I am currently writing a piece for the US weekly The Nation which is focusing my mind on issues relating to what a social democratic narrative should look like and in what way does it have to change from that which dominated government policy and the relationship the state had with its citizens in the Post WWII period up until the neo-liberal resurgence in the mid-1970s. It is an interesting topic and my deadline looms. Serendipitously, while I was driving back from the airport the other day I was listening to a repeat of an ABC radio program Big Ideas (thank god for our public broadcaster) which was a repeat of a lecture – What is Living and What is Dead in Social Democracy? – given by the late Tony Judt as the 2009 Remarque Lecture at New York University on October 19, 2009. The lecture nicely dovetailed into my current thoughts and challenged the “left” to wake up to themselves and revive the collective narrative and to get angry about what we have lost over the last 30 years. There are many memorable lines in this speech and the title – imagine if we treated “humiliation itself as a cost” is just one of them (more about which later).
You can hear the full lecture via the ABC. You can watch the lecture via the Remarque Institute, NYU and there is a transcript available via the New York Review of Books, which is based on the lecture.
As an aside, the conservatives have long been trying to privatise (read: compromise) the Australian Broadcasting Commission (ABC) because it consistently accuses it of left-wing bias. Interestingly, there was a study done last year during the federal election campaign which showed that in fact the ABC had given more airplay to the conservative ideas than those of the government.
I laughed when I read that because in this modern era it is hard to tell the difference between a Labor government (founded as the political arm of the trade union movement) and the conservatives (who historically have represented the wealthy elites and corporate sector). Both aim to create budget surpluses of x per cent within x years (minor differences in magnitudes) and both promote welfare-to-work reforms (read: deregulate the labour market and reduce entitlements), privatisation (read: hand over public assets at below value to wealthy elites) and neither has a solution to poverty and inequality except to preach the benefits of market-led growth.
But there is a slight difference and this relates to the lecture by Tony Judt where he says that today’s (so-called) social democrats need action not words to restore their place in the policy debate.
I won’t go into a detailed line-by-line analysis of Judt’s excellent speech. I urge you all to listen to it and reflect on its message.
He notes that social democracy evolved out of a period of insecurity which culminated in the twin events – the Great Depression closely followed by World War II. At the time there were two competing camps which aimed to address the question of the best way to maintain liberty in the face of totalitarianism (right and left) which had assumed dominance as a response to this insecurity.
He compares the Austrian influence (Von Mises, Hayek, etc) who eschewed state intervention – believing it was intrinsically doomed to be repressive of liberty – and the social democratic response – which followed on from the work of Beveridge and Keynes among others. This alternative response understood that the state was a vehicle for collective action which could promote better outcomes for all within a democratic context (that is, devoid of totalitarianism).
Judt notes that the latter position dominated until the mid-1970s and “(s)ince then, as we know, the Austrians have had their revenge” in the sense that the neo-liberal domination of economic policy has seen the pursuit of collective well-being severely retrenched and a new narrative (the old actually) has emerged such that:
… when asking ourselves whether we support a proposal or initiative, we have not asked, is it good or bad? Instead we inquire: Is it efficient? Is it productive? Would it benefit gross domestic product? Will it contribute to growth? This propensity to avoid moral considerations, to restrict ourselves to issues of profit and loss – economic questions in the narrowest sense – is not an instinctive human condition. It is an acquired taste.
By restricting “public policy considerations to a mere economic calculus” we have abandoned the great gains of the Post WWII era. Most of us forget that this era of state intervention into the economy in the name of collective good was extraordinarily successful. Judt says that:
The welfare state had remarkable achievements to its credit. In some countries it was social democratic, grounded in an ambitious program of socialist legislation; in others – Great Britain, for example – it amounted to a series of pragmatic policies aimed at alleviating disadvantage and reducing extremes of wealth and indigence. The common theme and universal accomplishment of the neo-Keynesian governments of the postwar era was their remarkable success in curbing inequality. If you compare the gap separating rich and poor, whether by income or assets, in all continental European countries along with Great Britain and the US, you will see that it shrinks dramatically in the generation following 1945.
In my 2008 book with Joan Muysken – Full Employment abandoned – we consider these themes in great detail.
Judt considers the success of that welfare state was a double-edged sword. By reducing insecurity “their success would over time undermine their appeal”. In other words, we forget what we have and what our past generations fought for and why. We forget historical context and in many ways that reduces our sense of meaning with policy frameworks. That makes it easier for the neo-liberals to tear these policy frameworks down – especially during times of prosperity and growth.
Our loss of collective memory only can be restored in times of hardship that align with the times that our forebears faced.
Judt says that the benefits derived from the welfare state were:
By the late 1970s … increasingly neglected. Starting with the tax and employment reforms of the Thatcher-Reagan years, and followed in short order by deregulation of the financial sector, inequality has once again become an issue in Western society. After notably diminishing from the 1910s through the 1960s, the inequality index has steadily grown over the course of the past three decades.
He quotes data which shows that in the “US today, the “Gini coefficient” – a measure of the distance separating rich and poor – is comparable to that of China”. The policy frameworks that have supported this return to significant inequality and which are at present entrenching long-term unemployment around the globe are re-creating the conditions that led to our forebears considering the development of the welfare state.
This is the terrain that the progressive agenda needs to be firmly fighting on. It requires a total rejection of the neo-liberal paradigm. Not bits of it. The whole shebang. A policy approach based on the “individual” without a value-system to ensure that all of us share in the spoils will never provide security and hope for the poor and disadvantaged.
Judt’s lecture documents how the neo-liberal era has undermined the liberty of citizens around the world while enhancing the wealth and power of a few. He asks:
Why do so few of us condemn such “reforms” – enacted under a Democratic president? Why are we so unmoved by the stigma attaching to their victims? Far from questioning this reversion to the practices of early industrial capitalism, we have adapted all too well and in consensual silence – in revealing contrast to an earlier generation. But then, as Tolstoy reminds us, there are “no conditions of life to which a man cannot get accustomed, especially if he sees them accepted by everyone around him.”
It is the silence of the majority that has allowed this state of affairs to take control of the policy space. It will be the voice of that same majority that changes things. The alternative, as Judt clearly notes, is that more and more extreme responses will emerge as they did in the 1930s in Europe which crush liberty.
The neo-liberal paradigm might give way to an equally oppressive totalitarian state. Neither is desirable.
Judt went on to critique the neo-liberal dismantling of the state including the faux rationale for privatisation and the outsourcing of public services. He noted that it has been a fallacious notion of “costs” that has allowed the free market lobby to claim that private provision is superior to public provision. His historical record is impeccable.
In Paul Ormerod’s 1994 book – The Death of Economics – we read that during the period of full employment:
A perfectly feasible outcome for the Western economics in the post-war period would have involved a much higher average level of unemployment, with everything else remaining exactly the same: Marshall Plan, monetary stability, high investment, rapid growth. The sole difference would have been that those in employment would have become even better off than they did, at the expense of the unemployed.
This bears on the issue of the way in which we construct the modern day debate. We seem to think that unemployment is inevitable (“its natural”) as a buffer against inflation. It is quite clear that this claim – which is central to the neo-liberal position – the so-called NAIRU argument – is erroneous. Please read my blog – The dreaded NAIRU is still about! – for more discussion on this point.
As I explained in this blog – Modern monetary theory and inflation – Part 1 – that there are two broad ways to control inflation and the use of buffer stocks are involved in each:
- Unemployment buffer stocks: Under a mainstream NAIRU regime (the current orthodoxy), inflation is controlled using tight monetary and fiscal policy, which leads to a buffer stock of unemployment. This is a very costly and unreliable target for policy makers to pursue as a means for inflation proofing.
- Employment buffer stocks: The government exploits the fiscal power embodied in a fiat-currency issuing national government to introduce full employment based on an employment buffer stock approach. The Job Guarantee (JG) model which is central to Modern Monetary Theory (MMT) is an example of an employment buffer stock policy approach.
Full employment requires that there are enough jobs created in the economy to absorb the available labour supply. Focusing on some politically acceptable (though perhaps high) unemployment rate is incompatible with sustained full employment.
Under the neo-liberal policy regime, central banks have, increasingly, been given the responsibility by government for managing the price level. In conducting monetary policy to fulfill their major economic objectives, central banks manipulate the interest rate and attempt to manage the state of inflation expectations via aggregate demand impacts.
They now use unemployment as a policy tool rather than a policy target to discipline the inflation generating process. Where negative real effects from the operation of inflation-first monetary policy are acknowledged they are theorised to be necessary for optimal long term growth and employment and small in magnitude.
In MMT, a superior use of the labour slack necessary to generate price stability is to implement an employment program for the otherwise unemployed as an activity floor in the real sector, which both anchors the general price level to the price of employed labour of this (currently unemployed) buffer and can produce useful output with positive supply side effects.
The employment buffer stock approach (the JG) exploits the imperfect competition introduced by fiat (flexible exchange rate) currency which provides the issuing government with pricing power and frees it of nominal financial constraints.
So Ormerod’s point bears on this choice between buffer stocks. Ormerod notes that the economies that didn’t let unemployment rise after the first OPEC oil shocks in 1973-74 (Japan, Austria, Norway, Switzerland etc) each:
… in its particular way … exhibited a high degree of shared social values, of what may be termed social cohesion, a characteristic of almost all societies in which unemployment has remained low for long periods of time … The social values in Western Europe after the war, for example, following a period of hardship and privation, were generally conducive to sharing the fruits of economic growth and to the preservation of high levels of employment … the countries which have continued to maintain low unemployment have maintained a sector of the economy which effectively functions as an employer of last resort, which absorbs the shocks which occur from time to time, and more generally makes employment available to the less skilled, the less qualified. There is of-course, a cost associated with this concept, but it is a cost which societies with a high degree of social cohesion have been willing to pay.
This is a compelling historical account of where an employment buffer stock approach has served to provide inclusion and hope to those who would otherwise be impoverished and excluded.
Under the neo-liberal approach – the unemployment buffer stock solution – those with hope have become those with fear again.
This reminds me of a great line from the great American founder of its very meagre social security system – Arthur Altmeyer – who said (in 1963) that social welfare was important because:
… it isn’t fear that presses people on to high endeavor, to do better and better, but hope; and I think social insurance replaces fear with hope …
I think of that construction often. The neo-liberal approach is to invoke fear and desperation among the have-nots as if to compel them into entrepreneurial zeal by starvation. It doesn’t work.
A major reason why it has failed us is because it ignores the macroeconomic basis of unemployment and disadvantage. The neo liberals wrongly assume that the plight of the disadvantaged is the expression of their laziness, their loose living, their lack of skills, their seduction by government welfare systems. They therefore think the solution lies in reversing these individual failings or dismantling the state disincentives.
But they fail to understand that mass unemployment is a systemic failure – a failure of aggregate demand to match the level required to elicit enough output to employ everyone. Spending equals income remember which, in turn, generates employment. Please read my blog – What causes mass unemployment? – for more discussion on this point.
They fail to understand that individual action, upon which they base all their considerations, is powerless when there is a macroeconomic constraint. That is what a fallacy of composition is all about and the mainstream macroeconomics and Austrians all fall into that error of logic when discussing macroeconomics.
This relates to Tony Judt’s discussion about the way in which the neo-liberal era has sought to erode the concept of universal rights and entitlements as citizens which was a central plank of the modern welfare state following WWII.
In the same way that Ormerod notes that sharing costs some (for example, in terms of reduced purchasing power if inflation is to be kept in check), Judt says that “it is cheaper to provide benevolent handouts to the poor than to guarantee them a full range of social services as of right”. The concept of the deserving poor underpins much conservative discussion to welfare these days.
Judt says that the problem is that:
… it is notoriously humiliating to be on the receiving end of that kind of assistance. The “means test” applied by the British authorities to victims of the 1930s depression is still recalled with distaste and even anger by an older generation … Conversely, it is not humiliating to be on the receiving end of a right. If you are entitled to unemployment payments, pension, disability, municipal housing, or any other publicly furnished assistance as of right – without anyone investigating to determine whether you have sunk low enough to “deserve” help – then you will not be embarrassed to accept it.
It is in this context that he asks “what if we treated humiliation itself as a cost, a charge to society?” I think about those types of ideas a lot and clearly it fits squarely with Ormerod’s insight that we could have done the Post WWII period very differently had we constructed our approach to welfare differently.
The problem is that we don’t factor in the right costs. Judt says that:
What if we decided to “quantify” the harm done when people are shamed by their fellow citizens before receiving the mere necessities of life? In other words, what if we factored into our estimates of productivity, efficiency, or well-being the difference between a humiliating handout and a benefit as of right?
This would alter the whole policy calculus and reinstate the wisdom of providing “universal social services, public health insurance, or subsidized public transportation” as a “cost-effective way to achieve our common objectives”.
Imagine, if we proposed that unemployment would be annually balloted among the population. So that each year, based on the policies that the society agreed were appropriate for government to follow – some unemployment (above frictional) would be generated. In other words, the political consensus in the US at present is to maintain a policy environment that is generating around 10 per cent unemployment rates.
Now, each year each adult person goes into the ballot and to “win” a year’s unemployment – 10 per cent of the adult working age population would be drawn out and those people – lawyers, judges, entrepreneurs, right-wing think tank bosses, Wall Street CEOs, economics professors, downtrodden low-skill workers – all of them would have to be unemployed and live only on the unemployment assistance available under current policy (that is, the wealthy would have to forgo any other income source).
How long would it before social democratic solutions to unemployment would be introduced? Not long at all. Those with a political voice would force the governments to take a collective role and would be willing to forego some purchasing power to ensure that the required aggregate demand was permissible within the inflation constraint.
From a MMT perspective, we need to be careful in understanding what the “costs” of public provision (and sharing) are. The higher taxes that accompany most welfare states have nothing to do with “financing” the higher public spending even though it looks like that at the superficial level. As I noted yesterday, the higher taxes are necessary to ensure that the scale of public spending has enough “spending room” to elicit real output responses from the economy and thus not engender inflation.
The return to sharing that social democrats have to talk about is what are the appropriate burdens involved in maintaining price stability. Under the NAIRU approach the burdens are all pushed onto the weak and disadvantaged via unemployment. A far better way – in terms of maximising the potential of the available resources is to ensure everyone has employment and the higher consumption levels of the poor have to be “funded” by slightly (imperceptibly) lower consumption levels of the strong.
The point is that the progressive solution lies in restoring a notion of collective – of sharing the bounty and the costs.
This also bears on Tony Judt’s closing theme that we are now entering “a new age of insecurity” after some period of prosperity. He said that this prosperity and stability:
… is now behind us. For the foreseeable future we shall be as economically insecure as we are culturally uncertain. We are assuredly less confident of our collective purposes, our environmental well-being, or our personal safety than at any time since World War II. We have no idea what sort of world our children will inherit, but we can no longer delude ourselves into supposing that it must resemble our own in reassuring ways.
This is the sort of situation that faced our grandparents (and perhaps some parents if they still alive) during the Great Depression and the world war that followed. That insecurity led to the great debate between the Austrian school who feared totalitarianism and translated that fear into an irrational loathing of state intervention and Keynes and his ilk, who Judt says thought “uncertainty – elevated to the level of insecurity and collective fear – was the corrosive force that had threatened and might again threaten the liberal world”.
Fortunately, Keyne’s solution to the insecurity dominated until the mid-1970s and was was based on “an increased role for the social security state, including but not confined to countercyclical economic intervention”.
Please read my blog – A new progressive agenda? – for a detailed discussion of this historical period and the way in which the Keynesian consensus gave way to the destructive neo-liberal NAIRU paradigm during the 1970s.
Judt says that “social democracy in Europe, the New Deal, and the Great Society here in the US were explicit responses to the insecurities and inequities of the age. Few in the West are old enough to know just what it means to watch our world collapse”.
So the challenge for social democrats is to leverage this renewed insecurity to construct a realistic picture of history – “by reacquainting ourselves with the recent past” which includes reminding the public “of the achievements of the twentieth century, along with the likely consequences of our heedless rush to dismantle them”.
The progressive agenda has become very defensive and concessionary to the nonsensical (un)truths peddled by the conservatives. The progressive response has to hit these myths about budgets and public debt head-on. Not concede that there are financial constraints on sovereign governments and so the challenge is to balance public spending more towards equality. That is a dead-end narrative. Rather, the progressive side of the debate has to demystify the conceptual structure of neo-liberal which few understand so that the public start asking the right questions for once.
For example, if governments are not financially constrained why don’t they create work for all? Rather than, will taxes rise if the deficit remains?
I agree with Judt that “(s)ocial democrats … need to speak more assertively of past gains” which include:
The rise of the social service state, the century-long construction of a public sector whose goods and services illustrate and promote our collective identity and common purposes, the institution of welfare as a matter of right and its provision as a social duty: these were no mean accomplishments.
We need to fight for the gains our grandparents made against the urgency of capital to expropriate ever more proportions of the real economic pie for itself. The neo-liberal agenda for the last three decades has been about “methodically unraveling and destabilizing those same improvements” and Judt says that:
… this should make us much angrier than we are. It ought also to worry us, if only on prudential grounds: Why have we been in such a hurry to tear down the dikes laboriously set in place by our predecessors? Are we so sure that there are no floods to come?
Anyway, that was my little diversion for the day – now it is back to my real writing for today …
Total aside – Golden Globe awards
There seems to be an outcry about the hosting by Ricky Gervais of the 2011 Golden Globe awards this week in Los Angeles. Apparently most Americans didn’t think it was funny and have become a trifle precious. Here is his opening monologue. I laughed (a lot). But then …
That is enough for today!