Social Democracy: its past, and if it has a future

Social Democracy, from an ideological perspective, emerged around the mid-twentieth century as an alternative to Socialism, seeking to ‘humanise’ Capitalism rather than abolishing it, and finding the balance between a market economy and a collectivised one. During the ‘long boom’ period from 1945 up to the 1970s, it appeared to have triumphed over Conservatism, and permanently ingrained key elements of welfarism within the state which still remain today. However, recession in the 1970s and 1980s brought a neo-liberal revival, with social democratic parties soon losing their electoral viability and credibility. In this essay, I will evaluate social democracy from a historical perspective, and then ask the question; does it have a future?

In terms of altering the role of the state, social democracy played a vital role. In the aftermath of World War 2, British Prime Minister Winston Churchill was a national hero, with approval ratings well above 80%, yet the Labour Party won in 1945 by a landslide; it was felt by the electorate that they would rebuild the country better than the Conservative Party. Labour had been unambiguous in campaigning for a welfare state “from the cradle to the grave”, along with universal and free healthcare, and the nationalisation of key industries. The creation of the National Health Service (NHS) enacted a comprehensive system free at the point of use, with even dentistry and prescriptions free at the time, and the major utilities of electricity, gas, coal, steel and railways brought under state control. Social democracy had emerged as an attempt to ‘humanise’, not abolish, capitalism, and with the rest of UK industry in private hands the ‘mixed economy’ was well established. Furthermore, Keynesianism grew in popularity during this period; the economic theories of John Maynard Keynes who believed in the government regulating ‘aggregate demand’ in the economy to deliver full employment. Despite Keynes being a Liberal, the term ‘Keynesian social democracy’ is a popular one to describe this period.

Important precedents were further set during the Presidential era of FDR (Franklin Delano Roosevelt). Due to the 1929 Wall Street Crash and the Great Depression, classically liberal America was undergoing a major crisis; the voluntarism and ‘rugged individualist’ policies of incumbent Republican President Herbert Hoover were not working, and unemployment reached as high a level as 25%, a stark contrast to the years of escalating boom during the ‘Roaring Twenties’. The comfortable election victory in 1932 for Democrat FDR underlined a major turning point; not only were the previously unstoppable Republicans comprehensively rejected by the public, but the role of the state was to change forever. FDR’s “New Deal” for the American people consisted of three criteria; relief, recovery and reform. Relief, in the form of unemployment relief and welfare measures; recovery, in the form of public works schemes and ‘pump priming’ in to the economy, and reform, with the action on new banking regulation and trade union acts.

It could be argued that the New Deal was more a form of social/American liberalism than social democracy, but its unprecedented steps nevertheless offer an overlap with social democracy. For the first time, a tangible welfare state was created in the USA; the ‘Social Security Act’ made use of payroll contributions to fund unemployment and sickness benefits (reminiscent of David Lloyd George’s National Insurance Act in Britain during the early 1900’s). The Wagner Act of 1935 gave employees the rights to collective bargaining and strike action without fear of dismissal from employers; trade unionism was also to be a key supporter (and some would say policy influencer) of the Labour party during the social democratic period. New Deal groups such as the PWA (Public Works Administration) and CCC (Civilian Conservation Corps) were to employ as many as 5 million people, with federal money being used to fund numerous public works schemes which in turn provided employment. Further signs of the size of the state increasing and using its influence included the Glass-Steagall Act of 1933, which provided bank regulation (the banking industry had been one of many proponents of the 1929 Wall Street Crash) via the separation of investment and commercial banking and also federal deposit insurance. Furthermore, the 1935 ‘Wealth Tax Act’ sought to both increase government receipts and redistribute wealth through an increase in inheritance tax, a gift tax, a severely graduated income tax and a corporate income tax scaled according to income. From the 1920s days of pro-business, low taxation and minimal interference in the economy, this Act elicited a strong reversal, along with implementing a core social democratic policy of progressive taxation. During his time in office, FDR also consolidated a ‘New Deal coalition’ of labour unions, blue collar workers, minorities, farmers, white Southerners, people on relief and intellectuals; this coalition not only cemented solid electoral support for the Democratic Party, but it also included groups of people who had been largely ignored under previous administrations and doctrines. In terms of ideology, the New Deal may not necessarily have been a Social Democratic programme; from a historical and political level, it strongly changed the role of the state and society, as social democracy did.

Another key triumph of social democracy during this period was the general acceptance of ‘full employment’ as an economic policy in the UK, even when the Conservative Party was in power. Indeed, one academic at the time noted “we’re all planners now”. Taxation was not significantly reduced from highs of 90% until the Thatcher period, and the welfare state continued to grow in size. Keynesian democracy appeared to have triumphed; as Andrew Heywood states in his ‘Political Ideologies’ text it “harnessed the dynamism of the market without succumbing to the levels of inequality that (Karl) Marx believed would doom capitalism”. Precedents were further set in the USA with the ‘Great Society’ during the period of President Lyndon B Johnson. Federal funds were targeted at helping the poor in education and housing, new rights were given to minorities in the 1964 Civil Rights Act and the 1965 Voting Rights Act, and government funded health programmes (Medicare and Medicaid) were created to help provide basic medical needs and insurance for the poor and aged. With these far-reaching reforms, and the electoral strength of other social democrat parties, free-market liberalism and Conservatism appeared to have diminished.

Despite this ‘long boom’ period, recession in the 1970s and 1980s ultimately brought an end to classical social democracy. The election of 1968 in the USA ended the New Deal coalition, and began to establish the Republicans as the dominant party again. Furthermore, the ‘Winter of Discontent’ in the UK in 1978 shattered Labour’s economic credibility, with constant disputes with trade unions and high inflation, not to mention the request for help of the IMF (International Monetary Fund) in 1976. Margaret Thatcher and the Conservatives were elected with a decisive majority in 1979, and Keynesianism was at an end. Thatcher formed a strong ideological bond with Republican President Ronald Reagan, who both believed in cutting inflation (with unemployment arguably seen as a ‘necessary’ sacrifice), reducing public spending, ‘rolling back the state’, deregulation and privatisation. In both countries, income tax was drastically reduced; the top rate of 40% bequeathed by Thatcher at the end of her time in office was raised only in 2008 as a response to the global financial crisis (to 50%). These policies and legacies remain heavily divisive amongst people to this day, but there is little doubt that social democratic parties strongly lost their electoral viability during this period. The Labour Party lost four successive general elections between 1979 and 1992, with their strong leftward drift in 1983 resulting in a landslide for the Conservatives, and much like the Democrats in the USA were labelled as reckless ‘tax and spend’ parties. The SPD party in Germany and the French Socialist Party both endured long periods out of party with crushing defeats.

So, how was the electoral viability lost for social democracy? Part of the answer could even be attributed to the effects of social democracy itself. Both its welfarist policies and its redistributive economics resulted in a shrinkage of the working class, a key area of support for social democratic parties. Technological advancements and globalisation undermined its economic credibility, and the influence and rise in popularity of Thatcherism and Reaganism garnered strong support for the free market. As Conservatism had seemed defunct post-World War 2, now social democracy seemed irrelevant.

So does social democracy have a future? The ‘Third Way’, devised by Anthony Giddens, sought to bring renewal for social democracy, but with revisionism. The Third Way (or could it be called neo-social democracy?) created a more pragmatic viewpoint; a market economy as opposed to a mixed economy, equality of opportunity as opposed to equality of outcome, a competition/market state over a social-reformist state, and crucially welfare-to-work (workfare) over the ‘cradle to grave’ concept. These views strongly influenced Tony Blair and the ‘New Labour Party’ in the mid-1990s, and Bill Clinton and the ‘New Democrats’. The Third Way offers us yet another divisive viewpoint. It could be seen as THE future of social democracy; its revival and redemption, with pragmatic and sensible reforms, not to mention electoral success (Tony Blair and New Labour won three consecutive general elections, including landslides in 1997 and 2001, whilst Bill Clinton became the first Democrat since FDR to win two consecutive elections). On the other hand, the Third Way could be seen as a betrayal of social democracy and therefore not its future; Blair moved Labour sharply to the Centre ground and in some cases even the Centre-Right, with his abolition of Clause IX in the Labour constitution (the commitment to nationalisation) a strongly symbolic move. On this evidence, you could argue either way for the future of social democracy, but few commentators would refer to New Labour’s time in office (1997-2010) as ‘socially democratic’.

Nevertheless, the global financial crisis of 2008 conjured up something of a Keynesian revival. Countries across the world, even including the USA with the right-wing leadership of George Bush jr, agreed on a consensus of the need for a ‘fiscal stimulus’ to boost the economy, with Gordon Brown and Alistair Darling (Prime Minister and Chancellor of the UK at the time) both pointing to Keynes as an influence. The top rate of tax, which had rigidly been kept at 40% by Brown as Chancellor under Tony Blair, was increased to 50%, and as of October 2011 is seen as a medium term solution. These elements may not indicate an imminent return to social democracy, but they reflect governments of numerous political persuasions taking a dynamic and active role in to the economy during a financial crisis, something which social democracy sought to do in the past.

In conclusion, I believe that classical-social democracy does not have a future. During its heyday, it proved to be strongly relevant and successful, but with economic and social changes worldwide, along with the 1980s neo-liberal revival, ‘true’ social democracy no longer contains serious electoral credibility. It may well be that the UK in particular is conservative with a small ‘c’, and if that is the case then a 1960s style social democratic party can never win a parliamentary majority. A left-wing Labour Party in the 1980s never came close to winning an election, and its success in the late 1990s and early 2000s were largely built on a strong shift rightwards on the political spectrum. For a social democrat like myself, this makes for a grim reflection. That is why it is important to learn from history in order to not only understand and comprehend social democracy’s successes and failures, but to also realise that trends are there to be bucked. As stated previously in this essay, Conservatism appeared to have lost all relevance after World War 2, and it certainly lost a great deal of influence until the 1970s. In this trail of thought, the current Coalition government in Britain should be viewed with great interest; the austere economic policies pursued in order to tackle the structural deficit are so far proving to be deeply unpopular with the public. If this economic gamble does not pay off, the Conservative Party could find itself out of power for another generation, thereby offering an opportunity to Labour or even the Liberal Democrats in some form. If a credible alternative can be found, social democracy may yet be revived; in what form is another matter.

-Ben