Social Europe

politics, economy and employment & labour

  • Books
  • Podcast
  • Videos
    • Spotlight Videos
    • Social Europe Talk
  • Papers
    • Brexit Paper Series
    • Occasional Papers
    • Research Essays
  • Advertise

The Collapse Of European Social Democracy, Part 2

by Paul Sweeney on 9th October 2018

TwitterFacebookLinkedinE-mail
Paul Sweeney

Paul Sweeney

In the first part of his analysis Paul Sweeney pointed to a variety of causes behind the decline of social democracy over the past 30 years or more. In this second part he looks at wider economic and social trends since the 2008 crisis, including the ever-widening gap between rich and poor and growth in inequality, and concludes that social democrats must revaluate and revalue the role of the (benign) state – not least in defending precious liberties.

Answering the Populist Siren of low taxes

The siren call of lower taxes is very popular even with those who demand better public services. Tax rates have fallen so much it takes courage to raise them to improve public services. Social Democrats should also have addressed the need for highly efficient and enhanced public services in the modern mixed economy.

Instead, Social Democrats, perhaps reluctantly, embraced conservative parties’ populist appeals for low taxes on incomes, inheritances and, particularly, on corporates profits. Thomas Piketty has shown how far taxes on top incomes and wealth have been reduced over decades from rates over 90 percent on incomes in the USA, Germany, Britain and France in the 1950s to less than half of that today. There was also a pronounced shift to more regressive taxes on consumption. This impacted the poor most – traditional SD supporters. Industrial-scale tax avoidance and evasion enabled by hyper-globalisation went unaddressed effectively, angering supporters.

Privatisation

The privatisation of state assets in Europe has added little value and was a costly distraction from the proper management of public services and development of a strong public sector ethos, delivering excellent services. Despite the privatisation of hundreds of billions of asssets, the outsourcing of public services, and fresh privatised ways of funding public services, spending in the modern state has not shrunk, though the value of state assets has been reduced. The economy is still not privatised because public spending averages 47% of GDP in the EU28 and has been close to this for decades. The size of the state by assets is smaller due to privatisation but national income flows have remained constant, demonstrating the durability of the welfare state.

There are important social and economic reasons for direct state delivery of state services – a sense of “citizenship,” of “ownership,” of “belonging,” of efficiency, scale and of protection for the lower paid. Further, an integrated utility can be much more efficient than a shaky pyramid made up of many private firms which are mistrustful of each other and only bound by contractual relationships.

The public sphere, open spaces, public ideas and the scientific commons which are open to all are coming under threat of being fenced off, privatised by extensions and enforcement of Intellectual Property, trademarks, copyright laws etc.. This needs to be curbed. The state has been remiss in protecting its own assets from privatisation over the past four decades and, simultaneously, it has given away substantial parts of this public sphere to private interests. It has done this by being over-zealous in protecting the “rights” of major corporations, drug companies, tech and data companies and rich individuals through extended patent rights, and the like.

Patents serve the useful purpose of protection for inventors whose ideas should be rewarded in order to encourage further innovation. But the balance has shifted from protecting innovation to blocking it. It is the state which provides this protection through internationally agreed laws and through enforcement. The growth in patents, trademarks, copyrights and industrial designs has been very high. The state is now agreeing to renewing patents and granting extensions to the likes of branded drugs, thanks to lobbying. Many patents are acquired to build a monopoly and to act as a deterrent against rival innovations.

Some MNCs now troll and hoover-up patents and others exist to build major patent portfolios with the purpose of blocking others’ innovations, moving upstream to protect broad future possible inventions.

Falling Wages and Growing Profits

Wages have fallen as profits soared over recent decades, hurting workers. The growing imbalance between capital and labour, shown in the rapid decline in labour’s share of national income (GDP) in many European countries, demonstrates unequivocally how workers have been losing out in the market economy for many decades. This has not gone unnoticed by workers, many of whom struggle to make ends meet, with some having to hold more than one job. It is a reason for rising inequality in the market. The skew in the balance between labour and capital in recent years has been due to these changes;

Our Most Recent Posts

wage share It is time to restore the wage share Thomas Carlén
democracy in the EU Social discontent and democracy in the EU Guido Montani
European Parliament election European Parliament elections—battle for ‘Europe’s soul’? Miriam Sorace
labour standards Enforcing labour standards via EU free-trade agreements Giovanni Gruni
good governance Democracy splutters—good governance under pressure Christof Schiller

First, reductions in collective bargaining rights reduced the power of unions to counter the power of corporations and to re-distribute income downwards.

Second, the market power of corporations has grown as that of labour has diminished, accelerated by hyper-globalisaiton.

Third, technology owned by capital ensures its returns flow upwards.

Fourth, the onus to pay pensions has been deliberately shifted from employers to workers, from defined benefit to defined contribution schemes. People are living longer but this total shift in obligation from firms to employees has increased profits and reduced wages/pensions.

Fifth, large profitable companies such as Google, Apple and Ryanair are no longer employing people directly with “employees” on contracts. Many are paid less and their jobs are precarious while others may be bogus self-employed to avoid social contributions by their employers.

Sixth, it would have been inconceivable in the past that Social Democratic parties would have countenanced the wholesale outsourcing of so many public service jobs where the lowest paid are victimized especially as public service workers had become their new base. Today, far too much has been privatised. It is more costly, ineffective, hits the unskilled most, and risk too often remains with the taxpayer.

Seventh, the average rate of Corporation Tax has been cut from a nominal 34% in 1995 to 22% in 2017 in OECD countries.

Finally, the more progressive taxes on incomes and companies and on property and inheritances have been substantially cut.

The widely measured cumulative impact of these changes on workers’ share of national income has been significant., declining even before the 2008 crash from 75 per cent of national income in the mid-1970s to 65 percent and becoming a growing source of concern even for mainstream economists and bodies such as the IMF and OECD. (See also here).

The Growth of Identity Politics over Horizontal Equity

Social Democratic parties had built their reputations on establishing broad protective safety nets for all, equally.

However, increasingly, fractured politics has allowed this purpose to be diluted into many single issue agendas, impacting on the overarching collective identity of equal protection for all. Thus, identity politics has weakened the collective appeal of broad left parties. Had SD parties paid greater attention to rising inequality and protecting the collective safety net for all, they might have reduced the impact of this fracture in politics.

Too Cool on Climate Change

Climate change poses an existential threat to humanity. Yet Social Democratic parties were not at the forefront on raising this issue and did not effectively address it. They ceded to Green parties that seldom had the clout to implement real change. Conservative or uncritically pro-market parties will ignore the issue to the peril of all, because it requires a collective international solution – the natural operational area of SD politics.

Conclusion

The main conclusion is that, in the face of the immense power and speed of hyper-globalisation, Social Democrats sought accommodation through market-friendly policies with finance, with Multinational Corporations (MNCs) and others. They should have used the power of the state to regulate and tame this growing market power for the greater good. Their major mistake was that they de-regulated finance precisely at the time when they should have increased regulation. In the face of rapid and massive change, SDs forgot about the power of their old ally, the state. Theory was forgotten in the face of overwhelming circumstances whilst pragmatism based on dominant ideas, not philosophy, took over.

The state is the dominant actor because it sets the rules of the market, it protects the public, firms, and intellectual property.

The globalised economy would not work without states setting and enforcing the rules of the marketplace. And when states work together, they are even more effective. They do this in international rules-based organisations like the EU and WTO.

When demanded by the crash of 2008, the state demonstrated – beyond any doubt – that it can take the neccessary actions to re-regulate banks, to print money, to “do what it takes,” to bail-out the most powerful banks and the largest companies – even the US car industry – and save the economy as a whole.

However, the emphasis in recent decades has been on the protection of the firm; of privatising scientific commons by extensions and enforcement of IP laws; of corporate forays into the heart of public services in search of profits at the cost of workers and citizens; and of investor rights over the public interest.

Firms play a crucial role in the economy, but market-friendly policies went too far and need to be reined in. The relationship of the state to market has become one of subservience.

By adopting many of the policies of the conservatives, SD abandoned the dialetic between the two main opposing sides of politics. Without a clear choice, voters quit them for the apparent alternatives – the populists of left and right.

SDs must again learn to use the strong state to pursue their agenda, and cooperate internationally. If Social Democracy is to revive, it has to go back to its roots around the strong state over market, support but oversee trade, regulate financial flows and overall finance, protect the vunerable. SDs must set rules which favour citizens over corporations, deal with media ownership by promoting greater diversity, tackle climate change effectively and address immigration in humanitarian ways – thereby restoring the dialectic between it and centre-right conservatives.

The neo-liberal economic economic system of the past 30 years collapsed in 2008. But it is only being marginally reformed. Banks “too big to fail” are already bigger than then. People are disillusioned, feel unrepresented and are moving to right and left populism, which offer no solutions. What credible, clear, left political philosophy will stand as the alternative to populism or to conservative values?

Social Democrats need to return to the state, to re-valuate it, re-value it and again harness its power for all citizens to address the excesses of the market. They need to ensure that the state once more becomes dominant over the market, that delivery of all public services is world class and that the state ensures individual liberty is guaranteed.

TwitterFacebookLinkedinE-mail

About Paul Sweeney

Paul Sweeney is Chair of TASC Economists' Network and former Chief Economist of the Irish Congress of Trade Unions.

Social Europe Podcast

Partner Ads

Most Popular Posts

income tax Why top rates of income tax should be much higher Simon Wren-Lewis
Joseph Stiglitz - Beyond GDP Beyond GDP Joseph Stiglitz
external instability Migration Into Europe: A Long-Term Solution? Branko Milanovic
Reversing The Globalisation Backlash Colin Crouch
“New” Perspectives For Europe Jürgen Habermas

Other Social Europe Publications

The Legitimacy of the Brexit Referendum and What We Can Learn from It
Still time to save the euro
Brexit Generation Game: How Conflict Between Old and Young Masks Welfare Challenges
Brexit And Devolution: A New UK Settlement Or The Break-Up Of Britain?
Basic Income And The Left: A European Debate

S&D Group Advertisement

Sustainable Equality Report. Well-being for everyone in a sustainable Europe

Our societies are in the midst of political, economic, social and ecological crises, which permanently feed into each other, and already undermine democracy. Progressive politics with a common and strong vision are crucially needed. Ahead of the next European elections, the Sustainable Equality Report championed by the S&D Group through its Progressive Society initiative addresses this need, resulting in more than 100 concrete policy proposals by thirty policy-makers and renowned experts.


FREE DOWNLOAD

ETUI Advertisement

Work in the platform economy

This paper presents a case study of the food delivery platform, Deliveroo, in Belgium in 2016-2018. The case offers insights on the nature of platform work, the workers who perform it, the preferences of workers, the strategy of the platforms, and the role of local regulations. Interestingly, Deliveroo in Belgium employed workers through an intermediary, SMart, and we also observed the termination of their co-operation in the period under analysis. Using administrative data provided by SMart and a survey of workers, we analyse patterns of work and also focus on pay.


FREE DOWNLOAD

Eurofound Advertisement

Energy scenario: Employment implications of the Paris Climate Agreement

This new report shows that the successful transition towards a low-carbon economy, as defined by the Paris Climate Agreement, is projected to result in a 1.1% growth in GDP and a 0.5% growth in employment, in the EU between now and 2030. This is compared to a ‘business as usual’ baseline forecast. Globally, China is also projected to benefit from a low-carbon transition, but the United States would experience a 3.4% drop in GDP, and a 1.6% decline in employment.


FREE DOWNLOAD

Hans-Böckler-Stiftung Advertisement

The Positive Economic Impact Of Germany's Statutory Minimum Wage

With the empirical analyses of the macroeconomic effects of the introduction of the statutory minimum wage in Germany, the IMK tries to determine the short-term and expected medium- to long-term growth, price and employment effects with the help of a macro-econometric model. As a result, economic growth tended to be stimulated by the introduction of the minimum wage. This was mainly due to the higher wages of the minimum wage beneficiaries and a spillover effect on adjoining wage groups. In particular, this benefited people whose low savings rate led to a particularly strong increase in real private consumption. The price increases triggered were negligible on a macroeconomic scale.


FREE DOWNLOAD

Social Europe Edition Book

Is an unconditional basic income without means-test or work-test compatible with social justice and individual self-worth? Does it open up the space for an end to demeaning labour and a resurgence of voluntary work and cultural life? Is it affordable? This collection of short but compelling essays, all previously published in Social Europe, allows both proponents and opponents to make their case and is designed to extend this vital discussion to a wider audience.


MORE INFO

Social Europe Edition Book

Zygmunt Bauman was a towering intellectual who saw and analysed – right up to his death in early 2017 – the great socio-political changes, often convulsive, in modern western society long before his peers. Here we highlight his prescient insights into what he dubbed ‘liquid modernity’ with 24 chapters on topics ranging from online loneliness via precarity/poverty/inequality to migration, fear of the ‘Other’ and the decline of the nation state. Chronicle of Crisis, 2011-16, written by one of the great chroniclers of our times, will be read and re-read for decades and more to come.


MORE INFO

Find Social Europe content

© Social Europe Publishing & Consulting GmbH 2019

About Social Europe

Mission Statement

Editorial Team & Advisory Board

Article Submission

Legal Disclosure

Privacy Policy

Copyright

Thought Leadership

This website uses cookies to improve your experience and we assume you are ok with this. Do not use this website if you have objections. Accept Read Our Full Privacy Policy