Now, the world over, policymakers are dusting off their copies of Keynes' classic, The General Theory of Employment, Interest and Money, and figuring out whether there are any answers there to our own challenges of growing our economies, says Ajit Balakrishnan.
The man was a classical Brit of the late 19th and early 20th centuries. His school was Eton, his college was Cambridge, he started work in the India Office and then turned to academics.
His close friends included writers Virginia Woolf and E M Forster and historian Lytton Strachey. He was bisexual and given to talking about some of his men friends as his "first love" and others as his "true love".
He once was the reigning authority in his field and world statesmen hung on his words, but then his ideas fell into disrepute. Now, in 2014, nearly 70 years after his death, his ideas are about to stage a comeback. I am talking about John Maynard Keynes.
Through the 1950s and 1960s, if you hung out in policy circles, it was fashionable to be a "Keynesian". Being Keynesian meant having an unbounded belief in an activist government whose investment spending would increase demand for goods and services in the economy so that all able-bodied people would get jobs.
It also meant a multitude of government-sponsored schemes and organs such as a Planning Commission. Indian policymakers were second to none in their belief in Keynes.
Then, the wheel turned. First in England and the United States in the mid-1980s, and then in the 1990s in countries like India. It turned to such an extent that if you stood up and professed a belief in government-led initiatives even in education or health care, you would immediately be called a "leftist".
Rational and well-educated people were supposed to believe that government-led initiatives only led to waste and inefficiency if not outright corruption and scams.
The credit for this swing away from an activist state is usually given to Margaret Thatcher, who, when elected in 1979 as prime minister of a recession-struck Britain, plunged into a vigorous programme of privatisation (British Telecom and British Airways are examples) and facing down public sector unions (breaking the British coal miners' strike) and deregulation (the "Big Bang" deregulation of the London financial markets).
Soon afterwards, Ronald Reagan, in his 1981 inaugural speech, declared to a recession-struck America that "… government is not the solution to our problems; government is the problem" and swung into action with his versions of facing down public sector unions (breaking the American air traffic controllers' strike), and deregulation (removing price controls on petroleum products and lowering income tax rates).
It has been long believed that it was merely the personal belief systems of these two strong personalities that had caused this cataclysmic change in policy throughout the world. Phrases like "Thatcherism" and "Reaganomics" were invented to capture the essence of their belief: smaller government, lower taxes and private enterprise were the way to strong economic growth and bountiful employment.
Greta Krippner of the University of Michigan, however, has a fresh point of view on this in her recent book, Capitalising on Crisis: The Political Origins of the Rise of Finance.
She says that by the 1980s policymakers were faced with tough choices such as whether capital should be allocated to housing or to business, to large companies or to small businesses, to urban areas or to struggling farmers. Each of these sectors had, she says, strong political voices and lobbying power and policymakers found it impossible to make these explicit choices.
Their way out of these dilemmas was to conclude that "the deregulation of financial markets offered a means to substitute the rationing mechanism of the market for the heavy hand of the state". No longer did policymakers have to invite the wrath of a sector of the economy that was denied the capital they wanted - it was all the work of "the market".
Unfortunately, while this swing towards free markets and abundant capital (some call this the "financialisation" of the economy) allowed the state to avoid the economic, social and political dilemmas that confronted it, it also prepared the ground for an era of financial manias and panics, which ended up with the financial crisis of 2007-08.
Now, the world over, policymakers are dusting off their copies of Keynes' classic, The General Theory of Employment, Interest and Money, and figuring out whether there are any answers there to our own challenges of growing our economies and creating enough jobs for our citizens.
Being a "leftist" - in other words, saying that an activist state could do useful things in sectors such as education and health care - may become fashionable again. But then, it is useful to remind ourselves how fragile terms such as "Left" and "Right" are.
They came into vogue in late 19th-century France when, in the French National Assembly, supporters of the king sat to the right and supporters of the revolution sat to the left.
This led the press of that time to refer to those people who sat on the left side as being "from the left" and to the others as people "from the right".
Ajit Balakrishnan is the author of The Wave Rider: A Chronicle of the Information Age.
ajitb@rediffmail.com
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