Keynes on national self-sufficiency

One of the emerging discussions is what will the post-coronavirus world look like both within nations and across nations. There is a growing thread about the worries of increased state authoritarianism as governments have imposed an array of restrictions. There is also an increasing debate about the need for nations to return to enhanced national self-sufficiency to avoid the disruptions in the global supply chain that the pandemic has created. In 1933, John Maynard Keynes gave a very interesting lecture on this topic in Dublin. In this blog post, I consider that lecture and assess its currency in the contemporary setting.

The challenges ahead

There is a growing thread about the worries of increased state authoritarianism as governments have imposed an array of restrictions.

There are valid questions to be answered in that context and I haven’t much to add by way of my expertise on that topic.

As a citizen, we want the smallest state footprint that is consistent with a functioning society.

But, equally, the reality is that the capitalist system is now on state life support systems and will remain that way for some time.

Further, the challenges ahead, in part, have to address the pre-pandemic exposures that four or more decades of neoliberalism have left us with.

I refer to the rising and unsustainable inequalities in society.

I refer to the chronic wastage of labour resources as governments deployed the unemployed and the underemployed in a quest to limit the capacity of workers to organise so they could pursue reasonable rates of wages growth.

The result has been an indecent redistribution of national income towards profits, which has forced households to take on unsustainable levels of debt to maintain material standards of living.

I refer to the growing casualisation of labour and lifestyles that exploit the vulnerability of the ‘gig’ economy workers which will, ultimately, if not reversed, will lead to one of the largest intergenerational rip-offs in human history.

And in terms of material standards of living, I refer to the challenges of climate change, which is another of the large intergenerational rip-offs that neoliberalism has left us with.

And, if the scientific evidence is robust (and I think it is), then the climate challenge may not even be an intergenerational issue – it affects us now in visible and damaging ways.

Fires raging all around the world.

I read over the weekend this Reuters report (August 21, 2021) – Rain falls at Greenland ice summit for first time on record.

The ice sheet is melting and the ocean levels are rising.

I refer to the dysfunctional nature of our essential services – telecommunications, water, energy, transport, banking – which have failed to meet the claims that were made when the privatisation vandals started to sack public assets and transfer massive wealth stores to the top-end-of-town.

They will have to be brought back into public ownership and control.

In various ways, we have been ripped-off by these privatisations and outsourcings.

All of these challenges will not be resolved by the so-called ‘market’, which was a code word that the neoliberals used to condition us into believing that the great solutions of world problems lay in the pursuit of private profit and the radical reduction in state intervention.

But as I have noted previously neoliberalism did not do away with the state – rather, it reconfigured the state to work as an agent for capital rather than a mediator in the conflict between capital and labour.

The point is that all of the challenges above and those that I have not mentioned that are also beckoning will require larger not smaller government.

The climate challenge, alone, will require new government ventures, massive spending and significant tax and other impositions on our use of disposable income to ensure that there is non-inflationary space to accommodate that increase in public spending.

We have to come to terms with that shift in society, which will force a fundamental transformation in our production and consumption patterns.

And then there is the pandemic and the challenges our health and public security systems have to meet.

There is a large network of related systems that make up that aspect of our lives – the hospitals, the quarantine systems, the food distribution systems, transportation systems and rules, housing and building designs, borders, medical research, bio-security, land clearance policies, and the rest.

All will be dependent on increased state intervention.

So when the lockdown protests march around during a raging pandemic that is largely impacting negatively on the lowest income citizens, the most vulnerable citizens – chanting freedom, I only hear ‘freedumb’.

We do have to be mindful and attentive to authoritarian governments who might, under the veil of dealing with the pandemic, seek to impose unnecessary limits on our individual freedoms.

But we also have to get used to the fact that the neoliberal agenda, which tried to convince us that the state was no longer an integral institution in our well being and outsourcing welfare concerns to private, profit-seeking capitalist firms was the way to maximise our well-being, is dead.

Dead and there is no return for that failed ideology.

That is one place where our activist pressure has to be focused on – constantly rejecting that myth.

Which is one reason why we should be becoming cogniscant of Modern Monetary Theory (MMT) as a basis for understanding the economics that underpin the discussions surrounding these great challenges that are ahead.

National self-sufficiency

One of the themes that the pandemic has provoked is the idea of national self sufficiency.

In dealing with the pandemic, nations have found themselves highly exposed to global supply chains and punitive trade arrangements.

We have heard about relative minor issues relating to supply of protective medical clothing and masks etc, which are relatively easy to resolve in a relatively short time.

Australia is now in chaos as the Delta variant spreads among a largely unvaccinated population.

Why unvaccinated given we are one of the wealthiest nations?

Well, become our stupid federal government decided to ‘save money’ (yes, that again) by not buying a diverse stock of available vaccines last year and now we have found ourselves dramatically short of vaccines and the supply will not be resolved until later this year.

Other nations, without the same capacity to buy unlimited quantities of vaccines, sold under prohibitive intellectual property rights held by gouging international firms, have very little access to vaccine stores.

There are many other cases where global supply chains have become compromised.

It seems that the ‘free trade’ mantra, where we were led to believe that it didn’t matter if we had become reliant on other nations for essential goods and services, because that reliance would be ‘efficient’ and lead to the lowest cost supply has not exactly worked as plans.

Australia has also faced a changing geopolitical environment (hostility between the US and China), which has led the Chinese to stop importing many Australian exports.

So much for ‘free trade’.

We also know that ‘free trade’ leads to transfers of real wealth from poorer nations to richer nations, aided and abetted by punitive IMF and World Bank practices in the poorer nations.

The pandemic has also emphasised that localism provides advantages to nations, which resonates also with some of the environmental challenges ahead – for example, making our food supplies more locally produced again – in neighbourhood gardens etc.

While there are still advantages in working in tandem with other nations and exchanging our talents and innovations to ensure that we have a shared sense of equality, the pandemic has heightened our sense of self-sufficiency.

We need to share with others, which makes the decisions of pharmaceutical companies to profit enormously from the vaccine production and distribution reprehensible.

But we also need to think local and look after the citizens in our countries.

We need to develop capacities to produce more locally – to ensure high-paid and high productivity jobs are supported – and to ensure we are not reliant on international supply chains that increase our exposure to calamities like the pandemic.

At the onset of the pandemic in Europe, various leaders started to echo these sentiments.

Le Figaro article (April 2, 2020) – Thierry Breton estime nécessaire l’émission d’obligations pour faire face à la crise – reported on statements made by the European Commissioner for the Internal Market, Thierry Breton about the way in which the EU could meet the challenges of the pandemic.

It said:

Thierry Breton a par ailleurs reconnu que “la question que nous pose cette crise c’est qu’on est peut-être allé trop loin dans la mondialisation et la globalisation”.

La question, a-t-il ajouté, se pose notamment sur la santé (médicaments et matériels médicaux) mais aussi sur les “domaines industriels stratégiques” et sur l’agriculture.

“Je suis convaincu que notre relation au monde après cette crise sera différente.

So “the question posed to us by this crisis is that we have perhaps gone too far in globalization and globalization”.

And the question arises no only in relation to health supplies, but also in the strategic industrial fields and in agriculture.

Around the same time, the German Chancellor was talking about this issue in relation to medical supplies (Source):

In view of the fact that this market is currently based in Asia, I think it is also important that we learn as an experience from this pandemic that we need a certain amount of sovereignty or at least a pillar of domestic production here too.

National self-sufficiency.

It is not the first time these debates have arisen.

As I noted last week, in April 1933, John Maynard Keynes delivered a notable address at the University College Dublin on the idea national self-sufficiency, which in the context of the times and political developments in the Irish Free State, gave support to the increasingly nationalist emphasis of the new Prime Minister – Éamon de Valera .

When the Fianna Fail (The Warriors of Destiny) party was elected in 1932 in the Free State, the new President of the Executive Council (that is, Prime Minister) – Éamon de Valera – ramped up the nationalist economic approach, as part of a strategy to reduce the dependence on Britain.

He adopted a protectionist approach, which Keynes approved of in his UCD address.

The full text of the Lecture – National Self-Sufficiency – was subsequently published in The Yale Review (Vol.22, No.4, June, 1933, pp.755-769).

It was a very prescient lecture and resonates still today, in the light of the issues I have raised above.

It is worth reflecting on.

He started by observing that:

I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt, but almost as a part of the moral law. I regarded ordinary departures from it as being at the same time an imbecility and an outrage. I thought England’s unshakable free trade convictions, maintained for nearly a hundred years, to be both the explanation before man and the justification before Heaven of her economic supremacy. As lately as 1923 I was writing that free trade was based on fundamental “truths” which, stated with their due qualifications, no one can dispute who is capable of understanding the meaning of the words.”

So hardly an equivocal position.

He then indicated that he had changed his mind somewhat towards protectionism – “the orientation of my mind is changed”.

This was, in part, because he had evolved his “background of economic theory”.

But, mainly, his change was due the passage of history – that is was necessary ” to shuffle out of the mental habits of the prewar nineteenth-century world” and “that our habits of mind and what we care about will be as different from nineteenth-century methods and values as each other century’s has been from its predecessor’s.”

So when new sentiments, new knowledge, new challenges, and the experience of history are recognised, then it is time to abandon old shibboleths and adopt new approaches.

That couldn’t be more true today.

He considered the free traders from the C19th thought they were “solving the problem of poverty” by developing efficient production and trading systems that put resources to “their best uses”.

Keynes noted that the free traders thought they were underpinning world peace:

… the penetration of a country’s economic structure by the resources and the influence of foreign capitalists, and that a close dependence of our own economic life on the fluctuating economic policies of foreign countries are safeguards and assurances of international peace.

However, he argued in Dublin that:

It is easier, in the light of experience and foresight, to argue quite the contrary …

I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction.

For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. At any rate, the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort, that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years.

Quite a statement, especially in the context and time he made it.

On the question of poverty, he also demurred.

He noted that while policy choices may have advantages, they also can bring disadvantages that have to be weighed up against the benefits.

In terms of free trade in the C19th, the advantages of “economic internationalism” probably outweighed the “disadvantages”, among which were the speculative investments that foreign capital made in developing nations.

In assessing whether the net benefits continued to exist, he said:

But I am not persuaded that the economic advantages of the international division of labor to-day are at all comparable with what they were.

Some international specialisation was “necessary” because of ” wide differences of climate, natural resources, native aptitudes, level of culture and density of population”, but:

… over an increasingly wide range of industrial products, and perhaps of agricultural products also, I have become doubtful whether the economic loss of national self-sufficiency is great enough to outweigh the other advantages of gradually bringing the product and the consumer within the ambit of the same national, economic, and financial organization …

National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford, if we happen to want it.

He railed against “decadent international but individualistic capitalism” and called it a failure:

It is not intelligent, it is not beautiful, it is not just, it is not virtuous–and it doesn’t deliver the goods

At the time, he was mostly thinking of industrial capital given the rise of the financial speculator was in nascent form.

Today, he would be horrified with the way international financial capital has been allowed to ‘run’ amok by governments around the world.

Even in 1933, Keynes was firmly of the view that leaving private markets to allocate resources was:

… incompatible with that degree of material well-being to which our technical advancement entitles us …

Unless, profits are controlled.

He noted that while the free trade and deregulation approach had delivered massive profits and was driven by a narrow focus on “the financial results”, the reality was that for all the innovations:

Instead of using their vastly increased material and technical resources to build a wonder city, the men of the nineteenth century built slums; and they thought it right and advisable to build slums because slums, on the test of private enterprise, “paid,” whereas the wonder city would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have “mortgaged the future”–though how the construction to-day of great and glorious works can impoverish the future, no man can see until his mind is beset by false analogies from an irrelevant accountancy.

This is a view that has so much resonance today.

We have been hoodwinked by mainstream economists to believe that fiscal austerity is the way we avoid undermining the future well-being of our children and their children, when in fact, all we are doing is building ‘slums’ and depriving the future generations of a better future.

For Keynes, “We have to remain poor because it does not ‘pay’ to be rich”.

And:

We have to live in hovels, not because we cannot build palaces but because we cannot “afford” them.

Resonating.

He also talked about environmental matters:

We destroy the beauty of the countryside because the unappropriated splendors of nature have no economic value.

In a world where private capital and the private profit motive rules allocative decisions.

Remember he was talking in 1933 as the Great Depression raged on and workers were forced onto the dole by the mass unemployment.

Keynes could see the solution so clearly:

If I had the power to-day, I should most deliberately set out to endow our capital cities with all the appurtenances of art and civilization on the highest standards of which the citizens of each were individually capable, convinced that what I could create, I could afford–and believing that money thus spent not only would be better than any dole but would make unnecessary any dole. For with what we have spent on the dole in England since the war we could have made our cities the greatest works of man in the world.

To deal with the challenges I outlined at the beginning (for starters), we have to stop being making decisions that satisfy the “test of an accountant’s profit”.

That is the sound finance approach that underpins neoliberalism and has created many contemporary problems.

By investing in public goods and people, the government not only makes the dole redundant (through the increased spending) but also creates splendour to enhance our lives.

And that leads Keynes to consider the “proper purposes of the state”, which is another topic again.

Conclusion

Sometimes learning from history is important.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.