Steven Keen on Democracy and Capitalism

The radical Australian economist, Steven Keen, has somewhat surprisingly “come out” as an opponent of Free Trade, at least as currently practiced.

In an breakthrough interview published in The Epoch Times, Steven Keen explains how Donald Trump could revive American manufacturing. This article is tellingly entitled, “Why Free Trade Doesn’t Work for the Workers.”

Steven Keen argues Ricardo’s (1820) theory is flawed

Keen pointed out that the argument by classical economist David Ricardo (1772–1823) about wine and clothes involved the workers in one industry losing their jobs. Ricardo assumed, as do modern neoclassical economists, that workers in the losing industry can get a job in the winning industry. So it’s assuming full employment, everybody who wants a job gets a job, which is not the real world. And they also assume you can move resources from one industry into another. Certainly, workers can be retrained. While it takes time, it can be done.

Drawing an example from China, Keen noted that China now produces more of everything, and that it is not possible is turning a weaving machine into a steel furnace. And that’s why you have the rust-belt. In the case of China and the United States, the steel plants in the United States won’t become weaving machines; they just turn into rust. So what you have is absolute destruction of physical resources in one country. Or they ship the capital to the place where the low wage workers are, like China or Mexico, and what you get is a class redistribution of income. The workers in the developed country lose, the capitalists in that country gain.

Steven Keen argues that Free Trade gives Capitalists a “Free Kick”

Keen observes that in this scenario, capitalists in the developed country still own the machinery and employ people but in a different country and at lower wages. Then they sell the products back into the American markets at the same prices but at lower costs. So they gain, and the working class has to finance their consumption with increased levels of debt because they don’t have the income anymore. The workers in the developing country also gain, so it’s also a wealth transfer from the developed to the developing country.

Why BrExit “won” & why Trump won

Steven Keen comments that in a democracy you get to the point where the workers have lost so much because of globalization, they get sick and tired of hearing the fairy tale that they won’t suffer and that it’s all for their own good. And they look at their decayed streets and factories and dismal jobs and lower share of income, and they say: “You know what, I’m going to vote against this.” And that’s what we are seeing globally now with Trump and Brexit, this revolt against globalization and financialization. The absolute losers of all of this are the working class of the first world. The winners are the multinational corporations.

Welfare vs Work

In an interesting and perceptive comment on human nature, Steven Keen says that humans get their sense of self-worth by contributing to a community. If you are human and you are being paid for staying alive, you are not particularly happy about it, your sense of self-worth is pretty low. But if you have a job and can contribute to a community, that’s where your sense of self-worth is going to come from. All this welfare is replacing work which is the case in the rust-belt areas makes people angry and resentful. Their self-worth is challenged and they are not going to be happy with the establishment.

He believes that is why Trump has such an appeal, and they don’t care about him being politically incorrect. They like the fact he is like a human hand grenade. They threw the human hand grenade into Washington.


Getting closer to a nuanced view on automation than most commentators, Steven Keen begins by arguing that part of the motivation for American businesses to move production offshore was cheap labor. But with better and better robots, you can have machines you can retrain for different assembly processes. And you have 3-D printing turning up, which has become mainstream. So it means you can produce onshore without cheap labor. But it also means you can produce without labor at all.

Although he does not define what “a well-functioning human society” would look like, he thinks that in such a society producing without any labor at all would not be a problem. He believes that the problem in a neoclassical capitalist system is that the workers lose out because their only source of income is wages. If there is no need for wages anymore, you don’t have an income anymore.

My Response

Steven Keen’s analysis of the modern economic dilemma is first class, however he does not offer anything substantive in the way of a solution.

A declared opponent of “neoclassical economics,” Steven Keen is quite happy to make comments like, “In a neoclassical capitalist system [in this scenario] the workers lose out because their only source of income is wages.” However, when he goes on to say, “If there is no need for wages anymore, you don’t have an income anymore,” but “in a well-functioning human society, that wouldn’t be a problem.” In this he is contracting his own point that welfare-dependency is a self-defeating solution to current economic problems.

From the full text of this interview, we know that he is still an opponent of tariffs as a way of achieving balance within an economy, and still hankers after the socialist ideal of a world without artificial borders.

In this area, this site is closer to Donald Trump on the need for tariffs supporting national objectives. Nationalism is deeply rooted in human psychology (beginning with a mother’s care for her child). This cannot be claimed for internationalist objectives of Ricardo’s Free Trade ideology or Marxist ideology. While Keen sees the future as being “post capitalist,” I see the future being in capitalism being brought (again) under the control of national parliamentary democracy, thus reflecting the needs and interests of the people.

I am confident that Steven Keen would agree with me in the proposition that an objective of the political system should be to deliver a result that is in the interests of ordinary people (the top 1%ers are quite able to look after themselves). I am not so sure he would agree with me in seeing a nationalist capitalist system as the basis of that model. Time will tell on that point.

I promote Democratic Capitalism because I believe it will serve the majority of people quite well. Indeed, the current trend is in support of the principles of Democratic Capitalism. As evidence for this, I can cite Theresa May in the UK (“Democracy that works for everyone”), and Donald Trump in the USA (“Make America great again”).

Author: Graham Lovell

Ancient history historian, software developer, one-time accountant, husband, father and doting grandfather.

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