Part 4 transcript

Robert Manne:

When we speak of social democracy we can mean one of two things.

We can mean by social democracy the present day representatives of certain historical parties. These were the democratic socialist or Labor parties which were members of the Second International after the First World War; which were fiercely opposed to the communist parties of the Third International; which sought to overthrow capitalism by a non-revolutionary method, by linking the aim of socialism to representative democracy and the rule of law; and which after the Second World War gradually lost faith in centrally planned and socially owned economies and made an historic compromise with capitalism, first in fact and then in theory, at which point they morphed from the democratic socialist parties of the postwar period into the social democratic parties of today.

But we can also mean by social democracy something rather different—a particular and distinctive era in the history of the West, stretching from the end of Second World War until the election of Margaret Thatcher and Ronald Reagan in 1979 and 1980 respectively. In this era, social democracy stood for four main things—Keynesian policies based on the belief that macroeconomic intervention by the state had the capacity to prevent the return of mass unemployment of the kind seen in the Great Depression; mixed economies of both public ownership and private enterprise; steeply progressive taxation; and, most importantly of all, the elaboration or even creation of the protective social welfare state. The social democratic era was capitalism’s Golden Age where ordinary people were delivered life chances and security of a kind never previously seen in history. The era was fashioned by the policies of the social democratic parties but supported with only slightly less enthusiasm by the liberal, conservative and Christian democratic parties of the centre-right.

In essence it was the stagflation crisis of the mid 1970s that brought the era of social democracy, but not of course the social democratic parties, to an end. Stagflation undermined confidence in Keynesianism which was premised on the belief that inflation and stagnation were the alternative illnesses to which the capitalist economy might succumb. Once that confidence was gone, the social democratic era was succeeded by the era of neo-liberalism, with Friedrich Hayek rather than Maynard Keynes as its presiding spirit. In this new era, belief in the efficacy of government intervention was replaced by faith in the magic of the free market; belief in the mixed public-private economy was replaced by enthusiasm for privatization; belief in progressive taxation was replaced by pursuit of a low tax regime; belief in the welfare state was replaced by small government enthusiasm and by skepticism about the economic, social and even moral costs of the so-called Nanny State.

Neo-liberalism was embraced by all Western societies to some degree. It brought everywhere increasing wealth but also greater levels of inequality, especially in those societies where neo-liberalism was most deeply entrenched, in the United Kingdom and especially the United States. During the Keynesian era CEOs in the US earned approximately twenty five to thirty times the salaries of their workers. On the eve of the great recession they earned 300 to 500 times as much. In the 1970s the richest 1% of Americans owned 20% of their country; on the eve of the great recession they owned 40%.

Momentarily, the coming of the Great Recession in 2008, which was caused in essence by the unregulated and frenzied global trade in esoteric financial products known as derivatives, appeared to have signaled the end of the neo-liberal era. Intellectually honest neo-liberals, like the former President of the Federal Reserve, Alan Greenspan, felt what he called “shocked disbelief” at the manifest failure of their faith. Distinguished contemporary social democrats, like Paul Krugman or Joseph Stiglitz, were convinced that the neo-liberal ideological fantasy about “the magic of the free market” would now be certain to be discredited. Yet so far at least the global financial crisis this has not come to pass. Since 2008, we have seen not a discrediting of neo-liberalism and a return to social democracy and the Left, but the rise in the United States of the most primitive form of small government Right-wing populist paranoia in the Tea Party movement, and the weakening in Europe of the social democratic parties and the idea of the welfare state. The puzzling and counter-intuitive political response to the global financial crisis is one of the most important contemporary questions we need to understand.

The strategic problem facing the social democratic parties, including the Australian Labor Party, can be best described in this way. The basic supporters of the social democratic parties have been, on the one hand, the working classes and less affluent middle class and, on the other and since the 1970s, the left-leaning members of the well-educated and well heeled professional middle class. In recent years however the social democratic parties have lost some of their more impoverished supporters among the shrinking working class to the xenophobic populist parties of the Right. They have lost some of their more affluent working class supporters to the small government, low tax, neo-liberal parties. And they have lost very many of their left-leaning inner city professional supporters to the new parties of the Greens. As a result of this simultaneous loss of votes to the Right and to the Left, the political dilemma facing these parties has become acute. On the one hand if they compete with the populist and neo-liberal Right for the working class votes they are losing, they are increasingly abandoned by their left-leaning middle class constituency who move to the Greens. If on the other hand they compete with the Greens for the professional middle class votes they are losing, they risk a further loss of both the downwardly and upwardly mobile working classes to the parties of the populist and the neo-liberal Right. Only a fool would pretend that the crisis of social democracy can be easily resolved.

There are two main questions that will determine whether social democracy has a future. The empirical data presented in the seminal recent book, The Spirit Level, makes it clear that in recent decades in the far more equal social democracies of north-west and central Europe, almost every social indicator of significance—health, mental wellbeing, social mobility, educational achievement, commission of serious crime—is markedly more positive than in the radically unequal really existing neo-liberal democracies of the United Kingdom but especially the United States. Neo-liberalism is concerned primarily with political and economic freedom; social democracy with the question of how the values of both freedom and equality can be reconciled and pursued. If social democracy is to revive it will be in part because the humanly superior social performance of the European social democracies comes eventually to be recognised. In such a revival the role of the social democratic parties will be to convince sufficient numbers of citizens that there is still vital work to be done by the state: defending and refining those parts of the welfare state that still work; removing those parts which are indefensible or dysfunctional; but also adding tasks for the welfare state so far ignored—in Australia, mental health; dental health; disability; the remote indigenous communities. In order to do this, in the ideological sphere, the task of the social democratic parties will be to mount a long-term intellectual challenge to the presently hegemonic low tax, small government neo-liberal rhetoric of the contemporary Right.

There is however an even more important question which will determine whether or not social democracy has a future. Climate scientists tell us that unless human beings radically reduce their consumption of fossil fuels, not in the long-term but immediately, the future of the Earth is in peril. Although it is true that in placing the question of radical action on climate change at the centre of their agenda, the social democratic parties will risk losing the support of part of their traditional working class clientele, because of the gravity and immediacy of the climate change question I cannot see how they can avoid the conclusion that as a matter of principle their future rests in doing so. If this is right it follows that the future of social democracy rests in a relationship of what one might call competitive collaboration with the Greens. In such an imagined future there are certain vital tasks that the social democratic parties can play. Because of their history, the social democratic parties are vital to convincing broad public opinion that radical action on climate change is part of the political mainstream. Because of their linkage to the working classes, they also have a vital role to play in devising policies to ensure that action against climate change will not favour the more affluent members of society at the expense of the less affluent members.

During the Cold War, in collaboration with liberals and conservatives, the social democratic parties unmasked the fundamental illusion of the Left, namely that the future belonged to communism. In the present age, this time in collaboration with the Greens, their role will be to unmask the fundamental illusions of the Right, namely that the Market will solve our problems for us, and that accelerating consumption offers the key to the attainment of the good life. The social democratic era represented the response of Western nations to the threat of a return to mass unemployment of the kind seen in the Great Depression and to the rise of fascist savagery that together called into question the very idea of European civilization. Our age faces an altogether different but no less serious civilisational challenge: catastrophic climate change. If social democracy has a future, it will have not only to defend its earlier welfare state achievements but rise to this new diabolically difficult challenge by becoming, from the viewpoint of its tradition, almost unrecognisably green.