Global Corporations and Economy
Optimism in the Midst of a Crisis: Keynes’s Legacy

Perhaps the current crisis will contribute to transformation of the world economic benchmarks towards the prioritisation of the development of “human capital”, particularly healthcare and education, writes Yaroslav Lissovolik, Programme Director of the Valdai Discussion Club. John Maynard Keynes’s optimism and legacy give us reason for hope, not only regarding the possibility to overcome the crisis and increase consumer welfare, but also regarding the possible transformation of the “moral code” of the development of the world economy.

In the context of the unprecedented crisis of the current year, which is commonly being compared to the Great Depression, one often hears apocalyptic predictions about an imminent crisis in consumption and living standards. In this regard, in order to soberly assess our prospects in the context of the current crisis, it seems appropriate to look at the processes of economic transformation that have taken place over the last century since the Great Depression. Indeed, despite world wars, geopolitical conflicts and economic crises, the world economy has demonstrated high rates of growth in the well-being of the population and technological progress. Moreover, such a growth scenario for the development of the world economy was largely foreseen by John Maynard Keynes, a leading economist of that crisis-wrought time, who is considered the main ideologist responsible for the strategy used to lift the world economy out of its deepest depression and build a new world economic architecture for the post-war period.

In his work Economic Possibilities for our Grandchildren (1930), Keynes described his thesis about the transformation of economic benchmarks for future generations of consumers in connection with a significant increase in the welfare of the population. This work of Keynes is interesting primarily as an example of a long-term forecast for the growth of the well-being of the population of developed countries, which was made in the midst of the Depression, the most severe economic crisis to hit the developed world during the 20th century. Despite despair prevailing among his contemporaries, for whom the economic background was high unemployment and a decline in living standards, Keynes had the courage to suggest that “we are suffering just now from a bad attack of economic pessimism”, and dismiss those who had hastily concluded that the era of rapidly growing standards of living had come to an end.

In particular, in his work, Keynes writes “I predict that both of the two opposed errors of pessimism which now make so much noise in the world will be proved wrong in our own time: the pessimism of the revolutionaries who think that things are so bad that nothing can save us but violent change, and the pessimism of the reactionaries, who consider the balance of our economic and social life so precarious that we must risk no experiments.”

Global Corporations and Economy
A World Without a Crisis
Yaroslav Lissovolik
The dire frequency of crisis events since the 2007-2008 episode is likely to lead not only to a further exploration of novel anti-crisis policy tools, but may result in a reconsideration of the level of tolerance to further crisis events, writes Valdai Club Programme Director Yaroslav Lissovolik. This in turn is likely to lead to greater prioritization of measures directed at crisis prevention, as well as other areas such as accumulating sufficient reserves and buffers at the national, regional and global levels.

Expert Opinions


Keynes’s optimism is based on the thesis about the enhancement of the technological equipment of labour, and the growth of its productivity — as Keynes notes, “In quite a few years—in our own lifetimes I mean—we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed.”

As a result, according to Keynes, “If capital increases, say, 2 percent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years. Think of this in terms of material things—houses, transport, and the like...” Based on the data that we have at the moment, Keynes’s forecast can be considered accurate— for the period from 1930 to 2020, according to the OECD, the general level of well-being of the population of the advanced economies (such as the US) as measured by GDP per capita, staged a 5-fold increase. Further scenarios of GDP per capita growth until 2030 (to track the forecast accuracy over the horizon of all 100 years) are unlikely to significantly change the correctness of Keynes’s conclusions — in all the most probable scenarios, the growth in the well-being of the population of developed countries should fall within the interval assigned by Keynes.

But perhaps an even more important thesis of Keynes is what will happen to the benchmarks of economic development in developed countries as the new standard of living can guarantee the satisfaction of almost all the needs of the population. According to Keynes, due to economic progress, the population of developed countries was destined to work only three hours per day or 15 hours per week, which would free up a significant part of their time for leisure. Many economists have been led to criticise him for this kind of prediction of an “era of general idleness” — in the end, it turned out that the population of developed countries still finds something to do with themselves — moreover, the more prosperous an employee is, the less free time he has in comparison with less highly-paid workers.

However, in noticing Keynes’ blunder regarding the choice of the modern world between work and leisure, these modern economists lose sight of the deeper conclusion that Keynes defends in his famous work, namely, that with the growth of the well-being of the population, the very essence of the economy, economic development and economic science, will change.

All of these areas, he predicted, will increasingly focus on ensuring a better quality of human life. As Keynes notes, “it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.”

This kind of “humanisation of the economy” according to Keynes, will also be based on the fact that the growth of well-being will lead to the transformation of morality and ethical codices of society: “when the accumulation of wealth is no longer a key social priority, significant changes will occur in the moral code of society ... When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals...I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue — that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful.” (John Maynard Keynes. Economic Possibilities for our Grandchildren, 1930).

One can argue with Keynes about how much more moral the society of developed countries has become in comparison with the previous century; however, one cannot fail to note the relevance of Keynes’s conclusions regarding how important the issue of the quality and guidelines of human life will become for the entire economic machine of developed and developing countries. As the level of development and prosperity of a country increases, the share of the service sector grows, while in recent decades, industries related to human capital have been developing especially actively in the service sector.

Perhaps the current crisis will contribute to the further transformation of the world economic benchmarks towards the prioritisation of the development of “human capital”, particularly healthcare and education. Keynes’s optimism and legacy give us reason for hope, not only regarding the possibility to overcome the crisis and increase consumer welfare, but also regarding the possible transformation of the “moral code” of the development of the world economy.

 
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.