Following a 6-month hiatus from blog writing, immersed in the strain of A-Levels and the familiar refuge of alcohol, I have returned to discuss the economic benefits of social democracy. From the dogmatic extremism of communism (suppressing individual incentives and thereby economic growth) to the polarising and unjust outcomes of laissez-faire capitalism, social democracy wisely learns from the past and assesses the advantages of both. Drawing the line between the limits of state and the free market is a political migraine epitomised in the debate between Keynes and Hayek, but social democracy straddles both market incentive and opportunity. In a period of economic turmoil, the injustice of freer global markets upon wage inequality, the growing levels of poverty and the multiplying wealth of the elite in times of crisis ensure that now more than ever the need for social democracy is vital. It is also important to distinguish social democracy from democratic socialism. Although in the short-term there is a degree of major overlap, the long-term aspirations of a post-capitalist society by democratic socialists such as Beatrice Webb are vastly different to social democracy’s pragmatic acceptance of a mixed economy. Like many political strands, social democracy is a vague concept but the principles of progressive taxation, regulated capitalism and a “mixed economy” are the pillars of social democracy. In the modern-day, leading figures such as Anthony Crosland’s ideas could also be updated to include banking regulations and a Green New Deal, all policies directed to provide opportunity and positive freedom whilst still allowing a form of regulated capitalism.
Moreover, it is crucial to establish how an economy that “works” should be arranged. The statistics of growth rates, GDP and increases in output can also veil the stark reality of a country’s situation. This esoteric language of economics can be weaponised to alienate the average person from questioning the economy. Ultimately these metrics, although not meaningless, are extremely misleading. Notably, the GDP of Saudi Arabia is the 20th highest, above Sweden in 22nd (Investopedia.com) despite less than a quarter of Saudi’s population dominating ¾ of the economy and a crippling 20% poverty rate. Moreover, India has the 6th highest GDP of any nation. However, one only needs to watch Danny Boyle’s ‘Slumdog Millionaire’ to fathom the starving of opportunity in free-market India, with 10% in the drudges of absolute poverty (as of 2021). Therefore, when one asserts that a certain economy “works,” as Mark J. Perry said of free market capitalism, it is crucial to understand who it “works” for. Unfettered capitalism only works for a privileged and domineering elite whilst the majority are deprived of opportunity. A social democrat would argue that the economy should reward the hardest working and most skilled, however these inequal outcomes should be just and proportionate, curtailed through progressive taxation and redistributed to guarantee essential opportunities of free education, employment and healthcare. Therefore for a social democrat: median wage level, levels of unemployment and access to necessities such as education, transport and healthcare should form the basis for defining a successful economy which guarantees the fairest living standards. Notably, Boris Johnson’s repeated claims of a “strong economy” certainly don’t fit these criteria with wages outstripped by 9% inflation, mounting fuel prices and the burden of taxation shouldered by the lower income masses.
To examine why social democracy is the answer it is important to analyse the failed projects of both communism and the free market throughout history. It is clear following many years of Soviet rule that communism is not economically beneficial, as although the Stalinist and Maoist eras experienced seismic growth in heavy industry (yet again displaying the deception of certain economic figures), the wages were compressed, and starvation was rife. Orlando Figes suggested that by 1932 wages were 1/10th of that in 1926 and by 1923 there were over 5 billion roubles in the pound despite near full employment and attempts at a welfare system under Stalin. Moreover, the “sea of blood” (as Peter Hitchens described) at the heart of this twisted interpretation of Marx’s idealistic utopia was another huge strain on the economy with a culture of paranoia and target mania. In China, the initial transition to communism in 1949 also led to vast suffering at the hands of a centrally planned economy, yet again fast-tracking the historical materialism proposed by Marx. The total suppression of market forces ended with the slipping of China’s ‘Bamboo Curtain’ in 1979, producing undeniable improvements in living standards with its location as one of the poorest countries in the world rapidly advancing to the 2nd largest GDP economy. However, the income inequality of China remains staggering with the average income in China 1/6th of the US level (according to Linda Yueh) and a lack of access to education. Although social democracy described by figures such as Crosland proposes a “mixed economy”, China’s hybridisation of capitalism and industrial state ownership is not remotely similar or desirable. A lack of opportunity with an increasingly privatised healthcare system, measly 45% top rate of taxation and neglect of education and the uniquely urban-rural divide in a newly industrialising country distinguishes it heavily from the mixed economy of post-war British Labour governments for example. Despite the seductive rhetoric of Marxism, in reality, the free market is ultimately preferable. However, social democracy acknowledges the failings of both and forges a pragmatic but desirable fusion.
Social democracy crucially ensures better income equality. Obviously, this is necessary to some degree in a meritocracy in order to provide incentive (which capitalism achieves through Schumpeter’s idea of the “capitalist engine” of innovation). Also, as Thatcher famously demonstrated in her 1990 resignation speech in her line “they’d rather the poor poorer provided the rich were less rich": it depends on where the gap is located. Although this was largely a soundbite of mental gymnastics intended to defend the extreme polarisation of Britain post-Thatcher, there is some degree of truth to the misleading nature of income inequality. Notably, North Macedonia (according to stacker.com) has the lowest levels of income inequality despite its levels of endemic poverty. However, social democracy crucially ensures fairer wages in which “the poor” are “richer”! Moreover, the gross inequalities in income currently are vastly unjust and disproportionate with 2,153 billionaires owning more wealth than the bottom 60 percent of the planet’s population (Oxfam 2020). This is not reflective of merely hard work but also of exploitation, symptomatic of an age of deregulation.
Higher redistributive taxation would be vastly beneficial in addressing wage inequality. Despite long-parroted scaremongering of the right-wing press that higher progressive taxation lowers productivity rates, these are simply not true. In Scandinavia, taxation is far higher than the US, whilst productivity is in fact higher, even with the average annual working hours in the U.S. of 1,790, compared to only 1,418 in Norway (as Lakey’s ‘Viking Economics’ discusses). This suggests the productive benefits of a society that ensures all are given opportunity and protection unlike the neo-conservative anarchy of the US. Furthermore, as Thomas Pikketty points out the average top rate of income tax on the super-rich in the US was 82% between 1930 and 1980 (the period of America’s greatest productivity). In the Netherlands, the prominent levels of wealth redistribution also ensure that the top 1% own only 6.9% of the nation’s wealth. In America by contrast, as Sanders has repeatedly pointed out, the top 1% own more wealth than the bottom 92%. As the Netherlands suggests to some degree, for social democracy, inequality still exists to reflect meritocracy whilst the distribution of wealth is much more just and proportionate with a top rate of 52% tax as the highest in the world. Recently in June 2022, the straight-talking RMT trade unionist, Mick Lynch also expertly rebuffed claims that wage increases impact inflation on Sky News. Refreshingly, Lynch retorted to the Bank of England Governor calling for wage restraints with “Pay restraint? He’s on £600,000 a year, as is the chief of Network Rail. There are railway bosses taking home millions of pounds every year. The railways made £500 million profit last year when fares and passengers at an all-time low.” He added incisively, “And if workers’ wages don’t go up, it means a transfer of wealth from the poor to the rich. And the reason they’re able to do that … is because they are deliberately depressing worker’s wages”. The compression of workers’ wages whilst the wealth of the very richest continues to soar is a familiar theme. Notably, the 10 richest men globally have doubled their wealth since the pandemic began, whilst the incomes of 99% have been compressed (Oxfam). This situation of wage depression was labelled as “technofeudalism” by the Greek economist Yanis Varoufakis with a new serfdom of low-paid labour and even poorly paid typically middle-class professions such as teaching. The accumulation of wealth by the richest is not merely a reflection of hard work as New Right philosophy would have you believe, but instead exploitation with voracious profit margins driving down the conditions of the many. Not only is this amoral, but it is also economically stifling as consumer spending power is slashed by corporate avarice.
Arguably, social democracy’s principles of a “mixed economy” with the nationalised essentials of healthcare, education, utilities and certain areas of transport and non-profitable industry decrease competition and thus quality. However, this argument that privatisation delivers quality is a neo-liberal exaggeration exposed in our modern era of deregulation. The correlation between privatisation and quality is massively questionable. Upon the 1948 setup of the NHS, quality rose massively with increased access to new antibiotics, a 50% decrease in infant mortality and even a doubling in prescriptions per month to 13.5 million. Moreover, the clandestine outsourcing of the NHS under a thirty-year wave of neoliberalism has produced growing waiting lists, inefficiency and drove down relative quality. A recent University of Oxford publication in the Lancet Public Health journal found that, particularly since 2012, the privatisation of the NHS (with £11.5 billion in private contracts between 2013-20) has led to a record 6.5 million long waiting list, 557 preventable deaths between 2014-20 and even rising infant mortality. Furthermore, in the US in 2018, 27.5 million were without health insurance (according to the US Census Bureau) due to the punitive requirements of private health insurance. The lack of affordability in America with deregulated drug prices and uncoordinated health plans deprives many of opportunity and thus drives down living standards. However, economically, nationalisation of US healthcare would actually lower costs with Gerald Friedman estimating that the US could save $1.8 trillion over the next decade was the government to bargain with private industry in Sanders’ Medicare For All proposal. Whilst competition can ensure quality, privatisation of the key sector often undercuts quality for profit and competition can also be achieved in a social democrat’s “mixed economy.” The quality of nationalised services can also be exemplified by Deutsche Bahn, which, although not monopolising railways as British Rail once did, is publicly owned. Government intervention in Deutsche Bahn has also seen it rank as the greenest and most sustainable railway in Europe according to a 2018 report. They are on time on 94% of journeys, cheaper for inter-city journeys and less than half as expensive for annual tickets as UK trains (2017-18 data). According to The Great Train Comparison Report, Switzerland’s Schweizerische Bundesbahnen (fully state-owned) ranks as Europe’s elite in terms of safety and quality closely followed by Spain’s state-owned service. This suggests that quality and affordability are deprived by privatisation, however a degree of free-market competition is beneficial in ensuring quality for customers, but this can be achieved in a mixed economy. The benefits of a mixed economy were recently exemplified in the UK during the global competitive drive for a COVID vaccine between companies such as AstraZeneca, Pfizer, Moderna, J&J, Sputnik V and Novavax whilst nationalised services such as the NHS (despite being recently undercut by rapacious private interests) ensured that the roll-out was effectively offered to all free of charge. Therefore, the benefits of affordability and access through government regulation alongside a degree of competition make key sector nationalisation very desirable. However, even under the perceivably radical 1945 Labour government, 80% of the enterprises remained private. This demonstrates the attempts to label key-sector nationalisation as “communist” by the mainstream media such as the Express’ 2019 headlines “Corbyn Vows Nationalisation of Everything” and “The Communist Jeremy Corbyn Would Destroy the UK” are the desperate ploys of the super-rich to protect private interest at the expense of fairer living standards and opportunity.
The Keynesian economics of the post-war consensus designed to engineer full employment was also blamed for the 1970s period of “stagflation” which preceded a wave of New Right anarcho-capitalism spearheaded by Thatcher and Reagan. This was a major wound to the economic credibility of social democracy with the traditional Keynesian view of high inflation correlating to low unemployment (the so-called Phillips curve) arguably disproven. Although ultimately economists revised these theories, the cost-push inflation of oil was fundamentally the cause of stagflation (as discussed in Benjamin Studebaker’s “What Really Happened in the 70s”) rather than frivolous government spending. The dependency of global economies upon non-renewable resources such as oil, with Saudi Arabia forged on 250 billion barrels of oil, is a profitable exploit of global late capitalism that will inevitably lead to more crises as the ground is sapped and drained of oil. Notably, recently the inflation of petrol has been a crippling burden upon the masses with (according to in2013dollars.com) the average annual inflation of 5.18% since 1935 increasing to 57.62% in 2022. A shift to a Green New Deal endorsed by many modern Social Democrats would ultimately put an end to the volatile fluctuations of an oil-centric economy which hit ordinary working people hardest. Unfortunately, the attempts at climate activism in the UK for example have been met with the sneering short-sightedness of many. Climate activism is almost regarded as effeminate among the British working class, as epitomised by the violent rhetoric directed towards Greta Thunberg and the Insulate Britain and Just Stop Oil protesters on social media. The personal nature of these attacks, detracting away from policy, matches the vitriol of right-wing tabloids keen to defend the interests of their media moguls. Naomi Klein’s ‘On Fire: The Burning Case for a Green New Deal’ was a major recent validation of the urgent need for climate action. However, more pressingly, Klein’s theory of the “shock doctrine” also suggests how predatory capitalism exploits times of crisis with the masses hardest hit by the passage of neo-liberal policy. The bloodshed and economic instability in the pursuit of oil would be ended in the green future of social democracy.
The 2007 financial crash was easily one of the greatest landmark failures in modern deregulated capitalism. The stark hypocritical reality of modern capitalism was laid bare as the once fiscally conservative governments of the G7 nations began committing huge sums of taxpayers money to prop up the banks in 2009, many of whom had spawned the crash through self-interested gambles. For example, in Varoufakis article ‘Ten Years After The Lehman’s Crash’, he cites the “quasi-money toxic derivatives” sold by Wallstreet and bought by voracious Frankfurt bankers as a cause of the crash. Whilst austerity pinched the pockets of the poorest post-2010 in the UK and post-Trump in the US, an oligopolistic cartel of bankers reaped from taxpayer’s money with £850 billion in the UK (according to the National Audit Office) and $16.8 trillion in the US of government compensating for banker’s gambles (US Special Inspector General for TARP summary of the bailout). Hedge funders also prospered from the crash such as hedge fund manager John Paulson’s earning himself $4 billion. The very ideas of Keynesianism and nationalisation long criticised were soon put into action with Northern Rock, Lloyd’s Banking Group and RBS semi-nationalised in the UK whilst deficit spending projects were exercised in the US with a series of American Stimulus packages. However, these “socialist” ideas now served a scandalous transfer of wealth, perverting left-wing policies for the benefit of the wealthy. This confirms that the common vilification of nationalisation, the Green New Deal and Keynesian deficit spending as naïve socialist fantasies are merely the propaganda of a self-interested super-rich elite who dominate the media. Under social democracy, regulations upon banks and wall street would ensure that the gambles of the free market would not sting the modest savings of the many. Furthermore, the economic productivity and justice of these social democratic policies have been validated, they are merely discredited by the super-rich.
So far, I have written glowingly of social democracy, but it is fair to say, the rose-tinted idealism of political philosophy has not always gone according to plan throughout history! However, as mentioned, social democracy is a fair and pragmatic response to the idealism of both the New Right and Communist movements which have in reality both worsened the conditions of the poorest (despite their diametrically opposing goals). Social democracy has also proven itself to provide opportunity and justice with key sector nationalisation, the scientific and economic necessity of climate action, full employment through deficit spending, opportunity through welfare extensions, higher progressive taxation and more stabilising banking regulations. Many of these exist to some degree in every capitalist society whilst some are adopted by more progressive nations such as in mainland Europe and Scandinavia. However, none adequately guarantees opportunity and fairer living standards to a level which is desired. The realistic vision of social democracy described in this article is not only morally and philosophically beneficial, but also economically provides the fairest living standards with improved working conditions, quality of life and productivity.