The Job of Political Parties – Transforming Society in a Changing World

By Milos Pick

In recent decades, the main long-term trends in world development have intersected.

Since the 1970s, the gradual suppression of the previous post-war reforms has led to the restoration of extremely deregulated capitalism (the Washington Consensus) and its global, neo-colonial expansion (the unipolar world). This has resulted in the extreme polarization of income and wealth and poverty verging on a genocidal scale (in the poorest countries), the depletion of extensive sources of further sustainable development, constrained natural population growth in developed countries combined with overpopulation in developing countries, and in particular the excessive depletion of scarce natural resources and environmental degradation. Capital exploits not only labour, but also, increasingly, nature.

These trends have also been reflected in Europe and the European Union. After Latin America and the post-communist countries, the European welfare state was next in line. Its indebtedness was caused mainly on the revenue side. The rate of taxation relative to GDP in developed countries was 10–15% at the end of the 19th century, as opposed to 50% in Scandinavia, 40% in the EU15 and 30% in the US and other predominantly neoliberal countries at the end of the 20th century. Nevertheless, developed countries stopped these tax hikes of the past hundred years in line with the neoliberal recipes of the mid-1990s and even lowered taxes to some degree as they were also under the pressure of tax undercutting policies of new member states.

Nevertheless, expenditure on health, pensions, education and environmental protection is objectively increasing – life expectancy and the duration of education are becoming longer, while environmental degradation is on the rise. Waste accounts for only about a tenth of this increase in expenditure and can be effectively restrained. For opponents of the welfare state, starting with Margaret Thatcher, this was just an excuse to condemn the contemporary welfare state as unsustainable and to prune it by means of pseudo-reforms. Similarly, however, the “Third Way” (Blair, Schroeder) was also, in fact, a retreat from the post-war third way of the welfare state, based on a balanced interplay between the state and the market. Their “Third Way” was a symbol of the surrender by some socialist parties to the neoliberal pursuit of dismantling, marketifying and privatizing the welfare state.

The curtailment of these public services, provided in accordance with the principle of solidarity, has implications that reach beyond the polarization of living standards, threatening the competitiveness – and thus the viability – of the welfare state. In particular, those competitiveness components based on knowledge and social cohesion are weakened. On the other hand, rich countries – including the EU – impose a policy of cheap labour on poor countries (with low “competitive” currency rates in exchange for the early reduction of protective tariffs), rendering those rich countries uncompetitive.

In the long term, the root causes of the contemporary global crisis can be traced back to the fact that the competitiveness of certain developed countries, starting with the US, was being crushed between these two millstones of competitiveness.

In this respect, unlike the Great Depression of the 1930s, for the first time this was not a crisis of overproduction, with a blanket freeze in demand, but, above all, a crisis of underproduction: domestic supply’s lack of competitiveness saw it lag behind the level of domestic demand, which then relied excessively on imports. Primarily, then, it was a crisis of global imbalances. Countries lagging behind in competitiveness maintain a yawning foreign-trade and current account deficit and are becoming increasingly indebted to countries with large export surpluses.

However, as this gap in competitiveness cannot realistically be bridged in the short term, and uncompetitive countries are unable or unwilling to seek temporary protection via exchange rate policy (i.e. by weakening their currencies), they made attempts at “internal devaluation” by compressing costs through the attenuation of wages, taxes and public (especially) welfare spending. This is less economically efficient and more socially painful. The subsequent outcome, much like the crisis of the 1930s, is also a crisis of overproduction. Downward pressure on wages depresses demand for consumption among wage-earners, but also, unlike the crisis of the 1930s, results in the extreme polarization of wages and household incomes. This then hampers demand for consumption even more sharply. The excessively low and stagnant income of the poor – and increasingly the middle class – has reined in their demand for consumption. Conversely, the disproportionate income of the rich exceeds the level of their consumption demand, making them a source of excess savings which drive speculation rather than demand.

The choking of taxes and wages and the polarization of their levels triggered the over-indebtedness of households in particular – enabled by expansionary monetary (interest rate) policy and the extreme deregulation of financial markets – which led to a further, financial level, of the crisis. The end result was the explosion of budget deficits.

This sequence of events in the crisis has been a decisive factor in respect of the action taken to control its consequences and overcome the causes.

This global crisis was split in the first round. Successful developing countries (primarily the BRIC countries) managed to free themselves of the crisis in developed countries to a considerable degree. In developed countries, the restoration of economic growth has so far been modest and fragile.

Having soaked up excessive imports, the US is trying to weaken the US dollar further, which may also undermine the EU’s exports. The EU’s revival has mainly been driven by the export performance of Germany, benefiting from something which the US has thus far had little access in achieving and which is missing entirely in the south of the euro area: a competitive exchange rate – the euro is soft for Germany. Conversely, for those in the south of the euro area, the euro is hard and this lack of competitiveness is allayed, but not halted, by “internal devaluation”, delivering little effect, continuing indebtedness and rising protests among the people, whose blood is flowing in the streets. Rather than address the causes effectively, by attempting to overcome the lack of competitiveness in the south, the EU is focusing on extinguishing the consequences: it is contributing to the coverage of the south’s endless path of debt. Yet this situation is compounded by the shrinking compliance of creditor countries and may even threaten the unity of the euro area and the EU.

The main causes of the crisis have not been overcome in either the US or the EU. Failure by these two main actors to change their contradictory policies could trigger another round of the crisis, the epicentre of which would evidently be the EU, starting with the “south”.

The Myth of the Middle Class

Some socialist parties, succumbing to the above neoliberal pressures, have abandoned counter-programmes and are focusing instead on the tactic of winning over certain social groups without changing the trends, relying on the technology of power rather than on programmes of social change.

However, instead of placing their faith in the major social force capable of pushing through this change – employees and their prospective allies, members of cooperatives and small businesses – they have adopted a neoliberal view of the middle class as the driver of history. Rather than the people’s (employee´s) solidarity, existentially linked by their wage-earning to capital relationship in the creation of social values ??– despite the increasing shift from blue-collar to white-collar – they prefer the unstable similarity of income and notional status.

This may be one reason why, in developed countries, including the EU, half the people vote for the right, even though employees account for around four-fifths of the whole labour force, i.e. a significant proportion of employees vote for the right (albeit presented as centrist), enthralled by the myth of their middle-classness.

The polarization of income in capitalism, however, destroys the myth of prosperity and the rise of the middle class, throwing them instead under the wheels of the rich, who are connected with big capital. In the US, the richest one per cent account for a quarter of all income (Stiglitz). This trend, associated with the pruning of the welfare state, has also made certain inroads in some EU countries, where the proportion of the poor is rising again. The middle class is seeing its income driven down; indeed, its income and multitudinousness is shrinking in relative terms as the gap between the myth and reality widens. Should socialist parties rely on those who have opened the gate to this downward trend?

Switching from slaking the Consequences to overcoming the Causes of the Crisis

In the medium term, the European Socialist Party should come up with its own programme and initiative to deal with the causes of the contemporary crisis instead of inefficiently attempting to extinguish the consequences.

As a result of contemporary liberalization and the explosion of capital markets, the exchange rate is overwhelmingly determined by these markets. As such, it has been deprived of its balancing role on markets in goods and services. The “competitive” exchange rate (the Washington Consensus) actually has the opposite effect – it divides the world into countries with a high current account surplus and those predominantly with a deficit. This could be avoided in the future by abandoning floating, market-driven exchange rates and making the transition to the international coordination of controlled exchange rates, as long recommended by the United Nations Conference on Trade and Development (UNCTAD). The quest to strengthen the competitiveness of the south of the euro area in particular (in industrial and exchange rate policies, including adequate lowering of the euro) is also pressing.

Applying the brakes on taxation places pressure on the deficit financing of public services and on their privatization, even though this increases their cost and impairs their quality. The way forward should be a reasonable increase in the level of taxation, internationally harmonized within currency areas (including the euro area). In the future, some taxes may be common, such as the Tobin tax on financial transactions or certain environmental taxes.

In a Changing World, foster a Society of Freedom and, in Europe, the Social-Knowledge-based State

The current crisis is a social crisis on a par with the crisis of the 1930s. Monopolistic, financial, globalized capitalism, based on the nearly exclusive role of the market with almost no state regulation, is failing. The long-term solution is to overcome the essence of this system – to make the transition to a society of freedom, based on the interplay of the invisible hand of the market with a visible, and more effective than at present, hand of the social-knowledge-based society (The Society of Freedom – Global Crisis Outlook, Social Europe, July 2010). This can be developed on a global scale, in particular:

  • By overcoming the asymmetric liberalization of world trade based on the forcing of a cheap labour policy on developing countries. The development of the nascent multipolar world, smoothing the way for the balancing and, gradually, the cooperation and coordination of the interests of individual regions around the world, rather than a unipolar world largely subordinated to the interests of a single superpower, is essential. 
  • By changing to a new paradigm of sustainable development. By turning away from tangible, quantitative economic growth based on increased quantities of products and services and instead seeking knowledge-based, qualitative development based on increasing the amount of knowledge embodied in a unit of goods and services. And by exploiting contemporary technological advances, diminishing the labour intensity of such developments, to shorten working time instead of “producing” unemployment. This requires, on the one hand, the development of humankind and its knowledge, mostly by means of public health and welfare services provided in accordance with the solidarity principle, and in particular by means of the equal access of brains to knowledge, facilitated by a policy of solidarity. Another requirement is a reasonable rate of taxation, including taxation reflecting the scarcity of natural resources and the cost of environmental sanitation.
  • By overturning the imbalance of power not only between capital and labour, but also nature, which is indirectly becoming another, increasingly important, production factor subject to dangerous “exploitation”. This requires, in particular, the overcoming of the dominance of the largest multinational corporations in the economy and politics, which hinders the competitive market and democracy. Here, it is necessary to overcome the extreme deregulation of markets, starting with the financial markets, the public – possibly even proprietary – control of monopolies and the few hundred largest multinationals, including banks. Another requirement is social bargaining between labour and capital and the participation of the workforce in the ownership and decision-making of enterprises. This is necessary for the gradual removal of the extreme polarization of income and the reinforced status of the middle class.

Such a society should be a society of freedom not just of the individual, but also the freedom of a society based on solidarity, not only political freedom, but also liberation from poverty, ethnic and racial oppression, war and environmental destruction. Europe’s contribution should primarily be the development of a social-knowledge-based state in the above-mentioned directions, drawing on the valuable experience offered by Scandinavia in particular.

The Social Europe Journal