“Welcome to Social Democracy School”

Ralph Meima
October 10, 2008

There may be no going back.  The changes occurring in the economy at the moment, accelerating with dizzying speed over the past two weeks, are moving wealth and ownership rights around the economy of the United States in ways we can only guess at right now.  When the panic subsides, figuring out what happened – and why – will keep economists busy for a generation.  Certain shifts are already apparent.  Where markets thought there was much value - in for example mortgage-backed securities, credit default swaps, common stocks, the Euro, Icelandic banks, and certain real estate – there is far less.  Where the regulation, credit, and equity capital of the  US government were once absent, they are now in startling evidence.  Where credit was once king, cash now is (and those who wield it, like governments and large industrial groups in Russia, China, India…).

The lightning-quick changes have occurred in increments of hundreds of billions, and even trillions, of dollars.

It’s hard to imagine what our society’s landscape will look like when the New Normal settles into a reliable pattern.  Here are a number of probable aspects.  Government will play a much more active role in the economy, with state investments where once only private capital dared to tread.  Asset values across a wide variety of classes, from stocks to real estate, will be low, and take years to recover.  Foreign investors and lenders, encouraged by the surprising durability of the dollar through the crisis, will play a larger relative role in the US economy.  Great new swaths of the American population may experience social insecurity, swelling the ranks of the uninsured, the displaced, and the pensionless.  The public may demand new social spending, regardless of traditional fears that this will dampen enterprise, raise taxes, and swell government bureaucracy.

For better or worse, America may be blundering its way across the threshold of social democracy, or what the Germans calls the “social market economy.”  As the next presidential administration sorts it out, accompanied by a Democratic-majority Congress free of any allergy to activist government, Americans will have to learn new language and adapt to an entirely different dynamic in politics and public policy.

With new economic and welfare power centralized in the Federal government, the industries that retain and increase their power in the New Normal (commercial banks?  energy and natural resource companies?  agribusiness?) will encounter a new rival, where less corruptible bureaucrats in the departments and agencies possess more power than the Congressmen who succumbed to corporate influence during the two decades of the Older Bush, Clinton, and Younger Bush presidencies.

In this environment, will American workers – either generationally impoverished or invited into a new surge of domestic manufacturing – be content to remain marginalized and disorganized, or will they organize into a third force in American policy deals?  Will we see new unions, coops, and associations demand seats at the table as re-regulated industries and “venture government” negotiate the benefits and obligations  of the economic game?  Will a period of economic contraction and hardship radicalize or further demoralize and fragment American wage-earners, households, and small businesspersons, clinging to the threadbare nobility of the rugged individual?

One word we may start to hear is “solidarity” – the mutual standing and striving together of the have-nots, of the oppressed.

When has America seen its middle class boom, with relative wealth, comfort, and autonomy flowing to the masses (and the incentive for solidarity ebbing away)?  The first phase was the settling of the frontier: forty acres and a mule.  Poor households could get their own land and acquire prosperity as the frontier rolled westward.  When the frontier days ended, middle America slipped into the embrace of robber-baron capitalism, Upton Sinclair’s jungle proletariat, and a series of economic booms and crashes from the 1890s through the Great Depression of the 1930s, which led to the decidedly socialist New Deal.  In another phase, the GI bill and postwar prosperity brought education and opportunity.  For the three decades since the 1970s, that highpoint has receded continuously and America’s middle class has seen its standard of living, health, political influence, and general welfare slip away, despite the distracting upswings of the 1980s Yuppie Boom, the IT boom of the 1990s, and the most recent (and now imploding) credit bubble.

Is there another frontier or world war on the horizon (economic or military), the topsoil out of which a vigorous middle class can grow faster than the forces of corruption and elitism that eventually bring it down?

If there is not, the choice for most Americans will be stark: get used to the fragmentation and disenfranchisement of 21st century wage-feudalism, or choose the path of economic solidarity, including the mutual defense and aid of the family business, family farm, and community-based enterprise.

If the path of solidarity is taken, there is another expression we need to learn: the “social partners” of state, capital, and labor.  In one of the most poignant assertions of late-20th century neoconservatism, British Prime Minister Margaret Thatcher scoffed:

“[T]there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first…”

With the state’s bureaucrats and executive branch assuming major economic agency, and America’s remaining capital concentrated in the hands of a few millionaires and billionaires (i.e., fewer than 1% of the population controlling more than the poorest 90%) who make up the new oligarchy, the vast majority of the US population must do more than work, consume, and vote.  America’s workers and small businesses can organize to speak loudly together for the common good.  If eight years of the Bush administration can teach us anything, it is that government can end up working very hard neither of the people nor for the people, and routine democracy can fail as a system for overcoming that. With that in mind, and with far less relative combined wealth, the large majority of the American people may find a viable, although much less than perfect, future in what really is social democracy as it’s defined in most other parts of the world.

Instead of reviling it, we can study the countries where it seems to work – where innovation, economic competitiveness, and enterprise adequately co-exist with a comprehensive welfare state borne of historical contexts different from ours, yet oddly similar now, as Americans contemplate a very different government than the one we were used to, and an economic skew we still haven’t gotten used to.

Solidarity and the social partners: concepts we need to understand in a hurry, for better or worse.