Socialist Democracy
The Labour Party, along with other Left groups in the 1930s, was exploring the idea of democratic socialist planning as the basis for a new economic order. This would displace the risky dependence of the economy on animal spirits. The outbreak of the Second World War resulted in a level of state interference into the normal, peacetime economic activity far beyond that of the previous war, so bringing the political possibility of introducing a socialist economic order to Britain much closer. Robinson was a keen advocate of socialist planning, and she presented her ideas in her non-academic activities during the war.
Robinson’s pamphlets, articles in the press, and talks at political meetings and on the BBC, during the war years and the following decades, are less known within academic circles (although some are published in subsequent volumes of her Collected Economic Papers (C.E.P.)) (Robinson 1951-1980). Her familiar terrain of analytical questions, framed in abstractions and rigorously argued, was replaced, with similar passion, by descriptive explanations of real issues and potential responses, in ways which had to be politically as well as economically feasible. She was writing for a general public and addressed their experiences, as she understood them, of ongoing political and economic issues and of those threatening their post-war future. These included unemployment, labour organisations, monopoly power, and inflation. She gave an understanding and a voice to those unfamiliar with the language of economics, suggesting the possibility of their own participation in change.
She introduced a discussion about the possibilities of a post-war democratic socialist economy among whose immediate goals was full employment of labour and resources. The most reliable route to take to achieve full employment and a higher standard of living was a strategic mixture of private and public provision organised through some form of centralised planning. She recognised that ‘planning’ had become a slogan and warned that it only made sense when its terms of reference, its objectives and conditions, were clear. It would require a significant reorganisation of the relevant industry and public support practices from serving a largely uncontrolled economy to serving one with a higher degree of intervention. The possibilities of State planning were also of particular interest to Kalecki, and Meade too supported this approach for the British economy.
In her various pamphlets, Robinson proposed, as a fundamental part of implementing planning decisions, the establishment of a National Investment Board (NIB). The government, through the NIB, could make decisions about what to invest in and selectively contract out production to the private sector. This would encourage private investment in competitive markets but give State control over infrastructure, natural monopolies, or provision of essential services for which market distribution was inappropriate or there was little profit incentive. In EIC, she had concluded that there are some industries in the economy which, to be efficient, needed to be run collectively and under public ownership, natural monopolies being an obvious one. The NIB would enable the State to direct the activities of selected industry groups, taking into account their production interdependencies and their resources needs. The level and composition of effective demand would largely become the outcomes of deliberate and co-ordinated directives which could be based on objectives other than profit alone. It could undertake long-term planning and projects, co-ordinating their ongoing needs with shorter-run production processes. While still deciding what to invest in, the NIB could, in accord with its objectives, contract out its production to the private sector. The institution of the NIB would promote greater certainty through its planning of strategic parts of the economy while still leaving the market to determine consumer choices and also, by its competitive nature, encourage invention and innovation.
A major tool for the NIB was the price system. Pricing policy would be used to establish the desired income distribution between wages and profits: this will impact on resource allocation between sectors of consumer and investment goods and services, and between agricultural and industrial sectors. It could also be used, with incomes policies, to maintain real wages and control the anticipated post-war inflation accompanying full employment and shortages of necessities. The NIB would consider, given its objectives within the broader plan of the government, which prices to control and which to leave to the market, and which measures to use to implement control over prices of different categories of commodities. A case-by-case approach would better achieve the broader human welfare objective of the State than applying a general rule.
The NIB would include in its loans necessary conditions to be met for employees, including the participation of workers in decisions about working conditions and wages and shares in productivity gains. Wages needed to acknowledge the nature of the work itself and of the needs of the workers. At the same time, Robinson argued for a cheap money policy; the Treasury and the Bank of England tended to set the interest rate with political issues in mind. Sustaining low interest rates could encourage investment in projects with long-run time horizons, typical of infrastructure needs. But using interest rates as a short-term device to manipulate spending and control inflation was not, she argued, effective.
The potential scope for the NIB was closely dependent on the national budget, and she proposed a budget structure developed from Keynes’s proposals (Keynes 1933 [1972]) and consistent with his later organisation of the national accounts (Keynes 1945 [1980]).[1] Robinson’s budget proposed three separate accounts: an Ordinary Budget, a Social Insurance or Beveridge Budget, and a Capital or Loan Budget, which distinguished between those investments with direct cash returns and those with a social return. The primary goal was full employment, and the means to achieve this lay most directly within the scope of the Ordinary and Social Budgets. These would be in deficit or surplus acting counter-cyclically as unemployment moved with the changes in short-period economic activity; their long-period balance would centre around the budget required to achieve this goal. It was a static argument, and she had not yet explored the implications of dynamic analysis and the associated double role of investment which were central to her post-war thinking (although Domar (1944) argued that a succession of budget deficits, or deficit financing, in a growing economy would generate only limited debt-to-income ratios and tax burdens).
Within this political material, Robinson also extended Keynes’s theory to consider Britain’s international presence. Full employment had implications for the post-war balance of payments, for both exports and imports and for holdings of foreign currencies. The war left Britain with heavy external debts.
Chronic debt, as also chronic surplus, would put pressure on the exchange rate and then on domestic inflation or deflation. Britain needed to persuade its trading partners to also pursue full employment policies so encouraging markets to expand for British exports. It also needed foreign resources, including financial investment. Such external co-operation, to be supported by new agreements and dedicated international institutions, would enable each country to develop its own domestic plans and Britain to move towards external balance. Britain’s vulnerability to the decisions of the USA about trade and finance, including the adoption of the US dollar as the world’s leading currency, led Robinson to suggest short-run bilateral agreements with trading partners and even State control of foreign trade at least for the period of post-war rebuilding. She saw capital controls as essential, as did Keynes. Adopting laissez-faire in the currency markets at the end of the war, she argued, would encourage speculation and destabilise real capital investment. The changing presence of post-war power, evident in the decisions made at Bretton Woods, oversaw the creation of international institutions designed to manage global difficulties in trade and finance.
When she published these pieces, Robinson had already contributed to international trade theory, arguing against the orthodox doctrine of free trade, in her Essays (Robinson 1937b). Here, she systematically works through the logical implications for a central orthodox idea of a single equilibrium exchange rate, of applying Keynesian principles in the context of prevailing domestic and trade and exchange rate practices. She demonstrates that such a unique equilibrium rate does not exist and there are many such rates, each consistent with a different set of conditions (Robinson 1937c: 134-155). In 1944, she extended her critique of orthodox theory in her review of an official US report on its balance of payments in the period between the two world wars. Free trade supposedly gave the best outcomes for all. It was clear that this was not the case when the USA, having expanded its international and domestic activity after the First World War and through the 1920s to dominate the economic activity of the rest of the world, then found itself in deficit (Robinson 1944). Clearly, the corrective mechanisms expected by free trade were not happening—due to either or both errors in its logic or in its applicability—and as the USA tried to slow down its imports, its trading partners, and indirectly the rest of the world, also collapsed. Robinson continued to contribute to the theory of international trade during the 1940s and the discussions at Bretton Woods.
Maurice Dobb had written to Robinson in January 1941 referring to the ‘slant that theory has on reality’ (Joan Violet Robinson Papers, King’s College Archive Centre, Cambridge University: JVR/vii/120/11-13). These pamphlets and public talks reveal her own slant on theory by allowing her to give thought to what her ‘ideal’ society might need. They also reveal her interpretation of the realities and threats facing the general population and of the actual situations framing any feasible policy approaches. At the same time, she maintained a flow of theoretical publications in academic journals. She continued after the war to apply her analytical skills to writing lucid and topical economic and political commentary in magazines as well as to speaking to wider audiences.
In her Inaugural Lecture in 1965, The New Mercantilism: An Inaugural Lecture (Robinson 1966b), she took advantage of her mostly well-educated audience to prompt their thoughts to consider, from a Keynesian and critic of neoclassical theoretical point of view, the pervasive idea that the ideal practice of global economic relations was international free trade. She argued that while a single country, with the right conditions (such as global power over finance), could benefit from it, the world economy did not. In a subsequent article (Robinson 1973), she approached the orthodox doctrine of free trade in the light of the results of the capital theory debates, prefacing her argument with the following: ‘There is no branch of economics in which there is a wider gap between orthodox doctrine and actual problems than in the theory of international trade’ (ibid.: 14). She dismisses the orthodox approach on the grounds of its reliance on an invalid theory based around ‘equilibrium’ and of its irrelevance. She put together her ideas in a set of four lectures given at Manchester University (Robinson 1974, 1979a), demonstrating how Ricardo’s arguments had been subverted by ‘modern’ trade theorists (i.e. including Marshall) to justify relying on comparisons of equilibrium positions of full employment outcomes, and then, as if in a separate world, to introduce Keynes’s analysis linking the trade balance to the domestic level of employment. Keynes’s arguments were essential to understanding why foreign investment could not be examined at such a general level; the nature of that investment and the form in which it is undertaken, together with the many implications of international finance, cannot be explored with the concepts and method of the modern theory of international trade.
- [1] In his Memorandum, Keynes (1945) [1980] revised his idea of a ‘semi-independent statutory authority’,an NIB, instead retaining the authority for these decisions with the Chancellor of the Exchequer and theTreasury. He reasoned that ‘with modern developments of policy, decisions on such matters [related tothe Public Capital Budget overall] have become so much a part of the Government’s economic programme as a whole that they should not be dissociated from the Chancellor of the Exchequer as theresponsible Minister’ (ibid.: 408).
