Why a “Reviving Social Democracy” newsletter, and why “secular stagnation”?
Advanced democracies are stuck in an era of secular stagnation. Social-democratic politics must radically change.
Social democracy has been the most successful form of political-economic practice in the developed democracies since World War II. The immediate postwar decades saw a significant rise in the living standards of wage earners with many joining a rapidly rising middle class. In part, the boost reflected the mobilization to rebuild war-ravaged Europe and Japan. But it also reflected the enactment of reforms that 1- allowed wage earners to share more equitably in the surplus generated by market capitalism, 2- improved public health, public infrastructure, and workplace conditions. 3- provided public support for the 40-50% of populations who do not work, i.e., children, the elderly, people with disabilities, family caregivers, college students, and those temporarily unemployed, and 4- promoted international cooperation and peace.
In some cases, this progress involved formal social-democratic parties running or influencing governments. In other cases it reflected the policy orientation and influence of political parties, such as the U.S. Democratic Party in the 1960s, or national governments that enacted social reforms and welfare programs.
The stunning electoral decline of European social-democratic parties in the opening decades of the 21st Century and the migration of sizable numbers of voters in advanced democracies to populist, nationalist, and isolationist illiberal parties of all stripes has provoked a wide-ranging discussion among those who see social democracy as the key to not only achieving and sustaining a good life for working and middle-class families but as the basis for international cooperation and peace. I would like to join this discussion, partly because I feel that too few are emphasizing the major reason for the decline, namely 50 years of economic stagnation. I believe it’s fair to dub this “secular stagnation” and it continues to this day, some 16 years after the start of the Great Recession, and, according to many projections, seems likely to continue for the indefinite future. Since productivity growth levels associated with the information and communications technology (ICT) revolution of the 1990s have not been sustained, I believe it’s also fair to characterize this as being, at its core, “supply-side” secular stagnation, a decline in the potential for growth, a view most prominently associated with economist and historian Robert Gordon and his influential The Rise and Fall of American Growth, published in 2016. Demand-side secular stagnation, associated with economist Larry Summers, does not, I believe, get to the heart of the problem.
In addition, stagnation, however defined, has been amplified by the rapid aging of populations, the continuing expansion of the lower-wage, lower-productivity service sector, a slowdown in science and technology innovation, and increasing inequality.
This extended period of no or slow economic growth makes social democracy in its classic form impossible. Put simply, there has not been sufficient sustained real surplus to be shared and capital investment has been hampered by low expectations that stagnation will change anytime soon. As a result real wages and material living standards of especially the lower half of populations are eroding and economic insecurity is rising.
Some argue that stagnation since the 1970s is a myth and a function of how one measures real wages, productivity, and GDP per capita, and their growth over time. They suggest that working and middle-class families have been squeezed by exogenous factors over recent decades but hardly in deep trouble. Capitalism is inherently self-correcting (creative destruction), they argue, and economic status is relative. They suggest there are other reasons for social-democratic political decline and point to the general negative impact of high taxes, excess regulation, and “wasteful” public spending.
Others agree with the stagnation assessment but see the full impact of the ICT revolution on productivity and economic growth as still to come. They further argue that advanced economies are on the cusp of a major new era of rapid growth fueled by emerging technology innovation, especially artificial intelligence. Although I am an enthusiastic advocate of pursuing scientific and technological innovation of all kinds (including next generation nuclear fission technology and fusion energy), I agree with Gordon’s skepticism about how much the new technologies will contribute to real economic growth and living standards.
The path to social-democratic renewal: Massive direct investment in people
I will argue that market capitalism has indeed reached a growth plateau and that technology innovation on the horizon will not be sufficient. Working and middle-class families will, therefore, continue to experience rising economic insecurity and the erosion of material living standards. They will also continue to be attracted to the false promises of populist demagogues. As such, an aggressive social-democratic response is urgent and requires a radical change in message.
Put simply, governments will have to bypass markets, as needed, and invest directly and massively into projects and programs that defend and improve working and middle-class material living standards and social supports.
For example, while the current emphasis on public investment into infrastructure repair and low-carbon technology is obviously important, resolving the growing shortages of affordable and convenient housing affecting all advanced nations would be far more meaningful to working and middle-class voters. As such, I believe that social democrats must put forward a plan for mass producing, in short order, millions of affordable high-tech, high-quality, and environmentally sustainable homes along with convenient associated community infrastructure and services. Such projects would need to be federally financed, with private sector involvement, but should be designed and built by the people who will be living there. A new regionally and locally situated manufactured housing industry should be created to supersede the current low-productivity construction sector with construction workers and others re-employed by the new industry along with others who would join them in literally rebuilding their own communities. Local and regional public colleges would provide engineers and technicians with the skills needed for the projects.
Such a plan would have a major stimulus effect, promote unionization, and create good jobs. It would also reinvigorate support for social-democratic politics.
I am optimistic that if we end passive reliance on capitalist growth and Third Way accommodations to neoliberal policies, and call for direct, large-scale government investment into the living standards of working and middle-class families, social-democratic politics can be revived and rising economic insecurity and the erosion of living standards can be reversed.
This newsletter aims to be a forum for discussing the reasons why social-democratic politics has collapsed and what can be done about it.
Postwar Social Democratic Leaders
Aneurin Bevan
Leader of the British miners union who became Minister of Health in the postwar Labour Party government of Clement Atlee and spearheaded the creation of the National Health Service.
John Maynard Keynes
Changed modern economics with his macroeconomic approach to supply and demand. Argued that governments should intervene in economic downturns to stimulate demand and mitigate the effects on employment and spending even if it meant deficit spending.
Rudolf Meidner
Swedish union economist and leader in Sweden’s Social Democratic Party (SAP). Led in the development of social-democratic reforms that protected and supported workers interests and formed the basis of the modern Nordic Model.
Tommy Douglas
Socialist premier of Saskatchewan Province in Canada and leader of the social democratic New Democratic Party. Credited with creating Canada’s public single-payer Medicare health insurance program.
Harry Truman
Democrat and 33rd U.S. President. Repeatedly tried to enact federally-funded universal health insurance between 1945 and 1949. Though thwarted by Congress, he continued the campaign and was instrumental in getting Medicare and Medicaid enacted in 1965.
Willy Brandt
Leader of the German social democrats (SPD) from 1964-1987 and Chancellor of Germany from 1969-1974. Although controversial, he promoted social democratic reforms and championed the postwar integration of European nations including encouraging closer relations with Eastern Europe.