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MARXIAN AND KEYNESIAN CRITIQUES
OF NEOLIBERALISM
ALFREDO SAAD-FILHO
Neoliberalism has lost much of its political legitimacy and nearly all its
popular appeal during the last decade. Apologias of privatization, fiscal
restraint, high interest rates, capital account liberalization, trade union-bash-
ing and other policies overtly associated with the neoliberal reforms are in
retreat. After sailing triumphantly to world domination in the eighties and
nineties, neoliberalism has become a political liability. Its strident rhetoric
has grown tired, and no longer brings votes – quite the contrary; neoliberal
platforms must now be disguised. The political shrivelling of neoliberalism
has been especially evident since the East Asian crises and the collapse of the
dot.com bubble. The corruption scandals that came to light under Bush II
have helped to unmask the regressive nature of the neoliberal project and its
organic links with the reconstitution of US imperialism. The political retreat
of neoliberalism is startlingly evident in any reputable bookshop: the number
of titles purporting to defend the neoliberal reforms has declined precipi-
tously both in quality and in market appeal, while a large number of critical
works have become available to growing numbers of readers.1
In spite of these political defeats, neoliberalism continues to be not only
the dominant economic policy, but also the dominant modality of social
and economic reproduction in most countries. It could easily be argued that
the economic grip of neoliberalism is becoming stronger even as its political
legitimacy wanes. This disconnect is examined below, through a specific
angle: the sources, significance and political implications of the Keynesian
and Marxist critiques of neoliberalism. These are important questions for
readers of the Register for two reasons. First, and quite obviously, Marxist
theory loses much of its relevance if it is disconnected from political action.
Clarification of the differences between Marxian and rival interpretations
of neoliberalism can help to strengthen the former and enhance its political
relevance and mass appeal. Second, the argument developed below suggests
338 SOCIALIST REGISTER 2008
that neoliberalism is a resilient system of accumulation which will neither
collapse spontaneously, nor be dislodged simply through the workings of the
electoral process. Mass action remains the essential lever for social transfor-
mation in the age of neoliberalism. However, neoliberalism has transformed
the modalities of reproduction of the working class and the scope for inde-
pendent working-class action. New forms of political participation need to
be found, and new modes of organization developed, in order to challenge
its dominance.
KEYNESIANISM AND NEOLIBERALISM
In neoclassical economic theory and in neoliberal rhetoric, capitalist (‘mar-
ket’) economies spontaneously gravitate towards full employment and the
most efficient use of resources, unless the adjustment path is blocked by
market imperfections. These imperfections can include misguided govern-
ment policies, trade union activity, peculiarities of the industrial structure
or technology, and a whole host of ‘distortions’ which, ultimately, separate
the real world from the mirage conjured up by the apologists of unbridled
capitalism.
One of the most significant intellectual achievements of John Maynard
Keynes was his alternative conceptualization of the capitalist macroeconomy.
For Keynes, the aggregate level of output and employment is limited by
aggregate demand (subject to capacity limits). If demand is insufficient, for
example because of adverse profit expectations on the part of the investors,
or because the state fails to adopt sufficiently proactive fiscal and monetary
policies, firms will reduce production and employment. This could trigger
a recession from which the economy may not emerge spontaneously. Con-
versely, if aggregate demand is excessive, output will eventually hit capacity
limits, leading to inflation and balance of payments deficits.
Keynes developed this fundamental insight in the midst of the Great
Depression. It led him to believe that, in an advanced capitalist economy,
the level of activity could stabilize at any level of unemployment. If there is
no spontaneous tendency towards full employment, the economy can find
itself lumbered with high unemployment indefinitely, at great economic
and social cost. This may also lead to political instability. Keynes’s reasoning
offers a sharp break with the logic and the policy implications of neoclassical
economics. It suggests that government intervention is essential to stabilize
the economy at the desired level of unemployment, which should not be too
high (to avoid needless deprivation) or too low (because of the possibility
of inflation). Keynes believes that the government can secure full employ-
ment and low inflation simultaneously if it fine-tunes aggregate demand
339NEOLIBERALISM AND THE LEFT
using fiscal, monetary and incomes policy instruments (for example, adjust-
ing the level and structure of taxation and government spending, fiddling
with interest rates, regulating industrial relations, and so on).
Inspired by Keynes, economists developed an impressive technical and
institutional apparatus that enabled the Western economies to avoid a rep-
etition of the Great Depression. Relative economic – and, therefore, social
and political – stability has been a lasting triumph of Keynesianism. Keynes-
ians claim that their preferred policies were largely responsible for the post-
war ‘golden age’, when most capitalist countries experienced high growth
rates, near-full employment, rising income levels and unprecedented levels
of social integration. But Keynesianism has been in retreat since at least
the mid-seventies. The neoliberal transformations in the US, the UK and
elsewhere have reversed significant aspects of the Keynesian consensus, for
example, through the large-scale privatization of productive state assets,
reduced tolerance for trade union activity, and the reintegration/subordina-
tion of the working class through policies of high unemployment, low eco-
nomic growth, concentration of assets and income, and the partial rollback
of the welfare state. The Keynesian consensus is long gone. Contempo-
rary capitalism has shifted, instead, towards specific modalities of economic,
social and political reproduction associated with neoliberalism.
Keynesian economists typically account for the retreat of Keynesianism
in terms of two key processes.2 First, the success of Keynesian management
during the postwar era was so complete that it seemed that the problems of
income distribution and mass unemployment in the advanced economies
had been resolved once and for all. With the disappearance of the most
obvious symptoms of poverty and inequality, and the seemingly irreversible
stabilization of capitalism, many people became convinced that Keynesian
policies, institutions and economic management were no longer needed.
Second, Keynesianism was deeply divided between relatively conservative
US Keynesians and relatively left-wing British post-Keynesians. The latter
were traditionally based at the University of Cambridge, where Keynes,
Sraffa, Joan Robinson and their disciples once taught. The Cambridge Fac-
ulty of Economics is today viciously neoclassical. It is easier for a camel to
stray into the White House than for a non-mainstream economist to be hired
at Cambridge. These divisions among Keynesians hinged, to a large extent,
on their differing theories of income distribution. US Keynesians were
generally committed to the neoclassical theory of distribution based on the
marginal product of labour (which was accepted by Keynes himself) which
implied that the existing distribution of income in a competitive economy is
fundamentally fair – governments need only tinker with distribution at the
340 SOCIALIST REGISTER 2008
margins, and real wage flexibility can raise the level of employment. These
policy conclusions were rejected by British post-Keynesians, for whom
the distribution of income depends primarily on institutional variables and
power relations. US Keynesians also focused much more narrowly on short-
run economic management, in which a stable environment is important to
foster business confidence, while UK Keynesians tended to focus on long-
term dynamic stabilization and the amelioration of entrenched inequalities.
The theoretical conflicts among Keynesians contributed to their growing
paralysis and, ultimately, made it impossible for a clear Keynesian ideol-
ogy to emerge and compete against the neoliberal rhetoric which became
increasingly popular in the late sixties and seventies.
The internal disagreements among Keynesians became especially prob-
lematic when the world economy entered into a long downturn in the early
seventies, which Keynesians could neither explain nor address adequately.
In the end, their school of thought dissolved into confusion. Only five years
separate Richard Nixon’s 1971 statement that ‘we are all Keynesians now’
from Jim Callaghan’s pathetic admission at the Labour Party Conference
during the 1976 IMF crisis that ‘We used to think that you could spend
your way out of a recession and increase employment by cutting taxes and
boosting government spending. I tell you in all candour that that option no
longer exists’.
The retreat of Keynesianism opened the way to the neoliberal reforms,
which Keynesians have always insisted can only lead to a significant rise in
unemployment, a shift of the distribution of income and power towards
business, and greater economic volatility. A Keynesian policy would instead
increase state economic intervention to rebalance the distribution of income
and social power, provide public goods and services in greater abundance
and promote systemic competitiveness and diffuse new technologies to
secure higher saving and investment rates and stabilize aggregate demand.
A MARXIAN ALTERNATIVE
The Keynesian analysis of neoliberalism outlined in the previous section
includes important insights and several appropriate policy proposals. How-
ever, it does not go far enough, or deep enough. For these reasons, it offers
misleading hopes, three of which are examined here: the level of analysis,
the problem of agency, and the role of the state and the scope for alternative
economic policies.
341NEOLIBERALISM AND THE LEFT
1. Level of Analysis
The Keynesian account of the decline of the ‘golden age’ and the rise of
neoliberalism outlined in the previous section is too abstract and indeter-
minate because it fails to contextualize the transformations in capitalist pro-
duction and in economic and state institutions taking place between the
mid-forties and the late seventies. Instead, the analysis focuses on horizontal
distributive conflicts between rival social groups and between states. These
conflicts include disputes between the US, Western Europe and Japan, and
between governments and the private sector, between finance and industry,
and between industrial capital and the workers. These conflicts are nor-
mally not explained in detail; they are usually merely described as disputes
over shares of the national (or, in the case of states, global) income. This is
insufficient because it bypasses completely the conditions of work and the
distribution of power on the shopfloor and in society. In summary, Keyne-
sian analyses tend to describe conflicts around the process of accumulation,
while obscuring or ignoring completely conflicts about the nature of capital-
ist accumulation.3
Consequently, little explanation is offered of the crisis of profitability
in the sixties and seventies, except that wages were too high. There is no
significant attempt to incorporate into the analysis the anti-systemic social
struggles taking place in the rich countries, or the socialist and anti-imperial-
ist struggles in the poor countries. And there is not even token recognition
of the erosion of the political legitimacy of the capital relation in the sixties
and seventies. Consequently, Keynesian analyses fail completely to realize
that neoliberalism was a project of recomposition of the hegemony of capital
under new conditions of accumulation.
Keynesians take the extraction of surplus value for granted: the cake must
grow so everyone can have more. The rest is just a matter of detail: it is who
gets more icing and how the crumbs are scattered, which can be discussed
in a civilized manner whether in parliament, or in bilateral negotiations or
through a social accord brokered by a ‘neutral’ state. Fundamentally, eve-
ryone can become happier at the same time. The need for social discipline
in order to preserve the conditions for the production and accumulation of
surplus value, and the necessity of legitimacy and social order for economic
stabilization is completely obviated in Keynesian analyses.
What is missing in Keynesian analysis is a methodologically structured
account of the nature of capitalist accumulation, and an explanation of its
intrinsic instability. This is not because the future is unknown, or because
of distributive conflicts in the sphere of exchange (both of which are tran-
shistorical phenomena), but because of radical uncertainty in the sphere of
342 SOCIALIST REGISTER 2008
production, which is created by conflicts over the extraction of surplus value
under specific modalities of capitalist accumulation. Keynesians generally fail
to explain why and how their preferred policies interacted with the process
of accumulation between the forties and the seventies, how their interaction
released forces that would render Keynesianism itself obsolete, and leave the
field open to the advance of neoliberalism.
2. Agency
The second problem concerns agency. In Keynesian analyses of the econ-
omy the main determinant of collective action is narrow economic inter-
est, whether it is located at the level of the individual or an interest group.
These competing interests play against each other in an institutional context
in which the state is both separated from society and the market, and intrin-
sically neutral, even if it can be temporarily captured by specific interest
groups (including, for example, the rival neoliberal and Keynesian camps).
This supports the Keynesian commitment to the transformative power of
democracy, as the best way to remove the grip of neoliberalism and restore
the conditions for stable growth and development.
But neoliberalism is not merely a set of economic and social policies,
which can be easily replaced by an alternative set through the democratic
process. Neoliberalism – just like the Keynesianism which it replaced – has
a specific material basis.4 Neoliberalism combines an accumulation strategy,
a mode of social and economic reproduction and a mode of exploitation
and social domination based on the systematic use of state power to impose,
under the ideological veil of non-intervention, a hegemonic project of rec-
omposition of the rule of capital in all areas of social life. This project is
guided by the current imperatives of the international reproduction of capi-
tal, which are represented most clearly by financial market interests and the
global interests of US capital.
Under neoliberalism, domestic politics has become tightly constrained
by the need to insulate the process of accumulation (the ‘market’) from
popular demands, especially the imperative to control labour in order to
secure international competitiveness. This has reduced drastically the scope
for social policy, and led to higher unemployment and job insecurity in
most countries. It has also created an income-concentrating dynamics of
accumulation that can be limited, but not reversed, by marginal Keynesian
interventions.
When viewed from this angle, the notorious inability of the neoliberal
reforms to support high levels of investment or high GDP growth rates is
really irrelevant. In any case, neoliberalism has been able to support much
343NEOLIBERALISM AND THE LEFT
higher standards of consumption for the top strata of the population, due to
its concentrating dynamics and its promotion of consumer debt. The Key-
nesian claim that the neoliberal reforms have increased the returns of finan-
cial capital at the expense of industry is also a red herring. For the purpose
of the neoliberal reforms is not to promote growth, reduce inflation or even
to increase the portfolio choices of the financial institutions. The aim of the
neoliberal reforms is to subordinate local working classes and domestic accu-
mulation to international imperatives, promote the microeconomic integra-
tion of circuits of capital, mediated by finance, and expand the scope for
financial system control of the three main sources of capital in the economy:
state finance, the domestic savings pool, and the linkages between domestic
and foreign capital.
The transfer of the main levers of accumulation to international capital,
mediated by tightly integrated US-led financial institutions, and regulated
by US-controlled international financial organizations, has consolidated the
material basis of neoliberalism globally. The prominence of finance expresses
the subsumption of sectoral capitalist interests by the interests of capital as a
whole. In policy terms, it ensures that accumulation is no longer regulated
by contingent sectoral coalitions, especially in the poor countries, but by the
capitalist class.
Specifically, there can be no presumption that there is an ‘antagonic’
relationship between production and finance under neoliberalism, and no
expectation that industrial capital will ‘rebel’ against finance and push for the
restoration of Keynesianism. Industrial capital has a stake in the neoliberal
model, and it is structurally committed to its reproduction. The internation-
alization of the circuits of capital, and financial market control of state fund-
ing, have made investment and the realization of profits dependent on world
market conditions and the interests of international capital. This would make
any attempt to decouple from the neoliberal compact very costly indeed
– this is an unattractive business proposition.
3. The Role of the State and the Scope for Economic Policy
The third problem concerns the role of the state and the scope for economic
policy. In Keynesian analyses the state is disembedded from society, and
a Keynesian government could rise above the sectional interests that have
hijacked the state under neoliberalism in order to implement policies that
are both more egalitarian, and more in tune with the interests of productive
capital rather than finance.
This proposition is politically appealing but it is analytically flawed. If
the state is disembedded from society, why should it select policies that
344 SOCIALIST REGISTER 2008
maximize the rate of accumulation or employment generation, or avoid
financial crises? In principle, anything goes; all that the progressive camp
needs to do is get their electoral act together. But the state, and the institu-
tions comprised within it, are shaped by technology and ideology, and by
class relations, conflicts, and material interests. Under these complex cir-
cumstances, it is hopelessly naïve to expect that the social basis of the state
can be transformed via the electoral process alone. Since neoliberalism has
developed its own material basis, it cannot be undone simply through the
electoral process.
The Keynesian prescription thus fails to realize that, given the strength of
the material basis of neoliberalism, progressive policies will tend to consoli-
date and fine-tune the current order, rather than undermine it. For exam-
ple, open regionalism and liberal interventionism limit the scope for activist
industrial and trade policies, membership of the IMF and the World Bank
rule out the imposition of controls over finance and the balance of pay-
ments, and support for the WTO curtails the possibility of internalization
of systems of provision, which is essential for macroeconomic stability and
long-term sustainable growth. Since neoliberalism is the contemporary form
of capitalism, stable accumulation has become synonymous with accumula-
tion under neoliberalism. Any fundamental change to the dominant system of
accumulation is always destabilizing. Such fundamental change is necessary
– but it is going to be neither smooth nor costless.
CONCLUSION
A Marxist examination of the material basis of neoliberalism throws light on
several limitations of Keynesianism. Two of these limitations are especially
significant. First, Keynesians often argue that macroeconomic instability and
frequent financial and balance of payments crises show that neoliberalism is
fundamentally flawed. This is correct in exactly the same sense that, in the
abstract, economic crises show that capitalism is a flawed mode of produc-
tion. However, just as crises offer the opportunity to restore balance in capi-
talist accumulation, crises play a constructive – and even a constitutive – role
under neoliberalism. They help to impose policy discipline on governments,
and they compel both capitalists and workers to behave in ways that support
the reproduction of neoliberalism. Perversely, economic and financial crises
show that the system works, and they help to make it work more smoothly in
the long-term. Second, it is widely known that most governments promis-
ing to introduce alternative policies have failed. These failures clearly show
that transcending neoliberalism is difficult and costly. At a deeper level, they
also show that moving away from, or beyond, neoliberalism is not primarily
345NEOLIBERALISM AND THE LEFT
a subjective problem of selecting the ‘correct’ industrial, financial or mon-
etary policies.
Transcending neoliberalism will involve both economic and political
transformations that can be addressed only through the construction of an
alternative system of accumulation. This project will require dismantling system-
atically the material basis of neoliberalism through a set of radically redistrib-
utive and democratic economic policy initiatives. These policies will support
a decisive shift to less unequal distributions of income, wealth and power,
as a fundamental condition for democracy. These policy measures cannot
be simply entrusted to government initiatives. They must be driven by a
politically re-articulated working class, as one of the main levers for its own
economic recomposition. The problem is that this virtuous circle cannot be
wished into being. It requires the development of new structures of political
representation corresponding to the mode of existence of the working class
under neoliberalism, and supporting the development of new modalities of
reproduction for this class. These achievements cannot be resolved theoreti-
cally or through purely conceptual analysis: they are political problems, to be
addressed strategically in the process of struggle for the emergence of a new
working-class movement for the age of neoliberalism.
NOTES
1 See, for example, D. Harvey, The New Imperialism, Oxford: Oxford Univer-
sity Press, 2005; D. Harvey, A Brief History of Neoliberalism, Oxford: Oxford
University Press, 2005; D. Harvey, Spaces of Global Capitalism: Towards a The-
ory of Uneven Geographical Development, London: Verso, 2006; K.S. Jomo, ed.,
Globalization under Hegemony: The Changing World Economy, Oxford: Oxford
University Press, 2006; K.S. Jomo and B. Fine, ed., The New Development Eco-
nomics after the Washington Consensus, Oxford: Oxford University Press, 2006;
R. Kiely, Empire in the Age of Globalisation: US Hegemony and Neoliberal Disorder,
London: Pluto Press, 2005; R. Kiely, The New Political Economy of Development:
Globalization, Imperialism, Hegemony, London: Palgrave, 2006; and J. Stiglitz,
Globalization and Its Discontents, Harmondsworth: Penguin, 2003.
2 See, for example, T. Palley, Keynesianism: What it is and why it still matters, 2005,
available from http://www.thomaspalley.com.
3 For additional details, see A. Saad-Filho, ‘Monetary Policy in the Neoliberal
Transition: A Political Economy Review of Keynesianism, Monetarism and
Inflation Targeting’, in R. Albritton, B. Jessop and R. Westra, eds., Politi-
cal Economy of the Present and Possible Global Futures, London: Anthem Press,
2007.
4 See A. Saad-Filho, ‘Introduction’ in Saad-Filho, ed., Anti-Capitalism: A Marxist
Introduction, London: Pluto Press, 2003; and A. Saad-Filho and D. Johnston,
‘Introduction’ in Saad-Filho and Johnston, eds., Neoliberalism: A Critical Reader,
London, Pluto Press, 2005.
