international analysis and commentary

Social democracy facing the challenge of populism

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After Germany and France, the Italian elections and the new government’s first steps confirm that the rise of populism in Europe affects all countries. At the same time, in these founding member states of the European Union, social democracy weakens dramatically when it does not collapse. Populism is also a major driving force behind the Brexit vote and the Catalan crisis.

The common wisdom is that social democracy has nothing to say about globalization: it did not update its analysis and its practices to make them correspond to contemporary societies. In other words, social democracy supposedly proved incapable of breaking with policies that, although they contributed to the growth and prosperity in the decades after WWII, today are considered obsolete. According to this narrative, there is only one possible path towards globalization, of which the European Union, with its emphasis on market adjustment and free movement of capital would be the most fitting example. Then, the choice is between this and sovereignism. The conclusion then follows that the time has come to adapt to a changing world: social democracy needs to accept the primacy of markets and to design new forms of social protection that are centered on flexibility at least as much as they are on security. There Is No Alternative (TINA) to this globalization; or so we are told.

Proponents of this view forget that the building of the welfare state in the post-war period happened against a backdrop of increased globalization and trade liberalization, that nevertheless was managed to ensure that it remained subordinated to the objectives of growth and well-being of each country. In fact there is an alternative, because even if current geopolitical conditions are not those of the post-war period, there are different paths to globalization, as pointed out for example by Dani Rodrik. The defeat of social democracy is cultural above all, and it consists in the acceptance of the specific model of globalization that champions the supremacy of market outcomes over regulated economies, thus de facto minimizing the role of the State.

Social democracy, in Europe as elsewhere, lost its soul; it mourned a welfare state designed to stabilize the economy and organized around solidarity; it accepted the simplistic (if not outright fallacious) cleavage between globalists and sovereigntists; it rallied a consensus pleading for a government through technocracy, which makes left and right wing economic policies de facto undistinguishable.

Social democratic parties’ weighted share of votes in Western Europe (The Economist)

 

Today it is clear to (almost) everybody that in the name of supposedly free and undistorted competition and of budgetary orthodoxy, particularly in Europe, growth has been stifled, precariousness has increased, social and geographical fractures have deepened; these are the deep roots of populism, more so than migration. Rather than the vaunted open and egalitarian society where resources are properly allocated by markets, it is fragmented isolated societies that have emerged. With the prospect not of overcoming States, but of seeing them return in despotic form if populism were to prevail.

High-minded intellectuals argue that this is a necessary albeit costly transition that should be made shorter by accelerating reform implementation. They seem to neglect the overwhelming evidence that piles up, especially after the crisis, on the long-term pernicious effects of ill-timed structural reforms. Others argue that on the contrary that we should simply slow down reform implementation and wait for better times, when growth will somehow resume by itself. Neither of them questions the positive impact of reforms at least in the long run. Social democracy then can only try to differentiate itself from the conservative right through emphasis on societal demands, thus becoming the champion of the affluent elites while alienating the popular classes it originally represented and protected. In short, the left has internalized a supposed incompatibility between globalization and social protection (is this not what the “new left”, from Blair to Clinton and Schroeder did?), instead of trying to make them compatible within the socio-economic environment that emerged in the late twentieth century.

The only alternative to extinction for social democracy is to go back to the fundamentals, and deal with the instability of the market economies that only public regulation can thwart. This means that it must seek new means to ensure social protection in a globalized world. It is pointless and suicidal to invoke solidarity (be it social or humanitarian) while at the same time depriving our societies of the means to pursue it.

Seeking economic stability and social cohesion today means challenging the increased precariousness of the working classes that arises from excessive emphasis on unbridled market outcomes to the detriment of social bonds.

Seeking economic stability and social cohesion today means recognizing that firms are not simply a nexus of contracts aimed at profit maximization, but coalitions of shared long-term interests, which should call for a significant place given to employees in the governance structure instead of relying solely on the power of shareholders.

Seeking economic stability and social cohesion today means recognizing the need for firms to rely on patient capital to finance long-term investment and growth, and reforming financial and banking regulation with this objective in mind.

Seeking economic stability and social cohesion today means recognizing that it is necessary for States, particularly in Europe, to find the path towards mutually beneficial cooperation preserving their own institutional and political priorities. It means therefore refusing all forms of fiscal or social dumping; it means attempting to coordinate social rights, environmental and tax legislation at the national level to meet the shared objectives of solidarity, fairness and efficiency.

Provided it breaks with its intellectual subjection to neo-liberalism, social democracy faces a bright future: as of today it is the only framework that potentially allows keeping together social protection and prosperity, the only rampart against the rise of populism.