Shalom Lappin Responds yet again to Tristan Stubbs

Social Democracy and Neo-Liberalism

I am grateful to Tristan Stubbs for his interesting comments. He raises a number of important issues that bear further discussion.

Clearly we do not disagree on the importance of achieving democratic institutions and liberal political structures in the developing world. Let me focus, then, on the points where we do seem to diverge. Tristan says:

"Few would argue that the NHS is suffering, but to claim that this is the result of a lack of funding is patently untrue. Over the last nine years the Labour government has almost trebled pre-1997 investment, bringing funding in line with European levels. What is more, it has overseen the biggest ever redistribution of wealth to the poorest, lifted a quarter of children out of poverty, and introduced a minimum wage. And while proposed market reforms of public services may be worrying, they are by no means axiomatic for proponents of the Third Way."

This is all true. But now much of the government’s increased investment in the NHS is now being reversed as it applies sharp cuts to hospitals and medical services in order to deal with large deficits in the health budget. Cut backs in funding and increases in user fees throughout the network of public services, particularly in transportation, municipal functions, and higher education, are causing a major deterioration in both the quality and accessibility of these services. Moreover, the large gap between the wealthiest and poorest percentiles of the population has continued to grow rapidly. The trend towards the concentration of the country’s wealth in an ever decreasing proportion of the population remains unabated under the Labour government.

Stubbs goes on to state:

"I mentioned France’s troubles earlier; German unemployment, though improving, is running at eight per cent. Even the most successful social democratic party in the world, Sweden’s SSDP, risks defeat by a centre-right coalition after being blamed for rising joblessness and burgeoning social inequality. The reason for these countries’ difficulties? Their celebration of entrenched industrial interests precludes flexibility, a valuable currency in the globalised economy."

Implicit in this remark are the classical assumptions that powerful labour unions, strong protections for workers rights, and a comprehensive social welfare state invariably produce economic stagnation and high unemployment, while tax cuts for business, liberalization of the job market, accompanied by reduction in public expenditure on social services will generate high growth and low unemployment. These assumptions have been driving the steady erosion of the welfare state and labour rights in large parts of the western world for the past thirty years.

If one compares the economic performance over the past ten years of countries that have applied radical liberalizing economic measures, like the UK and the United States, with a range of western economies that have retained social democratic policies, it becomes clear that the classical assumptions do not, in general, hold.

Consider the productivity, growth, and unemployment indicators for the following countries, with roughly comparable per capita GDP, averaged over the ten year period of 1995-2004 (the statistics are compiled from OECD profiles of each country, which are available at

          Annual Increase in        Annual Growth        Unemployment
          Labour Productivity       in Real GDP
Denmark           1.64percent           2.13percent           5.23percent
France            2.13                  2.33                 10.13
Germany           1.8                   1.46                  8.38
Norway            2.34                  3.01                  4.05
Sweden            2.38                  2.85                  7.06
UK                2.11                  2.87                  6.03
USA               2.32                  2.75                  5.06

While France and Germany do indeed exhibit sluggish growth and productivity with relatively high unemployment, Norway, Sweden, and Denmark, all of whom have more generous redistributive welfare states and labour protection than either of these countries, display relatively robust results. In fact, Norway outperforms the UK and the United States on all three indicators.

The OECD uses the Ginni Coefficient as an index to measure inequality of household disposable income on a scale of 0 to 100, with 0 representing full equality among households and 100 maximal inequality among them. The measures of inequality for the six countries listed above from the mid-1980s through to 2000 (the latest date for which the OECD lists comparative figures for this index) are as follows.

               mid-1980s             mid-1990s                2000
Denmark           22.8                  21.3                  22.5
France            27.6                  27.8                  27.3
Germany           ....                  28.3                  27.7
Norway            23.4                  25.6                  26.1
Sweden            19.9                  21.1                  24.3
UK                28.6                  31.2                  32.6
USA               33.8                  36.1                  35.7

As expected, the Scandinavian social democracies consistently show the lowest degree of inequality, Britain and the United States the highest, with France and Germany in an intermediate position. While the Scandinavian countries have been remarkably successful in sustaining reasonable growth, productivity, and low unemployment within the framework of a strong welfare state, they have also clearly suffered from the increasing pressure that globalized markets have exerted on wages and social spending over the past decades, and this is reflected in the progressive rise of their inequality indices. As Stubbs suggests, this trend has become more acute in recent years.

Three primary responses to globalization have emerged. The neo-liberal approach celebrates it as both a positive and an inevitable phenomenon which requires us to embrace an unfettered free market. The constraints of the welfare state and the redistributive tax system required to support it are regarded as counterproductive obstacles to this process which must be dismantled as quickly and thoroughly as possible. The neo-liberals make no pretence of addressing the enormous social cost and labour instability produced by globalization, either in the West or in the developing world. They see the market as delivering the optimal solutions to these problems, despite compelling evidence to the contrary.

The anti-globalization movement regards globalization as a purely destructive force that serves the interests of a small corporate elite and visits devastation on the wage earning classes of the West, as well as the poor of the developing world. The supporters of this movement seek to halt its progress and return to an essentially localist economic system in which trade and markets are severely restricted. They ignore the fact that such economies would completely stifle growth. They would not be capable of generating the wealth needed either to alleviate poverty in the third world or to sustain the high standard of living that anti-globalizers demand for themselves in the West.

The advocates of the Third Way (as it is described in Anthony Giddens (1998), The Third Way, Polity Press, London, and implemented in the policies of New Labour) treat globalized markets as unavoidable and seek to cushion their social effects. They hope to do this through ameliorative measures like extensive job re-training programs, incentives for business to invest in deprived areas, and joint public-private provision of social services intended to reduce the burden of public spending in a way that avoids the collapse of these services. Third Way theorists do not provide substantive solutions to the profoundly disruptive effects of globalization in the West, nor do they address the problem of using the new wealth that it produces for social benefit in the developing world. They are essentially reluctant neo-liberals with a sense of social guilt.

I have been attempting to formulate a fourth approach on which the potential social benefits of globalization are realized by finding methods for transposing the constraints and redistributive mechanisms of classical social democracy from a national market, where they are increasingly ineffective, onto the emerging integrated global market. Such an approach recognizes the importance of this market for generating prosperity while seeking to harness its power in order to distribute its wealth to the largest possible number of people.

Shalom Lappin is Professor of Computational Linguistics in the Department of Philosophy, King’s College, London

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