Privatised Keynesianism: An Unacknowledged Policy Regime

DOI10.1111/j.1467-856X.2009.00377.x
Date01 August 2009
Published date01 August 2009
AuthorColin Crouch
Subject MatterArticle
Privatised Keynesianism: An
Unacknowledged Policy Regimebjpi_377382..399
Colin Crouch
There have now been two successive policy regimes since the Second World War that have tempo-
rarily succeeded in reconciling the uncertainties and instabilities of a capitalist economy with
democracy’s need for stability for people’s lives and capitalism’s own need for conf‌ident mass
consumers. The f‌irst of these was the system of public demand management generally known as
Keynesianism. The second was not, as has often been thought, a neo-liberal turn to pure markets,
but a system of markets alongside extensive housing and other debt among low- and medium-
income people linked to unregulated derivatives markets. It was a form of privatised Keynesianism.
This combination reconciled capitalism’s problem, but in a way that eventually proved unsustain-
able. After its collapse there is debate over what will succeed it. Most likely is an attempt to re-create
it on a basis of corporate social responsibility.
Keywords: privatised Keynesianism; f‌inancial crisis; corporate social responsibil-
ity; capitalism and democracy
There have now been two successive policy regimes since the Second World War
that have temporarily succeeded in reconciling the uncertainties and instabilities of
a capitalist economy with democracy’s need for stability for people’s lives and
capitalism’s own need for conf‌ident mass consumers. The f‌irst of these was the
system of public demand management generally known as Keynesianism. The
second was not, as has often been thought, a neo-liberal turn to pure markets, but
a system of markets alongside extensive housing and other debt among low- and
medium-income people linked to unregulated derivatives markets. It was a form of
privatised Keynesianism. This combination reconciled capitalism’s problem, but in
a way that eventually proved unsustainable.
Following the fall of communism at the end of the 20th century it became common
to equate capitalism with democracy (Fukuyama 1992). The equation was
strengthened by a growing and historically novel preference of governments in the
United States for the regimes they supported in Latin America and to a lesser extent
the Arab world to submit themselves to periodic re-election. The spread of markets,
giving consumers freedom of choice in the economy, seemed to go alongside the
spread of voting procedures giving citizens choice in the polity. Further, and
somewhat less convincingly, because dictatorships involved ‘big government’,
democracy was considered to produce polities within which citizens would ask
governments to do less and, by implication, markets to do more.
This was a very different perspective from that of capitalist thinkers of the 19th
century, for whom there was a fundamental distinction between liberalism and
The British Journal of
Politics and International Relations
doi: 10.1111/j.1467-856X.2009.00377.x BJPIR: 2009 VOL 11, 382–399
© 2009 The Author.Journal compilation © 2009 Political Studies Association
democracy. By liberalism they understood a polity of free and open debate, with
government strictly answerable to an electorate of citizens, but with citizenship
limited to men owning property above some specif‌ied level. Douglass North (1990)
has shown how it was precisely political regimes based on such restricted citizen-
ship that had produced the legal basis of market capitalism in the 18th century. In
fact, the property-owning elite of that period had come from an even more
restricted landowning oligarchy than envisaged by 19th-century thinkers. As North
points out, the rules of the market depend primarily on the protection of property
rights. In the f‌irst instance this protection was against the king or other sovereign
political power, who had to be persuaded not to interfere with property rights or
restrict trade by granting monopolies (Wensley (forthcoming)). But equally, and
increasingly during the course of the 19th century, property owners sought defence
from interference in their rights by the property-less, the great mass of the popu-
lation. Democracy was the potential enemy of the capitalist economy. As political
movements representing the industrial working class gravitated towards Marxist
ideas, these fears became very real. Often property owners decided that, if forced to
choose between an anti-liberal regime that would still defend property rights and a
liberalism that was sliding towards democracy, they would prefer the former.
During the 1920s and 1930s this led many to make a further compromise, prefer-
ring the demotic anti-liberalism of fascism and Nazism, antithesis though that was
to 19th-century liberalism, to a democracy that increasingly seemed to imply
Bolshevism.
How the fraught relationship between capitalism and democracy changed until the
words could be used as virtual synonyms by some commentators is a long and
complex story. Part of it has to do with the role of US advertising, market research
and communications sciences in enabling elites both to talk and listen to the
masses—a skill that until the mid-20th century only leaders of the left, extreme left
and extreme right seemed to possess. But I want here to concentrate on a part of the
story that is relevant to macroeconomic policy.
One of the reasons why 19th- and early 20th-century elites took a fearful and
pessimistic view of democracy was that they could not see how mass prosperity
could be achieved quickly enough to satisfy the demands of a literally hungry
populace before the anger of that populace would have dismantled property rights.
The more optimistic, such as the British, saw hope in a gradual simultaneous
expansion of both property ownership and citizenship, the former being aided by
the growing wages and stability of skilled manual workers, the increasing ranks of
off‌ice workers, and phenomena like the building society movement that spread
residential property ownership.
But the problem was not only that workers were poor and lacked property. Their
lives were also deeply insecure, as the growing market economy was subject to
wide f‌luctuations. Early social policy, starting in Germany and gradually spreading
to France, the Austrian empire, Britain and elsewhere tried to put a basic
f‌loor under this insecurity, but its ambitions and therefore its achievements were
limited.
A more substantive answer to the poverty problem came in the early 20th century
from the mass production system of manufacture associated initially with the Ford
PRIVATISED KEYNESIANISM 383
© 2009 The Author.Journal compilation © 2009 Political Studies Association
BJPIR, 2009, 11(3)

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