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May 12, 2009
If the global financial crisis has dealt a blow to the neoliberal faith in laissez-faire economics as the dominant guiding principle for the organisation of markets, then the crisis has also exposed the fragility of globalisation. As sources of financing dry up, we are witnessing a dramatic collapse in world trade, shrinking capital flows and a rise in anti-immigrant sentiment. The “end of neo-liberal hegemony” is interpreted differently by people in different societies, depending on their prior conceptions and experiences of markets. The result is vastly different views on the needed reforms, including the viability and effects of global stimulus plans, the benefits and scope of increased financial regulation, or the measures needed to correct global economic imbalances.
This impacts on social democracy. What options does a progressive politics have? What are the issues and options available for reform? In his An agenda for social democracy John Quiggin argues that the global financial crisis provides an opportunity for the world to rethink its economic and political structures. The crisis is not a temporary aberration, to be followed by a return to the 'normality' of the late 20th century, dominated by the ideology of economic liberalism.
Rather the economic and social system that emerges from the global financial crisis will be radically reformed, he writes. The inevitable contraction of the financial sector creates both the need and the opportunity for an expansion in the provision of non-financial human services, such as health and education. Quiggin says that the failure of economic liberalism means that:
The resilience of social democratic institutions and values in the face of a concerted attack from advocates of free-marketreform has been striking. The time is now ripe for a shift from the defensive position of the last thirty years, in which social democrats struggled mainly to protect the achievements of the past. In the circumstances of the global financial crisis, the most natural way to restate the case for social democracy is in terms of risk and insecurity...... The necessity of public financing may be traced to the risks associated with health in both the short term and long term. In the short term, we can’t know for sure if or when we will get sick.In the long term, markets cannot manage the risk associated with the fact that some people will have chronically worse health than others....The problems with market provision of health care are well known. In the absence of public intervention or insurance, health care expenses for even moderately serious illnesses and injuries are so large and uncertain as to be beyond the capacity of most individuals and households to manage through ordinary methods such as drawing on savings.
As is well known, in the last quarter of the 20th century, there was a reaction against the welfare state, and an associated increase in risk and insecurity, driven by economic liberalism. Economic liberals criticised the welfare state as a costly, inefficient and ultimately inequitable drag on economic performance. One influential way of framing this critique was the claim that by socialising the risks faced by individuals and households, the welfare state necessarily reduced incentives to pursue risky opportunities. Hence, it was argued that reductions in welfare benefits would reduce welfare dependence and create a more enterprising society.
Quiggin goes onto say:
The theoretical program of economic liberalism is based on a claim (made in stronger or weaker forms as the rhetorical and political demands of the occasion demanded) that markets outperform governments in all but a handful of economic activities, and that the reduction of the public sector to a ‘minimal state’ is economically desirable. The resulting policy program for the last thirty years has been an attempt to roll back the growth of the state, both in terms of the range of activities undertaken and of the share in national income of taxation and government expenditure.The drive to contract the range of activities undertaken by the state has had some limited successes, notably in relation to the privatisation of public enterprises, but has generally failed with respect to core welfare state activities such as health and education.... The resilience of these and other components of the social-democratic welfare state was the main reason for the failure of free-market ‘reforms’ to reverse the growth in the share of national income allocated to public expenditure.
The failure of economic liberalism and the global financial crisis has created a need for a substantially enhanced role for government, since the provision of human services will be even more important in the wake of the financial crisis.
However, this does not imply a wholesale return to the ideas and policies of the postwar social democratic era since social democrats must learn from the mistakes of that era and retain what was valuable in economic liberalism, including a commitment to sound fiscal policy and a rejection of protectionist restrictions on trade in goods and services.
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