Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Crisis Of Globalization: Restoring Social Investment Is Key

Robert Kuttner 23rd May 2018

Robert Kuttner

Robert Kuttner

Why is democracy under siege throughout the West? How much of the story is cultural or racial, and how much is economic? And can the slide into authoritarianism be reversed? I think it can.

In the course of researching these issues, I took a deeper look at the remarkable three decades after World War II, a period when the economy delivered for ordinary people and there was broad support for democracy. That era was unique in two key respects.

First, the economy not only grew at record rates for peacetime, but it also became more equal. Second—and not coincidentally—this was a period when raw capitalism was tightly regulated, on both sides of the Atlantic, economically and politically.

Banking was very limited in what products it could offer, and at what prices. It was almost like a public utility. There were no exotic securities like credit derivatives to deliver exorbitant profits and put the whole economy at risk. Globally, there were fixed exchange rates and capital controls, so bankers could not make bets against currencies and entire economies.

Organized labor was empowered. Unions were accepted as legitimate social partners and had substantial influence. This was true in both Europe and America.

Government played a leading role in the postwar reconstruction and in other public investments. This mixed system worked better than any version of capitalism before or since. Not surprisingly, the far right had no support.

Glorious thirty

My generation grew up thinking of that social bargain as the new normal. But in fact it was exceptional. In a capitalist economy, owners of capital ordinarily enjoy an extra measure of political power. In the postwar era, that power was suppressed in the broader public interest.

The postwar social contract came about via a harmonious convergence of events, insights, leadership and politics. Western leaders were determined not to repeat the aftermath of the First World War. In that dismal period, there was no recovery program, speculative finance ran wild, austerity crushed growth, unemployment reached socially unbearable levels—and the result was Hitler and a second world war.

In the Depression and World War II, both the far right and the free-market right had been discredited by events. After the Great Crash of 1929, and the twin successes of the New Deal and the wartime mobilization, no serious person could contend that markets did best when left alone. The political influence of finance had been weakened, while the influence of labor and of the activist democratic state had been strengthened.

At Bretton Woods in 1944, the architects of the new international monetary and trading system were determined to create a kind of managed globalism. The new global economic order allowed commerce to resume but preserved plenty of space for each nation to run well-regulated, full-employment economies.

In July 1945, when Clement Attlee became Britain’s first Labour prime minister with a healthy working majority in Parliament, the UK’s war debt was over 240 percent of GDP. What did Attlee do? He did not pursue an austerity program to reassure the country’s creditors. On the contrary, he doubled down on public investment and built a welfare state. He could do this because the rules of that era precluded a speculative run against the pound.

A third of a century later, when Francois Mitterrand became the first Socialist President of France in 1981, he also attempted a bold recovery program with lots of public investment. But the rules of the global system had changed, laissez-faire finance was back with a vengeance, and speculators pummelled the French franc. Within two years, Mitterrand had to reverse course and pursue austerity.

Hyper-globalization

In the years since then, political and financial elites have redefined trade agreements to mean not just reciprocal cuts in tariffs but broader changes in global rules to make it easier for banks and corporations to evade national regulation.

Laissez-faire, discredited and marginalized after 1929, got another turn at bat(ting). Hyper-globalization was a key instrument. And that reversion had economic and ultimately political consequences.

The broadly shared prosperity and well-managed markets of the postwar boom evaporated. Increasingly, the gains only went to the top and the livelihoods of the rest became more and more precarious. Those who suffered the displacements of globalization were looked down on as economic losers.

It took a while for economic resentment to reach boiling point. Two factors supercharged the political reaction. One was the collapse of 2008—the result of the same anything-goes financial antics that were supposedly ended in the 1930s and 1940s, but resurrected in the 1980s and 1990s.

In the aftermath of the collapse, economic displacement intensified. In Europe, austerity policies added to the misery. And then, pouring oil on the flames, economically conservative but socially liberal elites tried to pursue generous policies towards immigrants and refugees.

The new globalists, epitomized by the annual Davos meetings, failed to grasp that when you deprive the locals of their livelihoods, it is asking a lot to expect them to open their hearts and their villages to strangers. In one European country after another, neo-fascist parties became the second or third largest.

Race card

People not only turned against governing parties; they started turning against democracy itself—a terrible echo of the 1920s, the very catastrophe that the architects of the postwar order had hoped to avoid.

In America, race and immigration played a comparable role. When the economy was rock solid and prosperity broadly shared in the 1960s, it was possible for the civil rights movement to make major gains with the support of substantial numbers of whites. In Britain, the Brexit vote was a similar mash-up of economic frustrations and cultural resentments.

Today, as police killings of young black men attest, the struggle for racial justice is not over. But downwardly mobile whites are far from sympathetic. Figures like Donald Trump and his strategist Steven Bannon succeeded in racializing economic grievances. Bannon once told me that he hoped Democrats would talk about race every day.

In 2016, Democrats played right into the trap. The campaign of Hillary Clinton seemed one part coziness with Wall Street and one part identity politics. This was not a winning recipe, especially in the economically depressed heartland. Trump succeeded in depicting the globalists not only as people who don’t care about your job, but the very people who want to take away your guns, abort unborn babies, disparage you as losers, and snicker at your religion. Cultural, racial and economic grievances blurred.

The grand bargain of the postwar era enjoyed political tailwinds. Today, we face political headwinds. Is there a solution? Can we expect more and more disaffected and displaced citizens to turn to neo-fascists as we watch our economy divide and our democracy collapse? Dare one be an optimist?

Social investment

In 1939 and 1940, the Great Depression was over, but unemployment seemed stuck at well over 14 percent, and economists worried that this was the best the economy could do. Machines were displacing human workers.

Then came the war, which was catastrophic for Europe, but provided a massive recovery program for America, driven by immense levels of public investment funded by surtaxes on the wealthy and war bonds pegged at low interest rates. In less than a year, US unemployment dropped to about two percent.

What we need today is the same kind of social investment program, but without the war.

There is a European variant and an American one. That sort of investment would create lots of good jobs, restore economic possibilities, and would demonstrate that government is capable of delivering for ordinary people. The twin threats to democracy and a decent society are dire—but still reversible.

One can even imagine the slogans that need to be taken back from the far right: Make America Great Again, Make Europe Great Again.

This is the third in a new SE series, The Crisis of Globalisation, co-sponsored by the Hans Böckler and Friedrich Ebert Foundations

Robert Kuttner

is a journalist, writer, and economist, and author of nine books, most recently A Presidency at Risk. He is the co-founder and current co-editor of The American Prospect, created in 1990, and a senior fellow at the think tank Demos. He was a twenty¬year columnist for Business Week and continues to write columns in The Boston Globe. He is one of five co-founders of the Economic Policy Institute, and currently serves on its board of directors. He has taught at Brandeis, Boston University, University of Massachusetts Boston, and Harvard’s Institute of Politics.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
u4219834664e04a 8a1e 4ee0 a6f9 bbc30a79d0b1 2 Closing the Chasm: Central and Eastern Europe’s Continued Minimum Wage ClimbCarlos Vacas-Soriano and Christine Aumayr-Pintar
u421983467f bb39 37d5862ca0d5 0 Ending Britain’s “Brief Encounter” with BrexitStefan Stern
u421983485 2 The Future of American Soft PowerJoseph S. Nye
u4219834676d582029 038f 486a 8c2b fe32db91c9b0 2 Trump Can’t Kill the Boom: Why the US Economy Will Roar Despite HimNouriel Roubini

Most Popular Articles

startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer
u421983467 2a24 4c75 9482 03c99ea44770 3 Trump’s Trade War Tears North America Apart – Could Canada and Mexico Turn to Europe?Malcolm Fairbrother
u4219834676e2a479 85e9 435a bf3f 59c90bfe6225 3 Why Good Business Leaders Tune Out the Trump Noise and Stay FocusedStefan Stern
u42198346 4ba7 b898 27a9d72779f7 1 Confronting the Pandemic’s Toxic Political LegacyJan-Werner Müller
u4219834676574c9 df78 4d38 939b 929d7aea0c20 2 The End of Progess? The Dire Consequences of Trump’s ReturnJoseph Stiglitz

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

KU Leuven advertisement

The Politics of Unpaid Work

This new book published by Oxford University Press presents the findings of the multiannual ERC research project “Researching Precariousness Across the Paid/Unpaid Work Continuum”,
led by Valeria Pulignano (KU Leuven), which are very important for the prospects of a more equal Europe.

Unpaid labour is no longer limited to the home or volunteer work. It infiltrates paid jobs, eroding rights and deepening inequality. From freelancers’ extra hours to care workers’ unpaid duties, it sustains precarity and fuels inequity. This book exposes the hidden forces behind unpaid labour and calls for systemic change to confront this pressing issue.

DOWNLOAD HERE FOR FREE

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641