The Collapse Of European Social Democracy, Part 2

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;

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.