An agenda for social democracy

by John Quiggin on April 6, 2009

That’s the title of a paper I’ve written for the Whitlam Institute in Australia, available (PDF) here. Here’s the Whitlam Institute Press release. This piece by Mike Steketee in The Australian is a good introduction, focusing on the most controversial (in Oz political terms, anyway) implication of my argument, the need to raise more tax revenue in the long run.

{ 14 comments }

1

P O'Neill 04.07.09 at 1:39 am

It’s very sensible. Two things in particular: the message that taxes as a share of GDP are headed higher in many countries, and there is an antecedent to the current crisis in the non-bank financial intermediary crises of the 1970s. Unfortunately, the generation of regulators that would have remembered that gave way to the mania for “light touch regulation” and history was repeated. On the tax point, it doesn’t seem that political systems have yet fully absorbed it. For example, US conservatives see the rising tax take in the budget projections, but seem to view it as a consequence of having a community organizer in the White House, and not of any structural change in the economy.

But now a quibble —

The absence of a well-developed welfare state, an inevitable result of a low-tax policy, has produced massive social unrest and the collapse of a number of governments, from Iceland to Latvia. Workers attracted to these countries have been returning home in large numbers, particularly because many have no access to social security systems in their former host countries. It seems unlikely that competition from low-tax entrants to the global market will be a problem in the near future.

I think this claim needs more support. Iceland is simply too small to be contributing much to a migration story, and Latvia is a huge net out-migration country even when it had a boom. Not least to the UK and Ireland, where in principle they could stay even when unemployed under EU rules, but they seem to be making the judgment that the support of family and friends is a better safety net than being on welfare a long way from home. And perhaps also that long-term prospects are better back home.

Which raises another point. Even as the Celtic Tiger limps out of the free market pantheon and its Baltic imitators also become croppers, there seems to be no shortage of countries willing to take a shot at being a Balkan or Caucasian tiger (in bland international corporate hotel land, it’s impossible to escape Macedonia inward investment ad campaigns). Maybe they are too small to seriously affect the social market policies of the large economies. But that can’t be taken for granted.

2

John Quiggin 04.07.09 at 2:15 am

Thanks for these useful comments. That para has quite a few problems – a bit of late night drafting, I think. I’ll revise it when I get a chance.

3

Peter Smith 04.07.09 at 2:45 am

Thanks for a great paper that I (as a non-economist) can (a) understand and (b) agree with.
I do have one question though. It seems to me that adaptation to, and minimisation of, the effects of climate change are going to have profound effects on society and all economies. Is it wise to ignore this in your Perspective? I can see that this is a whole ‘nother can of worms, but still …
Regards, Peter

4

StevenAttewell 04.07.09 at 4:21 am

John, really interesting argument, and it fits in with a lot of what I’ve been thinking about in regards to the current status of the social democratic left around the world. I especially like your Jacob Hacker-ish risk framework. However, I think your paper is stronger on what’s wrong with neoliberalism than it is about a social democratic agenda.

I think the major problem that the social democratic left has is that it doesn’t have an answer for the “new social question,” which is one of mass economic insecurity. Bluntly put, I think one can make the case that while the globalized free market has shown itself to be really good at delivering more widgets at a lower cost, it’s not shown itself to be any good at delivering lifetime employment at a living wage and decent benefits to all who want to work.

Therefore, I think the social democratic response to the unemployment question needs to think more deeply about a comment “continued direct employment creation in the public sector” and a larger program of fiscal Keynesianism.

In short, what is needed is a renewed commitment to full employment through a guarantee to a right to a job, with the government acting as the public employer of last resort, in the Swedish tradition. If the market can’t be relied upon to provide full employment, than the government has to – both for reasons of reducing economic insecurity and inequality, and in order to keep economic production and consumption as close to full capacity as possible – which will be needed to produce the economic growth and thus the revenues for an expanded social democratic state.

In a larger sense, ensuring full employment through public employment allows the private sector to do what it does best – focusing ruthlessly on the efficient production of goods, without having to serve as a quasi-welfare state in the business of proving employment assurance – by restoring the public sector to do what it does best – focusing on the long-term issues of the equitable distribution of income and social goods, market failures (especially in regards to the public square), and the under-valuation of labor.

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John Quiggin 04.07.09 at 5:15 am

Peter and Steve, I agree with both your points, and have written a lot about them,This book from the 1990s
http://www.amazon.co.uk/Work-All-Full-Employment-Nineties/dp/0522846416/ref=sr_1_1?ie=UTF8&s=books&qid=1239080901&sr=8-1
takes a very similar line to yours on unemployment, motivated originally by observations of Swedish policy. And I’ve written a lot, here and elsewhere on climate change. In the current paper, it was a matter of producing a coherent output on a tight schedule.

I’m hoping to do a full-length book treatment of this. I’ve got to the stage of producing an outline, which includes both employment policy and climate change. But unless someone comes out with a new version of Day Doubler for OS X, I’m not sure how I’m going to get it done.

6

mpowell 04.07.09 at 8:15 am

4: This seems like an odd response the current economic crisis to me. Let’s just look at the United States for the moment. Yes, unemployment is going to be quite high for the next 3-5 years, in all likelihood. But if a solid recovery is achieved, why would we not expect unemployment to head back down to the 5-6% range that we have seen for the last 20 years? And if the long term story is typical 5% unemployment with the occaisonal recession (and note that this is generally temporary unemployment), why is public government ensuring full employment the solution? Why not instead provide more generous wellfare and unemployment benefits for those hard times? Sure, you might simply prefer a larger public sector on other grounds, but I don’t see what about our current economic situation suggests that more public employment would be the answer.

7

JoB 04.07.09 at 11:32 am

Steven-4,

In short, what is needed is a renewed commitment to full employment through a guarantee to a right to a job, with the government acting as the public employer of last resort, in the Swedish tradition.

There’s more than a couple of things wrong with that sentence (& no, I’m not a neoliberal, not at all).

First, it is factually wrong. There is no such thing as public employer of last resort in Sweden, as is clear from the official unemployment rate they have (mounting during the pre-crisis years), & which long term average is much higher than that of e.g. the US (which is true for all of Europe – in comparison to the US, and all of continental Europe – in comparison to the UK, in a pre-crisis time at least). I don’t buy being socialist means warping the facts & I have no issue with a higher unemployment, even structurally, if it is a corrolary of a fairer & more equal society.

Worse than the factual error always is the thesis for which the factual error is made to work: the idea of full employment is as right wing as it can get. Socialists should set people free, have been good at cutting working week hours, cutting pension age, generally increasing ‘free time’ & they should continue this instead of bying the new concensus in which it’s all work and no play.

In actual fact the free market – for all its current woes – has not only produced more widgets but also more people with more free time to enjoy those widgets. Structural unemployment needs a treatment of reducing working load and, progressively, setting people free to launch into a non-productive area, like arts. The reason we did not vote out neoliberalism is because it didn’t only have nasty effects; it had some good effects on the over-all well being – admittedly only in those countries that were “in” – and socialism should center on producing those good effects – instead of worrying about loosing what we have and keeping a permanent state of slavery.

Keeping people employed as lift boys in hotels for the happy few in state power is not humane – it has been tried, it failed. Neoliberalism has been tried, it failed. Let’s go to something else that has not been tried, and probably over time will fail after having produced some benefits.

8

StevenAttewell 04.07.09 at 5:14 pm

John: thanks for the book reference, I’ll check it out. I just think that it should be a more central part of social democratic politics than it has been in recent years.

Mpowell:
My argument would be that 5-6% unemployment is not a good status quo, and indicates long-term weakness in the economy. First, there’s the macroeconomic considerations – 5-6% unemployment means 5-6% less production or consumption than their could be; that’s a huge amount of labor power that could be used to benefit society – and you don’t get any of that labor power back when you prefer a strategy of welfare. Second, there’s the political considerations – more generous welfare/U.I benefits (especially in less social-democratic countries) are open to attacks on the welfare state and create a social politics of tax-payers vs. welfare clients which is exploitable by the right; the provision of public jobs blunts conservative opposition by seizing the rhetorical high ground of the value of labor, gives a positive rationale for taxpayers (I pay my taxes, the unemployed receive them as wages, and I get roads/parks/bridges/hospitals/schools in return, so I get something out of it), and creates a politics that focuses more on the provision of social goods and the de-commodification of society rather than fighting over limited fiscal resources. Third, there’s the impact on the unemployed – wages are generally higher than even generous benefits, the unemployed are integrated into the world of work and don’t feel the social alienation that’s one of the major problems of poverty (consider the impact of being cut out of the social worlds of the commute, the office or factory floor, the friendships and acquaintances that are made, the immediate interest in current affairs, and being instead isolated in residential areas), and they’re empowered through higher political status and the potential to organize into unions.

JoB:
1. As a matter of fact, the provision of full employment through the government provision of jobs has been a major element of Swedish public policy since the 1930s. The Swedish Social Democrastic Party has been committed to public employment (also known as work relief) since 1913, they first implemented the program in 1932 in response to the Great Depression, which Sweden was able to overcome much faster than other economies. This policy was maintained from the 1930s through to the 1990s, and unemployment rates were kept between 1-3% between 1945-1981. Indeed, it was not until 1992 that the Swedish average unemployment rate began to track closer to the U.S average, following the post-1992 liberalizaton.

2. I think you’re dead wrong. The right-wing abhors the idea of full employment through public employment, viewing it as a massive government intervention into the free market, inherently inflationary/inefficient/corrupt/etc. Indeed, from a Marxist perspective, capitalism itself could not exist without the reserve army of the unemployed to keep wages down and the working class divided. The idea of full employment has long been a part of different socialisms – the 1945 Labor Party, the Swedish Labor Party, etc. Indeed, Marx’s own writings don’t suggest that the revolution means the end of work – rather, the future he envisions is one where everyone works for the benefit of all, but only for a few hours a day because people are being rewarded with their surplus labor value, they only need to work enough to satisfy basic needs and their desire for creative activity, they’re not alienated from the means of prdouction and the products of their labor, and so forth. Afterwards, we all go fishing and read Shakespeare, but there is still the idea that non-alienated labor is a good part of the human experience.

3. the free market has produced “more people with more free time to enjoy those widgets,” but it hasn’t given them the income to buy the widgets. Indeed, mass unemployment is a major element of the increasing economic insecurity and volatility that’s been one of the hallmarks of neoliberalism – unemployment has tended to get worse in recent years, recessions have generated more job losses more quickly, and job recoveries have become slower and shallower. Look at the Jacob Hacker stuff that John Quiggan was alluding to.

9

JoB 04.07.09 at 8:29 pm

Hey Steven,

1. It was far from obvious that you meant ‘Sweden before 1992’ but fair enough – I still prefer paid unemployment to forced meaningless labour. Also, Sweden post 1992 isn’t tracking the US average unemployment – it went up from 2003 to 2007.

2. I have been dead wrong before but I’m not a Marxist and definitely not right wing so what am I dead wrong about? Nobody needs to decide on somebody else’s behalf what it is that is good for human experience – that is the right wing consensus idea that we’re in need of fighting the good socialist fight against (I’m with Lafargue!)

3. I don’t know which period you are referring to but before the crisis unemployment’s been going down and the average net buying power has been going up for a decade. We know now that that was not sustainable as we know that central planning is not either – and really, the former may have proven to be a rollercoaster ride, it still trumps being up to your neck in the water peddling for survival. My point simply is: be creative, and go for something new without accepting what the past is telling is to be obvious – we are not in need of distributing the pain of labour at all costs, there are enough people that’ll do the job because they don’t like neither fishing not Shakespeare ;-)

10

mpowell 04.08.09 at 10:24 am

Steve,

Well thank you for your detailed response. I still don’t agree, though and I don’t think there is anything particularly persuasive about this economic downturn, to advance your position. If anything, it hightlights the real need for a legitimate safety net even if the government is principally committed to full employment. When industrial production in the private sector is falling by 10% or more, unemployment is going to spike, whether you are starting from a 1-2% or a 5-6% level.

Also, I have to question some of your assumptions about unemployment in the American economy. First, that unemployment is generally not permanent. My understanding is that is cyclic where anyone looking for work will usually find it in a 6-12 month time frame. And speaking of efficiency, I’m not sure I can take seriously the claim that we can fix the underproduction a 5% unemployment rate represents through public employment. It is quite unlikely to be the case that you will be able to simply add those 5% to public employment jobs. Rather it seems that you will have to have a substantial portion of the workforce being publicly employed to get to full employment. And you don’t have to be a Republican to be extremely dubious about the efficiency of such an arrangement. Recognizing all the drawbacks of capitalism it is still in my view the policy approach that will most efficiently employ the workforce that we have. You would need to do an enormous amount of work to persuasively demonstrate the economy can be more productive under your model.

Also your political arguments appear to be a transparent bait and switch. In response to my criticism you respond that maintaining a wellfare system will be highly difficult in the face of fierce conservative political opposition. But then in response to JoB to you point out the strong opposition from the right to full employment by the state! So which is it? Either way you have to implement policies anemic to the right, but I would much prefer to advance policies that I can feel comfortable standing behind.

Regarding the alienation of poor adults, I think that once a citizen has grown up in poverty, they are already lost. There is very little chance they will be able to find fullfilling and productive employment because their skills will be lacking. The way to address this problem is to insure that people don’t grow up in poverty. I think you can address that problem through a variety of targetted social wellfare programs without having to compromise the efficiency of your economy by overpaying people who have very little to contribute productivity wise.

11

StevenAttewell 04.08.09 at 3:32 pm

Mpowell:

1. I know that the length of unemployment varies. Currently, the average length of unemployment is somewhere around 20 weeks (5 months), and a guarter of the unenployed have been unemployed for six months or more. While the unemployment may be temporary, the impact on lost income, declining assets, the impact on one’s health and one’s family, future earnings, etc. is quite long-lasting, as the research of Jacob Hacker shows.

When you say “. Rather it seems that you will have to have a substantial portion of the workforce being publicly employed to get to full employment…Recognizing all the drawbacks of capitalism it is still in my view the policy approach that will most efficiently employ the workforce that we have.” I think you’re missing a clause somewhere here because I’m not sure what you’re trying to say here. My plan does call for mass public employment, and I would argue that it’s quite efficient, when you consider the sheer amount of labor power that’s going unused as an opportunity cost. The average American worker makes about $90,000 worth of goods and services in a given year. Given that 5-6% of the workforce represents approximately $900 billion in lost GDP, a program that recovers even a part of that is a good investment.

As for proving how efficient the program could be, I’m in the middle of a dissertation that aims to do that. But even a cursory examination of the last major experiment in public employment – the Works Progress Administration – suggests quite impressive results. 570,000 miles of rural roads, 67,000 miles of city streets, 78,00 new bridges and viaducts (another 46,000 repaired), 1,000 new tunnels, 40,000 new public buildings (another 85,000 repaired) , 24,000 miles of new sewer lines (another 3,000 repaired), 8,000 parks and 12,800 playgrounds improved or built, 480 new airports and 470 repaired or improved….the list is quite long.

2. I object most strongly to “transparent bait and switch.” Attacks on the welfare state work because they tap into racial prejudice, beliefs about work and idleness, and so forth. The right hates full employment because it blows the doors off their traditional argument about welfare, because it’s harder to argue against – publicly employed workers earn their wages and can’t be accused of being lazy or a drain on society, the taxpayer gains very visible returns for their rax dollars so they can’t be roused to the belief that their tax dollars are being wasted, and so on. Historical data backs me up on this – even during the conservative 50s and 80s, Americans believed that the government should provide a job to all willing to work by an average margin of 60%-30%.

3. I reject utterly the conservative idea that we should abandon the poor because they lack skill and have “very little to contribute productivity wise.” The workers of the WPA stand as living proof that there is worth in poor people – 90% of WPA workers were “on relief” (what we call welfare) prior to working for the WPA, and 70% of them were unskilled laborers. Look at the sheer magnitude of the value they produced – the Golden Gate Bridge, the Lincoln Tunnel and thousands of other worthy additions to our nation’s civic infrastructure refute you. Even if we assume that the average unemployed worker – who probably didn’t grow up in poverty – is less that half as productive as the average American worker, you’re still creating $40,000 worth of goods and services per worker newly employed that society would not have otherwise had.

Targeted social welfare programs are always vulnerable to assault, and policy historians, political scientists, and political sociologists have long known that “programs for the poor become poor programs.” Welfare payments make poverty more bearable, but they do not end poverty in the way that jobs do.

12

JoB 04.08.09 at 5:57 pm

mpowell,

I, as you, do not think that more public employment is the answer (in fact – I think it is the best to have less employment but don’t expect anybody to take that seriously for a while). Public employment is the extreme of employment in big companies: it tends to break the individual down in favour of shady old boy networking.

But what interests me in your earlier response is that you seem to say that higher social security and employment benefits are a good temporary solution.

Why only temporary?

Do you agree with the consensus of the last decades that increased security (and hence a decreased necessity to be employed) will drive society into catastrophic collapse?

I’m looking for things that go beyond traditional debates. I’m interested in real future agenda’s for socialism instead of a re-run of the previous century’s debate.

13

mpowell 04.09.09 at 12:59 pm

StevenAttewell,

Regarding the politics of the issue, you seem to be arguing for a separation of the conservative movement from its base of voters. You clearly acknowledge that both policy approaches will be strongly opposed. At least we at one time had wellfare in this country. It’s pretty hard to imagine getting massive public employment instead (and across a wide range of industries, too!) The most charitable interpretation of your claim that I can give is that you feel that once passed, government guarantees of employment are a more stable political solution. I can see the argument for why that would be true, but there are also some northern European polities that seem to be doing just fine with a system of unemployment support and a largerly privately employed workforce.

Regarding cyclic unemployment, the whole point here is to point out that if the average time period of unemployment is 5 months, then you are hardly creating a class of citizens effectively prevented from engaging in profitable labor. It is clearly a temporary state which undermines much of your rhetoric on the point.

Regarding the employment and efficiency argument, you absolutely cannot just take the number of unemployed Americans and multiply it by the GDP/capita and claim that represents the difference between a private and a public economy. The whole point is that capitalism finds good and profitable ways to employ people through an efficient allocation of resources. By efficient I mean more efficient than any other solution that we’ve found. You can certainly argue that you disagree, but one dissertation is not going to prove this. When I say it would take a lot of work, I mean it would take a lifetime of work and probably a lot of real world examples to make the case since I can’t see any difference in kind between what you’re advocating and full scale communism. Citing numbers of bridges built by the WPA is just insufficient. The value of the physical infrastructure in an advanced western economy is just 10% of the value of its social infrastructure. Roads are cheap largely because the labor to build them is cheap. I don’t see any reason to glamorize the skills of the poor. The restrictions to class mobility in the United States are built during childhood, not adulthood. If they were capable of productive work, they wouldn’t be poor for long.

14

StevenAttewell 04.09.09 at 4:04 pm

1. I’m arguing for a separation between conservative politicians and national political opinion; conservative politicians don’t like public jobs, but voters generally do. We also had public employment programs in this country and they were a very popular policy, much more than welfare. I am arguing that public employment will be opposed – but that opposition will be weaker and less effective than opposition to welfare.

While it is true that many European welfare states have tended to focus on unemployment insurance, but it’s also the case that many European countries have also had to grapple with persistent unemployment rates, economic inequality, and social alienation. I believe – as did FDR’s advisors on the Committee for Economic Security that designed Social Security – that public employment works in a complementary fashion to a welfare state. The public employment program works to ensure that people who don’t qualify for certain categories of aid – i.e, people who don’t have access to family allowances or disability benefits or old age benefits – have access to “employment assurance,” by keeping them employed, it replenishes the coffers of social insurance programs by ensuring that everyone is working and paying into the system, and it reduces the drain on unemployment insurance to short-term support for people between jobs.

2. Even temporary unemployment has huge effects on people. Among other things, it tends to knock them down in income brackets, because the jobs they get afterward generally have lower pay and less benefits, it chews through existing assets which makes it hard to save for education, homeownership, and retirement, and it’s a major risk factor for homelessness, depression, etc. Moreover, keep in mind that average length is an average – many people go unemployed for longer; furthermore, unemployment rates are not evenly distributed either regionally, by class, by race, etc. I think that public employment would make a huge and positive impact in depressed areas like Detroit, Newark, Youngstown, etc. in a way that income supports wouldn’t.

3. Well, it’s not just my dissertation that notes that capitalism generally doesn’t make full efficient use of the potential labor power of the entire labor force. Many many economists, including John Maynard Keynes and his followers, have noted this and support government intervention to counter-act the business cycle and move towards full employment. There’s plenty of people at the Center for Full Employment and Price Stability (http://www.cfeps.org/) or the Levy Institute (http://www.levy.org/) who’ve done the economics on this – I’m just standing on their shoulders. I know that listing sites is not enough, but I’m working on other sources of data as well.

As for the difference between this and communism, that’s blindingly self-evident. Public employment programs are a progressive/social democratic policy conditioned of the existence of a mixed public-private economy, in which the private sector is the majority of production and unemployment, recognizing that certain inherent factors within capitalist development prevent it from achieving full use of resources (think market failures, spatial mismatch, creative destruction, business cycle, etc). Public employment acts as an automatic stabilizer to make the up the difference between the total available labor force and the total number of jobs created by the private sector, increasing and decreasing counter-cyclically. Public employment tends to focus on complementary but not competing areas of production – namely, the production of public goods, which are generally under-provided in a free market environment (see John Kenneth Galbraith).

Historically speaking, public employment programs show up only in capitalist or social democratic states like the United States and Sweden, which are two honking huge examples. The CWA ran from 1933-1934 and employed 4.26 million people; the WPA ran from 1935-1943 and employed 8 million people over the course of its existence; you can also throw in smaller programs like the CCC, NYA, and CETA. In Sweden, the beredskapsarbete program has been running since the 1930s, and operates through the County Labor Market Boards and funded by the National Labor Market Board or arbetsmarknadsstyrelsen.

In communism, by contrast, the state owns the entire economic process, and employs the entire workforce. Employment and production levels are planned, corresponding to the desires of the planning bureau. Rather than producing and employing in concert with the private sector, state factories focus entirely on the production of the same kinds of widgets that normally are produced by the private sector. The very concept of a public employment program simply doesn’t fit within the context of communist economic organization.

The idea that physical infrastructure is not important or somehow less important than “social infrastructure” is ridiculous – look at the structural bottlenecks placed on the U.S economy by the outdated nature of our power grids, or the lack of high-speed rail, or the lack of alternative energy production facilities. Your analysis is missing a huge factor here, which is the structural characteristics of the economy – the skills of the poor are only considered poor in an economy that focuses on the FIRE and service sectors; in manufacturing, there is a great need for physical skills. Similarly, the job market has been producing an hour-glass pattern of jobs (big at the top and the bottom) increasingly for the last thirty years – this makes the poor look like they have little skills because they are paid poorly, but that’s symptom masquerading as cause. Similarly, the strength of the labor movement has a huge impact on the relative rewards that the bottom end of the labor force are given. All you have to do is look at the gross disparity between productivity and wages for the last thirty or so years to realize that there’s a huge amount of productive work that is being siphoned off as profits.

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