---

Guest Contributor

By Cllr Dr Tristan Learoyd

Co-operative Keynesianism

Background

The politics of state social democracy and market fundamentalism are naturally pitched against each other. One seeks Keynesian-style legal regulation, and the other self-regulation through unrealistic expectations of competition. Two traditional approaches within the left also do battle: those that resist the folding back of state socialism through regulation, and those who promote the folding back of the state and try to harness the increasing scope of the markets. This has created a fractured left with no unified concept.

The mistake the left continues to make is to modify the system of the right. Rather than capture the mechanisms of inequality, the left has enshrined the very institutions that create inequality by legislating for them, or by working with them in policy documents. Whilst state socialism can achieve a change in monetary imbalance it does little to shift the balance of power from the elite class, as the money generated by the productive classes is still channelled up stream to the elite.

It is my opinion that the alternative for the left is to escape the confines of the system it originally inherited from the right. The principle mistakes of both state socialism and of pure communitarianism are highlighted in a short section from:

Anthony Crossland’s the future of Socialism:

“It is not enough to tell people that they are working for the public good nor even that they should”. Crossland’s comparisons highlight that neither the private sector nor the public sector holds a psychological difference on worker contentment.

In addition, former Labour and Cooperative minister AV Alexander, noted in 1929,:

“there is always the danger in the regulation of everything by the state of bureaucracy on the one hand, and of the shedding of responsibility by citizens at the ballot box on the other.”

Recognition of Alexander’s observation by the right has led to the orchestration of campaigns against benefit cheats and an assault on universal benefits.

Thus, the complexity of the human psyche at this moment in our evolution requires that any economic solution for the left must involve both collaborative and individualist incentive.

Co-operative Keynesianism

Co-operatives are democratically collective; they also play to individualism due to a profit sharing incentive between members. Co-operatives are based on a democratic notion of one-member-one-vote, they provide exemplary financial stability when established and have ethical direction – it is impossible for one person to take over a co-operative, thanks to their democratic nature.

Current leftist thinking focuses on pure Keynesianism as a solution to spiralling inequality. This is a mistake. While Keynesianism can produce a fairer society, it will not bring transformative change by readjusting control. A series of financial regulations are required to enact Keynesianism macroeconomics and full employment, where the worker remains subservient to the capitalist but the capitalist is restricted in their actions. The lack of any shift in control will lead to the capitalist eventually repealing the regulatory framework or exploiting it.

A future left alternative should therefore not only involve the political and economic rationalisation of macroeconomics in the form of Keynesian solutions, but would involve state-led democratisation of macro and microeconomic structures along co-operative lines to shift financial control to every citizen and remove institutional mechanisms of control. The state should not only devolve redistributed money to market participants in a Keynesian manner, but produce co-operative participants built on social, environmental and progressive consideration – rather than profit motive – to receive such funds and shift whole markets to a sustainable position. In this manner state planning, which currently serves capital, would serve a democratic humanitarian function.

Co-operative Keynesianism in Finance

In Britain, due to the large percentage of GDP coming from the financial sector, the democratisation of the financial district is essential to the left.

Even when nationalisation of city infrastructure has taken place in the past, such as with the Bank of England’s nationalisation in 1946, power has never been wrestled from those who had controlled it in the first place. At the first meeting of the Mont Perelin Society in 1947, which was the origin of an organised attack on banking regulation to free up capital flows, the newly nationalised Bank of England sent a representative. The bank continued to act in its own interest – rather than the interests of the majority. Nationalisation was simply a branding. The mistake of the 1946 Labour Government was to fail to democratise the Bank of England by co-operating its structure so that all British citizens became a member and democratically elected the governor.

During the banking crisis the greed fuelled system acted irrationally. Credit agencies, paid on the volume of positive recommendations they made for loans, had an incentive to give improved credit ratings to potential borrowers with a chequered past. Meanwhile, the banks were using upfront fees as part of their mortgage deals; they were taking the fee and then passing on the debt of the mortgage to a securitisation firm. The securitisation firm would not know of the inadequate credit rating and would insure their acquired debt; the insurance company would be unaware of the catalogue of errors and, with the assurance of government bailout if all went wrong, had no incentive to refuse insurance. The securities would then be bet on by speculators, a bet known as a derivative. The closeted non co-operative manner of cut throat banking led to the collapse of the world economy.

The Keynesian-style regulation of commercial and investment banking, required to create financial stability, is being heavily resisted by bankers who make tremendous profit from a fragile unregulated system. An alternative to Keynesian regulatory frameworks would be Keynesian co-operation and democratisation of the financial sector: through a joint monopoly consumer co-operative credit rating agency and securitisation firm, a monopoly consumer-owned co-operative financial services insurer, and consumer owned co-operative lenders. To enable the rapid takeover of co-operative banking, co-operatives should be state directed and co-operative lenders should be heavily incentivised, all banks should eventually turned into co-operatives.

Transformation

The future left must not confuse nationalisation as an end goal, but as a transitional state that prepares a once private monopoly for democratic co-operation.

As Alexander went on to write in 1929,

‘while certainly favouring the national ownership of the great services of the nature of monopolies, [The Co-operative Party] works for an extension and development of a Co-operative collectivism which springs from an educated rank and file rather than by the imposition of the state’.

The Co-operative collective must be understood as the democratic economy, where economic decision making is fully devolved to market participants and has been wrestled from the private elite.

Social markets designed to capture aspects of human need and environmental consideration can be manufactured by a heavily democratised state, in the form of co-operative Keynesianism.

Democratically formed and state funded co-operative entities can be budded off at both national and local level to spread democracy into new and emerging markets and align existing markets along conditions of democratic, social, progressive and environmental advantage. The social transformation must happen at pace to dig democracy deep into the markets and state structures, to increase transparency and prevent illicit behaviour, empower individuals on a local and national level, and avert climatic disaster.

I have focused on the financial sector in this short extract, but a sustainable co-operative economy would not be able to function efficiently without the formation of stable monopoly consumer collective co-operatives in the place of the privatised utilities. With similar regard to how the challenges of climate change cannot be met without the democratisation of other markets key to reducing emissions.

In conclusion

It is my opinion, rather like Galbraith’s that the state and the market shouldn’t be seen as separate entities, both should be seen as the same undemocratic structure working together. The institutions of the state are intertwined with undemocratic, and often illicit, market forces. One embodies the other in this current atmosphere of corporate welfare. Any Keynesian plan is thus unsustainable if microeconomic planning isn’t concurrent, and if economic democracy remains obsolete.

It is my proposition that democratic economic reform in the shape of Co-operative Keynesianism is the only truly sustainable left alternative to the Neoliberal agenda.