Social democracy: the Disneyland political solution

What is social democracy? Is it a political system more humane and capable when compared to the supposed mean-spiritedness of liberal democracy; with its supposed bias towards individualism and greed?

If you believe Rudd’s recent essay (The Monthly, February 2009), social democracy promotes policies that invest in social goods, encourages greater market regulation, upholds the state provision of social services, and yet preserves a society quest for innovation.

Sounds too good to be true? That is because it is. I am still waiting for so-called social democrats to move beyond rhetoric to provide alternative ideas besides liberalism in order to more effectively meet the aspirations of both developed and developing nations; notwithstanding the disastrous impact caused by the greed of the financial sector in recent years.

Take the simplicity offered by the far left in a number of On Line Opinion articles. For instance, Tristan Ewins (March 12, 2009) in his call for social democracy, stated that a fairer society is merely “a matter of whether or not government has the political will to do what is right” and “whether or not the people will stand up for justice” as capitalism “remained a flawed system … characterised by exploitation”.

Marko Beljac (March 4, 2009) wants greater “regulation and control over the movement of finance capital” which will also constrain the institutional and political power of financial corporations.

And Jason Wilson (February 20, 2009) declared that enough Australians are instinctive social democrats because: “Australian history suggests an ingrained preference for a relatively equal distribution of wealth, a strong role for the state in framing the operations of the market, and a high degree of common ownership of public goods.”

Really? Show us how a world of compassionate social democracies can be achieved? How can poorer nations benefit without global capital coming from richer nations? And where is the evidence of Australians rejecting recent policy trends?

In truth, no Western democracy has defied recent international economic policy trends. Take Sweden, once the darling national example of many Australian academics. Though arguably the most generous of liberal democracies thus far, respective Swedish governments adopted credit market deregulation in 1985; ended centralised wage bargaining in 1983 which had led to wages being negotiated by collective bargaining with no fixed minimum wage by legislation; encouraged the importance of fiscal discipline, restrictive monetary policies, and a low interest rate (just like Australia); reduced the corporate taxation level from 52 to 28 per cent; and lowered government outlays from 72 per cent of GDP in 1993 to 56 per cent in 2006 (OECD 2006), a development that is placing greater pressure on its generous social security system.

It's high time that so-called social democrats put away their rosy glasses and paid greater attention to competitive realities rather than using the current economic crisis as an opportunity to make cheap points (or blame the US) in a world where effective policy solutions for the world remain extremely difficult.

As I have stated before, I am no diehard supporter of centre-right political parties or recent policy trends. I have long noted adverse effects upon battlers and the important role played by the labour movement to help diminish the disgusting level of inequality, despite the garbage put forward that Australia’s average income was 40 per cent higher than any other country in 1870 during the era of international free trade (Quadrant, January-February, 2008).

But some on the Left deliberately choose to ignore important realities that help explain our predicament today. Their idealistic approach to political analysis hardly allows facts to get in their way.

The economic fortunes of most Western societies have always depended on successful ties with the international economy (including Sweden).

For a brief time, the champions of government intervention (at least in Australia) could look to the import-substitution policies that worked during the 1950s and 1960s when manufacturing employment and higher wages were promoted at a time when many currencies were tied to the US dollar, in turn fixed to a price for gold.

But the US could not sustain its leadership of international relations, nor could capital flows be controlled. By the early 1970s - even at a time of relatively limited capital mobility - speculative attacks were occurring on the major currencies. Hence, the US ended capital controls and fixed currencies in an attempt to counter its declining trade position, higher interest rates, and slower growth.

Again, I ask social democrats what the US should have done to preserve its own national interest without abandoning support for freer trade? Having lost their advantage in manufacturing because of higher wages, it (and other Western governments) looked more to services for prosperity, although debt has increasingly helped many nations maintain a high standard of living for the time being.

Freer trade and capital flows are not the villains. While many so-called social democrats mock aspects of recent policy trends, they forget how a freer flow of capital helped many nations to prosper (including Australia). For instance, Norway borrowed as much as 14 per cent of gross domestic product in the 1970s to develop its North Sea oil reserves, while Singapore reached double-digit ratios of foreign lending as a proportion of GDP during the 1990s.

And social democrats should also recognise that aggregate wealth for the world did increase and many jobs in both the developed and developing world were created from a booming international economy aided by capital flows, notwithstanding the environmental consequences from higher economic output.

The real problem that confronts developed nations, and which is merely being postponed by the current global economic crisis, is that an increasing proportion of investment is going to poorer nations. Despite what the economic Right tells us about the benefits of free trade, such as much cheaper consumer goods coming from Asia, many Western societies have increasingly struggled to fund a variety of economic, social and environmental policy needs.

The fact is that the developed world has struggled to remain competitive against the rising giants of the developing world with Western societies (both governments and voters) happy to adapt through ongoing economic reform until the folly of much higher debt was exposed. By 2009, the US had a federal government debt of $US11 trillion, of which $6.5 trillion was owed to those who buy government bonds; such as individuals, banks, and foreign countries.

And while the US federal debt level was higher in 1950 (94 per cent of GDP compared to 65 per cent in 2007), it (like other Western nations) can no longer rely on a boom in manufacturing to create wealth and reduce debt.

With many companies moving production offshore to developing nations to escape higher wages and taxation costs, Western societies have been forced to respond. Not only have governments made the hard decisions in regards to taxation and labour market reform, but they are expected to maintain high levels of social welfare spending to win public support and offset the negative impact of economic reform. No wonder Western governments privatised sectors and services within their economies.

Sure there are important differences between Western societies in how services are provided and wealth is distributed, but most have increasingly relied on services and debt in recent decades. Hence, most developed nations have been adversely affected once the credit bubble burst.

But contrary to the waffle offered by so-called social democrats who kid themselves that they have a monopoly on social justice, we either adhere to freer trade and more painful reform as wealth is lost to poorer nations once the international system stabilises from the current economic crisis, or reintroduce protectionist measures which may also be disguised as redesigned international governance.

The answers are really about the willingness of richer democracies to allow their way of life to come under greater pressure.

As I have acknowledged in the past, it is indeed a difficult task to find solutions to address both national and international considerations, never mind environmental solutions. It may indeed be the case that the wealthier democracies will reject freer trade once they realise that job losses to poorer nations will not be limited to low skilled manufacturing, or that Western societies will increasingly struggle to meet a variety of social and environmental policy needs as costs continue to rise.

We need to again learn from our mistakes. We should not lend money to people who cannot afford to repay loans, and we should not allow business leaders to earn outrageous wages on the back of harsh reform for many ordinary workers. Just 25 years ago the average CEO of a US public company was paid 40 times the average worker’s pay compared to 1,000 times more before the recent credit crisis.

And we may have to alter the balance between freer trade and government intervention which will hopefully not deny poorer nations a chance to prosper, despite selfish aims about what their higher standard of living will do to the environment.

But we also need to recognise that Western democracies may need substantial reform; a reality that is hardly likely to please so-called social democrats blinded by hope rather than reason.

Sure Obama’s recent speeches have been impressive having announced reform to health, education and energy (including investing $15 billion a year to develop new technologies). But rhetoric is one thing, and reality is another, although I hope Obama achieves important goals. No doubt that something needs to be done to address America’s housing needs given that previous US governments encouraged banks to make the high-risk sub-prime loans to provide housing, as legitimised by the Community Reinvestment Act 1977 and the recent fetish for low interest rates.

So, social democrats, tell us how, besides higher taxation or public debt levels, we can help meet our social and environmental policy needs, along with industry and infrastructure needs? Tell us how we generate the wealth to pay for important social welfare and environmental programs?

But if you cannot provide solutions without jeopardising international trade which is necessary to promote peace and prosperity between nations (imperfect as it is), then Western societies will long need to pay adequate attention to taxation and labour costs.

Therefore, the current goal of a sensible Left is to utilise the current context to encourage debates about the need to help the most vulnerable Australians just as Australia’s centre-right (the Coalition) used a period of economic boom to aid the wealthy through a number of reforms.

There is a need for tough policy decisions to be made by Labor rather than policies intended to maximise support in the greatest number of seats. For instance, with the Rudd Government possibly to announce a significant pay rise for pensioners in the May budget, what is to be done about those on unemployment levels given the gap between the two payments increased under the Howard government.

Regardless of what Labor does, how will the pay rise be funded in such tough times? Is there not a need for tougher means-testing?

In contrast to the self-declared social democrats who merely criticise, Australians will utilise our liberal democracy to encourage change to shift the centre of politics again back to the Left, just as they did when a clear majority of voters gave their primary votes to Labor or the Coalition at various elections to promote economic reform since the early 1980s.

The times are a changing as Western societies and their governments again deal with the consequences of their ways in a world where competing nations still continue their struggle for resources and the influence of certain ideas.

But contrary to so-called social democrats raving on about how the world should be without giving us effective policy alternatives, we either support freer trade and deal with the consequences as best as we can if we are to give all nations their opportunity; or we become more protectionist and limit co-operation to like-minded nations, a policy option that is guaranteed to increase hatred of the West.

I, for one, prefer to defend the term liberal democracy, a political concept more capable of explaining the struggle of a society to balance compassion and competitiveness which indeed must incorporate national and international considerations, along with the promotion of political and economic freedom necessary to promote the exchange of goods, services, and ideas crucial to innovation.