Can social democracy hold the tiger of capitalism in check or is global capital now too liquid for any social democracy to control? Is the carefully managed European balance between people and capital becoming unsustainable and should we be looking for alternative, more humane, economic strategies?
Capitalism has brought many benefits to western Europe and the historic mission of European social democracy has been to gain these benefits by agreements written in law and social conventions to permit the free movement of capital up to a limit – the limit being the impoverishment of the citizens of the state. The tiger has not been tamed but restrained. Much of this is so ingrained in the zeitgeist of western Europe that we know little else. We assume this balance of forces between a democratic state and free capitalism is natural. The fate of unwanted working classes in the United States, the pauperisation of large parts of former industrialised cities such as Detroit and Baltimore in the Rust Belt, is a warning of what happens when capital is withdrawn by investors.
This balancing act is at the heart of the EU project – state, organised labour and business, locked in permanent struggle, mutually dependent and constrained by legislation. Players wishing to enter our game must play by our rules or, no matter how large they are, be punished by the courts e.g. Microsoft.
This three legged EU stool has stayed upright because the three legs have so far needed each other. Of the three legs, two are not mobile – states and people – whereas capital is increasingly mobile and liquid. This is most evident in the UK where the economy is now majority-owned by foreign corporate investors whose primary interest is buying and selling businesses for capital gains. British capitalists have moved on, into the realm of capital trading. The much vaunted British financial services sector is not built on a healthy foundation of manufacturing or services. Capitalism in Britain floats disconnected from the economic substrata upon which the bulk of the population depend. It is a global player in speculation (gambling) in investment vehicles of bewilderingly abstract complexity, including the infamous derivatives and hedge investments, and in private equity speculation, financed by vastly leveraged credit, to ‘release’ equity in businesses.
None of this is relevant to the creation of a reliable and sustainable economy. Most significantly for the social democratic project, capital is losing interest in the balancing game. British employers, despite the banks being largely state owned after 2008, are starved of finance according to Bank of England surveys. Some £200 billion of government credit was injected into the UK economy to ‘free up’ investment for small businesses. Commentators such as Larry Elliot, economics editor of The Guardian newspaper, are saying that virtually none found its way into reflation. It was, he says, spent on ‘casino chips’ for speculation and the banks are making big profits again, but not from lending to businesses which employ the people of Britain.
The UK commercial economy is suffering from a chronic capital strike. If the UK is the pioneer, does the same fate await other European economies, even those such as Germany who try to protect industrial investment banking? Is it then a short time before the infrastructure supporting the goods and services economy begins to withdraw? The £200 billion quantitative easing loans must be paid for, we are told, by deep cuts in public spending and investment in the coming years. Larry Elliot says the real cuts are much bigger, somewhere between 2 and 5 trillion pounds having been removed by the banks from the UK capital infrastructure in the past few years to use elsewhere.
Are there forms of economic organisation that are not as vulnerable to financial speculators and capital flight? Forms which are acceptable to European states, to organized labour and which could be a reliable core of a social democratic economy? These forms should keep the beneficial aspects of capitalism: free mobility of labour, self-managed capital, market set prices, inherent self-regulation, entrepreneurial innovation and the discipline of maintaining financial solvency in a competitive environment. Cooperatives and mutuals are one such form of economic organisation. Cooperation has many advantages in comparison with capitalism but not the stimulus of private wealth enhancement which is possibly why, for such a large economic sector (250,000 enterprises and 5.4 million jobs in Europe), their media profile is surprisingly low. Cooperatives directly satisfy employment and consumer needs. Jobs, and the production of essential needs and wants, are not the byproduct of economic activity as in capitalism. They are the raison d’etre of worker-owned and consumer-owned cooperatives respectively.
Capital is owned, in large part, collectively and is not made liquid or transferable without the majority democratic will of the owner members of the cooperative. But cooperatives are market-based commercial trading enterprises, unlike state financed social enterprises, for example. Cooperatives are sustainable long-lasting employers. The UK cooperative group was founded in 1862. Wage differentials between senior executives and workers are much smaller than in investor owned businesses (e.g. the cooperative group compared to Tescos). Their potential for creating a more equal society is obvious.
Cooperation is not inimical to a capitalist market and cooperatives are, if well managed, able to prosper in competition with capitalist businesses. There is no evidence that cooperatives are less innovative than private investor-owned businesses and plenty of examples of cooperatives leading markets into completely new areas of commercial activity – mass production of food products, national integrated supply chains, self-service supermarkets, ethical retail and investment banking to name but four examples from the UK.
I would suggest that we, social democrats, encourage our political representatives to be less in thrall to capitalism and encourage a more varied commercial economy, including a substantial cooperative sector.