neither the capitalists nor the classes directly

dependent on them, like the supporting intellectual elites (the teachers, the priests, etc.), are

allowed by the capitalists to have higher incomes, as their incomes constitute capitalist costs.

Had Rosa Luxemburg been less hateful of capitalism, she would not have concluded that

workers also cannot impose higher incomes.

Capitalist entrepreneurs certainly do not want to pay higher wages, but in case of increasing

productivity, they may not be able to avoid it: a capitalist businessman with an innovation

which earns more money will look for workers to exploit his innovation. As he enjoys

initially a higher than average rate of profit, he will attract new workers by offering higher

wages in case of workers being scarce (in high demand). Scarcity of workers and the general

situation on the labor market are decisive for the possibility of increasing wages (Salter

1960:161).

This opens a new answer to the question of the role of unions. Obviously unions cannot raise

real wages above productivity increase. As technical innovations lead to rising wages only if

labor is scarce, an absence of scarcity of labor may lead to technical innovation without

increasing wages. Increasing productivity without increasing real wages and stable capital-

output ratios nevertheless increases the potential income which can be distributed. The rich,

among them businessmen, may find political means for lessening competition and appropriate

the additionally available surplus. If this potential or really produced surplus is not

appropriated as profit on the basis of spending on investment or as income of average

workers, it is available for appropriation by those best connected to command political means.

In applying political means the powerful ones are not exposed to the mechanisms of economic

competition and anonymous markets. There is not an alternative between household incomes

(under perfect competition: mass incomes) and profit, but between mass incomes and rents

which go to the politically connected. Shifts in redistribution in favor of rent will be accepted

by average households, the mass of consumers, if it appears to them as a guarantee of high

levels of employment. Capitalism is permanently threatened to transform into rent-dominated

structures, because Say’s Law does not work reliably. Vice-versa, it is the resistance of the

mass of the population which keeps capitalism from (re)turning to rent-based structures.

As Keynesians have constantly shown, increases of real wages against the claims of

capitalists for investment financing will lead to forced savings. Unions cannot redistribute

income from the capitalist which they use for increases in investment spending. Rising mass

incomes are, however, relevant in case of an underconsumptionist trap which is the case of

productivity rising much more rapidly than real wages. In such a trap, unions can put a check

on the growth of rent appropriated by the rich. They have an important role in fighting for

demand increases in order to maintain employment, and in fighting against rent in the hands

of the powerful in order to contribute to fairness in society.

In keeping the economy oriented to mass markets, unions contribute to maintain the

conditions of technical progress. There are at least two types of technical progress in pre-

capitalist structures: firstly, improvements of process technology which reduce the effort for

realizing a product (reduce unit costs), the loom or the potter’s wheel are good examples;

secondly, technical progress can serve also the improvement of the quality of products, the

advancement in architecture for impressive monuments can be quoted. Two other patterns of

technical progress are nearly absent in pre-capitalist structures but decisive in capitalism:

mass production technologies and so-called "defensive technologies".

The extraordinary extension of the use of investment goods in capitalism, the physical

counterpart for accumulated capital, is linked to the research of ”roundaboutness” (Böhm-

Bawerk 1998) i.e. the prolongation of production processes by preceding steps of construction

of machinery, which allows reducing labor time directly expended in the production of final

goods. Roundaboutness increases with the size of batches of production at all levels, also

investment goods where the possibility of using single purpose machinery depends on

economies of scale. Increasing the rounds preceding the production of the final goods is

greatly enhanced by the expansion of the number of consumers who can raise their income

beyond subsistence levels, but who remain poor enough not to choose distinction by the

uniqueness of the product. They are hence primarily interested in the use values of the

products not in their contribution to the conspicuousness of the consumer’s image.

Conspicuousness is the preserve of those who acquire prestige by the distinguishing character

of their consumption. They are not interested in standardized simple products, the production

of which can be mechanized, but in products with special qualities by which they can

demonstrate prestige in comparison to average people. Conspicuous consumption works

against capitalist technical progress and promotes artistic excellence.

Defensive technologies is another category of innovations which is promoted by rising mass

incomes, here for reducing costs of production in case of rising mass incomes. Defensive

technologies are not superior in saving direct factor inputs per unit produced, but become

competitive if one of the factors of production, labor and nowadays also environment,

becomes scarce and expensive. Their use depends on rising costs of factors of production,

either because of technical progress in other areas of the economy which make labor more

expensive, or externalities which previously had been costless become suddenly no longer

availed without cost.

3. Rising mass incomes as a condition for bourgeois society

Rising mass incomes are the condition for the very existence of a bourgeois society. Two

elements are relevant: the conditions of maintaining competition among the privileged and the

conditions for constituting political organizations for the underprivileged. Suppose that there

is only the form of technical progress where excellence of the product and cost reduction in

basics is searched for. In that case, increases in production are concentrated in high quality

"luxury" products for the few. Stability between production and consumption is achieved if

the privileged are capable of increasing their consumption. I have already argued that this is

possible only if their rivalries with each other do not take the form of competition for

efficiency in delivering identical products to anonymous markets at lower prices but aim at

other goals, which can be summarized as gaining political clout or prestige.

Higher quality consumption will improve the position in the intra-class rivalry if aspirants to

elite status are able to convey meaning to their consumption beyond the use value of the

products. For this goal the privileged require dominance over the value structure of the

society. They have to define the distinctions they expect from the consumption of luxuries.

The ever increasing size of monuments from generation to generation during the Mughal

dynasty of India is an apt illustration. The decision of the last of the great Mughal emperors

(Aurangzeb 1618-1707) to limit the expenses for his tomb as a pious Muslim to his earning

from copying by his own hand the Qur’an shows the dependence of the distinction value of

products from the power of interpretation. The privileged class has to cooperate in the

creation of meaningful images which convey prestige. There is no chance for any individual

member of the privileged class to short-circuit the powerful by engaging in publicity for

simple standardized products which are appreciated on anonymous markets by all those

customers who have no chance of actively participating in the definition of values of the

politically powerful.

The powerlessness of the privileged to define the values of the society against the material

interests of the great masses is an essential element of bourgeois society. The bourgeoisie

were the first privileged class in history to introduce the fundamental equality of all members

of society and derived its privilege only from “honestly” earned incomes on competitive

markets.

In all pre-capitalist societies the mass of the direct producers were heavily exploited but rarely

rose in large-scale rebellion. The most visible indication is the absence of the concept of the

nation as collective organization of all members of society which in many cases (e.g.

Germany or Italy) had preceded the nation-state. The ancient empires did not have even

identical languages within the Empire or between the ruling class and the subjected

population. Their ruling classes normally did not feel to be of the same ethnic origin as those

ruled.

With the mechanism of raising wages described above in case of scarcity of labor, the

perception of the common interest of all working people becomes socially relevant. The

innovator was said to get access to additional labor power in case of full employment by

offering rising real wages. The capitalist will do so until he faces saturation of the market and

with the result of declining prices. He has lured workers away from old occupations where

there were no productivity increases and where production will decline. If the respective

branch is not disappearing, it will face a rather sluggish demand characterized by low price

elasticity. Customers queuing up for his service or products signal to the respective

entrepreneurs that price increases will not lead to demand decreases even if imposed

individually. Entrepreneurs in such resistant branches will defend the possibility of earning

money by maintaining relatively high levels of production by keeping their workers and

increasing their wages. In case of high levels of employment wages converge and wage

differences reflect basically differences in physical and psychological burden, including

differences in the cost of training. This will be perceived by the mass of the workers as a fair

hierarchy of wages. It is therefore no accident that the class struggle under capitalism has in

the main focused on wages and hours worked (Steglich 1960, Dobson 1980: 29), issues which

could easily be used for the constitution of large all-encompassing working class

organizations. The powerful organization of such large numbers, with their influence on the

constitution of political party systems, as a counterweight against the power of money

constitutes the basic characteristics of bourgeois democracy (Badie and Hermet 2001: 222f.).

The initial argument of Keynes had been that Say’s Law does not work as automatically as

postulated by its neoclassical proponents, but that for maintaining capitalism it should work

largely in lines described by the classical and neoclassical paradigms. Keynes assume that its

working could be brought back by relatively unproblematic interventions in the realm of fiscal

and monetary policy. But the initial argument leads to much more extended ramifications for

the basic foundations of competitive capitalism and free bourgeois democracy than Keynes

and economic Keynesians had been able to present. By insisting on the crucial importance of

expanding mass consumption for maintaining the political enfranchisement of labor by

supporting profit against rent, Keynesians can proactively participate in the discussions on the

future of capitalism and globalization and the preservation of the essential elements of the

bourgeois revolution against the new rise of rentierism.

4. Keynesianism and the varieties of transition to capitalism.

Pre-capitalist societies tend to develop powerful obstacles to scarcity of labor. Without going

into details, I argue that so-called primitive communities will be characterized by

segmentation, where the criteria for being part of the higher or the lower strata are mostly

diverse (age, conquerors, old established lineages, etc., Elsenhans 2012a: 29-38). If segments,

especially nuclear families, follow strategies of acquiring security by multiplying their

progeny, marginal product in the main activity agriculture has to decrease if technical

innovation in agriculture is low. Marginality, i.e. the emergence of a substantial part of the

population which does not produce as much as it needs for its own physical reproduction, at

bare bone levels will emerge while simultaneously higher segments extract still larger

resources. The better-off will use these resources at least partly for alliance building in order

not to be destroyed by the simmering resentment and subsequent alliances of the very poor.

Ancient history gives many examples of the very poor being available for the very powerful

as a political basis for enhancing their power against the middle strata in society. We can

therefore take for granted that the egalitarian structures of primitive communities, if they ever

really existed, were unstable. Highly unequal societies are therefore the normal result of the

historical process. Increasing economic surplus is transformed into those structures which are

called Ancient Empires or tributary modes of production. The millennia-long duration of such

inegalitarian formations and their undeniable achievements in improving technologies and

arts do not give any indication of their incapacity of managing their internal contradictions.

The old idea of human equality survives these millennia and is even reinvigorated during the

Axial Revolution (6th century B.C. to 7th century A.D.) in the concept of ritual equality of all

human beings in their relation with a loving God who does not care for the inequalities

created on earth (Jaspers 1948, Fusé 1982: 109 f.). The phenomenon is universal

encompassing the Western monotheist religions and adaptations of older teachings like

Buddhism or Bhakti-oriented Hinduism. The circular perception of history between

centralization and decay reflects the absence of consequential linear development despite

accumulation of knowledge. This corresponds to the argument that the specific type of

capitalist technical progress is not the result of an accumulation of knowledge but of an

orientation of technical progress.

According to the new schools of world history (the California school, Pomeranz 2000, Alam

2000, Parthasarathi 2002), Asian technical progress may have even been technically superior

to the incipient capitalist technical progress in north-western Europe, but the distinctive

character of the European pattern of technical progress consisted in its orientation to

improving the production of goods of average quality by reducing the cost of production and

making them accessible to relatively low income consumers in societies. The anecdotal

evidence of European inferiority in quality of industrial products is well

documented(Çizakça1980: 546, Oldland 2010: 222, Coleman 1973: 13, Parry 1975: 2009).

The European ruling classes were striving for excellence. For instance, in other European

countries French qualities in cloth, carpets or furniture where emulated. Maxine Berg (2004:

87) describes how British import substitution of Chinese products became an important

industrial activity. The admiration for luxuries in the British upper class was such that British

engineers of the late 18th century did not understand their superiority in relation to China

consisted in machine building and cheap standardized products. In selecting the products for

the McCartney mission (1793) they chose British luxuries (Berg 2006: 271-276), while the

Chinese court was not impressed and rejected them as clumsy.

To the difference of 19th century European historical thinking, there is no need nowadays to

explain how the accumulation of knowledge led to the industrial revolution and capitalism.

The important point consists in explaining why despite the European attempts to become

centralized states like in Asia, with comparatively stable social structures, it failed.

Parliamentarian absolutism like in England, royal absolutism like in France (Anderson 1974:

34-40, Lublinskaya 1972: 90, Grecenková 2004: 505), but also the centralizing attempt of

imitating the Arab political structures Frederik II from Sicily (1194-1250) undertook in the

13th century in southern Italy (Abulafia 1988: esp. 44 ff., Kantorowicz 1963: 177), all

demonstrate that the so-called feudal European ruling classes had no other goals than

becoming like the centralized "state classes" of the ancient empires of Asia, however were

thwarted in their attempts to successfully follow them..

As there cannot be pre-existing economic equality as the basis for increasing mass incomes

together with the absence of negotiating power of the lower strata of the population, other

explanations are necessary. They have to be able to deduce the early European industrial

revolution from other factors than a special cultural heritage of Europe which would

distinguish it from Asia, which remains a Eurocentric view of history. There is no need to

prove that Europe was more egalitarian, north-western Europe most likely was. It is sufficient

to show that the inevitably occurring marginality in case of population growth outstripping the

available fertile soils was prevented from occurring with the concomitant restrictions on the

opportunities of the lower classes. Obviously low rates of exploitation of the peasantry

contributed, and the peasantry used this economic well-being less for demographic growth

and more for improving the economic situation through long-term investment. This is largely

described in the literature on the mediaeval agricultural revolution in north-western Europe

(Aguirre Rojas 1986: 60, Dowd 1961: 143, Verhulst 1990). But many other more or less

important factors are quoted, for example a change in reproductive behavior as occurred in the

16th and 17th century can be quoted as important and also literature has started to deduce a

different marriage pattern for Europe in relation to the southern shores of the Mediterranean

(Mitterauer 2003: 73, Kreile 1993: 51).

To summarize, the point is that some accidents of history kept the ruling classes from being

able to centralize (Elsenhans 2014: esp.606ff.): the black death with the scarcity of population

which made British estate owners have to compete for labor (Cohn 2007: 481, Schlauch 1940:

421, Hilton 1978. 279), the slowness of the centralization process which allowed cities to

become more important and promote trade and mass oriented industrial production for their

neighborhoods in the countryside. Where these cities were not powerful enough to impose

higher rates of exploitation on the surrounding peasantry, as in England or the Netherlands,

they developed industrially. In Italy these cities were successful in increasing rates of

exploitation, despite being technically superior to English and Flemish textile production,

these Italian cities were specialized in luxuries and later on blocked in their development

(Hopcroft and Emigh 2000: 23, Emigh 2003). The conflicts within the ruling classes were

difficult to overcome, especially because of the conflict between Pope and Emperor which

made the task of uniting the ruling class in a single power structure difficult. Nothing

comparable to Asian “Caesaro-papist” structures where the secular ruler was also the summit

of the religious bureaucracy could be achieved in Western Europe, but were realized in the

Byzantine empire (and its descendent Russia).The heterogeneity of this list indicates that the

ruling classes in Europe were not united in a precisely formulated interest in maintaining

segmentation of European ruling classes or emancipation of their labor force by overcoming

marginality. The lack of concentration of the ruling classes in Europe was not an achievement

of the ruling classes

I therefore argue that during a limited window of opportunity, caused by the breakdown of the

Roman Empire, the immigration of migrant populations with low stratification and the

geographic location in northern altitudes with generalized rainfall and generously warmed by

the Gulf Stream made owner-operated peasant farms viable without state support for

irrigation. For historically accidental reasons in the political development of north-western

Europe, these peasantries became capable of demanding a very high price for abandoning

their independence against rising ruling classes which had difficulties in achieving their

centralization (Allen 1999:224-230, Chambers 1946, Nelson 1984: 138).

Managing marginality and the resulting difference in the economic and social trajectories led

to the window of opportunity in shifting to capitalism. Why could the poor impose the

removal of emerging marginality? In the British case the concentration of land and easy

access of small and medium farmers to agricultural markets together with low rates of

exploitation when subsequently land holding was concentrated (Allen 2003: 443, Collins

1967: 366ff., Mendels 1976: 204, Nelson 2000, 17), at least temporarily created a large

internal market on which decentralized small and medium size industry thrived and created

nonagricultural jobs, absorbing in the process an important part of an expanding population

(Thirsk 1978: 106). Where power configurations were less efficient to keep substantial parts

of the population from falling into marginality, state support for the poor in the form of the

Poor Laws was available (Elsenhans 1992). Production of industrial goods for the

consumption of the poor, a stepchild of all previous class societies of history, became a

dynamic motor for economic growth. I call this sector a popular pole of industry, the

dynamism of which created the difference of Europe from Asian high civilizations (Elsenhans

2015: 51-54).

Specialization on appropriate products for this internal market and products on the lower end

of the quality scale provided comparative advantage on external markets for products for

which local luxury-oriented upper classes (in Asia) rarely cared, as well as markets

constituted by relatively unsophisticated settler populations in the newly opened up sparsely

populated new continents.

The important point here is not that the periphery suffered from this unequal specialization,

but that it did not suffer from exploitation, defined as appropriation of locally created value

and appropriated by an externally based privileged class which used the transferred value for

accumulation at home. It confirms once more the Keynesian argument that it is not the

productivity of investment but its contribution to employment which matters.

The conjunction of a relatively egalitarian agriculture with opportunities of increasing surplus

by means accessible to owner-operators and a social structure which provides the poor with

access to this surplus, and hence limited destitution through hunger, allowed the expansion of

demand for simple products. These products were creating employment for the average

skilled and opportunities for first steps in mechanization and hence the application of

investment goods. Goods which could be owned as capital by business people without access

to the politically redistributed assets of pre-capitalist societies.

In France and Germany, the high spending on infrastructures, especially during the railway

revolution, absorbed marginal labor from agriculture which migrated from the countryside. In

Japan the transformation of obligations to the noble landlords into a fixed price product tax on

rice led to the improvement of the income situation of the peasantry, as the ruling class was

foolish enough to devalue its own tax by inflationary policies financed from this tax (Hayami

1972: 22, Grabowski 1994: 443).

Despite the variety of trajectories for overcoming marginality, there are common elements: an

elastic agriculture capable of providing food for the poor and a distribution of land through

which some labor time provided the operator with a high initial income. Further increases in

the input in labor time which only contribute little additional income but raise overall family

income could be accepted because of the high income derived from the “first hours” of work.

Mechanisms for further channeling surpluses available in specific sectors as rents into

investment or consumption of the many were important and often provided by the state, as

otherwise these incomes would have been appropriated by political means or by the powerful.

Ultimately keeping the “rich” from this type of waste implied an expansion of the internal

market for industries which could be built up within limited protection of the 19th century.

The Poor Laws and such an egalitarian initial ownership structure in land allowed subsidizing

marginal labor from above or unintentionally. The Poor Laws diminished available surplus, as

Malthus (1958[1798]: 57f.) rightly argued, but increased poor people’s consumption and

hence the market for the pole of popular industry. The Poor Laws triggered mass consumption

by raising the incomes of the poor extracted from the surplus. Egalitarian land distribution

gave every family land on which it could earn considerable yields with limited labor input. If

this labor input did not suffice for producing enough for its survival, the family could increase

labor input with very little increases in production, which were necessary for survival. Both

the Poor Laws and an egalitarian distribution of land reduce the surplus while increasing mass

consumption and create a larger market for the popular pole of industry.

The US case of the absence of such mechanisms is an exception given the availability of

unlimited fertile land. Few countries dispose today of sparsely populated land. These lands

were populated by primitive communities and in the 19th century they could be eliminated as

outdated without being internationally shamed as they would be today.

To some extent the efforts of the Global South to develop by industrializing reproduce the

mechanisms of 19th century late comers in industrialization, especially in continental Europe

and Japan. The case of the continental European countries with their higher role of

infrastructure spending constitutes a sort of blueprint for the state-led import substituting

industrialization undertaken after 1945 in the countries of the Global South. Some of these

countries had achieved their independence in the 19th century before the second wave of

European colonialism but suffered from the Great Depression of the 1930s. Most of them had

achieved independence after the post-World War II demise of colonialism. The importance of

the peasantries as shock troopers of the national liberation movements explains the

importance of land redistribution which remained, however, limited outside the East Asian

region under Confucian-Buddhist heritage and Marxist dominance. Import substitution failed

elsewhere partly due to the difference with 19th century continental European countries’

dynamic internal markets of low income producers in agriculture and small-scale industries

which failed to emerge to a sufficient degree except in the land reform countries of East Asia.

Additionally, infrastructural investment was important for improving the supply side of

production but productivity lags had become so important that much less local products were

used than in the case of European railway building. It was less the supply effects than the

demand effects of the railway building that mattered. Those countries which were devoid of

the necessary products for the railway revolution, particularly southern Europe (Spain,

Portugal, Greece, Italy), had also not benefitted from the railway revolution.

The driving force of the new wave of industrialization in the Global South since the 1980s,

export-oriented industrialization, does not constitute a predominantly market-driven solution.

It depends on devaluation of the currency below purchasing parity for transforming

comparative advantage into cost competitiveness (Elsenhans 2002: 66-73). Devaluation below

purchasing parity is nothing other than the establishment of a market mechanism which

allows, without much administrative cost, the subsidizing of a substantial part of the local

workforce by cheap basic products from local production: food for the additional workers in

the export sector as for the additional workers in a small and medium scale industrial sector

which produces basics for the local market, especially for the low income households. Export-

oriented industrialization is therefore one form among others of mobilizing rents in order to

support the marginal population. It is under the actual conditions the most efficient means

provided that it is integrated in an overarching concept of maximizing the multiplier effects

for employment creation.

The Keynesian argument started with the demonstration of the market not automatically

producing outcomes necessary for development and high levels of employment. The

propensity to save appears as the vector through which a lack of demand manifests itself. This

is however an aspect of a more fundamental contradiction. Capitalism depends on

consumption, but the day-to-day decision-making is done by members of a social class who

are evaluated in their efficiency by their search for financial surpluses. Only a power

configuration where this class cannot impose its own rule of behavior on the whole system

allows the capitalist system to survive. The principle of emulation of the privileged class

constitutes a danger for functioning capitalism: increasing financial surpluses without

appropriate parallel expansion of demand, especially mass demand, will increase savings and

luxury spending.

Increasing savings, withholding of income in monetary form instead of its use for purchases

of goods and services, reduces profits for the investing enterprises of the real economy. Part

of the purchasing power they created in the hands of households does not revert to them. If

the propensity to consume increases with the levels of income, the danger of missing demand

increases in line with the inequality of income distribution.2 With the concentration of

incomes among the richer households, sufficient demand requires increasing consumption of

luxury goods, which excludes in its consumption pattern important forms of technical

progress. In addition, the stability of luxury demand ultimately depends on less competition

between the privileged ones. Both constitute obstacles for further capitalist growth and

prosperity.

2 In case of continued increase of real incomes, a configuration may emerge were only manipulated consumption assures a sufficient demand for products, or where nonmaterial needs of the mass of the households emerge which do not lead to demand for products and services, but for savings which ultimately only fuel the financial markets (Elsenhans 1999: 1214-129).

Extending the initial argument of Keynes to a general statement about imbalances in the real

economy, and the social and political conditions for capitalism, requires insistence on the

importance of opposing classes and the necessary equilibria among these classes. The reach of

monetary policy is limited mostly to checking overheating in the economy. When used to try

relaunch the economy it produces a dominance of financial markets, the financialization

which threatens capitalism today. 3

Improving the impact of Keynesian thought in the actual debate on the future of capitalism

therefore does not require a central focus on the efficiency of monetary policies, but the

transposition of the initial Keynesian argument to the real economy, showing that the

diagnosis of a too high propensity to save is a manifestation of an unequal distribution of

purchasing power and excessive insecurity for the poor.

5. Highly inegalitarian BRICS? Or a Keynesian explanation for the

catching-up of some countries of the Global South through globalization?

BRICS are still nominally underdeveloped economies even if they are characterized by high

rates of growth in the last decades. As underdeveloped economies they share the

characteristics associated with structural unemployment (Lewis 1954), they are as follows:

The important degree of marginality is associated with economic structures which do not

create enough incomes (read: demand) for local industries; Internal markets are narrow;

Trickling down of dynamizing impulses from foreign trade is limited so that there is no broad

production growth outside the export-oriented sectors.4 Underdeveloped economies are

characterized by productive structures which cannot flexibly react to rising mass demand.

Their investment goods production remains weak. The dominance of the demand of high

income households in the orientation of local production does not afford economies of scale

efficiencies, even on a protected local market. High exchange rates with respect to their not

yet existing local industrial production in the wake of comparative advantage in raw material

production also discouraged, and still discourage, industrial diversification. The social

structures characteristic of capitalism with empowerment of labor does not exist. Therefore

contact with capitalism does not lead to capitalist transformation but to deformation in the 3 I want to refer especially to the important work of Hein, as a summary Hein 2012 and now Hein 20144 Which may have been confined by colonial violence, such as the slave trade or other forms of exploitation by non-economic means.

form of destruction of pre-capitalist forms of solidarity (kin, large family) without the

necessary replacement development of new forms of labor empowerment and solidarity.

Despite differences in initial conditions for the transition to capitalism, the two requirements

outlined above still hold: marginality has to be tackled by nonmarket instruments and

nonmarket instruments are the more successful as they aim at and support egalitarian

structures of income distribution on which capitalist technical progress can be based.

The image of the BRICS outside North American academic economics is still largely

determined by North American discourse. In relative disjunction from the focus of academic

research in microeconomics, these writings reflect an obsession of the public with power at

the world level. Economics is part of this power game (Carey and Li 2016, Beausang 2012,

Nye 2015, Hopewell 2015). Brazil, Russia, India and China (to which South Africa was later

on added) appear as economic and political powerhouses which the public in the West is told

to fear for their supposed capacity to put an end to American hegemony at the global level.

The BRICS are a category of countries in the Global South invented basically out of

American fear.

In reality these countries are characterized by totally different levels of development and

economic strategies. Three among them have succeeded in diversifying their productions, one

only is really achieving some sort of transformation in the direction of capitalism (China).

Russia is a raw material exporting economy which suffers from increasing absorption of rents

by the politico-military complex (share of raw materials 2015: 13%, of fuels in total exports:

63%). South Africa’s exports are constituted mostly of raw materials (total share of exports

including fuels in 2015 was 49%). South Africa suffers from Dutch disease without a great

ability to overcoming negative consequences on industrial diversification. Brazil has

undertaken great efforts for industrialization, including for exports of manufactures, but its

richness in raw materials (2015 share in exports 54 %, fuels 7%) and the new rise of global

raw material demand through the rise of Chinese and also Indian industries has raised its

exchange rate and led to a decreasing share of manufactures even in GDP (2004: 28,6%,

2015: 22,7%).

Two among the BRICS are prominent members of the globalization movement, as manifested

in increasing exports of manufactures from production sites in the Global South. China does

now realize 41% (in 2015) of all export of manufactures from the Global South. India’s share

is 3% (Taiwan 5%, Korea 15%, all BRICS are 48%) India is less than Taiwan), but its growth

rates (2003-2015: 347%) are nearly as high as the growth rates of Chinese exports of

manufactures in the last 12 years (2003-2015: 385%), admittedly from a much lower level

than China had achieved at the beginning of the new millennium.

Whereas not all BRICS are participating in this export offensive of the Global South, many

other countries of the Global South are and demonstrate even more success than some BRICS.

The transformation of South Korea, Taiwan, Singapore and also Hong Kong are a case in

point. They are examples for the People's Republic of China, which the People's Republic of

China is still on its way to realize.

The process has not been caused by changes in the international power structures or economic

success based on political power. It is the result of predictable developments within the

capitalist system together with the introduction of the Green Revolution after World War II

(Elsenhans 2002: 69). The Green Revolution was promoted by most of independent Third

World governments and international aid agencies in order to avoid famines and their

consequences for the stability of political regimes. It was therefore to a large degree the result

of the political constraints imperialist metropolises and local governments had to respect

because of the rivalry between the state socialist bloc and the Western powers.

The economic mechanisms which lead to the rise of the export of manufactured products from

the South are easy to characterize: specialization on raw material exports of the South had

been less the result of its endowment with rich mineral deposits and important productive

potentials for agricultural raw materials, rather it had been the result of the exhaustion of rich

mineral deposits in the industrial centers of production. Industrial consumers of minerals first

mined rich deposits nearby, and after the exhaustion moved either to less rich deposits (with

less mineral content) or more distant deposits elsewhere, which could also be in the Global

South (but equally in the Arctic north). The more raw material production moved to the

South, the less prices remained high: the share of high-cost raw material production in world

supply decreased. Differential rents on the basis of high world market prices covering high-

cost production sites in the West disappeared, and decreasing prices implied change in

comparative advantages. Additionally, agricultural raw materials enjoyed only low income

elasticity of demand in the West and exports from the South soon reached saturation. Other

commodities, among them labor-intensively produced simple manufactures, provided

relatively more income to countries in the South than raw materials. Obviously this

configuration appeared first in southern countries which did not have any important well

earning raw material exports.

With the success of the Green Revolution, the international cost of maintaining workers

decreased. Locally produced agricultural surpluses were difficult to export, and hence could

feed a local population so that additional income from rising employment in export-oriented

manufacturing had a material physical counterpart in locally produced food. Technology

transfer was facilitated by the permanent attempt of capitalist enterprises to reduce costs of

labor by downgrading the skill requirements for the labor force, such that (especially highly

capital intensive) technology is operated by only semi-skilled labor in the South as efficiently

as in the West.5

The new international division of labor, the rise of the newly industrializing countries, and

also the rise in manufactured exports from some of the BRICS are the result of the capacity of

these countries to devalue their currencies below purchasing parity which lowers the price of

their labor employed in export-oriented manufacturing (Elsenhans 2004, 2000: 24-31).

Workers in these industrially catching-up economies with initial real wages of 1/20 of the real

wages in the Western world cannot survive on the prices of subsistence goods in the West.

The purchasing decision power of the salaries in the catching-up economies is higher and

about 1/5 to 1/7 (Strack, Helmschott, and Schönherr 1997, Chen, Gordon, and Zhiming 1994),

providing a salary at purchasing power parity 4 to 10 times as high as the wage at the official

exchange rate. Obviously, the material counterpart of that much larger basket of goods cannot

be bought from abroad if the currency is undervalued. Hence the strategic importance of the

production of an agricultural surplus, which makes the subsistence needs of export workers

independent from foreign exchange earnings. A locally produced agricultural surplus in

addition allows for providing income and food to workers in home market oriented industrial

branches, so that most of the additional consumption created by the employment of additional

workers in the production of manufactured goods for exports is provided by local agriculture

and a thriving local small and medium-scale industrial sector (sometimes even referred to as

the informal sector).

Penn World Table presents data on domestic consumption prices (household plus

government) evaluated at PPP for the BRICS and compares them to US price levels for the

same year (Babones and Elsenhans 2017). Brazil had high domestic prices (i.e. an overvalued

exchange rate) in the early 1990s and then again peaking in 2011, coinciding with when the

Brazilian economy began to stall. Russian, South African, and Chinese exchange rates also hit

relative highs in the 2000s, accompanied by stalling economies. China had to accept increased

5 Low productivity differentials in the plants of multinational enterprises in the West and in the South have demonstrated this link long before the export offensives of the South had started (Boatler 1975: 506).

competition because its local costs increased in the wake of incipient scarcity of local factors

of production in the main export production zones close to the eastern coast, but had advanced

sufficiently in increasing productivity to be able to diversify into higher price export goods.

India continues to have low relative prices, reflecting a weakening of its currency compared

with 1980s levels, and not coincidentally, India experiences higher growth rates of its

manufactured exports than China.

Internal distribution continues to matter: the countries which enjoyed increasing growth from

manufactured exports have been able to use their agricultural surpluses, not only for keeping

their international labor costs down (where other Asian countries were also successful despite

not achieving comparably high growth rates of manufactured exports), but were able to use

the increasing supply of food for increasing mass incomes. All BRICS have engaged in

measures for subsidizing the poor, but some have been much more successful in the reduction

of poverty than others. China has reduced poverty to mere 6.3%, India within thirty years

from 34.7% to 23.6% nowadays, and the successes of Brazil and South Africa in this area

have been thwarted by the effects of their richness in raw materials on their exchange rates.

In the best performers in export-oriented manufacturing (Taiwan, South Korea, China),

marginality was tackled by relatively radical land redistribution which kept farmers on

smaller holdings where they could survive only if they supplied their marginal labor with very

low additional yields to agricultural production. Such labor time added less to total

subsistence requirements than its share in total labor time available on such farms: Labor was

hence supplied at lower local costs than landless workers could offer, as these farmer-worker

households received income from relatively high yielding “first hours” supplied on their

farms. In the initial phase, industry could therefore draw on labor which was supplied at rates

corresponding to these very low additional yields, hence paid at rates which do not correspond

to a wage necessary for survival. This was largely described in the feminist theory of

capitalism supported by household production (Bennholdt-Thomsen 1979: 57, Werlhoff

2000:731, Dunawoy 2012: 107). This is the economic basis of the temporary feminization of

labor in East Asia by young, female labor raised on the cost of the farms working at cheaper

rates in industry until marriage and returning to farm households (Bianchi 1986: 527, Boyd

2006: 490).

There is no denial that high, often state orchestrated investment, leading to high shares of

investment in national spending may accelerate growth, but the trajectory of the Chinese

acquisition of technology demonstrates that China was able to enter technically demanding

productions, especially in investment goods production, by initially specializing on the low

end of the technologies. With this low angle approach, China aimed at climbing up the ladder

often in cooperation with international partners (Brandt and Thun 2010: 1564, Bell and Feng

2007: 54-55). Most of these partners had come to China less for production for the world

market on the basis of low labor costs than for producing for the Chinese home market (Qiu

1999:97). The growth of the internal market was therefore a condition for technical learning,

which subsequently enabled Chinese companies to go abroad (Fischer 2016: 34ff., Fornes and

Butt-Philip 2011: 98, Buckley and Clegg 2004: 40).

Such companies were promoted by government subsidies, including government regulations

for foreign companies, which assured technical spin-offs on the basis of allowing a higher

short-term profit rate for the foreign partner in exchange for greater spin-offs in the local

Chinese economy. Economically these subsidies were financed from rents earned from

already highly competitive low technology labor-intensive branches. South Korea, Singapore

and Taiwan have applied basically the same principle, Korea by forcing the highly

competitive textile sector to employ initially high cost locally produced machinery (Haggard

1983: 283, Mytelka 1986; 255-259, same China: Li 2002), Singapore by taxing low skill

labor-intensive branches of production, and many other Asian countries including Taiwan by

local content rules (Holtgrave 1985: 75).

The successful catching-up economies, BRICS and other countries often called NICs (newly

industrializing countries), have succeeded in export-oriented manufacturing and growth of

their economies by combining expanding internal mass markets and rents used for improving

employment through rising exports. Western working classes fear this strategy and normally

do not understand that it is less dangerous if it is accelerated than if it is opposed or even

blocked.

The South Korean, Taiwanese, Singaporean, and also now the Chinese case, show that there

is an upper limit to devaluation-based exports. When devaluation leads to high levels of

employment, not only real wages in export oriented branches and enterprises, but also

increases in the rest of the economy. The South Koreans called this the turning point (Bai

1982). Even a not very democratic regime like the Chinese cannot avoid increasing

combativeness of its working class when high levels of employment are achieved as the

working class perceives its scarcity (Appelbaum 2008, Brink 2013: 301, Lüthje 2012: 34).

Catching-up on the basis of devaluation is a transitional phase: when employment levels have

risen to near full employment because of low labor costs on the basis of devaluation, scarcity

of labor leads to inflationary pressures, so that either nominal wages increase locally or, in

order to avoid inflation, government accepts appreciation of the currency. The most

prominent case for this type of adjustment is the German reevaluation of the late 1950s, early

1960s (Milward 1992: 149ff., Burhop and Becker 2013. 211).

Having managed to overcome marginality, the successful exporters of manufactures have

increased multiplier effects originating from their dynamic export sectors, such that

employment levels increased and internal mass markets widened. This is just a more general

application of the principle of Keynesianism: resources not used for increasing effective

demand are appropriated for supporting otherwise marginal people and their consumption.

The additional consumption supports the process of industrial growth without endangering

international competitiveness - as long as local labor is not scarce. Incomes distribution in

favor of the poor helps growth. All BRICS, but especially China, Brazil and India have

launched ambitious programs for uplifting the poor, even if their cost and subsequent

additional demand were limited to about 1 % of national income (UNDP 2008: 178-181).

More equality is less necessary for the growth process than rising mass incomes.

Where no other measures work, an artificial industry may be created in the South, for example

the collection of stones redeemed for monetary value thrown in remote areas from helicopters,

a concept referred to as helicopter money. An appropriate price is defined by a Western aid

agency, at which the daily collection of an able-bodied worker corresponds to the subsistence

needs of a nuclear family and the cost of bringing the stones to an exchange station. All

marginal people, but only the marginal ones, would go to these areas and collect the stones,

sell them on decentralized markets to lorry drivers Lorry drivers are not able to cheat the

workers on their produce. Without their incomes the collectors cannot survive, whereas under

competition enough lorry drivers are interested in getting the money at the competitive rates

offered on the market. The local market for food and simple products of the informal sector

expands. Farmers who are able to produce a surplus make efforts to increase production. They

will look for investment goods, which increase production, and not investment goods which

reduce the labor required for production until alternative possibilities of employment are

there. Aid agencies can be turned to become suppliers of such appropriate technology

(Elsenhans 1991: 281-283).

I propose a Keynesian solution to the actual globalization challenge on the basis of

maintaining demand globally - not through identical wage rates in the global West and in the

Global South but at appropriate wage rates which allow increasing exports from the South

through continued rise of mass incomes in the West. The South will catch up, not only in

competitiveness, but especially in the development of its internal local markets by rising mass

incomes. Such a deal could constitute the basis of international cooperation between Western

and Southern labor, a coalition which had been so powerful in that other period of

globalization of the late 19th century. I admit that the considerable isolation of the social

democratic forces at the global level from the newly emerging social movements in the South

makes this perspective very difficult to realize.

The BRICS are criticized for being highly inegalitarian, although degrees of inequality in the

more successful BRICS are in the range of modern day Anglo-Saxon industrial countries.6

Nevertheless, the negative impact on growth is limited: for example, the share of imports in

luxury consumption of the rich seems to be relatively high, at least in the case of China. China

pays for the luxury imports of its rich with its mass market-oriented industrial products.

Britain had done the same during the Industrial Revolution by importing Asian luxuries paid

for by British industrially produced textiles (Parthasarathi 2011: 32-33). Luxury consumption

pulls mass market goods production.

The success stories of the Asian Tigers and the two catching-up BRICS show that the social

conditions for rapidly broadening the effects of additional exports and better access to

technology are more important than difficulties in acquiring the knowledge about modern

technologies. Many countries, also relatively advanced ones as in Latin America (Mexico)

and Asia (Pakistan, Ahmed 2010), do not have more externally rooted problems than China,

Taiwan, or South Korea in acceding to modern technology but are still less successful. The

reasons for their failures are they do not grant space for greater rights and support for their

own marginal populations whilst maintaining high exchange rates because this increases the

purchasing power of their elites on the markets for Western luxuries.

The BRICS and new industrializing countries are using new opportunities for benefitting from

comparative cost advantage. They succeeded because they used available income which was

not appropriated by capitalist producers and previously went to rentiers, or even was not

produced at all. This income served for supporting their internal mass consumption and

government support for their technical upgrading, where technically more advanced

economies showed the trajectory to follow. Their government support for investment is more

sophisticated than formulated in Keynesianism, but especially because technically advanced

6 Gini coefficient 2005-2013: Germany 30,6; France 31,7; India 33,.6; China 37,0; United Kingdom 38,0; Russian Federation 39,7; United States 412,1; Brazil 48,1; South Africa 65,0, UNDP 2015: 215 ff.

countries do not have examples to follow. In addition they often have comparative advantage

in the most modern industries, where old leading industrial countries do not have productivity

advantages due to learning-by-doing to the difference of old leading branches. Despite being

technically superior in relation to latecomers, the productivity advance of established

technically leading economies is lower in new branches than in the old high-technology

branches, so that according to comparative cost advantage the latecomers are competitive and

appear as technically superior (Elsenhans 2006: 222-226). This implies a strong tendency of

the old leading economies to seek shelter in austerity thus endangering the development of a

balanced capitalist world economy. This strengthens rent-seeking also in the catching-up

economies. Nevertheless, the basic combination of correction by state spending of the

macroeconomic results through deficient investment or deficient increase of mass incomes is

Keynesian.

6. Why so late? Why so many obstacles?

Why does the message about the necessity of nonmarket interventions in favor of capital,

accumulation, and in favor of expanding mass incomes, have insurmountable difficulties in

passing? Keynesianism does not reject markets but asks how markets can be kept efficient. I

do not pretend to be able to cover all aspects of the causation of the actual social power

relations in the global system, but three mechanisms seem important:

– the theoretical heritage of first and second wave industrializing countries in the West,

– the social distance between the Western working classes and would be working classes of the South which are not integrated into capitalist structures,

– the distribution of advantages from the actual functioning of the global economy.

Marginality as a structuring element of pre-capitalist societies is not part of the perception of

their own history by Western societies and working classes. For all classical authors,

including Marx, labor in principle is able to produce as much as it needs for its subsistence.

The existence of people who produce less than their needs for subsistence has to be explained

basically by defective behavior which needs to be addressed by political regulation e.g. the

Poor Laws comprise of regimentation of work-shy labor.

The labor movement in the West has been closely associated with the struggle of the

bourgeoisie against established authorities. In this battle, the promotion of the values of

enlightenment, ultimately a secular culture, derived from the principle of religious freedom,

prevailed and was adopted by large parts of the working classes despite the importance of

religious forces for raising the so-called social question. Marginal populations are shed in the

South by Western-oriented capitalists and in political structures where secular values are

adhered to by the rather privileged part of society i.e. the "bureaucrats" and rather big

capitalists (to the difference of small and medium scale entrepreneurs originating from the

traditional trader class).7 They had been mobilized by the secular national liberation

movements which had grown out of the attempt of the relatively diversified middle strata in

the South to modernize their societies along Western lines, while still preserving cultural

identity. The failure of the secular nationalists to follow through on their statist model of

development and to provide economic improvement, also for the marginal ones, resulted in

the marginal population opting for the competing nationalist paradigms of the cultural

identitarian political movements, commonly referred to in the West as “fundamentalists”

(Elsenhans 2012b: 648). The Arab Spring has demonstrated how secular social democrats and

liberals from the West are isolated from the really dynamic political movements in the South.8

The largest Indian trade union is part of the political family of Hindu nationalism and in Arab

cities the working poor, often in precarious occupations, are a stronghold of cultural

identitarian movements. Marginality is not perceived in the West as a socio-economic

condition which leads to opportunities for emancipation, but as destitution which requires

patrimonial care of external actors, the NGOs, which do not share the value pattern of the

target group they purport to be helping, the destitute poor in the South (Wilcock and Scholz

2016: 107-120 . Such a relation obviously excludes the constitution of worldwide alliances

which could opt for a Keynesian economic policy paradigm on which could be based state

intervention as a well-targeted complement of basically market-oriented mechanisms of

management of the economy.

The absence of even a dialogue between the representatives of the destitute poor in the South

and labor in the West has greatly strengthened big business in the West and worldwide. Their

solution to the contradictions Keynesians address has been the extension of oligopolistic

structures which allow increasing rent-seeking while marketed as profit-making under

conditions of imperfect competition. Ironically, big business can easily accommodate

relatively extremist anti-capitalist positions of the left as the experience of so-called "really

7 I reject this labelling because these members of politically organized apparatuses do not depend on other classes, but control themselves large amounts of economic surplus of their societies, which they appropriate as rents, Elsenhans 1996state: 125-172.8 Two exhaustive books on the civil society in Arab countries do not even mention links with Western NGOs at all: Bayat 2010, Rieger 2003. Hillebrand 1994: 64, and Steffek and Ehling 2007: 113, report on the isolation of Western NGOs from the really existing local civil society in the Global South

existing socialism" is no longer considered as viable even by its former supporters. Preserving

firmly statist and anti-capitalist positions gives credibility to the claim of tolerance, even if it

is "repressive tolerance" in the sense of Marcuse (1968: 104ff.). The claim to be tolerant

facilitates the relatively systematic effort to keep Keynesian positions outside the public

debate or to integrate them into theoretical constructs where the debate is limited to problems

of monetary policy details.

Keynesian positions are also isolated from its possible theoretical target group - the working

classes in the industrialized West. From their very beginning the working classes did not act

on the basis of theoretical constructs but on the basis of a moral claim to a decent life. There

have been periods where worker parties have tried to develop theoretical positions justifying

the reduction of surplus in the hands of the powerful, but even then the difference between

profit and rents was not developed seriously. Marx in his comment on the Gotha program of

the Social Democratic Party in Germany (Marx 1962[1875]:19ff.) implicitly acknowledges

the importance of the type of profit Kalecki speaks of, the source of financing investment but

fails to go further. Otherwise it could have led to the position that profit is necessary in

capitalism and controlled by the market in the form of sanctioning the wasteful use of

resources for investment. On the contrary, other forms of surplus, such as rent, have to be

subject to social or political control. On competitive markets, capitalists do not need social or

political control for investment, as each profitable investment is self-financing and needs only

an efficient banking system. These other elements of the surplus are not necessary for

capitalism and are not appropriated on perfect markets and their redistribution in favor of

labor does not constitute a threat for growth in capitalism.

The perspective of a structure where the ultimate responsibility for full employment and

empowerment of labor remains with society organized by democratic institutions and

movements does not find an audience in the public sphere. As long as the basic Keynesian

positions propose to deal with economic imbalances and do not link up with the moral claims

of the working population, they will be considered as dealing with technical details which

may have their political relevance but which do not give theoretical orientation for the social

practice of those who have only their labor power to sell.

There is a double challenge: labor losing its empowerment in the West through the

competitiveness in the South, and possibilities of surplus appropriation by transnational

business through protected oligopolies on the one side and continued marginality in the South

during an at least protracted transitional period. This transitional period in the South is longer

the more West reacts to this new competitiveness by limiting growth of mass incomes in the

West. The West and the South are choosing therefore second-best strategies which only serve

to deepen the crisis. Two sides in a contest destroying each other’s chances for satisfactory

solutions because of a refusal to believe in the ability of the other side in keeping to a

cooperative strategy, a global prisoner’s dilemma so to speak. The way out of a prisoner’s

dilemma requires an understanding on both sides of their common long-time interest. Both

sides can be cooperative only if they understand that for the other side cooperation is so much

in its own interest that the other side will stick to it.

At the level of the management of the international economy this requires a Keynesian

understanding of capitalist growth and the transition to capitalism. Labor in the West should

be shown that catching-up of the South preserves its own negotiating power and is accelerated

if labor in the West continues to strive for rising mass incomes. The international price of

labor depends on exchange rates and not on nominal wage deals. Labor in the South has to

realize also that its own contribution to expanding internal markets in the South does not

jeopardize its international competitiveness, but contributes to maintaining overall demand

and hence the chances of benefiting temporarily from the employment creation through export

surpluses in trade with the West.

This win-win-situation is an aspect of Keynesian theory of overcoming imbalances in

capitalism. Presenting it more successfully to political and social forces in the West and the

South who may be interested in such a win-win-situation will not change suddenly the actual

conflict dynamics at the global level or inside the participating societies. Despite that the

challenges, it constitutes an offer for currently opposed political forces. Keynesians can make

such perspectives more attractive by proposing policies of increasing mass demand and hence

opposing austerity on the basis of a proven theoretical framework.

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