Contemporary Prospects for Social Democracy

The underlying dilemma of social democracy in the twenty-first century is that neoliberalism has failed while a coherent alternative has yet to be fully developed and embraced by most social democratic parties.

This article is part four of a four-part series providing a political history, overview and critical evaluation of the social democratic tradition in Western politics, with some reference to the Canadian experience. This series is a re-publication of the 2017 Discussion Paper entitled ‘Reflections on the Social Democratic Tradition‘ by Andrew Jackson, Broadbent Institute Senior Policy Advisor. Read Part one: What is Social Democracy?, Part two: Social Democracy from the Gilded Age to the Golden Age, and Part three: Social Democracy from the Golden Age to the Great Recession.

The underlying dilemma of social democracy in the twenty-first century is that neoliberalism has failed while a coherent alternative has yet to be fully developed and embraced by most social democratic parties.

As underlined by Piketty (2014) and others, neoliberalism has seen a return of income and wealth inequality to the level of the 1920s in the United States and Britain, and a clear trend towards greater inequality in Canada as well as the advanced industrial countries that have been the historic home of social democracy. Unemployment and underemployment in part-time and contract jobs is generally very high, and work has become much more lowpaid, insecure and precarious for at least the bottom third of the labour force.

Deindustrialization, technological change and the decline of unions in the
private sector have led to stagnant wages and the erosion of workplace rights. Inequality has been exacerbated by the undermining of the redistributive welfare state and of high-quality public services. Most countries have seen the middle class shrink as income growth has been concentrated at the very top, while the ranks of the working poor have grown. Economic security has been greatly diminished by structural changes in the job market combined with cuts to social programs.

Cover of Capital in the Twenty-First Century by French economist Thomas Piketty.

Despite limited spurts of productivity growth driven by new technology, rates of economic growth and overall productivity growth since 2000 have been modest and well below the levels of the Golden Age. Profitability was largely restored by neoliberalism, but private investment has been weak in almost all the advanced economies, and there has been a low rate of reinvestment of robust corporate earnings. The deflationary effects of low wage growth and weak investment were partly countered from the 1990s until the Great Recession by rising levels of debt, especially household debt. A buoyant housing market inflated by speculative finance and cheap credit sustained growth in the U.S., the U.K. and elsewhere (notably including Canada since 2000), but this is clearly unsustainable. The collapse of debt-fueled asset bubbles led to the global financial crisis of 2008, which has still not been resolved.

Economic stagnation since the crisis is due to the obstacles of slow wage growth due to intense global competition, high household debt, low business confidence in the existence of profitable new investment opportunities, and the high levels of public debt accumulated in some countries as a result of the crisis that precipitated a premature return to fiscal austerity. Ultra-low interest rates have been unable to spark a meaningful recovery and leading economists fear an extended period of “secular stagnation.” In the Euro area, social democratic parties are hamstrung by self-imposed rules that mandate low deficits, forcing policies of austerity despite the return of mass unemployment in several major countries. EU rules also constrain major government intervention to support domestic companies. Voices on the European left have called for recovery through a concerted public investment program and higher wages to increase purchasing power, but they are not in the majority.

Reversing the national and global trend towards extreme inequality will require, at the most abstract level, a new re-embedding of capitalism within society and a rebalancing of capitalism and democracy within new circumstances. We cannot easily restore the post-war welfare state that presupposed a strong labour movement rooted in the industrial working class, a very strong cultural ethos of solidarity, and a system of nationally rooted capitalisms in which governments could effectively regulate national economies.

Today’s context is one of much greater individualism, a weakened labour movement, a much more diverse workforce and society, and a hyper mobile, globalized and financialized capitalism where corporations create and recreate cross-border value chains to maximize profits and can usually bend governments to their will. Contemporary social democracy must also confront major new challenges such as the imperative to reverse catastrophic global climate change and other pressing ecological challenges, to counter the rise of precarious and low-wage employment, and to address the close overlapping of class and racial inequalities

How then can we return to an era of shared prosperity? Global stagnation must be countered by a major global shift away from austerity and a major revival of public investment, especially to deal with climate change and a transition away from fossil fuels. Record low interest rates mean that a major increase in public spending to boost short and longer term economic growth is essentially self-financing.

Breaking with austerity in the longer term will require global coordination of macro-economic policies, and consideration of capital controls to avoid the most harmful effects of fierce national competition for global market share. An alternative agenda will involve rebuilding the labour movement at home and internationally to win additional bargaining power for workers and to ensure that wages rise in line with productivity. Extending protections to precarious workers will require major changes to national labour laws, such as sectoral certification and bargaining in low-wage sectors of the economy and much more rigorous enforcement of labour standards.

Globally, we need to put much tighter rules on mobile capital, including setting high labour and environmental standards in all trade and investment agreements. All workers in the global economy should have access to basic democratic and social and economic rights, including labour rights.

We also need to restore some of the levers of control of national economies that were surrendered through neoliberal trade and investment agreements such as NAFTA and CETA. Here in Canada, we face the major problem that economic restructuring has left us highly dependent upon a vulnerable and environmentally unsustainable resource economy that provides relatively few direct good jobs, and shrunken productive capacity in more sophisticated, innovative and high value-added industries, be they manufacturing or services. Canada needs a new economic development strategy to build an innovative, high value-added economy that is owned and controlled domestically while still participating in global markets

Part of the answer to low private investment and rising inequality is to expand social ownership of capital and to extend economic democracy. This is not a call for state socialism, but rather for a significant expansion of socialized capital in highly diversified forms, including through the assets of public pension plans, through government support for co-operatives and community-run investment funds, through the expansion of public investment banks like BDC and EDC, and through new Crown corporations at different levels of government. As argued by Mariana Mazzucato (2013), major technological leaps require more than private sector entrepreneurship. If we are to deal with major new challenges such as the needed de-carbonization of energy production, the state must lead the way through planning and support for major new investments, and returns from these investments should flow to all citizens and not just the owners of corporate assets. The financial system must be closely regulated to support real business investment in capital and in innovation as opposed to short-term debt-fueled speculation.

Cover of The Entrepreneurial State by Broadbent Institute Fellow Mariana Mazzucato.

The debate over basic income challenges us to think of how to reform our income support programs and tax systems to promote greater security and less inequality. The rise of precarious and low-wage work means that many working families have low incomes that must be addressed by some combination of higher wages and income supports, be they earned income tax credits or a basic citizens’ allowance. The goal of decent work for all should not be abandoned, taking into account the fact that work is not just about wages but also the development of individual capacities and making a productive contribution to society. Elimination of poverty through targeted income supports such as child benefits, public pensions and unemployment insurance is a practical short-term goal. Significant additional tax revenues to fund social programs can be raised by taxing wealth, shutting down offshore tax havens and other tax loopholes for the rich, and by making the income tax system more progressive.

The social democratic agenda of expanding public services for all citizens remains far from a reality. Free access to learning must include early childhood education and care, post-secondary education, labour market training and lifelong learning. We should ensure that high-quality child and elder care is available at minimal cost to serve fundamental social needs while expanding opportunities for women and creating decent jobs. Affordable housing must also be made available to all.

A strong democratic left exists within and sometimes apart from the social democratic parties, pushing for anti-austerity policies, expanded social and labour rights and greater economic democracy. Drawing on the historical experience of both social democracy and the new social movements, the political left has to become much more lively, open and internally democratic while still focused on winning power through the democratic political process.

The election of Jeremy Corbyn as leader of the Labour Party in Britain, the Bernie Sanders campaign in the United States and the rise of Syriza in Greece and Podemos in Spain show that there is strong popular support for goals and policies that fundamentally challenge the neoliberal status quo, especially among youth. Many social democratic parties have embraced and built close links to the environmental movement and accepted the urgency of a transition to a new carbon-free economy, which will demand a major economic role on the part of governments. In Canada, Black Lives Matter, Idle No More and other groups are demonstrating that struggles against racial injustice and for decolonization and a progressive pluralism must be central to any left policy agenda.

Ed Broadbent shakes hands with Bernie Sanders at a Toronto event in 2017. Source: Broadbent Institute.

Left think-tanks have developed progressive policy alternatives, helping develop a vision of a market economy with high levels of diversified social ownership and control, with high levels of economic and social equality, and a much more decentralized and responsive welfare state. There has been a revival of interest in economic democracy, including at the workplace. A new labour movement based on organizing the precariat is visible in major campaigns for higher minimum wages and effective protection of labour rights. To a significant degree, the left in the wake of the anti-globalization and environmental and peace movements has organized itself internationally to share experience and perspectives and to collectively push for a different form of globalization, even though politics remains firmly anchored in individual states.

The basis for a new mass social democratic or democratic socialist movement exists in the failure of neoliberalism to promote shared progress, non-material goals, the full advancement of equality human rights, and an environmentally sustainable economy. Social democracy is alive and well, and remains as necessary as ever. This is especially true at a time when the failures of neoliberalism are fueling the rise of right-wing populist political movements that emphatically reject democratic goals and values and threaten our collective future.

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