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What Is Living and What Is Dead in Social Democracy?

The following is adapted from a lecture given at New York University on October 19, 2009.

Americans would like things to be better. According to public opinion surveys in recent years, everyone would like their child to have improved life chances at birth. They would prefer it if their wife or daughter had the same odds of surviving maternity as women in other advanced countries. They would appreciate full medical coverage at lower cost, longer life expectancy, better public services, and less crime.

When told that these things are available in Austria, Scandinavia, or the Netherlands, but that they come with higher taxes and an “interventionary” state, many of those same Americans respond: “But that is socialism! We do not want the state interfering in our affairs. And above all, we do not wish to pay more taxes.”

This curious cognitive dissonance is an old story. A century ago, the German sociologist Werner Sombart famously asked: Why is there no socialism in America? There are many answers to this question. Some have to do with the sheer size of the country: shared purposes are difficult to organize and sustain on an imperial scale. There are also, of course, cultural factors, including the distinctively American suspicion of central government.

And indeed, it is not by chance that social democracy and welfare states have worked best in small, homogeneous countries, where issues of mistrust and mutual suspicion do not arise so acutely. A willingness to pay for other people’s services and benefits rests upon the understanding that they in turn will do likewise for you and your children: because they are like you and see the world as you do.

Conversely, where immigration and visible minorities have altered the demography of a country, we typically find increased suspicion of others and a loss of enthusiasm for the institutions of the welfare state. Finally, it is incontrovertible that social democracy and the welfare states face serious practical challenges today. Their survival is not in question, but they are no longer as self-confident as they once appeared.

But my concern tonight is the following: Why is it that here in the United States we have such difficulty even imagining a different sort of society from the one whose dysfunctions and inequalities trouble us so? We appear to have lost the capacity to question the present, much less offer alternatives to it. Why is it so beyond us to conceive of a different set of arrangements to our common advantage?

Our shortcoming—forgive the academic jargon—is discursive. We simply do not know how to talk about these things. To understand why this should be the case, some history is in order: as Keynes once observed, “A study of the history of opinion is a necessary preliminary to the emancipation of the mind.” For the purposes of mental emancipation this evening, I propose that we take a minute to study the history of a prejudice: the universal contemporary resort to “economism,” the invocation of economics in all discussions of public affairs.

For the last thirty years, in much of the English-speaking world (though less so in continental Europe and elsewhere), when asking ourselves whether we support a proposal or initiative, we have not asked, is it good or bad? Instead we inquire: Is it efficient? Is it productive? Would it benefit gross domestic product? Will it contribute to growth? This propensity to avoid moral considerations, to restrict ourselves to issues of profit and loss—economic questions in the narrowest sense—is not an instinctive human condition. It is an acquired taste.

We have been here before. In 1905, the young William Beveridge—whose 1942 report would lay the foundations of the British welfare state—delivered a lecture at Oxford in which he asked why it was that political philosophy had been obscured in public debates by classical economics. Beveridge’s question applies with equal force today. Note, however, that this eclipse of political thought bears no relation to the writings of the great classical economists themselves. In the eighteenth century, what Adam Smith called “moral sentiments” were uppermost in economic conversations.

Indeed, the thought that we might restrict public policy considerations to a mere economic calculus was already a source of concern. The Marquis de Condorcet, one of the most perceptive writers on commercial capitalism in its early years, anticipated with distaste the prospect that “liberty will be no more, in the eyes of an avid nation, than the necessary condition for the security of financial operations.” The revolutions of the age risked fostering a confusion between the freedom to make money…and freedom itself. But how did we, in our own time, come to think in exclusively economic terms? The fascination with an etiolated economic vocabulary did not come out of nowhere.

On the contrary, we live in the long shadow of a debate with which most people are altogether unfamiliar. If we ask who exercised the greatest influence over contemporary Anglophone economic thought, five foreign-born thinkers spring to mind: Ludwig von Mises, Friedrich Hayek, Joseph Schumpeter, Karl Popper, and Peter Drucker. The first two were the outstanding “grandfathers” of the Chicago School of free-market macroeconomics. Schumpeter is best known for his enthusiastic description of the “creative, destructive” powers of capitalism, Popper for his defense of the “open society” and his theory of totalitarianism. As for Drucker, his writings on management exercised enormous influence over the theory and practice of business in the prosperous decades of the postwar boom.

Three of these men were born in Vienna, a fourth (von Mises) in Austrian Lemberg (now Lvov), the fifth (Schumpeter) in Moravia, a few dozen miles north of the imperial capital. All were profoundly shaken by the interwar catastrophe that struck their native Austria. Following the cataclysm of World War I and a brief socialist municipal experiment in Vienna, the country fell to a reactionary coup in 1934 and then, four years later, to the Nazi invasion and occupation.

All were forced into exile by these events and all—Hayek in particular—were to cast their writings and teachings in the shadow of the central question of their lifetime: Why had liberal society collapsed and given way—at least in the Austrian case—to fascism? Their answer: the unsuccessful attempts of the (Marxist) left to introduce into post-1918 Austria state-directed planning, municipally owned services, and collectivized economic activity had not only proven delusionary, but had led directly to a counterreaction.

The European tragedy had thus been brought about by the failure of the left: first to achieve its objectives and then to defend itself and its liberal heritage. Each, albeit in contrasting keys, drew the same conclusion: the best way to defend liberalism, the best defense of an open society and its attendant freedoms, was to keep government far away from economic life. If the state was held at a safe distance, if politicians—however well-intentioned—were barred from planning, manipulating, or directing the affairs of their fellow citizens, then extremists of right and left alike would be kept at bay.

The same challenge—how to understand what had happened between the wars and prevent its recurrence—was confronted by John Maynard Keynes. The great English economist, born in 1883 (the same year as Schumpeter), grew up in a stable, confident, prosperous, and powerful Britain. And then, from his privileged perch at the Treasury and as a participant in the Versailles peace negotiations, he watched his world collapse, taking with it all the reassuring certainties of his culture and class. Keynes, too, would ask himself the question that Hayek and his Austrian colleagues had posed. But he offered a very different answer.

Yes, Keynes acknowledged, the disintegration of late Victorian Europe was the defining experience of his lifetime. Indeed, the essence of his contributions to economic theory was his insistence upon uncertainty: in contrast to the confident nostrums of classical and neoclassical economics, Keynes would insist upon the essential unpredictability of human affairs. If there was a lesson to be drawn from depression, fascism, and war, it was this: uncertainty—elevated to the level of insecurity and collective fear—was the corrosive force that had threatened and might again threaten the liberal world.

Thus Keynes sought an increased role for the social security state, including but not confined to countercyclical economic intervention. Hayek proposed the opposite. In his 1944 classic, The Road to Serfdom, he wrote:

No description in general terms can give an adequate idea of the similarity of much of current English political literature to the works which destroyed the belief in Western civilization in Germany, and created the state of mind in which naziism could become successful.

In other words, Hayek explicitly projected a fascist outcome should Labour win power in England. And indeed, Labour did win. But it went on to implement policies many of which were directly identified with Keynes. For the next three decades, Great Britain (like much of the Western world) was governed in the light of Keynes’s concerns.

Since then, as we know, the Austrians have had their revenge. Quite why this should have happened—and happened where it did—is an interesting question for another occasion. But for whatever reason, we are today living out the dim echo—like light from a fading star—of a debate conducted seventy years ago by men born for the most part in the late nineteenth century. To be sure, the economic terms in which we are encouraged to think are not conventionally associated with these far-off political disagreements. And yet without an understanding of the latter, it is as though we speak a language we do not fully comprehend.

The welfare state had remarkable achievements to its credit. In some countries it was social democratic, grounded in an ambitious program of socialist legislation; in others—Great Britain, for example—it amounted to a series of pragmatic policies aimed at alleviating disadvantage and reducing extremes of wealth and indigence. The common theme and universal accomplishment of the neo-Keynesian governments of the postwar era was their remarkable success in curbing inequality. If you compare the gap separating rich and poor, whether by income or assets, in all continental European countries along with Great Britain and the US, you will see that it shrinks dramatically in the generation following 1945.

With greater equality there came other benefits. Over time, the fear of a return to extremist politics—the politics of desperation, the politics of envy, the politics of insecurity—abated. The Western industrialized world entered a halcyon era of prosperous security: a bubble, perhaps, but a comforting bubble in which most people did far better than they could ever have hoped in the past and had good reason to anticipate the future with confidence.

The paradox of the welfare state, and indeed of all the social democratic (and Christian Democratic) states of Europe, was quite simply that their success would over time undermine their appeal. The generation that remembered the 1930s was understandably the most committed to preserving institutions and systems of taxation, social service, and public provision that they saw as bulwarks against a return to the horrors of the past. But their successors—even in Sweden—began to forget why they had sought such security in the first place.

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