Beyond Keynesianism: The Socio-Economics of Production and Full Employment.

Beyond Keynesianism gathers papers presented at a conference held in July 1989 by the Labour Market and Employment research area of the Wissenschaftszentrum fiir Sozialforschung in Berlin. Almost all of the authors are or have been associated in one way or another with the WZB/LME (so abbreviated in the book). Matzner is also Professor of Public Finance at the Technische Universitat in Vienna; and Streeck, his coeditor, is Professor of Sociology and Industrial Relations at the University of Wisconsin. Because the authors evidently share a common outlook cultivated at the WZB/LME, their book, unlike the typical conference volume or Festschrift, may be reviewed mostly as a whole rather than article by separate article.

Despite "Keynesianism" in its title but as the word "beyond" perhaps does warm, the book says little about macroeconomic theories that build on Keynes's work. Keynes was concerned with aggregate demand, say the editors, and now attention can turn to the supply side. The book contributes to a new institutional economics. Even Keynes remarked in 1943 on the need, in the editors' paraphrase, "for far-reaching changes of institutions and policies if full employment was to be achieved."

The chief exceptions to my non-Keynesian characterization of the book occur in brief chapters near its end. Hansjorg Herr argues that whether countercyclical fiscal policy can work as intended depends heavily on specific national and international circumstances, including the "quality" of the national currency, which depends on how much confidence it commands. Japan supposedly was able to pursue fiscal policy effectively in the late 1970s, thanks to favorable labor-market institutions and industrial relations and an effective incomes policy. Around the same time, Herr says, Germany pursued an excessively restrictive fiscal policy. Expansionary French policy early during Mitterrand's presidency was frustrated by an unfavorable context. Herr attributes the foreign-exchange strength of the dollar until early 1985 to false expectations of U.S. economic policy. Heinz-Peter Spahn also ponders the fundamental indeterminateness of exchange rates under the current system, as well as ideas for international policy coordination. Jan Kregel considers the economics of German unification.

Perhaps the book's most pervasive theme is the importance of "diversified quality production." Competitiveness in national and international markets no longer hinges, if it ever did, on pressing down the costs of producing standardized products. Firms must cultivate even customers requiring specialized goods produced in small batches to frequently changing specifications. Supplier and customer firms must cooperate closely. Maintaining apparently excessive productive capacity contributes to flexibility, innovation, and readiness to act jointly. Managements and workers must be flexible and alert to new ideas and so must acquire wide-ranging experiences and competences.

The benefits of long-enduring though flexible relations within firms and among firms depend heavily on warranted trust in fair play by one's associates and trading partners, whereas a short-run-oriented obsession with money costs, prices, and profit undercuts these benefits. Much coordination must take place otherwise than by the market processes beloved of standard theory. (This reader recalls Arthur Okun's Prices and Quantities, 1981. Related reasons why prices and wage rates simply cannot be counted on to keep markets continuously cleared in the face of macroeconomic disturbances should be kept in mind by policymakers and by would-be reformers of monetary institutions.)

The benefits of giving workers and managers diversified training and experience, experimenting with new technologies, products, and markets, and maintaining flexible standby productive capacity cannot be confined within the individual firms that incur the costs. Although the authors shy away from the word "externality", that is just what they are alluding to. Accordingly, they see opportunities for government intervention to promote, among other benefits, "innovation-led employment growth". They admire the co-determination, or worker participation in the management of firms, required by postwar German law.

More generally, "The requirement for diversified quality production of a congenial ecology, redundant capacities and collective factor inputs, and the potential role of egalitarianism in their generation, may offer an opportunity for the Left to restore a productive function to redistributive policies and thereby recapture for itself an independent role in the management of advanced industrial economies" [p. 48]. However, the same author (Streeck, the sociologist) recognizes the obstacle of "a voluntarist-libertarian mass consciousness ... for which the |free choice' promised by neo-liberals has strong attractions. Ideological resources to defend a non-liberal model of political economy are scarce. . . . The idea of prosperity coming in joint supply, of collective investment taking precedence over private investment, of institutional regulation superseding individual liberty, and of opportunities being accompanied by constraints, may sound too collectivistic for today's electorates" [p. 56].

In summary, the book presents arguments for improving and supplementing the operation of markets through activist labor-market, incomes, and industrial policies. We shall probably hear more of such arguments. In responding to them, American economists will probably bring public-choice theory to bear to a greater extent than the authors of Beyond Keynesianism have done.