Not Just Another Recession
Why the Global Economy May Never Be the Same
When the global financial crisis hit in 2008, social democrats in Europe believed that their moment had finally arrived. After a decade in which European politics had drifted toward the market-friendly policies of the right, the crisis represented an opportunity for the political center left’s champions of more effective government regulation and greater social justice to reassert themselves.
After all, it was thanks to center-right policies that deregulated financial markets had devolved into a kind of black hole, detached from the wider global economy but exerting a powerful force on all kinds of economic activity. When the financial services industry finally collapsed, the effects went far beyond Wall Street and the U.S. economy, plunging financial markets and economies everywhere into a deep crisis that has still not been resolved.
But social democrats in Europe sensed a possible silver lining. For decades, they had argued for stiffer regulations to steady inherently unstable financial markets, to no avail. The crisis, it seemed, proved them right. Moreover, in the wake of a massive global recession, millions of people had to turn for support to the welfare systems that social democrats had built and sustained: yet another vindication, they believed.
And yet five years later, Europe’s social democratic moment has yet to materialize. Social democrats have won victories at the national level in a number of countries, including Denmark, France, and Slovakia. But these relatively modest gains have been overshadowed by a sense that Europe has fallen into a period of political volatility, a permanent emergency of sorts brought on by the flaws revealed in the euro system and the European Union as the global financial crisis morphed into a eurozone crisis. Even though social democrats have not yet been able to fully capitalize on the situation, they still have a chance to do so, but only if they come to see how the mistakes they made during the previous two decades reduced their political capital and left them ill prepared to take advantage of a political environment that should play to their strengths.
ADOPTING, NOT ADAPTING
By the time the financial crisis began, Europe’s social democratic parties had already lost momentum. From the late 1970s until the mid-1990s, they had suffered significant declines in electoral support in key countries, such as Germany and the United Kingdom. These declines prompted soul-searching on the European left, which took different forms in different countries. One common conclusion, however, was that as neoliberalism spread and economies around the world changed dramatically, traditional social democratic politics seemed outdated to many voters. Across the Atlantic, in the United States, the Democratic Party, led by President Bill Clinton, responded by shifting to the right, plotting a “third way” that accommodated market-friendly neoliberal policies. Impressed by Clinton’s success, social democratic parties in Europe followed his lead. In the United Kingdom, Tony Blair won election as prime minister in 1997 by promising a more growth-friendly “New Labour” party. In Germany, Gerhard Schroeder followed suit, leading his Social Democratic Party to victory in 1998 promising to lead from the Neue Mitte (New Center), the label he chose to describe his version of Blair’s approach.
The key intellectual shift shared by the many different third-way currents that emerged in the 1990s was their application of pro-market policies to almost every area of governing. Third-way proponents saw social security systems not primarily as insurance against major life risks, such as unemployment, illness, and infirmity, but rather as a means of economic reintegration. Their goal was to transform the social safety net into a trampoline, focused less on addressing the immediate needs of the poor and disadvantaged and more on helping such people rapidly rejoin the economy. In practice, these reforms increased the risk that the unemployed would face permanent downward mobility, with the government subsidizing their reentry into the very bottom end of the labor market.
Still, in electoral terms, the third way worked well, at least for a time. By the end of the 1990s, social democrats led most of the EU states. But although embracing more neoliberal policies led to success at the ballot box, social democrats soon suffered the consequences of abandoning their traditional political identities. All political movements can benefit from periods of reflection and renewal, and social democrats had -- and still have -- plenty of lessons to learn from conservatives, Greens, and liberals. But to many voters, the extent to which social democrats had changed their stripes represented an opportunistic betrayal of their core beliefs that left them almost indistinguishable from their political competitors.
Such accusations took their toll, but the weakness of the third way became undeniable only after the financial crisis. Suddenly, traditional social democratic warnings about the inherent instability of markets -- the kind of talk that third-way leaders such as Blair had left behind -- seemed prescient, not old-fashioned. But because social democratic leaders had spent the previous two decades adopting, rather than adapting, neglecting to develop a true alternative to neoliberalism’s insistence on unfettered markets, the crisis found them intellectually unprepared. Even worse, many social democrats in government, including those in Germany and the United Kingdom, had pushed through various forms of financial deregulation, leading voters to view them as collaborators in a failed system.
THE CUSTOMER IS NOT ALWAYS RIGHT
The self-inflicted political wounds of the social democrats have proved so deep that even five years after the financial crisis exposed the flaws of the third way, they have still not figured out how to move past their embrace of neoliberal economic policy and present a coherent political alternative. Today, while they should be riding high, the social democrats appear overwhelmed by the rapid change that is taking place around them -- just like almost every other group in the European political ecosystem.
The eurozone crisis requires bold decisions and steps toward further European integration that would have been unthinkable only a few years ago. The European Union’s usual course of action -- muddling through -- has reached its limits, and Europe’s citizens, many of whom are suffering severe economic hardship, are confused and disillusioned. To have any chance of leading their countries out of this morass, Europe’s social democrats must redefine their political identities and rebuild their credibility -- and they must do so quickly.
To accomplish those goals in the midst of a continent-wide political crisis, social democrats must abandon their recent obsession with short-term electoral tactics and return to their political and ideological roots, offering voters in their countries a vision of a “good society.” The core social democratic values of freedom, equality, and social justice should be the guiding ideals for a good society that recalibrates the relationship among citizens, the economy, and the state. A dynamic and sustainable economy must be not an end in itself but a means to improve the lives of all citizens, not just a few at the top. The allocation of income and wealth in many places today has little to do with people’s performance; it is mostly the result of power and influence. A good society would reinstate the performance principle. And in an era in which an increasing number of citizens feel alienated from the political process, it is important to offer new opportunities for people to shape the societies they live in.
In addition to ending the social democrats’ ill-fated detour into neoliberal policies, moving toward a good-society approach would require a break with the political techniques of the third way. During the last two decades, social democratic politics took on a transactional character. Based on the findings of opinion polls and focus groups, third-way adherents developed policies and rhetoric they hoped would cater to the preexisting preferences of small segments of electoral “customers.”
It should have come as no surprise that retrofitting the techniques of retail marketing to electoral strategy would not make for coherent politics -- it rarely makes for good business, either. Steve Jobs, the visionary founder of Apple, understood this well. When asked by his biographer, Walter Isaacson, why he refused to rely on traditional market research, Jobs replied, “Some people say, ‘Give the customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. . . . People don’t know what they want until you show it to them.” Europe’s social democrats should heed Jobs’ advice and craft a new and convincing political agenda that reflects their core values, rather than trying to reverse-engineer a platform that just reflects what opinion research suggests the public wants to hear.
An electoral strategy based on articulating core social democratic values would also offer a tactical advantage. As European societies become more culturally and socially fragmented, trying to target particular groups of voters with tailored messages means chasing ever-smaller segments of society with ever-narrower messages. This divide-and-conquer approach served third-way politicians well during the years of stability and prosperity. But during a crisis or a prolonged period of instability, it has prevented social democratic parties from putting forward broad-based platforms that could unite otherwise diverse social groups around a single economic and political vision. Opting for a clear, consistent message based on core values would help social democrats differentiate themselves and their ideas in the chaotic political environment of today’s Europe.
BUILDING A GOOD SOCIETY
Of course, redefining social democracy will be a slow process, constrained by the limits of day-to-day politics. The task will also be complicated by the fact that social democrats’ competitors can also adapt. Indeed, some center-right leaders, such as German Chancellor Angela Merkel, have taken a page from the third-way strategists and begun making populist appeals based on ideas from the social democratic tradition. In stark contrast to the austerity measures Merkel wants the EU to apply to other member states, Merkel’s domestic agenda promises rent control, increased benefits for couples with children, and more government investment in education and infrastructure. Merkel’s support for such policies helped prevent Germany’s opposition Social Democratic Party from making a strong showing in the national elections in September. The election results also demonstrated that simply being in opposition does not necessarily mean social democrats will gain significant ground; between 2009 and 2013, Merkel’s party increased its share of the votes for parliamentary seats by 7.7 percent, whereas the Social Democratic Party’s increase was a mere 2.7 percent. The lesson is that it can take more than just spending a term in opposition for social democrats to figure out how to improve their political fortunes.
And even in the rare cases in which social democrats have regained power, such as in France, they are learning that winning an election is not the same as governing successfully. François Hollande’s victory was an important step for Europe’s social democrats. But the French president’s rocky first year in office, during which he saw his popular approval ratings plummet, demonstrated that winning an election is not the same as governing effectively and that leaders should not mistake the weakness of their political opposition for their own strength. European social democracy is not just a platform for winning elections but a political philosophy that aims to transform society for the better based on an agenda that can command broad support.
Nevertheless, social democrats will have to stage an electoral comeback in order to effect the changes they seek. The coming year will witness important elections for the European Parliament and a national election in Sweden; social democrats have a realistic shot at doing well in both contests. The following year, national elections in the United Kingdom will offer social democrats perhaps their best chance to retake power in a major European country.
But if Europe’s social democrats are to have a real shot at winning office and governing successfully, they need to think big. Rhetorical adjustments will not suffice, nor will simply rebranding third-way ideas for the current situation. To finally seize the moment, social democrats need to return to their roots and offer Europeans a vision of a good society, one that can redeem the promise of social justice and a prosperous economy.