• Radicalising the Agenda: the Left's Response to the Crisis

  • By Euclid Tsakalotos | 20 May 09
  • Since the outbreak of the economic crisis most policy makers, as well as analysts, have been “behind the curve”; that is to say, they have consistently underestimated the seriousness of the economic crisis and therefore also the radical nature of the necessary response.

    Setting the question 

    In the first instance, with the Brown Plan for the banks and Obama’s promise of a dynamic response upon his assuming the office of president, it seemed that the political centre would be better placed for such a response than their opponents to the right. However, important contradictions and ambiguities soon emerged: how much of the banking system should be taken over by the state, and should this new role of the state be seen as temporary or part of a longer-term solution? Does the Stability Pact in Europe need a more flexible interpretation or a respectful, but nonetheless, firm commitment to bury it? Social democrats have not found such questions easy to deal with. And the reason is not that they are unable to see some of the necessary responses to the economic crisis in terms of state intervention, or regulation, and a more dynamic macro-economic strategy. It is that this partial return to Keynes is not linked to any clear conception of a wider strategy, of the kind of economic model that needs to replace neoliberalism once the crisis has been dealt with. 

    For the Keynesianism that was part of the post-war model did not merely consist of a set of economic techniques to deal with recession and aggregate demand. It represented at the same time a broad, and relatively coherent, patchwork of political, social, and economic elements. This patchwork included certain relationships between the fundamental economic aggregates (for instance between profits and wages, or investment and consumption), social norms regarding the level of acceptable inequality (the wage levels at both ends of the income distribution, care for those unable to work or for the unemployed, and so on), and arrangements that in various ways institutionalised the voice of important social groups and which could to some extent “correct” market outcomes by political means. To be sure, there was never one economic model for all the advanced capitalist economies in the post-war era, but nearly all had some of these elements to a greater or lesser extent. The contradictions of social democracy, and of the political centre, at the present time reflect the fact that social democrats have no conception of what is to replace the neoliberal model of the last twenty years. And how could it be otherwise when they have for so long operated under the hegemony of these same neoliberal ideas?

    So it is obviously crucial to understand the failure of the neoliberal model if we are to transcend it. Only in this way can one formulate a response to the crisis which is, at the same time, linked to some conception of a viable economic model for the longer term. In most left conceptions neoliberalism had two main goals1. The first was the restoration of class power. This power, it was argued, had been severely restricted by those elements of the previous settlement described above – “political” corrections to market outcomes, nationalisations and state intervention, the strength of the trade-union movement, and so on. The second was to prepare the ground for a renewed period of expanded capital accumulation, a new “golden age”, but this time on capital’s terms. And, obviously, in neoliberal accounts the first goal was a prerequisite for the success of the second; for, it was further argued, it was exactly certain elements of the Keynesian model which had stifled the dynamism of markets and entrepreneurship.

    From this perspective, the crucial question with respect to the failure of the neoliberal project can be posed more concretely. How is it that neoliberalism failed with respect to its second goal when it was so successful with respect to the first? The success of the first can hardly be questioned. The decline of the real value of the minimum wage, the severe contraction of the unionisation rate and the movement to economic deregulation are merely three of the institutional transformations that have underpinned the restoration of the class power of capital2. Moreover, such transformations have a clear expression in the huge increases in the inequality of income and wealth that have been observed in the more liberal economies3. No advanced economy has seen quite the stagnation of real wages occurring in US since the early 1970s, but in most economies wages have not kept up with productivity increases and the share of wages in national income has declined.

    So we need to understand this paradox – the failure of neoliberalism despite the “success” of its project in terms of political economy. And as we shall see, unravelling this project will help us to understand not only the dilemmas that social democracy faces, but also the basis for a response from the left that can aspire to hegemonic status.

    Understanding the failure of neoliberalism 

    There is room to debate the extent to which the neoliberal episode was a failure. Some would argue that what we are observing is a failed response to a crisis of accumulation that emerged starting in the late 1960s. In other words neoliberalism was never able to deliver the goods in terms of a return to a period of expanded capital accumulation. Others are more upbeat about neoliberalism’s overall track record, arguing that capitalism has indeed witnessed over the last few years a dynamic period, which is evident if we examine economic data from the early 1980s onwards. Others still, consider the period as neither one of continuing crisis, nor one of dynamism, but of relative stagnation4. But however that may be, it is clear that the neoliberal episode has ended with a major crisis which may as yet resemble that of the inter-war period, and so we are entitled to ask why this should be the case even though, as we have argued, so much of the neoliberals’attempt at restoring class power was successful.

    Now, we are certainly unlikely to discover a one-dimensional cause of the crisis. For instance, one argument could be that the extent of the left’s defeat, both in terms of political representation and at the level of social movements, has been exaggerated. For instance the level of resistance since 2000, and especially in the South, has caught many by surprise. Moreover, neoliberals themselves have been arguing that the necessary “reforms”, especially in labour markets, have not occurred thoroughly or quickly enough, especially in Europe. But this argument ignores the fact that the present crisis originated, and until now is more serious in its consequences, in the more liberal economies– that is, in those economies that have undoubtedly been more successful in driving forward the whole neoliberal agenda. Another argument may point out that neoliberals may have displayed misplaced confidence in the ability of low(er) wages, and flexible labour markets, to deliver improved economic performance. Marxists too are prone to the belief that lower wages can be an important response for the revitalisation of capitalism. So even Robert Brenner, whose account of the 1970s crisis does not rest on high wages and profit squeeze, but on the struggle between capitals, sees that certain economies have been able at times to gain the upper hand in the post-1974 period to the degree that they were able to rein in wages5. But it could be that a restoration of capital accumulation would need to rely on a more wholesale devalorisation – destruction – of capital. The effect of World War II after the Great Depression could be adduced as evidence supporting this contention.

    But there is another possibility, not necessarily in contradiction with other explanations. It may be that the neoliberal project was fundamentally at odds with the requirements of modern complex economies. One is reminded of Marx’s prediction in Capital, and elsewhere, with respect to the increasing socialisation of capital. But the argument I want to make here can be presented in terms of both orthodox economics and much more heterodox approaches. Thus, with respect to the former, Barry Eichengreen6 has argued that the post-war economy’s success was in part based on finding solutions to the various coordination problems faced by a market economy. The details of the institutional solutions that were furthered are less important– they were in any case different in the various economies of advanced capitalism, reflecting different historical experiences as well as different configurations of class power – than is the fact that they furthered the dissemination of information, enhanced trust and promoted cooperation. One can gain a similar perspective from Karl Polanyi’s “double movement” which challenged the viability, let alone the efficiency, of any radical liberalisation of the economy and marketisation of most of society’s functions.

    But a similar case can be made within a more radical problematic. It is implicit in much Marxist theorising about the increased socialisation of production even within capitalism. Moreover, one can see a similar case being made, implicitly at least, by those social movements that have been challenging neoliberal gloabalisation. In Polanyi’s schema any radical departure in the direction of liberalisation would sooner or later be countered be an institutional reaction in the direction of re-regulation as the negative consequences of liberalisation, in terms of its effects on people, communities and the environment, became apparent. What social movements add to this perspective is that the counter-movement need not necessarily come from institutions from above– it can just as easily come in the guise of social interventions from below.

    The sway of neoliberal ideas, and the loss of historical memory concerning the role of social movements in the formative years of social democracy, makes it difficult for many social democrats to grasp such a conception. All too often social movements are dismissed, or their importance is underplayed, because their role is reduced to protest or blind opposition. But in the formative years of social democracy, social democrats of all stripes were aware that the working class represented not merely a protest movement but the bearer of new ideas and practices which encompassed essential elements of the left’s alternative proposal for the economy and society. The values of solidarity, participation and deliberation forged in the struggle of workers within their union were seen as vital not only in the opposition to capitalism but as essential elements in a feasible alternative economic model. The same goes for the social movements of the present. Thus, for instance, a social movement that struggles for free spaces in urban centres is not just about stopping private constructors from privatising the commons. Implicitly or explicitly, it is proposing new practices for the identification of the social needs of city dwellers, as well as other practices for managing public spaces. One could expand such examples, almost at will: unions that want to run their pension funds, communities that want a greater say with respect to their schools, regions that want to have continued access to free water supplies, and so on. In all these cases practices are being proposed that to a greater or lesser extent seek to challenge market solutions.

    The argument that the left needs to make is that such challenges are not only attractive from a social or ethical point of view, but constitute a realistic alternative path for improved economic performance. Modern complex economies need a great deal of solidarity, coordination and participation, and the essential thrust of capitalism, not only in its neoliberal guise, is hostile to all three. At least part of the current crisis results from ignoring these needs, most obviously with respect to the financial system where the setting free of market values and principles has wrecked havoc, but in many other areas as well7. It is for this reason that left has an important advantage in the present conjuncture with respect to social democracy. It can propose immediate measures to respond to the crisis which, at the same time, are linked to an overall image of the type of economic model that is desirable for the longer term; an economic model that can be based on specifically left values and practices.

    Political economy and economic models 

    If the left in all its manifestations (parties, unions, social movements, etc.) is indeed the bearer of economic solutions that can combine efficiency and equity, certain things follow.

    The first is that ceteris paribus capital has a rational interest in opposing the social embeddedness of the economy, especially if this is to be achieved with social institutions that embody non-market principles of production and distribution. On the whole, the capitalist economy does not select economic practices on the basis of economic efficiency. Capital is interested, in the first instance, in those solutions that enhance profits on existing activities and that expand the scope for profit to new activities. It is also concerned that its managerial and other control prerogatives not be challenged. Thus, as Erik Olin Wright8 has recently argued, capitalists will rationally oppose the increased social embeddedness of the economy even if this would enhance general economic performance. This is because such embeddedness has the tendency to increase the power of workers and other social groups, as well as the attractiveness of collective solutions.

    It further follows that conflict and struggle are unavoidable components of any resolution to the crisis. The left and right fight each other over long historical periods, but it is important to realise that the information made available in any one period is subject to important changes. Thus capital is unlikely easily to acquiesce to any return to the social democratic model of the post-war period, precisely because it has learned of the dangers of such a settlement. In the 1970s capital could not but look in horror at the turn of the Labour Party in Britain to the left, at the creation of the common programme in France, or at the support of Swedish social democrats for the wage-earners scheme for the socialisation of capital. In the current conjecture it has every reason to oppose Polanyi’s counter-movement even if it makes some sense on economic grounds.

    And this is precisely the dilemma faced by modern social democracy. Social democrats are unable to have a clear vision of a viable future model because it is not at all clear that capital would acquiesce to any such model. And this affects the efficacy of social democratic responses to the crisis even in the short-run. How much of the financial system needs to come under state control, and should the state’s role be seen as a temporary measure or part of a more permanent feature of the economic model after the crisis has been resolved? Do we need a radical reorientation of financial activities or can financial institutions be allowed to decide their priorities for themselves albeit with a little tighter level of supervision and regulation? Social democrats display hesitation and ambiguity with respect to such questions because short-term proposals are not linked to longer-term solutions. Thus, for instance, there has been little thought given to the question of where the dynamism of the economy is to come from – if not consumption through lending, what will take its place? 

    What social democracy cannot at present accept is that any new model will represent a political economy settlement with clear winners and losers. Any new settlement needs not just to be implemented, but in some sense imposed. Social democracy has forgotten that the post-war settlement was also based on important elements of imposition – capital feared the working class movement, the respect gained by many left-wing parties during the resistance, and not least the ability of the Soviet Union to act as an alternative pole9. The idea that a new settlement could be imposed without similar struggles and a shift in the balance of class forces is not supported by any historical evidence, not to mention theoretical logic. And yet social democracy has all but renounced social mobilisation as an instrument for changing the balance of power in society10. In this area as well, the left has the advantage over social democracy. It understands well that any alternative economic model will result from a significant shift in the current constellations of social power.

    Radicalising the agenda

    This is the context in which the left needs to radicalise the agenda. It is easy to forget that the attack on the post-war social-democratic arrangements began with a serious ideological examination of the right’s traditional values and ideas. As G. A. Cohen11 has pointed out:

    „An essential ingredient in the Right’s breakthrough was an intellectual self-confidence that was grounded in fundamental theoretical work by academics such as Milton Friedman, Friedrich Hayek and Robert Nozick. In one instructive sense, those authors did not propose new ideas. Instead, they explored, developed, and forthrightly reaffirmed the Right’s traditional principles … Considered as practical proposals, the theories of Friedman, Hayek and Nozick were crazy, crazy in the strict sense that you would have to be crazy to think that such proposals (e.g. abolition of all regulation of professional standards and of safety at work, abolition of state money, abolition of all welfare provision) might be implemented in the near, medium, or long term. The theories are in that sense crazy precisely because they are uncompromisingly fundamental: they were not devised with one eye on electoral possibility. And, just for that reason, their serviceability in electoral and other political contexts is very great. Politicians and activists can press not-so-crazy-right-wing proposals with conviction because they have the strength of conviction that depends on depth of conviction, and depth comes from theory that is too fundamental to be practicable in a direct sense.“ 

    The relationship between values, operational principles and agenda-setting has ironically, up until recently, been better understood by the right of the political spectrum. David Coates12 has put this political project of the New Right in more concrete political terms with respect to the British experience:

    „For whatever else Margaret Thatcher was, she was genuinely a politician in the Gramscian mode. In the hey-day of her dominance, Thatcherism re-established the link between values and policies in the UK’s public life, made ideas (and ideology) central to political leadership, and required of its supporters, not only that they believe its central tenets, but that they lived and applied them to the full. Like all successful political forces in democratic societies, Thatcherism took many of the central values and aspirations held by us all (values of liberty and individual rights, aspirations for prosperity and progress), tied them to a series of operating principles (in her case, overwhelmingly the principle of the unfettered market), and then steadily, resolutely and with great self-confidence, applied that operating principle, in the pursuit of those values and aspirations, to policy area after policy area.“

    The left, with important exceptions of course, needs to aspire to a similar hegemonic project. In any crisis what is at stake is which ideas will give the most coherent explanation of the crisis. Neoliberals, and the New Right, were able dominate with respect to interpretations of the 1970s crisis: at fault was state intervention, powerful trade unions, the welfare state that blunted market incentives, and so on. In the present crisis, similar contentions can be easily ridiculed. On the contrary, with social democracy still under the sway of the previous consensus, the left has an ideal opportunity to retake the ideological high ground with respect to the interpretation the crisis.

    The case made here is that the left has the ideas to achieve this. The left however has one additional advantage over its ideological rivals. It relies not only on the theoretical work of leftists but also, as has been argued here, on the fact that social movements are themselves bearer of new ideas and practices. Social movements, including that of the working class, have understood that they need to contribute to a radical transformation of power relations if alternatives to neoliberalism are to see the light of day. But in the very process of challenging the power of capital, social movements bring to the surface different approaches to production and distribution, approaches that combine efficiency and equity.

    Radicalising the agenda entails restoring the links between what the left proposes in the short-run and its more medium-term conception of an alternative model for the economy. And it has been argued here that forging such links is extremely difficult for the forces of social democracy to achieve. Thus, instead of intervening in the public policy debate over what to do with respect to the crisis by attempting to shift the proposals of social democracy slightly to the left, what is needed is the self-confidence to propose radical solutions which are inspired by our distinct values, aspirations and operating principles. Such an approach can form the basis for a hegemonic politics for the left for the first time in many generations.

     

    Notes

    1. See, for example, Harvey, David (2007): A Brief History of Neoliberalism. Oxford University Press. Glyn, Andrew (2006): Capitalism Unleashed: Finance, Globalisation, and Welfare. Oxford University Press. 
    2. See Fortin, N.M. / Lemieux, T. (1997): Institutional Changes and Rising Wage Inequality: is there a linkage?, Journal of Economic Perspectives, 11, 2, pp. 75-96 for the role of these factors in the US.
    3. An early account of the reversal of the post-war trend towards greater equality can be found in: Harrison, Bennett / Bluestone, Barry (1988): The Great U-turn: Corporate Restructuring and the Polarization of America. New York, Basic Books. More recent accounts detailing the phenomenon can be found in: Green, F. / Henley, A. / Tsakalotos, E. (1994): Income Inequality in Corporatist and Liberal Economies: a comparison of trends within OECD countries. International Review of Applied Economics, 8, 3, pp. 303-331. Atkinson, A. B. (1997): Bringing Income Distribution in From the Cold. Economic Journal, 107, pp. 297-321. Piketty, T. / Saez, E. (2003): Income Inequality in the United States, 1913-199’, Quarterly Journal of Economics, 68, 1, pp. 1-37.
    4. A lot turns on how one deals empirically with the 1970s. If one takes the whole post-1974 period as one entity then the figures do not look so good in terms of economic performance (compared with the “golden age”). If the period 1974-1982 is excluded then things look a lot better.
    5. Anderson, Perry (2005): Spectrum: From Right to Left in the World of Ideas. Verso Books, who provides overall a positive assessment of Brenner’s contribution to our understanding of the post-1974 economic order, also points to certain ambiguities with respect to the role of wages as either a cause of crises or as an essential part of the recovery from crises.
    6. See Eichengreen, Barry (1996): Institutions and economic growth: Europe after World War II. In: Crafts, N. / Toniolo, G. (eds.): Economic Growth in Europe since 1945, CEPR, Cambridge University Press, chapter 2.
    7. One need think only of the irrationalities that have followed rail denationalisation in the UK.
    8. Wright, Erik Olin (2004): Beneficial Constraints: Beneficial for Whom?, Socio-Economic Review 2, 3, pp. 407-414.
    9. Brenner, Robert (2007): Structure vs Conjuncture, New Left Review 43 second series, pp. 33-59 has argued that such considerations hold even in the case of the US.
    10. As Frank, Thomas (2004): Bush, the working class hero, The New Statesman, 30 August argues for the US case, the Democrats have abandoned any conflict with their Republican rivals over the terrain of economic policy, and with issues of low wages, inequality, and so on, conveniently taken off the agenda, the Republicans have been able to mobilise the Democrats’ social base on a variety of cultural issues. The ability of the right in Europe to mobilise on the terrain of nationalism and anti-immigration could be seen in similar terms.
    11. Cohen, G. A. (1994): Back to Socialist Basics, New Left Review 207, emphasis in the original.
    12. Coates, David (1996): Labour Governments: old constraints and new parameters, New Left Review 219, emphasis in the original.