Keynes, Hayek & The Big Society

July 26, 2011

It is an historic moment. Across a crowded committee room in the US Congress, the great economists JM Keynes and FA Hayek face each other…

Keynes begins: “here we are, peace out great recession, thanks to me as you see we’re not in a depression.” Hayek responds by rubbishing recent economic stimulus packages: “Friend the party is over, the long run is here, it’s time to get sober.”

Sadly, this confrontation has only ever taken place in a rather brilliant YouTube video. Two young actors play the role of the past century’s greatest economists, rap battling each in a surprisingly literate fashion.

The clash between Keynesian demand management and Hayek’s call for monetary rigour has obvious resonance as the coalition government gets to work cutting the deficit.

But the reason that this video has captured my imagination is because it is also so relevant to the government’s Big Society agenda. The coalition’s public spending cuts are creating a social recession of sorts by cutting funding to swathes of local public services. How to cope with that recession?

The most obvious institution to provide stimulus is local government.

The coalition mostly takes the side of Hayek: they believe the problem with British society is that the state provides too much and society too little. Government has interfered too much and denuded communities of their initiative. Remove some of the state and a new equilibrium will emerge as the people step forward to take more social responsibility.

Like the coalition’s economic policy, the outcome is uncertain. At best, this is likely to lead to a painful period of readjustment as communities struggle to take up the slack. At worst, if communities do not respond, it could just lead to a prolonged period of under-investment in social wellbeing.

But there is an alternative: take the Keynesian view and stimulate the growth of social activism. The most obvious institution to provide the stimulus is local government. As our forthcoming research on the big society will show, civic activism is a deeply localist issue – with social capital differing hugely across communities.

Over the past decade, local government has radically improved how it manages financial resources. Now it must get just as good at managing the social resources hidden in its communities – the belonging, trust and community spirit that provide the seedbed for volunteering and social entrepreneurship.

It’s time for the social Keynesians in local government to find new ways to ensure a soft landing for their neighbourhoods

Many councils are already taking this agenda seriously – social capital has been on the agenda for a decade – but the scale of the cuts means that local government has to radically scale up its efforts and learn how to work in new ways. The scene is set for local authorities to redefine not only their own role, but broader, traditional conceptions of what it means to volunteer.

Councils need to move away from traditional ideas of altruistic volunteering and find new ways to give citizens ‘something-for-something’ through timebanking or schemes such as Lambeth’s Brixton pound alternative currency.

We need to find new ways to incorporate civic activism into commissioning, perhaps through simple ideas such as social gearing, which measures the voluntary effort activated by each pound of public money – every pound of government education spending is already matched by at least 10p on volunteering. And as traditional relationships change significantly, we need better ways to manage risk, both for the council and for volunteers who may find themselves taking on extensive liabilities.

The social heirs of Hayek want a sharp shock to put British communities back into balance. It’s time for the social Keynesians in local government to find new ways to ensure a soft landing for their neighbourhoods.

Simon Parker, Director, New Local Government Network (NLGN)


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