As the mostly centre right governments of Europe rushed a few years back to save their economies by rediscovering the state, many talked of the triumphant return of Neo-Keynesianism. However, they spoke too soon. What followed, as the danger of immediate financial collapse was averted, was a harsh return to the previous orthodoxy and to fiscal retrenchment – masterminded by the conservative leaders of Germany and France and enforced by the financial markets. In the mean time Europe saw the spectacular rise of – left or right – populist parties, while social democrats prior to François Hollande’s victory remained embarrassingly ineffective and silent. For many on the centre-left this populist challenge is a sign of political immaturity and as such an anathema. Sticking to the liberal logic of the Great Moderation seems to them to be the only sensible answer. Nonetheless, it is by now clear that the economic axioms of yesteryear are no longer valid.
Since the 1980s economic orthodoxy has insisted on combating inflation as a means of achieving economic stability. Monetary policy was left to the hands of independent central bankers, with fiscal policy only used as a corrective during exceptional moments. In Europe this logic was enshrined in the Maastricht Treaty criteria and the Stability and Growth Pact, which set the way for EMU. The ECB was allowed to set interest rates and the Pact – in the absence of a political union – set the tight parameters of the Eurozone members’ fiscal policies. At the same time deregulation, liberalization and lower taxes were supposed to fuel economic growth.
Indeed inflation was defeated and low interest rates led to heavy private and corporate borrowing and thus to considerable rates of growth in a context of reduced government intervention. For a while many in the US and Europe thought that this recipe had eradicated once and for all the fear of recession. The centre-left’s answer in this context was the Third Way, which embraced the liberal paradigm and sought to tame its excesses by maintaining social expenses, promoting individual emancipation and implementing eco-friendly policies. Nonetheless, the irrationality, blatant corruption and irresponsibility of the financial industry brought to the surface, in spectacular fashion, the deep flaws of this policy mix. In addition to increasing inequality, it became evident that the free market and deregulation only acted to support unsustainable economic bubbles.
Today, as the Eurozone still traverses an existential crisis it has become obvious that ECB’s unaccountability (not so much its independence) and its fixation with price stability is counterproductive – to say the least. Indeed, the sovereign debt crisis[i] has been made worse by the lack of a true political union and by the ECB’s exclusive attention to combating-inflation. True to dogma Berlin, Frankfurt and (until last Sunday) Paris exhibited ferocious intransigence in their defense of austerity and the liberal orthodoxy as the sole means to overcome the recession. However, as economies in Spain, Greece, Italy and even Germany remain in a downward spiral, it is manifest to everyone that this policy mix does not work.
At the same time, the success of right and left wing populisms lays to rest another credo of the Third Way. Namely, that sociological trends have eradicated social democracy’s traditional electoral base and that consequently all battles are won in the centre – mostly meaning that compromise with liberalism is to be preferred over political antagonism. The sociological truth is that the core voters of populist parties come from the working class. It is of course an irrefutable fact that the traditional working class has shrunk. And that the modern working class is more diverse in terms of culture and life styles. Nonetheless, the fact remains – especially in these times of economic hardship – that the working class and the lower income classes still exist and do suffer. What is missing is their effective representation and constitution as a people by moderate political forces.
At the root of this problem lies social democracy’s fear of the word populism. A political discourse that speaks in the name of the people is scorned and ridiculed. Nonetheless, as Argentine philosopher Ernesto Laclau argues populism as a logic is incorporated in all political discourses[ii]. As such what separates moderate forces from ‘populist’ ones is a matter of quantity not quality. In effect social democracy in the times of the Great Moderation ‘forgot’ to constitute its core voters as a people, deserting them for the liberal centre. Hence, the space was left open for right wing – nationalist – and left wing – anti capitalist – popular parties.
Evidently, the solution is not to reject moderation or to produce unrealistic and vulgar political programs like some of the populist parties do. The solution is to rediscover the popular element inherent in a social democratic catch-all strategy. Indeed political battles are mostly won in the centre. But the content of the centre changes from epoch to epoch[iii]. Social democracy has originally been a populist force organizing its core voters as part of a people. A demos made up of a coalition between the lower incomes classes and parts of the middle class and organized in the name of greater equality in a social market system.
A new social democratic popular compromise, a new New Deal is thus possible. But in the present European context it would necessarily pass through a reform of the EU and would require significant concertation among the centre-left forces[iv].
Hence briefly, a post Great Moderation social democratic hegemonic discourse would be premised on: a) a sustainable return to European wide economic development. This would effectively require a reform of the ECB’s mandate so as to include growth (lender of last resort, Eurobonds). b) Greater fiscal union among Eurozone members, but at the same time greater tax harmonization and meaningful political union (encouraging richer countries like Germany to stimulate growth)[v]. c) Increasing taxes at the national level for the highest incomes. The last two decades have shown that trickle down policies do not produce greater wealth for all. On the contrary they produced inequalities and less available income for the lower and middle classes. What is more experience in northern Europe has shown that higher taxes are not inimical to high rates of growth[vi]. d) Installing mechanisms of greater democratic control at the EU level (extending the powers of the Euro-Parliament, direct election of the president of the European Council or indirect via national Parliaments, election of the EU Commission from the EU Parliament, greater articulation between national parties and European federations etc.) e) Addressing anxieties over immigration and nationalism.
With regard to the last there is again a misguided perception, related to the fear of populism, that centre-left reformism is necessarily tied to an uncritical support of multiculturalism and as such has nothing meaningful to say. Usually this is perceived in the framework of an either/or choice between nationalism and multiculturalism, where the latter is mostly equated with communitarianism. Social democracy is indeed committed to the universal values of respect, tolerance and freedom. But these should not be taken to mean a support for communitarianism. Instead, the relationship between the local and multiculturalism is not of the either/or kind. Multiculturalism must be seen as a horizon, including both processes of integration and internationalism. The fact of the matter is that people can hold fluid and hybrid identities, which are flexible enough not to be exclusive[vii]. Political discourse helps constitute this complex demos. Social democracy has national and European values that it must uphold together with an obligation to foster respect for difference. As such a social democratic people in a republic, would be a (culturally diverse) people paying tribute to European held values while also respecting difference. In effect, the new social democratic grand narrative must be built on a European populism.
If social democracy wants to regain political hegemony it will have to be ambitious. Needless to say great obstacles lie in the way; not least of all the cooperation of social democrats. But a project that is not ambitious has no chances of being hegemonic. At the same time a program that is not European, and populist, has no chances of pushing Europe forward. Globalization and the rise of the BRICs have made isolationist illusions more clear than ever[viii]. If Europe is to lead and not follow the only choice is to further European integration. If it is to be more just and tolerant at the same time, it has to be social democratic.
[i] Brought about by a combination of low fiscal receipts, low productivity, higher inflation, heavy borrowing and bank exposure in the European South (and Ireland) with German neo-mercantilism since 2003.
[ii] Ernesto Laclau, 2005, On Populist Reason, Verso, London.
[iii] Norberto Bobbio, 1996, Left and Right: The Significance of a Political Distinction, University of Chicago Press, Chicago.
[iv] Indeed, the main reason for the failure of the European centre left in the late 1990s was the low levels of cooperation amongst the different social democratic governments.
[v] See the article by Paul Krugman http://www.nytimes.com/2012/05/07/opinion/krugman-those-revolting-europeans.html?_r=2&hp (accessed 7/5/2012).
[vi] And experience in southern Europe has shown that low taxes are a recipe for disaster.
[vii] Patrick J. Geary 2002, The Myth of Nations: The Medieval Origins of Europe, Princeton University Press, Princeton NJ.
[viii] Luk Van Langenhove, 2010, Building Regions: The Regionalization of the World Order, Ashgate, UK.