Without Social Democracy, Capitalism Will Eat Itself

Karin Pettersson

It’s a tragedy but there’s no way around it: At a time when it is most needed, social democracy is at an historic low point. What are progressives to do? Here are four lessons for the future that the Left needs to understand, and four ways to think about the road ahead.

How the world has changed

Say Goodbye to the Golden Age

In 1979 the French demographer Jean Fourastié coined the phrase Les Trentes Glorieuses, referring to the period between the end of World War II and the first oil crisis in 1973. It was a time of economic prosperity, rising living standards and real wage growth in Western Europe and the US.

More than 35 years later, many politicians on the left are still spending a lot of time stuck in nostalgia, daydreaming about that period. But the Golden Age has now been gone longer than it lasted, and the world it sprung from doesn’t exist anymore.

Perhaps the most unique feature of the post-war era was the balance struck between labor and capital. Trade unions bargained with employers for wages. Rising salaries for workers led to higher demand that in return created profits for business owners. Governments supported the regime with Keynesian economic policies. Political scientists argue about whether this arrangement was reached through the benevolence of capitalists or pressure from labor.

It’s more complicated than that. To borrow from Peter Hall, three sets of factors made this balance of power possible.

First, after the war the memory of intense class conflict was fresh in the public mind. Politicians on left and right understood the need for policies that would increase the quality of life for the many. In many countries conservative and right-wing governments were instrumental in implementing social safety nets and welfare policies.

Secondly, economists pushed the idea that governments could ensure full employment. This formula encouraged mainstream parties of the left to make peace with capitalism instead of seeking more radical alternatives.

Finally, there was an electoral path to creating a stronger welfare state. Social class still structured most voting. The political left that represented the working class could compromise with middle-class parties on a political program that offered social benefits and active economic policies. None of those conditions applies anymore.

It’s Not About Trade, Stupid

Listening to populists on both right and left you might be fooled into thinking that closing borders would automatically take us back to happier days. To be clear: many of the free trade advocates underestimated the negative effects of global trade. Politics has utterly failed to compensate its losers. The big story of the last 30 years, however, is almost entirely about something else.

The major force for change in Western capitalist societies is the move from industrialism to post-industrialism. Compared to that, everything else is just ripples on the surface. When workers moved from the assembly line to the service sector, it changed the way the economy worked – but also power relations, identities and politics.

In the post-war era trade unions protected workers’ rights. With the move to the service economy, their power has declined. The result is that the unions’ role as counterweights to corporate influence has weakened dramatically, as well as their ability to provide political support for Social Democratic parties.

Today’s jobs often either require high skills or offer low pay and little security. It’s hard to find “good” jobs with low to middle level of skills. These polarized labor markets drive inequality, but not only in terms of income. It also affects who has access to stability and the possibility to plan and hope for the future.

Another major change is education. Today about half of the population in Western countries has a university degree of sorts – typically as a result of policies set in place by social democratic parties. This affects people’s values and sense of identity. And it further undermines class voting.

Finally, an often overlooked but fundamental shock to the post-war economic order is the shift that occurred when women went within a generation from being homemakers to competing with men in the labor market. Today’s public discourse is obsessed with immigration. But this challenge is nothing compared to the scope of the change caused by the rise of women as competitors to men in the workplace.

The changes outlined here are fundamental and impossible to reverse. They have not only had massive economic consequences, they have also challenged and altered identities, values and politics in a way that still reverberates in our societies.

It’s About Politics, Too

The rise of populism is not only a reaction to dramatic but inevitable structural changes. It must also be understood as the consequence of neoliberal policies actively tilting the balance between capital and labor.

At the end of the 2^nd World War the sociologist Karl Polyani famously wrote that “a pure free-market society is a utopian project, and impossible to realize because people will resist the process of being turned into commodities”.

Polyani’s conviction was that unfettered markets and complete commodification of human beings would lead to fascism. His book The Great Transformation was published right before the start of the post-war era that would create social safety nets and welfare states precisely as an answer to Polyani’s fear.

The reason these policies could be realized was that politicians on both left and right understood the dangers of poverty and mass unemployment. As the historian Tony Judt noted in Postwar, the Marshall plan had economic consequences but the crisis it averted was political. The purpose was to prevent Europe from falling back into fascism and totalitarianism.

With the rise of neoliberalism this lesson was forgotten. In the 80s and 90s, the specter of inflation became the main focus of governing parties’ economic policies.

At the same time as trade unions lost in strength, capital organized and mobilized, energized by the economic theories of market fundamentalism. Policies were set in place that contributed to the unraveling of the social contract. Economic policies of mainstream parties from left to right converged, and social democrats often took the lead. The effect was that a big part of their working-class voter base was left without a voice.

The result of these structural changes and neoliberal policies is the explosion of inequality perhaps best described by French economist Thomas Piketty. His research shows how the relatively fair distribution of wealth that was the result of the post-war institutions is disappearing. In a world where the return on capital is outpacing the level of growth, the accumulation of assets by the already rich is challenging ideas of fairness and justice that are fundamental building blocks in Western democracies.

Step by step, capitalism is eating itself, with potentially dramatic consequences for social stability and liberal democracy.

The End of Growth

One of the fundamental assumptions of our political order is the idea of permanent and stable levels of growth. This idea is challenged today. Not only Piketty is predicting lower levels of growth for the foreseeable future. American economist Robert Gordon suggests that the rapid progress made over the past 250 years could turn out to be a unique period in human history.

Growth can either be a function of productivity increases or population increase. As shown by Gordon, the productivity gains from the Internet revolution has withered away in the last years. As opposed to the inventions in the industrial revolution, today’s technological changes do not seem to fundamentally increase labor productivity or the standard of living. At the same time, populations in many European countries are aging quickly.

In all likelihood, the political compromises of the next generation will have to be made against a backdrop of scarcer resources and lower growth. Politics under those restrictions will be very different from what we’re used to.

It doesn’t make things easier that the countries within the EMU have their hands tied by a combination of high debt and fiscal targets. The German political scientist Walter Streeck has called this “the consolidation state”, a situation where governments perceive that their only option to balance budgets is to make further cuts in social security nets.

At the same time, labor markets are experiencing major changes. Some economists believe that automation might fundamentally disrupt our societies and wipe out large numbers of middle class jobs, dramatically changing both labor markets and the fabric of society. Others are arguing that the rise of automation will eventually lead both to demand for new products and to jobs being created.

Whatever the endpoint, technological changes are putting great pressure on labor markets. At a minimum, we are at the beginning of a period of very difficult transformation where many people’s skill sets will be outdated. These developments will hasten the already exploding inequality and further undermine an already fragile social contract.

The Road Ahead

Back to the State

There are no national solutions to the big questions of our time: climate change, migration, or the crisis of global capitalism. The goal of social democrats must be open societies, international cooperation and the flow of ideas and people across borders. But in the end, politics is local. And in a period when people are losing trust in politics, progressive leaders need to go back to voters and seek a new mandate. This is what populist parties have figured out, and it’s a mystery that the left has been so slow to respond.

The good news is that the welfare state has been more resilient than many people would have thought at the beginning of the neoliberal era, and that variations between countries in respect to levels of redistribution, tax levels and social justice remain large. There is no institutional convergence to a single model of low taxes and minimal welfare state. It’s a neoliberal myth that countries’ competitiveness and economic performance depend on low taxes and deregulated markets. On the contrary, economic success comes in different shapes. This creates room for variation in national policy and a way forward for a progressive project.

Immigration and Its Discontents

Is populism a backlash against economic insecurity in post-industrial economies – or against liberal and progressive values? Political scientists such as the Harvard scholar Pippa Norris have found support for the latter. The problem with this view is that values, of course, do not exist separately and independently from economic realities or the pace of change in technology.

It’s important to recognize, however, that the long-term trend is that values are changing towards more support for democracy, tolerance and gender equality. A political movement that is in it for the long game must remember this.

We live in an age of globalization and migration. At the same time the nation state is for the foreseeable future the organizing principle for the making of politics. In that world, borders and border controls are necessary. But today’s race-to-the-bottom policies of Europe are not only immoral, they are also economically short-sighted. One of the few solutions to the dilemma of slower growth is immigration.

A single country cannot accept an unlimited number of refugees. But just as opening labor markets to women was both about improving equality and creating growth, social democratic migration policies must be grounded in the idea of the inviolability of human rights – combined with a clear-headed strategy for how openness and equality can work together.

Contrary to intuition, the higher levels of redistribution there are in a country, the higher the support for it by voters. It seems as if higher taxes and generous benefits promote worldviews that create support for these policies (as Peter Hall argues in a forthcoming paper). This has consequences for how to design policies for keeping solidarity intact.

The universal welfare state has been challenged in many countries in the last 30 years. The argument has been that universality and high levels of redistribution reduce incentives to work and hampers growth – none of which is true. Politicians of both right and left have responded to immigration by moving away from benefits as rights, towards eligibility requirements along ethnic lines. For proponents of solidarity, that is a dangerous road to go down, not only because it is morally wrong but because in the longer term it will put at risk the principles of universality that make redistribution possible.

The upside of this argument is that a universal welfare state will have considerable benefits when it comes to extending solidarity to immigrants – and thereby for integration and openness.

In the long run, migration must be dealt with globally. In the shorter run, the platform of progressives must stand on two legs – generous (but not unlimited) migration policies combined with an unequivocal defense of universality. Otherwise the social democratic project itself will be undermined.

The Dilemma

As early as the 80s, the Danish sociologist Gösta Esping-Andersen asked how post-industrial economies might reshape electoral policies. He argued that class was becoming increasingly irrelevant to voting behavior and that this would undermine the historic compromise between working and middle class that made the welfare state possible. Since then, this view has been contested and revised.

The political scientists Jane Gingrich and Silka Häusermann have shown that class continues to be a good predictor of political preferences and vote choices – but along new lines.

It’s true that traditional working-class voters now make up a smaller share of the electorate and that support for the left has declined. But at the same time the middle class has both grown and adopted more progressive values.

This is potentially and at least partially good news for Social Democrats. When the working-class voter bloc becomes smaller, the middle class can replace it as protector of the welfare state and progressive policies.

The real dilemma for social democracy is that its potential constituencies are split in two voter blocs with different values and interests. On the one hand, the working-class voters, who favor redistribution policies aiming at equality of outcome. On the other hand, the growing progressive middle class, which favors social investments, but is not as interested in income equality.

So what are the electoral options for progressives? One is to pander to the working class by going down the road of welfare chauvinism and nostalgia. Possible coalition partners in that strategy would be populist and conservative parties. The problem (apart from giving up core values of equality and openness) is that the progressive middle class will in all probability abandon ship.

Another option is to define the progressive project as being about education and not redistribution. This was the answer of the 90s and in this election strategy green and liberal parties might be part of the coalition – but the working class is left behind.

A third way would be to recognize that a social democratic project that leaves out the working class – even if it’s shrinking – will lose its raison d’être, and that the necessary fight against increasing inequality creates new possibilities to forge a coalition between the working and middle class.

Anti-Elitism, Not Identity Politics

“Anti-elitism” is a complicated and dangerous frame in politics. But one of the reasons it’s so powerful is that it captures some of the problems that we face today.

It is important to understand that the rise of populism is a rational response to increased inequality and the failure of the left to articulate credible economic policies that challenge neoliberalism.

The left must as a matter of principle defend, promote and protect the expansion of rights for women and minorities. But the main focus for progressive politics cannot be to win an argument in a cultural war. It must be to create policies that changes power structures.

On one hand, politics needs to play a more active role in creating a balance between capital and labor in a world where the forces driving inequality are increasing in strength. But a policy platform of higher taxes and more public investments will not be enough.

As the political scientist Bo Rothstein has shown, fairness and equality of opportunity are vital building blocks for polices aiming to (re)build trust and social capital, in turn necessary components for progressive politics. Social democrats need to make the fight for inequality as much against rent-seeking and economic corruption as income redistribution.

This would make it possible to forge a coalition between the working and middle classes through a version of anti-elitism that is built on an idea of fairness, rather than resentment.

The weakness of this strategy is that it would require major changes to be credible for a social democracy that in many countries has become synonymous with the power establishment. It would mean becoming much more ambitious on policies like taxing wealth and capital and regulation of financial markets. But it would also entail taking seriously issues most social democratic parties have abandoned, such as salaries for politicians and business executives. And it would mean dealing with the fact that social democratic parties today, to a large degree, organize members from and recruit politicians from the middle class.

Only the Left Can Save Capitalism Now

It’s evident that neither liberalism, conservatism or right-wing populism hold the answers to today’s central issue: the exploding inequality undermining growth, democracy and the social contract. These are issues that simply cannot be solved either by merely defending liberal values, or by protectionism and closing borders to immigrants.

It’s also evident that today, more than in a very long time, a counterweight to the growing power of capital is needed if liberal democracy – and capitalism – is to be saved. The world has changed. Voters understand this, and are looking for politicians who get it too.

Social Democrats often talk about the primacy of politics. If they want to be a part of the next chapter of history they must act on that conviction – or continue to wither away.