The beginnings of a new social democracy

Over the last 60 years, European social democracy has moved (though with varying degrees across nations) from ascendancy in the post-war era to marginalisation from the early 1980s and then to ‘The Third Way’ period of accommodation to markets from the mid-1990s.

The essays in After the Third Way: The future of social democracy in Europe show how the centre-left is now in another wave of self-analysis and transition, yet one locked in uncertainty, with its direction and outcome as yet unclear. The book asks whether social democracy can move from what its editors call “a disposition towards fatalism” towards a “new, more radical direction for left-of-centre politics”, to recapture the upper hand and make its mark on an era which faces perhaps the biggest political and economic challenges since 1945.

Since it was written, at least one source of uncertainly has lifted. The electoral outlook for the centre-left has brightened. It has re-taken power in France and won an important regional election in Germany, though this may have less to do with the left offering a great popular policy leap forward than the spreading disaffection with the failure of those in power, mainly the right, to resolve the ongoing crisis.

The challenges facing Europe – prolonged recession, economic stagnation, sinking living standards, soaring joblessness, weakening welfare systems, declining competitiveness – are immense. While 2008 should have been what John Kay describes as a “once-in-a-generation opportunity” for the centre-left to win the battle of ideas, that opportunity has been “comprehensively missed”. As Patrick Diamond puts it, “no systematic, progressive, social democratic alternative has yet emerged”.

Some of those missed opportunities are identified in the book. In the UK, for example, there was the failure (caused by political paranoia) to turn to nationalisation as the solution to the Northern Rock crisis, and, as Kay puts it, “the best means of restructuring banks and securing continuation of their essential functions”.

Much of the book is devoted to the reasons for this failure. Andrew Gamble attributes it, at least in part, to doubts over the left’s record on ‘economic competence’. This has provided ammunition for the right to accuse social democratic parties of poor control of public spending, of excessive reliance on big government and the creation of overweening and bureaucratic states. It has also enabled European conservatives to, at least initially, win support for a continent-wide strategy of austerity while the left has been forced onto the defensive, accused of lacking policies to tackle deficits (despite being caused largely by preventing the crash turning into an even deeper recession) and, by opposing cuts in public spending, remaining wedded to out-of-control government.

But there are other forces at work. Large sections of the European public have, as Peter Taylor Gooby points out, also fallen out of love with the welfarism of the post-war era –  one which has found itself ill-equipped to deal with the post-1980 trends of globalisation, high unemployment, the spread of low-pay and rising levels of poverty. Welfare systems have come to rely increasingly on means-testing, especially in the UK, aimed at controlling costs but at the price of lowering incentives to save and work. A further problem has been the steady fragmentation of working class support, especially for the most redistributive services such as unemployment benefit and social housing.

After the Third Way spells out these and the other dilemmas, choices and challenges facing social democratic parties. What is the right balance between state and markets? What is an appropriate degree of regulation? “Calling for more regulation” is, as John Kay puts it, “not enough”. Does the left have a coherent strategy for wealth creation (as well as wealth redistribution) or what one of Ed Miliband’s advisers, Lord Stewart Wood, has described elsewhere as “a supply-side revolution from the left”? How can the balance of bargaining power be tilted in favour of labour? European party leaders on the left are only too aware of the difficulties they face, in and out of government. As France’s new socialist premier, Jean-Marc Ayrault, put it in his brief post-election speech: “Nothing will be easy, nothing will be given to us.”

While there are big challenges however, the book’s starting point – that the left lacks coherent alternatives to today’s mounting problems – may be somewhat overstated. Conservatives are, after all, now more ideologically at sea than the left. The neo-liberal experiment of the last 30 years has ended in multiple failures. The right’s response to the present crisis – mass austerity – was meant to lead to the revival of private activity, investment and jobs. Instead, as in the 1930s, it is bringing the risk of near-permanent slump, and with it, a final nail in the coffin of ‘market fundamentalism’. The initial public support for what was perceived as a way of dealing with rising levels of debt is now eroding in the face of the reality. Nicolas Sarkozy has been voted out of office. David Cameron is leaking support. Angela Merkel is under growing international pressure to moderate her hardline stance.

While the left may still have its own ‘credibility deficit’, the right’s cherished projects are in disarray and its parties are shedding their claim to superior economic competence. With the failure of austerity economics, the left is starting to win the argument for a multiple-country, global-wide stimulus alternative. Other social democratic responses to the crisis – such as the need for a more responsible capitalism, measures to distribute the fruits of growth more evenly, a move to progressive taxation with the rich paying more – may be far from fully developed, but they are the beginnings of a distinct, workable and alternative political economy.

Olaf Cramme and Patrick Diamond (Editors), After the Third Way: The future of social democracy in Europe,  IB Taurus, 2012