This is an essay I wrote for a local newsletter. It’s fairly long and I thought about breaking it up across a few posts, but what the hell…
‘Social democracy’ means a lot of different things to different people, and its meanings have slipped around over the decades. Once upon a time it could be synonymous with socialism; nowadays it is a title claimed by the most moderate governments and some of the drippiest Third Way intellectuals of the ‘centre-left’. Further left, it still works as a rallying point for more radical energies. In the past, a definition of the social democratic project might have been something like ‘the project of reforming capitalism in the interests of the working class’. That is broad enough to cover a fair spectrum of radicalism, but still distinguishes it from liberal reform projects.
Nowadays, however, self-proclaimed social democrats are much more likely to speak for people in general, rather than a class, though perhaps with special reference to those from ‘socio-economically disadvantaged backgrounds’, women, and ethnic minorities. Environmental concerns are likely to be central, with the likes of Clive Hamilton and David McKnight arguing explicitly against a preoccupation with ‘deprivation’ or class. It is now more difficult to draw a line between social democracy and liberalism. Though spectrum of radicalism remains, today’s social democrats might be defined broadly in terms of a desire to ‘restrain the market’, though often enough they are at pains to emphasise their understanding of the efficiency of the market in its proper place.
Our illustrious prime minister channels this rhetoric, writing in his February Monthly essay of “that particular brand of free-market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time.” [p.20] “Not for the first time in history,” he goes on to say,
the international challenge for social democrats is to save capitalism from itself: to recognise the great strengths of open, competitive markets while rejecting the extreme capitalism and unrestrained greed that have perverted so much of the global financial system in recent times… The second challenge for social democrats is not to throw the baby out with the bathwater… Social democracy’s continuing philosophical claim to political legitimacy is its capacity to balance the private and the public, profit and wages, the market and the state. That philosophy once again speaks with clarity and cogency to the challenges of our time. [pp. 20-21]
Whether Rudd can speak for social democracy is a question we’ll come back to. In any case, in that essay he gives a pretty good impression of a real social democrat. He, or whatever aide pulled the thing together, knew the buttons to push. And the fact that this stuff was said publicly by the prime minister seems to many a sign the the ideological wind has changed. If Rudd is a virtuosic opportunist – and that is a prerequisite for the job – until a few months before it had been more opportune for him to describe himself again and again as an ‘economic conservative’. But the global financial crisis apparently showed that economic rationalism, or neoliberalism, or whatever you want to call it, was rubbish. To quote the learned leader again:
The time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy… Others have argued that we are seeing a more fundamental regime change: the third in postwar history, starting with the Keynesian model, from the 1940s to the ’70s; the neo-liberal ascendancy, from 1978 to 2008; followed by a new regime, which is currently being shaped… [S]eismic changes are underway, fault lines yielding to fractures which in time may yield to even deeper tectonic shifts. Neither governments nor the peoples they represent any longer have confidence in an unregulated system of extreme capitalism. [pp. 25, 29]
That the ALP was in power for much of the period of ‘neoliberal ascendancy’ is inconvenient for Rudd’s claim that “the political home of neo-liberalism in Australia is, of course, the Liberal Party itself” [p. 27]. (Hawke and Keating, he claims, were ‘economic modernisers’, not neoliberals.) But it’s not necessarily a problem for the broader argument: social democrats who kept the faith through all those years in the wilderness can explain Labor’s apostasy in terms of its own ideological slide. Labor moved with the zeitgeist; partly because it was enthusiastically taken in, like Keating, and partly out of electoral necessity, because the media was taken in. Now the zeitgeist moves back.
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There’s something really ironic, if not outrageous, that the most confident flag flying for social democracy in 2009 should be the one on top of Parliament House. I don’t want to suggest that the parliamentary wing of ALP is social democracy, or that Rudd defines it. Marko Beljac, writing in On Line Opinion, no doubt spoke for many on the social democratic left in calling Rudd’s essay “breathtakingly cynical”, eliding the fact “that it was the ALP, under Hawke and Keating, that was largely responsible for ushering in the neoliberal economic reforms that he now decries”. Beljac points out that while the essay was fresh on the newstands, ministers from the ALP’s ‘socialist left’ were urging unionists at a conference “not to use the global financial crisis as an excuse to abandon the quest for productivity gains or seek protection from competition” (Martin Ferguson) and proclaiming that “our default position will be to liberalise, not restrict” (Lindsay Tanner). (The construction labour Inquisition is, it seems, a departure from the default position.)
Still, there is something legitimate in taking Rudd at his word as a figurehead of social democracy. Social democracy has always defined itself against socialism on grounds of realism: political realism and economic realism. It has always based itself on Good Ideas to be implemented by good governments. If the history of ‘actually-existing’ social democracy is a long chain of betrayals of these Good Ideas by those within the state who were apparently in a position to implement them, we should wonder whether there is something about the democratic capitalist state that so reliably generates the betrayals. We can read from Rudd’s account what, out of the vast social democratic repertoire of Good Ideas, makes it past the gatekeepers to be sayable by the man at the top. Even then, we should pay attention to the gaps between what is said (refracted into the broader mediasphere deliberately through the particular audience of The Monthly) and what is done. We can then inquire as to the nature of the gatekeepers.
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Government is not a command centre above society. It is not an architect which designs and shapes social structures and processes according to a grand blueprint. Any given government is not even in command of the state, in the broad sense of its whole set of institutions and laws. Control of the legislature and control of the executive are always more or less precarious and temporary, secured election by election and – for any given grouping within the government – subject to shifting allegiances within party or coalition. The most obvious gatekeeper is the electorate. It is surely not coincidence that in democracy after democracy, decade after decade, party systems have tended to evolve into stable diarchies, neither side ever getting too far for too long from a majority. The psephological geniuses sit near the top of the table in every major party’s back room. Parties craft and shift positions to slice the slightest margins from their competitors in the eternal campaign to capture or defend the strategic high ground of ‘the centre’. For so many political commentators, this is the main game.
But things do not begin or end with the electorate, and the question arises as to what determines where exactly this centre lies, why it moves, and occasionally even shows a capacity for sudden leaps. The great shifts of zeitgeist so important to Rudd’s narrative are shifts of this kind. There is also the question of the anti-populism which has been a regular feature of democratic capitalist politics, sitting uneasily with the never-ending pursuit of votes. This manifests in the recurring media trope of the politician or party with the strength to make unpopular ‘tough decisions’ which are nonetheless in the long-term interests of the voters. The people will thank them one day, or at least Paul Kelly will (the journalist, not, alas, the balladeer). This is the politician who can prioritise price stability above employment, who can cut expenditure and raise taxes to balance a budget years down the track, who understands that sometimes there comes a recession we have to have, who describes themselves with pride as an ‘economic conservative’ and who realises that some decisions, like setting interest rates, are too important to be left exposed to the less righteous common politician. These politicians answer to a higher calling, which we might describe as the technocratic imperative, and they have a funny way of rising to the top.
The technocratic imperative is the second gatekeeper beyond which Good Ideas must pass. It is not entirely independent of the electoral imperative, however, because it plays a vital role in shaping that electoral centre. It hails directly the ‘intelligent’, informed political spectator and voter. Indirectly, via the experts of the media and academia, it filters through into the political common sense about which politicians should be taken seriously and which are fools, or dangerous, or dangerous fools. It is by no means monolithic; there are more than enough serious debates with genuine content to fill the daily op-eds and the pages of the Griffith Review and the New Matilda, Quarterly Essay and Quadrant; there is enough room for a Coalition flavour and an ALP flavour, not to mention the subtle overtones of the factions and the wets and the dries. Neither is every constraint imposed with its full force grounded in an adequate understanding of the real mechanisms involved, so that sometimes what once appeared as an absolute economic constraint melts away, recognised as a theoretical figment, like all the ‘banana republic’ angst over the current account deficit in the 1980s.1
But the technocratic imperative is not entirely, or even mainly, ideological in the sense of ‘false’ or ‘imaginary’. These manacles are not mind-forged. The material basis is the state’s interdependence with the economic system. ‘State’ and ‘economy’ are relatively independent systems within capitalist society, made up of very different kinds of structures and processes, but each depends on the other as part of its own structure. At the most basic level, for example, the economic system depends on a legal infrastructure, while the state employs labour on the basis of a wage relation and buys commodities on the market.
So long as certain social conditions are maintained, which it cannot organise for itself, the economic system is self regulating. As a system – which is truly global in scope, not nation-bound like the state – it co-ordinates commodity-producing labour across society through the discipline imposed on individual capitals by value, and the discipline imposed on labour by the necessity of supplying its needs with commodities. To the extent that social production is organised by this system of commodity production, society depends on the functioning of this system. Capital – which dominates the economic system through its control of the means of commodity production – colonised society and maintains its dominance largely because the discipline of this system is an extremely efficient means of providing for so many social needs.
It is both tenacious and fragile: in fact, it has proven itself so tenacious partly because of its apparent fragility. Society depends on it, but there is no central locus of control; it is forever malfunctioning in ways both large and small, but economic problems are society’s problems, and therefore, the government’s problems. The state, being a site of relatively open-ended powers of legislation and conscious bureaucratic strategy, evolves as a troubleshooter. That is not to make a deterministic argument: the economy never tells the state what to do; it just presents with symptoms and it is up to the creative and strategic imagination of political and policy actors to come up with solutions. This becomes the stuff of democracy. Governments have come to be held responsible for the health of a system they have limited powers over. Bob Jessop writes:
For the state involves a paradox. On the one hand, it is just one institutional ensemble among others within a social formation; on the other, it is peculiarly charged with overall responsibility for maintaining the cohesion of the social formation of which it is merely a part. Its paradoxical position as both part and whole of society means that it is continually called upon by diverse social forces to resolve society’s problems and is equally continually doomed to generate ‘state failure’ since so many of society’s problems lie well beyond its control and may even be aggravated by attempted intervention. [Jessop, 2008: 7]
If this is generally true of the capitalist state, it is especially true of social democracy, which takes most seriously the responsibility for resolving society’s problems, and is tragically doomed to take the blame for the inevitable failures stemming from the fact that government’s powers are so much more limited than it thinks.
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This brings us back to Rudd’s presentation of the fall and projected rise of social democracy. The story he tells is set almost entirely within the ideological sphere. ‘Neoliberalism’ or ‘free-market fundamentalism’ vanquished ‘the post-war Keynesian model’ in the battle of ideas. Ideological change meant regime change, and regime change meant full-scale social change. The periods are clean-cut: the Keynesian model and the neoliberal model are each treated as self-contained kit-set models of government, items in a catalogue to be decided between.
This periodisation of recent history has a number of flavours, but it is hegemonic on right and left. They are not entirely idealist narratives, because economic crises – the present one and/or the one in the 1970s – are taken to demonstrate that something in the kit-set model was awry so that it didn’t quite hold together in reality as its designers had hoped. But explaining economic crises entirely in terms of political philosophy is extremely superficial. These narratives also greatly overestimate the coherence of policy regimes and greatly underestimate the dynamism within the two periods, as if the state form stayed frozen in between the crisis points, at which sudden shifts happen as we try out the next model from the catalogue.
A closer look at the historical record shows some glaring problems with the story. For example, there has been no ‘rolling back of the state’ according to measures of state spending. Real government spending grew steadily across Rudd’s designated neoliberal period, 1978-2008: by its end, the Howard government was presiding over annual real expenditure (i.e., adjusted for inflation) two-and-a-half times bigger than the Fraser government. Real government expenditure per person has increased by more than 70 per cent. Government expenditure has fluctuated countercyclically around 24 per cent of Gross Domestic Product, showing neither a rising nor a falling trend over the whole 30-year-period. This is a much larger proportion than prevailed over the glorious years of the post-war boom. The clearest sign of a structural shift here is the leap after Rudd’s ‘Keynesian model’, which he has ending in 1970: the jump from 18 per cent to 24 per cent in 1974-75. This is partly due to the deliberate Whitlam expansion, and partly an automatic response to the great rise in unemployment associated with the 1970s crisis, which has never been fully reversed. [Laurie and McDonald, 2008]
”]This brings us to the billion dollar question: what happened to ‘full employment’? If ‘the Keynesian model’ could sustain an unemployment rate below 2 per cent for more than two decades – with the brief exception of the 1960 ‘credit crunch’ – why can’t we just put that model back into place and have another golden age? The neoclassical answer – that this involved a trade-off with inflation that could not be sustained and ultimately caused the stagflation of the 1970s – is not convincing. Price level increases did not show an accelerating tendency during the boom decades – both inflation and unemployment were low except in the aftermath of the Korean War wool boom. Even econometric models based on the Friedman-Phelps conception of a so-called ‘natural rate expectations-adjusted Phillips curve’ find that the ‘natural’ or ‘non-accelerating inflation’ rate of unemployment suddenly more than doubled in the 1970s. That is, 2 per cent unemployment was the macroeconomically stable point during the boom, and this blew out in the crisis and never came back down. [Gruen et al, 1999] In other words, according to the model, a policy aim of 2 per cent unemployment with low and stable inflation was quite achievable in the 1950s and 1960s, but was no longer from the 1970s on.
But neither is the popular rival left-wing explanation convincing. This is the idea that capital got sick of full employment because of the power it gave labour, enlisted Friedman et al to raise fundamental doubts about it, and ultimately succeeded in shifting the focus on macroeconomic policy onto inflation. (See, for example, Courvisanos and Millmow ) The fact is – against all the mythology of the Keynesian period – that macroeconomic policy was not notably more expansionary during the boom than it was in the ‘neoliberal’ period. Rowan’s  analysis of monetary policy 1950-75 finds that it was primarily expansionary in ten years and primarily set for restraint in 14. As for fiscal policy, the public sector ran surpluses for almost all of the 1950s, and the deficits of the 1960s were generally smaller (relative to GDP) than those of the 1970s, 1980s and 1990s – which is not so surprising given what we saw above, that government budgets were bigger in the later period. In fact a counter-cyclical tendency is more apparent in the supposedly anti-Keynesian neoliberal period, with attempts to balance the budget and run surpluses in the good years blowing right back out in the recessions. [Foster, 1996: 66]
The long postwar boom was not an artefact of policy; in fact macroeconomic policy was more often deployed to restrain runaway growth. (See Jones  on Australia, and Bleaney  on elsewhere.) The state was undoubtedly greatly transformed during and after World War II, and Keynesian ideas were very important in the transformation, but what we got was a Keynesianism of restraint. In many ways, the Keynesian period prefigures the neoliberal macroeconomic regime, rather than being the antithesis of it. We could never have had the strong, independent monetary policy of today without the great struggles of the 1940s and 1950s to get some foothold for the state within the private banking system (in which the battle over nationalisation was an early skirmish). There was no central bank in Australia before the war, and central banking was attacked as socialistic. We might ask why, given the supposed neoliberal commitment to freeing the markets from the state, we got Friedman’s strong, rule-bound central bank and not von Hayek’s free banking. Capital needs the state, but on capital’s terms.
* * * * *
Perhaps the biggest problem, then, with the simplistic narratives of Keynesianism-then-neoliberalism is the tendency to take the ideologists at their word – to watch what they say, not what states do. This gives a false impression of the political possibilities – if full employment was dependent on a rare period of growth rapid enough to allow for speedily rising wages without undermining profitability, we can’t expect to get it back just by legislating for it, ‘adjusting the balance between market and state’, or whatever.
But if social democrats underestimate the difficulties in recalibrating capitalism, it is not only because they think too big. It is also because they think too small. A lesson of the long history of social democratic disappointments is that realism can be utopian. Capital must always be appeased so long as a government is judged by its ‘economic management’, because a steady rate of new investment is necessary just to keep employment stable. So long as investment decisions are in private hands, those hands hold the ultimate veto. Any serious reform has to tackle that problem – half measures are doomed.
All this said, there remains a large constituency for some form of social democracy, much larger than that for socialism. Socialists will continue to move in the much broader milieu of reform. 50 years ago, E. P. Thompson  argued that the route to socialism in a developed capitalist democracy ran through a radicalisation of social democratic desires and analyses. Ideologically, the task is to explain why the gatekeepers keep standing in the way of Good Ideas that seem so rational. Practically, it means being there with all kinds of movements defending or fighting for gains regardless of whether they fit in with capitalist realism. (As the saying goes, if ‘our’ government always complains it’s between a rock and a hard place, you better keep being the rock or the hard place.) Thompson’s essay appeared at the high-water mark of social democratic confidence. But it makes sense even when reform is in the doldrums.
Marko Beljac : “Rudd’s breathtakingly cynical essay”, On Line Opinion, 4 February, http://www.onlineopinion.com.au/view.asp?article=8498&page=1
Michael Bleaney : The Rise and Fall of Keynesian Economics: an investigation of its contribution to capitalist development, Macmillan, Houndmills.
Courvisanos, J. & Millmow, A. (2006) “How Milton Friedman Came to Australia: A Case Study of Class-Based Political Business Cycles“. Journal of Australian Political Economy Vol. 57 pp 112-136.
John Edwards : Keating: the inside story, Penguin, Ringwood.
R. A. Foster : Australian Economic Statistics 1949-50 to 1994-95, Occasional Paper No. 8, Reserve Bank of Australia.
David Gruen, Adrian Pagan and Christopher Thompson : “The Phillips Curve in Australia”, Research Discussion Paper 1999-01, Reserve Bank of Australia.
Bob Jessop : State Power: a strategic-relational approach, Polity, Cambridge.
Evan Jones : “Was the post-war boom Keynesian?”, Working Papers in Economics, 131, Department of Economics, University of Sydney.
Kirsty Laurie and Jason McDonald : “A perspective on trends in Australian Government spending”, Commonwealth Treasury, http://www.treasury.gov.au/documents/1352/PDF/03_spending_growth.pdf
D. C. Rowan : Australian Monetary Policy 1950-1975, George Allen & Unwin, Sydney.
Kevin Rudd : “The Global Financial Crisis”, The Monthly, February, pp. 20-29.
E. P. Thompson : “Revolution”, New Left Review, I/3, May-June.
1Keating’s frustration over being led astray by Treasury models showing a relationship between the public sector deficit and the current account deficit, noted in the margins of a 1989 report from the Joint Economic Forecasting Group, is priceless: “It makes the twin deficits theory look like bullshit. By the end of the year under forecast (1989-90) the govt will have presided over an 8 percentage point shift in the [Public Sector Borrowing Requirement]. It must be a world wide post-war record. 8 percentage points since 1985-86 (6 per cent public and 2 per cent private savings). Yet the current account will, according to these forecasts, be still 5 per cent of GDP. At least I can’t be burdened with any more talk about re-weighting the instruments of policy. We now all know what utter crap that is.” [Edwards, 1996: 375]