The great forgetting: The past, present and future of Social Democracy and the Welfare State 9780719098451

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The great forgetting

The great forgetting The past, present and future of social democracy and the welfare state

Jack Lawrence Luzkow

Manchester University Press

Copyright © Jack Lawrence Luzkow 2015 The right of Jack Lawrence Luzkow to be identified as the author of this work has been ­asserted by him in accordance with the Copyright, Designs and Patents Act 1988. Published by Manchester University Press Altrincham Street, Manchester M1 7JA www.manchesteruniversitypress.co.uk British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data applied for

ISBN

978 0 7190 9638 9 hardback

ISBN

978 0 7190 9639 6 paperback

First published 2015 The publisher has no responsibility for the persistence or accuracy of URLs for any external or third-party internet websites referred to in this book, and does not g­ uarantee that any content on such websites is, or will remain, accurate or ­appropriate.

Typeset by Special Edition Pre-Press Services

For Tony Judt

Contents

Acknowledgments Abbreviations

page viii ix

Introduction 1 1 Where are we today? And how happy are we now that we are here?

10

2 Social equality: why it matters

34

3 The way we used to be and could be again

51

4 How we fell into the memory hole and got to where we are today

82

5 Social democracy forgets its identity: 114 what really ended in 1989? 6 Rethinking the state

142

7 Rethinking the past: reimagining the future

179

8 Europe versus America: a summing up

206

Select bibliography

216

Index

223

Acknowledgments

I am grateful to my editors at Manchester University Press for their guidance, expertise, and patience in helping me to move this project toward completion. I wish, also, to express my gratitude to my anonymous readers, all of whom have made fruitful suggestions about how to strengthen this book. I especially thank Tony Judt, to whom this book is dedicated. It was his work that provided the inspiration for me to take on this project. But it was also his courage, conviction, and passion for justice, that helped give me the resolve to see this project through. Above all, I am grateful to him for his willingness to ask questions that have been considered taboo for three decades. In doing so, he taught the rest of us that it is a good thing to raise doubts and to challenge orthodox opinion. As will be obvious, I have benefited from the wisdom and knowledge of many of the authors cited in this text. I am deeply grateful to them, but I absolve them of any errors or misconceptions that may be found within. I thank my friend and former colleague, Ali Arshad, for his enduring patience in explaining matters about economics. As he is a professional economist and I am not, I have relied on him over the years for his sage advice about economic matters. I apologize to him for not being a better student. For my wife, Yelena Vardzigulova, I owe a special gratitude. She has suffered silently for too long while I research, write, edit, and rewrite my text. Now that I am returning to civilian life, I will try to make my re-entry into our shared love of literature and music as pleasant as possible.

[viii]

Abbreviations

AIG CDS CDU CEO CERN CGT ECB EDF ENI EU FED FRG GDP GIPSI HELP IMF IRI OECD RBS RFC SAP SPD TARP UN UNICEF WHO WTO

American International Group credit default swap Christian Democratic Union (Germany) chief executive officer European Organisation for Nuclear Research Confédération générale du travail European Central Bank Electricité de France Italian National Energy Corporation European Union Federal Reserve (US Central Bank) Federal Republic of Germany Gross Domestic Product Germany, Ireland, Portugal, Spain, Italy Health, Education, Labor and Pensions Committee of the US Senate International Monetary Fund Institute for Industrial Reconstruction (Italy) Organisation for Economic Co-operation and Development Royal Bank of Scotland Reconstruction Finance Corporation (US) Swedish Social Democrats German Social Democrats Toxic Assets Relief Program (US) United Nations United Nations Children’s Relief Fund World Health Organization World Trade Organization

[ix]

Introduction

Today, more Americans are unhappy than in any previous era for which we have measures. Americans, and increasingly the British, are much more unequal than they have been for eight decades. Millions have lost their homes, their jobs, their health, and their futures. Today, Americans are unhappier than their European counterparts who are supposed to be ‘suffering’ from the burdens of excessive government regulation and high taxation. Europeans do not agree. They have the best health systems in the world, affordable and decent public housing, efficient and inexpensive mass transit, pension systems that preserve a decent standard of living in retirement, job protection, and retraining programs for those who are displaced by economies in transition. When Americans wonder why they do not have these same benefits, they are told the price is too high: intrusive government, over-regulation, high taxes, and the loss of individual liberty. What Americans are not told, and what they have forgotten, is that it does not have to be this way. The Great Recession that began in 2008 and which still lingers into 2014, is the direct result of neo-liberal policies which preached deregulation, privatization, low taxes, and free trade, transforming everything from finance and banking to energy, education, housing, defense, and even welfare programs, into a market where profits could be made. George Bush famously wanted to privatize Social Security and the penal system of the state of Texas. The thesis of neo-liberalism was elegant and simple: markets are efficient, so why not privatize and deregulate everything. Competition in the private sector would eliminate the least efficient producers and providers. It would also save us from bloated and inefficient governments. Many on both sides of the Atlantic pressed – and still press – this efficient-market thesis. When it is objected that economic recession and collapse were the direct result of the deregulation of the financial markets, they reply that it was excessive government regulation that caused the Great Recession. Their basic message is to keep the government out of human affairs and allow the rationality of the market to solve all our social and economic problems. This thesis has been preached before, always with the usual outcome: governments retreating from the kinds of responsibilities that people have a right to expect. Deregulation in the 1920s helped lead to the Great Depression, destabilizing virtually all the economies in the West, and leading to the inevitable conclusion that societies putting the right to private accumulation ahead of the well-being of the 1

2

The great forgetting

vast majority of a population, would experience social polarization and ideological ugliness. In the case of the 1920s, a decade peculiarly like our own, the results were fascism, and soon national socialism and world war. Then, as today, the US in particular achieved the kind of social inequality and super-concentration of wealth that inevitably fueled market speculation, produced a bubble, and eventually exploded in a market crash. Then as today, deregulation was preached as the way to create a great engine of growth. And then as today, too many people were excluded from the goods that growth was supposed to create. Having forgotten all these lessons, and the kind of social contract that emerged after World War II to help prevent future catastrophes, we are reliving the past once again. We still have preachers in both UK and the US who believe that the market economy is a kind of rational engine that cannot be wrong. These true believers defend the values of materialism and private gain as though they are going to benefit many if not all of us. Selfishness is raised to the level of virtue, as though self-gain for some is the only way for the rest of us to prosper. Thus, it is possible to advocate selfishness and to see society as a kind of super-efficient machine; and to assume that those of us who accumulate wealth must have the kinds of skills that make our society competitive, create wealth, and ultimately generate jobs. In this cosmos all planning is rejected as a kind of irrational deviation because governments cannot and should not do what the market does best. What is absent from this calculus of self-interest is what is happening to many and perhaps most of us. The unleashing of the mortgage market, and the failure to adequately regulate it, resulted in the loss of almost three million homes in the US in the year 2010 alone. Millions more homes have been lost since and will continue to be lost. The unleashing of investment banks and the refusal, or inability, of the Obama administration, and previously the Bush administration, to rein in the kind of bets that banks make with other people’s money have led to the kind of rampant speculation that once produced the Great Depression, and recently the Great Recession. The results have led to exactly what the great purveyors of the free market say they are against: governments having to intervene into the market once again – in traditional Keynesian fashion – because the market has proved to be anything but rational. To date, and still counting, the American and British governments combined have had to bail out a number of financial institutions because they are ‘too big to fail’. The same bankers who have demonstrated such contempt for people who have not accumulated wealth now have had to stand in line to lobby the governments, and the taxpayer, for bailout funds. Thus, banks are bailed out while everybody else has to pay the bills for bankers’ failed speculations. To be sure we cannot afford to continue living like this. We cannot continue to support the upper 1 percent, which today in America controls more than 42 percent of residual American financial wealth. The UK has not quite reached this level of wealth concentration, but it has severely compromised the kind of social contract that emerged in Britain after World War II: today the UK stands almost bankrupted by its own financial elite with the complicity of many of its politicians. Many Americans believed that they had a kind of populist president when they elected Barack Obama: he would stand up for the majority and help protect their

Introduction

3

health, homes, and jobs. Instead, they have been severely disappointed by a president who has not fought for them, but who has sought as an ally the same bankers on Wall Street that helped to produce the crisis we are in today. Today millions are unemployed. Though the official rate of unemployment stands roughly at 6.5 percent, many economists claim the real figure is closer to 17 percent. This is because workers of all kinds in America, and in the UK, have lost their only allies: governments which used to be responsive to them, and labor unions which almost uniquely stood up for their interests. In both countries, political parties have become more responsive to big money, while labor unions have been under systematic assault since the 1980s. The result – the loss of jobs, of homes, and the ongoing destruction of families, particularly in the US – has led to the predicament we are all in today. To some extent George Orwell’s 1984 has come alive in our contemporary world, not in some faraway Stalinist incubus, but right here in the heartland of democracy. We are living today with double-think to the extent that many of the victims of today’s social inequality, long fed on a diet of celebrities, fantasies, and the mythology that we are all better off if we are on our own, have begun to think that the super-rich really deserve the great wealth and power they have ­concentrated in their own hands. Social Darwinism has once again come back to haunt us. The British have at least preserved their National Health Service. But Americans have taken another route, loudly acclaimed by politicians, but in reality another form of self-deception. Prior to the health-care reform of President Barack Obama, there were more than forty-one million Americans without health insurance. Now, in theory, there are almost none who are not covered by one form of health care or another. But everything depends on how the accounting is done. We have learned to be suspicious of reform legislation that even the health insurance companies have favored, and with good reason. That is because health reform in America, which mandates that everybody must take out health insurance, actually will add, potentially, some forty-one million clients for the insurance industry. This partially explains why health insurance companies fought desperately against the public option, characterizing it as ‘unfair’ to them. But it would have been more than fair for everybody else. It would have provided universal health care that was affordable by creating a non-profit health-care system that put the health of the population ahead of the profit of shareholders. The public generally understood this and many, if not most, were for the public option. But government, under pressure from the health-care industry, decided to make concessions to the health industry, compromising on decent and affordable health care for the nation. The result is that today Americans pay twice as much for health care as most European countries, and they get far less for their money. Those Americans who genuinely cannot afford insurance will have to pass a means test to be eligible for government Medicaid, while many others will be forced to pay premiums they cannot afford, or be out of pocket to cover deductibles they cannot easily pay. The result of the ideology of the efficient market is that more Americans are out of work than have been in decades, or working in jobs for which they are over-

4

The great forgetting

qualified, unable to retire if they have reached what used to be called retirement age, fearful that their children will have less than they do. Many Americans fear that the government(s) they have elected are not going to be there to help them get jobs, or to get the health care they need and want. More and more Americans, and citizens of the UK, are coming to know that they are on their own, even when they say they want more government, not less: and no matter how loudly they protest, they are always told they do not really want what they say they want. Citizens of the US and the UK are told they are better off doing things on their own; they can only be free if they get the government off their backs. But Americans do not agree, and there are more of them now who express their unhappiness than before. They want better and more affordable health care. They want better pensions and a higher standard of living in retirement than they now are getting from Social Security. They want day care, longer vacations, more affordable housing, dental and eye care included in health care, job training – or retraining – and they want their jobs protected much more than they are today. But when they are told that the social democracies and welfare states in Europe already have all these benefits and more, Americans, long suffering from media that are indifferent to many of them, say that Europeans are socialists who prefer giveaways to working hard: which explains why, they will say, Europeans are less productive and less efficient. They have given up the engines of growth that depend on competition because they prefer social security and well-being! Which is precisely the point! Europeans prefer their collective well-being to the hypothetical utopia of free market growth: and they are much happier for it. And Europeans also know that it is a myth that America is more productive or more efficient: in 2008, a number of European countries caught up with America in per capita GDP. But Europeans know they have to modify their societies, they have to retire at an older age, they cannot sustain the kind of retirement income they now receive, and they will have to find a way to meet the growing social obligations which are the result of an aging population. Still, Europeans refuse to give up their social democracies, and the states which protect people from cradle to grave, which provide universal social protection, and which guarantee that everybody will be protected because of a social contract which embraces all of them. The alternative is to compete for the right of private accumulation, to not insist on the right to have a decent job, and to abandon a society based on social solidarity and shared responsibility which entails collective effort for a common good. Once upon a time liberals too believed in the welfare state, in the programs of the New Deal which spent money to train and educate people and to develop jobs that put them back to work: because liberals knew that the social programs of Roosevelt and later of President Johnson worked. Liberal Americans believed that government had an obligation to help people when they could not help themselves. But today we hear another message, which also reflects the loss of historical memory and a kind of collective amnesia. Tax reductions for the rich, we are told in countless political propaganda and media as well, will create jobs for the rest of us. And this we hear when taxes on the rich are lower than ever before, though this has hardly generated jobs. It has, on the contrary, helped concentrate wealth to the

Introduction

5

point of obscenity. Moreover, tax reductions must be paid for by somebody. That is because governments will not disappear, they do not shrink even when conservative governments are in power. So who pays for tax reductions for the rich? The middle class and those who can afford it least: after all, governments must still raise revenues. But we now know that tax breaks for the top 1 percent will not generate jobs, especially during a period of recession when there is less incentive to invest; and we also know that those companies and individuals who do invest will often do so abroad, which will hardly generate jobs at home. At the same time we know that Europe has had its own love affair with the free market. The French government participated in this frenzy, with its privatization plans. But such ideas – Nicolas Sarkozy hoped to sack the French system of shared responsibility and collective well-being, in the name of the modernization of France – were rejected at the polls, and the installation of a socialist president, François Hollande, followed. In England it was much the same: Tony Blair and New Labour were committed to the private sector and the London financial markets. But none of this invigorated the UK; on the contrary, a banking collapse occurred there with almost as much vehemence as in the US. The banking collapse in Europe, especially in the southern periphery – and the virtual national bankruptcies which have threatened the same periphery – has led to yet another turnaround by governments, central banks, and even the International Monetary Fund (IMF), as they have reversed themselves in order to dispense public money to avert the kind of disaster not seen since 1929. Even so, the European Central Bank (ECB) has rejected John Maynard Keynes and the massive use of public monies to do the kinds of things that government used to do for decades following World War II: spending during slumps. And in countries which have resorted to ‘spending’ as the UK did in bailing out some of its banks, this was at best a tactical retreat rather than a genuine commitment to social democracy, or even the welfare state. Even the Scandinavian social democracies, which have scaled back on benefits as their populations have aged, have lost some of their self-confidence, though much of the social democratic structure still remains. On the other hand, the collapse of the banking systems and the Great Recession in Anglo-America have deflated confidence in the AngloAmerican model. Unfortunately, this has not led to an intellectual revolution to reinvigorate the essence of social democracy. Despite the meltdown in AngloAmerica following massive deregulation and privatization, governments are not committed to intervene on the public’s behalf using public resources any more than they were before. But there is an even larger problem than this: the Left, which articulated the programs that stabilized Europe after 1945, and which built viable, fair societies that embraced universal well-being and defined shared goals and ways of achieving them, that insisted on universal inclusion and collective responsibility, and that articulated social collectivism, has now lost its voice. This was an outcome of 1989: the evisceration of the Left gave license to the Right everywhere because it no longer had to cover its flank. The alternative, the notion that the future could be transformative, no longer had to be faced by the

6

The great forgetting

political Right. The way was open to tout the ideology of the free market, which was celebrated as the end of history. The free market, unhindered competition, an economy unshackled by the state, the rich unburdened by taxes, were now to create a global cornucopia in which corporations would produce the goods, while the rest of us would benefit from the new wealth and jobs they were creating. Except that all this failed, and it has left many of us with new burdens but no new remedies. What we are left with are social, cultural, and economic dead ends, sustained recession, political division, and moral collapse, especially in the way that we discuss politics. And that is why today we must not only rethink what we want the state to do – and to be – but also insist that the proper role of the state should frame our entire political agenda. The fact that nobody is seriously rethinking this agenda – it is quite the reverse in the US and in the UK, where rhetoric and ideology have overtaken good sense and fairness – and that conservatives continue to insist on shackling the state while unburdening the rich even further, is testament to how politically bankrupt our modern era has become. We live in an age when economic crisis is actually caused by politicians who want to remove as many obstacles as possible to the realization of greed, though this is couched in ideological language that reassures us that the excess of the few will benefit the vast majority of us. Today there are too few voices reminding us of what we have forgotten: that only government can help us and that we can depend only on it. In the US the Depression was ended only with massive government spending, and also because government invested directly in people. This time around government has invested in banks, or financial institutions, without directly creating jobs and putting money in the hands of people who need it the most. The US has rescued Wall Street, and the UK has rescued the City, England’s Wall Street: but both countries have neglected Main Street and the people who live there. There are ample grounds today for the Left to rediscover its voice. Growing inequalities are gnawing away at the fabric of democracy; when people are told that inequality is good for everybody because it puts more money in the hands of job creators, they tend to disbelieve such rhetoric. Where, they wonder, are the jobs? How will a few more billionaires restore their homes? How will enlarging the military budget while shrinking Medicare improve their health? Anglo-Americans today feel increasingly shut out by elites, who are less and less accountable to them. Today, economic exploitation at home and abroad has crept insidiously into the arteries of commerce: Americans and the British feel that they have been deserted by their governments. And everywhere in Anglo-America, political success is defined by money and by those who use it for private advantage. There is something amiss with this system, but there are no forthcoming answers: it is not enough to identify the weaknesses, the omissions, and the inequities. But the Left, which has historically offered a way out from unprincipled – or undemocratic – capitalism, cannot serve the same tired ideological diet of the past. It cannot rehearse the same rhetorical battles that produced a kind of ideological Cold War that ended only in its bankruptcy. There are already signs that the open

Introduction

7

democratic society, which has been so ardently defended in the past, is being challenged and disrupted by crises ranging from global warming, to job dislocation, to large-scale immigration, to challenging demographics, and even modern class struggle. The result is that we will all need the state more than ever to protect us against these crises. To secure protection, many will be ready to sacrifice their liberties for greater security. And that is why our choice will no longer be between the state and the market, but between two kinds of state: the authoritarian state to protect us against all the threats of modernity, at the expense of freedom; and the democratic state, which will make us more secure by making us more equal, and protect us by preserving our jobs, our health, our homes, and the kind of social entitlements which enable us to live better and to trust each other on the basis of shared values and goals.1

Chapter outline of the book Chapter 1 begins with the reaffirmation that post-2008 Anglo-America has seen the greatest concentration of wealth since the Depression, some nine decades earlier. This is no accident, but the result of political policies adopted since the 1970s: the deregulation of financial markets, taxation favoring the rich, and privatization. The result is that Americans and the British are now among the least happy of nations because of social and economic inequality. Chapter 1 also challenges the now dominant ideology that wealth ‘creators’ deserve their wealth. And it reveals that Anglo-Americans want more help from their governments, not less, even if that means more regulation. Chapter 2 reviews the thought of classical liberals like Adam Smith, democratic theorists like Alexis De Tocqueville and Matthew Arnold, and early social democrats like John Stuart Mill and Beatrice Webb. What they all shared in common was the belief that democracy and social equality must be combined. Each was convinced that human happiness, and the happiness of nations, depended on the building of community, mutual regard, and common purpose, and that this was possible only if members of society lived as ‘equals’ and embraced social solidarity. The purpose of Chapter 3 is to outline the reasons for the development of and need for social democracy and the welfare state. In the aftermath of the Depression, Scandinavian social democracies, continental European welfare states, and Anglo-American liberal welfare systems had in common the desire to manage the economy to provide universal social protection and in some cases to promote social solidarity. The consensus in much of Europe and America at that time was that the free market had failed and that, following John Maynard Keynes’ insight, capitalism and liberalism (welfarism) had necessarily to coexist. The state was now needed more than ever to secure employment, to pursue egalitarian aims, to protect people’s health, and to help those who had lost everything through no fault of their own. Chapter 4 details the reasons for the derailing of the welfare state. The ideological challenge was led by Milton Friedman. He believed that the state should be auctioned off and there should be no limits to the free market, which, he argued,

8

The great forgetting

was not responsible for the creation of social inequalities. His ideas about the free market were institutionalized by Ronald Reagan in the US and Margaret Thatcher in the UK, both of whom dismantled the welfare state, or as much of it as possible. Chapter 4 challenges Friedman’s ideology. The free market never was ‘free’, but it did create enormous social inequalities because of deregulation, privatization, and the abdication of the state from comprehensive commitments to social protection. The result was not greater freedom or the right to choose, but deindustrialization, unsustainable inequality, the shrinking of the welfare state, and the Great Recession of 2008, all of which occurred to excess in Anglo-America. Chapter 4 also explains that the new global architecture that emerged in the 1970s, entailing the collapse of Bretton Woods and fixed exchange rates, the unleashing of capital and the ending of capital exchange controls, was a system ideally suited to benefit corporate elites, often at the expense of everybody else. Chapter 5 is about the collapse of the Grand Narrative of the Left in the 1980s and 1990s, and how this led to the ‘great forgetting’ in Anglo-America, and to a lesser extent in continental European social democracies and welfare states as well. This chapter studies how and why the principles and values of social democracies were compromised unnecessarily as big business in Anglo-America abandoned the welfare state. Chapter 5 also examines Sweden and Germany and how and why each made unnecessary concessions to the neo-liberal, deregulating, privatizing ideology of Anglo-America, though both still defended, in principle, generous social benefits. This chapter concludes by arguing that when liberal Democrats in the US and New Labour in the UK increasingly abandoned progressive tax structures, high quality public education, jobs programs and social benefits for workers and the middle class, while passively indulging the deregulation of the financial industry, they helped to produce unprecedented social inequality, inadvertently but inevitably setting off the Great Recession. Chapter 6 argues that ‘forgetting’ the past success of social democracy has been costly. Restraining the government but not the market has helped lead to the catastrophe of the Great Recession and its lingering effects. This chapter asserts that there are many things the state does well that the market cannot do. It challenges the rhetoric of the Right that corporate interest equates with public interest, and that the poor and the middle class are better off when the government spends less (on them) while continuing tax breaks for the affluent. It states that the governments of neo-liberal Anglo-America have built nothing less than communism for the rich: bailing out wealthy banks while standing by as families who bought artificially overpriced houses are evicted. Chapter 6 concludes that much of the new wealth in Anglo-America goes straight to the top, that social democratic countries are no less efficient than Anglo-America despite much greater social benefits, and that much of the new growth is actually deceptive because it takes place in the speculative world of high finance, not in the real economy where most of us live. Chapter 7 argues that globalization does not explain unemployment in AngloAmerica; nor is globalization the cause of inequality in either the US or the UK. Nor does globalization mean the end of social democracy and the welfare state as we have known them. Nor have American or British workers lost their jobs

Introduction

9

to workers in China or Vietnam or anywhere else. On the contrary, as noted in Chapter 7, American and British workers have not been competing with workers in Asia, but rather with their former – and current – employers. In the name of the so-called free market, and by discrediting John Maynard Keynes, the latter have pursued the freedom to avoid taxes, to ignore trade unions, and to bypass environmental standards, by shifting production abroad while keeping domestic markets open for their imports. Chapter 7 points out that corporate and political elites could easily reverse adverse trends if they wanted to create a more competitive – not to mention fairer – Anglo-America by investing more in research at home, and by supporting renewable energy and world-class education. This chapter concludes by noting that a new moral compass is needed to provide a reminder that the purpose of economy is to serve the needs of everybody. Chapter 8 compares Anglo-America’s social model directly to the European social model of the welfare and social democratic states of continental Europe. It makes the case that even with the high unemployment rates of the EU, most of Europe is still as economically efficient as the US and the UK, and much more equal. The US, with far greater inequality, is growing no faster than much of Europe. America also has a high unemployment rate, much higher than it generally acknowledges. In conclusion, Chapter 8 insists that it is not the European social model that is limiting economic growth, or contributing to rising debt, or hindering investment and innovation, or causing high unemployment, but the ECB and the Maastricht Accords, which have preached and mandated austerity. This has led to slower growth, higher unemployment, lower state revenues, and even the threat of deflation: it is the European banking elites that have caused the current crisis, not the European social model.

Notes 1 See Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 9.

1

Where are we today? And how happy are we now that we are here? Today we live in an age of doubt and suspicion of the state; many prefer the ‘market’ and call that liberty. We live in an age of uncertainty, an age of bankrupt cities, endemic unemployment and underemployment, an age of failing and closing schools, an age of the underinsured and uninsured, of massive fore­closures, of personal and business bankruptcies, of broken highways and collapsing bridges, of gross inequality and failed health systems. These social pathologies are pervasive and threaten to become enduring. More than ever, uncertainty reigns over our politics, our economy, our finances, and even our personal health. We are fighting invisible wars that we try not to think about and that are fought by people we rarely if ever meet. Yet we are hardly able to discuss what is happening to us; we cannot even imagine the alternatives, for they too have become invisible. We live unaware that we did not always live like this, that life in the present is not life eternal, and that most of what we have today dates only from the 1980s: the decade when incessant materialism, the privatization of industry, and the spread of social inequalities between rich and poor became endemic.1

History did not end: it was forgotten Because we have forgotten the past we can no longer imagine the future; if we do, we do not see life improving. The last century, even the recent past, is largely invisible; it exists without context, memorialized in fragments in museums, theme parks, and heritage sites. It is enshrined in official memory as nostalgic triumphalism, such as Francis Fukuyama’s infamous declaration praising the end of history and the victory of Western idealism and liberal democracy. The twentieth century as a whole is dismissed as a chamber of horrors – from world wars to Auschwitz, from the slaughter of Armenians to the genocide in Bosnia – not to be forgotten because of its crimes and its victims; we prefer to think that was then, and this is now; we want to believe that we are better than that past which we prefer to inter in official remembrance. We want to think that we will be better yet. “Worse still,” says Tony Judt, “we encourage citizens and students to see the past – and its lessons – through the particular of their own suffering (or that of their ancestors).”2 We no longer have a shared understanding of the past, or even a common narrative that we can call the past. Instead, we fragment history into 10

Where are we today?

11

particular ethnicities defined by “victimhood.” The result is that past and present become inverted; rather than the past helping to explain how we got here, we parse out that piece of the past we wish to preserve as a record of suffering, or as a memory piece helping us to commemorate something in the present. We memorialize, but we do not remember. What we end up with is the impression that the world of today has no provenance in the past, that modernity is its own creation. Modernization and globalization help that illusion along by wiping out many remnants of the past in the name of progress. Instead of tradition, which was vaunted by the generation of my grandparents, and was still observed – making it possible not only to have a past but also to continue a shared and common narrative which we could embrace through observance and remembrance – we have disconnected fragments of a past whose meaning is increasingly lost to us. Moreover, what has been true of individuals is also true of nations and societies. Francis Fukuyama’s narrative proclaiming the end of history in The End of History and the Last Man had an ironic twist to it. For just as he proclaimed the end of the past, and heralded the outcome of the victory of the ‘West’, many people were forgetting the lessons of the past whose end he was now proclaiming. To be sure, some things needed to end: Communism, in its Stalinist and Maoist versions and the authoritarian regimes of Eastern Europe, along with the incredible heaviness of being that they created. What needed to end also was the illusion that these regimes had in any sense fulfilled the utopian visions that had accompanied their birth. What had once been heralded as paradise had long ago sunk into the abyss of the gulag: the invasion of Hungary in 1956, the repression of Czechoslovakia in 1968; and before that the show trials, the infamy of the disappeared. And yet, precisely because of the disillusionment which preceded the collapse of the Soviet regime, and the ideological baggage that went with it, it was also forgotten that there had been good reasons for dreaming about utopia: revolution had been bred by hope and the perpetual desire to transform earlier regimes into imagined communities of publicly shared good. Unfortunately, and almost imperceptibly, other things were compromised in 1989, brought down by the memories of the gulag and the demons of history: the Left, socialism, even social democracy, at least in the US and UK, were tainted by their association with the authoritarian regimes in the East. The very idea of utopia seemed to vanish from historical memory, and with it vanished the memory of why so many had wrestled with the idea of achieving social and political harmony in a utopianized future. Two hundred years of experimentation in creating the good society based on a defined collective purpose and a collective social good as the foundation of human happiness, from the French Revolution to the Russian Revolution, disappeared from public consciousness. The implication of the end of history, the glib surmise of Fukuyama, was that there had been two fundamental choices: either we could have liberty, or we could have equality. We could not have both. Put another way, we had to choose between either the state or the market. This was a reaction to the impe-

12

The great forgetting

rious authoritarian regimes of the East, and it was also a reaction to the welfare states in the West, especially the social democracies of Scandinavia. Fukuyama’s assumption that liberal democracy was the final end of history, and therefore there was no need to define our common social purposes, was also a kind of endism and utopianism.3 What Fukuyama neglected to say, or refused to believe, was that liberals and social democrats were agreed on many principles. Social democrats defended cultural and religious tolerance. They embraced democracy, liberty, and human rights. Social democrats favored, like liberals, progressive taxation to pay for public services and other social goods to help individuals who could not otherwise provide for themselves. Social democrats differed from liberals, however, in social policy. Liberals often saw taxation or public provision as a necessary evil; social democrats had a vision of the good society and afforded a greater role for the state and the public sector. In public policy, social democrats believed in the possibility and virtue of collective action for the common good.4 Today we have inherited the universe anticipated by Fukuyama, without the ending of history foreseen by him. Today we have in fact seen the victory and then the deification of the market in the US and to a great extent in the UK; absent history, and the past, and many think that this is the way things have always been. Most cannot imagine a different kind of society despite the social maladies and dysfunctions in the one we now have. We do not even know how to think about our society, because we think that what exists today has always been with us; we suffer from the illusion that contemporary institutions are eternal. Even the experts in the media, the intellectuals whose discourse seems oblivious to the alternatives once posed in past debates and discussions, have succumbed to this logic. Instead of having public conversations that question the present and ­challenge its assumptions – that social inequalities have always been with us and are eternal – instead of posing alternatives to assumed affinities, we are always given a diet of ‘economism’, the priority of economics in all discussions of public affairs.5 In much of Anglo-America, it is as if we have always been here. Freedom, we think, has always meant license, and especially license to make profits. Freedom is the market unfettered. Equality means equality before the law, legal equality, but no more; we have abandoned the notion of a public good, or the belief that social equality is worth pursuing, or even possible. In the words of E. P. Thompson, we have seized the equal opportunity to become unequal. More and more we have signed on to the belief that we must keep the state at a distance because it is expensive, intrusive, and inefficient. That this is partially true is obvious. But it is also mostly false. Almost unnoticed, we have neglected to put the public good ahead of private gain, and forgotten the significance of defining what the public good is, and setting that as a priority. Above all we must ask ourselves why we accept spending trillions on war – which is also managed by the state – but resent the spending of far lesser sums, especially when those sums are likely to benefit the vast majority of us.

Where are we today?

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The growth of inequality: the end of democracy? Where are we today, three decades after the ideas of Milton Friedman – to remove the state as much as possible from human affairs and the market – were institutionalized, especially in the US and in the UK? Robert Reich, former US Secretary of Labor, has shared this perspective: Most American families are worse off today than they were three decades ago. The Great Recession of 2008–2009 destroyed the value of their homes, undermined their savings, and too often left them without jobs. But even before the Great Recession began, most Americans had gained little from the economic expansion that began almost three decades before. Today, the Great Recession notwithstanding, the US economy is far larger than it was in 1980. But where has all the wealth gone? Mostly to the top. The data shows that by 2007, America’s top 1 percent of earners received 23 percent of the nation’s total income – almost triple their 8 percent share in 1980.6

The unequal distribution of income is a compelling story, but the inequalities of wealth, not income, provide the most dramatic narrative in America today. In 2010, the top 1 percent owned 42.1 percent of total financial (non-home) wealth, while the next 19 percent of the population, the managerial, professional, and small business stratum, owned 53.5 percent of the wealth. That meant that just 20 percent of the population in the US owned 95.6 percent of the total financial wealth of all Americans. Put another way, 80 percent of the US population owned only 4.7 percent of American financial wealth. The ownership of wealth in the US was not just more concentrated than income: it was practically non-existent for most of the population.7 Just as dramatic, by 2007 the average pay of a chief executive offer (CEO) had ballooned to about 350 times what the average worker earned. In what was probably the most extreme example, the CEO of Wal-Mart Stores, Inc. took home 900 times the pay and benefits of the typical Wal-Mart worker. Moreover, the wealth of the Wal-Mart family owners in 2005 was estimated at $90 billion, the same as the bottom 40 percent of the US population for that year, some 120 million people.8 In an age of deregulation, America has generated unparalleled wealth, but the vast majority of that wealth has gone straight to the top, as Reich indicated, and at precisely the same time that Americans have lost their homes, jobs, and possessions, at rates unprecedented since the Great Depression. None of this is accidental: it is the result of political will and deliberate political policy-making. Consider the following. In 2009, Wall Street reaped enormous profits: $140 billion for the biggest thirty-eight companies, divided between executives and investors. Goldman Sachs paid its employees an average of $600,000 per person, its best year since it was founded in 1869. These sums were not without precedent. The CEO of Goldman Sachs, Lloyd C. Blankfein, took home $68 million in 2007. That same year, the top twenty-five hedge fund managers made $892 million on average.9 What made these figures even more distressing was that while Wall Street and its well-heeled bankers were thriving, the workers on Main Street were losing their jobs and homes in crises unseen since the Great Depression. Wall Street continued

14

The great forgetting

to thrive because it was able to tap into hundreds of billions of dollars in government bailout money, including massive assistance from the Federal Reserve (FED). In the wake of the financial crisis, itself spawned by the banks reckless practices, the government literally shoveled cash into the maws of the nation’s leading financial institutions to avert even greater catastrophe. “Now Goldman and other big firms were, in essence, discreetly but steadily shoveling a large share of that cash out the back doors into employees’ private accounts.”10 Main Street was indeed suffering. Following the Great Recession home prices plummeted, wiping out about 40 percent of American families’ home equity between December 2006 and December 2008. The official unemployment rate hovered around 10 percent. There were six job seekers for every job opening. State and local governments were facing unprecedented budget deficits and were slashing gaping holes in the safety net, raising taxes, and threatening to lay off thousands of teachers – the threats were now coming true. The human toll was incalculable: careers were shattered, families were disrupted, and security was lost, perhaps forever.11 As startling as these figures are, consider the following: from 1979 until the Great Recession of 2008, the top 1 percent of the population received 36 percent of all gains in household income, and this even after taking into account the value of employer-sponsored health insurance, federal taxes, and all government benefits. This was even more skewed between 2001 and 2006, when the top 1 percent took in over 53 percent of all gains in household income; put in other terms, more than half of every dollar in additional income pocketed by Americans in these five years accrued to the richest 1 in every 100 households.12 More striking even was the top 0.1 percent; one out of one thousand families received over 20 percent of all after-tax gains between 1979 and 2005, compared with the 13.5 percent enjoyed by the bottom 60 percent of households. This means that the roughly top 300,000 people in the top tenth of 1 percent had half again as much as the roughly 180 million people in the bottom 60 percent. In truth, the US had become more like a Latin American oligarchy than a mixed economic democracy – more like Mexico and Russia than Sweden or France – when measuring the concentration of economic power.13 Why has this happened? Technological changes have certainly flattened the world, making modernization possible in formerly undeveloped areas and continents. Much of the world is certainly catching up with the West. There are deficits in skills and education that help account for lingering poverty and backwardness in pockets in the West. Some have even counseled greater deregulation and privatization of virtually everything to help unleash markets more, though the Great Recession of 2008 should have alerted us to the explicit dangers of unfettered markets and deregulation. But none of the above, not the ‘flattening’ of the world because of technological innovation, nor education and skill deficits, nor the integration of financial and commercial networks, nor even the dot.com revolution, helps to explain the enormous concentration of wealth that has occurred, especially in the US and the UK, in the years since 2000. This unprecedented concentration of wealth could only

Where are we today?

15

have occurred as a result of deliberate political policy decisions that favored not only the rich but also, and especially, the super-rich. The gains for the upper 1 percent have been unprecedented and unwarranted, and they have contributed to both the US deficit and the slowing of economic growth. The following figures based on income tax returns rather than census data help confirm the connection between the mega-concentration of wealth in the US in recent years and tax policy. In 2007 the share of income earned by the top 1 percent of Americans had reached around 18 percent, a more than twofold increase since 1974. When capital gains are included, such as investment and dividend income, the top 1 percent had income that rose from 9 percent to 23.5 percent during the same years. The only time this figure had been higher since 1913, the first year of the data collection, was in 1928.14 But, says Jacob Hacker, the top 1 percent is still too broad a category. Hacker counsels us to look at the top 0.1 percent of Americans. Collectively, this group takes in more than $1 trillion per year, including capital gains. This works out to an average annual income of more than $7.1 million. In 1974 the average income for the same top 0.1 percent was just over $1 million. Its share of the national income therefore grew from 2.7 percent in 1974 to 12.3 percent in 2007, a more than fourfold increase. Who are the people in these rarefied levels? For the most part they are rich corporate executives.15 Outside the US and the UK, the concentration of income and wealth diminishes considerably, notably in the European social democracies. Consider the top 1 percent income group’s share of national income in nine advanced countries, comprising Canada, France, Germany, Japan, Netherlands, Sweden, Switzerland, the UK, and the US (the figures do not include capital gains). The years of comparison are the mid-1970s and circa 2000: Canada went from just over 8 to just over 12 percent; France declined from just over 8 to just under 8 percent; Germany stayed about the same at 10 percent, with only a small increase; Japan increased slightly to just under 8 percent; Netherlands declined from just over 6 percent to about 5.5 percent; Sweden increased from under 6 percent to exactly 6 percent. The UK had a staggering increase from just under 8 percent to just above 12 percent; and the US went from 8 percent to just under 16 percent.16 These figures suggest strongly that government has an effective role in shaping the distribution of income and wealth. It can do this through the tax code and policies of redistribution, such as pensions and social security, but also through laws governing unions, the minimum wage, the regulation of corporate governance, and through rules for financial markets, including the management of risk for high-stakes economic ventures. Government rules not only shape the market, they also shape how, and in whose interests, it operates. In the US especially, and certainly in the UK, government policy has helped to increase inequality through the gutting of progressive taxation over the course of three decades. This includes income taxes to be sure, but also corporate and estate taxes, all of which were once much higher. Those in the top 0.1 percent in the US paid at real rates that were fully a third lower in 2004 than what they paid in 1970, despite the fact that the top 1 percent was much richer in 2004 than in 1970. The top 1 percent paid a

16

The great forgetting

rate of tax at 50 percent in 1970, but this declined to 40 percent by 2004; the top 0.01 percent paid a rate of about 78 percent in 1970, but this declined to about 33 percent by 2004.17 All this happened despite the fact that Americans as a whole remained remarkably agreed that the rich should pay more in taxes. In 1998, some 45 percent of Americans thought that the rich did not pay enough in taxes; in 2007 the figure was 56 percent. Despite this, taxes on the rich have continued to get lower.18 One reason is that the administration of George Bush allowed private equity and hedge fund managers to treat their extraordinary incomes as capital gains, which is subject to a maximum tax rate of 15 percent. In 2006, the top twenty-five hedge fund managers earned $600 million on average. Yet another reason for the vast concentration of wealth is the reduction of redistribution of the national wealth, keeping the rich even richer. This is the result of government policy becoming ever more generous for those at the top. Think only of Obama’s failure to repeal the Bush tax cuts for the wealthy (those making over $250,000), including the super-wealthy. In this case the absence of government policy made the difference. As in the US, the UK – which parallels the American model in the extent of deregulation and privatization – has experienced unprecedented inequalities, and these likewise have not only produced social tensions but have also practically led to the kind of social class antagonisms not seen since the nineteenth century, almost as if in a reversion to the England of the Poor Laws. The result is increased concentrations of wealth that are beginning to resemble American disparities. In 2009, the UK was, after Portugal, the most unequal country in the European Union (EU): this placed it close to the US, which is rated the most unequal of all developed countries. In 2005, the top 1 percent of the British population controlled 21 percent of total UK wealth, while the top 10 percent controlled 40 percent of total wealth. Moreover, since 2005 British wealth has concentrated even more at the top: by the middle of 2012 the top 1 percent of the British population was taking in upwards of 15 percent of national income, a share larger than at any time since World War II.19 Like America, Britain has a super-rich sector. There are 47,000 people in Britain with an average pre-tax income of £780,000 per annum. Another 420,000 have pre-tax incomes of between £100,000 and £350,000 per annum. Nearly all are men and live in the southeast. There is also a growing class of knowledge workers constituting more than 40 percent of the working population; these reflect the fact that the dynamic parts of the knowledge industry, high-tech manufacturing, the creative industries, health, business services, education and computer technology, need qualified and skilled people. Below these, however, are ten million adults who earn less than £15,000 per year. Few are knowledge workers and they are unlikely to have opportunities of self-improvement.20 Members of the affluent class increasingly live in gated communities, creating a kind of social apartheid as social mobility. Social mobility continues to stagnate. The next generation of professionals will be educated in ever-richer families. According to British journalist Will Hutton: “Private education as a passport to the upper echelons of British society has become more important: 55 percent of

Where are we today?

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top journalists, 70 percent of finance directors and 45 percent of top civil servants, were privately educated. Yet private schools educate only 7 percent of the total school population.”21 Meanwhile political parties intensify the problem by being in thrall to the mass media and the 24/7 news agenda. Policy is determined by squabbles over “reducing the deficit, eliminating waste or coming up with the latest wheeze to tackle some social problem or other.”22 In sum, political parties have declined as mass organizations in which members have a strong identification or affiliation with them, though that process antedates the Great Recession; but the Great Recession has certainly accelerated this development. Where there was once high idealism for what the future might look like, today politics has been trivialized; nobody talks about alternatives. Where once liberal values were widely embraced during decades of equalization, brought about by commitments to alleviating social ills, today nobody talks about social improvement, unless they mean economic growth: If Britishness once meant a combination of kindness, instinctive liberalism, deference before well-understood social values, belief in fairness, respect for parliamentary democracy, inquisitive internationalism and an understated sense of national purpose, it is dissolving before our eyes. If anything, kindness and liberalism have become objects of scorn. The public domain is now dominated by the tabloid bully, the professional mocker, the seeker of celebrity and the xenophobe.23

Today we are living through a “crisis of capitalism” that is reminiscent of the Great Depression and the collapse of the interwar period. We are experiencing, in the US and UK and in parts of Europe, social conflicts and divisions that have not been seen since the decade of the 1930s. Governments worldwide have spent $14 trillion rescuing their banking systems and attempting to overcome the collapse of their credit systems. We are witness to as big a crisis for market fundamentalism and financial capitalism as the collapse of the Soviet Union was for economic planning and communism.24 In Britain, where increases in income and wealth inequalities have recreated class divisions once thought a relic of the past, we increasingly hear refrains that remind us of the US. The British complain that they no longer have a shared understanding of what constitutes fairness. Yet, the rich argue that it is fair for them to be wealthy because wealth signifies their real worth. As Will Hutton has commented: They believe they owe little or nothing to society, government or public institutions. They accept no limit or proportionality to their wealth, benchmarking themselves only against their fellow rich. Philanthropic giving is declining; tax avoidance is rising; and executive pay is rising exponentially. All three are justified by the doctrine that the rich simply deserve to be rich. Meanwhile, the poor, in their view – and that of a virulent right-wing media – largely deserve their plight because they could have chosen otherwise … The poor could work, save and show some initiative. So why should we indulge them by giving them state hand-outs?25

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The great forgetting

As in the US, bankers defend their bonuses, despite all that has happened as a result of the Great Recession which they helped cause. Sir George Matthewson, former chair of Royal Bank of Scotland, has even insisted that bonuses are private contracts which the state has no right to rescind. Standard Charter’s CEO, Peter Sands, argues much the same. Bonuses are necessary to retain the best employees, and thus to maintain the health of an industry from which the entire country benefits. The wealth of the banking elite is only fair. Society should admire and acknowledge the achievements of this elite.26 Fairness, once the indispensable value that was the underpinning of the good economy and society, has now yielded to the freedom of choice and the priority of private interest.

Inequality and public opinion Despite the repetitive propaganda in the popular media, Americans are aware of and opposed to the excessive inequalities that have grown in recent memory, as revealed in an extensive inequality survey conducted in the summer of 2007, as well as data compiled from surveys over some seven decades. What does the inequality survey, conducted by the Center for Survey Research at the University of Connecticut in 2007, have to say about American attitudes toward inequality? A solid majority, some 59 percent, disagreed that large differences of income were necessary for America’s prosperity. In fact, those interviewed were well aware of income discrepancies in America, though they exhibited some fantasies that corporate heads were making about an average of a half million dollars, when in fact the CEOs of the S&P 500 companies were making about $14,000,000 per year, or about thirty times more than what the same Americans thought, though even the smaller number was considered excessive. What about the distribution of wealth? Americans thought that the top 1 percent of American families owned fully 50 percent of wealth in America; in fact the top 1 percent then owned 34.3 percent of net wealth, 42.2 percent if the focus is only on net financial wealth.27 In sum, Americans underestimated the degree of inequality, yet they were still opposed to what they thought of as injurious inequality. What of the opinions of Americans regarding the growth of inequality? About 72 percent of them agreed that differences in income in America were too large. Some 68 percent thought the current (then) distribution of wealth unfair. They believed that money and wealth in the US should be more evenly distributed among a larger percentage of the people. Nor was this opposition to inequality recent: opposition had been evident since at least the mid-1980s, based on eleven surveys taken between 1984 and 2007. About 60 percent of Americans had consistently favored distributing wealth more widely and more fairly. In particular, Americans believed that corporate heads – whom they believed to be making $500,000 when in fact they were making $14 million – should only have made about half the lesser figure. Ironically, even a solid majority of Republicans (56 percent) and high-income earners (60 percent) believed that income disparities in the US were too great.28 Asked what they expected – despite the barrage from the media insisting that

Where are we today?

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most citizens find the government intrusive – most Americans wanted help from their government. A solid majority, about 70 percent, believed that it was the responsibility of government to provide food, clothing, and shelter. This idea has been favored by large majorities of Americans since at least 1964, and it has been embraced across lines of class, color, and party. Large majorities of Americans, 60 percent, believed that the opportunity to have a decent job should be enforced by government; and that everybody who wanted a job should be provided the opportunity to find work. Even more remarkable, the poll showed – by a narrow majority – that most Americans favored direct government hiring, and this despite the fact that politicians had been very broadly calling for much less. Most Americans, including about 50 percent of Republicans – believed that the federal government should actually provide jobs for all who were ready and able to work but who were not able to find jobs in the private sector.29 When it came to health care, vast majorities of Americans expected government help as a matter of human right. Some 73 percent believed that it was the responsibility of the federal government to provide health care for Americans. Some 60 percent, even 53 percent of Republicans, favored expanding Medicare to cover people under age 65 who did not have health insurance. About 64 percent of people in the US favored national health insurance financed by tax money paying for most forms of health care.30 Quite aside from public adulation for wealth and greatness, as repeated endlessly in the public media today, large majorities of Americans favored their tax dollars being used to help pay for a broad range of government programs that would enhance equal opportunity and provide economic security. A super-majority of 81 percent of Americans supported using their tax dollars to fund early childhood education in nursery school and kindergarten; 80 percent for retraining programs for people whose jobs had been eliminated; 78 percent for food stamps and other assistance for the poor; and 70 percent for providing health coverage for everyone. About 67 percent of Americans even favored using their tax dollars to help pay for benefits for the children of single teen-age mothers. Regarding taxes: fewer than a third of all Americans favored cutting taxes. About 60 percent favored paying more taxes to provide health-care coverage for everyone, and for early childhood education as well.31 Many people have a strong personal belief in greater equality and fairness, but these values have remained private intuitions which they fear others do not share. The advantage of the growing body of evidence of the harm inflicted by inequality is that it turns what were purely personal intuitions into publicly demonstrable facts. This will substantially increase the confidence of those who have always shared these values and encourage them to take action.32

It seems clear that a more equal society would be a better society and have fewer social pathologies, more friendliness, and a shared common vision. For several decades we have lacked a vision of a society that would be a better place for the vast majority; we are not even sure of what a better society would look like because we no longer ask that kind of question. According to the Harwood Institute for

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The great forgetting

Public Innovation, which has conducted national opinion surveys in the US, at least three-quarters of Americans have felt “that society had lost touch with what really mattered. Consumerism and materialism, they felt, were winning out over more important values to do with friends, family and community.”33 Public opinion polls in the UK and the US have suggested a substantial majority favoring the reduction of income differences. British polls over the previous twenty years have shown that 75–80 percent of the British population thought that income discrepancies were too great, and this despite the fact that differences were underestimated. In the US, the 2005 Maxwell Poll on Civic Engagement reported that 80 percent of the population thought inequality was a problem; 60 percent thought the government should try to reduce the gap. Gallup polls between 1984 and 2003, which asked Americans whether income and wealth were fairly distributed, revealed that more than 60 percent of the population thought they should be more evenly distributed.34 Despite these attitudes, which are mirrored among the British, governments remain indifferent to the human costs of policies that have created the inequalities that the British and American publics have said they do not support. We have grown insensible to the human costs of the policies of our own governments, even when we are its victims. Despite our collective belief that the government is pursuing the wrong path when it tells us we are on our own, we swallow the argument that overall prosperity will somehow contribute to our own separate interests. We are even willing to believe that we have separate interests, and that there is no such thing as a common good, and a common goal, or that well-being should include all of us. We have been led to believe that the poor deserve their fate, until we find ourselves among them. In the meantime, we have come to despise them. Having forgotten the past, we are not even able to acknowledge that we are returning to it. We do not notice, or we seek to avoid remembering, the implications of the 1996 Personal Responsibility and Work Opportunity Act, which sought to gut welfare provision in the US. The stated purpose of the act was to reduce the welfare rolls, which would be achieved by withholding relief from anyone who failed to seek paid employment and, if successful, to accept it. As a result, employers knew they could attract workers at any wage offered, inasmuch as workers could ill afford to reject a job, regardless of pay and conditions, without risking the loss of welfare benefit. The result was as anticipated. Not only was unemployment considerably reduced, so were the numbers on welfare – and business costs as well. But workers and the poor lost far more than income. They were also stigmatized if they accepted welfare. Whether it was unemployment or food stamps, or even child support, to receive welfare was taken as a sign of personal failure. Notably, the 1996 legislation, which punished the unemployed for being unemployed, draconian as it might have been, largely escaped notice by a media which preferred to dwell upon more glamorous and sensationalistic topics. Yet it was reminiscent of a previous draconian act passed in England, nearly two hundred years earlier, the New Poor Law of 1834. The Poor Law of 1834 was decisive, an outrage to human dignity. It mandated

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that workers accept wages no matter how low, or accept the humiliation of the workhouse. The Poor Law accomplished its aim by setting subsistence lower than the lowest wage set in the market. As John Gray has put it: “It stigmatized the recipient by attaching the harshest and most demeaning conditions to relief. It weakened the institution of the family. It established a laissez-faire regime in which individuals were solely responsible for their own welfare, rather than sharing that responsibility with their communities.”35 The traditional view was that a man had a right to earn a living, but if he was unable to do so he was entitled to be supported by the community. But the view of middle-class liberal economists set the traditional view aside. Their belief was that workers should take whatever the market offered, at whatever market rate was available. The worker, being a rational figure, was supposed to set aside, by individual effort, enough savings to make provision for accidents, illness, and old age. The residual pool of paupers would not be left to actually starve, but would not be given more than the absolute minimum, as long as it was less than the lowest wage offered in the market and under the most discouraging working and living conditions. Eric Hobsbawm has drawn the proper conclusion: The Poor Law was not so much intended to help the unfortunate as to stigmatize the self-confessed failures of society … There have been few more inhuman statutes than the Poor Law Act of 1834, which made all relief ‘less eligible’ than the lowest wage outside, confined it to the jail-like work-house, forcibly separating husbands, wives, and children in order to punish the poor for their destitution.36

The Poor Law remained in effect in Britain until the First World War, affecting at least 10 percent of the population in the mid-Victorian era. The purpose of the Poor Law reform was to transfer from the public to individuals the primary responsibility for protection against insecurity and misfortune, and to compel people to accept wages offered in the market no matter how low they were set. It was to achieve this by making the alternative to low-wage employment even more intolerable by forcing workers who resisted into the humiliating conditions of the workhouse. The theory behind the Poor Law, based on the liberal economic thought of the period, denied the very possibility of unemployment in an efficient market: if wages were to fall low enough, and there was no better alternative, everyone would be compelled to take whatever work was on offer, and hence there would be no unemployment.37 It took the better part of a century before the New Poor Law and similar laws elsewhere were set aside and succeeded by the public provision of assistance as a matter of right. Those without work were no longer stigmatized as less deserving simply because they were unemployed; nor were they cast aside as unworthy and excluded as members of society simply because they were unfortunates. “More than anything else,” as Tony Judt has aptly put it, “the welfare states of the mid-twentieth century established the profound indecency of defining civic status as a function of economic good fortune.”38 What emerged, instead of punitive actions against individuals who refused to submit to the intolerable conditions and stipulations of the Poor Law, was a system of universal social provision, varying from one country to another. The inability

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to work or to find work was no longer stigmatized as the result of bad character or refusal to work; unemployment was not taken as dishonorable or demeaning. On the contrary, needs and rights were granted appropriate respect. Despite these advances in the twentieth century, we have again reverted to the attitudes and the laws of the nineteenth century. For several decades now we have stressed incentives and rewards, in both the US and UK, and imposed penalties for shortcomings on those deemed less worthy and ‘unwilling’ – or even unable – to work. We have imposed penalties on workers because they are ‘idle’. We have ‘agreed’ – and have been told by those who represent us – that if workers are not desperate, they will refuse to work; if the state puts people on welfare, they would not seek employment. Worst of all, modern ‘reforms’ have reverted to a ‘means’ test, once used during Depression England and described by George Orwell as scandalous, as indeed it was. A means test allowed British authorities the right to intrude into the private lives of indigents as much as the authorities deemed necessary, in order to establish whether they had exhausted all their resources. Many have argued that recipients of relief are somehow would-be welfare ‘queens’, forgetting that life on so-called relief is a life of deep humiliation. And we have forgotten that the purpose of relief in the first place was to restore some semblance of human dignity to those who were failing, and that most or all welfare recipients would by far prefer to work – though for a wage that entitles them to live in dignity.39 Building an inclusive society was the objective of many postwar governments, and this included commitment to full employment, as well as to the redistribution of wealth. Two world wars and Depression had taught governments that it was not only much more economically efficient to build welfare states and to embrace social democracies which included provisioning all layers of society, but it was also much fairer. Yet, after decades of building societies based on fairness and public welfare defined as the “common good,” we have embraced, or acquiesced in – for some three decades beginning around 1980 – an Anglo-American ‘utopian’ model based on the “free market,” “efficiency” and “profits,” “free enterprise,” the “private sector” and “growth” for the sake of growth. It is this model which has seized the day in the US and the UK; and it is this model which coincides not only with the vast concentration – consecration – of wealth, rewarding the few and punishing many, but also with the celebratory rhetoric and triumphalism (the end of history) that always seem to accompany shifts of wealth that move vertically upwards. Where before the idea of happiness was to share social benefits and to protect all citizens against misfortune, the new model only celebrates getting rich, which it upholds as the greatest and perhaps the only virtue.

Inequality and happiness: why social democracy is needed more than ever Americans are today less free, less equal, and less in charge of their own destiny. The top 1 percent of income earners now takes for itself more income each year than the bottom 100 million of all Americans. The US criminalizes more conduct than virtually all non-Islamic country. The majority of Americans know that

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something is wrong with their democracy. Seven out of ten feel they have no say in the political system. Yet most Americans still do not understand that America is heading into an era that marks the end of its “historic values.” Clearly enough, America has strayed from its proclaimed values of liberty, equality, and the pursuit of happiness.40 As we know, inequality is especially prevalent in the gap between the pay of CEO’s and the pay of all others. Compensation for the ten most highly paid CEOs averaged $3.5 million a year in 1981. By 1988 it had jumped to 19.3 million. By 2000 it was $154 million, which represented an increase in this period of 4,300 percent.41 About the growth of inequality, Lester Thurow stated the following as early as 1996: “No country not experiencing a revolution or a military defeat with a subsequent occupation has probably ever had as rapid or as widespread an increase in inequality as has occurred in the United States in the past two decades.”42 In the US, in the 1960s, roughly two out of three people polled said they believed that government was run for all the people. In 1999, when asked whether government was run by a few big interests looking out for themselves, only 19 percent said they believed government was run for the benefit of all people. Some 75 percent thought it was run for the benefit of special interests.43 In the wake of the Great Recession, Americans have seen the influence of special interests become even greater. Voter turnout, another indicator of the faith in democracy, has also declined dramatically. In the 1960 presidential elections more than three out of five people eligible to vote actually did so. But in 2000 only slightly more than half the eligible voters voted. Less than 40 percent have been participating in congressional elections.44 The democratic deficit – and inequality – has been heightened further by the enormous power of the giant corporations. According to Charles Lindblom, the former president of the American Political Science Association, through their spending and relations with government officials, corporations exercise much more power than citizens. He called this a “mammoth violation of the political equality deemed necessary for genuine rather than spurious democracy.”45 What has caused such dramatic increases in social and economic inequality? One reason is the radical decline of the power of labor unions in the US. Unions were always weak in the US by comparison with other Western countries, but they have become even weaker in the last three decades. US peacetime union membership peaked at 34.7 percent of the labor force in the mid-1950s; in 2003 it was a mere 12.9 percent (8.2 percent in the private sector). It is projected that by 2020 union membership in the private sector will be less than 5 percent. Union decline weakens the bargaining power of workers over wages; but it also makes less likely the passage of social legislation that once helped to produce greater equality through redistributive social policies.46 Globalization also has played a role in growing inequality; it has greatly increased the power of the corporation, both economically and politically. It expands access to places around the world for corporations, and it adds to their leverage to threaten to withdraw if their demands are not met. According to

The great forgetting

24 Gar Alperovitz:

Worldwide competition for investment has added to the pressures, forcing government to reduce business tax rates, shifting more of the burden to lowand moderate-income earners. Globalization thereby also implicitly reduces the capacity of governments to spend on redistributive social programs. In 1945 corporate income taxes amounted to 35.4 percent of federal receipts. By 2003 – as labor’s political power decreased, as corporate power increased, and as globalization proceeded – such taxes had fallen to 7.4 percent of federal receipts. More than three-fifths of U.S. corporations paid no taxes at all in the years between 1996 and 2000!47

Population shifts to the suburbs and urban exodus have also brought changes. The suburban white middle class is no longer willing to pay taxes to a progressive agenda that benefits mostly – as they see it – the black and Hispanic poor. Generally, racial and ethnic divides have weakened the coalition that put across the progressive social agenda of Johnson’s Great Society. The fracturing of the Democrats’ bottom-up coalition has made possible the greatest redistribution of income upwards in the history of the nation. The inequality gaps created by these population shifts, and the social and economic policies that have accompanied them, are clear. The real income of the bottom 60 percent of the population actually declined between 1973 and 1995, while the absolute income gap between the top 5 percent and the bottom 20 percent increased by well above 100 percent.48 Today, as in the US, the UK is more unequal in incomes, wealth, health, education, and life chances, than at any period since the 1920s. Today the poor stay poor. The symptoms of their poverty, the direct result of inequality according to British researchers Richard Wilkinson and Kate Pickett, translate into ill health, low educational achievement, and social symptoms like alcoholism, obesity, mental illness and gambling. Inequality is not just unattractive, it is the leading cause of a number of social pathologies that include the following: high infant mortality, low life expectancy, high rates of criminality including homicide, imprisonment, mental illness, unemployment, obesity, malnutrition, teenage pregnancy, illegal drug use, economic insecurity, poor children’s educational performance, and personal indebtedness and anxiety. Inequality, so much more marked in the US and the UK than in continental Europe, has a high social cost. It is the direct link to misery and unhappiness.49 Today, it is generally agreed that the wider the gap between the wealthy few and the struggling many, the worse the social problems: and this appears to be true for rich and poor countries alike. What matters is not how affluent a country is, but how unequal it is. Both Sweden and Finland are wealthy in terms of per capita income and GDP, have a narrow gap separating the richest from the poorest citizens, and consistently are among the leaders in “indices of measurable wellbeing.”50 At the other end of the spectrum is the US, which has a huge aggregate wealth, but is always low on such measures. The US spends vast sums on health, but its life expectancy remains just above that of Bosnia. Japan, which spends far less on health care, tops the scale of life expectancy at almost 82 years, while the US lingers between 76 and 80 years.51 The British do slightly better at 80, but the UK

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has been lagging behind on the Human Development Index, a composite statistic based on life expectancy, education, and income indices, slipping to the twentysixth position, just ahead of Greece.52 Researchers Wilkinson and Pickett have discovered that intergenerational mobility has virtually collapsed in both the US and the UK, and for much the same reason: children in these countries cannot expect to have the same lifestyles and affluence as their parents, reflecting the large income inequalities and gaps in wealth in both countries. The American Dream is fast disappearing; the US has the lowest social mobility and the highest income disparities of the eight countries that Wilkinson and Pickett consider. On a chart comparing income inequality and social mobility, the Scandinavian social democracies, Denmark, Finland, Norway, and Sweden, and Germany and Canada, with many of the characteristics of a social democracy, are considerably ahead of both the US and the UK in income equality, social mobility, and measurable well-being.53 It is an ironic commentary on modernity that past a certain point, affluence only produces a rise of anxiety, depression, and numerous other social pathologies. Moreover, as living standards rise and countries get even richer, the relationship between economic growth and life expectancy weakens. Eventually the relationship disappears entirely. Thus, when rich countries become ever richer, there is a threshold beyond which there is little or no increase in life expectancy. This has already happened in the richest 30 or so countries.54 This does not mean that we have reached the limits of life expectancy. Health improvements continue unabated in rich countries. So what has changed? Improvements are no longer related to average living standards. As countries get richer, further increases in average living standards do less and less for health, and therefore less and less for life expectancy. Moreover, just as the relationship between health and economic growth has leveled off, so has the relationship between economic growth and happiness. Happiness follows the same curve as human longevity. Countries such as Belize, Costa Rica, Cuba, and even Mexico, where the national income per person hovers around $10,000, have a life expectancy close to 80 years, which is very close to that of Canada, Denmark, Iceland, Norway, the UK, the US, and Switzerland. The richest countries can be twice as rich as others without any benefit for life expectancy. The US, though the richest of the rich countries, has one of the lowest life expectancies among them at about 77 years, greater only than Portugal at half the income of the US – some $20,000 – and Ireland and Denmark, which are near the $30,000 mark in national income per capita. We know also that in the US the higher the income level the lower the death rate. This gradient is true within almost all societies. Health and happiness are related to income; richer people tend on average to be healthier and happier than poorer people in the same society. But in comparing rich countries it makes no difference whether on average people in one society are almost twice as rich as people in another. In rich countries what really matters is not actual income level and living standards, but how one compares with other people in the same society.55

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Today, income inequalities among developed nations are greatest in Portugal, Singapore, the UK, and the US. The richest fifth of American society has on average incomes eight times greater than the poorest fifth, a ratio roughly comparable to that of Portugal. The country with the narrowest income disparity is Japan; the richest quintile of the population in Japan takes in an income about four times greater than the poorest quintile. The Nordic countries Denmark, Finland, Norway, and Sweden have comparable levels of equality. Continental welfare states like Austria, Belgium, Germany, and the Netherlands are just slightly behind, or slightly less equal.56 The consequences of inequality are now clear. Poorer people in countries which tolerate high levels of income – and almost always wealth – disparities suffer from low levels of trust, mental illness (including drug and alcohol addiction), lower life expectancy, higher rates of infant mortality, obesity, low children’s educational performance, high incidences of teenage births, homicides and imprisonment rates, and much lower expectations for social mobility. The more disadvantaged can expect not only to have shorter lives but also to lead much less healthy lives. They will suffer from ill health, but with fewer resources to help them manage or improve their health. They can expect lower educational attainments, and will have fewer hopes of acquiring the kind of skills that allow any kind of upward mobility. As we have seen, the poor remain poor, only they will also be less educated, and with little hope to improve themselves. They have a much greater chance to remain or to become unemployed, and to lose the skills they have acquired as a result. They will suffer from obesity, and are far more likely to indulge in gambling, drugs, and prostitution. They will have higher levels of anxiety, and will be less able to afford the kind of medical attention they need to cope with their anxieties. And they will even lose faith in their fellow citizens – if they have not already done so – with whom they will no longer be able to identify. Inequality is corrosive, and in the end it is divisive and expensive. The more unequal a society, the higher the rate of incarceration; and the greater likelihood of gated communities to wall off the rich from the unfortunate. In sum, countries that tolerate wide income and wealth disparities can expect weakened community life, reduced trust, and increased violence. Moreover, countries with large disparities in income and wealth can also expect large deficits in democracy; unless there is real fraternity and equality, as once proclaimed and promised by the French Revolution, there can hardly be liberty. The costs of inequalities are paid by the poor who suffer from them. But the pathologies that result also rob the rest of us by corroding the democratic and shared values which so recently included much greater commitment to collective good and the well-being of all of us. And when there are no shared values, when society is unequal and we are on our own, trust levels tend to collapse. The more unequal a society, the lower the level of trust. Trust tends to be high only when people embrace a common culture that includes everybody. Until several decades ago Anglo-America was held together by shared values, and the widely held belief that everybody should be treated with respect and tolerance. Significantly, as Wilkinson and Pickett have put it: “High levels of trust mean that people

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feel secure, they have less to worry about, they see others as co-operative rather than competitive.”57 Not surprisingly, there is evidence that people with high levels of trust live longer, perhaps because of a sense of assured well-being, collective identity, and shared purpose. Again, economists and ethicists ignore the high individual and social costs that are the result of the loss of commitment to social democracy and collective wellbeing. Consider mental health and well-being in the UK and the US, the two most unequal societies among wealthy nations according to all indices of measurable well-being. A million British children, one in ten between the ages of 5 and 16, are estimated to be mentally ill. In America, 6 percent of children have been diagnosed with Attention Deficit Disorder, a disorder with a syndrome of distractedness, impulsiveness, and restlessness. Adults fare little better. In a national survey conducted in 2000 in the UK, 23 percent of adults had either a neurotic disorder or a psychotic disorder, or were addicted to alcohol or drugs. In 2005 doctors wrote 29 million prescriptions for antidepressant drugs, costing over £400 million to the National Health Service in the UK. In the US one in four adults had been mentally ill in the previous year; and over their lifetime more than half suffered from mental illness. In 2003, the US spent $100 billion on mental health treatments.58 Not surprisingly, the greater the disparities of income, the higher the percentage of mental illness in countries surveyed by Wilkinson and Pickett. Of the 11 countries measured, the US, which is the most unequal, also has by far the highest incidence of mental illness, more than 25 percent. Japan, the country with the greatest equality, has a mental illness incidence of less than 10 percent. Germany and Spain, with much greater income equality than the US and UK, also have about a 10 percent incidence of mental illness. The UK, the country that after the US is the most unequal, has a high rate of mental illness, at about 24 percent of its population.59 Tragically, those with mental disorders often tend to blame themselves; in a society that increasingly stresses personal responsibility, and that tends to equate an individual’s fate with his abilities, failure is often seen as the result of a personal defect. This was made even more emphatic by Thatcherism in Britain and Reaganism in America, both of which denied the very existence of society; Margaret Thatcher, especially, emphasized that there were individuals and their families, and that was all. Neo-liberal economic theory supported her. Affluence and inequality taken together entail placing a high value on money and material possessions, looking good in the eyes of others, and wanting to be famous. Such values place us at greater risk of depression, anxiety, substance abuse, and personality disorder. We suffer from status anxiety, the failure to maintain our position in a social hierarchy. As a result, we tend to be bitter toward those who are affluent and ashamed of ourselves, without even thinking about what has produced the hierarchy whose top most of us will never see; and this is made even more emphatic by the values we now live by which prize wealth above all, and view those without it as having failed. This is because we see ourselves as individuals, without any memory of the shared values and purposes that our leaders have mostly abandoned. Viewing inequality as the result of personal inadequacy,

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The great forgetting

we are ill equipped to envision how we might restore the greater social equalities we once enjoyed. The result is that we think we have to live with the results of inequality, and we think that inequality is itself the result of globalization, modernization, the loss of jobs to international competition, new technology, and robotization; in sum, the inevitable denouement of modern life. In the meantime we are prepared to accept things the way they are; to want a better life is described as irresponsible utopian­ism by media pundits and knowledge workers employed by presti­ gious universities and media outlets. Worse still, we tend to blame ourselves for joblessness, depression, and poor health, despite the evidence that jobs have been exported abroad by the hundreds of thousands. And we still have anxieties about whether we can afford health care for ourselves and our children, all the more so because of our belief that economic catastrophe may be just around the corner. When told that social inequality is something that we do not have to accept, too many scoff at solutions that, they are warned, resemble socialism. Moreover, many believe that social inequality is a permanent condition, with no remediation possible, or even desirable; we like to believe what the rich tell us – by themselves or through their own knowledge workers – that they have earned everything they have. Yet we now know that inequality not only affects those at the bottom adversely, through no fault of their own, but also affects those at the top in adverse ways they might not even imagine. Thus, inequality is not only unfair, it affects all of us adversely, and it is reversible. Inequality does not come about because of some process beyond our control, it is the result of political policies that favor the already advantaged over those who are increasingly disadvantaged because they have no political clout. Yet many of us do not understand that the market and so-called free trade are themselves highly sensitive to and a reaction to policies put in place by those we have elected. “Inequality,” as noted by Wilkinson and Pickett, “is associated with lower life expectancy, higher rates of infant mortality, shorter height, poor self-reported health, low birth-weight, AIDS, and depression.”60 It is significant that the discrepancies are not between the poor health of the poor and the good health of the rich, although to be sure the rich live longer. But income inequality is associated with higher mortality rates across the social spectrum. The more unequal a society is in income, the greater the rate of adult obesity (though this shows up more for women than for men), and the greater the number of overweight children. Again, these figures are not confined to the poor. In the US, for example, about 12 percent of the population is poor, but 75 percent of the population is overweight and this figure is rising not declining. Among British women, obesity affects 16 percent of higher managerial and professional women and 20 percent of women just below them in managerial and professional positions.61 The greater the disparities of income in a country, the higher the incidence of homicides and mental illness, and the greater the number of dysfunctional families and children. The usual assumption is that greater equality mostly helps those at the bottom. But this is false:

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Across whole populations, rates of mental illness are five times higher in the most unequal compared to the least unequal societies. Similarly, in more unequal societies people are five times as likely to be imprisoned, six times as likely to be clinically obese, and murder rates may be many times higher. The reason why these differences are so big is, quite simply, because the effects of inequality are not confined just to the least well-off: instead they affect the vast majority of the population.62

As an illustration of this, compare non-Hispanic whites in the UK and the US: rates of diabetes, hypertension, cancer, lung disease and heart disease are much lower in the UK than the US for all educational levels, low and high. The conclusion is that the variable has to be the greater inequality in America. Another comparison is of infant mortality rates between England and Wales, and Sweden. The rates are higher in England and Wales than in Sweden for all occupational categories.63 What has produced these kinds of income and wealth disparities that have not only become widespread in the US but are increasingly becoming globalized? Corporate greed and the intractability of Wall Street and the City in London are usually given a free pass – not a surprise since they control or have leverage over much of the media in which they are judged.64 Globalization, as the argument of Big Business goes, has changed the way we do business, and has increased the ever-growing need to become competitive. Until the last two decades, corporate executives had to maintain the goodwill of organized labor; they had to develop good relations with public officials who had the power to set wages and prices, and they needed regulatory permissions on fares, rates and licenses. They needed good relations because they wanted government contracts. So what has changed? Competition, for one, has become more intense. Corporations now have access to low-cost suppliers from all parts of the globe. They can streamline operations using information technology; they can replace labor with robots and similar technology; and they can outsource work almost anywhere on the planet.65 But, of course, inequality is not solely the result of globalization: the pay scales of CEOs are the result of corporate decisions that have little or nothing to do with globalization. The divergence between CEO pay and worker pay in Europe has remained much steadier for decades, and more resembles the US some three decades ago than the US today, though Europe must compete in the same global environment. Tax structures also have nothing to do with the market as such, they are the result of national domestic decisions as to how generated wealth should be used – and how it should be taxed. In Europe, in the social democracies, higher taxes equate with much greater equality, and greater equality has led to much happier nations, often without reducing their efficiency by comparison with the US or the UK, which have far less equality. What are the results of inequality in America? Polls suggest that 60 percent of Americans think the US is in decline; about the same percentage do not expect ever to get back to the standard of living they knew before the Great Recession; and just as many think their children will not be able to enjoy the standard of living they had once known. In sum, the vast majority of Americans regret the loss of the social contract. They believe themselves to be acting in a vacuum, with

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no confidence in their government or their future. Richard Wilkinson and Kate Pickett have given us a vivid description of the social ennui and pathologies experienced by these same Americans, though they concluded much the same for the UK: It is a remarkable paradox that, at the pinnacle of human material and technical development, we find ourselves anxiety-ridden, prone to depression, worried about how others see us, unsure of our friendships, driven to consume and with little or no community life. Lacking the relaxed social contract and emotional satisfaction we all need, we seek comfort in over-eating, obsessive shopping and spending, or become prey to excessive alcohol, psychoactive medicines and illegal drugs.66

Many Americans have wanted to move toward a society and a life more centered on values, family, and community. Yet, they also have thought that these values were not held by a majority of Americans, whom they believed had become atomized, selfish, and irresponsible. As a result they have felt isolated and lonely. And also, no doubt, they are hardly aware of political and social alternatives, and how to achieve them.67 America, the land of unparalleled material success, has also become the land of unparalleled social pathologies, a nation increasingly unhappy and unequal: and this in the UK as well, which under Margaret Thatcher, but Tony Blair and Gordon Brown as well, began to resemble the US in the maldistribution of wealth. Yet, this is not the inevitable result of modernity, globalization, or the technological revolution. The social democracies and welfare states of Europe have made different social choices, with different social results, and they are happier for having done so. Even in crisis, Europeans continue to insist on the right of families to a decent income and to decent housing, the right of individuals to an education, the duty of the state to make public provision for all, to narrow the gaps in social inequalities, and to provide universal access to the health-care system. In continental Europe the homicide rate is only a quarter of that in the US, the literacy rate is higher, and the lifespan of Europeans longer than that of their American counterparts. Europe incarcerates far fewer of its citizens than does America. Europeans generally are happier because they have a social contract they can rely upon. Europeans know they have access to publicly subsidized housing, they know there is public provision for their health care, education, and family assistance, and they know their pensions will protect them in retirement, even when they must be reduced. As Tony Judt has observed, the materialistic and selfish quality of contemporary life is not an inherent part of the human condition. Much of what might seem immutable today has its origins in the 1980s: “the obsession with wealth creation, the cult of privatization and the private sector, the growing disparities of rich and poor. And above all, the rhetoric that accompanies these: uncritical admiration for unfettered markets, disdain for the public sector, the delusion of endless growth.”68 The Great Crash of 2008 was a reminder that we cannot continue like this; unregulated capitalism has a nasty habit of excess that leads to collapse. And with the

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usual outcome: those who caused the collapse standing in line for handouts from the same state they had weakened and whose regulations they had successfully avoided or aborted altogether. Today, grimness has overtaken not only critics of the contemporary world but also students, academics, and even liberal intellectuals, as they have embraced a cynical retreat into the past. Utopianism and idealism have been abandoned in the name of realism and practicality. For young students, the shift to practical concerns is obvious because careers and jobs are paramount for them.69 But much more has been lost than jobs and careers, and even than the social buffers and benefits that so recently protected whole populations from economic adversity and even catastrophe. It is not so much the collapse of the economy that is catastrophic as much as the collapse in the belief that a different and better future is possible. What is most tragic is the conviction that the future will look much like the present, and this at a time when the present offers much less reason for optimism than the recent past. Past generations were always sustained by the belief that the present was good, but the future would be even better. Today’s younger generations have abandoned hope that even the beleaguered present, with its falling standards of living for the bulk of society, will be sustained. Where affluence might have been taken for granted a decade ago, today it means sustained hard work, two wage earners per family, and prayer for good luck in getting and keeping employment. The idea of permanent prosperity is itself more and more regarded by more and more of us as empty illusion.70

Notes   1 Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 1–2.

  2 Tony Judt, Reappraisals: Reflections on the Forgotten Twentieth Century (New York: The Penguin Press, 2008), 4.   3 Francis Fukuyama, The End of History and the Last Man (New York: The Free Press, 1992).   4 Judt, Ill Fares the Land, 5.   5 Tony Judt, “What is Living and What is Dead in Social Democracy?” New York Review of Books 56, no. 20 (17 December 2009): 86.   6 Robert Reich, “Foreword,” in Richard Wilkinson and Kate Pickett, The Spirit Level: Why Greater Equality Makes Societies Stronger (New York: Bloomsbury Press, 2009), v.  7 G. William Domhoff, “Who Rules America: Wealth, Income, and Power,” last modified February 2013, accessed 24 December 2013, www.sociology.ucsc.edu/ whorulesamerica/wealth.html. See also Gar Alperovitz, America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy (Hoboken, NJ: John Wiley & Sons, 2005), 5.   8 Reich, “Foreword,” vi.   9 Jacob Hacker and Paul Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer – And Turned Its Back on the Middle Class (New York: Simon and Schuster, 2010), 1. 10 Ibid., 2. 11 Ibid. 12 Ibid., 3

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13 Ibid., 3–4. 14 Ibid., 15. See also Emmanuel Saez, “Striking It Richer: The Evolution of Top Incomes in the United States” (last modified 5 August 2009), accessed 24 December 2013, http:// elsa.berkeley.edu/~-saez/saez-UStopincomes-2007.pdf. 15 Hacker and Pierson, Winner-Take-All, 16. 16 Ibid., 39. 17 Ibid., 48. 18 Ibid., 49. 19 Guardian, 27 June 2012. 20 Will Hutton, Them and US (London: Little, Brown, 2010), 11–12. 21 Ibid., 13. 22 Ibid. 23 Ibid., 15–16 24 Ibid., 19 25 Ibid., 25. 26 Ibid., 25–6. Among other sources, see also George Irvin, Super Rich: The Rise of Inequality in Britain and the United States (London: Polity, 2008). 27 Benjamin I. Page and Lawrence R. Jacobs, Class War: What Americans Really Think about Economic Inequality (Chicago, IL: The University of Chicago Press, 2009), 23–4, 34–40. 28 Ibid., 40–3. 29 Ibid., 49–61. 30 Ibid., 66. 31 Ibid., 81–3. 32 Wilkinson and Pickett, Spirit Level, 240. 33 Ibid., 241. 34 Ibid. 35 John Gray, False Dawn: The Delusions of Global Capitalism (New York: The New Press, 1998), 9. 36 E. J. Hobsbawm, Industry and Empire (Harmondsworth: Penguin, 1991), 21–2, 25. 37 Gray, False Dawn, 10; and Judt, Ill Fares the Land, 25. 38 Ibid. 39 Ibid., 26–7. 40 Alperovitz, Beyond Capitalism, 1–2. 41 Ibid., 10. 42 Lester C. Thurow, The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World (New York: Williams Morrow, 1996), 42. 43 Alperovitz, Beyond Capitalism, 10. 44 Ibid., 10–11. 45 Charles E. Lindblom, The Market System: What It Is, How It Works, and What to Make of It (New Haven, CT: Yale University Press, 2001), 237. 46 Alperovitz, Beyond Capitalism, 14–15. 47 Ibid., 15–16. 48 Lawrence Mishel, Jared Bernstein, and Heather Boushey, The State of Working America: 2002–2003 (Ithaca, NY: ILR Press, 2003), 47, 98, 117, 128. See tables 1.7, 2.1, and 2.6. 49 Wilkinson and Pickett, Spirit Level, 13–19. Richard Easterlin, Happiness, Growth, and the Life Cycle (Oxford: Oxford University Press, 2010), 41–5, has also emphasized the connection between income and inequality within countries. Easterlin also has noted that richer societies are not necessarily happier ones (Easterlin Paradox). See also

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Richard Easterlin, Growth Triumphant: The Twenty-First Century in Historical Perspective (Ann Arbor, MI: The University of Michigan Press, 1998). Shigehiro Oishi, The Psychological Wealth of Nations: Do Happy People Make a Happy Society (Oxford: WileyBlackwell, 2012), suggests the relation between income and happiness may have more to do with cultural–psychological factors. Americans, for example, may resent the wealth of the rich less because they expect to emulate them one day. Oishi, however, fails to account for the linkages between happiness and social democracy. 50 Wilkinson and Pickett, Spirit Level, 79–84. 51 Ibid., 80. See also World Health Organization (WHO) at www.who.int/usa/en. 52 United Nations, Summary: Human Development Report 2013 (New York: United Nations Development Program, 2013), 16. 53 Wilkinson and Pickett, Spirit Level, 159–60. 54 Ibid., 6. 55 Ibid., 12–13. 56 Ibid., 15. 57 Ibid., 56. 58 Ibid., 63–5. 59 Ibid., 67. See figure 5.1. 60 Ibid., 80. 61 Ibid., 93–101, 122. 62 Ibid., 181. Italics are the author’s. 63 Ibid., 182–4. 64 See Colin Crouch, The Strange Non-Death of Neoliberalism (Cambridge: Polity Press, 2011); and Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (London: Verso, 2013). Mirowski and Crouch explain how the financial sector – abetted by neo-liberal ideology – survived the Great Recession by shifting blame to government or globalization, but rarely to banks or financial institutions. 65 Reich, “Foreword,” vii. 66 Wilkinson and Pickett, Spirit Level, 3. 67 The Harwood Group, Yearning for Balance: Views of Americans on Consumption, Materialism, and the Environment (Takoma Park, MD: Merck Family Fund, 1995). 68 Judt, Ill Fares the Land, 2. 69 Russell Jacoby, The End of Utopia: Politics and Culture in an Age of Apathy (New York: Basic Books, 1999), 158. 70 Ibid., 158–60.

2

Social equality: why it matters Adam Smith: moral economy before political economy Adam Smith is often celebrated as the father – or apologist – of free trade capitalism, but Smith did not believe that commerce and profits trumped everything else, as he made clear in The Theory of Moral Sentiments, which he published in 1759. There he embraced human happiness as the standard of civility and the aim of organized society; commerce was but the handmaiden for the good of all. It was not greed for profit that was to magically lead to the wealth of nations, nor the calculus of self-love or personal gain. What mattered to Smith was the moral economy: the desire of each to measure his own happiness by the happiness of others. “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”1 Moral economy took precedence over the freedom to trade without hindrance. It was based on the human ability to feel the pain and pleasure of others, and to set that as a priority. Smith did not believe that pleasure could or should be derived from self-love or “self-interested consideration.”2 Mankind would only find happiness and social harmony if it felt benevolent affections for all members of civil society, not by equating self-interest with social good: And hence it is, that to feel much for others, and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety.3

Social harmony could only be assured on the basis of social leveling and the limiting of excess. The social needs of the many must come before the economic requirements of free traders. The moral order must be the foundation of the social order. To put free trade ahead of the public good was not only risky, it was also fundamentally unjust: The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corrup-

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Social equality: why it matters

35

tion of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages.4

Smith was not alone in noting the danger of class divisions and the inevitable perversion of government that would surely follow if excesses of wealth and property were not curbed. Enlightenment realist and philosopher David Hume observed that “where the riches are in a few hands, these must enjoy all the power and will readily conspire to lay the whole burden on the poor, and oppress them still farther, to the discouragement of all industry.”5 Charles de Montesquieu, writing also during the eighteenth-century Enlightenment, noted the dangers to democracy of inequality in The Spirit of the Laws: for “men of overgrown estates, everything which does not contribute to advance their power and honor is considered by them as an injury.”6 Smith was himself quite explicit in linking “great property” to the perversion of politics and society, and not only in his Theory of Moral Sentiments. In The Wealth of Nations (1776), he wrote the following little-noticed passages: “Wherever there is great property there is great inequality … Civil government, so far as it is instituted for the security of property, is, in reality, instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”7 Smith was above all a free trader, but he opposed the notion that trade should be to the advantage of the individual; trade was to be for the good of the nation, particularly the British nation. Trade generally was about the wealth of nations. The larger the market, the greater the division of labor: the greater the division of labor, the more efficient would be the process of production. And the more efficient that production became, the higher the standard of living of the nation would become.8 Free trade, however, often contradicted the moral economy. Smith’s famous injunction that individuals, intending their own welfare, would be led by an invisible hand to produce the good of all, still depended on individual virtue. The invisible hand needed some help from the well-intending heart. The pursuit of individual advantage through trade could do irreparable damage to the wealth of nations. Social cohesion was not automatic, it was not the result of an invisible hand. On the contrary: “All the members of human society stand in need of each others’ assistance, and are likewise exposed to mutual injuries.”9 Mutual regard, not self-love, was the ideal motive force behind the invisible hand that hypothetically guided trade. Trade, then, was not ‘free’; it should be balanced by a moral economy based on mutualism. It was not just wealth that led to the happiness of the community – for wealth itself depended on community – but public virtue that promoted the happiness of all. The least virtuous were those who aimed only at individual happiness. On the contrary, virtue alone led to the well-being of the many, irrespective of the invisible hand, which turned out to be not so invisible after all: “Self-love was a principle which could never be virtuous in any degree or

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The great forgetting

in any direction. It was vicious whenever it obstructed the general good.”10 Smith was convinced that mankind’s love of virtue would ultimately lead to the triumph of justice and righteousness. But this would not emerge as the result of the invisible hand. Only the love of virtue would lead to right action. For Smith to believe that man could act with benevolence might sound like an Enlightenment notion of Utopianism. Was it really possible to reverse the effects of poverty by benevolence and right action? Unlikely as it might appear to some conservative contemporaries, Adam Smith did favor redistributing the rewards of the harvest to bring about a “just reap”: The industrious knave cultivates the soil; the indolent good man leaves it uncultivated. Who ought to reap the harvest? Who starve, and who live in plenty? The natural course of things decides it in favor of the knave: the natural sentiments of mankind in favor of the man of virtue … Thus man is by Nature directed to correct, in some measure, that distribution of things which she [Nature] herself would otherwise have made.11

Nature favored the “knave.” The impersonal laws of economics rewarded the indolent. Only benevolence could assure the fair distribution of wealth. Only public virtue and right actions could reduce excess. The reduction of excess would lead to greater equality, and therefore greater happiness. Greater happiness would lead to social harmony and well-being; and in the end this was the best formula to build the wealth of nations.

Alexis de Tocqueville: democracy and equality in America Alexis de Tocqueville, a keen observer of America in the nineteenth century, was aristocratic by birth, democratic by sentiment, and a lover of liberty by philosophical inclination. He believed that American democracy could only be fulfilled if liberty was joined to equality. He warned against the emergence of a new elite, or a new aristocracy based on manufacturing wealth, and believed that equality and liberty were not only compatible but were both also necessary for the happiness of human beings. His opening passages in Democracy in America, written shortly after his visit to America in 1831, made this clear: Of all the novel things which attracted my attention during my stay in the United States, none struck me more forcibly than the equality of social conditions … Soon I came to recognize that this very fact … exercises no less power over civil society than it does over the government. It forms opinion, creates feelings, proposes ways of acting, and transforms anything it does not directly instigate itself.   Consequently, as I studied American society, I increasingly viewed this equality of social conditions as the factor which generated all the others and I discovered that it represented a central focus in which all my observations constantly ended.12

But much as Tocqueville admired American democracy, he was not necessarily sanguine about its future. He observed that America did not have a governing class that governed dispassionately in the name of the public interest. Instead, it had

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an industrial class – possessed of talent and ingenuity, to be sure – which readily transformed its money into popularity, influence, and power. Tocqueville warned against this new aristocracy of wealth, with no standards other than self-aggrandizement. He posed an antidote to this, however: the maintenance of conditions of social equality.13 A keen observer of the industrial revolution in America, Tocqueville believed that industrialization would be a great social leveling force; this was especially true of the fledgling US, which lacked a native aristocracy. But he also observed the emergence of a new manufacturing elite, an incipient industrial aristocracy of money, which might produce unprecedented social inequalities threatening democracy itself. Yet, as Tocqueville added, the strength of civic life in the US was such that its citizens had forged a common interest: and that was America’s strength. Without a shared interest, and social leveling, society would be divided by occupation, wealth, and birth, each with its opinions, moral habits and separate existence, so that men bore no resemblance to one another: When ranks are almost equal among a people, with all men having more or less the same manner of thinking and feeling, each of them can judge in an instant the feelings of all the others: he casts a rapid glance at himself; that suffices for him. There is thus no misery that he cannot easily conceive of and whose dimensions are not revealed to him by a secret instinct. It does not matter whether it is a question of strangers or enemies: his imagination puts him immediately in their place. It mixes something personal into his pity and makes him suffer himself when the body of his fellow man is torn apart.14

Tocqueville completed this sentiment by declaring that “the same man who is full of humanity for his fellow men when they are at the same time his equals, becomes insensitive to their sufferings the moment the equality ceases.”15 Tocqueville’s conviction was clear enough; no democracy can long endure without social equality; the advantages of egalitarianism were clear, [If] such a society displays less brilliance than an aristocracy, there will also be less wretchedness; pleasures will be less outrageous and wellbeing will be shared by all; the sciences will be on a smaller scale but ignorance will be less common; opinions will be less vigorous and habits gentler; you will notice more vices and fewer crimes.16

But social equality was not just desirable for reasons of utility, or because it was likely to reduce crime or to forestall revolution. It was also likely to lead to a greater sense of well-being, a stronger likelihood of shared purposes, a sense of common trust and belief in a collective social good. Equality meant social cohesion rather than a competition of individuals in pursuit of private advantage: “Since every man is weak he feels the same needs as his fellows and, knowing that he can gain their support only if he offers them his help, he will quickly discover that his own private interest fuses with that of the whole community.”17 Thus, Tocqueville defined a sense of shared purpose and collective welfare. Democracy did not work unless individual and public needs and interests converged. In a little known passage Tocqueville argued this sentiment: “When

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the rich alone rule, the interests of the poor are always in danger; and when the poor make laws, the rich see their interests in great jeopardy. What, then, is the advantage offered by democracy? The real advantage is not, as is claimed, to favor the prosperity of all. But only to serve the wellbeing of the greatest number.”18 Elsewhere Tocqueville was even more explicit, equality was not just a noble aim, it had other advantages: Almost all the revolutions which have changed the shape of nations have been undertaken to reinforce or destroy inequality … Either the poor have aimed to snatch the property of the rich or the rich have attempted to enslave the poor. Thus, if you could found a state of society in which everyone had something to keep and little to take from others, you would have done much for the peace of the world.19

Tocqueville believed he had found a just society in America, for here was a nation founded on conditions of equality, with no native aristocracy. America was as much an idea as a place, an idea in which liberty and equality were both esteemed, and where democracy was embraced in place of the privileges of caste. It was precisely because Americans were equal that they could enjoy individual rights. Put another way, it was because people had secured democracy, and the equality of conditions, that it was not as necessary to assert unfettered individual rights, all the more so because they would likely disturb the delicate balance implied by social equality. The right to be equals emerged as the most important right of all. This was a world apart from Adam Smith, for it was the duty of government, as authority, “to guide each citizen by the hand.”20 Tocqueville believed that men by their very nature loathed privilege, especially “as these privileges bec[a]me rarer and less important,” as was inevitable in an age of democracy. In an age of aristocratic privilege, hierarchy appeared to be part of the natural order. But in an age of democracy, and given the social leveling in America, Tocqueville observed: “the slightest disparity appears shocking amid universal uniformity; the more complete this uniformity, the more intolerable it looks. Therefore, it is natural that love of equality should thrive constantly with equality itself: to foster it is to see it grow.”21 It was the duty of government, Tocqueville urged, to help foster social equality.

John Stuart Mill: liberty, democracy, and equality John Stuart Mill was a liberal, a democrat, a republican, and finally a socialist. He was an Englishman who embraced the ideals of the French Revolution: liberty, fraternity and equality. He was a strong believer in personal liberty, as he demonstrated in On Liberty, which appeared in 1859, and he had an equally strong conviction in social egalitarianism, which he argued was needed to set limits to individual advantage. He was early on a liberal, with all that liberalism implied in nineteenth-century England: the freedom of conscience, the freedom of speech, freedom of the press and of opinion in general, an independent judiciary, universal suffrage, and the emancipation of women.

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Liberalism, however, was not enough for Mill. As a result of the teachings of the Saint-Simonians, not only did he become more critical of Liberalism, but it was through the eyes of the Saint-Simonians, in particular Saint-Simon’s disciples Barthélemy Prosper d’Enfantin and Saint-Amand Bazard, that Mill understood the “very limited and temporary value of the old political economy, which assumes private property and inheritance as indefeasible facts, and freedom of production and exchange as the denier mot of social improvement.”22 He admired the SaintSimonian scheme “under which labor and capital of society would be managed for the general account of the community, every individual being required to take a share of labor, either as thinker, teacher, artist or producer, all being classified according to their capacity, and remunerated according to their works.”23 Mill praised “the perfect equality of men and women, and an entirely new order of things in regard to their relations to one another.”24 A little later in his Autobiography, published in 1873, Mill began to define further what he meant, describing himself as more than ever a radical and a democrat: I thought the predominance of the aristocratic classes, the noble and the rich, in the English Constitution, an evil worth any struggle to get rid of; not on account of taxes … but as the great demoralizing agency in the country. Demoralizing, first, because it made the conduct of the government an example of gross public immorality, through the predominance of private over public interests in the State, and the abuse of the powers of legislation for the advantage of classes. Secondly, and in a still greater degree, because the respect of the multitude always attaching itself principally to that which, in the existing state of society, is the chief passport to power; and under English institutions, riches, hereditary or acquired, being the almost exclusive source of political importance.25

Mill feared the power of money, its ability to corrupt the morals and sentiment of Englishmen, and its power to seduce the disadvantaged who greedily hoped for advantages themselves. Thus, freedom and private property could well contradict each other; the modern industrial age, by concentrating private property in the hands of too few, also concentrated political power in the new lords of industry. Contrary to the Liberals of the nineteenth century, Mill did not believe that private property was necessarily the basis of freedom. “A people has sometimes become free, because it had first grown wealthy; or wealthy, because it had first become free.”26 Freedom and private property might be compatible, but only within limits; not limits to freedom as such, but to property. Mill did not contemplate a perfectly egalitarian society because “the inequalities of property which arise from unequal industry, frugality, perseverance, talents, and to a certain extent even opportunities, are inseparable from the principle of private property.”27 To accept the principle was to bear the consequences of it: “but I see nothing objectionable in fixing a limit to what any one may acquire by the mere favor of others, without any exercise of his faculties, and in requiring that if he requires any further accession of fortune he shall work for it.”28 Unlike modern neo-liberals, Mill was convinced that setting limits to wealth – by establishing the principle of social equality – was the basis of the general wellbeing of society. Mill set his sights on the right of inheritance, which by itself could

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create great social imbalances for many generations to come. He steadfastly advocated for the public’s welfare by setting limits on property; such limits would not be an undue burden on the inheritor since “it must be apparent to everyone, that the difference to the happiness of the possessor between a moderate independence and five times as much, is insignificant when weighed against the enjoyment that might be given, and the permanent benefits diffused, by some other disposal of the four-fifths.”29 As we know, Mill went well beyond liberalism; he was an early proponent of the welfare state, or the well-being state. Mill argued that the basis of political economy was moral economy and the purpose of wealth was to promote public goods. Mill expressed this sentiment as a utilitarian – the greatest happiness of the greatest number was the formula – but for Mill the equation also expressed a different moral universe: nothing could be more ignoble than to pursue wealth for its own sake. Such a sentiment marked the ultimate corruption of human society and the individuals comprising it. Mill consciously mapped out a future; how wealth was to be obtained, and to what purpose it was to be put: “Wealth which could no longer be employed in over-enriching a few, would either be devoted to objects of public usefulness, or if bestowed on individuals, would be distributed among a large number.”30 Mill argued that enormous fortunes did not contribute to the welfare of society, nor to its freedoms, but only to the freedom of its possessors. The concentration of wealth led to ostentation and the improper use of power. The diffusion of wealth, however, would multiply the number of people in easier circumstances, providing the advantages of leisure. And large sums “of the accumulation of successful industry would probably be devoted to public uses, either by direct bequests by the State, or by the endowment of institutions.”31 Elsewhere Mill noted that private property was not sacred; of landed property he argued that the state had a right to intervene when the owner of landed property was not its cultivator: When the “sacredness” of property is talked of, it should always be remembered, that any such sacredness does not belong in the same degree to landed property. No man made the land. It is the original inheritance of the whole species. Its appropriation is wholly a question of general expediency. When private property in lands is not expedient, it is unjust. It is no hardship to anyone, to be excluded from what others have produced: they were not bound to produce it for his use, and he loses nothing by not sharing in what otherwise would not have existed at all. But it is some hardship to be born into the world and to find all nature’s gifts previously engrossed, and no place left for the new-comer … The claim of the landowners to the land is altogether subordinate to the general policy of the state. The principle of property gives them no right to the land, but only a right to compensation for whatever portion of their interest in the land it may be the policy of the state to deprive them.32

Mill’s utilitarianism had a moral compass: it was framed by a common shared purpose, a sense that collective well-being was and should be the foundation of the social order. Each who possessed land was morally bound “to make his interest

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and pleasure consistent with the public good.”33 The private right of inheritance did not take precedence over the public right to share resources for the common good: “no enormous fortunes, except what were earned and accumulated during a single lifetime.”34 Mill presumed that the redistribution of wealth, which was to be conducted by a disinterested government, would contribute to economic development in the broader public interest and exempt many from “coarser toils”; it would also elevate those classes previously denied access to culture. It would help them “to cultivate freely the graces of life” from which previously they had been deprived. This was what Mill meant by the public interest: it was based on a shared common purpose; it was inclusive, based on mutual cooperation, and not a cult of individual competition.35 In all this, Mill anticipated John Maynard Keynes: a society that was not bonded together by a shared purpose and a common interest would be divided by individual self-aggrandizement. Long-forgotten was Smith’s invisible hand; but Mill shared with Smith his denigration of the power of money for its own sake: “the idea is essentially repulsive of a society only held together by the relations and feelings arising out of pecuniary interests.”36 Mill rejected the ultra-materialism that he saw developing with the industrial capitalism of his day. He railed against the utter moral depravity that accompanied the coarseness of raw “pecuniary interests.” He found repulsive the seeking of private advantage when it meant the sacrifice of what he termed the public good; and he well understood what was being lost when shared purposes were sacrificed to private accumulation and individual greed. Mill anticipated what we have witnessed in our own recent past, the Great Recession of 2008, which still lingers: namely, that “all privileged and powerful classes, as such, have used their power in the interest of their own selfishness, and have indulged their self-importance in despising, and not on lovingly caring for, those who were, in their estimation, degraded, by being under the necessity of working for their benefit.”37 Privilege, he concluded, could only be eradicated by the withdrawing of such power as was used to bind and coarsen others for the benefit of the rich and powerful. As we have seen, Mill rejected a society bound together only by “pecuniary interests,” as he characterized the industrial capitalism of nineteenth-century Britain. In its place he projected the image of a society no longer based on “a capitalist as chief, and workpeople without a voice in the management, but the association of the laborers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves.”38 In articulating a vision of workpeople with a voice in the management of their collective labors, in suggesting “an association of the laborers themselves on terms of equality,” in promoting the collective owning of capital to carry on the work of society, and in his vision of elected managers in the workshops of England, Mill anticipated the kind of European social democracies that emerged in the next century. Explicit in all this were three touchstones of modern life that became indispensable after World War II: shared purpose; an egalitarian ethic that implied universal benefit for all classes of society; and a democratic ethos that protected both individual liberty and social equality.

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Matthew Arnold: culture, democracy, and equality Matthew Arnold has been mostly depicted as a conservative apologist, a ­quint­essential anti-democratic elitist, a defender of snobbish cultivation and learning, an upholder of traditional standards, and a believer in high culture. Such at least is the view of modern conservatives who cite Arnold as the passionate and articulate holder of their views some century and a half earlier. Conversely, some contemporary liberals and leftists see Arnold as a repellent elitist, even a reactionary defender of the old establishment and enemy of the new democracy. They see his Culture and Anarchy, published in 1869, as cultural arrogance.39Arnold, however, would not have agreed with such judgments, as he made clear in his essay entitled “Democracy,” a work written in tandem with “Equality,” in which he reaffirms his egalitarian and democratic convictions: Now, can it be denied, that a certain approach to equality, at any rate a certain reduction of signal inequalities, is a natural, instinctive demand of that impulse which drives society as a whole, – no longer individuals and limited classes only, but the mass of a community, – to develop itself with the utmost possible fullness and freedom? Can it be denied, that to live in a society of equals tends in general to make a man’s spirits expand, and his faculties work easily and actively; while to live in a society of superiors … in general tends to tame the spirits and to make the play of the faculties less secure and active? Can it be denied, that to be heavily overshadowed, to be profoundly insignificant, has, on the whole, a depressing and benumbing effect on the character?40

In Arnold’s understanding, democracy and equality complemented each other. Democracy was best because it was fairest for the bulk of mankind, which had neither exceptional gifts nor energy. He cited Tocqueville from Democracy in America: Tocqueville, he argued, was no lover of democracy; he rather feared it, but he nevertheless acknowledged that the common people were less civilized in aristocratic countries than in any others because there the poorer classes felt themselves overwhelmed with their own inferiority.41 Tocqueville, Arnold added, understood the passion for equality as legitimate because it prompted all men to the enjoyment of power and consideration; it was universally inclusive. Unlikely as it might seem to his liberal critics, Arnold was an admirer of the French Revolution. He writes: [E]quality … has undoubtedly given to the lower classes, to the body of the common people, a self-respect, an enlargement of spirit, a consciousness of counting for something in their country’s action, which has raised them in the scale of humanity. The common people, in France, seems to me the soundest part of the French nation. They seem to me more free from the two opposite degradations of multitudes, brutality and servility, to have a more developed human life, more of what distinguishes elsewhere the cultured classes from the vulgar, than the common people in any other country with which I am acquainted.42

If Arnold has been vastly misunderstood, it is perhaps because he put together uncompromising criticism of popular culture with an unremitting defense of the spirit of democracy. A critic of individualism and of mass culture, he was neither

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a socialist nor a conservative. If measured in terms of Anglo-American thought, he might be called a radical. He was also an egalitarian who strenuously objected to large inequalities in wealth. And he believed that a robust education and solid social equality went together; a public education, however, not an elite education in which those who pay the most are put into the highest class. He opposed education on a cash basis, and advocated for the state to support education and use it to elevate all its citizens.43 Democracy, Arnold believed, was the affirmation of one’s essence, it meant being able “to develop one’s own existence fully and freely, to have ample light and air.”44 He argued that democracy and equality complemented each other: they invigorated a nation. He became increasingly sharp in his criticisms of material and economic inequalities. He once addressed workers in England by telling them that England faced three main problems, the most important being “those immense inequalities of condition and property among us.”45 In his essay, “Equality,” Arnold noted that everyone in England defended equality before the law. But the rub was with social equality, which almost everybody opposed. And what explained the immense gaps in wealth about which Arnold complained? They derived from the inherited inequalities of class and property that had been kept intact since the Middle Ages, and passed along through families to the modern age.46 Arnold never abandoned the linkage of equality and democracy, but he differed with the Liberals of his day about the legitimacy of so-called “natural rights”: “It cannot too often be repeated,” he said, “peasants and workmen have no natural rights, not one. Only we ought instantly to add, that kings and nobles have none either.” Property, he insisted, was “created and maintained by law.” It was not an abstract right; it could therefore be regulated and limited. “That the power of disposal [of property] should be practically unlimited, that the inequality should be enormous, or that the degree of inequality admitted at one time should be admitted always – this is by no means certain.”47 Arnold wrote further that the right of bequest, or inheritance, should be strictly regulated in order to diminish inequality and improve the social condition of society. The welfare of the many should be pursued not only for itself but for the good of the individual as well. Nobody, he insisted, could be truly prosperous and happy or even secure in the midst of misery: It is easy to see that our shortcomings in civilization are due to our inequality; or, in other words, that the great inequality of classes and property, which came to us from the Middle Ages and which we maintain because we have the religion of inequality, that this constitution of things, I say, has the natural and necessary effect, under present circumstances, of materializing our upper class, vulgarizing our middle class, and brutalizing our lower class. And this is to fail in civilization.48

Elsewhere he complains that “no one in England combines the fact of the defects in our civilization with the fact of our enormous inequality, indeed, they cannot well deny; but they are not accustomed to combine them.”49 Arnold, however, did combine them.

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Arnold’s criticism of the coarseness of culture was thus driven by his egalitarianism: an impoverished life cannot be but coarse. His criticism of mass culture was grounded in his democratic ethos. But it was precisely here that Arnold converged with other nineteenth-century liberal thinkers in his concern about the increasing homogenization and uniformity of a democratic society. John Stuart Mill, for example, had once complained to Alexis de Tocqueville that the real danger to democracy was not anarchy or love of change but stagnation and immobility. Mill did not waver in his sympathies for democracy and egalitarianism. But he feared a tyranny over the mind which, he thought, did not derive simply from “democracy,” but from the democracy that had evolved in England.50 Arnold made a similar “democratic” criticism of democratic culture. He objected to the glorification of mass culture in the name of relativism and freedom. He disagreed that there was no such thing as “right reason.” Or that it was necessary to accept an infinite number of ideas and a “perpetual give and take” with no right or wrong. He criticized newspapers for trumpeting such views. He did not accept the resignation that went with such pluralism, nor did he defend elitism or authoritarianism as remedies. Instead, Arnold believed that everyone in a democracy could be part of the elite, rejecting a private or individualist solution.51 Culture must be universal, he was convinced, or it was nothing: Culture … leads us to conceive no perfection as being real which is not a general perfection, embracing all our fellow-men with whom we have to do. Such is the sympathy which binds humanity together, that we are indeed, as our religion says, members of one body, and if one member suffer, all members suffer with it. Individual perfection is impossible so long as the rest of mankind are not perfected along with us.52

Culture, above all, was the idea of perfection; it implied the opposite of individual rights, and it supposed that the essence of mankind was its essential unity, and that the idea of culture was the realization of this unity. Culture, the essence of human nature, “will not allow one member to be indifferent to the rest, or to have a perfect welfare independent of the rest, the expansion of our humanity, to suit the idea of perfection which culture forms, must be a general expansion.”53 Culture, as the universal expression of humanity, meant that no individual could stand apart, but was “obliged, under pain of being stunted and enfeebled in his own development … to carry others along with him in his march towards perfection.”54 In essence, culture was a harmonious expansion of human nature, and of the human family, the very opposite of a kind of insidious individualism often associated with the liberalism of nineteenth-century England. Culture was opposed to ‘every man for himself ’: it entailed obligation toward others, not the assertion of rights against them. Culture was democracy, but not the bland liberal sort of democracy, as was sometimes asserted by some of Arnold’s contemporaries, for “culture does not try to teach down to the level of inferior classes … It seeks to do away with classes, to make all live in an atmosphere of sweetness and light, and use ideas, as it uses them itself, freely – to be nourished and not bound by them.”55 Culture was a social idea: men of culture were the true apostles of equality.

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Unlike our contemporary notion that knowledge is property, whose commercial uses belong to individuals by right, Arnold saw knowledge as an organic creation that belonged to all humanity: the basic character of knowledge was social because it was heritable and indivisible. Those who possessed it were under the obligation to use it to enhance social unity through the universal diffusion of culture: if democracy was to be effective, culture had to be inclusive, not the possession of an individual or a narrow clique: The great men of culture are those who have had a passion for diffusing, for making prevail, for carrying from one end of society to the other, the best knowledge, the best ideas of their time; who have labored to divest knowledge of all that was harsh, uncouth, difficult, abstract, professional exclusive; to humanize it, to make it efficient outside the clique of the cultivated and learned, yet still remaining the best knowledge and thought of the time, and a true source, therefore, of sweetness and light.56

Unlike the liberals of his day, and many contemporary liberals as well, Arnold’s idea of culture put duties ahead of rights. In truth, there were no individual rights, as Arnold insisted many times. There were only social obligations. Excessive wealth and power were themselves the bane of democracy. Was it not true that “wealth, power and consideration [were] above all when inherited and not earned, in themselves trying and meddling things?”57 Much more than meddling; they were inherently unfair. As we have seen, Arnold recognized what others knew to be true, that all rights were created by law and were based on expediency, and should be alterable as the public advantage required. If property was created for the common good, it could be withdrawn for the common good. Arnold did not question the right of property; this was after all a matter of “settled expediency” which inevitably still led to considerable inequality. But if there was to be the “humanization of man in society,” a humane community must be a community of equals. “A community with the spirit of society is eminently, therefore, a community with the spirit of equality. A nation with a genius for society, like the French or the Athenians, is irresistibly drawn towards equality.”58 This statement led to his final verdict: “No individual life can be truly prosperous, passed … in the midst of men who suffer … To the noble soul, it cannot be happy; to the ignoble, it cannot be secure.59 Matthew Arnold offered a democratic critique of a particular kind of democratic culture. He did not neatly fit into contemporary categories of political thought. Conservatives criticized Arnold when he advocated a large role for the state in political and social affairs, in public education, and in maintaining social equality. They frowned especially when he savaged the workings of the free market. Liberals today, however, have accused Arnold of elitism because he assailed individualism as philistinism; but this is because they no longer entertain a criticism of mass culture. Old ‘elitists’ like Arnold retained a vision of emancipation that has fallen into the memory hole in an age that values the right of private accumulation above lingering remnants of notions of solidarity and public well-being.60

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Beatrice Webb: social democracy and equality Beatrice Webb was a socialist, a democrat, a believer in social equality, and a passionate devotee of a society that would reward honest labor rather than serve privilege. Privilege, Webb surmised, could never be deserved. As journalist, essayist and trumpeter for the rights of the working man – and woman – for the last decade of the nineteenth and much of the first half of the twentieth century, Webb devoted much of her entire life to the defense of workers’ rights. In one of her diary entries, when narrating the story of her political apprenticeship, she cited the words of Joseph Chamberlain, the Liberal mayor of Birmingham, following an interview with him: Hitherto, the well-to-do have governed this country for their own interest; and I will do them this credit – they have achieved their object. Now I trust the time is approaching for those who work and have not. My aim in life is to make life pleasanter for this great majority. I do not care if it becomes in the process less pleasant for the well-to-do minority.61

We have seen this idea before. That Webb would cite it approvingly comes as no surprise. But that a late nineteenth-century Liberal, who was dubbed a Radical by the early twentieth century, should have uttered such words might surprise us, so much has the political climate changed in the last century; in this, too, we have lost our historical memory. Yet Chamberlain’s complaint – and Webb’s approval – was hardly singular; liberalism, and certainly socialism as well, were still far from having been tagged with stigmas that modern day conservatives have attached to liberals and liberalism, much less socialism. Early on, Beatrice Webb pondered the relentless poverty of the masses; she wondered why political and industrial democracy, both of which were practicable and desirable, could not redress the grievances of the majority of the people of Britain. Was poverty a necessary condition of the wealth of the nation, and of the advance of civilization? Should the people be entrusted through the ballot box, with making and controlling the government of Great Britain with its enormous wealth and its far-flung dominions?62 Webb provided some provisional solutions: education was part of the remedy for the coarsened many; the alleviation of poverty, and the reculturation of the disadvantaged were the other remedies. How, exactly, this was to be accomplished remained a problem for Webb and for other would be fin-de-siècle reformers. Webb described how much the industrial working class, no later than the 1880s, had sunk into destitution and disabling disease, and how many men of intellect and property had tried to help them, especially through philanthropy and other forms of charity. That these efforts were bound to fail, Webb had no doubt, though the effort was noble enough. However, nobility, and charity, no matter how well intended, were hardly remedies for something as deep and inveterate as poverty and generations of privation. These problems required universal education and much more; they required institutional changes, not just the mitigation of inequalities, as Mill had recognized before Webb, and as Tocqueville had recognized before him. They required changes at the very heart of industrial production.

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This logic drove Webb early on toward socialism, but her kind of socialism was of the moral sort. She had discovered that there was something even worse than unregulated philanthropy: unregulated capitalism and landlordism; the employment of labor at starvation rates; the high rents of insanitary tenements; and the absence of opportunities for education and for refinement of the masses.63 As a socialist Webb advocated for universal state pensions and for state provisioning of the necessities of life. But she strongly supported as well universal access to the pleasures of life, by which she meant nature, literature, and art. Citizenship depended on the level of cultivation, and that meant opening intellectual discourse to all members of society. That was Webb’s idea of an inclusive society, one that approached classlessness through universal cultivation.64 For Webb the pleasures of life included baths and wash-houses, especially swimming baths, which she argued should be free and open in every district; easy access to affordable books, available not only in public libraries but also in every household. And pictures also should be available and affordable, so that every citizen could have an art gallery in their living room. Since poverty could hardly pay for such pleasures, it seemed obvious that the state had to play a role. Webb understood something else that has been forgotten, that the pleasures of the many, that higher levels of cultivation, can only be – and should be – provided through the largesse of the state.65 Webb was not an egalitarian. She did not believe it possible to create a society of equals. She was, however, a realist who understood the pulse of nineteenth- and early twentieth-century Britain. What needed to be done to ensure against revolution, she argued, was to support a social contract: “It seemed to me,” she said, “that, unless ‘the capitalist system’ was to destroy the body and soul of great masses of the wage-earners, it was imperative that ‘free competition’ should be controlled, not exceptionally or spasmodically, but universally, so as to ensure to everyone a prescribed National Minimum of Civilized Life.”66 Beatrice Webb did not meekly succumb to the mantra of her day – and of the contemporary world as well: namely, that the system of profit-making of the capitalist order belonged to the natural order of things. Nor did she agree that “any activity on the part of the State or the municipality, or even of the Trade Union, such as factory acts, public health administration, compulsory schooling, and standard rates of wages, were ‘artificial’ contrivances.” She understood that wages were not the result of unrestricted individual competition; she denied such a thing as the “natural rate of wages.” Wages, she insisted, were determined by acts of law passed in Parliament – the Poor Laws of the nineteenth century for example, which set poor rates and eligibility for relief. Or the various Trades Union Acts, which regulated the right and established the conditions of when and how working-men might form combinations to help them bargain collectively. Wages were not set in a marketplace that was independent of human intention. From Webb’s point of view all activities related to humankind were the result of human planning and human intervention, from the institution of private property to acts of Parliament; there was therefore no such distinction as natural and artificial wages or prices.67 Webb was a severe critic of the modern industrial system. For the modern

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masses which had seen their lives transformed by the new factory system, the new industrial order meant the “breaking up of the family as an industrial unit, and its summary abrogation of immemorial customs sanctioned by both religion and law.” She developed deep sympathies for working men for whom industrial capitalism “must have appeared not only as artificial and unnatural, but also as a gigantic and cruel experiment which, in so far as it was affecting their homes, their health, their subsistence, and their pleasure, was proving a calamitous failure.”68 Webb’s personal journey toward socialism recognized that humans did not live by bread alone. They needed some socialism – by which she meant “public education and public health, public parks and public provision for the aged and infirm, open to all and paid for out of rates and taxes, with the addition of some kind of work of maintenance for the involuntarily unemployed.”69 She thought that socialism simply meant humanity, and that even industrialists recognized the need for public provision to be available for all who were in need. She cited Menander and Matthew Arnold to combat greed and the curse of inequality.70 Webb embraced the label of socialism. She thought it stood for common sense. In fact, many of the items she favored were also cardinal principles of progressive Lloyd George Liberals of her generation: a legal eight hour day; municipal ownership and administration of water, gas, tramways, and docks, for the profit of ratepayers; unlimited extension of free educational and health services; and to meet the cost, stiff taxation of wealth by graduated income taxes and death duties.71 It took the loss of historical memory to think this was anything but mild and rational. For Webb, in fact, it was all too obvious and humane – inevitable if England were to prosper as a nation, desirable if the nation would be happy. A generation later, following World War II, Lord William Beveridge and John Maynard Keynes would agree with the conclusions of Beatrice Webb, and would establish the noble causes to which she had devoted her life.

Social equality and social security What Adam Smith, Alexis de Tocqueville, Matthew Arnold, John Stuart Mill, and Beatrice Webb all had in common was the conviction that human happiness depended upon the building of community, the extension of mutual trust, and the defining of a common purpose. Without quite expressing themselves in the language of the contemporary world, they had discovered convictions that were the foundation for modern social democracies. Mill and Webb in particular anticipated common purposes, an interventionist state that regulated the market through progressive taxation, social and economic planning, and commitment to universal social welfare. All of these were fundamental if there was to be a shared sense of what was meant by a public good. It was a given that this could only occur when people had much in common with each other: and this implied not only a commonality of religion or language but also a relative leveling of income and wealth. The more equal a society, the more there was to share, and the greater the sense of trust. If people had similar lives and similar prospects or life chances, if they felt obliged to be mutually supportive,

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then they were more likely to have not only a shared moral outlook but also a common public purpose. This in fact has been the basis of radical departures in the solving of social problems. When people are less equal, politics becomes more contentious, and it becomes more difficult to define anything that they have in common.72

Notes   1 Adam Smith, The Theory of Moral Sentiments, ed. Ryan Patrick Hanley (New York: Penguin, 2009), 13.  2 Ibid., 19.  3 Ibid., 31.  4 Ibid., 73–4.   5 David Hume, Essays: Moral, Political, and Literary (New York: Cosimo, 2007), 271– 2.  6 Baron Charles de Montesquieu, The Spirit of Laws, rev. edn, trans. Thomas Nugent (London: The Colonial Press, 1900), 45. See Jacob. S. Hacker, Winner-Take-All Politics: How Washington Made the Rich Richer – and Turned Its Back on the Middle Class (New York: Simon and Schuster, 2010), 75, for more on the view that democracy can only thrive with equality.   7 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Edinburgh: Thomas Nelson and Peter Brown, 1827), 277, 279.   8 James K. Galbraith, The Predator State: How Conservatives Abandoned the Market and Why Liberals Should Too (New York: Free Press, 2008), 65.   9 Smith, Moral Sentiments, 103–4. 10 Ibid., 356. 11 Ibid., 193–4. 12 Alexis de Tocqueville, Democracy in America, trans. Gerald R. Bevan (London: Penguin Books, 2003), 11. 13 Jack Lawrence Luzkow, The Revenge of History: Why the Past Endures – A Critique of Francis Fukuyama (Lewiston, NY:The Edwin Mellen Press, 2003), 244–6. 14 Alexis de Tocqueville, Democracy in America, trans. Stephen D. Grant (Indianapolis, IN.: Hackett, 2000), 251. 15 Ibid. 16 Tocqueville, Democracy in America (2003), 18–19. 17 Ibid., 19. 18 Ibid., 272. 19 Ibid., 738. 20 Ibid., 778. 21 Ibid., 782. 22 John Stuart Mill, Autobiography, ed. John M. Robson (London: Penguin Books, 1989), 133. 23 Ibid. 24 Ibid., 134. 25 Ibid., 136. 26 John Stuart Mill. Principles of Political Economy (New York: Prometheus Books, 2004), 32. 27 Ibid., 232. 28 Ibid., 232–3. 29 Ibid., 233. 30 Ibid.

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31 Ibid., 234. 32 Ibid., 237–8. 33 Ibid., 240. 34 Ibid., 691. 35 Ibid. 36 Ibid., 695. 37 Ibid., 694. 38 Ibid., 707. 39 See Russell Jacoby, The End of Utopia: Politics and Culture in an Age of Apathy (New York: Basic Books, 1999), 67, for an appreciation of the intellectual legacy of Matthew Arnold. 40 Matthew Arnold, Culture and Anarchy and Other Writings, ed. Stefan Collini (Cambridge: Cambridge University Press, 1993), 6. See also Jacoby, End of Utopia, 67, for more historical context. 41 Arnold, Culture and Anarchy, 7. 42 Ibid. 43 Jacoby, End of Utopia, 90–1. 44 Matthew Arnold, as quoted in Jacoby, End of Utopia, 92. 45 Ibid. 46 Jacoby, End of Utopia, 93. 47 Arnold, Culture and Anarchy, 219–20, for all above citations. Italics are Matthew Arnold’s. 48 Ibid., 233. 49 Matthew Arnold, Mixed Essays, Irish Essays and Others (New York: Macmillan, 1883), 365. 50 Jacoby, End of Utopia, 93–8. 51 Arnold, Culture and Anarchy, 119–20; and Jacoby, End of Utopia, 98. 52 Arnold, Culture and Anarchy, 174. 53 Matthew Arnold, Culture and Anarchy, ed. Jane Garnett (Oxford: Oxford University Press, 2006), 36. 54 Ibid. 55 Ibid., 52. 56 Ibid., 53. 57 Ibid., 128. 58 Ibid., 223. 59 Ibid., 224. 60 Jacoby, End of Utopia, 98–9. 61 Beatrice Webb, My Apprenticeship (Cambridge: Cambridge University Press, 1979), 124. 62 Ibid., 173–4. 63 Ibid., 207. 64 Ibid., 207–8. 65 Ibid. 66 Ibid., 338–9. 67 Ibid., 342–3. 68 Ibid., 344. 69 Ibid., 392. 70 Ibid., 394. 71 Ibid., 402. 72 Richard Wilkinson and Kate Pickett, The Spirit Level: Why Greater Equality Makes Societies Stronger (New York: Bloomsbury Press, 2010), especially 15–62.

3

The way we used to be and could be again For many of the decades following World War II, it was widely believed that the state should be providential, a welfare state, benevolent, underwriting needs and minimizing risks. The idea was for the state to be as unobtrusive as possible, but universally available to all citizens. But for more than two decades it has been increasingly assumed that the state is inefficient and should not be intrusive at all. Following the fall of communism and the discrediting of the socialist project, and the Left, much of the developed world has abandoned the notion of the state as public benefactor and accepted the freedoms of the so-called flat world in which the ‘Corporation’ is supposed to satisfy all human needs by mobilizing capital, ideas, and people, between and across borders. It is taken as self-evident that deregulation – and privatization – is the antidote to the intrusiveness of the state.1 But overall the state does some things rather well and we need to return to the model embraced by Europeans. The welfare state was actually born of consensus, and was more the product of reformist liberalism in the late nineteenth century than the product of twentieth-century idealism. The New Deal developed the welfare state in the US; it was constructed “not as an advanced guard of egalitarian revolution but to provide a barrier against the return of the past: against economic depression and its polarizing, violent political outcome in the desperate politics of fascism and communism alike. The welfare states were thus prophylactic states.”2 These states worked well. They provided a half century of prosperity and security. But the result is that “we in the West have forgotten the political and social traumas of mass insecurity. And thus we have forgotten why we have inherited those welfare states and what brought them about.”3 What is missing today, and what has been absent for decades, is a sense of trust, a conviction of community, and belief in a shared or common purpose. We have gone from what President Johnson called “a nation of nations” to a nation of families and individuals, such as depicted by Margaret Thatcher. Not having a common purpose, and no longer believing in anything like social equality, we are wont to stigmatize what we now think of as the ‘Other’. This label has especially been attached to the poor; but the Great Recession should have taught us a lesson, that we could quickly and permanently become the Other, or be counted among the poor after a twist of fate or the collapse of the market. As we know, the past was not a paradise – it was not as good as we have some51

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times supposed – nor, however, was it only a chamber of horrors. We cannot and should not see the past through nostalgic eyes; but we cannot calmly tell ourselves that the world of the present is better – though this claim is heard less and less in an age of terror and recession. But if we should not idealize the past, neither can we or should we forget it.4 It is precisely because we have forgotten our own history, or idealized it – giving up any hope of understanding its lessons – that we are now suffering from the present predicament. Quite simply, we have forgotten how we got to where we are, and as a result we do not understand where we should be going, or how to get there. And we have forgotten how the world that we have abandoned came to be, and why. The generation that came of age in the second decade of the twentieth century experienced a world war that was more destructive than any in recorded memory. That war not only led to incomparably more destruction of cities and loss of human life than had been seen by any previous generation, it was also a war that recorded the use of chemicals and weapons of mass destruction that had previously been inconceivable. Buildings and cities were pulverized as never before, while human bodies were subjected to chemical poisons and bombs dropped from above using technologies only recently developed. Science and technology had never come together in such destructive ways, nor had human beings ever so willingly used those technologies against each other in the name of national idealism or utopian ideologies. World War I was only the beginning of what would become a chamber of horrors. Its unprecedented destructiveness, of the moral and the physical sort, was only a prelude to an era of continuous disasters, many of them a result of the war itself. Even before the war had ended, the Russian Revolution not only shattered one empire, it also produced the beginning of ideological and class struggles throughout Europe and much of the world that would last for most of the twentieth century: the Russian Revolution was followed in short order by revolutions in Germany and Hungary, and revolutionary movements in much of Europe that challenged the old order everywhere. World War I was followed by epidemics, the collapse of empires, including the Ottoman and the Austro-Hungarian Empires, the creation and failures of small states – especially in politically fragile Eastern Europe – and the emergence of ideologies and movements to counter those ideologies, producing the foundation of a long Cold War. The Great War was also followed by the collapse of currencies – notably the German mark – and the rise of unemployment to levels never seen before, at a time when states were armed with economic policies that were never intended for crises of global proportions. Taken together, these crises precipitated the collapse – or the weakening – of many of Europe’s democracies. What emerged were totalitarian one-party states – such as Nazi Germany or Stalinist Russia – or autocratic dictatorships such as Franco’s Spain and Mussolini’s Italy. It was the emergence of these states that pushed the world into an even more destructive world war than the first. In a period of less than three decades, between 1919 and 1945, in Europe, the Middle East, and the Far East, the world witnessed occupation, torture, ethnic cleansing, and nationalist wars of extermination and genocide that were unprecedented and

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which had been almost unimaginable just several decades earlier. The future did not seem to belong to the democracies; with the exception of the neutral states of Sweden and Switzerland, outside of the Anglo-American democracies, liberal democracy had succumbed to fascism and Nazism. Even after the collapse of the dictatorships, depression and fascism burned on in the European consciousness. The question that remained on the lips of most thinking people was how to ensure that what had happened in the interwar period and after – economic depression, the failures of liberalism and democracy, the triumphs of fascism and war – would not recur.

John Maynard Keynes and the social welfare state A generation after World War II, beginning in the 1980s, the US went through sea changes: taxes were dramatically reduced, private fortunes accumulated to unprecedented levels, income and wealth inequalities grew to new heights, and people’s overall happiness sank with the loss of their homes, their jobs, and too often their health. What had brought about these momentous changes? Just as we have forgotten why so many men and women once fought for utopia, or struggled to improve their lives through revolution, or simply dropped out of society to live in communes, just as we have forgotten the way our ancestors have struggled and formed social institutions to help stave off the insecurities of poverty and depression, so have we forgotten why we built in social safeguards against the perils of the unregulated market. To put it bluntly, we are not sure why we think the market can solve all social ills; we may not even be certain why we slavishly follow the adulation of wealth, or that we are slavishly pursuing it. Once again, we have forgotten how we got here. In the 1980s, the ‘Chicago boys’ as they have been called, led by Milton Friedman, not only abandoned the admonitions of Smith, Tocqueville and Mill, they also presumed that the only way to build the wealth of nations was to liberate the market from all constraints, a feat that has falsely been attributed to Smith, who actually feared the destructive powers of the so-called liberated market. Contemporaries think that the provenance for this ‘newthink’ should be attributed to Milton Friedman and the Chicago school. Indeed they have made their mark, but the origins go back to the Vienna school of economists and political thinkers of the decades following the First World War. The Vienna school included Friedrich Hayek, Ludwig von Mises, Karl Popper, Peter Drucker, and Joseph Schumpeter; together they were the ancestors of the Chicago school. Von Mises and Hayek were the true advocates of free-market economics, while Schumpeter staunchly defended the creative – and destructive – powers of capitalism. Popper touted the “open society,” while Peter Drucker wrote about the theory and practice of management in the decades following World War II. All were born in Vienna, or in its environs, and all were severely impacted by the destruction of their native Austria during the interwar period.5 After World War I, and a brief socialist municipal experiment in Vienna, Austria fell to a reactionary coup in 1934 and four years later succumbed to Nazi invasion and occupation.

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Following these events, the young economists were forced into exile. As a result, they were to cast their writings under the pall of these events, beginning with the following question: why had ‘liberal’ Austria collapsed and embraced fascism? Popper’s answer, shared by the others, was that the tragedy had ensued from the failure of the (Marxist) Left to successfully introduce into post-1918 Austria a system of state-directed planning and collectivized economic activity that included municipal ownership. This failure had produced the counter-reaction of the fascists. Thus, it was the indecision of the Left, which was itself a result of its faith in historical laws and human reason, that had allowed for the more energetic fascists, having no such faith in human reason or historical laws, to conquer power.6 Friedrich Hayek shared these conclusions. He blamed liberals and the Left generally for failing to resist the challenge of the Right and the Fascists. The question then became one of how best to withstand the challenges from the Right in the future. Each of the members of the Viennese school arrived at the same conclusion: the best way to defend Liberty and Democracy was to defend the “open society,” and to keep the state out of economic affairs. To protect the freedoms of the citizenry, it was necessary to keep the state at a safe distance, to prevent it from planning, manipulating, and otherwise directing the affairs of fellow citizens. If this could be done, then the extremists of the Right and the Left would be excluded from power. Society would indeed be free. That it might also be unequal, and that this might make it less free, was not a concern.7 After World War II, Hayek, who was by then living in England and teaching at the London School of Economics, predicted that a victory for the Labour Party, which had already proclaimed the welfare state as its objective, would mean that Britain would share the same fate as the Austrian precedent: Britain would experience a revival of fascism. The Labour Party did indeed win, but its victory heralded postwar stability and put Britain on the road toward postwar prosperity as well – anything but fascism. This was precisely what John Maynard Keynes had foreseen. Keynes thought, with the examples of Depression and World War I behind him, that economic collapse and a return to political extremism could only be forestalled by increasing the role of the state. Unlike the Austrian political and intellectual refugees, all of whom despised any collective categories of thought, such as social goods and economic planning, the Keynesian notion of the need for state ‘managing’ of the economy was widely embraced in Hayek’s new home. The British – especially after the experiences behind them – were hardly about to give up what became the British version of the welfare state, which included among other things free medical care and subsidized higher education. The Austrian economists had taken one page from history; Keynes simply took another. He became the intellectual inspiration of the New Deal in the US and the modern welfare state – or something that approached that – in Britain. The crash of 1929 created a consensus among most economists that the unregulated market had failed, and governments had to intervene in their economies to redistribute wealth and regulate corporations. Faced with the challenge of communism in

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the East, and the known failures of laissez-faire economics, the welfare state was embraced widely after World War II, and became the dominant policy creed for much of Western Europe.8 The idea of the welfare state was nothing new. Its provenance can be traced to the 1880s in Germany, and to turn-of-the-century England. British socialists like Beatrice Webb took for granted early on that there should be public provision for education, health services and medical insurance, public parks and playgrounds, and assistance for the aged and the infirm. For Webb, this was a simple moral economy, as it would be for E. P. Thompson and others decades later. The lesson drawn by Beatrice Webb, as we know, was simple: people should cooperate, they should work together for the common good, and nobody should be left out.9 This was the creed articulated and embraced by Keynes and his followers in postwar Europe; nor did it apply only to economics and economic stabilization. Keynes labored also to elevate the cultural level of the British: an educated and knowledgeable people would make better citizens, and the country as a whole would embrace better and more enlightened policies. What was novel in all this was not the idea of a moral economy, “but the thought that such things were best done by the government, and therefore they should be done by the government.”10 How this was done was contentious in Britain: universalists wanted a comprehensive system in which there would be high across-the-board taxation to pay for services that would be available for all. The Scandinavian egalitarian social democracies did not tamper with the private sector in the economy, but they taxed at a high rate, enabling them to pay for social and cultural services, which were then made available for all. The objective of Scandinavia was not collective ownership, it was collective protection.11 Continental European welfare states, or providential states, followed yet another model: they emphasized – as Germany in particular still does – the employed citizen against the debilitating effects of the market economy. In France, West Germany, and Italy, the emphasis was on maintaining good jobs and incomes even in times of economic misfortune. This was typical Keynesianism: people who worked could buy, making it possible for people who produced, to sell. Unlike contemporary policies embraced in the US and the UK, which have done little to relieve the stress of growing unemployment, and which have failed to protect jobs, the European perspective questioned the wisdom of throwing a growing army of the unemployed onto the street in a time of economic recession; this, they argued, was more disastrous than the so-called efficiency gained by eliminating hypothetically unnecessary jobs.12 It was John Maynard Keynes, the great English economist, who more than any other individual helped forge the postwar consensus that followed the collapse of the pre-World War I era. The world that Keynes had known was the prosperous and stable order of nineteenth- and early twentieth-century Great Britain, confident, dominant, and optimistic about the future. Keynes, a first-hand observer of that world, also was a close observer of its collapse, first at the wartime Treasury, and then as participant in the Versailles peace negotiations in 1919. From his post, Keynes watched the disappearance of the old order – the collapse of empires

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and the birth of fragile new states based on ethnicity – but he also observed the disappearance of the old certainties of his culture and his class. He was witness to the chaos, anti-liberalism, and ideological and national wars that characterized much of Europe in what became an age of uncertainty. The questions that were framed for Keynes by this process of decay and collapse were those that remained foremost in his mind for the balance of his career as philosopher, economist, and statesman: why had the ‘certainties’ of the previous era ended in war, depression, and fascism? Why had nobody foreseen it? And why was nobody doing anything to prevent the same from happening in the future? What did seem apparent was that the certainties of the past had become the uncertainties of the present. What was not so clear was whether life would ever again become predictable, or whether disasters would become permanent and irreversible. The question was, then, what could – if anything – be put in place of the world that had just disappeared? Keynes was not immune to the blandishments of centralized authority. For all the defects of Russian communism, the Soviet Union had made obvious industrial progress, however much it may have come at the expense of its people. Communism, it seemed, worked better than czarism. And many would credit the Soviet Union not only with avoiding the Depression but also with defeating Hitler. And in Germany, had not Hitler put Germans back to work, where the German Liberals and Social Democrats had failed? Nor was it easy to believe that liberal democracies could be relied upon to restore Europe to the certainties of the past: had it not been those same liberal democracies that had failed to stop Hitler and Mussolini from helping themselves to much of Europe? Keynes had no illusions; he understood that German and Italian prosperity was based squarely on the occupation and brutalizing of foreign populations, war, and exploitation. But he could be equally certain that confidence in liberalism had corroded, while authoritarian regimes had enjoyed success – whether real or imagined – by deploying the state. Keynes was not a revolutionary; he did not wish to transform the relations of production, nor to inaugurate a new era of socialism. But he was aware of the potential virtues of the social security state, and he knew that much more had to change than policies to offset downturns in economic cycles. What then was Keynes’ unique insight? That capitalism and liberalism could not survive without each other. It was an insight worth remembering because of its strange irony: if capitalism were to survive, it would have to be saved with changes that were at the time – and still are – identified with socialism.13 That meant state control of the commanding heights of the economy; and steeply progressive taxation. That was what it would take to restore stability, prosperity, and harmony: if one wanted to avoid fascism or communism, there had to be concessions. If revolution and socialism were to be denied, then social provision had to be made inclusive. There was a distinctive moral quality to the political debates of the interwar years. Economic and financial issues were often understood as part and parcel of larger ethical frameworks affecting the fabric of whole societies. The issue of unemployment, which had ravaged the US and the UK, as well as Belgium and other countries, was not just about putting people back to work; it was about

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whether there would or should be a larger social commitment to those who were unemployed. Inflation, which had brought Germany to its knees and ravaged the savings of the middle classes, was not only a problem of how to protect currencies. The major concern was how to protect the dignity and welfare of people who were in crisis – through no fault of their own. It was about a social compact in which all committed themselves to the good of the whole. And it was about committing the resources of the state to again provide public provision for those who needed it. It was about being inclusive, about sharing the public patrimony, engaging all society in the application of shared purposes. Low agricultural prices – endemic in France and Italy – which had driven peasants off their lands and into the arms of extremist parties, were likewise an ethical as much as an economic issue: should the livelihoods of millions of farmers depend on unpredictable markets? Should peasants lose their lands, livelihoods, and futures because of falling prices over which they had no control, or because of inclement weather, or the high cost of borrowing? Eventually there was a broad consensus that some kind of social compact had to be formed to protect the welfare of society through state patrimony. The consensus would include New Dealers under Roosevelt in the US; it would include the governing Labour Party in Great Britain with its commitment to the welfare state; it would include the central planning of policy makers in France, and the West German government’s commitment to the social market. Whatever it was called, there was broad agreement that public policy should be shaped by the state, and that the freedom of the market had to be constrained by commitment to the public good. Public interest came before private interest, and it included everyone. Perhaps the greatest role in shaping this new consensus was played by John Maynard Keynes. As we know, Keynes was not a socialist. He did, however, fondly cite Rousseau’s Social Contract because of its stress on the role of the state in promoting social well-being; the social contract itself was a kind of foundation for public patrimony. “The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”14 It was what had not been done that was problematic. The age of laissez-faire was over, the market could no longer be unregulated, and the state could no longer be silent. Keynes, however, was not an advocate of social leveling. He made this clear early on in The Economic Consequences of the Peace: “It was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements.”15 Had the rich spent their capital on their own enjoyments the world would long ago have rebelled: “The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably.”16 But if Keynes had witnessed the perils of communism, he had also understood the failures of liberalism, and the hazards of unleashing the rich while ignoring those who were less fortunate. He observed sharply that, “Men will not always die quietly. For starvation, which brings to some lethargy and a helpless despair, drives

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other temperaments to the nervous instability of hysteria and to a mad despair. And these in their distress may overturn the remnants of organization, and submerge civilization itself in their attempts to satisfy desperately the overwhelming needs of the individual.”17 Only cooperation, and shared public purpose, embodied in the actions of the state, could be a bulwark against the future collapse of civilization. Keynes did not counsel the abandonment of liberalism and liberal institutions; on the contrary he was all about saving them. To do so, however, meant attaching the professional and commercial classes to them, the better to avoid the disaffection that had produced fascism in the interwar period. The question, then, was how best to attract the middle classes to the democracies which had failed to prevent catastrophic war, as well as to understand, and to remedy, the reasons for their failures. Keynes’ conclusion is well known: the best way to harmonize private advantage and public well-being was through universal inclusion. Instead of linking benefits to income – which would exclude more affluent professionals and successful shopkeepers, who would therefore be opposed to such benefits as they would not receive – Keynes counseled that it would be best to offer public services and assistance to the middling as well as the working classes: this meant universal inclusion for free education, cheap or free medical care, public pensions, and unemployment insurance. By embracing policies of universal inclusion, by provisioning many of life’s necessities through tax monies to which all contributed, the middle classes would no longer have reason to reject democracy. Universalism was not a radical philosophy. Keynes aimed at the middle, avoiding the passivity of the conservative approach to public policy, and the lures of socialism. In 1929 he derided the Conservatives, accusing them of believing that unemployment was a law of nature, and that it would be rash to employ men, despite the high rate of unemployment. As Keynes put it: “There is work to do; there are men to do it. Why not bring them together?”18 Unemployment, insisted Keynes, was not the lot of men. It could and should be solved by the state. Keynes did not see inherent conflicts between the individual and the social, between collective goals and individual freedom; nor did he think that somehow liberty was compromised by an activist state. Private individuals still had an important function to fulfill. But he still claimed the middle road: “The most important Agenda of the State relate not to those activities which private individuals are already fulfilling, but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the State does not make them.”19 Underlying all of Keynes’ arguments was his inherent moralism, his commitment to a shared public purpose in which each member of society would share in the benefits provided by public beneficence. Public authority could rectify what the market could not do by itself, it could curb unemployment when the private sector could not or would not. By creating jobs it could also limit the allure of more radical ideologies. By providing social insurance against unemployment, public authority could reduce uncertainty, which was itself the main cause of attraction to socialism and communism. The state alone could amass the capital to build roads, develop electrification, and construct canals, docks and harbors, as well as

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modernize railways and rehabilitate agriculture: “these are the things which need to absorb large sums of capital today, and in every case the initiative necessarily lies with a public authority.”20 Keynes did not exclude a role for private initiative; on the contrary, it had made possible the Industrial Revolution. But, even here, public authority could assist and guide entrepreneurs. Private initiative was clearly not enough. Previously, too great a reliance on individuals had only led to political and economic crisis, to fascistic ideologies, massive unemployment, and unacceptable inequality. Such outcomes were not inevitable, Keynes insisted, but were the result of risk, uncertainty, and ignorance. It was the responsibility of the state to reduce, if not to eliminate, all three: It is because particular individuals, fortunate in situation or abilities, are able to take advantage of uncertainty and ignorance, and also because for the same reason big business is often a lottery, that great inequalities of wealth come about; and these same factors are also the cause of the unemployment of labor, or the disappointment of reasonable business expectations, and of the impairment of efficiency and production.21

Keynes’ underlying moralism appeared early in his career. In an article in the Manchester Guardian Supplements, published on 4 January 1923, his topic was the depleted moral legacy during the postwar period of reconstruction. He appealed to a clear-sighted public spirit, which alone could preserve the balance of social organization: communism had been discredited by events, socialism had become tired, and capitalism had lost its self-confidence. “Unless men are united by a common aim or moved by objective principles, each one’s hand will be against the rest and the unregulated pursuit of individual advantage may soon destroy the whole. There has been no common purpose lately between nations or between classes, except for war.”22 The warnings therefore came early: the antidote was a shared common purpose in which all were beneficiaries. Such total inclusion was not only possible, it was the only way forward. And only public authority could move it ahead. Clearly, something in Europe had failed, and it was therefore critical to adopt new policies, which Keynes believed required a benevolent state, rather than continue the same kind of liberal and laissez-faire policies that had not worked. Keynes counseled, as early as 1924, “an impulse, a jolt, an acceleration,” to generate a “cumulative prosperity.”23 British savings could be diverted from foreign investment to capital construction at home; but the way to do that was through a massive program of public works, not reliance on a system that would hypothetically adjust itself. Keynes did not identify with socialist ideology and politics; he believed the working class was inherently inferior to the middle and upper classes. He was especially comfortable with what he called the educated bourgeoisie. But Keynes in fact thought of himself as something of a leveler even as he rejected socialism: “I want to mould a society in which most of the existing inequalities and causes of inequality are removed,” he argued, though he did not wish to discourage exceptional courage, effort, ability, and character.24

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Once again, Keynes thought that morality and justice should guide economic policy; together they formed the argument for leveling. There was a pragmatic argument in this: a leveled society is not a revolutionary one. But the argument was not only about efficiency and sound economic and financial policy, it was also about cultural policy. A more equal and, therefore, more just society implied cultural as well as economic leveling, but since Keynes was an advocate of the educated bourgeoisie, as we have seen, this meant a leveling up. And this was something for which he was eminently suited. Keynes was an avid collector of art, drawn especially to artists like Paul Cézanne, Eugène D ­ elacroix, Edgar Degas, and Jean-Auguste-Dominique Ingres, among others. He was so astute at the estimation of artistic qualities that he became a buyer for the ­Contemporary Arts Society, whose Board of Trustees he joined in 1941. But it was the public that he wished to elevate; this was his vision of leveling up. To accomplish that, Keynes organized in 1921 – when he was still relatively young – the London Artists Association to assist struggling artists. In 1930 he was instrumental in the formation of the Camargo Society to present ballet productions after the death of the famous Russian impresario, Sergei Diaghilev, in 1929: a response which was partially owed to his Russian ballerina wife, Lydia Lopokova, who had danced with the Diaghilev troupe. Later, the Camargo Society would merge with Vic-Wells, which eventually evolved into the Royal Ballet. Keynes not only promoted ballet for the British public, he also started the Arts Theater in Cambridge in 1936. And that was not all. In 1942, during the war, Keynes became the chairman of the Council for the Encouragement of Music and the Arts; there, also, he was an advocate for presenting the arts to a wider British public. Keynes believed that cultivated people were more likely to embrace a higher moral vision and share a discourse and values not bound by personal gain alone. Through culture they could become personally elevated. Keynes was, therefore, in many respects a kind of utopian moralist. He admired socialist utopianism for three reasons: its passion for social justice, the Fabian ideal of public service, and the elimination of the love of money or the money motive. His most eloquent criticism of the latter was made in his “Economic Possibilities for Our Grandchildren,” delivered as a lecture to the Essay Society at Winchester College on 17 March 1928 and later published in 1930. The context for Keynes’ talk had to do with his trip to the Soviet Union in the summer of 1925, a visit that had caused him to reflect once again on the moral value of capitalism. The dilemma concerned the cost of economic progress that seemed to him to lead to the cultural deformation of those who benefited most from capitalist relationships: after all, capitalism depended on motives that were condemned by religion as immoral, and by psychology as neurotic.25 Keynes was a critic of the Soviet Union, but he admired the utopianism of the Bolsheviks because they condemned making money and personal enrichment as legitimate social ends in themselves. He also admired Sigmund Freud because the latter characterized the love of money as a neurotic obsession, hardly something to be admired.26 Keynes echoed this sentiment: the pursuit of money, he said, should be tempered by ethics and subdued by more noble objectives. The way forward was not by allowing individuals to pursue wealth with no restraints,

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but by bonding them through a social contract that identified and pursued shared social goals. As late as 1927 Keynes still searched for what he called the middle way. In an address to Liberal candidates given in January of that year, in Manchester, England, he admonished them not to be seduced by the “anti-communist rubbish” of the Right and the “anti-capitalist rubbish” of the Left. Today, he added, neither businessmen nor workers had the same confidence that “private ambition and compound interest” would carry them to paradise. The task of government was to diffuse knowledge of industrial conditions, prepare policies to deal with industrial shocks, and guide savings into channels that were more conducive to national prosperity. Keynes wanted the government to experiment with all kinds of partnerships between the state and private enterprise, to have a wages and hours policy, to promote industrial training and labor mobility.27 Keynes did not aim merely at economic efficiency, he wanted to establish that government had a moral obligation to protect its citizens, and that the goal of society should be more noble than the pursuit of mere money. Keynes was part of a new era not only in economic thought but also in a total transformation of thinking about the world. For one thing, the failure of laissez faire was undeniable. For another, the competence of governments was improved, and the emergence of democracy now pressured the state to alleviate – or to solve – social problems. The age of collectivism had arrived. Moreover, in pursuing collective welfare as a noble moral pursuit – a response made more likely by newly formed electorates – governments could now use the tools of emerging social sciences and the expertise of an emergent activist intelligentsia. Public authority could claim the right to draft social policies – vacated by the aristocracy and the clergy – by virtue of superior intellectual ability and expert knowledge about society: even unintended side-effects could be corrected by the same social engineers. In politics and in art, human lives and the world could become whatever the public wanted them to be; the only limits were those of the imagination.28 What made Keynes unique was his link to the arts through his membership in Bloomsbury – an elite group of writers, intellectuals, philosophers, and artists – Virginia Woolf, Clive Bell and Roger Fry to name a few – and to ‘collectivism’ through his philosophical and economic theories. The aesthetic theory of Bloomsbury, as expressed in the writings of Roger Fry and Clive Bell, located beauty not in the narrative or subject matter of a work of art, but also in its internal structure, where it could be apprehended intuitively. The shift from the flow of narrative to the flow of thought was what made Virginia Woolf ’s novels distinctive. A parallel shift toward model-building was also taking place in economics. The shift was toward the mind of the economist rather than the narrative of the market as the source of economic reasoning. In this sense, the interpretation of reality now became a creative act. Reality could be best constructed by powerful minds.29 This seemed obvious enough in art, but Maynard Keynes now made explicit use of this approach in economics. Just as the artist created a painting, so could the economist mold the economy, presumably for the better. For Keynes, better meant inclusive as well as rationally constructed; and rationally constructed meant just.

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Which brings us full circle: ultimately Keynes’ confidence in the molding to be done by the economist had a cultural underpinning; it was not enough to create an efficient economy if it remained unjust in the way that rewards were distributed. It was the role of culture to elevate the moral ‘understanding’ of all levels of society. Moralism remained after all the crux of Keynes’ thought. Individuals had to be cultivated to embrace the values of shared well-being. This was the seat of Keynes’ own self-confidence, embodying culture to humanize a larger public in order to create an inclusive society. The more refined the cultural level of citizens, the more likely that public authority would be responsive to the common good and choose goals that were socially and economically just. Keynes’ generation was the last claiming to direct human affairs in the name of culture even more than expertise. “He addressed the world as a priest, not as a technician. And though he rearranged its theology, economics spoke, through him, as a church, not as a branch of the differential calculus.”30 Keynes was immune to the appeal of revolutionary socialism. He believed only in the expert and his ability to manage the world according to what worked and was efficient, though this implied also what was just. A. F. W. Plumptre, one of Keynes’ students in the 1920s, put the matter squarely: [Keynes] saw clearly that in England and the United States in the nineteenthirties, the road to serfdom lay, not down the path of too much government control, but down the path of too little, and too late. Continued unemployment meant socialism, complete government control unlimited government intervention. He tried to devise the minimum government controls which would allow free enterprise to work. The end of laissez-faire was not necessarily the beginning of communism.31

Two world wars, sandwiched around the Depression, revealed the limits of laissezfaire policies and minimalist government. Capitalism unfettered was as likely to lead to catastrophe as the authoritarian state. Too little constraint was no better than too much. If capitalists could not protect even their own interests – and it had become clear they could not – then a disinterested state led by experts would have to do it for them. Ironically, this implied that the state would have to apply some of the principles of socialism to save those who could not save themselves. This entailed another of Keynes’ insights, that policy debates in the aftermath of World War II should be guided not only by economics, unemployment, and inflation but also by parameters that would maintain the ethical coherence of the community. This meant shaping public policy through a broad social consensus, as insisted American New Dealers, West German social marketers, and British advocates of the welfare state. In each case there was belief in the necessity of the guiding hand of the state, which in fact had performed admirably in the public interest during wartime and during the Depression as well. The alternative was returning to the recent fascist past; rather than risking that, it was better to curb the market in the public interest.32 The arrangements following World War II, in England and France, in Scandinavia, the Benelux countries, Austria, even Italy despite being ideologically

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divided, and in West Germany despite the ongoing Marxist rhetoric of the Social Democrats, included collective bargaining, economic planning, progressive taxation, and the provision of publicly funded social benefits. The responsibility for the economy belonged to government. The activist state coincided with a consensus that it should be involved in economic planning and large-scale public investment. The state was intended to create greater social equality as well as prosperity, but its real agenda, as we have seen, was to attach the professional and commercial middle classes to socially progressive institutions, the better to avoid the disaffection that had previously led them to fascism in some countries. In practice, this meant universalism, providing benefits to the middling sort – the shopkeepers, well-paid professionals, and the educated middle class, and not just the working population and the poor. Previously, it was the “middling sort” that had the greatest grievances, they were bitter because they paid the taxes benefiting the worst off, yet derived no advantages themselves. After World War II, in much of Europe, the middle classes were offered the same social services and benefits as those less fortunate: free education, cheap or free medical treatment, public pensions, and unemployment insurance. The result was that many of the necessities of life were now on offer from the government, available universally, paid for by the taxes of the middle class, as well as by the more affluent. Much of the resentment faded away as life became good and better. By the 1960s The European middle class found itself with greater disposable incomes than at any time since 1914.

An intellectual revolution: social democracy and the benevolent state The basis of the sea change occurring after World War II was a veritable intellectual revolution. It involved more than the conviction that the state should administer, mobilize, regulate, and plan virtually all aspects of life, and that it should organize society generally. It involved more, also, than the notion that the free market was compatible with social goals and welfare legislation, and functioned best with these objectives in mind. It was now widely accepted that the free market functioned well – and more justly – when banks and industry took the long view, listened to their employees, and became alert to the social consequences of their businesses, even while pursuing profits. All this was true enough. The state was needed to compensate for palpable shortcomings in the free market. And yet there was still more: the intellectual revolution included several new truths, and a broad new consensus, and this was especially true in West Germany. For state and market to be compatible, and to ‘work’, there had to be a partnership between enterprise, labor, and the state. The state could hardly exceed its responsibilities, which were to insure the universal welfare of its citizens. To meet those obligations, it was widely accepted that the state had the moral – as well as fiscal – authority to impose high taxation as a necessary and consensual device to remove resources from the privileged and transfer them to those who most needed them or could use them better.33 But what was truly revolutionary was the notion that private funds should be diverted to public purposes, that there should be common goals based on cooperation for

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collective advantage, and that all this should be led by government. In sum, social goals should be served by the economy, they should be based on reciprocity and cooperation, and they should be regulated by government. Social democracy was a mongrel from the beginning. In place of political economy, it substituted moral economy, which it understood as a blend of socialist dreams with the practical necessity of living and working in a capitalist world. The compromise was inevitable, but Keynes had shown the way: private ownership subjected to democratic control. Social democracy did not forget the dreams of socialism, but it believed they could still be accomplished in a liberal and democratic environment. Accepting democracy was the price of achieving power. But the core of social democratic conviction was distributive justice, and this was primarily a moral matter, part of the moral economy that social democrats insisted must replace unregulated competition. It was not economic efficiency but moral value that should guide public policy. To cite Beatrice Webb again, the state should work for the common good, and nobody should be left out. She took it for granted that all members of society should have access to public parks, health services, medical insurance, and provision for the aged, infirm, and unemployed. Here was the new moral economy, and this was what it should look like. What emerged after World War II was the result of a vast sea change in the West that would endure for decades. Among the noted results were the American Social Security system and the British National Health Service. Both were expensive, but they inaugurated an era of systemic reform aimed at universal public welfare. The results varied from state to state, but the goal was to provide a security umbrella for all members of society. In Scandinavia, what was offered was not collective ownership of the economy, but collective protection of the people. In West Germany and France the idea of the welfare state was different; it meant protecting the employed citizen against the ravages of the market economy, maintaining jobs and income in the face of economic misfortune. Above all, Europeans took it for granted that it was far preferable to keep people employed, than to turn them into the streets during an economic downturn in order to achieve a dubious efficiency through the shedding of ‘unnecessary’ jobs. Moreover, distributive justice did not have to come about at the expense of economic efficiency. On the contrary, not only did social democracies and welfare governments sustain full employment for nearly three decades, they also maintained growth rates at least equal to those of the market economies of the past, despite providing more public benefits. The welfare state helped transform the relationship between the state, markets, and society during the postwar era, as Keynes had intended. But welfare states did more: they also offered a new definition and way of understanding society itself. They gave renewed significance to membership in a national community by requiring and fostering a sense of solidarity, almost kinship, among citizens. Welfare states worked because in the postwar era there was consensus that a basic level of social welfare for all was a worthy goal. Thus, for the first time, welfare state governments were committed to intervening on a massive scale to do what families and local governments had done in pre-industrial days, which was to take

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care of people when they could not take care of themselves, or to provide public goods to people who would not have them otherwise. Welfare states marked a significant break with liberal individualism, and a move toward a more communitarian society. One’s subsistence was no longer a matter of one’s position in the marketplace, but rather a moral right of membership in a human community. This also meant that political policies and decisions rather than the market determined the distribution of resources overall. Thus, postwar welfare states helped significantly to de-commodify labor. And this shifted the balance of power within society, for workers no longer had to be as deferential to employers and no longer felt compelled to retain certain types of demeaning jobs.34 What had changed was a commitment to economic planning, something which prior to World War I had been considered impossible, or simply unnecessary, or undesirable. But, economists and civil servants were now agreed, it was far better to think things out rather than to simply let them happen. Keynes had never been a strong advocate of planning; in order for it to succeed there had to be impossibly perfect data. In wartime, short-term goals and planning had to be accepted. But for the postwar period Keynes preferred minimal government intervention; it was better, he believed, to manipulate the economy through fiscal and other incentives. But Keynes’ successors reasoned that before they could create incentives, they needed to know what they wanted to achieve; and that entailed planning.35 A planned economy did not, however, mean a state-owned economy, though the difference remained unclear to many. Liberal William Beveridge, the founding spirit behind the British National Health Service and an advocate of public provisioning and the welfare state, and Jean Monnet, the guiding light behind French planning following World War II, had little patience for nationalization as a goal in its own right, though in practice they remained flexible as to its advantages. Once again, Keynes had anticipated the problem and suggested the antidote: “Many of the greatest economic evils of our time are the fruits of risk, uncertainty and ignorance [which is why] the cure lies outside the operations of individuals.”36 The cure lay beyond the province of individuals, the state which would have to diagnose the disease: only the public authority had the resources and could gather and coordinate such knowledge as was available to guide public policy. Uncertainty could never be eliminated, but it could be minimized. To accomplish this, Keynes anticipated semi-autonomous bodies within the state composed of disinterested experts who could manage resources for the common good. In the US the model for this was the Tennessee Valley Authority, which was an example of economic progress designed by the kind of experts anticipated by Keynes. The Social Democrats of Scandinavia provided further illustration of what could be accomplished by economic planning and regulation without resorting to nationalization and state ownership. They relied on progressive taxation and the provision of comprehensive social services, rather than state ownership of major industries. Significantly, Scandinavian countries were committed to helping workers who had lost jobs to find new employment elsewhere. By encouraging universal labor participation, Nordic governments helped reduce fiscal overload since they would not have to provide unemployment benefits. Sweden socialized

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a broad spectrum of services and resources such as health care, public education, and childcare, which were therefore no longer left to the whims of the market or chance. Thus the market was removed and the welfare state extended for the broad protection of society, which also helped induce a feeling of solidarity and cohesion.37 In the immediate postwar era, Britain provided a counter example: what could happen when the state became too intrusive in expanding the public sector. Unlike Scandinavia, the British – led by Labour – were committed to the idea of public ownership. They reasoned that since the state was supposed to represent workers, then state-owned enterprise was surely better off if put directly at the disposal of workers. In Britain, it was also assumed that the market was not suited to meet public goods and goals, though only infrastructural industries were selected for public ownership. Nationalizing iron and steel proved contentious, however, and demonstrated that government could be just as incompetent and inefficient as any entrepreneur. For one thing, levels of compensation were kept absurdly high. Moreover, opting for public corporations only substituted one managerial bureaucracy for another, often without fundamental change for the workers. Nor did nationalization provide leverage for managing the national economy since no agency was responsible for long-range – let alone central – planning. Nor was an arena provided for democratic self-management or public accountability. Unsurprisingly, Labour’s model was paternalistic and bureaucratic, a kind of administrative progressivism that gave people what was good for them, authoritarian trade unionism with little or no leverage for participatory democracy. Britain achieved what one historian, Geoff Eley, has called “public ownership without public participation, planning without democracy, and a welfare state without popular accountability [which] would make reform an unfinished thing, bureaucratic and paternalistic superstructures lacking democratic roots.”38 Yet, few in Britain would have seriously thought that the state could somehow damage the economy, or that it should be drawn back to allow individual entrepreneurs to run the economic affairs of Britain. The guiding state and the common good generally were believed to be the indispensable foundation of the future: the whole point of the welfare state was to supersede liberalism and the free market because they had failed miserably to protect public goods. The break with classical liberalism and the move toward Keynesianism were the beginning, but European nations developed other policies that helped manage capitalism, limit its most destructive aspects, and lead toward social democracy. Often, this meant nationalizing resources and creating a common wealth managed for the public good. It meant saying there was such a thing as a common good, and that the state would, should, and could define what it was. It meant the state must take on the task of managing that good: and it meant that resources were to be shared for the well-being of all members of society, and not just for a few privileged individuals. In France, Charles de Gaulle argued that France’s postwar health depended on ensuring that “the main sources of common wealth are worked and managed not for the profit of a few individuals but for the benefit of all.”39 But nationalizing resources was only one route. In France, economic develop-

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ment was subject to economic planning, and this meant greater state influence and control over the economy. Jean Monnet took the lead in this. His idea of planning was less intrusive than others in the French elite; he believed intervention by the state should be indirect by offering incentives for certain kinds of behavior and activity rather than trying to command or force them. His idea, known as indicative planning, was adopted: the state established broad goals for the economy and then used various tools to induce economic actors to comply with and achieve them. One example was the state manipulation of credit supply to induce businesses to undertake certain kinds of business investments rather than others. The Italian example was different and more extreme. In the decades after World War II, the state controlled between 20 and 30 percent of Italian industry. The largest public sector corporations, Italian National Energy Corporation (ENI) and the Institute for Industrial Reconstruction (IRI) controlled more than a fifth of total capital investment in key economic sectors that included manufacturing, industry, transport, and communications. Energy giant ENI controlled more than two hundred firms, including oil and rubber companies, fueling stations and motels, while IRI was Italy’s largest commercial enterprise. Among other things, the Italian state promised that in the new order all obstacles to the good of workers would be demolished, and that private property would not enjoy the status of absolute right. Italian citizens were promised the rights to employment, health care, and education.40 West Germany was different in one respect, the Germans distrusted étatisme and the state after the Nazi experience; hence they were still determined to retain aspects of liberalism and market forces. But political reality intervened here as well, and the state had to commit itself to intervention on behalf of social protection. Thus, by the 1950s, West Germany absorbed about 35 percent of GDP in taxes which allowed it to influence aggregate demand, as well as to discriminate between one industry and another. The state also was significant in steering savings and investment, meaning that up to half the capital formation in West Germany was directly or indirectly furnished by public means.41 The West German state was not nearly as intrusive as in Italy, but in postwar West Germany the government controlled about a third of the output of iron ore, a fourth of coal, more than two-thirds of aluminum production, one-fourth of shipbuilding, and about half of automobile production prior to 1960. Above all, West Germany was committed to protecting society from the economic and social dislocations that had made the rise of Hitler possible. In addition to using the welfare state, West Germany also used co-determination, including workers in command decisions in their respective industries. Thus, workers and employers came to see each other as partners rather than adversaries.42 Within the decade following World War II, the general population throughout much of Western Europe had come to a consensus that through progressive taxation, and taxes on inheritance, there could be a moderate redistribution of wealth that would not only alleviate extremes of wealth and poverty but also make possible steady increases in jobs and wages. It was widely believed – from economists to politicians to citizens – that, so long as the market was restrained, public expen-

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ditures by local and national authorities could regulate economic life to universal advantage. Few, in other words, would have been troubled by big government, it seemed too obvious to most people that if they lived in democracies a government should be responsive to the same people who elected it, and that the duty of the elected was to pursue the common good. In the decades following World War II, the public had deep trust that it was entitled to the protection of its government, which were largely supposed to act in its interest. Despite the Marshall Plan in the West, and Stalinization in the East, there was still a mood that could be described as collectivistic and/or communitarian. And what did collectivism mean? In the postwar context it was “a complex amalgam of patriotism, public responsibilities, and public goods,” at least as applied to the public mood if not actual policy.43 But collectivism was more than a mood: Above all, labor movements became integrated into the state’s active life through union recognition, free collective bargaining, and expanded civil liberties, which now joined the entailments of citizenship in Western Europe for the first time … The postwar settlement transitioned from liberal democratic ideals of 1789, which saw political rights as sufficient guarantees of freedom, toward social democracy and rights in the socioeconomic sphere.44

This kind of social citizenship was a distinctive breakthrough. It was a political distillation from wartime collectivism, but it also reflected Christian ideals of social duty and the humanistic liberalism commonly held by social policy professionals who had been appalled by the Depression. In Britain, these kinds of ideas were integral to the public rhetoric of the war itself, while on the continent such beliefs had been given currency within the circles of the Resistance. If people were to employ democracy meaningfully, minimum standards of living had to be applied. Political rights were necessary, but they had to be complemented by social rights: the right to a job, unemployment and sickness insurance, old age pensions, universal health care, decent housing, equal educational chances, and a minimum wage. These had been long-standing demands of the European labor movements, but they now were seen as general entitlements necessary for postwar reconstruction. And they remained unchallenged this way into the mid-1970s. Moreover, all this also entailed equal rights for women: mothering and family would have to be added to the agenda of the new social democracy.45 The above defined social democracy, or the agenda of the non-communist Left. After 1945, the main tendency of the latter was to shed the Marxist tradition. It was increasingly nervous about the ‘class struggle’ and skeptical about the ability to transform capitalism through revolution. The strongest Social Democratic parties were in Scandinavia – Sweden, Norway and Denmark – where Social Democrats won repeated victories advocating mixed economies, trade union activism, and strong welfare provision. In some countries, strong socialist parties with support ranging from 20 to 45 percent of the electorate joined coalitions, giving them multiparty strength so long as they remained within the coalition: this included the Benelux countries, Finland and Iceland, Switzerland, and Austria, where a bilateral great coalition ruled.46

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International factors also helped the social democratic cause and the case for an activist state to smooth the social edges. Marshall Aid money helped Labour in Britain, while the Cold War abruptly challenged communism’s electoral growth in Scandinavia. By contrast, when the Communist Party was small and the labor movement securely social democratic, as in Britain, the Low Countries, and Scandinavia, Marshall Aid helped contribute to indigenous reforms and made them even more robust.47 Wherever Keynesianism was adopted and applied, it helped to stabilize social democracies and welfare states. Keynesianism helped tame capitalism’s cycles of boom and slump. It grounded the social democratic agenda by accepting the permanence of capitalism while insisting on the necessity of state intervention for correcting market dysfunctions. Keynesianism promoted and applied macro­ economic steering mechanisms via fiscal policy and large-scale public spending to stimulate economic growth through high wages, stable prices, and full employment. As Geoff Eley astutely put it, It allowed popular patriotism to be rewarded with a strengthening of democracy and social justice, without denying capitalism as the source of future prosperity. Capital’s interests would be guaranteed by national economic management, social peace, and rising productivity. The people would be served by full employment, rising incomes, expanding social services, and the government’s commitment to social equality.48

The new model – called corporatism by some – presumed corporate peace between labor and management. It was predicated on workplace deals granting union recognition, job protection, fringe benefits, and restraints on management’s power over production, all secured by national agreements between unions and employers and backed by the state. For its part, management – now assured it would not be challenged for control – invested in new plants, new machines, and new techniques of production, to boost productivity. Thus, the new factory regime based on high wages, no strikes, and high productivity, would provide a new consumer-oriented boom, ensuring the stability of the entirely new social order. In the new order, the state was clearly at the helm. This whole new structure was held together by a process of consultations between government, employers, and unions; and also by a Keynesian commitment to end mass unemployment. This produced what some called managed capitalism, but the name hardly mattered. Labor had a central role while bypassing socialism as such. The entire approach presumed a future of economic growth and produced a feeling of optimism on the part of the social democrats, and they for their part no longer assumed the collapse of capitalism. Steadily rising living standards in the 1960s and a fullblown consumer economy, all matched by mobility through the spreading of educational benefits, not the least through the expansion of public employment, helped de-radicalize the social democratic imagination and made Keynesianism appear as the root ingredient. Instead of class struggle elections, socialist parties became people’s parties. The German Social Democrats (SPD), at the Godesberg Congress in 1959, abandoned all talk of Marxism, the ending of capitalism,

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and even the word socialism. British Labour, the Socialist parties in the Low Countries and France, and Social Democrats in the Scandinavian countries, all embraced the same stance in the 1960s. Although socialists shaped the postwar settlements, it was conservatives, for example in Britain and West Germany, who reaped the benefits of postwar prosperity. But without the social democrats and the co­operation of labor they could not have done so. Thus, the Conservatives governed in Britain (1951–64), and in West Germany (1949–66), with union cooperation helping to make their regimes successful. Sweden was different: there the Swedish Social Democrats (SAP) governed over what was a Keynesian welfare state which took democratic form and also put the labor movement at the helm. The success of the SAP was precisely its ability to put the interests of the laboring class first, made more possible because of the cohesion of the working class itself. Thus, the SAP governed continuously between 1932 and 1976. Between 1921 and 1985 it garnered 44.8 percent of the vote. One other reason for the success of the SAP was that it avoided acrimony with the small Communist Party, and from the 1960s there developed a parliamentary alliance. The SAP also allied with the Agrarian Party during the years 1936–57, avoiding conflict with farmers.49 The SAP laid its foundations for success in the 1930s, starting in 1933 with public works programs paying standard union rates, and agricultural price supports. Other social reforms were added, including work creation and the Manpower Commission, unemployment insurance, People’s Pensions, preventive health and social services, family allowances, and rent subsidies. With the exception of the years 1944–48, the SAP abandoned nationalization and planning projects, and instead relied on forecasting and demand management, freeing the welfare state from the burden of state ownership of the economy. The SAP also gave up the rhetoric of class struggle in favor of a language that stressed mutualism and an ethic of consensus. Welfare policy was guided by the principle of universalism, extended by national health insurance in 1956, and education reform in 1962. The theoretical basis of this had been coined in 1928 by Per Albin Hansson, Swedish Prime Minister after 1932, when he noted that Sweden should become a “People’s Home,” based on an ethic of mutuality and consensus, not hierarchy and privilege.50 There were therefore three pillars in postwar social democracy: Keynesianism, corporatism, and the welfare state. In Sweden all three were integrated and shaped by a coherent vision of social reform. The key enabling conditions were also present: a unified labor movement, unchallenged by a mass Communist Party; cultural homogeneity, and therefore minimal ethno-cultural differences that could be a bridge to anti-socialism; and doctrinal flexibility. The promise of wage restraint for economic reconstruction, in return for social reforms and full employment – was effectively implemented by the SAP. It was this kind of program – led by a reformist state and based on universal inclusion and social equality – that could be embraced by white- and blue-collar workers alike. Old ideological questions simply disappeared, the new system based on the welfare state worked. By committing to and maintaining full employment, by resorting to progressive taxation and social reform to reduce inequality, and by using education and social

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services to equalize opportunities, the SAP in Sweden, the Labourites in Britain, and the indicative planners in France no longer needed to worry about abolishing capitalism, or to rely on the old class revolutionary rhetoric of class struggle.51 The Keynesian compromise worked precisely because it abandoned such rhetoric and embraced universality. And this made it possible to satisfy all levels of society in a working triangulation between labor, big business, and government. The rub was that these goals could also be managed by Conservatives; after all, such objectives implied social stability and the preservation of private ownership for capital, at a seemingly minimal cost, and they implied also social peace in which benefits could and would be shared by all. Conservatives could therefore wield power. This was what in fact would happen as the postwar Left consensus built the platform that no longer needed their lead.

Solidarity, shared purpose, and trust The decades following World War II in most of Western Europe saw a return to a prosperity that was largely the result of the social and economic policies of governments that embraced Keynesian economic strategies, the ethic of social solidarity that followed from the war itself, the desire of Europeans to smooth out the social inequalities that had led to social class collisions and industrial wars prior to the war, and the legitimate demands of citizens for public provision and collective goals that had often been part of labor movements throughout much of Europe. The war had taught the necessity of cooperation, just as the period prior to the war had revealed the need for compromise between capital and labor to secure domestic peace. The emergence of widespread solidarity was part and parcel of the belief in a common or shared purpose in postwar Europe. Wartime hardships had created a sense of social cohesion and community, and a wish to continue the newfound spirit of equality as well as to temper inherited class divisions. The common plight created by wartime conditions, which had spared neither rich nor poor, had forced the recognition that all people faced similar circumstances, paving the way for a more egalitarian social policy. In Richard Titmuss’s classic account, a general agreement had been implicitly forged – by depression and wartime conditions – that a minimum of social equality was a citizen’s inalienable right.52 Before there could be solidarity, however, there had to be an element of trust, a sentiment that society was something more than an amalgamation of individuals with little or nothing in common, each ‘rationally’ pursuing his or her own interest. There had to be a notion that the economy was not just about commerce but about working for a common provision and for meeting the needs of all citizens. There had to be a preferment for universal inclusion, and a sense of mutual help; something much more, in other words, than a competition which awarded only a few winners, while punishing many of the others. Solidarity meant mutual cooperation, common beneficence, collective well-being, it meant the sharing of risk, acknowledging that most if not all people were susceptible: it meant insuring each other against those risks.

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In Britain, Lord William Beveridge’s universalist and egalitarian approach to social policy depended on an appeal to the self-reliant or middle classes, which had been excluded from public or statutory provision previously. Once they were included, they could see themselves as beneficiaries also. In France and West Germany, solidaristic reform, a failure after the war because it threatened the more fortunate with redistribution, was successful by the 1970s because the middle classes appreciated the opportunity to shift their burdens elsewhere. It was not only the working class which supported the welfare state out of need; the middle classes also supported solidarity because they were now included as beneficiaries; and if it was not solidarity, then the fear of social unrest provided yet another reason to support universal inclusion. “Social solidarity,” as Peter Baldwin has put it, “is justice defined in terms of need. Regardless of birth, merit or worth, the citizen in need has a claim to the community’s aid. Once all are recognized as potentially needy, dependence is no longer the curse of one particular group, and is not stigmatized; assistance is transformed from a gift into a right.”53 As Baldwin recognized, and as we have observed, justice must be anchored in something more than need, and more than just interdependence. Without a sense of collective identity, of community, even a shared risk is unlikely to promote a sense of mutual trust. What, then, fostered a sense of solidarity and universality in the postwar environment? That war and disaster helped undermine old certainties, that old liberal verities had not been able to avert disaster, and therefore exposed nations to a high degree of uncertainty, seems obvious enough. The failure of self-reliance – which had once characterized the more comfortable and affluent – and the uncertainty of the market had certainly helped transform opinion about the public’s and the individual’s welfare. “Because all, in theory, stand to gain from solidarity, losing in its absence, all agree to it, thereby making a right of what would otherwise remain a concession.”54 To do otherwise, was to risk everything. World War II marked a turning point: crisis and turbulence led to a reformulation and extension of the social contract. Both Roosevelt’s new social programs and Beveridge’s blueprint in 1942 for egalitarian social change were monumental revolutions. Some even called the changes in Britain a socialist revolution. The new sense of community that emerged was embodied most clearly in plans for universalist, comprehensive, egalitarian social insurance, an inclusive umbrella of social security. Reformers envisioned the new system as one that included all citizens regardless of the distinctions of class, fate, or biology. The new social security plan was kindled by the Atlantic Charter, resolved at the International Labor Organization’s 1944 Philadelphia congress, and formulated in numerous country plans, including the UK and the US. It was proclaimed in the UN’s Declaration of Human Rights in 1948; its central mission was to provide, as Peter Baldwin put it, “universalist social security in its most messianic formulation [and] to protect all against need and mischance, to guarantee a global New Deal and complete the course of human liberation.”55 The basic aim was not to initiate a social revolution, not to modernize liberalism or socialism, but to embrace freedom and justice, and

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to define and establish basic conditions of equality. The wife of Lord Beveridge had in fact caught the fire of T. H. Marshall’s Cambridge lectures, and amply and enthusiastically embraced them in the spirit of the times, though in far less abstract language, when she pronounced that her husband’s blueprint for the future welfare state “was the inauguration of a new relation within the state of man to man and of man to the state, not only in this country, but throughout the world. The ethic of the universal brotherhood of man was here enshrined in a plan to be carried out by every individual member of the community on his own behalf and on behalf of his fellows.”56 This was indeed a social bill of rights: neither poverty nor need would exclude anybody from the human community in the future. Where before social policy had been the result of the hopes of society’s elites for stability, or capitalism’s functional requirements, or the result of pitched battles between the proletariat and the bourgeoisie, there was now a broad consensus behind the welfare state, based on a sense of universal trust and inalienable right. It was especially in Scandinavia in this period that the Social Citizenship State articulated by T. H. Marshall came to fruition. His vision aimed to provide an equal social right to basic security and welfare regardless of one’s class or status. Social democratic parties built a broad consensus based on workers and the middle classes, making their policies universally inclusive and giving them greater staying power than conservative ideas and plans aimed only at the poor. Workers were no longer stigmatized as the only needy in the population. And in fact, in Scandinavia, need – and the Means Test establishing need – was abolished as criterion for eligibility; welfare was no longer for the needy, or the poorest, it was now a right that was available for all. In essence, all were needy – or could easily become so. Significantly, benefits were all equalized, and paid for by taxes levied at a flat rate. In this way, there were fewer objections; the middle classes did not pay in more, nor did they take out less.57 In Britain, too, benefits were to be universal, based on flat rate, and not conditional on need. All citizens were therefore included largely on equal terms. Universalism, as defined by Lord Beveridge’s blueprint, meant that even the most secure – civil service workers, for example – were obliged to contribute to help ensure the least fortunate. Risk was to be shared universally, as were benefits. In effect, all were obliged to insure each other. This was not exactly a system of vertical redistribution of wealth – after all, even relatively secure citizens were equal beneficiaries – but it created a system of social security and solidarity, and enhanced a feeling of collective trust absent from anything seen previously. The solidaristic welfare state in Sweden became an exemplary model of democratic socialism, brought about by the Social Welfare Committee, which was appointed in 1938, with a sweeping mandate for change. What it came up with surpassed Beveridge and the UK: generous pensions and family allowances, workers’ compensation, and health insurance without peer. The bedrock of the Swedish system was the triumph of egalitarian universalism. Health insurance was prominent in this scheme, but pensions came foremost. The law on national pensions passed in 1946 extended the principle first broached in

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1913. It granted universal, unconditional flat-rate benefits to all, no matter how well-off, at a uniform rate throughout the country. Social benefits were now a citizen’s right regardless of need. In England, Lord Beveridge had emphasized the insurance principle, but Swedish reformers severed all links between premiums and entitlement. The most affluent now had to double their contributions, but taxes still bore the main brunt of expenses. Flat-rate premiums on the British model were not feasible because of the enormous disparity between Arctic Circle crofters and Göteborg workers, as one illustration.58

The state and the social contract The 1960s saw the apogee of the state. After the war social benefits had expanded as a matter of right, and economic strategies were generally meant to support the public welfare and not to be concerned so fundamentally with security. In the peak years of the European welfare state, during the several decades following World War II, the state had an authority and credibility almost without parallel. It was widely believed the state would do better than the unrestricted market: in dispensing justice, providing economic security, and distributing goods and services, to be sure, but also in designing, promoting, and implementing strategies for social solidarity, moral support, and cultural vitality. Depression had taught the lesson not to rely on the unrestricted market. The state was a good thing, and the more the better.59 Between 1950 and 1973 government spending in France rose from 27.6 percent to 38.8 percent of GDP; in West Germany the comparable figures were from 30.4 to 42 percent; from 34.2 to 41.5 percent in the UK; from 26.8 to 45.5 percent in the Netherlands. In Sweden, between 1958 and 1980, government spending rose from 31 percent to a dramatically higher 66 percent, more than doubling in two decades; the figures for Norway and Denmark were roughly comparable.60 All this was at a time when the GDP was itself growing faster than ever before. Moreover, the overwhelming bulk of the increase in spending went to social insurance, pensions, health, education, and housing. In Scandinavia the percentage of national income spending on social security alone rose by 250 percent in Denmark and Sweden between 1950 and 1973. In Norway the share was even more dramatic, tripling in the same period.61 Between 1960 and 1980, total social transfer spending – welfare, unemployment, pensions, health, and housing subsidies – was doubling and almost tripling in Scandinavia as a percentage of GDP. In Sweden the increase rose from 10.83 percent in 1960 to 25.94 percent in 1980; for the same years Norway increased its social transfer spending from 7.85 to 21 percent. Both Denmark and Finland saw hefty increases greater than 100 percent for the same period. Despite the cost of universal welfare and social inclusion, European capitalism was doing well, to a great extent because of the greater role for the public sector. And why not? Government spending made it possible for all to be consumers, creating a constantly rising demand. And government employment kept citizens off the welfare rolls, which would have added at least as much to the burden of the state. The Scandinavian Social Democracies were not alone in promoting social

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welfare through the direct intervention of the state and social transfer programs. The Catholic Church and Catholic political parties urged the same in Catholic countries to thwart advances of communism. As a result, Christian-Democratic welfare states – Austria, Belgium, France, Italy, the Netherlands, and West Germany – all saw hefty increases in social spending. Between 1960 and 1980 all these “Christian democracies” increased their spending on welfare by at least 45 percent, while in the case of the Netherlands social spending rose dramatically from 11.70 percent in 1960 to 28.34 percent of GDP in 1980.62 For the most part, governments preferred to regulate and exercise indirect control, rather than to nationalize industry. Once again, with a sense of irony, capitalism was thriving because of what it had learned from socialism: preserve capitalism, but do not leave public welfare up to the market. Italy was an exception. There, as we have seen, the state intervened into the marketplace much more directly. The largest public sector corporations, the ENI and IRI, controlled over a fifth of all capital investment in manufacturing, industry, transport and communications.63 The best-known public enterprise, the IRI, was only notionally autonomous. The IRI serviced not only its employees and consumers but also a variety of political parties, trade unions, social service agencies, and even churches. Italy’s Christian Democrats colonized at every level, from villages upwards, a range of public services and state-controlled or state-subsidized products, including everything from transport to electronic media, from banks to energy, from engineering and chemical industries to the building trades and food production. The Christian Democratic party was certainly a primary beneficiary, but after it came the millions of children and grandchildren of landless peasants who found employment in the bureaucracies that resulted from the policies of the Christian Democrats.64 The rationale for an intrusive state and a large public sector was to ensure economic growth, but also to broker general social health and well-being. Italy’s postwar constitution enshrined the new reality: Italy was to be a democratic republic “founded on labor,” and determined to eliminate all “economic and social obstacles” to workers’ advancement. The constitution promised the primacy of society’s goals and needs, while refraining from granting private property the status of “absolute right.” Instead it emphasized government’s obligations and limitations. Most significantly, the constitution promised Italian citizens the right to employment, health care, and education. In Belgium, much the same thing was happening: the government in Brussels buffered local resentments through its control of public-sector companies, which allowed it to bribe contending regional and linguistic interests with services, jobs, and costly infrastructure. Postwar nationalization in France gave the government long-lasting influence and patronage. Electricité de France (EDF) was both the country’s largest supplier of energy and one of France’s largest employers. Following an agreement made in postwar legislation, EDF contributed 1 percent of its turnover to a social fund managed by the then powerful trade union movement, the Confédération générale du travail (CGT). This fund paid for vacations and other benefits, as well as offering employment possibilities for its staff. Significantly, this was for decades a lucrative and politically significant lever of

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patronage for the CGT’s own patron, the French Communist Party. In this way the state emerged as a vehicle that seemed to benefit all, whether in the form of social services, or in the form of employment. It became a preferred venue for employment by university graduates. All seemed to benefit from the state, despite the noisy ideological differences that might emerge. “Faith in the state,” as Tony Judt has sharply observed – “as planner, coordinator, facilitator, arbiter, provider, caretaker and guardian – was widespread and crossed almost all political divides. The welfare state was avowedly social, but it was far from socialist. In that sense welfare capitalism, as it unfolded in Western Europe, was truly post-ideological.”65

Social democracy as culture and way of life Yet European social democrats did have a distinctive vision. It meant that socialists had made a bargain with reality, and accepted that pure socialism as a possibility was a thing of the past. Improvement for the working classes would have to come peacefully and incrementally. But this did not mean abandoning the socialist tenets of the nineteenth century. It remained an article of faith that capitalism was inherently ineffectual and dysfunctional, economically and morally inferior. Social democrats were not willing to commit to the inevitability of capitalism’s imminent demise through their own political action, but rather to use the state to eliminate the pathologies that could be expected to attend the development of capitalist relations. In some parts of Europe, social democracy became not only a way of politics but also a way of life, a culture. This was very evident in Scandinavia where, between 1945 and 1964, the Danish Social Democrats’ share of the vote went from 33 to 42 percent. Swedish Social Democrats never fell below 45 percent in the decades after World War II, and even reached 50 percent in 1968. In the British general elections in 1951, Labour, led by Clement Attlee, polled 48.8 percent of the vote. Between 1945 and 1968, eight out of ten Danish governments were led by Social Democrats. In the same years there were five Norwegian governments, three of which were led by Social Democrats. In Sweden, Tage Erlander, head of the SAP for 23 years, also ruled the country for the same number of years between 1946 and 1969.66 Labor relations in Scandinavia had not always been peaceful: earlier, Scandinavia was chronically depressed and poor. In 1932–33 a third of the labor force was out of work. In Norway and Denmark in the same period some 40 percent of the adult labor force was out of work. But, after World War I, Scandinavian countries abandoned the radical rhetoric and revolutionary ambitions they had shared with German and Austrian Socialists: in the 1930s they moved toward a historic compromise between capital and labor. In 1938, at Saltsjöbaden, representatives of Swedish employers and labor signed a pact creating a foundation for the country’s future social relations, somewhat resembling the neo-corporatist social partnerships formed in West Germany and Austria after 1945.67 Unlike the Nazis, fascists, and agrarian populists, who attracted peasants in central and southern Europe, the social democrats did not reject the troubled

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farmers, crofters, and fishermen, of Europe’s far north, and these turned to Social Democrats because the latter supported agrarian cooperatives in growing numbers. It was the alliance of labor and farming that formed the backbone of social democracy, facilitated by the unusual independence of Scandinavian peasants, mostly Protestants, who felt no allegiance to priest and landlord. Scandinavian welfare states, therefore, owed their success to the two social pacts that dated to the 1930s: the pact between employers and employees, and the pact between laborers and farmers. The social services and public provisions that were part of the Scandinavian model reflected their foundations. These emphasized universality and equality, universal social rights and equalized incomes, and featured flat-rate benefits paid from steeply progressive taxation. This contrasted with the typical continental European version in which the state transferred or returned income to individuals and families, which enabled them to pay cash for what were in essence private and subsidized services, medicine and insurance in particular.68 Throughout Scandinavia, but especially in Sweden, private ownership and exploitation of the means of production were never questioned. Capital and initiative were left in private hands. Industrial capital was concentrated in Sweden in fewer hands than anywhere in Europe. The government did not interfere with private wealth accumulation or with the marketplace for goods and capital. Even in Norway, after fifteen years of Social Democrats in power, the state-owned or state-run sector of the economy was smaller than West Germany under the Christian Democrats. But in Sweden and Norway, as in Denmark and Finland, the state progressively taxed and (re)distributed profits for the public good. The postwar Swedish state was charged with two responsibilities: promoting economic growth, and the protection of society. The goals were not seen as contradictory, but rather as complementary: growth only made sense in the context of fairness and social justice.69 By 1970, Sweden, along with Finland, had two of the four leading economies in the world, if measured by purchasing power per head of the population (the other two were the US and Switzerland). Sweden was the richest and the most industrialized of the Scandinavian countries; By 1973, Sweden’s production of iron ore was comparable to that of Britain, France, and West Germany combined, and was almost half that of the US. In Sweden, as throughout Scandinavia (though to a lesser extent), social democracy was about equalizing wealth for the common good. The results demonstrated that it was possible to combine economic growth with social equality. Sweden was a world leader in paper production, wood pulp, and shipping. Moreover, Scandinavians generally lived longer and healthier lives than most people in the world, and the provision of educational, welfare, medical, insurance, retirement, and leisure facilities was unequalled (least of all in the US); the same could be said for the physical and economic security of its citizens.70 West Germany, given the recent (National Socialist) history of Germany, was eager to disavow its past. West Germany committed itself to Christian democracy, eagerly proclaimed that democratic socialism was rooted in Christian ethics, humanism, and classical philosophy, and indicated it had no intention of proclaiming absolute truths; the reference was again to the recent Nazi past. It was

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asserted that the state should restrict itself to influencing the market indirectly, and that a free market in goods and employment was vital. Economic liberalism was the antidote to the extreme statism of Nazi Germany. And, yet, the postwar West German Christian Democrats who came to power were determined to break with the power of private capitalism, and said so in their program of 1947. Political realities in West Germany forced the state to intervene and to commit itself to social protection. Resources had to be used to protect key players in the German economy. This was not done only to promote economic growth, or to serve the interests of industrialists or because of the demands of economic liberalism. West Germany was committed to the welfare state as an indispensable foundation: above all, it needed to protect society against the kind of economic and social ravages that had made the rise of Hitler possible.71 Thus, West Germany, though committed philosophically to the principles of a free market and state non-intervention – to avoid the excesses of Nazism and a powerful, ideologically centralized state – the culture and principles of social democracy were powerfully embraced. They included an activist, interventionist state, strong commitment to protecting society against the ravages of capitalism and the market, and an enduring belief in the desire to foster social unity. In West Germany, this spelled out the platform of the new welfare state: a tripartite partnership between the state, labor, and big business. Perhaps even more critically, the West German state found the balance, the cultural kernel it needed, between human rights embedded in the inalienable principles of Western liberalism and idealism, and the social contract that had been touted by German Social Democrats, and German Christian Democrats too, promising not only social protection but social solidarity as well. The British Labour Party had no nightmares to live down in recent memory, unlike the Germans and Austrians. It was from its origins, like its Belgian and Dutch counterparts, a labor movement rather than a socialist party, and thus did not have ideological baggage to worry about such as the socialists did. The British Labour Party was, therefore, more practical minded, and less ideological. The British worked out their own compromise; they used a demand-manipulated fiscal policy, high levels of social provision, progressive taxation, and a large nationalized sector, established against a background of adversarial and unreliable industrial relations. Despite such ad hoc arrangements, agreement was widespread among the Conservative, Liberal and Labour parties because it was thought these policies the best way to avoid mass unemployment again. The British policy could be described as social democratic because of its adherence to fairness. This had driven the Beveridge reforms and the vote for Labour in 1945. The British accepted progressive taxation and welcomed universal health provision, not because they were socialist, but because these policies were deemed fair. Ironically, the British flat-rate system of benefits and services – which favored disproportionately the better-heeled professional middle class – were broadly accepted because they were egalitarian, or had the appearance of being so. But problems persisted in the British welfare state though these were often ignored. The welfare state was

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not always effective, even in the area of material equality. As late as 1967 some 10 percent of the British population still possessed 80 percent of all personal wealth. The net effect of the redistributive policies in the three postwar decades was to shift income and assets from the top 10 percent to the next 40 percent. The bottom 50 percent, however, gained little, despite the overall improvement in security and welfare.72 That this problem persisted was because Britain was not social democratic enough. Unlike Scandinavia, where social egalitarianism was spread more evenly throughout society, the British Labour Party remained more narrowly tied – by professional and ideological interest – to the British working class. And that ultimately, proved to be its undoing.

Notes   1 Tony Judt, Reappraisals: Reflections on the Forgotten Twentieth Century (New York: The

Penguin Press), 8. Italics are Tony Judt’s.

  2 Ibid., 10.   3 Ibid.   4 Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 41–3.   5 Ibid., 98.   6 Ibid., 98–9.   7 Friedrich Hayek, The Road to Serfdom (London: Routledge, 1944); and Karl Popper, The

Open Society and Its Enemies, rev. edn (Princeton, NJ: Princeton University Press, 1950).

  8 Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Henry

Holt & Company, 2007), 21.

  9 Beatrice Webb, My Apprenticeship (Cambridge: Cambridge University Press, 1979),

especially 346–415. 10 Judt, Ill Fares the Land, 74. Italics are Tony Judt’s. 11 Sheri Berman, The Primacy of Politics: Social Democracy and the Making of Europe’s Twentieth Century (Cambridge: Cambridge University Press, 2006). See especially 152–76. See also Gøsta Esping-Andersen, The Three Worlds of Welfare Capitalism (Princeton, NJ: Princeton University Press, 1990), for a typology of welfare states. 12 Judt, Ill Fares the Land, 76–7. 13 Ibid., 46–7. 14 John Maynard Keynes, The End of Laissez-Faire (Thousand Oaks, CA: BN Publishing, n.d,), 40. 15 John Maynard Keynes, The Economic Consequences of the Peace (Thousand Oaks, CA.: BN Publishing, n.d.), 67. Italics are the author’s. 16 Ibid. 17 Ibid, 241. 18 John Maynard Keynes, Essays in Persuasion (New York: Palgrave Macmillan, 2010), 90–1. 19 Ibid., 291. Italics are John Maynard Keynes’. 20 Ibid. 21 Ibid., 291. 22 John Maynard Keynes, as quoted in Robert Skidelsky, John Maynard Keynes, vol II: The Economist as Savior, 1920–1937 (New York: Penguin Books, 1995), 121. 23 John Maynard Keynes, as quoted in Skidelsky, Keynes, II, 184.

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24 John Maynard Keynes, as quoted in Skidelsky, Keynes, II, 233. 25 Skidelsky, Keynes, II, 234–5. 26 Ibid., 235. 27 Ibid., 263–4. 28 Ibid., 405–6. 29 Ibid., 407. 30 Ibid. 31 A. F. W. Plumtre, as quoted by Skidelsky, Keynes, II, 409. 32 Berman, Primacy of Politics, 180. 33 Ibid.; and Judt, Ill Fares the Land, 60. 34 Berman, Primacy of Politics, 181. 35 Judt, Ill Fares the Land, 57 36 John Maynard Keynes, “The End of Laissez-Faire,” in Essays in Persuasion (London: Palgrave Macmillan, 2010), 291. 37 Berman, Primacy of Politics, 184–5. 38 Geoff Eley, Forging Democracy: The History of the Left in Europe, 1850–2000 (Oxford: Oxford University Press, 2002), 297. 39 Charles de Gaulle, as quoted in Berman, Primacy of Politics, 182. 40 Berman, Primacy of Politics, 182–3. 41 Ibid., 183. 42 Ibid., 183–4. 43 Eley, Forging Democracy, 312. 44 Ibid. 45 Ibid., 312–13. See also T. H. Marshall, Citizenship and Social Class, and Other Essays (Cambridge: Cambridge University Press, 1950); and Richard M. Titmuss, Essays on the ‘Welfare State’, 2nd edn (London: Routledge, 1963), for British ideas about the welfare state and social democracy. 46 Eley, Forging Democracy, 314. 47 Ibid., 315. 48 Ibid., 316. 49 Ibid., 316–18. 50 Tim Tilton, “The Role of Ideology in Social Democratic Politics,” in Klaus Misgeld, Karl Molin, and Klaus Amark (eds), Creating Social Democracy: A Century of the Social Democratic Labor Party in Sweden (University Park, PA: Penn State University Press, 1992), 411. 51 Eley, Forging Democracy, 319–20. 52 Richard M. Titmuss, Problems of Social Policy (London, HMSO, 1950); and Richard M. Titmuss, “War and Social Policy,” in Titmuss, Essays on ‘The Welfare State’; see also Peter Baldwin, The Politics of Social Solidarity: Class Bases of the European Welfare State 1875–1975 (Cambridge: Cambridge University Press, 1992), 24–5. 53 Baldwin, Social Solidarity, 31. 54 Ibid., 35. 55 Baldwin, Social Solidarity, 108. 56 See Janet Beveridge, Beveridge and His Plan (London: Hodder & Stoughton, 1954), 7, 168. See also Marshall, Citizenship and Social Class, for an elaboration of the concept of social citizenship: citizens have political and social rights. 57 See Baldwin, Social Solidarity, 111–16. 58 Ibid., 135. 59 There was widespread consensus that the postwar welfare states, social democracies,

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and New Deals, as they were variously called, worked for the advantage of most of society. For statistical evidence in the case of Sweden, see Peter H. Lindert, Growing Public: Social Spending and Economic Growth Since the Eighteenth Century, vol. 1, The Story (Cambridge: Cambridge University Press, 2004), 292–3; see especially Table 11.4, Swedish Attitudes toward Government and the Welfare State, 1967–1984. And Tony Judt, Postwar: A History of Europe Since 1945 (New York: The Penguin Press, 2005), 361, for some general comments on the topic of social spending, economic growth, and the welfare state. 60 See Evelyne Huber and John D. Stephens, Development and Crisis of the Welfare State: Parties and Policies in Global Markets (Chicago, IL: University of Chicago Press, 2001), Appendix: Table A.2, Total Government Expenditure. 61 Judt, Postwar, 361. 62 Lindert, Growing Public, 12–13. See Table 1.2, Social Transfers in OECD Countries, 1880–1995, as Percentages of Gross Domestic Product at Current Prices. 63 Berman, Primacy of Politics, 182–3. 64 Judt, Postwar, 361–2. 65 Ibid., 362. 66 Ibid., 363–4. 67 Ibid., 364–5. 68 Ibid,. 365–6. 69 Berman, Primacy of Politics, 184. 70 Judt, Postwar, 366–7. 71 Berman, Primacy of Politics, 183–4. 72 Judt, Postwar, 370–2.

4

How we fell into the memory hole and got to where we are today Milton Friedman and challenges to the welfare state Since the 1980s Milton Friedman’s theories have not only reigned as the orthodox ideas governing the economic and monetary policies of the US, and to a large extent the UK, but they have also become embedded as the official philosophy of the IMF, which has attempted to impose them on less developed countries, or countries in crisis, when they have come to the West with outstretched hands. Back in the twentieth century Friedman had dreamed – though he had long been ignored – of returning to a pristine state of pure market capitalism, with no entrenched interests or government policies to ‘distort’ the market. The core of his philosophy was that, in a truly free market, the economic forces of supply, demand, inflation, and unemployment would be in perfect equilibrium; in fact, Friedman saw these as forces of nature, operating in the same manner as physical laws. If an economy suffered from inflation, it was because of the misguided policy of putting too much money into circulation, rather than allowing the market to find its own equilibrium. Left to its own devices, the market would create the right number of products, at the right prices, produced by workers at precisely the right wages, enabling them to buy the products they had produced. Given this balancing of forces, there would be no inflation, nor would there be any shortage of employment.1 Friedman, however, preached his doctrine in the wilderness for decades; after all, how could he test his assumptions? Since all economies seemed out of balance, it had to be assumed that they were all somehow distorted. Scientists could test their theories under controlled conditions in laboratories. But Friedman could not identify any actual economy which, stripped of all distortions, would be in perfect harmony. Like all fundamentalist faiths, no matter how much Friedman tried to base his theories on the principles of ‘science’, his system was a perfect circle. If one assumed that the free market operated like a scientific system, a system in which individuals acting for their own self-interested desires created benefits for all, then the presence of any problems, whether high inflation or high levels of unemployment, could only mean that the market was not truly free.2 Was Friedman wrong in arguing that the unprecedented global prosperity in the last decades of the twentieth century was because of free markets, ‘free’ prices, 82

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consumer choice, and economic liberty? On the contrary, there was much truth in his argument, but not in the way that Friedman had intended. This was because the nature of global prosperity – who shared in it, who did not – and where the new wealth came from were still hotly debated. Yet, as it was becoming ever clearer, much of the new prosperity toward the end of the twentieth century was being concentrated more and more at the top. The new wealth was not trickling down, but gushing up. Friedman’s personal experience as a child seemed ill-fitted to his claims to wear the liberty cap. In his early childhood, he moved with his parents, both Hungarian immigrants, to Rahway, New Jersey, where his family bought a garment factory. The business, located in the same building as the family’s apartment, would later be recalled by Friedman, in lectures and television appearances, in highly rapturous terms. Yet in Friedman’s memoir, Two Lucky People, published in 1998, he admitted that, in contemporary understanding, the business would be called a sweat shop.3 Friedman’s ideas thus did not appear out of a vacuum. From the perspective of a sweat shop owner, the world was a dangerous and unfair place. The interwar era was indeed volatile, with Marxists, radicals, and anarchists all organizing workers into unions and demanding better working conditions and higher wages, and even debating the theory of worker ownership – all threats, no doubt, to Friedman’s parents, and later to Friedman himself. Friedman knew quite well that a sweat shop is a sweat shop by any name, yet in his television appearances he offered his parents’ factory as an example of the benefits of deregulated capitalism, proof that even the worst and least regulated shop floors still offered opportunities – especially for immigrants – to become free and prosperous.4 It was the ideological divide of the Cold War that made it possible for Friedman’s ideas to gain traction. As the politics of the Left, including more power to the workers, gained momentum globally, an opportunity presented itself to Friedman and his like-minded colleagues at the University of Chicago school to defend the interests of owners; more than that, to defend those interests in a way that was also radical, and at the same time idealistic. Friedman himself led the charge; he was not, he insisted, defending the interests of factory owners to pay low wages, but was rather in pursuit of the purest form of “participatory democracy.” This was because in the free market each man could vote with the freedom to choose whatever he wanted to consume. Freedom of choice in the market implied democratic choice.5 Leftists could offer freedom of “workers from bosses, citizens from dictatorship [and] countries from colonialism.”6 Friedman, on the contrary, promised “individual freedom,” thereby liberating the individual from any collective enterprise and allowing him to express his absolute free will through consumer choice. Just as Marxism offered “idealism combined with radicalism,” so now, recalled economist Don Patinkin, Friedman offered the same recipe for entrepreneurs.7 In this way, Friedman defined the entrepreneurial utopia of the future. The enemy, however, was not Marxist idealism, it was John Maynard Keynes and the challenge to the unregulated market. The problem was, therefore, not how to create capitalism but how to restore it to its pristine, and unregulated, state.

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Whereas Keynes had sought to use the state to elevate the citizen, as well as to lubricate the economy, in Milton Friedman’s playbook any government social program, no matter whether it intended to alleviate poverty, or protect the health of citizens, or provide decent (subsidized) housing, or guarantee social security, was bound to fail because it took initiative away from individuals and was therefore a restraint on their liberty. And if there was restraint in the marketplace, then democracy in a wider sense was bound to fail. Friedman never asked the wider question, whether a free market would protect the public’s health, or shield it against excessive speculation by banks and financial institutions, or insure that the public was not otherwise manipulated by the powerful for private advantage. Free to Choose was not only the title of Friedman’s popular book published in 1980 with his wife, Rose, it was also a personal mantra for his lifelong crusade against the welfare state and for privatizing and deregulating as much of the American economy as possible, advice which he and his neo-liberal, market fundamentalist successors would also promote throughout the globe. Convinced that the market would solve all problems if only it would be left unrestrained and unregulated – making Friedman even more of a Smithite than Adam Smith – but without any of the moral compunction of Smith – Friedman never made a connection between democracy and social equality. Like Margaret Thatcher, Friedman hardly recognized the existence of society – there were only individuals and their right to choose – nor did he make a distinction between the right to consume a product, anything from automobiles to groceries, and the right to exercise civil liberties. Democracy was an exercise of the wallet, at least as much as it was the right to exercise freedom of speech. “It is natural to assume,” he said, “that someone must give orders to make sure that the ‘right’ products are produced in the ‘right’ amounts and available in the ‘right’ places.”8 But, as we know, Friedman thought such an assumption quite wrong: the commanding state could never replace nature because the state would never have the information it needed to make a “right” decision. Nor should it, since that would be the very negation of liberty. Friedman blamed the government for the Depression because it failed to print more money: the Depression was the result of getting money supply and interest rates wrong. For Friedman, the welfare state induced dependency, and therefore prolonged poverty. His antidote was to abolish the programs that induced dependency. In Free to Choose, he advocated for the abolition of Social Security. He chided the government for putting out a pamphlet that proclaimed workers were earning protection for themselves through their Social Security contributions, saying that they were really paying for people who were not working. He concluded that people should make their own arrangements for retirement, forgetting, no doubt, that Social Security had been adopted because few people had ever been able to make their own arrangements.9 In some of his statements, Friedman sounded much like an English capitalist might have argued in the nineteenth century when advocating for the workhouse: “Most of the present welfare programs,” he warned, “should never have been enacted. If they had not been, many of the people now dependent on them would

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have become self-reliant individuals instead of wards of the state. In the short run that might have appeared cruel for some, leaving them no option to low-paying, unattractive work.”10 This did indeed appear cruel. But what had led to the kind of ideological pronouncements that Friedman took for a larger truth? In the 1960s the American economy was booming, but corporations had to share their new wealth with organized workers through corporate taxes. This is when they brought in Friedman and colleagues at the University of Chicago, the ‘Chicago boys’. Friedman and his cohorts advocated for weak unions – or their abolition, for lower workers’ wages, and the elimination or reduction of corporate taxes, without any apparent conflict of interest. Friedman asserted, as he did in Two Lucky People, and Capitalism and Freedom, which appeared in 1962, that the New Deal had gotten people on the wrong track.11 In Capitalism and Freedom, he outlined the new rules for the global free-market. Governments ought to remove all regulations standing in the way of profits; they should privatize all assets that could produce a profit for corporations; and they should dramatically reduce spending on social programs. Friedman’s objectives were deregulation, privatization, and cutbacks in government spending. There were other specifics: taxes should be low if they existed at all; the same flat rate should be assessed on rich and poor alike; corporations should enjoy absolute freedom to sell their products anywhere in the world; and governments should not be free to protect local industries or local ownership. The price of labor, as all other prices, should be determined by the market; governments should not set a minimum wage. Health care, the post office, education, retirement pensions, even national parks, he argued, should all be privatized. In sum, he wanted to abolish the New Deal though only this had saved many people and probably spared the US a revolution. Friedman was in fact restating and popularizing corporate ideology, he wanted public assets in private hands; his ideas coincided nicely with corporate interests and the desire for corporate expansion. Friedman’s war on the welfare state and ‘big’ government promised a new frontier of rapid riches, the next frontier after the end of colonialism. Only now the state was the new frontier, its public assets and services to be auctioned off for far less than they were worth.12 Milton Friedman did not believe in social equality, only in the equality of opportunity. He insisted social equality inevitably was incompatible with liberty. Using the tax code to eliminate social inequalities, regulating the economy to protect citizens against corporate abuse, establishing welfare to help the indigent, were all somehow curbs on individual freedom. “Few of us believe in a moral code,” Friedman emphasized, “that justifies forcing people to give up much of what they produce to finance payments to persons they do not know for purposes they may not approve of.”13 Ignoring the fact that the vast majority of Americans, not to mention the British and Europeans, had expressed their support for progressive taxation for decades – taxes after all had been used for equitable purposes for dozens of years, benefiting most citizens – Friedman argued that it was a myth that free market capitalism bred inequalities. If there were inequalities, he argued, it really meant that the free market was not permitted to operate freely. Inequalities were greatest, he added, wherever there were restraints on the free market.

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That this was demonstrably false in countries such as Austria, France, Germany, Norway, and Sweden, hardly deterred Friedman.14 Social equality, he concluded, could only be achieved by force and the suspension of liberty.15 Friedman’s idea of liberty, of participatory democracy, was for the state to deregulate, impose minimal taxes, privatize virtually all public enterprises, and avoid all intrusions into the market. “What is irrefutable,” says Naomi Klein, “is the fact that Friedman’s free market rulebook, and his savvy strategies for imposing it … made some people extremely prosperous, winning for them something approximating complete freedom – to ignore national borders, to avoid regulation and taxation and to amass new wealth.”16

Turning point: deindustrialization and the changing architecture of the world The worldview of Friedman and the Chicago circle did not gain traction until the mid-1970s, when several upheavals brought challenges to the consensus supporting welfare states and social democracies. Foremost among the challenges was the cost of financing the benefits of the welfare states, a problem compounded by the demographic of aging populations, and increasing gaps of self-interest between the older and younger generations. Keynesian economics, once taken for granted as necessary and inevitable, was now challenged by the new realism of everyday life. The postwar baby boomer generation was entering middle age and there were already predictions of dire straits when that generation approached retirement, a problem that was made worse by the widespread practice of reducing the retirement age. There were some striking illustrations of the problem: in West Germany, in 1960, of males between the ages of sixty and sixty-four, 72 percent were still working full-time that year. Twenty years later, only 44 percent of men in this age group were still working. In the Netherlands, the fall was from 81 to 58 percent. Within a few years the baby boomer generation would cease paying taxes and would begin to extract large sums in benefits, in the form of guaranteed state pensions and medical and social services. Beyond this, the same generation was the best-nurtured generation ever and its members would certainly live longer. And there was yet another problem: the growing cost of unemployment benefits that was, by 1980, already a major budgetary consideration in every Western and Central European state.17 Widespread anxieties were justified. The postwar welfare states were based on the assumptions that economic growth and job creation (and government income), would remain at the high levels of the 1950s and 1960s; it was also widely believed that birth rates would remain well above replacement level, ensuring a ready supply of taxpayers to support their parents and grandparents. But within a few decades after the war, both assumptions became questionable, and this was especially true of the demographic assumption. In the early 1980s, in much of Europe, the population replacement ratio of 2.1 children per woman was being met or exceeded only in Ireland and Greece. Elsewhere, in West Germany it stood at 1.4, and in Italy it was even lower. In 1950, 26.1 percent of Italians, one in four, was

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under the age of fourteen; by 1990 the figure would fall to 15 percent, almost one in seven. Why this demographic? More women were working outside the home and pursuing careers, and there was more reliable contraception; in a manner of speaking, prosperity was transforming the configuration of the population and increasing the ratio of older to younger. There were fewer and fewer people to pay the bills of the large and growing number of retired people. The result was higher charges on those able to pay.18 As early as the 1950s, and accelerating into the 1960s, the urban blue-collar workforce began to fragment and shrink. Traditional methods of mass production in factories began to give way to automation, and the mining and transport industries were confronted with the rise of service industries and an increasingly feminized workforce. Even in Sweden, the Social Democrats could no longer hope to secure majorities by relying only on the votes of labor. The Old Left could still count on the instinctual support of working-class communities and blue-collar unions, but these represented a shrinking part of the population overall. By the 1970s the fragmentation of the traditional blue-collar working force began to accelerate, nowhere more so than in the US and the UK, but in much of Western Europe as well. Industrial employees in the early 1950s ranged from almost 50 percent in Britain and Belgium to a low of 25.1 percent in Spain. Almost all other nations were somewhere in between, with the exception of the German Federal Republic and Sweden, which were at the high end, and Italy at the low end. After 1973 and 1974, declines were steep. In Britain, industrial employment dropped from 49.2 to 30.2 percent by 1987. In Belgium the drop was from 48.3 percent to 28.7 percent. Manufacturing was also in precipitous decline. Between 1970 and 1993 British manufacturing dropped from 32.4 percent of jobs to only 18.9 percent; in the same period Sweden dropped from 28.3 to 16.8 percent in manufacturing jobs. British employment in specific industrial sectors declined by as much as 75 percent: between the years 1980 and 2000, employment in the mining and energy sector fell from 716,000 to 200,000; the clothing and textile sector reduction was almost exactly the same. Some industries virtually collapsed in the UK: these included old industries like coal, iron, steel, railways, shipbuilding, docking, machine tools, and textiles. The British automobile industry also collapsed, or simply fled to other countries. Simultaneously, as the industrial sector declined, employment in the service sector advanced: financial services, technology, and business services rose from 1,669,000 employees to 4,496,000 in the same two decades. The number of people employed in the hotel and restaurant business almost doubled, up to about 1,800,000 by 2000.19 The shift from industrial to service employment was just as dramatic in the US. In virtually a decade, the 1970s, much of the Midwest – including states such as Michigan, Illinois, and Ohio – turned into a rustbelt as industrial jobs either fled to the hard-to-unionize South, or migrated abroad toward cheaper Mexican and later Oriental labor. In less than one generation the American automobile industry dramatically downsized, until it almost disappeared in the Great Recession of 2008. The transformation from an industrial to a service economy had dramatic consequences. Deindustrialization of many of the old industrial centers in the US

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and UK decimated the working class, the traditional electoral base of the Democrats in America, and the Labour Party in Britain, and dramatically reduced the power of the industrial unions: the United Auto Workers, for example, in the US, and the Transport and General Workers Union in the UK, which, in the five years after the first election of Margaret Thatcher, lost 29 percent of its membership, a figure that looked healthy when compared to the almost complete disappearance of the coal miners’ union. Despite high-tech growth in computers, pharmaceuticals, electronics, and aerospace, new jobs came primarily from three relatively new areas: food and catering, health, and business and information services. This new work, however, was too often part-time, unprotected, insecure, temporary, lowwaged, and non-unionized, and therefore beyond the reach of labor to organize. Moreover, the bulk of new employment for women was limited to part-time work. Finally, community, social, and personal services became one of the fastest growth areas of the economy after 1960, and as this sector of employment growth accelerated – between 31 and 38 percent of all jobs by 1992 in the Low Countries and Scandinavia – so did the costs of running welfare states and social democracies accelerate, making them less tenable financially, and less politically supportable.20 In the decade between 1965 and 1975, the postwar settlements began to dissolve. The ending of Bretton Woods and the international monetary order that followed after Nixon detached the dollar from gold, compounded by American difficulties resulting from the Vietnam War and the crisis of the Nixon presidency, and the oil embargo – which had a dramatic impact on the cost of energy and the world recession that followed – weakened Keynesianism’s international framework. That framework, which embodied the postwar agreement stabilizing the economies of Europe, and which embraced a new moral economy making the common good and social security an absolute priority, was for the first time seriously challenged in the decade of the 1970s. Economic and social planning, public investment, and deficit financing, were now opposed – abetted by the arguments of Milton Friedman – and increasingly replaced by monetarism, privatization, and Friedman’s new orthodoxy, the neo-liberal ideology of the almighty ‘free-market’. Redistributive systems based on high and direct taxation, using public expenditures for social justice and the smoothing out of social inequality, were now subjected to public hostility and increasing disrepute, especially by Big Business and its political acolytes. Social democracy and the welfare state were stigmatized for their politics of “tax and spend.” The welfare state was cut back, especially in the US and to a great extent in the UK, as increasingly both countries reduced social transfers. Overall, there was a reversion to individualism and charity, and a return of services to the market, from health care to pensions. And as unions lost their special relationships with government, the welfare state was eroded even further. As Geoff Eley summed it up: “The high-wage, full employment economy of Fordism and Keynesianism, secured by industry-wide collective bargaining and national agreements, with vigorous cultures of shopfloor militancy, ended.”21 By the 1970s the Keynesian consensus was in trouble and receding on a number of fronts. Weaknesses in the labor movement, recession in the wake of the collapse of the Bretton Woods international financial order, the long-term effects

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of the Vietnam War on the American economy – which sparked super-inflation and double-digit interest rates that worsened rampant recession, the organization of OPEC – and an international oil cartel that increased the flow of dollars toward oil-rich countries in the Middle East, all had their effect on challenging and eroding the welfare state and the abandonment of Keynesianism. Moreover, the consequences of recession and deindustrialization – so characteristic of the US and the UK beginning in the decade of the 1970s, and the result of increasingly shifting manufacturing off-shore to unprotected labor markets – also helped undermine unions and the labor movement, once the staunchest defenders of the welfare state, including full employment and the workings of Keynesianism. The French abandoned Keynesianism after 1981 under a socialist government elected that year. In Britain the Labour Party lost the elections of 1979 and did not return to power until 1997, a much chastened, realigned, and more centrist party. The Conservatives under Margaret Thatcher essentially dismantled the welfare state – with exceptions such as the National Health Service – and the Keynesian policies that were its foundation. In America it was much the same; Ronald Reagan was elected in 1980 and began to dismantle the welfare state built by Roosevelt and Johnson. Even in countries where Social Democrats remained in, or returned to, power, as in Austria, Norway, and Sweden, they found it difficult to avoid policies that had been pioneered by their conservative opponents. Traditional social democratic policies, such as deficit spending to maintain full employment, longstanding policies of wealth redistribution through taxation, the expansion of public goods – health, retirement, unemployment compensation – and support for strong unions, were already crumbling and under sustained attack.22 Even Left intellectuals were sounding apocalyptic warnings about the future. Many concluded that deindustrialization, displacement of labor and globalization, the de-radicalization, differentiation, and fragmentation of blue-collar workers, mass industrial society itself, were permanently being transformed and perhaps eroding forever the politics of the Left. This was epitomized by Andre Gorz’s Farewell to the Working Class, which was published in 1982, in which Gorz argued that the traditional proletariat could no longer be the basis of a future socialism.23 In the 1970s Western Europe began to experience high inflation, rising unemployment, and low growth, making the decline of the blue-collar workforce, and organized trade unionism, all but inevitable. Not surprisingly, the end of the economic boom meant also manufacturing decline, deindustrialization, and social dislocation. And as economic stagnation proceeded to gain momentum, welfare states went into crisis. They were attacked, especially by the Right, not always mistakenly, as too costly, inefficient, and bureaucratic.24 As the postwar boom declined further, all the Keynesian verities came under attack: full employment, deficit spending, and strong public sectors. The welfare state, the notion that public goods should come before private interests, the very foundations of social solidarity, were under scrutiny and attack by the suddenly energized Right. There were yet other factors in the reversals of the postwar boom. After 1973, globalization challenged national governments’ autonomy through the collapse of Bretton Woods (ending fixed exchange rates), the lifting of currency exchange

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controls, and capital’s newfound transnational mobility. The profitability that was available in newly industrializing countries – from the secession states of the former Soviet Union after 1992, to China after it was opened up by Nixon in the 1970s, to Southeast Asia after the end of the war in Vietnam – only added further to the flight of capital from the rich West. Thus, the welfare state and social democracy appeared to be crumbling from within, prodded by the acceleration of globalization. Ironically, it was now the New Left’s turn to further fragment support for the welfare state and Keynesianism even further.

The New Left: what it wanted and why it failed Probably the greatest gulf was that between the generations, in both Europe and the US. The generation that came of age and entered universities in the 1960s, and the workforce in the 1970s, not only took the welfare state for granted as the normal condition of life, offering an unprecedented sense of social security, access to education, and medical services, but it also saw the welfare system as part of an increasingly paternalistic and even authoritarian state. Idealists in the university saw it as bureaucratic, intrusive, and repressive, and were less and less responsive to what they saw as restrictive authority imposing itself on their self-expression and individual freedom. But the same generation also saw the welfare state as something far more insidious than paternalistic and intrusive. The welfare state, for all its advantages and benefits, was increasingly demonized as a cover for capitalism. Armed with the rhetoric of radical philosophers such as Herbert Marcuse, youth from France, Great Britain, the US, and elsewhere, began to imagine a post-industrial society in which they could exercise full freedom without an intrusive state and the corporate society for which it was a veneer. The welfare state – and the entire liberal edifice on which it stood – was eschewed as a system that made corporate greed and exploitation palatable and acceptable. The solution for radicalized youth was not to embrace the collective ideals that a previous generation – the Old Left – had forged, but rather to simply opt out of the despised corporate society – and its welfare state twin – through the immediate satiation and expression of Eros and its libido (“make love not war” and “do your own thing”). The revolt of youth, largely confined to the universities, managed to challenge the frontier of the corporatewelfare state, which, as it learned from another campus radical, C. Wright Mill’s Power Elite, was run by the military–industrial–political elite for their exclusive advantage.25 The characterization of the state as part of the military–industrial complex was bound to rattle the institutions that were now demonized as running the state for their own profits and careers, and it would elicit a response from those entrenched elites. But there were also some unintended and unforeseen consequences: the New Left failed to see the many benefits afforded by the welfare state for those millions of citizens who were anything but members of the power elite, as Mills had characterized the leadership of the modern state, especially in the US. And what the New Left failed to see was precisely that by equating the state with a corporate

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elite that benefited from the stability afforded by welfarism, it was also denigrating the collective ideals, core values, and universal benefits, that were inherent in the great compromise represented by Keynesian economics and the welfare state. It was precisely this compromise that had provided access to decent health care, generous pensions (in much of Europe), and universal access to education. What was the Great Compromise? It was that liberal democracies would accept the enterprise system and the free market, but would also embrace a politics of public welfarism, social security, and universal inclusion. Nobody would be left out, an aim that would be met by a politics of redistribution. The great compromise was also the great consensus – but it was a consensus that the New Left thought deficient, socially oppressive, and anything but economically egalitarian. In the end, the New Left not only rejected Corporate America, which it blamed for sending Americans to an untidy war in Vietnam, it undermined Liberalism through its excesses and its rejection of the historic compromise supported by Liberals between organized labor and Big Business. This was not the only irony of the revolt of youth in the 1960s. That revolt was a generational split transcending all classes, and was indeed a reflection of the peculiar circumstances of the postwar world. But the rebellion of youth in the 1960s was not only a generational split, it also was close to a global phenomenon, spurred on by an age of Modernity, and by the information-age revolution. Because of television and a new transportation revolution, and transistor radios, popular culture became internationalized. The dissidence of the generation that came of political age in the 1960s was not so much an expression of a coherent political ideology as it was a new way of life which consciously and unconsciously rejected the culture of its forebears – their music, clothing, language, and political framework. The revolution of the idealists – the New Left – was not an attempt to transform the institutions of the world as they found them – these they rejected wholesale – but rather to simply ‘drop out’. The theory was that the bourgeois society that the New Left despised would simply collapse from its own lack of inertia and obsession with materialism, so much despised by a younger generation – which had never known the poverty and war experienced by their parents – obsessed with ‘doing its own thing’. The New Left, and the generation that fueled it, were not as concerned with collective solutions, and collective actions, but rather with personal liberation; solutions were individual, not social. Individual liberation could be achieved through drugs and chemistry, not through the difficult political work of building local, regional, and national, political alliances. The breach in continuity between generations produced a number of tectonic shifts that were all but imperceptible at the time, but which were inevitably to shatter the Left, especially in the Anglo-American world. The proclivity of the coming-of-age generation for a politics of personal liberation left the political field open for Conservatives, who in fact felt revulsion for the lifestyles, music, clothing, and language preferred by hippies, and many others who fashioned themselves as members of the New Left. Moreover, as campus radicals took over – or appeared to take over campuses in their assaults on many traditional values and ways of life – their rejection of patriotism and opposition to the war in Vietnam, their

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dismissal of the suburbs as overly materialistic, and their repudiation of the virtues of family life and organized religion – they inevitably spurred a counter-reaction to defend the core values that youth were rejecting. The result was civil strife over who would govern the campuses and control the minds of the young, a civil war for the conscience of youth – or that portion of it that was at university. Even for those who were not idealists, the welfare state was dull. It offered uniform and one-dimensional answers to complex social issues, housing for example – from the dull council housing of Britain to American high-rise buildings which only reinforced slums – and was increasingly seen as a financial burden on those who did not understand the reasons for the welfare state in the first place, and who increasingly felt they were paying taxes to support benefits for poor people, immigrants, and ethnic minorities, who looked less and less like them. In sum, the welfare state, for all its advantages, could also be seen as remote, indifferent, unimaginative, and uncaring, susceptible to unfairness and economic inefficiency and waste. And to the extent that this was felt and understood by the young generation, idealists or not, then the legitimacy of the welfare state was undermined in theory and in practice. The dissonance between the old and the young generations, between Old Left and New Left, between blue-collar and white-collar workers, between the poor and the affluent, all underscored the many foundational shifts that helped to shatter the consensus on which the welfare state and social democracy had formerly depended. The Old Left and left-leaning voters had taken for granted the connection between workers and socialism (or welfarism), and between the poor and the welfare state. Historically, the Left had been associated with the urban industrial proletariat, which had been its lifeblood. Although the middle classes had pragmatic reasons for finding welfare states and social democracies attractive, the reforms of the New Deal, Scandinavian social democracies, and the British welfare state were primarily supported by urban blue-collar workers and their rural allies.26 As the traditional blue-collar working class shrank in number and organized power, it became easier for corporations and their ideological allies to reassert themselves. This was made possible not only because of changes in the shape of work and the workforce but also because industry was shifting many operations offshore – especially true for the US and the UK – to regions and countries that were willing to ignore environmental standards, to resist or ban union organization, and to repress any experiments in political democracy or utopianism. The New Left remained opposed to the injustices of capitalism in the West, but it also stigmatized welfare institutions for their “repressive tolerance.” The welfare state, by liberalizing restraints, or by making repressive society more bearable – the argument went – only served to legitimize capitalism itself, helping to preserve the institutions that had theoretically repressed blue- and white-collar workers in the first place, and forcing them to accept the beneficence of a system that had in truth stolen their humanity by reducing them to recipients of public ‘charity’. Liberals, the benevolent overseers, were not so benevolent after all in the view of the New Left.

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As Tony Judt has noted, an earlier generation of reformers, from Washington to Stockholm, had believed it “self-evident that ‘justice’, ‘equal opportunity’ or ‘economic security’ were shared objectives that could only be attained by common action. Whatever the shortcomings of over-intrusive top-down regulation and control, these were the price of social justice – and a price well worth paying.”27 The New Left saw things differently. Social justice remained important, but it had slipped in the hierarchy of values. For one thing, the New Left was much more amorphous than had been the Old Left; the former was fragmented by gender and identity politics, whereas the Old Left had been much more monolithic, its identity stamped by its adherence to the industrial working class and its interests. The New Left, on the contrary, was divided by identity politics, fragmented by gender, race, age, and even sexual orientation. As much as it was perceived by its conservative enemies as a single radical front that was organized on many campuses, especially in the US and the UK, it had a radically different self-image which was in truth, as it turned out, much less threatening. For in the end the New Left prized the needs and rights of each even more than the interest of all. And realizing an individual’s inherent rights meant maximizing self-expression – personal freedom, the highest value of all – and not the much more difficult task of fighting for the collective rights and common good of society. The latter was abstract, remote, and more difficult, because it meant the transformation of all institutions, and that required a serious strategy for political change, collective organization – which presumed bureaucracy and authority once again – and revolutionary practice. To the New Left, politics was intensely personal, as catchphrases like ‘do your own thing’. readily revealed. Politics was about personal liberation, which the New Left summarily equated with social liberation. Given such a philosophy, no political strategy was needed: one merely had to emancipate one’s self, which could easily be done through chemistry, allowing one’s mind to soar beyond all constraints. Such notions could even be fitted into a political philosophy: all that was required to maximize personal freedom, and to eliminate political restraints, was to embrace the Great Refusal. Refuse to fight the war in Vietnam; refuse to pay taxes; refuse capitalism by not buying its products; refuse obedience to authority; refuse meaningless, boring jobs, by simply dropping out. The theory was that if enough people dropped out of a repressive economic and social system, the entire system of repression would collapse of its own weight. Not everybody on the New Left counseled withdrawal as a means for revolutionary change. But enough did, and there were many who thought the implicit message of the New Left was one that bordered on a political philosophy of anarchism and individual resistance, or individual rights. If previously the normative vocabulary embraced class or community, it now referenced the liberated individual – all individuals to be sure – as the true purpose of civil society. The New Left and the generation that came of age in the 1960s remained sensitive to political and social issues – student radicals were the core of the antiVietnam war protests, and they participated in the Civil Rights marches as well – but they failed to link these issues to a larger sense of collective purpose, or to define what a society would look like if it were to realize their hopes. Young radi-

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cals thought it would be enough to oppose the authoritarian state and to maximize their personal freedom – even the Vietnam war was seen as an ultimate negation of one’s personal rights – by not obeying the state when there was fundamental disagreement. Thus, where before there had been angry proletarian objections to capitalist exploitation, the radicals at university were proclaiming their rights to sexual freedom, or to avoid colonial wars, or simply to drop out of society – as the hippies urged – and to avoid any claims from the state (taxes and military service). There were several significant results to the politics of self-indulgence and egoism: one was to undermine the consensus on which the Old Left was based, a politics of solidarity and mass movement. A politics based on personal liberation could hardly embrace mass movements and the authoritarian structure they often implied. Another result was the abandonment of the consensus politics that was the very essence of welfare states and social democracies, for this also implied shared purposes, coalition building, and even personal compromise. It meant, in other words, that the politics of personal liberation (‘do your own thing’.), which might have served some individuals well, might not serve others. In abandoning a common well-being and shared public purposes, the New Left and the young generation that came of political age in the 1960s undermined any sense of common hopes and purposes (universalism and an inclusive society). Unwittingly, they abandoned the future to conservatives who felt themselves just as alienated as those at the left end of the political spectrum, but who still were desperate to discover – or to recover – the spiritual values of their ancestors, and a much more inclusive sense of community that they feared the Left had all but abandoned.

The triumph of the neo-liberal Right in the US and UK The rise of the Right in the late 1960s, accelerating through the 1970s, occurred for a variety of reasons, among them the passage of time. As the traumas and uncertainties of the Depression era and then world war were forgotten, the appeals of traditional conservative voices could be heard once again. This was certainly true of the New Left as well, which did raise its voice in the 1960s, but, as we have seen, also made a conservative backlash ever more likely. The narcissism of the Left, its ideologues and exhibitionists, its flaunting of popular culture, its rejection of religion, traditions, and core family values, all managed to offend the middle classes whence the Left had come, and even to antagonize industrial workers who still worked in the factories and coal mines, did not get to university, and had to fight the wars – and die – which the Left stigmatized as colonial operations that reeked of exploitation. For their part, the blue-collar workers who populated the armed services – and who saw themselves as the true patriots – could hardly be expected to embrace a generation attending university that not only refused to serve in the military but also failed to stigmatize communist regimes abroad. It simply did not make sense to embrace a politics of personal emancipation at home, and then to rally behind authoritarian regimes in Central America such as Nicaragua, and communist regimes in Vietnam and China.

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The narcissism of the Left, then, its personal lifestyles, its fragmenting and fragmented identity politics in the 1960s, certainly invited a conservative backlash. Conservatives could now claim, by the 1970s, to represent traditional values, the nation, respect, authority, and civilization itself, all claims for which the Left had little empathy, or ignored, or insolently attacked. The Old Left had shared many values such as nation, respect, tradition, and family, but the New Left and its culture of youth, hippies, and anarchists, abandoned all these verities, making it possible for a resurgence of the Right now claiming the core values of the ‘nation’. There was one issue where conservatives could point to a dramatic contrast between themselves and the Old Left, and this was in the matter of the state and its uses. But it was not until the 1970s that conservatives felt sufficiently emboldened to challenge the ‘statism’ of the postwar consensus and to offer radical prescriptions to fix what they often described as the ‘sclerosis’ of welfare-state governments and their retarding effect – through overambitious planning and the prophylactic state – on private incentive. It was precisely to resuscitate initiative in the private sector that politicians like Margaret Thatcher and Ronald Reagan, both mainstream right-of-center politicians, were willing to make the break with the welfare states built by the postwar generations. Both could agree with neo-liberal market fundamentalists that the state should not own the means of production, nor allocate resources, nor should it set prices or incomes. And both believed that insurance, housing, pensions, health and education, could be provided more efficiently in the private sector where citizens could pay for them using personal income.28 Such views had been around for a while, but after 1973 the same neo-liberal critics earlier cast aside emerged more confidently, arguing that endemic economic recessions were the fault of big government, high taxes, and planning, which sapped national energies and initiative. In many countries neo-liberalism was seductive to young voters who had no first-hand experience of the consequences of such views the last time they had gained intellectual ascendancy, a half-century earlier. But only in the UK and in the US did the disciples of Milton Friedman seize control of public policy and bring about a radical transformation of the country’s political culture. This was an irony since the UK had the least planned economy in Europe.29 The same could be said for the US on the other side of the Atlantic, where economic planning was disavowed as something only the French did. Yet by the 1970s there was a great reversal as challenges to welfare states and social democracies put the hard-won gains of previous generations in jeopardy. In the US, there were deep divisions created by the Civil Rights Movement as much of the white middle class began to resent paying taxes to ‘benefit’ Blacks. The rise of inflation in the 1970s, the result of rising costs to pay for the war in Vietnam, and Nixon’s detachment of the dollar from gold, led to a depreciated dollar and shook the public’s confidence that government could solve poverty without a huge cost. The sharp increase in oil prices that followed in the wake of a weaker dollar weakened faith in government even more. As early as the Carter administration in the US, the influence of Big Labor began to decline as the Sunbelt, where there was solid resistance to the organized power of labor, began to rise. Subsequently, the much lower wages in the South

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were a contributing factor to the deindustrialization of the American Midwest. As the Sunbelt rose, the rustbelt declined, and as it declined so did the power of organized labor and effective resistance to the power of Corporate America, which became increasingly determined in the 1970s to improve its balance sheets. One result was the 1978 Revenue Act that began the process of cutting capital gains taxation and discarding interclass equity. President Jimmy Carter then began the process of deregulation in airlines, finance, and trucking – an unleashing of the market in general – in the name of increased competition and efficiency. The social contract that had been the foundation of the welfare state in America was being eroded even before the administration of Ronald Reagan came to power – by a Democrat. But it was not only the white middle class, or the fundamentalist South, or apocalyptic Republicans, or nervous Democrats, who launched an all-out counteroffensive against the social contract and the welfare state. Major corporations, especially in the US and the UK, had been willing to endure the welfare state in the aftermath of World War II, because of strong growth and profits. Collective bargaining was palatable because it calmed industrial relations, always a good thing for the bottom line; and decent wages were acceptable since workers were needed also as consumers.30 But in the 1970s the accommodation of the business classes ended as growth receded, real interest rates went negative, and smaller profits and dividends became the norm. Upper classes felt threatened everywhere. In the US, the percentage of wealth of the top 1 percent, stable for much of the twentieth century, plunged precipitously as asset values (stocks, property, savings) declined. Whereas the top 1 percent had controlled about 40 percent of national wealth in the mid 1960s, it dropped to about 25 percent ten years later, in the mid 1970s. The upper classes had to move fast to protect the value of their assets. With the introduction of neoliberal policies in the late 1970s, deregulation and minimal state intervention, the flattening of tax rates, the unleashing of capital markets, and rolling back of the welfare state, the top 1 percent of income earners soared to about 15 percent and higher of national income by the end of the century, close to pre-World War II levels. The top 0.1 percent of income earners in the US went from 2 percent in 1978 to nearly 6 percent in 1999. Meanwhile, the median compensation of workers compared with that of CEOs, went, in the US, from 30 to 1 in 1970 to 500 to 1 in 2000.31 The US was not alone in these measured inequalities. In Britain the top 1 percent of income earners doubled their share of the national income from 6.5 to 13 percent in the two decades following 1982. In Russia, after the application of neo-liberal shock therapy theory, a small oligarchy emerged to control much of the wealth of the country. Wherever neo-liberal ideas were applied, the greatest growth was in inequality.32 Early on, neo-liberalism was supported by some corporations fearful of collective ideals, social contracts, and government intervention, but it was only in the late 1970s and early 1980s, a period of high inflation and low growth – stagflation – that governments, notably Reagan’s in Washington and Thatcher’s in London,

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began embracing fiscal and social policies as a means to have done with the political and economic obligations of the welfare state. This meant – in the US and in the UK – attacking the power of the trade unions, all forms of solidarity (as in municipal governance and professional organizations), dismantling or at least rolling back commitments to the welfare state, creating a climate that would attract foreign investment, privatization of public enterprises (including social housing), reducing taxes, and flattening tax rates.33 Social solidarity was to be replaced by individualism, private property, personal responsibility, and ‘family values’. The full-scale assault on Keynesianism, the postwar consensus, and the notion that the state has responsibility to insure and promote public goods – and that only the state can secure these goods – bore considerable fruit in the administration of Jimmy Carter in the US. Moreover, as part of the new ‘science’ based on Friedman economics, the new Conservatives learned how to match the rhetoric that had come from the Left: now the Right stood for family values and respect for traditions and authority more firmly than ever. The Right represented itself as the legitimate representative of the nation and the freedoms that were a major part of its legacy. After all, the title of Friedman’s book was Free to Choose. Freeing the market from the restraints of government regulation, defending the right to shop with minimal government oversight of products for sale and letting consumers choose without a government between them and the product they were choosing, was now synonymous with democracy. Free to choose in the market was even more important than the right to vote. Shopping was voting where it really mattered. The notion of government responsibility was obliterated; the language of public goods was replaced by the vernacular of individual rights. Where once Milton Friedman had preached a new economic theology in the dark, the intellectual revolution he had heralded was now storming Congress and Washington, and crossing the Atlantic to London. Conservatives would now argue successfully that the state should be used to limit the powers of the state. They mounted a challenge to the statism of their predecessors on whom they blamed the sclerosis of overly ambitious governments in the past, and the toll these had taken on private initiative and development. The objective now was to dismantle what was and had been the proper economic powers of the state. Armed with Milton Friedman’s “freedom to choose” rhetoric, corporate America, soon joined by the political elites in Washington, including Democrats and Republicans, began the long process of dismantling – or simply opposing – any reforming actions by government. Given that the state was supposed to be reduced, and that society, as Margaret Thatcher said, did not exist, what followed for the next three decades of policy-making in Washington and London was hardly surprising. In Washington, with Jimmy Carter in office and the Democrats in control of Congress, it appeared that a proposed Office of Consumer Protection was all but inevitable. Yet, with the new business coalition in place, the projected agency was handily defeated in the Democrat-controlled House. Nor did labor reform fare any better. Unions, which were declining in influence because corporations were shifting operations to hard-to-organize ‘right-to-work’ states in the South, or moving many operations offshore to foreign profit centers, had less clout

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in Washington as union membership – and their financial muscle – continued to fall. Paul Volcker, head of the FED under Jimmy Carter, began a similar attack on collective values in 1979, including the dismantling – or eviscerating – of the economic powers of the state – its powers to regulate and protect, to tax and redistribute for the common good. What he did, essentially, was to abandon the long-standing commitment to the principles of the New Deal and Keynesianism, with its fiscal and monetary policies geared to full employment. Volcker’s objective was to rein in inflation, no matter the consequences to employment. As a result, he raised interest rates dramatically and they kept rising, all the way to almost 20 percent by July 1981. What followed was a long and deep recession that emptied factories and broke unions in the US and that drove debtor countries to the brink of bankruptcy. Volcker argued that this was the only way out from the stagflation that had lasted for much of the 1970s.34 Ronald Reagan supported Volcker and neo-liberal principles when he became president in 1981. He reappointed Volcker, then began deregulating even further what Carter had started. Even more than Carter, Reagan was ideologically committed to the free market, and opposed to the welfare state and government regulation of the economy. He was equally opposed to organized labor, whose power he helped to demolish. If he believed in the domestic power of government, it was mostly to diminish that of labor. Under Reagan’s lead, there were severe cutbacks in infrastructure, education, welfare, job training, and employment programs, all vital for investment in human capital, especially important in view of on-going globalization. Research and development were also curtailed, severely impairing future advances in alternative energy resources.35 Under Ronald Reagan, the state was used mostly to diminish those who challenged the new rules of neo-liberalism. Reagan granted tax cuts which benefited mostly the rich, made deep budget cuts, especially in social welfare programs, and attacked trade unions, most notably PATCO, the union of air traffic controllers, when he terminated 11,400 air traffic controllers who had gone out on strike. It was the latter action that signaled an attack on organized labor at precisely the same time that the Volcker-inspired recession was generating high levels of unemployment of 10 percent and more. Thus began a long decline in real wages, as well as a decline in trade unions, dramatically boosted by the rules of neoliberalism. What followed, also, was deregulation of almost everything, from airlines and telecommunications to finance, opening up vast new zones of market freedoms for powerful corporations. Moreover, tax breaks on investment in effect “sub­sidized the movement of capital away from the unionized north-east and midwest and into the non-union and weakly regulated south and west.”36 At the same time finance capital was increasingly moving abroad for higher rates of return. ­Deindustrialization at home was now matched by the export of capital – unleashed by the end of capital controls in 1973 – and production overseas. The market, which according to neo-liberal ideology would be the ideal vehicle to foster competition, instead became a venue for the consolidation of monopoly power. The result of Reagan’s “reforms” was that corporate taxes were reduced

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dramatically while the top individual tax rate was cut from 70 to 28 percent in what was called the largest tax cut in history.37 In sum, the policies of Volcker and Reagan contributed to the momentous shift toward social inequality and the beginning of the restoration of economic power to the upper class in America. Over the next few decades, the Republicans, often joined by Democrats, began to roll back Johnson’s War on Poverty, and also to repeal the New Deal and even Progressive Era reforms, which had taken for granted the proper economic powers of the state: the agenda included the privatization of Social Security (still on the agenda in 2014), no effective minimum wage, no progressive taxation, no support for employer-provided health care, almost no financial regulation. The Texas Republican Platform of 2000 graphically demonstrated this. Led by George W. Bush, Tom DeLay, Dick Armey, and Phil Gramm, the platform seemed a throwback to the nineteenth century: it called for a return to the gold standard, the abolition of the Federal Reserve, the elimination of the minimum wage, the gradual elimination of Social Security, the repeal of the Sixteenth Amendment which had created the federal income tax, and the elimination of the Internal Revenue Service. As Bush and company took over the leadership of the Repubican Party, the Texas platform increasingly defined the party’s national program.38 It came as no surprise that the South became the new bedrock of the Republican Party. Ironically, though Reagan was determined to withdraw the economic powers of the state, in no way did he diminish its political clout. The state remained intact when it came to its repressive powers and its right and ability to gather information. After Reagan, the use of cameras for spying, wiretapping, and homeland security precautions were all augmented. America now began to build the security state that included the right to spy on American citizens in ways that were unprecedented, begging the question of whatever happened to the augmentation of rights that was to accompany a rolled-back state. Simultaneously, the state abandoned its proper role in the regulation of the economy for the collective benefit of its citizens. The British political consensus based on Keynesian economics collapsed in the 1970s and 1980s, but not because of ideological confrontation. Rather, it was due to the failure of governments of all political leanings to identify and implement a successful economic strategy. The usual suspects that were identified were chronic under-investment, managerial inefficiency, and endemic labor disputes over wages and job descriptions: the solution was a prices and incomes policy along the lines of Scandinavia and Germany. But this failed in Britain because the Labour Party could not get any concessions from industrial unions. They continued to embrace negotiated contracts on the shop floor, where they had a chance of winning, rather than at 10 Downing Street. When Conservative Edward Heath tried to close some coal pits he was met by a wave of strikes that stymied any attempts at reforming wage structures and the closing of inefficient mines.39 Some change was managed by James Callaghan, who headed a Labour government from 1976 to 1979; but this was mostly because of the conditions of an IMF loan which caused Callaghan and Dennis Healey of the Exchequer to retreat from postwar government policy. They acknowledged the inevitability of a certain level

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of unemployment, and began restructuring to accomplish this; they reduced social transfer payments and labor costs by permitting the expansion of unprotected, non-unionized, part-time employees, though they still protected skilled workers. They also reduced inflation by limiting government spending, but this came at the cost of economic hardship and slower economic growth.40 Despite its new policies, the Labour government continued to defend its core values and the institutions of the welfare state even as it began to dismantle them and slid toward neo-liberal policies. But the strategy failed; by August 1977, partly because of Labour’s deep cuts in public spending, the unemployment rolls surpassed 1.6 million and kept on rising. The following year, 1978–79, the winter of discontent, major trade unions rebelled against their government and went on strike; rubbish went uncollected and the dead remained unburied. Skilled labor unions remained sanguine because their members went unaffected by the cuts. But the net result was the loss of Labour in the elections of 1979 to a woman who insisted that radical changes were needed. The Keynesian consensus was about to be replaced by a conservative, neo-liberal revolution led by Margaret Thatcher. What would Thatcherism be about? Reduced taxes, a deregulating state, the free market, free enterprise, privatization of industry and services, patriotism, and the individual. But above all Thatcherism meant strong authority, an advantage in an age that saw Britain as ungovernable, and the political class as weak and unable to manage economic policy, unions, and the street.41 Margaret Thatcher attempted a much-needed modernization of the British economy, but she wanted to do it on the basis of an irrecoverable past. Her agenda was to reduce the power of trade unions, remove council houses from municipal ownership, lower direct taxes, and, ultimately, use privatization as the vehicle of modernization. To accomplish this, her objective was identical to Ronald Reagan’s in the US, to demolish the postwar consensus: those who resisted, as coal miners did, became the “enemy within.” The cult of privatization that emerged seemed a given to British Conservatives, among whom dispensing with publicly owned goods was a theology. It seemed axiomatic to them that privatization saved the treasury precious capital; in an age of budgetary constraints it was almost indispensable to privatize. If the state owned an inefficient factory or service, why not offload it onto the private sector? Not only would this transfer failing assets to private buyers, but privatized businesses would also be sure to benefit in the hands of entrepreneurs due to the inherent efficiency entailed by the profit motive. Presumably, the public sector was inefficient because it was not subject to the natural advantages generated by competition. Public ownership implied there was no need to innovate because there was no profit motive. Moreover, selling off publicly owned goods also generated money for the state to use for something more productive, while saving the state – and the taxpayer – from future losses.42 In this neo-liberal argument, everybody benefited. The service or the product improved, consumers were the beneficiaries of improvements, the state no longer suffered from a responsibility it could not meet without losses, investors profited, innovation became more likely, and the public sector made gains from the sale of

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public goods. A corollary of this argument was that any effort to prevent privatization would in the long term cost jobs. This line of reasoning was uttered both by Reagan and his acolytes, and by Thatcher and hers. After all, had not the public sector always lagged behind in innovation because it lacked the profit motive and the need to compete, which were at the heart of generating new technology? If an automobile factory did not innovate, it would instinctively lag behind, become uncompetitive, and ultimately collapse, resulting in job losses. Such losses, however, as neo-liberal theory put it, could be reversed by simply privatizing and returning production back to entrepreneurs who would, presumably, create more and better jobs based on innovative and modernized production methods. This argument was not entirely without merit. It was true that nationalized industries in almost all countries had not performed demonstrably better than private businesses. Public ownership clearly had its liabilities. There had always been the temptation – especially true for the UK – to treat publicly owned profitable industries as mere profit centers and to minimize investment and innovation in order to reap larger profits to help augment the public treasury. Public servants entrusted as guardians of public goods did not have the same need to compete: they were accountable to the public, not to a board of directors or to stockholders. They, therefore, were more likely to hold prices down, for example, for social and political reasons, even though they were still expected to turn a profit. To do both, of course, would ultimately prove almost impossible. And it was for this reason that conservative arguments were able to hold sway. Public servants would always have to put the public good ahead of private gain. Maintaining levels of employment, all put on the public charge, would be more important than modernization and efficiency, especially if the latter entailed a high social cost. The fact that the state did often run inefficient operations gave a boost to neoliberal arguments. This was made even more emphatic for several reasons. In the UK, many operations were bound to be inefficient – coal mining and railroads were two such industries – because they were simply outmoded, impossible to modernize, as in the case of coal, and resistant to modernization even if privatized. Moreover, the UK was especially heavy-handed in the way it governed the public sector without sufficient care for the public which consumed its services. Even in a country like Sweden, which was less heavy-handed in controlling public goods, wages, work conditions, and prices were often imposed to “deadening effect.”43 Thus, as the neo-liberal argument concluded, privatization not only reaped shortterm cash additions to public coffers, it also benefited from hypothetical long-term gains in initiative, innovation, and efficiency. Buried inside this argument was the assumption that only privatization and the selling off of public goods could lead to technological change and modernization, and that this was far more likely to be more socially just in the long-term. Moreover, modernization was unavoidable, else the UK – and any country that resisted modernization – was likely to fall behind all countries that embraced it. The often unspoken assumption in this neo-liberal argument was that it was better to rely on the market than on state employees managing the public sector. The market was ‘just’ because it was more likely to distribute benefits to those who

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deserved them due to their inherent abilities and acquired education and skills. If one citizen was less ‘equal’ than another, it would show up in the market. The market was ‘just’ because it set wages according to the productivity of the person doing the work. Market rules would benefit those who had acquired the necessary skills, and they therefore encouraged people to acquire those skills or be left behind. Whatever the resulting distribution, it would inevitably, it was assumed, parallel the distribution of underlying skills. If economic inequality arose, it must be the result of personal deficiencies in knowledge and ability, not the result of political policies implemented by government. Social inequalities, therefore, were the result of personal decisions taken by individuals, and could be easily rectified by simply eliminating individual skill deficiencies. As James K. Galbraith has made clear, there was a corollary to this argument: Accepting the market outcome also means accepting that trying to change it will have a cost. If the market is doing its job, then by definition anything that interferes artificially with the market will hurt efficiency. Raise my wage above my productivity and why should my employer wish to keep me on? The pursuit of equality not justified by an underlying change in patterns of productivity therefore produces unemployment … As such, it reduces output and wealth below what they would otherwise be.44

To be concerned with equity, according to neo-liberal theory, came with a cost. To achieve something like equality must mean becoming less efficient. And to be less efficient must be to become less competitive, which inevitably must mean the loss of markets and jobs. The less the government intervened in the market by redistributing money back as social benefits, the greater must become output, capital accumulation, technical progress, and the rate of economic growth. Compassion and charity – synonyms for social democracy and the welfare state in the conservative and neo-liberal lexicon – only hurt those they were theoretically meant to benefit. The argument was then brought full circle. Over time, all citizens would be better off by simply letting the market operate autonomously: the best cure for inequality was to accelerate the acquisition of skills by helping workers adjust to the demands made by technological change. All this was theory. The practice, as many of us have come to know, was dramatically different. Withdrawing the state, by deregulating and privatizing state resources, was not the success it was touted to be. Not only did neo-liberal policies fail to serve the public interest – this would have been difficult, especially in the UK, where the very existence of a public was denied – but it also reversed and in many cases eliminated many programs and state-provided services that had taken the better part of a century to develop, and many of these had worked quite well and been equally popular among the public. The modern state had provided public transport, schools, hospitals, health clinics, postal services, armies, prisons, police and fire protection, and, often, affordable access to culture. These were all essential but not well served by the profit motive, which was why they were provided by the state in the first place. All these services were necessary public goods, for the collective benefit of all, and citizens had a right to claim them as

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entitlements. It cannot be overstated that people supported these public goods, often with their own tax monies. The steady shift in Anglo-America of public responsibility onto the private sector occurred, as Tony Judt has well put it, “to no discernible collective advantage.”45 Contrary to the economic theory of neo-liberalism, and “popular myth,” privatization was and is often inefficient. Nor is it true that the market works better when left alone, or that more efficient markets mean greater social equality in the long run, or even that the profit motive is most likely to produce the most efficient economy. It is not even true that there is a “popular myth” which supports the idea that privatization is best for people and the economy, though more citizens may believe it in the US than in the UK and elsewhere. In the case of the UK, many of the industries that the government sold to the private sector were operating at a loss, including railway companies, coal mines, postal services, and energy utilities. These were costly to provide and could rarely if ever hope to attract enough in revenues to offset losses. It was for this reason that public companies in these sectors were undesirable for private buyers unless offered at a steep discount. That is precisely what happened during the Thatcher era: public companies were sold on the cheap. The result was that assets belonging to the taxpaying public were transferred to shareholders and other investors at a net transfer of £14 billion. Added to this was another £3 billion in fees paid to bankers who handled the privatization transactions. In effect, the state paid some £17 billion ($30 billion) to sell off public assets, a sum that could hardly be construed as advantageous for the British public.46 Despite official rhetoric and cant, there was no marked increase in efficiency in Britain’s privatized industries. Privatization had a modest (positive) impact on long-term growth rates at best. But shifting public goods to the private sector regressively redistributed wealth from taxpayers and consumers to investors in the newly privatized companies.47 As would become apparent, the only reason private investors were willing to buy up the inefficient public goods was because the state eliminated or dramatically reduced their exposure to risk. Purchasing companies were told that their liability would be minimal – in fact non-existent – because the government agreed to underwrite all losses, undermining the profit motive that was the reason for privatization in the first place. Guaranteed that their investments would be subsidized by the government, private investors were more than willing to place their capital into newly privatized industries. Under these circumstances, profits could be taken, while all losses could be charged off to the state. In effect, privatized companies, supported by the public, but without any public control, did not need to worry about efficiency, or profits, as long as the public still paid the bills for companies that remained just as inefficient – or more so – than they had been before. Moreover, privatized industries, from rails to energy companies, could now operate as privately held but publicly subsidized monopolies, not subject to competition because the government could hardly shutter energy utilities or the rail system. The newly privatized sector could take risks with impunity knowing that mismanagement and financial incompetence – should they occur – would

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continue to be subsidized, and all this without public scrutiny. Private companies now had privileged access to public funds, which were soon recycled to shareholders and executives alike. Privatization, therefore, had costs in Britain that were hardly to the advantage of the public. When, for example, British utilities were sold off to private investors, the sale included the “pre-pensioning” of many thousands of workers. Workers lost their jobs, their pensions became un-funded as a result of privatization, and the state inherited the financial obligation of the pensions. Simultaneously, the newly private utility companies were relieved of any responsibility toward the pensioners.48 So much for the so-called free market, the advantages of privatization, the profit motive, and the increased efficiency they were presumed to produce. Under the Thatcher government the advantages all went one way, to Big Business, to the disadvantage of the British taxpayer. Moreover, in shifting ownership to businesses and businessmen, the state was relieved of its moral obligations toward citizens it had formerly protected. In the eighteen years of Thatcherite governance, the private sector share of personal services increased by some 300 percent, up to 34 percent overall. The sharpest increases came in care for children, the elderly, and the mentally ill. The newly privatized homes where care for these populations was provided reduced care to a minimum, as might be expected, to better compensate their investors.49 The British welfare state was steadily eroded, not for the public benefit, but for the private gain of a few entrepreneurs who rushed in to secure private advantage. The labor market in Britain was another sector where the government transferred advantage away from British workers to Big Business. It was yet another illustration of how government subsidized the private interests of capital while suppressing those of workers and their unions. Although the monetary policy of the first Thatcher government initially aimed primarily at curbing inflation, it would also have dramatic and harmful consequences for workers. Given an increase in oil revenues coming from the North Sea during the Thatcher years, what resulted was a combination of high interest rates, a government viewed as tough on inflation, and a strong currency. Predictably, the British pound sterling appreciated by 40 percent in real terms in four years after floating for four years in an environment of total liberalization of capital (after 1979). Defending currency was a deliberate policy, with inevitable consequences, mostly deleterious for British manufacturing and industrial workers because of the strengthening British currency. A large part of the country’s industrial base was now displaced, output fell 9 percent, and employment fell 15 percent within two years. The result was the recession of 1980–81, during which 1.3 million jobs were lost, a sum equal to 5 percent of the workforce, with unemployment peaking at 3 million, or 11 percent, in 1986.50 This was not the result of market forces – the hypothetical free market – but of government policy. In the 1980s the Thatcherite government introduced a series of legislative acts aimed at weakening trade unions in the UK (1980, 1982, 1984, 1986, 1988, 1989, 1993, and 1995). The legislation overall restricted the cases of ‘legitimate’ industrial

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action. A secret vote of union members was now necessary to call a strike; typically, seven days had to lapse between the decision to take a strike and its actual beginning; and the new legislation made secondary picketing illegal. Moreover, a trade union was deemed responsible for the damages incurred if a strike were to be declared illegal by a court. This in fact led to huge fines levied on the unions and even to the seizure of their property. A union’s right to establish closed-shop systems was curtailed: this meant that employment in some firms no longer meant automatic membership in the unions. The new laws even intervened in union election procedures, for example, restricting the secret vote for the election of officers and delegates.51 The attitude of the new government, together with high unemployment, had a dramatically damaging impact on unionization. The rate of unionization in Britain in 1979 was at 55 percent of those employed, some 8.5 million members. By the end of the decade of the 1990s, the rate of unionization had fallen to only 30 percent, including the private sector (even lower at 23 percent in the private sector). It is virtually certain that privatization accounted for the dramatic decline of union membership. For one thing, employment plummeted in the traditional union heartlands of manufacturing, such as the steel industry, without an offsetting rise in union membership in newer fast-growing industries like financial services and leisure. Simultaneously, there was a decline in employee recognition of union representation. In 1984, a robust 66 percent of workers were employed in factories recognizing union representation. In 1994 this figure had declined to 48 percent, and only a third in the private sector.52 Overall, it appears this had a negative effect on wages. The Thatcher government would not get involved in wage negotiation in the private sector, but it did repeal norms for the protection of minimum wages, as they were outlined in the Fair Wages Act of 1946, and subsequently applied by Labour governments. In 1993, the government of John Major, having replaced Margaret Thatcher, ­abolished twenty-six wage councils that had survived the repeal of the minimum wage legislation. The councils, which dated back to the beginning of the century, had covered about 2.5 million workers in sectors where wages were typically low (retail trade, hotels, clothing); its tasks included monitoring labor conditions and then fixing minimum standards of pay as appropriate.53 Another outcome of the massive deregulation of the labor markets was a marked increase in wage inequality and a reduction in official unemployment. The gaps between high and low indicated the greatest wage differential in the history of the twentieth century in the UK. Moreover, though by 1997 the official rate of unemployment was 6.4 percent, lower than other EU countries, there were an additional 2.3 million people not participating in the labor market who would have liked to work if only they could procure it. That would take the actual rate of unemployment to 12.9 percent. There was another somewhat hidden factor: in the UK, the number of “long-term sick and disabled” had grown in the Thatcherite decades to 1.5 million, about equal to 4 percent of people of working age.54 After 1977, as a result of the changes in the labor market and new labor legislation, regarding especially the tenure of jobs, the GINI coefficient – a measure of

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the distribution of wealth, in which 0 equals absolute equality and 1 means that a single person has all national wealth – rose significantly. Beginning with 0.23 at the end of the 1970s, it reached more than 0.32 by 1991, reversing a slight decline in the 1960s and 1970s. The trend toward inequality in the Thatcherite years was a global trend, but in the UK it came earlier and more intensively. Although for the population as a whole incomes grew by 35 percent between 1979 and 1991, the richest decile rose by 50 percent and the poorest fell by 14 percent in real terms. A significantly high 70 percent of those in the poorest decile were unemployed, single parents, disabled, or working poor. Moreover, according to Massimo Florio, “Between 1979 and 1995 the number of people receiving Supplementary Income Support doubled, reaching 5.5 million. When the families of these people and other people of working age who are de facto unemployed are included, this figure rises to 10 million, a fifth of the population.”55 As for the working poor, 10 percent of those employed at the time received a gross wage of less than £3.50 per hour, while 30 percent received between £3.50 and £4.50 per hour. The reduction of the power of trade unions and shaping of a more individualist labor market were among the few clear objectives of the first Thatcher government. When combined with Thatcher’s monetarist commitment to price stability, to be achieved at any social or economic cost, the fate of the postwar settlement in Britain was sealed. The Keynes–Beveridge consensus had assumed that full employment was indispensable for sustaining the welfare state; it also obligated the national government to promote it. When the Thatcher government abandoned any commitment to full employment, this signified a sea change in economic doctrine from Keynes to Friedman, but it marked also a dramatic shift in understanding the function(s) of the state itself. Thatcher’s idea of the role of the state was that it should provide a framework of rules that would allow the free market – including the labor market – to be self-regulating. This understanding required a weakening of the trade unions as the intermediaries standing between workers and the market. This meant also the reshaping of labor law. Inevitably, there was a dramatic increase in the number of part-time jobs and contract work. The idea of a career became less of an option for an increasing number of workers: many low-skill workers could no longer support their families. The diseases of poverty returned, including tuberculosis and rickets among others.56 Simultaneously, entitlements to welfare benefits became restricted across the board. Unemployment benefits under the Job Seekers Allowance of 1996 were designed specifically to compel recipients to accept work at market-driven rates, more than echoing the Poor Law reforms of the 1830s. The result was a shift away from the bargaining power of employees. Once again the free market had a price, the deteriorating social conditions of Britain. The traditional family became ever more fragile. The proportion of married women aged eighteen to forty-nine fell from 74 percent in 1979 to 61 percent in 1996, while the number cohabiting rose from 11 to 22 percent in the same period. In the decade of the 1980s, births outside marriage more than doubled. Single-parent families increased from 12 percent in 1979 to 21 percent in 1992; the biggest increase was in single mothers who had never been married.

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By 1991 there was one divorce for every two marriages in Britain, a higher divorce rate than any country in the EU and comparable only to the high divorce rate in the US. It is not a coincidence that no EU country apart from Britain had imposed American-style deregulation on its labor market.57 Another striking change – and yet another hidden cost of Thatcher’s addiction to neo-liberal policies designed to unleash the market at all costs – was in the growth of an underclass. The proportion of British (non-pensioner households) without work (in the productive economy) increased from 6.5 percent in 1975 to 16.4 percent in 1985, and then 19.1 percent in 1994. This trend continued while John Major was Prime Minister. Between 1992 and 1997 there was a 15 percent increase in unemployed single parents. This represented a magnitude of exclusion unknown anywhere else in Europe, comparable only to the US. The growth of an underclass was a direct consequence of the neo-liberal attack on social welfare programs, especially as they impacted housing. The selling off (privatization) of council houses to their tenants was one of the chief elements in creating a dependency culture. Originally intended to reduce public expenditure on housing, the opposite effect was achieved: public expenditure on social housing was replaced many times over by rent rebates and assistance with mortgage payments. Spending on housing benefits during 1996–97 was estimated at over £11 billion. This was 1.5 percent of Britain’s GDP and more than ten times the total cost of housing benefits in 1979–80.58 The direct result of the privatization of municipal housing in Britain was a colossal increase in welfare dependency. The British incarceration rate was also the highest – and rising fast – of any EU country. Between 1992 and 1995 Britain’s prison population increased by nearly a third, to over 50,000. In 1970 there were under 1.6 million serious crimes known to the police in England and Wales; in 1981 there were 2.8 million. By the end of 1990 the figure stood at 5.6 million. It was hardly a surprise that state expenditures on law enforcement rose accordingly in this period: Thatcher added 10,000 police in her first term to the previous number of 110,000.59 Privatization also produced wider income spreads between workers and the managerial class, now that companies taken into private hands were no longer responsible to the state or to the public. The income of 215 members of boards of UK utilities (British Telecom, British Gas, Regional Electricity Companies, PowerGen, and National Grid), was £5,267,000 before privatization, and £30,594,000 by 1996, a staggering increase of 600 percent. Only a year after privatization, the salaries of top management in privatized firms increased sharply: in British Airports Authority by 110 percent; British Airways by 126 percent; British Gas by 68 percent; and in British Telecom by 32 percent.60 Inequality in the UK increased more than any other developed country after the 1970s as the policies of Thatcher and Major affected the distribution of income and wealth. Some of this could be attributed to the decline in the power of the trade unions, the corresponding increases in wage inequality, a rise in long-term unemployment, regressive taxation reform, and the growing number of families dependent on welfare: but these collectively were the consequences of Conservative policies. Near the end of the experiment in ‘popular capitalism’ in 1996,

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1 percent of the UK population owned 20 percent of the marketable wealth of the kingdom (£388 billion), and about 50 percent of the total wealth was owned by 10 percent of the population. In 1997–98, about a third of the population had no savings at all and more than a half had less than £1,500.61 In 1979, the share of total income held by the richest decile was 4.5 times that of the lowest decile of the population. By 1995 the highest was 8 times the lowest.62 This was quite a paradoxical result given that the policy of privatization of state assets was supposed to help eradicate the dependency culture. But as Thatcherite policies took hold, a growing pool of newly unemployed people helped expand the numbers of those in need of state support, reducing sharply the hypothetical advantages of privatization. What made this even more ironic was that the Thatcher and Major regimes, in disavowing moral responsibility for the collective welfare of British citizens, ended up having to support the half-million or so that they had effectively relieved of gainful employment, without any serious proposal for an alternative to help the non-participating (non-working) population. This massive divestiture of public responsibility, of abnegation of moral responsibility toward the British people, and the privatization of public goods for the benefit of relatively few entrepreneurs, not only gutted the British welfare state, vastly increasing the misery of the citizens of the UK, it also had a predictable outcome: unprecedented inequality with all its ugly consequences. Privatization only increased moral hazard, while subsequently shifting much of the public wealth into ever fewer hands, without the predicted efficiencies that were, hypothetically, to result. Privatization represented a shift of public goods into the private hands of investors and the already rich, without any of the former public benefits, leading to newer and deeper dependencies. The Thatcher years, as a result, saw anything but a shrinking of the state, as newly privatized industries became a feeding-profit frenzy for those who had acquired them. New owners were willing to ‘speculate’ because of the certainty that all losses were to be underwritten by the very citizens just divested of their public treasure. Thatcher did not just increase inequality, she destroyed, by design, any lingering sense that citizens of the UK had anything in common, eliminating as much as she could of whatever they had held collectively. The legacy of Margaret Thatcher and President Reagan has so far seemed irreversible. Thirty years on, neo-liberal rhetoric has done its work; the state in both the US and the UK is discredited. In its place we now have conservative ideologues and grasping entrepreneurs reassuring us that we are all better off without the state on our backs. The notion that the state should provide universal social benefits because these are in the public interest, that the state has obligations to help care for its citizens by providing certain goods and services, has been forgotten, or dismissed. Gone is the long-standing belief that the state has social responsibilities and that it must embrace a social contract. Absent the state, and citizens of the US and the UK are left to the vagaries of the market – which we know has left many behind – reversing a long-standing development in which the state had assumed duties and obligations that individuals could not, or would not, meet.

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Thirty years on, what matters most is short-term profitability, not long-term social well-being. Public welfare is now associated with the market itself. The culture of enterprise has replaced public provision by the state, which for decades has continually diminished any responsibilities toward its citizens, most emphatically in Anglo-America. Welfare states may once have been notoriously shortsighted, bureaucratic, and oppressive, often unsympathetic and full of zealous regulators, administering services and producing goods that were astonishingly uniform and unimaginative. But the state was there for all of us, it was responsible for making universal provision, and we all knew it accepted that responsibility. The private sector, however, is under no such restriction, it is responsible only to its shareholders and investors, without any sense of public accountability. Private companies do not provide public goods, and so citizens cannot feel they have any rights to their services. And they are correct: goods and services offered by the private sector come with a cost – they must be paid for according to market rules. If citizens feel they have lost something indispensable without quite knowing what it is, they are correct in this also; what has gone missing is any sense of a collective good to which all are entitled by right. Gone is any sense that neighbors will help each other through the state in which they all have a mutual and collective interest. Gone is the sense that there are public goods to which we all have claim; as a result we are no longer part of a community. We are all subject only to the market, a permanent metaphor for measuring the new relationships between all of us, replacing, possibly irrevocably, the consensus on which postwar communities were built and flourished. What has followed is the weakening of the social fabric that sustained us for decades. Once upon a time, the needy – who we now know can be any of us, or most of us – could find solace in government bureaus where they could claim the services and goods to which they were entitled by right. Today, more and more, a citizen of the US or the UK must turn to private providers who are under no mandate to serve them, and whose only interest is in the commercial activity that will enable them to continue to provide their services at market price. Gone in all this is any organic relation between citizen and state, other than obedience and authority. Absent is anything that binds people together as a community or society. Ironically, if nothing binds us together, then we become utterly dependent upon the state to somehow shield us against the indifference of the market, which we know does not work to the advantage of the lower and middle strata of the population. Ironically, any society which allows the social fabric to be weakened, and which eviscerates a sense of collective social purpose, must soon find itself reduced to an amalgam of individuals who can only work at cross purposes, in eternal competition with each other. It is the exact nightmare once anticipated by Thomas Hobbes, a war of all against all in a competition for survival, in which a discredited state has been shelved as intrusive, expensive, oppressive, and inefficient. The ‘disintegration’ of the welfare state has come at a great cost; it has not made us more independent, but more solitary. We are no more efficient than before, but everything has become more costly, without any discernible increase

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in quality. Nor have we become more free: we are more dependent than we have been since the Great Depression for the protection of our jobs, our homes, and our well-being, without, however, having a state which we can rely upon to protect us.

Freedom, democracy, and the free market Democracy is about accountability, as well as defining and implementing shared purposes. Privatization and deregulation, in the UK, especially during and after the regimes of Margaret Thatcher and John Major, removed accountability by unleashing the private at the expense of the public sector; in both cases public goods were replaced by private aims. Accountability was to stakeholders, not to taxpayers. In the UK the substitution of private ends for collective purposes was carried beyond goods and services all the way to government itself. In an ironic twist, the Thatcher government, which was compulsively dedicated to reducing the state, nationalized local government and intermediary institutions in order to deregulate them. The National Health Service, the schools, former polytechnics and universities, prisons, the administration of justice, and the regulation of the police forces were all reorganized. They were no longer to be controlled by democratically elected local authorities; they were now put under the control of unelected quangos and Next Steps Agencies which were accountable only to the central government, if at all. But this was done not to serve the public so much as to apply market mechanisms to all these institutions in the name of efficiency, not in the name of social welfare. Entitlements to welfare benefits became restricted across the board. Unemployment benefits such as those outlined by Job Seekers Allowance of 1996 were designed specifically to compel recipients to accept work at market-driven rates.63 The “permanent revolution” of the free market led by Margaret Thatcher in the UK and President Reagan in the US, far from sanctifying human liberty and freedom, far from protecting local traditions and family values, denied any authority to the past. On the contrary, it shred memory of that past and scattered local knowledge, it privileged individual choice over the common good, and it routinely made relationships revocable and provisional. In this scheme, choice was the only immutable value; the difference between shopping for goods to consume and exercising the rights of citizenship appeared as minimal if it existed at all. “This logic of the free market, which is that all relationships become consumer goods, is denied indignantly by its ideologues. However, it is all too clearly evident in the daily life of societies in which the free market is dominant.”64 John Gray has argued convincingly that it is the fate of the Right in the modern era “to destroy what remains of the past in a vain attempt to recover it.”65 This should not surprise us; free markets are a solvent of tradition because they value novelty and modernity at the expense of the past. The free market demolishes the very virtues it once relied upon. “These virtues – saving, civic pride, respectability, ‘family values’ – are now profitless museum pieces.”66 Even if we were to grant that Margaret Thatcher’s Britain was a more efficient place, the society she helped create was catastrophic. By dismantling or evis­cerating

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all collectively held resources and by insisting upon an individualist ethic that demeaned any unquantifiable assets, Thatcher seriously undermined the fabric of British public life, including the warp and woof of democracy itself. Instead of being citizens, the British were transformed into ‘stakeholders’, “their relationship to one another and to the collectivity measured in assets and claims rather than in services or obligations. With everything from bus companies to electric supply in the hands of competing private companies, the public space became a market place.”67 The result was predictable. Services remaining in public hands were starved of resources, while significant wealth accrued to the so-called emancipated (private) sector of the economy. This was especially true of the financial sector: the City of London, composed of bankers and stock brokers, was ‘emancipated’ by the Big Bang of 1986, when Britain’s financial markets were deregulated and opened to international competition.68 The result of this was also predictable: private affluence accompanied by public squalor. What was lost in the name of hypothetical efficiency was British democracy and the postwar consensus fashioned in the name of social fairness. By asserting that there was no such thing as society, and that virtue was success in the market, Margaret Thatcher demeaned public goods, emulating the worst aspects of the American model across the Atlantic, where public goods were likewise dismantled in the decade of the 1980s and beyond.

Notes   1 Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Picador,

2008), 60–1. Milton Friedman’s ideas were popularized especially in Capitalism and Freedom (1962: reprint, Chicago, IL: University of Chicago Press, 2002); and Free to Choose: A Personal Statement (Orlando, FL: Harcourt, Inc., 1980), which he co-wrote with his wife, Rose Friedman.   2 Ibid., 61–2.   3 Milton and Rose D. Friedman, Two Lucky People: Memoirs (Chicago, IL: University of Chicago Press, 1998), 21.   4 Klein, Shock Doctrine, 63.   5 Friedman, Capitalism and Freedom, 15.   6 Klein, Shock Doctrine, 63.   7 Don Patinkin, Essays on and in the Chicago Tradition (Durham, NC: Duke University Press, 1981), 4.   8 Friedman and Friedman, Free to Choose, 9.   9 Ibid., 103–4, 120–3. 10 Ibid., 119. 11 Friedman and Friedman, Two Lucky People, 594; and Friedman, Capitalism and Freedom. 12 Naomi Klein, Shock Doctrine, 67–70. 13 Friedman and Friedman, Free to Choose, 145. 14 Ibid. 15 Ibid., 148. 16 Klein, Shock Doctrine, 62.

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17 Tony Judt, Postwar: A History of Europe Since 1945 (New York: The Penguin Press, 2005), 535–56. 18 Ibid., 536. 19 David Butler and Gareth Butler, British Political Facts Since 1979 (London: Palgrave Macmillan, 2006), 180. 20 Geoff Eley, Forging Democracy: The History of the Left in Europe, 1850–2000 (Oxford: Oxford University Press, 2002), 386, 391. 21 Ibid., 396. 22 Ibid., 400–1. 23 Jack Lawrence Luzkow, What’s Left?: Marxism, Utopianism, and the Revolt Against History (Lanham, MD.: University Press of America, 2005). See especially André Gorz, Farewell to the Working Class: An Essay on Post-Industrial Socialism, trans. Michael Sonenscher (London: Pluto Press, 1982), for Gorz’s revisionist argument. 24 Eley, Forging Democracy, 406. 25 C. Wright Mills, The Power Elite (New York: Oxford University Press, 1956). 26 Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 85–6. See also Eley, Forging Democracy, especially 402–6. 27 Judt, Ill Fares the Land, 87. 28 Judt, Postwar, 537. 29 Ibid. 30 David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2007), 11. 31 Ibid., 15–16. 32 Ibid., 17. 33 Ibid., 22–3. 34 Ibid., 23. 35 Jeffrey D. Sachs, Price of Civilization: Reawakening American Virtue and Prosperity (New York, Random House, 2011), 59–60. 36 Harvey, Neoliberalism, 26. 37 Ibid., 25–6. 38 Jacob S. Hacker and Paul Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer – And Turned Its Back on the Middle Class (New York: Simon & Schuster, 2010), 200–1. 39 Judt, Postwar, 538. 40 Ibid., 539. 41 Ibid., 540–1. 42 John Gray, False Dawn: The Delusions of Global Capitalism (New York: The New Press, 1998), 27. 43 Judt, Ill Fares the Land, 107–8. 44 James K.Galbraith, The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too (New York: Free Press, 2008), 90. Italics are Galbraith’s. 45 Judt, Ill Fares the Land, 109. 46 Ibid., 109–10. 47 Massimo Florio, The Great Divestiture: Evaluating the Welfare Impact of the British Privatization 1979–1997 (Cambridge, MA: The MIT Press, 2004), 342. 48 Judt, Ill Fares the Land, 113–14. 49 Ibid., 114. 50 Florio, The Great Divestiture, 180–1. 51 Ibid.

How we fell into the memory hole and got to where we are today 52 Ibid., 181. 53 Ibid., 182. 54 Ibid., 183. 55 Ibid., 184. 56 Gray, False Dawn, 28–9. 57 Ibid., 29. 58 Ibid., 30. 59 Ibid., 30–1. 60 Ibid., 32; and Florio, Great Divestiture, 196. 61 Ibid., 37. 62 Ibid., 98. 63 Gray, False Dawn, 28. 64 Ibid., 37. 65 Ibid., 38. 66 Ibid. 67 Judt, Postwar, 543. 68 Ibid., 544.

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Social democracy forgets its identity: what really ended in 1989? The collapse of communism in the Soviet Union in 1989 precipitated triumphalist hurrahs from Francis Fukuyama, who was moved to project the “End of History” as such, and the global triumph of liberal democracy. Fukuyama, foreseeing the death of communism everywhere, projected a world that could at last transcend ideology: he anticipated a harmonious future shaped by peace, democracy, and free markets. Far from being an ideology itself, Fukuyama touted the American version of liberalism – and liberal democracy – as a universal truth, evident to and desirable by all. America was held to be the paradigm of Western Civilization itself: democratic capitalism as practiced in the US embodied the “triumph of the Western idea,” it was “the final form of human government.”1 Certainly social imperfections would persist into the future: “But we cannot picture to ourselves a world that is essentially different from the present one, and at the same time better.”2 Fukuyama had reason to argue that “the triumph of the West, of the Western idea, is evident first of all in the total exhaustion of viable systematic alternatives to Western liberalism.”3 To be sure, communism as an idea had long been discredited by the communists themselves, well before 1989. There might still be pockets of radicalism and Marxism, but there was little passion for idealism. The era of big ideas and ideologies were more like museum pieces than the world-historical motivating forces they had been. History as Grand Narrative was defunct.

1989 and the end of history? The Grand Narrative ended in 1989, but was Fukuyama correct when he argued that history ended also? Or, was it true that liberal democracy represented the global future everywhere? Europeans across the political spectrum, from French Gaullists to French socialists, from German Social Democrats to German Christian Democrats, from Scandinavian Social Democrats to Dutch Christian Democrats, were unwilling to abandon the tenets and institutions of social democracy – or the welfare state – even when there was financial crisis in the wake of the Great Recession of 2008. The British public was willing to criticize the National Health Service, but it was equally reluctant to abandon it to the private sector. Democratic capitalism as practiced in America, with deregulation, low taxes on the rich, 114

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privatization, and reliance on the free-market to solve social and economic problems, was not the “final form of human government” in continental Europe, where most nations still preferred welfare states and social democracy to the extent they remained affordable.4 And yet Fukuyama was not entirely wrong: something dramatic changed in 1989, something far more than just the end of repressive regimes and political dogma. What ended was the age of illusion, the Grand Narrative as secular faith, the notion that the political cosmos was necessarily moving toward universal harmony, and that the whole world was cheering it on. Today, two decades after the collapse of Soviet communism and the communist regimes of Eastern Europe, from the Balkans to Poland, and from East Germany to Belarus and Russia, it is hard to recall the secular faith that once moved millions of men and women toward an anticipated utopian future – the absolute certainty that history moved in linear fashion, ineluctably, rationally, toward a harmonious vision that was universally awaited and justified. The anodyne of this faith was that communism, and its Marxist interior – which provided a comprehensive explanation for how the world worked – was synonymous with progress. Which was why it could be embraced by so many intellectuals of various stripes on the Left. What historians such as E. P. Thompson and E. J. Hobsbawm, or revolutionaries like Vladimir Lenin and Leon Trotsky, had in common was a shared faith that their convictions were grounded in science, as well as justice, making it possible to think they also represented Universal History: their victory was inevitable because it was ‘right’. Communism, framed by its Marxist rhetoric, was therefore superior to Western liberalism, it represented a higher truth, and it could not be stopped. It embodied the historical future, a wave that would sweep away the recalcitrant West and its exploitive liberal capitalism. If this was an illusion, it took a long time to be dispelled. The appeal of a glorious and harmonious future was irresistible, especially because it promised the End of History as such. Events that seemed to demonstrate otherwise were simply ignored, or taken as temporary reversals. Dreams of a better future had always motivated religious communities, radical intellectuals, and messianic leaders and their followers.5 The French Revolution in 1789, and then the Industrial Revolution, had encouraged the conviction that at last there could be an end to history as such. On the basis of the new science, and the technological transformation that accompanied the industrial transformation in the nineteenth century and beyond, human problems could be solved on earth and did not have to await the afterlife. It just needed a secular doctrine, and this was forthcoming. But apocalyptic claims also distinguished Marxism from other contemporary radical ideas in the nineteenth and twentieth centuries. Only Marxism had a hierarchy, a liturgy, and a catechism, although this was truer of its eastern version as worked out by Lenin. Indeed, this might explain why Marxism did better in Catholic countries in the West, where Marxism replicated many of the features of Catholicism.6 Marxist eschatology intuitively grasped the profound sense of loss and disrup-

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tion experienced by workers as a result of the Industrial Revolution. Its rhetoric included the fall of man, a messianic historical figure, ultimate redemption, and a final ascendancy of the righteous. This was a view of history worth waiting for, and many were willing to wait; even better, it was a future worth fighting for, and that meant human sacrifice. In Russia, Lenin was never willing to wait long; he had to add a revolutionary flourish because orthodox Marxists believed that Marx’s prognosis for the future would apply first to the more developed West, where capitalism was more mature and the working class more developed and – hypothetically – more revolutionary. But this was the point at which Marxism met its historical conundrum: it was one thing to believe that it was worth suffering in the name of an uncertain but possible goal, but quite another to counsel others to suffer in the name of a future dream whose outcome was at best uncertain – especially when it could not be verified that in victory the future would be better.7 In which case authorizing the suffering of others became the cardinal sin of Marxism. The sin, of course, was more complex. Marxism’s original sin was to believe in its Promethean abilities to predict and then to tame the future. Given certain present actions, certain outcomes were mathematically predictable. The future could be planned with some precision. That this was a Marxist sin we can agree. But this is where the dividing line occurred. Liberals and social democrats believed that certain outcomes were more likely given certain kinds of actions. But both were about amelioration; neither touted its planning as leading to anything more than a desirable outcome. Neither could be tainted with a fatal hubris, and hence neither rose nor fell because its plans succeeded or failed, while, on the contrary, the fortunes of communists depended on their predictions – and also on their illusions.8 Even before World War II had finished, George Orwell had noticed what he called the sin of the Left: left-wingers wanted to be anti-fascist without being antiauthoritarian. But, in a review written in 1946, Orwell could not bring himself to reject the idea of socialism, even if he rejected its Stalinist incarnation.9 He saw his conviction not as a religious belief, but as faith in humanity and its capacity for indefinite improvement. Long after Marxism had given up the ghost, long after its prognoses had proven false, and long after the regimes that consciously acted in its name had collapsed or been discredited, Marxism remained an enduring attraction. This was not only true for communists: social democrats were equally reluctant to give up fidelity to Marx. Lenin, yes, but it was easier to abandon Lenin as a false Marxist. Leninist thought after all led directly to Stalin. Why did it prove so difficult to renounce Marx? Why did even the responsible Left succumb to a kind of modern idolatry? Why did so many intellectuals on the Left believe that history offered no better alternative than the rhetoric of Marxism? One reason was that Marxism offered a ready-to-wear explanation of history. It explained the laws of History as incontrovertible; laws, moreover, that were to lead to ultimate triumph and a final resolution – in fact, the end of history, a creed which ironically would be parroted by Francis Fukuyama, though he was celebrating the end of the end of ‘that’ history culminating in the final unraveling

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of the Soviet experiment between 1989 and 1992. Above all, for thousands of minions, Marxism represented hope, future, and possibility. It was a religion for those without faith. It supplied meaning in place of the randomness of history, order where there appeared to be only chaos and war, and a means and a method for reaching an end that was nevertheless inevitable. It promised secular in the absence of divine justice and, in a cruel irony, it promised power to the powerless. For intellectuals, it offered a theory of history that was attractive because it envisioned them as visionaries. For workers, it was a way out of what seemed intractable misery. For those who identified with the industrial working class, it presented community just when it was being shattered by industrialization, just when all that was solid melted into air, as the Master himself had put it. Marxism was religious creed, a theory of history and its ineluctable laws, a sociology of knowledge which privileged intellectual activists. It was a religion offering salvation to the deprived and forgotten, embodying the myth that history, and the utopia of the future, were all but ordained. This proved comforting, but it also was fatal, for it encouraged the Left to await the outcome of history without its active presence. And it meant also – critically – that the Left had no practical politics, no pragmatic policies to propose to the really existing world – as opposed to the transcendent world they were anticipating. Socialists, and their social democratic cousins, remained obedient to the core doctrines of the nineteenth century, embracing a dogma that somehow distinguished them from liberals and Christian democrats, both of whom had soldiered on for the most part as the champions of human rights and civil society, without needing to bother about the end of history or laws of history which would lead – without needing a push from them – to the final utopia.10 The doctrine, however illusory it may have been, and however deceptive for its practitioners, mattered. It was doctrine that offered cohesiveness, confidence in the future, political will, and discipline, the willingness to excuse or to rationalize transgressions, and the belief that history would in the end turn out as expected, true and just after all. Even after the fall of communism, long after it had any credibility left in Soviet Russia or Eastern Europe, it was able to appeal once more to one of the shibboleths of history, the crisis of capitalism.11 Which was why the fall of communism in Soviet Russia and Eastern Europe mattered so much. Once the doctrines which had held together the strains of thought binding all stripes of the Left imploded – no matter how much the Muscovite version was perverted – the entire house of the Left was bound to collapse. And so it did, and as everything unraveled it threatened to take social democracy with it. This was a peculiarity of the Left; it depended on a Grand Narrative that one could somehow expect to unfurl automatically. Such a narrative transcended mere events, and made them comprehensible as part of a larger and inevitable plan – a plan, moreover, that would be realized no matter the arguments arrayed against it, no matter the historical reverses. What, then, happened when the Grand Narrative became unraveled? What, if anything, could be put in its place? Or salvaged? Was it not the Grand Narra-

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tive that distinguished the Left from conservatives and moderates? Had not the Left envisioned a resolution of whatever social pathologies still remained, an End of History as such? The future would look different; it would not simply be an improved version of the present. Conservatives had never looked to the future; it was the past they wished to conserve. The Left, on the contrary, had always been attractive because of its idealism, its confidence that the present could be superseded. In 1989, as the Master Narrative collapsed, the result was catastrophic for the Left, especially so for the European democratic Left. For all its attempts to present itself as the democratic alternative to revolutionary socialism, the democratic Left remained tied to revolutionary rhetoric because of a common provenance, and because of a shared need to embrace the Grand Narrative. That is why social democracy remained so divided and schizophrenic. Social democrats had always taken measures to distinguish themselves as the democratic alternative and asserted their willingness to compromise. They had tried to convince that they were committed to democracy, but equally so to equality, social justice, regulated markets, and a somehow transformed future. But, after 1989, the schizophrenia within social democracy proved too much: how was it possible to retain idealism – in the name of an alternative social arrangement – and yet argue that social democrats were democrats like everybody else? How was it possible to argue that there was anything radical about social democracy if it embraced the same politics and policies that even modern conservatives could support?12 Social democracy seemed to utter the same refrain as all other political stripes: Aren’t we all democrats? Don’t we all believe in social justice for everybody? Wasn’t it obvious that markets had to be regulated, even if the degree of regulation still remained a political issue – though one of mere detail? Moreover, how was it possible to march into a better future if there was no promise of something qualitatively different from the past? That was precisely what conservatives had always insisted upon, and this was the dilemma for the modern Left. European Christian Democrats and Liberals also agreed on the obligations of the welfare state, which they thought needed only a degree of tinkering, but little more. Even the European Right – the Gaullists in France, for example – could tolerate state ownership and regulated markets. The Social Democrats were not wrong, it was just that in modern Europe everybody was a (social) democrat, or at least everybody took democracy for granted and was prepared to tolerate an attachment of welfarism – however diminished – to the state. And that meant that the democratic Left was no longer Left. Nor, with the disappearance of the authoritarian Left, was it necessary to insist that social democracy was a rational and viable alternative. Absent the authoritarian state and all political stripes were democratic. The question for social democracy was what distinguished it from everything else in the modern world now that the revolutionary socialist alternative and its communist successor were gone? And what should – or could – it still preserve of the Grand Narrative?

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The United Kingdom: New Labour’s Third Way The response of New Labour in the UK, Left Democrats in the US, German Social Democrats (SDP), and to a lesser extent the Swedish Social Democrats (SAP), was predictable: shorn of anything like a Grand Narrative, acknowledging that the older industrial working class – and organized labor on which it was based – was being diminished and replaced by a broadening middle class, and that an industrial economy was being transformed into a high-tech information, globalizing economy, along with the weakening of social solidarity generally, the rise of national and ‘racial’-ethnic antagonism, and the decline of the male-dominated nuclear family, the social democratic Left scrambled to rediscover and redefine itself. For Bill Clinton Democrats in the US this was more a matter of pragmatic necessity than redefinition: Democrats had not claimed the White House between 1980 and 1992. It was much the same in the UK – though it was also true that Tony Blair retained lingering commitments to a social democratic past, unlike Clinton’s vague attachment to a welfare state. But New Labour had been sidelined by Margaret Thatcher and John Major and the Conservatives for eighteen years, and had spent much of that period reimagining and repositioning itself for the future and the retaking of power; and that meant, increasingly, acknowledging that much of Thatcher and her policies had to be swallowed whole. In Germany, it was similar: the Social Democrats had been kept out of power by Helmut Kohl’s Christian Democratic Union (CDU) between 1982 and 1998. It was a much chastened SPD, paralleling what had recently happened in the UK, that embraced pragmatism at least as much as principle, and became the doppelgänger of its rival. More than the UK and the US, however, in Germany the two major political rivals, the CDU and the SPD converged in many of their policies – both accepting the basic structure of the social democratic state and the need for government provision of social welfare. The SPD, while still acknowledging the Grand Narrative, had largely and intentionally abandoned it in practice decades earlier. Which only made it more difficult to specify exactly where the CDU and SPD differed. But that was the task taken up by Gerhard Schröder, Chancellor of Germany between 1998 and 2005, and the SPD in the 1990s: the result was something called the Third Way, which was defined as a kind of synthesis between free market capitalism and state-mandated universal social protection, a historic compromise between big business and labor, between the necessity to build a dynamic economy and the desire for social security, and between individual initiative and social solidarity. Or, as Tony Blair and Gerhard Schröder put it in their manifesto, Europe: The Third Way/Die Neue Mitte, published in 1998: “We support a market economy, not a market society.”13 Or, to be blunt, both supported the principles of neo-liberalism, even if with a slightly shamed conscience. The manifesto of Blair and Schröder was an attempt to weigh anchor from the left side of the pond and set sail toward its middle. With bright, broad strokes, Blair and Schröder bellied up for a more flexible labor market, reduced taxes, and lower levels of public funding – the better to unleash capital, generate investment, and promote economic growth and jobs. In the abstract this sounded like political

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rhetoric, a means to get elected and retain office, less a platform of principles than a collection of catchwords. Yet, the phrases were revealing. Social democracy, the text read, “stands not only for social justice but also for economic dynamism and the unleashing of creativity and innovation.”14 Social justice, for example, could best be served by rewarding creativity: innovation would replace social equality as a policy goal. After all, observed Blair and Schröder, social justice previously had not been accomplished despite “ever higher levels of public spending regardless of what they achieved or the impact of the taxes required to fund it on competiveness, employment and living standards.”15 Sounding ever more like Margaret Thatcher, ‘social democracy’ now stood for lowering taxes on capital to help generate investments. It meant also reducing social benefits to workers: workers less eligible for shrinking social benefits were more likely to take whatever work was on offer. And this in turn meant smaller and more “efficient” government because of reduced dependency. In sum, all the motives that one might have voted for Labour in the past evaporated, subverting the reasons why many had supported Labour in the first place. Government, Blair and Schröder seemed to be saying, would not be there when it was needed most.16 Absent in the Blair–Schröder manifesto was even a lingering reminder of the Grand Narrative, but the new brand – the Third Way – was not only devoid of remnants of Marxism, it even seemed to distance itself from what historically the welfare state – and Labour – and social democracy had been about. Barely a nod was given to the right to employment, though Blair would sign on to the European Social Charter that explicitly recognized the duties of the state to help secure work. Reference to decent wages was displaced by the rhetoric of ‘flexible’ labor markets, which was more geared to the protection of employers than employees. The right of social protection was no longer an entitlement; rather, individuals were now to be offered equal opportunities, one of the shibboleths of neo-liberalism and the Conservatives in the UK, as well as Democrats and Republicans in the US. Commitment to full employment, one of the chief pillars of the Keynesian architecture, and a key to poverty reduction, to which Blair insisted he was committed, received no nod at all. Nor did unions gain even rhetorical support, since they conflicted by definition with the kind of flexible labor market embraced by New Labour. Absent too was T. H. Marshall’s notion of social citizenship, which claimed social rights not as derivatives of the market but as independent entitlements, which the state was obligated to fulfill. Earlier, Labour had not always met these obligations, noted Eric Shaw, though Labour was clearly the party of social rights.17 Even before the Labour Party returned to power in 1997 as New Labour under the lead of Tony Blair, Labour believed that Margaret Thatcher had changed the world irretrievably, and that many of her recipes would have to be swallowed. In November 1994, the Labour Party’s Commission on Social Justice Report was published; it reflected the belief that social democratic principles were to be set aside and the deepening inequality of the previous fifteen years substantively ignored. The report dismissed Lord Beveridge’s principle of universal inclusion and embraced more means testing for the future. At the same time, it ignored the Annual Survey of Social Attitudes showing that the British favored raising benefits

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and would support the higher taxes needed to support them.18 In much of its thinking, Labour was following Robert Reich in his influential argument, The Work of Nations, published in 1992, in which Reich insisted that there was no such thing as a national economy, only a global economy in which the economies of nations were already integrated.19 Labour, reflecting Reich, stressed that investing in the skills of the workforce was the most important national asset in a world of mobile transnational capital. The key was adjusting workers to the new global competition by infusing them with skill levels that matched the jobs being created by the globalized knowledge economy. But Labour ignored the balance of the advice offered by Reich: steeply progressive taxation on the rich, tough action against tax evasion, and elimination of corporate subsidies. After all, Reich said, globalization made all these measures feasible. Yet, in another manifesto published in 1994, Rebuilding the Economy, Labour ignored Reich’s advice to tax wealth more progressively.20 If there were any doubts about the new thinking and new direction of New Labour, they were soon dispelled by what followed. Alistair Darling, the party’s City spokesman, ruled out any draconian measures to be taken against the City. Such measures – serious regulation of hedge funds and derivatives, for example – he argued, would lead to massive exodus of investment to financial centers with lesser regulatory regimes.21 In 1996, in Vision for Growth, Labour was unenthused about strengthening workers’ rights; it was even lukewarm about the Social Charter of the Maastricht Treaty, though this had been central to Labour. Even on the issue of the minimum wage, Labour promised to take both industry and labor into account, depending on the circumstances of the economy.22 Labour increasingly accepted the workings of the global market as irreversible and beyond the control of government policy and said so in a manifesto published in 1996, New Labour: New Life for Britain.23 Globalization thus became useful as a tool to ditch the old ideas, though these had been dismissed well before the linkage of globalization and the traditional principles of Labour, the protection of unions and social security, had been uncoupled.24 The main objective was to invest, innovate, and develop the potential of the British people. Knowledge was the key to wealth, Blair seemed to be saying, and lifelong learning was the key to knowledge.25 In the summer of 1996, Blair lectured the German Employers’ Federation (BDI) about the virtues of labor-market flexibility and the evils of over-regulation, actually espousing much the same philosophy as Margaret Thatcher. Blair – and his modernizing instinct – was widely praised by the members of the association, as opposed to the ‘ossified’ ideology of Oskar Lafontaine, a Left leader of the German Social Democrats. And what did Lafontaine advocate? He pressed for international cooperation against speculation, and opposed wage dumping, tax dumping, and welfare dumping, as self-defeating responses to globalization.26 Unlike Blair, Lafontaine stressed that instability was being caused by increasing levels of income inequality, rising unemployment, continued erosion of the welfare state, tax evasion of the rich, and an emphasis on a supply side economics that had been the cause of all these developments.27 Lafontaine proved prescient. But Blair

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was already determined to make Britain a better bet to attract international capital, and that meant being committed to keeping wages ‘competitive’ (relatively low), allowing drift toward a longer working week, the casualization of labor, and lower levels of social protection. In all of this, it was difficult to say what was ‘left’ of Labour’s old platform. After he became Prime Minister in 1997, Blair reinstituted what some described as a significant minimum wage law and working tax credits for low-income earners. But not everybody thought advances rendered by minimum wage and tax credits were ‘significant’. The New Policy Institute suggested that low-paying employers benefited from the tax credits given their employees because employers could depend on the government to subsidize poorly paid workers, while workers, for their part, had little incentive to seek higher wages that would reduce their benefit or tax credit.28 In effect, public funds were being diverted to employers, who would have a disincentive to raise wages. Moreover, unlike in most comparable EU countries, Blair’s government decided to establish a soft inspection regime, hiring only 100 compliance officers to cover the entire country to enforce minimum wage legislation. With a maximum penalty for rogue employers set at £5,000, there was to be weak deterrence.29 A BBC investigation in April 2007 discovered a large pool of labor employed at rates well below the minimum wage.30 Blair’s insistence on labor market flexibility, referring especially to the organization – hours, pace, and conditions – of work, also seemed to deny bedrock principles once thought the very core of Labour’s values. In 2000, The Guardian reported that the rise in work intensity was greater in Britain than anywhere else in Europe. A year earlier, the annual European Labour Force Survey found that British employees worked some of the longest hours in the EU.31 In fact, not only were British workers working longer hours than most of their counterparts elsewhere, but the right to additional pay for working overtime was progressively ignored: greater effort was increasingly demanded for the same reward. In effect, employers were asserting greater control over the length, pace, and shape, of the working week. The concept of a ‘standard’ working week was effectively shelved.32 The Employment Relations Act of 1999 was yet another compromise, revealing an increasing gap between the Labour Party and the labor movement and its union representatives. The Employment Relation Act established statutory recognition of trade unions by employers concerning collective bargaining over pay and work conditions, but posed significant barriers by weakening the effectiveness of ‘recognition’. Firms with fewer than 21 employees were exempted (thereby excluding more than 5 million workers). And employers were under no obligation to bargain in good faith even when recognition had been conceded.33 While Labour under Blair made some gains in reducing hard-core poverty, critics complained that the government’s habit of equating social inclusion with paid work concealed remaining social pathologies. The Blair government was successful in reducing poverty in families with children and pensioners, but poverty among childless working age adults – almost 40 percent of the entire population – persisted at more or less the same levels. Moreover, government policy directly contributed to this problem by tying benefit rates for the less

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favored groups – those of working age out of work – to prices instead of incomes, which reduced levels of benefit. Those who remained unpaid still languished in poverty. According to the Rowntree Foundation’s Monitoring Poverty and Social Exclusion, published in 2006, some 6.2 million working-age adults remained poor, about the same number of pensioner and child poverty groups combined. Further, the report emphasized that despite gains reaped by families because of tax credits and the minimum wage, “the number of adults in in-work poverty has risen and now accounts for nearly half the total.”34 Despite the National Minimum Wage Act and the Working Families Tax Credit, poverty had gotten worse in Britain, or at best had stayed the same. The central premise of the Labour government, that work was the best route to escape poverty, was anything but convincing. Meanwhile, the City became a tax haven, and the rich became even richer, abetted by Labour’s policy of reducing taxation on the well-off and business, especially the financial sector.35 After ten years of the Blair government, income taxes on the wealthy remained at ten-year lows, capped at 40 percent, while corporate taxes were lower than in most comparable EU countries. Tax receipts from corporations fell from £34.3 billion for 1999–2000, to £28.8 billion for 2002–3, which Eric Shaw has reminded us was a period of rising corporate profits. For the same period, the returns on individual taxes rose from £93.05 to £105.1 billion. By 2005, corporate taxes accounted for only 2.5 percent of national income, the smallest share ever.36 The Blair government was wary about jeopardizing the status of the UK as a favored destination for inward investment, so there was a disincentive to use taxation as a means of redistribution. The result was inevitable: corporate tax avoidance ballooned in the absence of restraint, though without legislation nobody could be certain about the magnitude of avoidance. It has been calculated, however, that the UK was losing – well into the Blair government’s tenure – somewhere between £97 and £150 billion per year in tax receipts, at least 74 percent of total income tax returns. There were numerous illustrations of how this was done, and by whom. Rupert Murdoch’s media empire, News Corps, paid almost nothing in taxes from the late 1980s. The sums were so meager that a task force consisting of representatives from Australia, Canada, the UK, and the US was formed to investigate why News Corps paid so little in taxes, but fear of a backlash from Murdoch led to the investigation being dropped. This was despite the fact that many of News Corps’ 800 subsidiaries were registered offshore for the explicit purpose of avoiding taxation. A study of 101 subsidiaries of the UK holding company for an eleven-year period concluded that profits of £1.4 billion were virtually untouched by corporate taxes.37 Richard Branson’s Virgin empire and Philip Green’s Arcadia Group similarly avoided – or vastly reduced – tax liabilities by making astute use of tax havens. The Labour government, despite Chancellor of the Exchequer Gordon Brown’s assurances that he would not grant tax relief to millionaires who shifted incomes and profits to offshore havens like Jersey and the Cayman Islands, seemed uninterested in holding the super-wealthy accountable. The UK’s 54 billionaires in the year 2006 had an estimated income of £126 billion. Income tax liabilities should have been about £50 billion: in fact, they were estimated to be about £14.7

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million, or roughly 0.14 percent of what legally they should have been.38 None of this was accidental or unintended: the new thinking of New Labour was intentionally creating a business-friendly culture that it claimed vital to wealth creation, and this meant making the UK attractive for foreign investors by maintaining a low tax regime. Accordingly, two years after reducing staff overseeing corporate tax avoidance, and in response to Big Business, the Treasury projected a sea change that would make tax officials less obstructive to potential investors in the UK. Chancellor Brown announced that henceforth he wanted a system that exhibited greater trust in companies and that was more responsive to the needs of business.39 The mistake of penalizing wealth creators, Brown averred, was not to be repeated by Labour. According to the Institute of Fiscal Studies, Brown and Labour achieved this goal successfully: the incomes of the top 1 percentile rose 25 percent faster than any other percentile group under New Labour. Between 1996–97 and 2000–1, income inequality reached the highest levels since comparable records in 1961.40 Two terms of Labour government under Blair left income inequality at historically high levels: for the fiscal year 2008–9, the UK’s GINI coefficient was 0.40, trailing Nicaragua and Mali in measured inequality.41 The same year, the income of the richest tenth of the population reached 31 percent of the total, higher than the 28 percent inherited from the Conservatives. It was the same for measures of wealth. In 2002, the top 1 percent of the population held 23 percent of personal wealth, up from 18 percent in 1990. In the same period the share held by the top 10 percent rose from 47 percent to 56 percent of British wealth.42 As early as December 1998, Stephen Byers, Labour’s Trade Secretary, argued that wealth creation was more important than wealth distribution. Peter Mandelson was more direct and cruder: he insisted that New Labour was – and should be – relaxed about people becoming ‘filthy’ rich. Other New Labour true believers said the wealth gap did not matter: wealth creators after all were job creators. The shift away from social democratic values and toward neo-liberal principles of New Labour was palpable: many thought that rising inequality was desirable, or simply unavoidable, but not to be regretted.43 New Labour retained some traditional elements of social democracy: putting a floor under minimum wages and withdrawing some of the most punitive anti-labor legislation of Margaret Thatcher were examples. But it also adapted to many of the directions embraced by Thatcher. Blair did not renationalize the British railways, he did not raise top rate taxes to rebuild the British economic and social infrastructure, he failed to reorganize secondary education in Britain to provide universal ‘public’ education until the age of eighteen. He did not attempt to reregulate the City – that would have disavowed one of the chief tenets of New Labour, the unchaining of capital markets. Nor did he object to the demonization of redistribution (social transfers for those in need), though some might have thought that is why he was elected in the first place. Instead, public services were to be modernized through competitive and widespread outsourcing to the private sector. Again, the emphasis was on downsizing the state.44 Did the unleashing of the markets, including flexible labor markets, produce

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greater economic stability and prosperity after all? Did economic and industrial restructuring create more value? Did rising inequality increase economic performance by rewarding wealth creators? In the decade to 2007, growth in the UK and the US was 3.0 and 3.3 respectively. This was better than the other G7 nations that were less wedded to the market (Canada, France, Germany, Italy, and Japan), which averaged a rather anemic 2.4 percent. These figures did seem to support the claims of the market school. And yet, insists Stewart Lansley, this is false. Half the supposed growth in the UK from 2000 to 2008 was bogus. Although the contribution to the economy in the UK made by financial services – the bubble effect – more than doubled (rising by 123 percent), manufacturing shrank by a quarter and mining by more than a quarter. During the boom years following 2000, “the money and productive sectors of the economy were moving in opposite directions.”45 Tony Blair certainly made a difference; millions of the British were better off because of him. But, as was often said, he could have done so much more.

Social democracy and the Third Way in Germany: goodbye to all that? The German model of the welfare state was dedicated to the building of a modern society based on social insurance and class collaboration, a society of full employment and universal inclusion, a ‘social market’ economy combining private enterprise with state regulation. This model included co-determination, the triangular collaboration between business and unions and government: unions, for their part, would keep wage demands modest in return for job security, social welfare, and public services. The government for its part was committed to universal inclusion and policies aiming at relative equality. And business would grant job security in return for labor peace. There were critics. German problems, they said, were caused by excessive taxation, strong disincentives to work (the result of social protection and social transfers to the lower deciles of the population), over-regulation, especially of the labor markets, a lack of innovation, and institutional rigidity.46 Yet even the critics had to admit that the German model had worked rather well: if it worked less well in the 1990s, then the costs of unification alone, ultimately up to $3 trillion by some estimates, would have been enough of a burden to slow any economy. But among Germany’s problems, also, was the congenital anti-Keynesian direction taken by the Bundesbank – the central bank of the German Federal Republic – and the financial regulations to which Germany was being bound: the 3 percent deficit of GDP rule of the Maastricht Treaty. Unless it ignored the Maastricht Treaty, Germany could not simply borrow and spend its way out of its economic doldrums, and without that it could not stimulate demand to help reduce unemployment. Moreover, the last thing the Bundesbank wanted was to raise spending and risk inflation: this was too close to memories of the superinflation of 1923 and later the Hitler years. For the Bundesbank, it was easier to tolerate unemployment than inflation. When Gerhard Schröder came to office in 1998, it seemed an activist state was out of the question; but he had already resolved to make the needs of business a

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priority in The Third Way/Die Neue Mitte, of which we know he was co-author with Tony Blair. The best way to move forward, the argument went, was to unleash capital, which in turn meant greater demands on labor to become more ‘flexible’. “The belief that the state should address damaging market failures all too often led to a disproportionate expansion of the government’s reach and the bureaucracy that went with it … the responsibility of the individual to his or her family cannot be offloaded on to the state.”47 Such statements echoed neo-liberal philosophy: after all, how much could the state do in the era of globalization? “The ability of national governments to finetune the economy in order to secure growth and jobs has been exaggerated. The importance of individual and business enterprise to the creation of wealth has been undervalued.”48 New technologies had transformed the nature of work and globalized the organization of production. To catch up, said Schröder, Germany had to put limits on social protection. There was some truth in these arguments, but absent from this discussion was any talk about fairness, the right to employment, decent wages, social protection, gender equality, or full employment: in their place, Schröder argued, Germany should accede to the market to solve problems formerly resolved collectively with the active presence of the state. What was needed was a flawless interplay of market forces, although nobody could identify market forces that were flawless. That welfare programs themselves needed reform was obvious. What was not so clear, however, was whether a Schröder-led SPD government would be prepared to reduce social and labor protection by employing supply-side policies favoring Big Business at the expense of everybody else. In office, Schröder kept his word. The net result of the SPD tax reform was a large decrease in revenues from direct taxes (corporate taxes and progressive income taxes) by 2001, while revenues from regressive taxes on consumption and from welfare contributions increased.49 Thus, taxes were relied on much less for redistribution in lieu of hoped for economic growth. This strategy had its defects: there was a strong spike in the budget deficit in 2001 because most tax breaks had to be financed by government loans, undercutting the expectation that lower taxes would lead to spurts of growth; and inequality grew because of the shift toward regressive and away from progressive taxation, leading inevitably to greater dependency on the state. But it was dependency that Schröder wanted to reduce. Because welfare benefits still remained generous enough, and because there were few opportunities for increased or additional earnings, few welfare recipients were willing to accept work in badly paid service jobs, where many – if not most – low-paid jobs were.50 To counter this problem, Schröder’s government introduced punitive ‘labor flexibility’ measures at the beginning of 2002. If an unemployed person refused to participate in a retraining workshop or turned down an ‘appropriate’ job offer without ‘good reason’, his or her benefits could be reduced: but the criteria for appropriate employment were not clearly defined.51 At the same time, Schröder organized an expert group – the Hartz Commission – to work out the details of

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the reform of the Federal Labor Office, placement services, and the labor market in general. The Hartz Commission issued a report in August 2002, prior to the September elections, recommending tightening the term ‘appropriate’ as a criterion for job offers, merging social assistance offices and job centers, and combining social assistance and unemployment aid.52 The Hartz proposals were clearly an attempt to introduce a more flexible, deregulated labor market, and to modernize the economy without dismantling the social democratic welfare state, or lowering social protection to levels unpalatable to many if not most members of the SPD. But the proposed measures failed to satisfy employers who thought social benefits, and the corporate taxes which helped pay for them, too high, while the unions and their memberships were equally disaffected by what was sure to be the loss of social benefit for them.53 Schröder’s government managed to survive, however, and the Hartz Commission proposals (Hartz I–IV) were soon phased into law, implementing a number of provisions that the Left found all but indigestible. Unemployment aid was restructured, to the disadvantage of the unemployed: from January 2005 onwards, all former beneficiaries of unemployment aid and social assistance drew the same benefit, Unemployment Allowance II, at former social assistance levels. This led to large monetary losses or the complete loss of benefits for people who had been on unemployment (depending on one’s partner’s income). After 2006, unemployment benefits were to be limited to 12 months, except for employees above the age of 55 who became eligible for benefits for up to 18 months.54 Hartz I–IV was a watershed moment, redefining how Germany dealt with poverty and the job market. The new pact was riddled with terms borrowed from the new thinking of Blair and New Labour in the UK. Germans were introduced to concepts like Job Center, Personal Service Agency, and Mini-Jobs. Hartz, which was named after Peter Hartz, a former executive of Volkswagen, was considered punitive and cynical by many Germans because of how it redefined benefits intended for social protection. Among those measures considered most punitive was the bundling of unemployment compensation and social welfare benefits into one package. This had the effect of leaving those living on benefits worse off – even as late as 2013 the standard rate for a single person had risen to only €382 per month. The most profound change, however, was in the contract drawn up between the “jobseeker” and the “Jobcenter,” which defined what each party promised to do to get the jobseeker employed. This was coupled with sanctions, or benefit cuts, if the worker refused any “reasonable” job, though reasonable meant any job whatsoever, even if it paid less than what was customary or what had been agreed in collective labor agreements. With these latter measures, Germany embraced the punitive neo-liberal definition of “job incentives” as they applied to the market: that poor people would only accept work if social benefits were drawn down low enough – or even abolished – to force them into the labor market.55 In sum, the Hartz reforms led to lower benefits, as they were intended to do, yet reduced benefits did not help to reduce unemployment. The unemployment

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rate was as high in 2003 as it was when Schröder’s government had taken office five years earlier, while labor market participation stayed fairly consistent. Youth unemployment also did not subside. Although unemployment in Germany has dropped considerably since 1 January 2003, when the first Hartz provisions became law, critics have argued that unemployment reduction was because the jobless were forced to accept the first job they could find, often low-paid or part-time, with the net result that many remained eligible for some form of welfare benefit. Defenders of Hartz – the business community at large, especially the industrial community – argued that Hartz gave them the flexibility they needed to hire and lay off part-time shift workers depending on the demand for their products in the export market.56 Indeed, this may have helped some employers ride out the recession of recent years, but it has not contributed to any long-term solutions for German employees, still confronted with the harsher realities that Hartz did not do enough to alleviate. The Schröder government was committed to reversing a number of the social policies of its predecessor, promising to provide social protection at levels higher than those which it inherited. But Germany had an aging population and a high rate of unemployment, resulting in fewer people to contribute to welfare and social insurance provisions: with the costs of social protection rising, contributions had to be raised, meaning a higher burden for fewer contributors. Germans already had to contribute 42 percent of gross wages to social security following unification: anything higher than that was liable to reduce employment because employers wanted to avoid new hires in lieu of escalating social welfare costs. The Schröder government did have options, however. It could have resorted to Keynesian demand-side policies by putting more people on the public payroll, or it could have invested in infrastructure as a way to increase employment, but these measures implied borrowing and deficit spending, and Germany was congenitally opposed to anything that might lead to inflation. Moreover, ignoring the convergence criteria set forth by Maastricht – capping the annual deficit at 3 percent, thereby prompting austerity and slow growth – was not considered a viable option in an age dominated by supply-side rhetoric: and in Germany such rhetoric was becoming ever more shrill, though Germany would not long stay in compliance with Maastricht because it still had to meet the requirements of social benefit, however diminished. Health policy under the Schröder government ultimately meant a heavier load for patients, though not at first. But the grand health reform act of 2000 turned out to be much less comprehensive than expected, while its stated objective to stabilize health insurance contributions was not achieved. When the Schröder government was re-elected in 2002, it decided to act, and it did so in the interests of business. It did not hesitate to cut benefits and to increase co-payments: cutting non-wage labor costs became the highest priority for government’s health-care reform.57 What were the results? From July 2005, costs for sick pay were covered by the insured alone, though this had little effect on employment considering that the burden stayed about the same. General patient co-payments were also introduced; patients themselves had to cover 10 percent of the cost of drugs, though expendi-

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tures were capped at 2 percent of gross earnings and 1 percent for the chronically ill. Patients, also, had to pay a fee of €10 per quarter if they visited a doctor, a charge which was designed to deter patients from excessive visits to doctors.58 The main aim of the new measures was to uncouple employer contributions from the costs of the health-care system. In fact, the burden on public health insurance funds in 2004 was about €10 billion, and at that time was projected to be about €14–15 billion by 2007. Clearly something had to be done to contain the costs of health-care finance. The Rurup Commission developed two alternative proposals: switch to per capita premiums, abolish parity completely, and charge every insured person the same flat-rate amount regardless of income; or adopt a citizens’ insurance model, extending the assessment base to cover all forms of income and encompassing all citizens. The second proposal was at once strongly supported by the Green Party and, at its November 2003 party convention, the SPD espoused the idea as well. But no further steps were taken prior to the Bundestag election in 2005, after which the SPD was no longer in power. The government’s main objective for the new reforms had been to restrain social security expenditures, thereby limiting welfare contributions and labor costs as well. In social policy, the pressure to compress the costs of social welfare made possible the overall reduction of business taxes, but this made it more difficult to balance budgets and to comply with the 3 percent cap on budget deficits imposed by the Maastricht Stability and Growth Pact. Nor did the tax cuts lead to more investments or even to a boost in private demand, which might have led to reduced unemployment: six years into the Schröder government, unemployment stubbornly persisted around 10 percent.59 The government did reduce business taxes – and non-wage labor costs such as pensions to so-called internationally competitive levels, but it failed to translate that into diminished unemployment: the target number of 3.5 million people unemployed was not reached. In health care, additional co-payments were introduced in order to reduce health-care premiums, but the higher than average costs of Germany’s health-care system endured. Even after re-election in 2002, the Schröder government shied away from real reform in health care, instead facilitating some privatization, but this impeded real cost-saving measures that would have affected doctors, pharmacists, and the pharmaceutical industry. Redistributive policies and demand management, which voters might have thought the SPD would have pursued, and for which it had been elected, were replaced with a supply-side agenda that had blindly obeyed neoliberal logic – and failed. The welfare state survived Schröder’s policies, Germans generally had much more social protection than many developed nations: Germans lived four years longer than their American counterparts, their healthcare system was ranked considerably higher by the WHO than that of the US, and Germans were much more equal than Americans, even though they became slightly less equal during the Schröder years.60 Overall, Schröder did not dismantle the German welfare state, but, like Tony Blair, he could have done so much more. Germans agreed: by 2005 Schröder was out of office.

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Social democracy: the Swedish way Following World War II, the SAP advocated progressive taxation, an active statepromoted labor policy that was aimed at full employment, full social (family) services – including day care – that would enable women to enter the labor force; and highly centralized wage bargaining between umbrella organizations representing capital and labor. Altogether, these pillars served the major objectives of social democracy in Sweden: social egalitarianism and full social protection for the entire population as a matter of universal entitlement. The results were good: income inequality was narrowed dramatically and poverty was all but eliminated, while full employment remained the top priority of social and economic policy. Sweden’s benefit programs became some of the most progressive in all of Europe as the Swedish social democratic state matured: benefits included generous pensions; support for the unemployed – including job training and retraining – and job creation; disability and sickness benefits; universal health care; parental leave, child allowances; financial assistance for families with disabled children; and decent – often subsidized – housing for all. Social provision included care for children, the elderly, the ill, and the disabled. The SAP promoted the entry of women into the workforce at a participation rate higher than in most OECD countries. Led by the SAP, Sweden averaged a low 2 percent unemployment rate into the 1990s, although continental unemployment rates were much higher.61 Admittedly, the growing number of public sector employees needed to maintain the social welfare state helped mitigate unemployment rates, but this was cheaper than the costs of high unemployment; it helped add to the growth of the economy by increasing consumer demand, and it abetted a sense of solidarity based on universal inclusion. Yet, with all these successes, the party that defined social democracy in Sweden was out of power by 1991, replaced by a center-right coalition. So what had gone wrong? American critics in particular and neo-liberal critics everywhere have alleged that the welfare state was unsustainable because of budget deficits draining the public treasury, uncompetitive wage levels, and welfare benefits that were a disincentive to work. Yet, shortly before the slump in the early 1990s, Sweden enjoyed full employment, a healthy welfare state, and a strong budget surplus. To be sure, wages had risen rapidly in the 1980s, but so had the profits of Swedish exporters, fueled by the devaluation of the krona shortly after the SAP came to power in 1982. It was not the welfare state, as such, that was a problem as much as the growing power of Swedish business and its increasing ability to shrink the welfare state – to its own advantage. Corporations were demanding lower taxes to compete in a global business environment, reductions in social benefits – which corporations helped finance through their taxes – and a more flexible labor market to help keep wages in check: and they began to get their way. From the mid-1980s, the SAP began phasing in financial deregulation, which eventually produced a real-estate boom and, after the bursting of the bubble, a near collapse of the banking system whose speculations had financed the boom. Because of the crisis in banking and real estate, the SAP was succeeded in 1991 by a center-right

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coalition government, which spent 65 billion kronor ($11.7 billion) to rescue the ailing banks, roughly 4 percent of Swedish GDP: this, along with a futile and costly defense of an overvalued krona, which was pegged to a basket of currencies, rocketed interest rates to an unmanageable 500 percent, helping to turn a recession into a depression.62 The unemployment rate, which was 3 percent in 1990, climbed to 12 percent three years later. Only when the krona was devalued in late 1992, which was to prove a boon to the export industry, did Sweden begin to recover. But it was too late to save the coalition government, which was held responsible for the bank failures and the catastrophic rise of unemployment.63 When the SAP returned to power in 1994, it inherited problems that seemed intractable under its predecessor. But it made these problems even worse by following a neo-liberal regimen: the SAP decided to meet the strict criteria for admission into the European Monetary Union, and that meant capping the deficit at 3 percent, precisely at a time when the economy needed a boost from government spending. Even worse, the SAP used a self-imposed 2 percent cap, adhering to this even when there were budget surpluses.64 The result was not surprising: unemployment hovered around 8 percent for five straight years, although this was lower than the inherited rate. Only when discontent in the unions and among the electorate became intense did the SAP finally pursue policies to directly combat unemployment, while raising benefit levels for those who remained unemployed. It also raised wage replacement for the unemployed from 75 to 80 percent – though initially the SAP had supported its predecessors in embracing the lower figure. The SAP also took steps to restore the administration of unemployment insurance back to the unions – after the previous administration had moved to privatize the system. The SAP added measures to supplement wages, hoping to reduce unemployment by partially subsidizing some workers.65 Only after a sustained increase of government spending on public welfare, relaxing fiscal restraints, and concentrating on employment, did the unemployment rate drop to 5.6 percent, though this was not reached until 2006.66 By then the economy was booming again, largely because of government policy reversals. The SAP had demonstrated that increased spending on social welfare in the latter part of the 1990s could help Sweden retain its role as the least unequal country among industrialized nations. But the SAP, under pressure from Big Business in the 1990s, introduced private retirement accounts to replace the flat-rate, guaranteed-income basic pension. This was ironic given that George Bush had tried to privatize the Social Security system in the US, and failed, while the SAP was supporting the privatization of Sweden’s former pension plan, agreeing with all four non-socialist Swedish parties that economic disaster loomed if the pension benefit plan was not completely restructured. This is a contentious issue still, yet some of Sweden’s leading actuaries, including the President of the Swedish Society of Actuaries, insisted that the old system was in fact solvent and likely to remain so.67 The SAP, however, remained committed to full employment – though it accepted 4 percent unemployment as a reasonable target instead of the traditional

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2 percent, the best way still to maintain income equality and to reduce poverty, to which it was also committed. Poverty peaked in 1996 at 11 percent according to the Swedish standard of measurement, which overstates poverty relative to the UN measure and to the understated US measure.68 But poverty rates then began to drop as the unemployment rate fell, a trend that continued. By the early twentyfirst century unemployment was being reined in, while poverty remained low by international standards because of the long-term commitments of all parties to the Swedish welfare state, however much they differed about the details. A UNICEF report in 2005 found that poverty among children had risen to 4.2 from 3 percent in the 1990s, seemingly bucking other trends. But that was still fourth lowest among 26 OECD nations and a fifth of the US rate of 21.9 percent.69 The SAP government admitted that it had not been able to protect social welfare as promised following its return to power in 1994, but the state of social services became the dominant item on its agenda in 1997. Its accomplishments were not insignificant. The government raised sick pay and parental leave payments to previous levels (80 percent), and resolved to cut employee contributions by 1 January 1998. It accepted the recent introduction of co-payments for health care, but such payments were limited to 900 kronor ($136) annually for visits to a medical practice, while costs for drugs in excess of 900 kronor were completely subsidized. Under the tutelage of the SAP, maintaining the Swedish universal health care system remained a priority, but during its early tenure in power it also concentrated on restraining costs, continuing policies put in place during the recession of the early 1990s. After the turn of the century, the SAP began allocating more resources to health care, and within a few years resources committed to health care surpassed 1993 levels. There were, however, concessions to the private healthcare market: although health care remained universal and publicly subsidized, a growing percentage of doctors entered private practice, though almost all of them were still paid with public funds. A number of cost-saving policies were put in place: hospital stays were shortened, the number of hospital beds was halved, and home care for the elderly expanded dramatically. The result was that there was greater demand for home elder care, which from the early 1990s had been put in the charge of municipalities. But, because of budgetary restraints, municipalities were only able to provide health care for the elderly who were very ill; as a result, housekeeping tasks were increasingly shunted off to families or privately hired help. This partial privatization of elder care had political implications for the SAP. After all, if the burden of care for the elderly were to be shifted to individual families, one might wonder what distinguished the SAP from other political parties when it came to elder care. The failure to solve this dilemma – complicated by an aging population – posed a problem for the SAP it was unable to solve: it lost the 2006 elections, even while it was promising more help and more funding for elder care. But by then it was too late, the SAP had failed to defend sufficiently the social democratic welfare state that was its primary legacy. Diminished or not, however, Swedish social democracy continued to support citizens at levels that remained

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among the most generous in the world. Sweden remained the most egalitarian country, its health-care system was still ranked well ahead of the US by WHO, and Swedes were living longer than their American counterparts by some three years.

The death of progressive liberalism and the welfare state in the US In America, many liberals in the Democratic Party, in the aftermath of 1989 and the collapse of the utopian idylls of the Left, moved sharply to the center, even as the center itself moved toward the right. One result was the increasing withdrawal of the active presence that government once had in regulating markets. The retreat of the Left – the Liberal Class – in the US has left a political vacuum in America for well over two decades. The result has been the absence of a political conscience on the Left, leaving the field to the Right, which expresses some of the same concerns about alienation, but mostly opposes the Left on everything it once held sacred, from the welfare state to civil rights, from health care to the environment. Without the active presence of liberals, there has there been little public protest when corporations dismantle much of what was once called the democratic state, or when they decimate the manufacturing sector, or loot the US Treasury, or wage endless imperial wars that are undeclared, unwinnable, and unaffordable. Americans might well wonder why corporations have been allowed to gut laws that protect the interests of ordinary citizens. They might also wonder why government reduces taxes on corporations, and then allows them to use their expanded profits to invest abroad, exporting jobs along with their investments.70 Or why government bails out banks and then allows the same banks to use their bailout funds to pay the bonuses of bankers who have just failed. Americans have witnessed also vast compromises by the media, which cater to corporate advertisers, while at the same time ignoring the vast swaths of the population living in hopelessness, whose grievances are largely ignored though they ought to be a principal focus of responsible journalism.71 Though large numbers of workers in the heartlands in the US suffer from unemployment – having seen their jobs exported abroad, or replaced by robots – media wring their hands and repeat the mantras of politicians, often cloaked in suitable moral pieties. Rarely, if ever, do media find the corporations that abandoned their communities culpable. It is the market after all – and globalization – over which we are said to have no control, and therefore there are no alternatives. Religious institutions fare little better, though in theory they should be concerned with social justice and morality. Instead they concern themselves too often with conspicuous acts of public charity. Seminarians and rabbinical students, despite years devoted to the study of ethics, justice, and morality, are too often oblivious when it comes to rejecting corporate malfeasance, which often is cloaked in the vernacular of religious and moral language to protect financial and political gain.72 Universities also perform a legitimizing function, gradually abdicating from their publicly stated purpose to educate students to think critically, to examine

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and critique political and cultural assumptions, and to evaluate what is meant by the common good. The notion of being critical of systems of power has long been replaced by insufferable academic language that is supposed to be politically neutral and value-free in pursuit of scientific truth. The worst offenders may be those who simultaneously preach the importance of values, especially values in the Judeo-Christian tradition, while shying away from serious examination of the political and cultural institutions that actually exist, and then retreating from the kinds of classical humanities texts that once were thought to be the basis of critical thinking. The result is that too many institutions of higher learning have transformed themselves into vocational schools, concentrating on training students for professions while still professing the virtues of general education, where critical thinking is theoretically supposed to be instilled.73 Institutions of higher learning, says Chris Hedges, have become breeding grounds for managers trained to serve the corporate state: In a Faustian bargain with corporate power, many of these universities have swelled their endowments and the budgets of many of their departments with billions in corporate and government dollars. College presidents, paid enormous salaries as if they were the heads of corporations, are judged almost solely on their ability to raise money. In return, these universities, like the media and religious institutions, not only remain silent about corporate power, but also condemn as “political” all within their walls who question corporate malfeasance and the excesses of unfettered capitalism.74

Higher education has been routinely transformed into yet another for-profit opportunity. It has become another arena for predation, most emphatically on the lower half of the population, which hears at length the importance of acquiring the knowledge and skills they are lacking if they want meaningful employment. As many of us already know, prospects for children of lower- and middle-class families to acquire a ‘higher’ education are becoming increasingly bleak when compared with the prospects of children of rich families. This is not accidental, or the result of oversight: it is an outcome of a deliberate policy that serves the interests of the affluent, who have figured out how to benefit from the government to essentially package a commodity known as college education. In recent years, as college tuition fees have escalated more rapidly than income, parental resources have become increasingly important. This is especially true of public universities, which educate 70 percent of Americans. Many Americans think that the expansion of student loan programs makes up for the increasing gaps between family income and tuition fees, but this is false. Here, again, the market has become perverse. Given the absence of regulations that prevent abuse, student loans have led to the further impoverishment of the poor and the middling classes, rather than helping to uplift them. As Joseph Stiglitz has expressed it, The financial sector succeeded in making loans non-dischargeable in bankruptcy, which meant that the lenders had little incentive to see to it that the schools for which the students were borrowing money were actually providing them with an education that would enhance their income. Meanwhile, private for-profit

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schools with richly compensated executives have defeated attempts to impose high standards which would make schools that exploit the poor … ineligible for loans.75

Higher education, rather than being an opportunity for the middle and poorer classes to acquire the knowledge and skills they are told they need to fit the emerging job market, has instead too often become an opportunity for predation by financial institutions to finance students attending for-profit colleges which are themselves predatory. But the greatest cost is to the taxpayers who, presumably, are to be the beneficiaries of the tax monies that are supporting the for-profit colleges and the students who attend them. Studies by the Health, Education, Labor and Pensions (HELP) Committee of the US Senate, and its report, For-Profit Education: The Failure to Safeguard the Federal Investment and Ensure Student Success, published in July 2012, revealed how and why private equity firms turned higher education into a profit machine, with little or no concern for the students who attend their colleges or their educational attainments or the lack of jobs for which they are supposed to be educated. As HELP indicated, for-profit colleges, which have mushroomed since 1998, more than tripling the number of students attending them, are much more expensive than non-profits and public institutions, spend less per student, lead the nation in withdrawal rates – as much as 84 percent in some associate degree programs – and account for half of all student defaults, though the for-profits only have 13 percent of American higher education students. What is perhaps most cynical about these colleges is that of the thirty for-profits studied by HELP, 22.4 percent of their revenue went to marketing, 19.4 percent to profits, and 17.7 percent for instruction.76 If students were funded privately by the same investors who put their capital into the equity firms establishing the for-profits, that might be more acceptable. Or if students were enjoying success because for-profit colleges were giving them what they needed, then that might be a suitable alternative. But more than 80 percent of the revenues of for-profit colleges come from taxpayers. And many of the revenues received by the for-profits are spent lobbying the federal government, specifically the Department of Education, to preclude any new regulations that might limit student aid to for-profit institutions.77 For-profit colleges, rather than redistributing wealth downwards away from the super-rich, actually provide another way for the wealthy to enrich themselves, enabling them to concentrate wealth at the top while draining it away from those who need it the most, the student recipients of government largesse who are more likely to earn debt than a job. Without stringent government oversight, which is bought off by teams of lobbyists, the only thing that for-profit colleges are likely to produce is growing inequality. In truth, the Democratic Party in the US has largely abandoned the progressive liberal agenda of only several decades ago: non-profit, universal access to health care – with matching cost controls; an end to the permanent war economy; a more equitable progressive tax structure; high-quality, affordable, public education; full civil liberties, including the universal right to vote; jobs programs and

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social benefit for the working classes; and much tighter regulation of the financial industry, which was granted almost free license in 1999 when the repeal of Glass– Steagall was signed by Bill Clinton and passed into law, allowing commercial and investment banks to merge and do the same kinds of things they did in the 1920s.78 This act was credited by many economists, and not a few politicians, as the real cause of the Great Recession of 2008, largely because banks could now issue securities, including derivatives, which were largely speculative bets and virtually unregulated. In the absence of a healthy and meaningful Left, it is no surprise that the Democratic Party in the US, New Labour in the UK, and the Social Democrats in Germany, have moved to the center of the political spectrum. Moreover, as political parties have become more dependent on the corporate culture to fund themselves – excessively so in the US – it is hardly shocking that the corporate milieu has set much of the agenda for political campaigns and policies. The result is corporate license to act without serious challenge from the parties they are funding. And, as corporations globalize themselves, they are subject to fewer restraints. Legislation that might seek to regulate corporate practices can easily be averted by shifting everything from profits to production abroad, beyond domestic taxing authority, and beyond the ability of a government to protect the rights and jobs of workers, or to protect the environment. Without the serious regulations that used to be part of the progressive Left agenda, corporations are free to exploit, pollute, impoverish, repress, kill, and make low-taxed profits. With little or no conscience – especially in the US and increasingly in the UK – and with minimal government intervention, corporations have evicted people from their homes, abandoned the uninsured to die, helped wage useless wars for profit (with their spokesmen often promoting these same wars), polluted the ecosystem, gutted public education and social assistance programs, plundered the US Treasury and the British Exchequer for bailouts when they got in financial trouble, and crushed popular movements that have sought redress for working men and women.79

The great forgetting: family values and the welfare state Preservation of the family and family values was once enshrined as the pinnacle of liberal democratic society, touted by conservatives everywhere as the foundation of civilization, and heralded even in neo-liberal ideology as the bedrock of the free market (the freedom of choice of the consumer). Historically, the purpose of welfare – and the welfare state – was to protect the family in case of the illness, disability, unemployment, or old age of the male breadwinner. A second level of welfare provision provided direct support for full-time female mothering or homemaking, and yet a third level, as Nancy Fraser reminds us, offered poor relief for the needy – though not necessarily deserving poor – which was generally means tested and paltry.80 Scandinavian democracies generally improved on this model, promoting gender equality and emancipating women from domestic labor much more than, for example, Germany, which clung to the male-breadwinner, single-earner model.

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More traditional welfare states like the US and the UK, like their counterparts in Scandinavia and Germany, did have in common the desire “to use politics to tame markets.” But we have seen that in the last three decades a revolution has occurred in which “markets have been used to tame politics.” This neo-liberal revolution, first heralded in Anglo-America, has come to continental Europe in ways once thought impossible, even affecting – though less so – Scandinavian social democracy. By dismantling the Bretton Woods framework, advocates of neo-liberalism eliminated capital controls that had formerly enabled Keynesian steering mechanisms to guide national economies. In place of a state-directed economy, neoliberals promoted deregulation and privatization. In place of “public provision and social citizenship, ‘trickle-down’ and ‘personal responsibility’; in place of the welfare and developmental states, the lean, mean ‘competition state’.”81 The result of the “competition state” has meant abandoning the family to its own devices, especially in Anglo-America, where there are more and more “undeserving poor” according to neo-liberal logic, allowing for the rapid evisceration of the conventional family as it has become exposed to the failure of the so-called efficient market (the loss of housing, cost of elder care, lack of day-care). The malecentered nuclear family, once almost universal, has become far less commonplace in the last three decades, and with little wonder. In the postindustrial era in which we live, fewer jobs pay wages sufficient to support a single-earner family, while many are temporary, part-time, and do not offer sufficient benefits. Moreover, just when the state is needed more than ever, it has abandoned families to a labor market that is increasingly ‘flexible’, that is more competitive because of the influx of immigrants, and less rewarding than promised for those who have acquired the skills they are supposed to need in the modern labor market. More women are employed today, but even so they are paid less then men for the same work and are more likely to end up in low-paid service jobs. Most of the indispensable workers in the service sector, from Walmart to McDonald’s, are young single women, as well as married women, women with children, and women of all nationalities and ethnicities. The result is that the ‘ideal’ of the family wage of state-organized capitalism has been displaced by the two-earner family as the cost of embracing the ‘free market’. It should not surprise us that the feminization of the workplace and the workforce has coincided with “depressed wage levels, decreased job security, declining living standards, a steep rise in the number of hours worked for wages per household, exacerbation of the double shift – now often a triple or quadruple shift – and a rise in female-headed households.”82 It is worth repeating that the new social insecurity is not the legacy of globalization, but rather of the policies of governments stretching back to the era of Reagan in America and Thatcher in the UK. The withdrawal of social supports in Anglo-America, the weakening of social democracy in Sweden, the reduction of the welfare state in Germany, and their accompanying effects, have done much to stigmatize the poor, withdrawing many of the social supports once considered indispensable.

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What’s left of liberal democracy? In the early 1990s, Francis Fukuyama pushed liberal democracy forward as the only creed left standing. This was hardly convincing to Europeans: many had wanted much more than an understudy, especially one that had not been convincing for fifty years or more, and which had failed to be embraced by most of the world, even after 1989. On the contrary, liberal democracy American style was seen mostly as a veneer for American neo-imperial ambitions which today lay in tatters, challenged by China and other parts of the globe that have combined market economics with authoritarian politics. Ironically, liberalism has failed because it lacks passion for human justice and because it offers no vision of a better future, while at the same time compromising with a vastly imperfect present to which it has been accomplice. Liberalism has failed because it offers no alternative, only a slight tinkering, and because it continues as always to espouse optimism about human nature long after it is warranted. Liberalism has lost vitality because it regards any planning as an intrusion on human liberties. What is not warranted, however, is the decline in social democracy – and the welfare state generally – as an idea, and as an historical model. Social democracy has not preached a grand narrative, or universal human redemption as a likely outcome, it has not authorized suffering in the name of some remote and unattainable goal, and it has not legitimized a painful present in the name of a distant utopian idyll. Yet it has slid from the public consciousness, at least in much of the Anglo-American cosmos, as though it shared the one-dimensional view with communism in a mathematically pure future. Today, many have abandoned the Left without subjecting the consequences to any serious scrutiny. Only in the wake of the financial collapse of so many Western financial institutions in 2008, following decades of market deregulation and privatization, the lowering of taxes on the rich, and the shrinking of the welfare state, have we come to see that we must seek a new beginning. We must discard the easy assumptions that we are at the end of history, that we have crafted a political and social utopia, that we have expanded our liberties by reducing state regulation of the economy, and that the expression of individual liberty is the opposite of the public good. When we acknowledge this, then we are ready to begin the kind of public dialog that should have occurred more than two decades ago. We are ready to challenge our easy assumptions; and we are ready to save what is worth saving of the ideas of the now splintered Left.

Notes   1 Francis Fukuyama, The End of History and the Last Man (New York: The Free Press,

1992), xi; and Francis Fukuyama, “The End of History?” The National Interest 16 (Summer 1989): 3.   2 Ibid., 46. Italics are Fukuyama’s.   3 Francis Fukuyama, Have We Reached the End of History? (Santa Monica, CA: Rand

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Corporation, 1989), 2. Italics are Fukuyama’s.

  4 John Gray, False Dawn: The Delusions of Global Capitalism (New York: The New Press,

1998), 119.

  5 Ernst Bloch, The Principle of Hope, 3 vols, trans. Neville Plaice, Stephen Plaice, and

Paul Knight (Cambridge, MA: The MIT Press, 1986). Bloch was an unusual Marxist: he embraced Marxism but refused to abandon the bedrock principles of liberalism. Bloch believed that liberty and equality had to be combined for a society to be generally emancipated, democratic, and human.   6 Tony Judt and Tim Snyder, Thinking the Twentieth Century (New York: The Penguin Press, 2012), 82.   7 Ibid., 91.   8 Ibid., 92. See also Alexander Solzhenitsyn, The Gulag Archipelago, trans. Thomas P. Whitney (New York: Harper & Row, Publishers, 1974); and David Caute, The Fellow Travelers: A Postscript to the Enlightenment (New York: Macmillan,1973), 36.   9 Bernard Crick, George Orwell: A Life (Boston, MA: Little, Brown and Co., 1980), 507. 10 Bernard Williams, Philosophy as Humanistic Discipline (Princeton, NJ: Princeton University Press, 2006), 144; and Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 139–40. 11 Jacques Attali, Karl Marx ou l’esprit du monde (Paris: Fayard, 2005). Attali is well known as a former advisor to President François Mitterand and the first president of the European Bank for Reconstruction and Development. He was one of the first to resurrect Marx after the demise of Soviet and Eastern European communism. 12 Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 142–3. 13 Tony Blair and Gerhard Schröder, Europe: The Third Way/Die Neue Mitte (Johannesburg: Friedrich Ebert Stiftung, 1998), 2, accessed 20 December 2013, http://library.fes. de/pdf-files/bueros/suedafrika/02828.pdf. 14 Ibid. 15 Ibid., 3. 16 Ibid., 3–5. See also Tony Blair, New Britain, My Vision of a Young Country (London: Fourth Estate, 1996), 118–23; Anthony Giddens, The Third Way: The Renewal of Democracy (Cambridge: Polity Press, 1998), especially 148–9, where Giddens makes the case for the Third Way; and Anthony Giddens, The Third Way and Its Critics (Cambridge: Polity Press, 2000), for the reception of the Third Way on the Left. 17 Eric Shaw, Losing Labour’s Soul: New Labour and the Blair Government, 1997–2007 (London: Routledge, 2007), 30–1. 18 John Callaghan, The Retreat of Social Democracy (Manchester: Manchester University Press, 2000), 141. 19 Robert Reich, The Work of Nations (New York: Vintage, 1992), 3. 20 Labour Party, Rebuilding the Economy (London: Labour Party, 1994), 2–4; and Callaghan, Social Democracy, 158. 21 Callaghan, Social Democracy, 159. 22 Labour Party, Vision for Growth (London: Labour Party, 1996), especially 47–59; and Callaghan, Social Democracy, 160. 23 Labour Party, New Labour: New Life for Britain (London: Labour Party, 1996), 5. 24 Callaghan, Social Democracy, 161. 25 Blair, New Britain, 118–23. 26 Callaghan, Social Democracy, 163–4. 27 Oskar Lafontaine, “The Future of German Social Democracy,” New Left Review 227 (January–February 1998) 72–87.

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28 Guardian, 29 October 2004. 29 Ibid., 25 May 2007. 30 Shaw, Labour’s Soul, 126. 31 Guardian, 22 August 1999. 32 Shaw, Labour’s Soul, 128. 33 Ibid., 124–5. 34 Joseph Rowntree Foundation, as quoted in Shaw, Labour’s Soul, 48. 35 Observer, 12 December 1999. 36 Shaw, Labour’s Soul, 55. 37 Stewart Lansley, Rich Britain: The Rise and Rise of the New Super-Wealthy (London: Politico’s, 2006), 187. 38 Shaw, Labour’s Soul, 56. 39 Ibid; see Guardian, 28 September 2004 and 17 November 2006. 40 Shaw, Labour’s Soul, 57. 41 Central Intelligence Agency, “Distribution of Family Income – GINI index,” World Factbook, accessed 26 December, 2013, https://www.cia.gov/library/publications/ the-world-factbook/fields/print_2172.html. 42 Shaw, Labour’s Soul, 58. 43 Lansley, Rich Britain, 25. See also Stewart Lansley, The Cost of Inequality: Why Economic Equality is Essential for Recovery (London: Gibson Square, 2012), 80. 44 George Irvin, Super Rich: The Rise of Inequality in Britain and the United States (Cambridge: Polity Press, 2008), 79–80. 45 Lansley, The Cost of Inequality, 124–5. 46 John Gillingham, European Integration, 1950–2003: Superstate or New Market Economy? (Cambridge: Cambridge University Press, 2003), 91. 47 Blair and Schröder, Third Way, 2–3 48 Ibid. 49 Wolfgang Merkel et al., Social Democracy in Power: The Capacity to Reform (London: Routledge, 2008), 78. 50 Ibid., 79–80. See Fritz W. Scharpf and Vivien Schmidt (eds), Welfare and Work in the Open Economy, vol. 1, From Vulnerabilty to Competitveness (Oxford: Oxford University Press, 2000), 310–36. 51 Merkel et al, Social Democracy, 82–3. See also Philip Manow and Eric Seils, “Adjusting Badly: The German Welfare State, Structural Change, and the Open Economy,” in Fritz W. Scharpf and Vivien Schmidt (eds), Welfare and Work in the Open Economy, vol. 2, Diverse Responses to Common Challenges, 264–301. The authors argue that Germany’s unemployment problems were structural because the labor market lacked sufficient flexibility, making it difficult to respond to pressures from globalization. German wages, however, were set low enough – made possible because of social welfare benefits – through collective bargaining, helping to maintain German competitiveness. 52 Scharpf and Schmidt, Welfare and Work in the Open Economy, vol. 2, 264–301; Merkel, Social Democracy, 84–6. 53 Ibid. 54 Merkel, Social Democracy, 85–7. 55 Guardian, 1 January 2013. 56 Ibid. 57 Merkel, Social Democracy, 91–2. 58 Ibid. 59 George Irvin, Regaining Europe: An Economic Agenda for the 21st Century (London:

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Federal Trust, 2006), 38. 60 World Bank, “GINI Index,” accessed 27 December 2013, data.worldbank.org/indicator/ SI.POV.GINI?page=2 61 Merkel, Social Democracy, 264–5. See table A2, Employment indicators. Helen Lachs Ginsburg and Marguerite G. Rosenthal, “The Ups and Downs of the Swedish Welfare State: General Trends, Benefits and Caregiving,” New Politics 11, no. 1 (summer 2006), accessed 4 September 2014, newpol.org/content/new-politics-vol-xi-no-1-whole-number-41. 62 Helen Lachs Ginsburg and Marguerite. G. Rosenthal, “Sweden: Temporary Detour or New Direction?” chapter 4, in Gertrude Schaffner Goldberg and Marguerite G. Rosenthal (eds), Diminishing Welfare: A Cross-National Study of Social Provision (Westport, CT: Praeger, 2002). 63 Carter Dougherty, “Stopping a Financial Crisis the Swedish Way,” New York Times, 22 September 2008. 64 Ginsburg and Rosenthal, “Ups and Downs of the Swedish Welfare State.” 65 Merkel, Social Democracy, 166–7. 66 Ibid., 167–70. 67 Ginsburg and Rosenthal, “Sweden”. 68 Merkel, Social Democracy, 173–8; and Ginsburg, “Ups and Downs of the Swedish Welfare State.” 69 UNICEF, Child Poverty in Rich Countries, 2005 (Florence, Italy: UNICEF, 2005), 4, accessed 27 December 2013, www.unicef.org/pdfs/repcard6e.pdf. 70 Chris Hedges, Death of the Liberal Class (New York: Nation Books, 2010), 6. 71 Ibid., 10. 72 Ibid. 73 Ibid. See also Benjamin Ginsberg, The Fall of the Faculty: the Rise of the All-Administrative University and Why it Matters (New York: Oxford University Press, 2011), especially chapter 1, “The Growth of Administration.” 74 Hedges, Liberal Class, 11. 75 Joseph E. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future (New York: W. W. Norton & Company, 2012), 94. 76 Tamar Lewin, “Senate Committee Report on For-Profit Colleges Condemns Costs and Practices,” New York Times, 29 July 2012. 77 Ibid. 78 Hedges, Liberal Class, 12–14. 79 Ibid., 17. 80 Nancy Fraser, Fortunes of Feminism: From State-Managed Capitalism to Neoliberal Crisis (London: Verso, 2013), 111–12. 81 Ibid., 218. 82 Ibid., 220.

6

Rethinking the state Political language is designed to make lies sound truthful and murder respectful, and to give an appearance of solidity to pure wind. — George Orwell The United States spent more on its big bank bailout, which helped the banks to maintain their generous bonuses, than it spent to help those who were unemployed as a result of the recession that the big banks brought about. — Joseph Stiglitz1

The Great Recession of 2008 and its aftermath alerted us once again to the dangers of an unfettered and unregulated market. The US, followed by the UK, had to intervene to avoid not only a banking and credit collapse but also the possibility of a full-scale economic depression. After denying Keynesian economic policies for decades – the notion that the state must regulate the market and massively intervene to maintain employment and social investment – public monies in the trillions have been committed in stunning policy reversals, taking failed companies under the public wing. But nobody is rethinking the state, and policy reversals have been temporary at best. There is no long-term intention in the US or in Britain to regulate markets or to rein in the circuits of capital. The result is that one more lesson of history has been forgotten: namely, why so many states in the interwar period, and especially after World War II, resorted to Keynesianism and the use of government spending to benefit public patrimony, and why they were largely successful in growing public affluence. The loss of our historical memory, and the absence – or forgetfulness – of the past in our public discourse, willful or not, has led to our personal and political fragmentation. Until the Great Recession, and yet still more than a half decade later, the prosperity and security once afforded by welfare states in the UK and the US have been taken for granted by the younger generations. Largely lacking the knowledge which brought those welfare states about, and which made their own social security possible, they have become increasingly resentful of a taxing and regulating state imposing itself on them. This is especially true when it appears the state is reducing their own standard of living by imposing taxes which seem to benefit others more than themselves, especially when the opportunities once opened up by public provision are increasingly closed off by a shrinking state and a shrinking public sector that can no longer provide benefits once available in the past. 142

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We did not always live this way, nor can we afford to any longer. For the better part of a century, from the last decades of the nineteenth century until the 1970s, the inequalities that have formed since the 1970s – which to younger generations appears to be part of the natural order of things – were constantly being flattened out by progressive taxation, government subsidies to the poor (and middle classes) through welfare programs, and social services that were available as prophylactic against personal misfortunes. And what was true of the US with its regulated capitalism and the New Deal of Franklin Roosevelt, with its numerous public works programs and government subsidies, was even truer of many nations in Europe. The welfare state of the UK offered socialized medicine, state-subsidized pensions, and the nationalization and subsidization of key enterprises such as the national railways. The egalitarian social democracies of Scandinavia provided social g­ uarantees for every member of the population from the cradle to the grave, and subsidized medical systems, public transportation, and housing. And, finally, Germany, which has had a managed capitalist society combined with a welfare state since the era of Bismarck in the nineteenth century, and today operates much like the welfare states of the past, even if somewhat diminished. Today, even in crisis, many European nations remain among the most egalitarian countries in the world: they may require deep taxation, but they make an equivalent of public provision, in effect prepaying for the health and social security of their citizens.

Liberty, equality, fraternity in the age of forgetting Deregulating and liberating the market from a regulating state has proven to be debilitating, reminding us that a state that regulates too little can be as dangerous as a state which regulates too much. Again, history provides a lesson: the decade of the 1920s, years in which the concentration of wealth in the hands of few achieved excessive levels, producing almost unprecedented social inequality, was followed by depression in the US, which subsequently spread to a near global depression. Likewise, the Great Recession of 2008; by that year, as we have seen, social inequality and the concentration of wealth reached heights not seen since the 1920s, and they have been followed by sustained recession. Repeating the lesson of the 1920s, the neo-liberal philosophy of restraining the government, but not the market, has proven catastrophic, entailing massive state intervention to avoid a meltdown of global proportions. Once, again, Keynesianism has had to be retrieved to save the market. The lesson could not be clearer: the state does many things rather well, as Europeans have learned. That is why they are so reluctant to abandon social democracy; and that is why even those who are not social democrats are loath to give up the principles of social democracy and (at least) a minimalist welfare state. The British accepted the privatization of many industries, but they were not prepared to scuttle the National Health Service. And in the US, the older generations have refused to abandon Social Security and replace it with private investment accounts. Had Americans swallowed the idea of private retirement investment accounts, they

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would be retiring at an even slower pace than they are now: and with far fewer means to support themselves. Despite all the rhetoric of neo-liberalism, and the cant of political conservatives, the year 2008 provided a reminder that there are many things the market cannot do: it cannot provide social security, it cannot provide better health, it cannot take care of our retirement, and it cannot protect us from environmental hazard, or moral hazard. It cannot provide protection for the food chain, or protect us against predatory lending, or predation in general. It cannot provide us with decent, affordable, universal education. It will almost certainly expand social inequality, creating conditions for yet another recession, or worse. And it will not protect the environment. The year 2008 provided us with a valuable lesson: it was a reminder of what happens when we return to deregulation, when Wall Street and the City are allowed to determine their own rules, or to function in an environment of diminished restraint. Once again we are reminded of why there is social democracy – and the welfare state – in the first place, and why the generations old enough to remember World War II prefer a social security state to the chaos of a free market that privileges mostly the affluent and the very rich. We have learned also – or should have learned – that much of the language and many of the concepts we have gotten used to, were in fact products of the Age of Ideology. Accordingly, we must learn to recast our ideas and hopes for the future in language more appropriate for the twenty-first century. As we now see in retrospect, there was never a question of ‘capitalism versus communism’. Capitalism is not a political system, it is a way of doing business, a form of economic life which is compatible with right-wing dictatorships such as Pinochet in Chile, left-wing dictatorships such as contemporary China, or even social democratic monarchies as in modern Scandinavia, or plutocratic republics such as the US.2 Capitalist economies can thrive in a variety of settings; they do not necessarily do best in countries that embrace political democracy and a free market, despite the official rhetoric of politicians, or the theoretical advocacy of neo-liberals. Political freedom has little to do with withdrawing restraints on entrepreneurs. There are no guarantees – quite the contrary – that the economic health of a nation will benefit from an unconstrained market and a deregulated economy. Conversely, we have also learned – or admitted – that we cannot confidently rely on central planning and control. We know that the government cannot do all things well; and we have learned the dangers of presuming that government elites and planners know best what is good for the rest of us. The fall of communism helped put an end to such claims and their exaggerations. Central planning, as the communist states understood it, fared little better than total reliance on the market. But we cannot draw the conclusion from this that the failure of communism in Eastern Europe and Soviet Russia discredits all state planning and public provision. This assumption, unfortunately, was drawn in the age of ideology; it was the official reaction in much of the Anglo-American world. But we now understand that this was an over-reaction. Such ideas and the language in which they are expressed must be consigned to the age of ideology. Francis Fukuyama’s confident

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proclamation that the death of communism meant the end of history, and the beginning of universal history – liberal democracy and free market capitalism – overconfidently shot the mark: such statements were themselves ideological. Once again, capitalism was a way of doing business and a form of economic life, but, as we have just seen, it was compatible with many political systems. The unrestrained, deregulated market did not entail liberty; nor did it signify that citizens who lived in social democracies – where there has remained significant planning – were somehow less free than their counterparts in the Anglo-American world. We can no longer afford to think in terms that posit political freedom and economic planning as opposites. And yet, that is what has been made possible by the virtual absence and discrediting of the Left, the result of guilt by association, the habit – cultivated by the political Right – of conflating all stripes of the Left into one continuum: absent communism, and social democracy, all the way to welfare liberalism, is made guilty by association. The conclusion seems all too clear to the opponents of the Left: planning did not work in authoritarian states, and therefore planning is both useless from the economic point of view and dangerous from the political point of view. Planning means central control, and central control means the authoritarian state. Planning by definition means the loss of freedom. Of course, central economic planning is no longer feasible; nobody wishes to return to this particular kind of utopian vision. But a larger question looms on the horizon for all of us, and this, too, is what once was on the agenda of all idealists: namely, how are we to restore to society a quest for the common good? How are we to organize our societies so that we put the good of the whole of society ahead of the unrestricted greed of the few? As has become clear, there should be more to our social lives and to civil society than the unmitigated freedom to secure private advantage. If intrusive, comprehensive planning compromised human liberty, as it did, it is now obvious that unrestrained greed is not a basis for building a better future for most of us. Our common future should be about something more than commerce. If freedom is equated with minimal restraints in the marketplace and it leads to unprecedented social inequality, poverty, unhappiness, and cynicism, then we should confront this new reality: we can no longer pretend that the kind of liberty we have produced has anything to do with the freedom that we know we want. We have valued liberty over repression, but it has come at a high price: in doing so we have abandoned the common good, even while we continue to pretend that it is being served by unfettered greed posing as liberty. If we want genuine liberty, then we must recover the vision of social democracy, which today lies severely compromised in Anglo-America (especially), partially because Third Way social democrats – Tony Blair in the UK and Bill Clinton are two illustrations – have chosen pragmatic paths to power over the historic principles of social democracy and the welfare state. To be sure, the middle classes have sometimes bridled against the tax burdens of the social democratic state, but in most of continental Europe they have been, historically, its greatest beneficiaries: it is not so much social democracy they are willing to abandon, but politicians who have

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valued winning elections above the social security and well-being of citizens. It is true that the middle classes from compromised or eviscerated welfare states like the US and the UK were no longer willing (or able) to foot the bills to pay for blue-collar workers suffering from deindustrialization, the victims too often of a globalization which exposed them to the direct competition of Chinese (and other) workers able and willing to work for far less. But the middle classes are coming to know that it is not globalization as such, but the rules of globalization, compounded by the policies of their governments, including notionally social democratic governments that have exposed them to social and economic risks at levels not seen since the Depression. The liberty to compete not only on the national market but also in the global market, with fewer and fewer restraints, the deregulation of capital markets, and the increasing flexibility of the labor market – and evisceration of unions – to the distinct disadvantage of workers have meant liberty for the few, and penury for too many. The freedom to avoid labor laws and unions, the freedom to ignore environmental protection, the ease of tax avoidance, and the ability to avoid social obligation have come at the expense of the jobs of the many, including the middle classes, and precisely at a time when the social benefits they once enjoyed have been reduced or compromised in the name of the freedom of the market.

The need for a new political narrative When I was an undergraduate in the 1960s, many students engaged in passionate debates about what we thought the public good meant. There was rarely agreement, but the point was that students were studying political philosophy and wanted desperately to understand what was best for all of us, and then to become engaged in achieving it. For many of us, political and moral philosophy – what was just, what was fair – engaged most of our waking thoughts. Few if any – in some student circles – would have been willing to agree that the public good should be second to achieving a more economically efficient market – or would have believed that the latter was necessarily more efficient – as the Great Recession has demonstrated. But most of us believed that economic recessions and depressions are not the result of inevitable business cycles. They are the result of political decision-making, the consequence of public policies put into place by governments. Having power matters: governments have the power to shift massive sums of money and wealth by how they tax, whom they bail out, and whom they grant contracts to. Governments can shelter some, or burden others, as they please. They can favor Wall Street and the City, or they can rescue Main Street. They can save financial institutions too big to fail, or they can keep people in their homes. They can privilege capital gains taxes, or tax them much more progressively. They can allow banks to speculate with other people’s money, or they can regulate or even eliminate this kind of speculation. They can regulate hedge funds, or allow them to operate with impunity. They can allow investment banks to merge with commercial banks, or erect a firewall between them. They can regulate derivatives, ban them altogether, or detach this kind of casino betting from the real economy.

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Derivatives are not investments; they are detached from the real economy in which most of us live. Derivatives are extractive: they do not create value but transfer it from the real economy to the money economy. Without a Left to keep governments honest, in the absence of a credible alternative narrative and a language to express it, it is possible for the Right, or for those in power, to convince the public that there are no viable alternatives to the view that the best way to solve social problems is to promote economic growth. And the best way to do this is to unleash the corporate culture whose interest is held to be synonymous with that of the public. When there is anything like dissent it is disqualified at once as misguided and leading citizens toward class warfare. Dissent has become suspect; to be critical of those holding power is classified as disrespectful, unpatriotic, and wrong-headed. We know that this is merely rhetoric. One way to maintain power is by pretending that we all share the same interests and the same opportunities, which we have only to use to individual advantage. If we do not do so, it is argued, it is because of our personal defects, not because the privileges of the few come at our expense. But this is false, and to think otherwise is to ignore the lessons of politics for at least the last several centuries. For if Marxism is today scorned, and communism is a part of the failed past, that hardly means that we all are equals in democratic societies. On the contrary, as we have seen, today we are far more unequal than we have been for eight or nine decades, and inequality is hurting us more than we care to admit. The fact that protest has been relatively absent does not make this less true. For it is clear that the very rich who live off their investments do not share anything in common with those who must work for a living. Nor do those who do not need public patrimony share anything with those who are dependent on it for their survival. Today, when we are repeatedly subjected to rhetoric that proclaims our shared opportunities – in training, education, and life’s chances – we are more divided into social classes than since the 1930s. And yet we are still counseled to pursue our own self-interest, as if we should give no thought to the well-being of our neighbors. Nor should they be much concerned with us. We have forgotten how we got here, or that the kinds of questions we used to ask – what is fair or just, or how can we develop common interests that will benefit all of us – have been replaced with the endless rhetoric of economic growth which we are told will ultimately benefit most of us. We no longer remember, as John Stuart Mill once counseled us, that a society held together only by pecuniary interest will not long endure. Yet we do not realize that this is where we have arrived. As in so many areas of modern life, we have concluded, or been convinced, that if we cannot quantify something, if it is not measurable, then it either has no value or is impervious to serious analysis; or it is something whose value is negligible. Happiness, or well-being, or social justice, becomes just so many platitudes: we are asked to believe that we must value profit and growth as the surest means to achieve all of these. If we suffer from personal anxiety, or obesity, or have any of dozens of syndromes such as attention deficit disorder, we are asked to conclude that these are all psychological dilemmas which can only have indi-

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vidual solutions, and that we must learn to adjust psychologically to psychological problems. The psychiatrist, we are led to believe, not the state, is where we will find the answers to problems whose foci are in our heads, not in our social and economic institutions. Indeed, there are no social maladies, as Margaret Thatcher told us, for there are no societies, just individuals who are competing against each other. In such a Darwinian struggle, we have to accept that many of us must fail since not all can compete and win. We have gotten to the point where humiliation must be accepted as part of the natural order, and where blind competition must select winners and losers. Yet, we are told by our politicians that our fate is in our own hands. Because of our obsession with the market, we know the price of everything; but because we are deluged with rhetoric, and blinded by assertions which themselves cannot be quantified – that the market will solve all our social problems and grievances – we no longer know the value of anything. Or we simply do not remember what we used to value most – our collective well-being. The failure of remembrance, and the forgetting of even the recent past, has added an immense social cost because we do not insist on retaining benefits that once made the quality of our lives much better, and made us much happier because we felt entitled to them as much as to our civil rights. We know that most people value well-being, fairness, and social equity, more than considerations of the rate of economic profit or growth. Corporations, on the other hand, value the balance sheet, the rate of profit, and economic growth; they are least concerned with the public good, which to them is either an abstraction that cannot be measured or something they will have to pay taxes to attain. Corporations, above all, are obligated to serve the interests of their managers and shareholders, not the interests of the public or significant stakeholders (their workers), toward whom they are largely indifferent. The corporate argument is that competition makes us more efficient, reduces costs, and elevates our standards of living accordingly, minimizing the resort to costly social welfare programs that waste our money and make us less efficient. What is absent in this calculation is a better way of understanding ‘value’, what is meaningful to all of us, what it is we really want for our collective futures, and how to understand what we mean by ‘wealth’. Which means that we must once again raise questions that are absent from public discourse, and from endless media dialogs obsessed with equations of economic models of growth and profitability; we must avoid fatuous political rhetoric counseling us to shop more and imploring us to acquire skills that would qualify us for jobs which often have been exported abroad, or displaced by robots at home. Above all, we must learn to remind ourselves that there are immense social costs when corporations abandon communities that have grown largely around these same corporations; we must insist that the antidote for too much planning is not the absence of planning altogether. If we factor in the costs of diminished equity and fairness, of social inequality and exclusion, of humiliation and impoverishment, of marginalization and repression, if we could measure the difference between a degrading handout from charity

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and a benefit to which we feel entitled, then we might come to a quite different calculus. If we are entitled to decent health care and universal social services – to retirement pensions or social security, to accessible public transportation and decent housing, to quality and affordable education – if we do not suffer from the humiliation of vast and growing social inequality, if ‘wealth’ does not accrue to ever fewer of us, if we are more socially secure, and if we are not made to suffer because we cannot afford what we think should be a social right of ours, then we shall have a very different cost-accounting. If we do not have to worry that our jobs could be exported at any moment, that our health may be compromised because health care can be – or is – unaffordable, that we may lose our homes because of a catastrophic disease, then we are likely to conclude that providing benefits as entitlement, and providing universal social security, will make us collectively much happier and more secure, and probably at no more cost than if we did not attend to our common good. Everything depends on what we value as a society, on what it is we collectively want, on whether we think it more important to coddle the corporate milieu and its executives, on whether we think corporate profitability somehow equates with the public good, or whether we want an economy geared to serve the public good. Again, we must ask why such questions are not on the public agenda, and why they are not part of political discourse. We must ask why we endure endless stories in the media about celebrities, while what matters most to all of us is hardly mentioned at all: namely, what is the common good, and how should we best attain it? Above all, we need a conversation about the real costs of social inequality and the social pathologies they entail – everything from high rates of incarceration to obesity to teenage pregnancy to limited access to health care to unemployment. In truth, we must come up with a better way to define and measure wealth, other than the more limited and conventional definition commonly used today. For at least two decades we have heard the argument from professional economists to corporate executives, from multinational financial companies, and from conservatives like Ron Paul and members of the Tea Party in the US, and from the Conservatives and even New Labour in the UK, that progressive rates of taxation and redistribution through welfare state programs diminish and destroy wealth. It can be conceded that reducing the resources of some will occur if the benefits of others are expanded. But if the redistribution of wealth improves the health of the community, if greater social equality means improved access to education and thence to more equal life opportunities, if redistribution leads to less social tension, envy, and crime, then redistributing wealth from those who can best afford it to those who have the most need of it will be a benefit for all of us. In the end the debate comes down to this: what do we want for ourselves in the future? What do we mean by our collective welfare, and to what extent should we hold the state accountable for it? These should be the kinds of conversations we should be holding; politicians should be held accountable for our future social security without resorting to clichés or claiming that the interests of Big Business are the same as the people who consume its products. If we are to become citizens and not merely consumers, we must make all these questions paramount.

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Deregulating ourselves into poverty Those who wield political power know that social inequality does not just happen, nor is it the inevitable result of the freeing of markets. Ironically, as the state has become deregulated and privatized, especially in the Anglo-American world, it has also showered more favors than previously on the corporate world, which is the biggest beneficiary of both deregulation and privatization. One consequence of the changing tax codes in both the UK and the US in recent decades has been to dramatically lower taxes on dividends and the capital gains of investors, as opposed to those who depend on their jobs for their income. Not surprisingly these tax privileges, which are supposed to make available more investment capital, instead produce ever more lavish habits of consumption, or lead to the export of capital abroad where it can be placed even more profitably, or concealed from tax collectors. One result of this is to increase national debt, which in effect is borne by those who do not have the political weight to reduce their taxes or to increase those of the privileged. Naturally these issues are contentious. The haves will always argue that they have earned their wealth and should be entitled to keep it, enabling them to produce even more and add ultimately to the wealth of the nation. But this, too, is false, for it is the wealthiest groups in the Anglo-American world that benefit the most from the largesse of the governments they are wanting to shrink. We have learned that political will is the primary way to effect the transformation of society; and this transformation can be effected through the tax code and the redistribution of income and wealth in the form of social benefits. To do otherwise is to argue for privilege, or to pretend that the state redistributes from the advantaged to the disadvantaged. It is to deny what is palpably true, that much of the largesse of the state actually benefits the rich, and especially the super-rich. In fact, the higher the income and wealth bracket, emphatically so in Anglo-America, the greater the likelihood that those who populate the upper brackets will benefit from the public treasury. What we lack is the political will and courage to confront all these issues and to discuss them publicly. Politicians will have to summon the courage to tax wealth, and to grant benefits that will reduce inequality. When governments have wished to increase equality, they have always found the policies at hand to do so. History confirms this: generally, change has not come about only when governments think they can afford it. Egalitarian policies are usually adopted when governments have believed their survival depended on it. Moreover, a World Bank report in the early 1990s demonstrated that rapid economic growth in a number of East Asian countries was made possible by growing equality – precisely the opposite of what we are told will happen in the West if we preserve the kinds of benefits we should expect in welfare states and social democracies.3 John Page, writing in a 1994 World Bank publication, provided some illustrations: Very explicit mechanisms were used to demonstrate the intent that all would have a share of future wealth. Korea and Taiwan carried out comprehensive land reform programs; Indonesia used rice and fertilizer price policies to raise rural

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incomes; Malaysia introduced explicit wealth sharing programs to improve the lot of ethnic Malays vis-à-vis the better off ethnic Chinese; Hong Kong and Singapore undertook massive public housing programs.4

In the nineteenth century, Otto von Bismarck adopted social insurance policies in part to gain popular support for his determination to unify Germany. Britain became substantially more equal during both the First and Second World Wars as part of an effort to build support for the war effort by making the burden of supporting the war more equal. Richard Titmuss once argued that whenever the cooperation of the masses was thought to be essential to a war effort, inequalities were reduced and social stratification flattened.5 Sweden’s move toward social equality emerged when the Social Democrats won a huge electoral victory in 1932, following violent labor disputes in which troops had shot at sawmill workers. As a result, Per Albin Hansson was able to achieve his aim of making Sweden into a classless society and a ‘people’s home’.6 Today, there is widespread consensus in both the US and the UK that social inequality is pervasive, unwarranted, and unfair. A strong majority of the British have agreed in public opinion surveys that the gaps between the upper layers of wealth and the lower are greater than they should be. This is comparable to American opinion. In both countries, the public believes that it should be the obligation of the government to rectify perceived injustices, and to equalize income and wealth. But inequality is more than unjust, it is also inefficient. The market has been allowed to take care of what has been agreed should be a government responsibility, but this has failed. But is it really true that societies that have flattened income are efficient? The case of Denmark is an apt illustration. Denmark does not have oil or gas reserves. It did not grow rich from colonization. It was occupied by Germany during World War II, but it did not prosper by laundering German money. Denmark lacks major industry and is not a major technological player. Yet it is the third wealthiest country in Europe, to judge by per capita GDP. It is also one of the most equal countries in Europe – ranking slightly behind Sweden and Norway, also social democracies – and possibly the world. It enjoys one of the lowest longterm unemployment rates in Europe – 2.0 percent in 2013 according to OECD figures – and has one of the highest rates of employment in relation to the active population. Denmark’s egalitarianism has not reduced its economic efficiency; on the contrary, it is an egalitarian country that is rich by the standards of Europe and exceptionally rich by the standards of the world.7 Nor is Denmark an exception; virtually all of northern Europe has similarly high rates of employment and low inequality. What is the explanation for Danish success and what are the lessons we can learn? We know that lower rates of unemployment have translated into higher income, not only in Denmark but across northern Europe as well. And lower rates of inequality have meant lower rates of unemployment. But is the relation between equality and efficiency incidental? And must liberty in the market come at the expense of social security? Are liberty and equality even compatible? Answers to these questions will be contentious. But we know that inefficiency

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in many countries is the direct result of unemployment; unemployed people do not produce, and this makes everyone else poorer because of the loss of goods and services. Moreover, when a society is very unequal this means there are just a few ‘good’ jobs and many ‘poor’ jobs. The result is that people avoid the jobs which will not lead to the kind of future they want, and they will chase the ever fewer good jobs that will secure for them satisfaction, income, and a future they do want. The consequences seem clear: “other things equal, inequality produces unemployment, and unemployment produces waste: people who are not working do not contribute to the production from which ultimately everyone consumes.”8 Moreover, people not working will be supported at the expense of the state, another consequence of inequality. Thus, even those who advocate shrinking the state and reducing public patrimony have found it difficult to decrease government spending. Social inequality has its costs: the more we tolerate it the greater the share of national wealth that governments have to use to make up for the gaps in the mal-distribution of income and wealth. In societies that are relatively equal, many of the amenities of life, from education to health care to housing, are subsidized by government, which allows workers to stay at their jobs because they know their needs will be met through benefits that are available to everybody. If there are no unmet needs, workers will not have to find other jobs to make up for deficits in their income. And employers will gain in efficiency because they will not have to train new workers. The argument to reduce government ‘intrusiveness’ has always been bogus. Government in modern societies and economies plays a major role that has not been reversed by Democrats or Republicans in the US, nor in the UK and in virtually all of Europe. On the contrary, more than half of the GDP of the American economy is fully the result of direct government spending or indirect subsidies: health care, housing, higher education, and mortgage lending top the list. One can add large amounts of government spending to keep our prisons open and functioning, funding the military, and financing primary and secondary education that are supported by all levels of government. A considerable amount of government spending directly benefits the corporations that want to reduce government benefits for individuals. This also should not surprise us since there are 12,000 registered – and tens of thousands more unregistered – lobbyists in the US, most of whom work for the corporations that want to curry government favor. Billions are also spent just maintaining prisons whose populations have exploded along with widening gaps in social inequality. The US has one of the highest rates of incarceration, and it has grown ever higher with the rise of unemployment and growth of inequality since the Great Recession of 2008. The US has also had to foot the bill for the high rates of joblessness during the same years, caused by the large numbers of jobs chasing both cheap labor and low environmental standards abroad: that many corporations earn tax credits in return for investment, and then invest offshore, only adds to government deficits without a compensating return for American citizens who pay the taxes that help subsidize the export of their jobs.

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Welfare communism for the rich: privatizing the state What about the notion that the market can be relied upon to be self-correcting, and that a regulating state is not only intrusive but also compromises our basic freedoms? We have seen that history has compelling lessons that suggest there is often an absence of market self-correction – except of course to benefit fraudulent behavior, and this is anything but a correction of the market; it is rather a result of those who hold power and their ability to shape the market for private advantage. Consider three American examples of corporate meltdown: Enron, Tyco, and WorldCom. These three corporations committed massive fraud against their own employees, but what they also exposed was the incapacity of financial markets to discipline complex financial structures. Instead, financial markets encouraged fraud. The corporations masked their accounts to suggest that they were reaching projections made for them by outside analysts. The result was not only the subversion of all social and legal norms but also the loss of all internal discipline. Once this happened, the incentive to loot the companies by their directors was irresistible. Initially, the response was not punishment by financial markets, but rewards. Financial markets did not detect the widespread fraud. On the contrary, the contrived successes became a performance standard by which other corporations were judged. Auditing agencies fared no better: they cleared the books of the fraudulent firms. Rating agencies performed at the same low level, never intervening at any point. Yet professional economists blamed the structure of deregulation for never holding the fraudulent behavior of cheaters publicly accountable. Only insiders would expose the frauds later.9 Even these instances suggest that markets do not help enforce laws through ‘corrections’. On the contrary, they have a tendency to respond to political pressures to modify or eliminate laws seen as obstacles to ‘high performance’ and profits. The remedy is not to draft good laws but to reregulate the market and to let the state oversee it. Corporate scandals have arisen from the subversion of social and legal norms, weakened by the insatiable drive of Wall Street – and the City – for ever-higher rates of return, a willingness to tolerate the evisceration of regulatory standards, and the emergence of a new corporate elite all too adept at predation, abetted by a culture of lawyers, bankers, and speculators all of whom demand fees for their expertise in avoiding regulatory laws, or simply helping to draft new legislation to legalize avoidance. It has been the emergence of this culture, the upper 1 percent in American society and its political representatives in Congress, and their army of lawyers, as well as comparable British elites – especially the City – that has been the vehicle aiming at the deregulation of everything. This new elite does not aim to eviscerate the state, it aims to capture it for its own purposes. Its profits are not derived from the market as such – not just by deregulation and pushing back an intrusive state – but through the privatization of the state, making possible the conversion of public goods into private profit. Its larger purpose is not a weak state, but one that is for sale, often using the same argument that we have already noticed: private enterprise is more efficient and fairer than the regulating state because rewards are

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distributed to those who have earned them. In the US, the George Bush administration became the conduit for corporate control and the new-think that emerged: his administration was an alliance of representatives from the regulated sectors – mining, oil, media, pharmaceuticals, and corporate agriculture – all of whom had a vested interest in weakening and minimizing the regulatory system. Some, like Jack Abramoff, for example, simply saw the state as an opportunity to make a profit. But the overall intent was clear: control the state to prevent the assertion of public purpose, and poach on the programs established to protect and develop public goods by eliminating what little was left of the New Deal. The very concept of public purpose was alien to the Bush administration and its acolytes.10 Nor did the new elites want a market system, especially one that was regulated; the economy they were after was not a market economy, but one of organizations controlled by them with minimal interference from the state they were busy selling off like so many market shares. Their aim was not to liberate the market from the state but to convert the state itself into a market, with them at its helm. The Bush administration used the fear generated by the attacks of 9/11 to launch the “War on Terror,” and to ensure that it would be a for-profit venture, a booming new industry that could invigorate the American economy. From the beginning this was a global war fought on every level by private companies funded with public money, charged with protecting the US homeland while eliminating all “evil” abroad. Wars and domestic security in general were transformed overnight into a new market which soon included international peacekeeping, military training, menial duties to help free troops engaged in wars, municipal policing, and responding to increasingly frequent natural disasters. With little or no public debate, the Bush administration outsourced many of the most sensitive core functions of government – from providing health care to soldiers, to interrogating prisoners, to gathering and “data-mining” information on American citizens. The role of the government was that of a “deep-pocketed venture capitalist,” providing capital for the new industry and then becoming the biggest customer for its services. In 2003, the US government awarded 3,512 contracts to private companies to provide security functions. The Department of Homeland Security was even more active, issuing more than 115,000 contracts for the twenty-two month period ending in August 2006. The homeland security industry, which had been virtually non-existent prior to 2007, was a $200 billion industry by 2011.11 Government had become lucrative for those with the right connections and with signed contracts; this was cronyism, and anything but a free market. Far from the state being withdrawn from the marketplace, the state became the marketplace, the precise locus where there were large transfers of public wealth into private hands, accompanied by exploding debt, a deepening gap “between the dazzling rich and the disposable poor, [and an] aggressive nationalism that justifie[d] bottomless spending on security.”12 But this was only the domestic scene; the super-profits came from contracts let abroad, especially from humanitarian relief and reconstruction, regardless of whether the destruction was from a hurricane or from a war. With an ample

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supply of new disasters arising from climate change and resource scarcity, the hot emerging new market was simply too profitable to be left to non-profits. To repeat the words of Naomi Klein: Why deploy UN peacekeepers to Darfur when private security companies like Blackwater are looking for new clients? The primary economic aim of wars … was as a means to open new markets that had been sealed off. Now wars and disaster responses are so fully privatized that they are themselves the new market; there is no need to wait until after the war for the boom – the medium is the message.13

The advantage of this new market from the corporate point of view was that it could not fail, as long as the government was solvent, and as long as there were domestic and global catastrophes, whether man-made or natural. From the perspective of Big Business, another advantage was minimal competition – in fact, no competition in many cases. Far from being free, this was mostly a captive market, not only minimizing or excluding foreign competition, but also mostly granted to well-connected corporations. In this new ‘post-modern’ atmosphere, the war in Iraq was a disaster for those who fought in it and were wounded or died, but for the contractors the war was an opportunity. In October 2006, for example, Halliburton – speaking in market terms – called the war “better than expected,” though that was the most violent month of the war on record, with 3,709 Iraqi civilian casualties. The Iraqi war eventually generated $20 billion in revenues just for Halliburton.14 The disaster economy has mostly been dominated by the US, but it has become globalized like everything else: British companies have expertise in security cameras; Israeli firms in high-tech fences and walls; and the Canadian lumber industry specializes in prefab houses that are several times more expensive than what can be bought locally.15 The privatization of the state means a further receding of the public sphere, and a shedding of the responsibilities of the state toward our collective welfare. It means the total liberation not of the market, but of corporations from state regulation; and it means freedom from obligations to the public, which retains only the privilege of footing the bill to help the government spy on its own citizens and taxpayers. What has actually emerged is an alliance between a few large corporations and the wealthy politicians who serve their interests. And what has ceased to exist is a sense that there is any lingering obligation to a public; obligations are now to the shareholders of companies holding government contracts. Not only has the market not been freed from the state, but political, corporate, and military elites have merged to form a corporate state, the kind of entity that President Dwight Eisenhower once warned us about. The result is not only that large chunks of public wealth are squandered, but also that the money to support this sprawling complex has helped burden us with new levels of public debt. There are lessons to learn. The market does not become free in the absence of a regulating government, especially when the government itself is the market. If we are to restore public purpose, then, it will not come about through the with-

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drawal of the government from the market. This is partly because corporations are transnational, and do not share society’s goals as their own. But it is also because corporations can make money off the state only if they ‘control’ it. The market is not an abstraction, it is shaped by human beings who have the power to establish their hegemony over it. One of the consequences of 9/11 was to shift power toward the state in ways that were unprecedented. The public was willing to give a pass to the Bush administration because of a national tragedy. Corporations like Halliburton raked off billions in profits, helping to fight an unpopular, undeclared, and illicit war funded by the public patrimony, with little or no accountability to the public. This was yet another irony and example of hypocrisy: unexplained was why war profiteering had suddenly acquired an air of nobility, while government welfare and benefit programs – including Medicare – continued to be demeaned as unnecessary, expensive, or both. There are many other examples of welfare for the rich, many of them based on slicing off government responsibilities and replacing them with for-profit corporate opportunities. Large companies are unlikely to protect public goods when they can provide services at a profit, especially when they are subsidized to do so. The attempt to privatize Social Security was a failed example of predation. But the finance industry scored major successes in reaping windfall profits from the public itself in the areas of housing and consumer finance. The 1986 tax-reform bill, passed during the administration of Ronald Reagan, eliminated the tax deductibility of non-mortgage interest, creating an incentive for families to own their own homes. What followed was an escalation in the demand for homes, followed inevitably by rising prices and equity in home ownership. The rise in home equity, pushed upwards by cheap money, was then used by several generations of Americans to finance everything from travel to education. This made it possible for millions of Americans to live lives of apparent ease: but it also created a bubble. By the mid-1990s Americans were borrowing against their home equity well in excess of what their incomes would allow. Americans were no longer saving, but going into debt based on equity that was being artificially inflated. Millions were betting that home prices, on which their equity was based, and which was largely financing their lives, would always escalate upwards. And if home prices continued to rise, homebuyers would always be able to borrow more to refinance their debt. But if the prices of homes ceased to rise, all who depended on home equity would be over their heads. When home prices did virtually stop rising, debt could no longer be serviced.16 The home finance sector weathered the tech bust in 2000 and the shock of 9/11 in 2001, partly because interest rates were cut sharply. This enabled the middle classes to cheaply refinance their debts. But that is when the sub-prime sector, adjustable-rate mortgages, emerged; by 2005 these accounted for about a third of all new mortgages. Borrowers who would never have qualified for a mortgage loan under the earlier, more stringent, lending conditions suddenly found themselves eligible for the new kind of adjustable loan. Sub-prime loans were abusive and fraudulent because they offered seductively low interest rates that would then reset after a few years to a rate determined by the then-prevailing short-term interest

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rates. Lenders knew what borrowers did not, that after 9/11 short-term interest rates were exceedingly low, and that these conditions were unlikely to continue. As a result, mortgage lenders deliberately substituted adjustable-rate for fixedrate mortgages. This was done with the endorsement of then FED chairman Alan Greenspan, who reassured the unsophisticated public that the exercise was sound. The inevitable soon followed: interest rates rose, mortgages started to reset, and borrowers by the hundreds of thousands (and millions) were unable to make their mortgage payments.17 But mortgages by then were no longer held by the banks and loan companies where they had originated. Lending institutions had taken advantage of the secondary markets that had emerged, repackaged the mortgages, and sold them to pension funds, mutual funds, foreign funds, and ‘investment vehicles’ associated with the big banks. But there were problems associated with these new securities: they were so complex that they could not be priced. They were accepted among peers at imaginary valuations, which had no relationship to the real world. What followed was a classical crisis: when mortgage loans were called in because borrowers were overextended and could not borrow against their falling equity, the whole house of cards collapsed. Rising foreclosures created a panic, the imaginary valuations collapsed, and the funds failed, forcing a massive public bailout in the US and some European countries (the UK and Spain were two) in the fall of 2007, and then again in spring of 2008. Housing prices soon fell, putting even more mortgage holders under water.18 In the area of health care, in the US, private interests are firmly opposed to universal, publicly provided health care for good reason: private insurers prefer to let the market set the prices for health care because that means they set the costs for the insured. Again, backed by teams of lobbyists, and conservative politicians who want to secure campaign contributions, they have managed to confuse the public about the real costs of health care, and how to reduce them. Much of the public believes that government programs like Medicare are too costly and must be brought under control. But this is false. Public, universal health plans like Medicare do not need to evaluate risk – as do health insurance companies – because they are universal. They therefore avoid the major cost of providing private health insurance, the hiring of teams of actuaries and underwriters to price insurance costs according to risk. There are other advantages to fully public plans as well. Health care personnel are paid civil service salaries, which are much lower than executive pay in forprofit enterprise; and public insurers do not need to pay dividends to shareholders because they do not need to return a profit. This means that health care can be organized for the health of patients, not as a private enterprise to benefit investors. And it means that health care is organized as a public good, and that no individual need endure the humiliation of being denied health care on the grounds that a treatment or a medicine is not covered by a plan; or be denied because health care is doled out proportionately to what an individual can afford. Private insurers therefore do not compete against each other, they compete against public provisioning by the state which can provide the same services for less and just as

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efficiently. Private insurance companies exist because they have political clout, not because they are less costly or preferred by the public. Private insurers have interests that are at variance with public health. Traditionally they have sought to provide health-care insurance to better-off families with young children who are least likely to need health insurance, and they have sought to deny insurance policies to the elderly who are most in need of health care. The reason is profit. The insurance industry is in fact expensive: Americans literally have paid a huge premium for the privilege of preserving their private insurance system. Harvard medical economists like David Himmelstein and Steffie Woolhandler estimated in 2007 that the cost of bureaucratic waste from private medical insurance was around $350 billion per annum, or roughly just under 2 percent of GDP, more than half the cost of the defense budget.19 Once again the efficiency of the market is vastly overestimated. The private health insurance system in America is really a welfare scheme for the private insurance industry, and at the expense of our health and our pocketbooks. Even the Affordable Health Care Act, though intended to be universally inclusive and much fairer, has little to say about controlling costs for the consumer. This could have been avoided by following the example of a single payer system, such as in Canada: everybody pays in and coverage is universal. As we know, under George Bush the American plutocracy achieved all but unprecedented heights of privilege and power. The state was not only used to buttress private advantage; it also became a shield that masked the absence of a free market. During the second Bush administration, the state was run as though it were a private corporation for the profit of select industries, among them oil, mining, pharmaceuticals, security, and defense. The methods, norms, and culture, of the corporation became those of the state. The administration itself was staffed with mostly business lobbyists who were anti-environment, anti-safety, and anticonsumer-protection advocates. In effect, the state became a kind of anti-state, opposed to providing the kind of services for which the state was established in the first place. The result, predictably, was the loss of any kind of public accountability: Dick Cheney, running the Energy Task Force though he was associated with big energy himself; Karl Rove’s political office directing US attorneys into political prosecutions, especially against his political enemies; the defense of torture as a legitimate method to extract intelligence; and warrantless wire-tapping that could be used indiscriminately against American citizens. In sum, a security state operating secretly, and anything but a social security state interested in the protection and welfare of its citizens. Across the Atlantic, the UK bookended what was happening in the US. There the top fortunes, especially in the 1990s and after 2000, were overwhelmingly made in finance, private equity, hedge funds, investment banking, and real estate, mostly due to leveraged bets made with other people’s money. Unlike earlier plutocrats in the age of English imperial adventurers, or French tax farmers, or Spanish conquistadors, who left behind monuments or empires, today’s bankers have left behind as their legacy only trillions of British pounds sterling in permanently lost output throughout the world; and when their house of cards collapsed and they

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were in danger of losing their businesses and jobs during the Great Recession of 2008–9, they had to be rescued by the same taxpayers for whom they had regularly registered their contempt. As one economist at the Citigroup bank complained, today’s reality is nothing less than “communism for the rich.”20 Another banker, Sir Philip Hampton, chairman of the Royal Bank of Scotland (RBS) at the time, admitted on a British Broadcasting Corporation program in April 2010, that top bankers’ pay was “astonishingly high, hard to justify, and undeserved.”21 But he added that the cycle was hard to break because banks had to pay the going rate to retain their talent. In fact, in the UK, by 2007, bonuses for bankers had ceased to be a reward for achievement; they were thought of more as an entitlement regardless of how a bank had performed. The sentiment of entitlement, alive on both sides of the Atlantic, was aptly illustrated – but not uniquely – by Mark ‘Goldfinger’ McGoldrick, who earned about $70 million in 2006 – nearly $200,000 per day for Goldman Sachs. Goldman Sachs, then and today, established benchmarks in America and in Britain, with a clever epithet: “I eat what I kill.” This was a somewhat oblique reference to how McGoldrick earned his money as part of a special interest group at Goldman Sachs; the understanding was that he would get to keep a good part of his ‘earnings’. His group bought illiquid assets that were often distressed, such as defunct British power plants, Japanese golf courses, and portfolios of Thai car loans, at deeply discounted prices, hoping to sell the properties when the market improved. The $70 million he was paid apparently was not enough; McGoldrick complained that his counterparts at hedge funds earned far more. Offended, he moved on. He was not the only banker who felt violated and under-compensated; there were many others like him in New York and London.22 What has emerged in the Anglo-American world is a kind of “Corporatocracy,” as Jeffrey Sachs has called it. We have seen the unprecedented rise in modern times of Big Business. As corporate power – especially financial corporations in Anglo-America – has risen, so has the power and independence of political parties declined. Big Business finances election campaigns, it has the financial power to define the political agenda, it can finance all parties to hedge its bets, and globalization helps it to hold governments to ransom: reform efforts can be averted by shifting production, resources, and profits overseas, where minimal labor and environmental standards pose little if any obstacle, and where governments are repressive and undemocratic, and markets are therefore stable and not endangered by political reform or revolution. The predictable result is that government no longer reflects the will of the people. This is made even more manifest because voters are subject to the media that are mostly also owned by corporations. Inevitably, political parties are flattened, they sound more or less alike, and they have in fact moved to the center and right of center in both the US and the UK, etiolated versions of what they once were. Political discourse also is flattened and trivialized, and too often degenerates into ad hominem attacks or slips into the self-righteous language of religion. Lobbying, additionally, has played a large role, especially by Wall Street and City firms like Goldman Sachs, JPMorgan Chase, Citigroup, Morgan Stanley and a few others,

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which have global leverage because they have internationalized themselves. Wall Street provides the top financial and economic policy-makers for both parties in the US: Donald Regan (Merrill Lynch) for Reagan; Robert Rubin (Goldman Sachs) for Clinton; Hank Paulson (Goldman Sachs) for Bush Jr.; William Daley, Larry Summers, Gene Sperling, from several Wall Street connected firms, for President Obama. Another piece of the captive state belongs to the Big Oil–transport–military complex that has kept America dependent on heavy oil imports and deepened military commitment in the Middle East. Big Oil combined with the American automotive industry has pulled the US away from mass transit and toward fuelguzzling vehicles driving on a nationally financed highway system. Big Oil is profitable for itself, and supported by tax subsidies, but it has been costly for everybody else. That is because it has fought – largely successfully – to avert competition from non-oil energy sources, including nuclear, wind, and solar power. Big Oil has also fought successfully to keep climate change off the American political agenda. Is there really such a thing as a ‘free’ market, then? And can we rely on it to make us grow faster and better and fairer? Does public opinion matter? Apparently ‘no’ to all of these questions. Temporary tax cuts for the rich were extended even under the Obama administration, which was avowedly against them. Corporate tax rates were nominally the highest in the developed world, but the effective corporate tax rate was only 12 percent in 2011, the lowest since World War I. The unpopular war in Afghanistan continued past its tenth year before it began to be phased out, and not with the conclusion foreseen by Americans. The public option for health care, though popular, was dropped and never seriously considered. Alternative energy supplies remain undeveloped and relatively ignored; the largest banks get megabailouts and use them to pay huge bonuses to those who have speculated with other people’s money and failed. Industry has continued to cause environmental and public health damage, such as acid rain from coal-fired power plants, ozone depletion from chloro-fluocarbons, and climate change from fossil-fuel use; yet industry masks all this by running slick, well-funded, public relations campaigns designed to spread anti-scientific propaganda to forestall federal regulations.23 The victory of New Labour in the UK, which brought Tony Blair to the office of Prime Minister, did not occur in a vacuum; like Bill Clinton in the US, Blair moved his party toward the center primarily to reflate Labour’s electoral chances. But he did not reverse Thatcher’s selling off of the state and privatization of public wealth at deeply discounted rates. Much of the legacy of Margaret Thatcher and John Major, which had enthroned privatization, deified the deregulated market, and crushed industrial labor unions, continued. The politics of the UK did not track those of the US, though there were a number of parallels. There were several reasons for this. One was that New Labour came to power in 1997 and remained there for more than a decade, led by Tony Blair, while America had a Republican president during much of the tenure of Blair. The other was that although the success of Margaret Thatcher had diminished the influence of the labor movement, and hence of the Labour Party, moving the latter toward the center, Thatcher’s failures also helped Labour return to power: and its

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policies did matter. That was because the UK did not share in one peculiarity of the US: the Left was not seen as part of a whole cloth. This was largely because the Labour Party was always independent and reformist, and never shared in the revolutionary rhetoric of the radical Left. Simultaneously, British Marxists were of the milder sort, and had mostly abandoned the communists by 1956, at the latest by 1968, with a few notable exceptions. And those exceptions, Eric Hobsbawm being most exemplary, lent considerable credibility to British Marxism. The politics of the Left mattered in a positive way in Britain. According to a 2009 Joseph Rowntree Foundation report, “Monitoring Poverty and Social Exclusion,” which tracked 43 key social indicators, had the policies of John Major been retained by Labour until 2006, poverty rates would have been 6 or 7 percentage points higher. Child poverty rates would have risen between 6 and 9 percent rather than falling by 4 percent as they did under New Labour. The poverty rate for pensioners would have risen by 7 percent rather than falling by between 1 and 10 percent, also under Labour between 1997 and 2006.24 New Labour made a difference, then, but we have seen how it could have done much more. The social settlement that emerged did not have strong social insurance, massive investment in education, or large social transfers to mitigate structural inequality. Instead, it worked the edges and was marginal at best. To compensate, most people sustained living standards by borrowing rather than by earning more. The British government even abetted this kind of compensation to make up for failed, ineffective, or absent social policies. Despite evidence that countries with the highest social spending as a share of national output have often sustained economic growth near or in excess of US growth rates, New Labour pursued a program of targeted welfare, whose purpose was to save money without a wholesale dismantling of the welfare state.25 New Labour has not tracked the Democrats in the US, then, but it has come close. Both sides of the Atlantic have bred a corporate culture which has stigmatized the poor and marginalized the middle class: poverty is seen as the result of the impoverished making wrong choices, or aversion to work, or simply receiving insufficient technical education to match the jobs that theoretically are available for the properly educated and skilled. As we all should know, however, the despair of the poor, and of middle-class dropouts, owes to the neighborhoods they live in, the social status and lack of cultural enrichment of their families – often impoverished and marginalized – and the export of the jobs they once held. Social origins matter. Today, in Britain as in America, the poor remain poor: moreover, they know they will remain in poverty, and increasingly are being blamed for their impoverishment. They are stigmatized further by British culture, and by the Americanization of British culture. There are objective reasons for the British poor to despair beyond the derisive attitudes of those who despise them. Between 1971 and 2001 the British lost 1.16 million manufacturing jobs; this loss accounted for around 50 percent of the increase in single-parent families, which were concentrated in the declining manufacturing centers. When women in these families did marry, their husbands were often unreliable and had minimal self-esteem. But single-parenthood was

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a well-known cause of self-perpetuating disadvantage. As Will Hutton insisted: “Geography matter[ed].”26 Birth, family, social class, and educational pedigree were significant; in Britain they all dovetailed. The well-born attended exclusive private schools such as Eton, St. Paul’s, Westminster, and Winchester, and disproportionately dominated entry into Oxbridge, as might have been expected given their advantages.27 And it pays to take a degree at Oxbridge: a pedigree from there is confirmation that the elite will make suitable entry into the business world and get its fair share of the national wealth. Half of Britain’s 15,000 company directors, as canvassed in 1997, had attended Oxbridge, and almost half were private school graduates. Relatively few were self-made. Yet the elite felt entitled to its privileges, and routinely resented and successfully minimized its tax burden, arguing that they should be entitled to keep the wealth they had made. To assure that wealth was minimally taxed, a whole new industry called wealth management was developed and utilized to protect and if necessary to conceal wealth. Many schemes involved the transference of money to foreign countries where profits were taxed at lower rates or not taxed at all. The British elite developed a fondness for American devices, such as the capital gains tax, to minimize their tax obligations. The tax system, once progressive, became increasingly regressive. Moreover, half of the tax-dodging schemes in Britain were devised by the top four accountancy firms; by using them, nearly a third of the top 700 companies routinely paid no taxes at all.28 Even when Labour finally won the elections in 1997, it was so wary of its victory that it hardly changed the Conservative agenda; it avoided an increase in income taxes (mostly rewarding the affluent), it opposed renationalizing the commanding heights of the economy, and it retained the Conservative anti-union laws and limits on spending plans. On the other hand, Blair understood fairness in the same way as did the (then) conservative working-class: he was tough on illegal immigrants, unruly teenagers, and undeserving benefit-seekers. The Blair plan worked for a decade: the economy grew for more than forty consecutive quarters, buoyed by easy money and the rise in consumption and property prices, the result of policies of the City. Will Hutton summed it up: “Globalization and inward migration kept inflation in check, while consumption grew every year, propelled by real-wage gains and equity withdrawn from the ever-buoyant property market.”29 These were clearly boom times fueled by a consumption religion. But they would soon dissolve. As in America, the boom was fueled by greed, and greed unchecked, even rewarded, will rarely sustain growth – especially when most of the growth is in the money economy and not the real economy in which men and women work and live. Following the early prosperity, Blair converted to neo-conservatism’s crusade against Islamic fundamentalism while Chancellor Gordon Brown, formerly a convinced socialist and egalitarian, now swallowed neo-conservative economics. Brown tried to straddle business and fairness, producing the same neo-liberal justification for unleashing business, especially finance: the emergence of globalization, the development of China and India as global powers, and the rise of the all-powerful financial markets, were creating a whole new world. Brown called

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these forces irresistible and claimed that Britain had to conform to the new market conditions. This meant workers had to upgrade their skills to match the new kinds of jobs in the UK that were the result of the international revolution in technology, finance, and production. It meant also that finance should be unleashed; any regulation of the British financial industry should occur only within a stronger international regulatory framework. Again, globalization provided an excuse to let British banks run rampant, a distraction that obscured or even eliminated any concern with public purposes and public goods: what mattered most was economic growth, the rest would take care of itself. Brown capitulated to a popular notion – made so by its chief beneficiaries – that unilateral British measures would simply encourage banks and other firms to evade British laws and regulations and continue to do whatever they wanted offshore, thereby damaging an important British industry; there was less concern with the collateral damages to the public, or to the common welfare of that public, or even for the obligations that government has to ensure public welfare. In truth, Thatcher and her government, and later Blair and Brown and their governments, all believed that Britain’s comparative advantage was in finance and not in manufacturing. Their argument was a conventional one: the British industrial base, they insisted, had been in decline since the 1960s, the result of a more competitive world but also of the decline of productivity in the UK. They were right about steel, textiles, and coal mining, but they were wrong about other sectors of manufacturing. Although there had been erosion, manufacturing remained central to the economy in 1979, just as Thatcher and the Conservatives were assuming power: Ford Motors in Dagenham still employed in excess of 40,000 workers, and in the West Midlands large numbers of workers worked in car and motorcycle factories and in steel mills. At the same time, Stoke-on-Trent remained the pottery capital of the world and Royal Doulton had 18 local factories: and some 100,000 bicycles a year were still coming out of Raleigh’s Nottingham factory. Yet a decade later, much of this industrial landscape was a wasteland.30 The usual explanation is that the process of deindustrialization was inevitable, while the emergence of a service-oriented economy was desirable and signaled the arrival of a mature economy.31 It was true that manufacturing employment fell by a third between 1974 and 2001 in the nations that collectively made up the Organisation for Economic Co-operation and Development (OECD). But it was also true that the fall in manufacturing employment in the US and the UK was much steeper than the social democracies of the continent: in Margaret Thatcher’s first term alone, manufacturing fell by more than a third.32 The steep decline in manufacturing in the UK and the US was no coincidence: the policies pursued by Ronald Reagan in the US and by Margaret Thatcher in the UK were highly favorable to the financial sector. Each embraced financial and labor market deregulation and supported a strong currency. The effect was to overvalue the dollar and the British pound sterling respectively, a dream world for bankers, but a problem for manufacturing exporters. As a result of ongoing globalization, the abolition of exchange controls in the UK (1979), and the deliberate defense of a strong British sterling pound, the

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decline of manufacturing was hastened in Britain. After 1979, a steadily appreciating pound sterling, high real interest rates, and a determined Margaret Thatcher – and later Blair and Brown – promoting the interests of the City, the financial sector boomed.33 Hot money flowed into London, attracted by high interest rates and the government’s eagerness to defend the value of the pound sterling: bankers, for the first time since 1939, had total freedom to place the accelerating inflows coming into London. High interest rates and a strong pound sterling helped make fortunes for the City, but for manufacturing and manufacturers it was the opposite. The overvalued British pound made everything in the UK too expensive. And when the UK joined the European Exchange Rate Mechanism in 1990, keeping British sterling at a fixed exchange rate with the European Monetary Unit, the precursor of the euro, it did so at an inflated level that was not sustainable. Predictably, the UK was forced out on Black Wednesday in November 1992, when the pound sterling came under sustained attack because it was overvalued. The Conservatives in the UK could have prevented the meltdown of industry by protecting that part of industry not out of date, nor likely to be (as could the political class in the US); other continental countries were able to protect their industrial base, rather than allowing it to transfer out of Europe in favor of finance and services at home. But the British Conservatives had a built-in prejudice against manufacturing industry; after all, this was not their electoral base. Moreover, manufacturing industry had historically been unionized, and then there were all those messy strikes, whereas the financial sector was virtually union and strike free. Why would brokers go on strike when there was all that money to be made? Manufacturing was dispensable; had not Milton Friedman himself said so in 1980? But just as tragic as the policies of the Conservatives were, when Labour came to power in 1997, it took virtually no action to reverse the attitudes and policies of the Conservatives toward deindustrialization. The pound sterling, which had declined after the crisis of 1992 – which helped lead to recovery – strengthened again and remained high through the tenure of Gordon Brown. During the relatively prosperous period of Tony Blair’s government, the decade of 1997–2007, some 1.5 million manufacturing jobs were lost in the UK.34 Labour, therefore, did little to reverse what the Conservatives had begun, with the usual results: the continued decline of manufacturing, the loss of jobs, the unleashing of the financial sector, and ultimately the Great Recession and the collapse of the economy in 2008. There were lessons here, but they remained unlearned. Moreover, Chancellor Brown accepted without scrutiny City arguments that the financial sector had paid £203 billion in taxes in the five years leading up to 2006–7 without considering revenues lost because corporations had sheltered their profits through tax avoidance and evasion. The financial industry boasted that it employed one million workers, though this represented no gain since the early 1990s despite all the privileges given the industry.35 Brown even advocated for a knighthood for Alan Greenspan, the American so-called wizard, who had argued that financial markets were efficient, and markets and economic agents could not possibly act against their objective interests. Brown would later concede

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his own error, but this came well after the collateral damage that almost destroyed the global financial system. In the words of Will Hutton, writing about Gordon Brown: “He was wrong about derivatives alleviating risk, wrong that shareholders would ensure that banks pursued policies that did not destroy wealth, and wrong about the housing boom not being a bubble that would inevitably burst.”36 In fact, while Brown was busy praising the financial industry and defending his hands-off policies, and while the City was engaged in the self-adulation of its services, profitability, and efficiency, the City was only months away from a devastating collapse owing to the policies that Brown had been praising: namely, allowing the financial industry to remain relatively unregulated. There had been warnings as early as 2006 from the Bank of England’s Financial Stability Review, which had cautioned about acute stresses due to excess credit, over-leveraging, and barely understood financial instruments that were beginning to dominate the market. But under the efficient market thesis, the Bank of England and the City could hardly demur against the practices and policies they had long endorsed. Once the financial markets were deregulated, the scale of speculation would reach unprecedented heights. As the Great Recession emerged in 2008, some $800 trillion of financial derivatives were being traded globally, more than twelve times the world’s GDP. Financial assets had risen from 80 percent of the world’s GDP in 1980, to 300 percent in 2008. Leverage was enormous and growing, putting the entire system of British finance in jeopardy. The RBS, in November 2007, at the peak of a still buoyant market, paid $101 billion for the Dutch bank ABN AMRO. But, in October 2008, the RBS almost collapsed following a run that also nearly bankrupted the entire British banking system. At that time, the RBS controlled £1.9 trillion, more than the GDP of the UK. The ratio of its borrowings to its capital – the degree to which it was leveraged – was more than 25:1, a ratio that normally would be described as dangerous, except perhaps by fanatics of the new financial system which was built on leverage to expand profits in ways once thought impossible. RBS had the highest leverage of any of the largest five British banks, though the five largest US banks – Goldman Sachs, Morgan Stanley, Bear Stearns, Lehman Brothers, and Merrill Lynch – all had a leverage ranging from 35:1 to 50:1. The biggest problem was not the volume of the credit, securities, and traded credit derivatives, and the fact that they were ‘valued’ many times the world’s GDP. The biggest problem was that less and less capital could be deployed to support the staggering size of the banks’ balance sheets.37 To all this, bankers replied that they had diversified risk by creating bundles of disparate income-earning assets, minimizing the chance of default through what they called – in their own inimitable language – structured investment vehicles. Risk was minimized, they argued, because assets were carefully valued using mathematical models, and the possibility (likelihood) of default was insured through credit default swaps (CDS) – yet another post-modern creation in the world of finance. It was this latter ‘vehicle’ which transported the finance industry into rapturous post-historical celebration: the CDS was essentially a bet in which the buyer of this security insured himself against default by the borrower. Not too surprisingly, the CDS rose in value in inverse relationship to the credit-worthiness

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of the borrower. It became lucrative therefore to lend to high-risk borrowers, as long as one could purchase a CDS to insure against default; and cheap, also, if the money being lent belonged to other people, as was mostly the case. There was another unspoken assumption in all these new kinds of financial arrangements. Super-banks like RBS and Citigroup were concentrations of immense financial power that were too large to fail because they could mobilize vast financial empires; moreover, they could also insure themselves by hedging in the market. But even if there should be a calamity and they became overextended, there was always the government to bail them out. They were, after all, “too big to fail.” With diminished oversight or restraint, by 1998 the world’s five top banks accounted for 8 percent of global banking assets. By 2008 they accounted for 16 percent. Where previously financial power was more widely distributed and it was possible for the system to handle the shock, this was no longer the case. The fall of Lehman Brothers in 2008, after the government could not find a buyer without itself rescuing the bank, sent shock waves through US and global financial systems. London was stricken as much as New York, and this because many of the New York interbank lenders were also in London. For this reason, Citigroup, Bank of America, RBS, and the insurers American International Group (AIG), were called too big to fail. In the end, the crisis overwhelmed all systems and the ability of states to meet the crisis. The IMF estimated that the aggregate costs of loan losses for its members would be around $9 trillion, though the final bill was probably closer to $3 trillion.38 There were hopes that the money taxpayers invested would be repaid. But even if all losses were ultimately paid up, there was an enduring cost to the economy in the permanent loss of output. In Britain, that figure stood at £140 billion just for the 2008–9 recession alone. Even if it is assumed that 25 percent was lost forever, the cumulative cost would stand at £1.4 trillion before the economy recovers to where it would have been had the financial crisis not occurred.39 Other than the delusions of bankers, and their unregulated greed, there were other reasons for the global financial collapse. The ascendancy of laissez-faire ideology as the petard of neo-liberals was part of the mix, as was the collapse of social and political forces committed to fairness, and the evisceration of the regulating state and its responsibilities to public welfare. Globalization played a role too: massive funds from Asia and the oil-producing countries, in search of higher yields in an era of low interest rates, found a home in the innovations devised by Western bankers. As a result, monetary policy was less able to rein in excesses. In the seven years prior to March 2008, global foreign currency placements jumped by $4,900 billion, and China’s reserves alone were up by $1,500 billion.40 The instruments used by bankers beginning in the 1990s were little more than gambling tools. They were akin to what happened in the eighteenth century when insurers insured things such as the outcome of sensational trials. But unlike the insurance devised in the eighteenth century to protect against the loss of tangible assets, the new insurance policies of modern bankers were intended to hedge bets, not to protect value. The derivatives that developed in the 1990s were based

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on speculation. The CDS was supposed to insure the holder of a security against default, but it did little more than to encourage speculation. The holder of a CDS did not actually have to own what was being insured; that is what having no insurable interest meant. Buying a CDS was purely a bet; one could buy a CDS on a bank or even a country, like Greece, for example. If the credit-worthiness of that bank or country were suddenly thrown into doubt, the price (value) of the CDS would rise. This is the way that any market operates. Only in this case, if a hedge fund decided to buy heavily into CDSs in Greek government debt, for example, the investment itself acted as a destabilizer. When that happened in April 2010, it triggered a massive bailout of Greece by the EU and the IMF. But was this really a bailout of Greece? Or was it in fact a bailout of the speculators who had invested in instruments of no real value, just counterfeit insurance policies based on nothing tangible? And when the IMF and the EU stepped in, were they rescuing their bankers? Or the Greeks? Lost in the whole melée was any discernible interest in the well-being of citizens, who were everywhere left holding the bill while being promised not relief but austerity. Somehow the terms of public debate had shifted from what was of real value to people, from the real meaning of wealth and wellbeing, to how best to preserve the credit system and the bankers; it had shifted from providing social security to citizens to protecting private interests and their fraudulent ‘investment’ vehicles. Meanwhile, communism for the rich continued on both sides of the Atlantic. Merrill Lynch lost $27 billion in 2008 alone, surviving only because of an injection of US government money under the Troubled Asset Relief Program known as TARP. Simultaneously, Merrill Lynch was taken over by Bank of America, which also received $5.2 billion under the same program. Despite this, a bonus pool of $3.6 billion was established, distributing more than $1 million to each of 700 employees that year. AIG had a similar performance: 377 employees in AIG’s financial products unit who had gambled on CDSs, bankrupting the US’s largest insurance company, received $220 million in bonuses, more than $500,000 per employee. AIG survived only because of an $80 billion injection of capital by the US taxpayer, also under TARP. Thus, bonuses were paid under all circumstances, even during a bailout by the government. Simultaneously, the UK was doing much the same. On Friday, 10 October 2008, as the RBS was suffering the biggest run on a British bank since the nineteenth century, and prior to being taken over and saved by the government, its remuneration committee decided to pay an annual £600,000 to Sir Fred Goodwin as part of his “golden parachute.”41 Goldman Sachs did even better. It argued that it did not have to restrain compensation packages because it did not need a bailout, it was merely rewarding entrepreneurialism and talent. But this claim was utterly false. Goldman Sachs, which turned itself into a bank to gain access to the FED’s discount window, and which subsequently borrowed deeply discounted taxpayer money which helped it secure the kind of liquidity it needed to speculate, received $5 billion of otherwise valueless CDSs owed to it by AIG, because the latter was bailed out by the US government. Goldman Sachs also received billions more from TARP and then sold $21 billion of bonds to raise funds guaranteed by the US. On the other side of the

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Atlantic, the RBS and Lloyd’s were both bailed out by the British government; had they not been saved they would almost surely have failed.42 It was hardly any wonder that in both the US and the UK, Wall Street and the City had replaced the public interest with the private interest of those who controlled the levers of finance. In the US, deregulation did not create a ‘free market’, but it did make for greater freedom for corporations to do as they pleased without having to worry about government restraints. The deregulation of the financial industry, the freedom of investment banks and commercial banks to merge, making investment banks eligible to borrow at the US discount window, allowed them to borrow deeply discounted public money and then to offer taxpayers their own money repackaged as mortgages and other loans. The only thing ‘free’ about this market was the discounted price the bankers paid for borrowing from the public treasury. The privilege of borrowing money from the Federal Government at deeply discounted interest rates also belonged to two quasi-public mortgage-lending companies, Freddie Mac and Fannie Mae. These companies were private, but enjoyed government backing; the government guaranteed their loans, so that both companies not only borrowed at rates of 1 percent or lower, and then lent the monies for 3 percent or so, reaping an easy profit based on taxpayer monies, but also could ignore risk since their loans were guaranteed by the government. Despite the elimination of risk, or perhaps because of it, both Freddie Mac and Fannie Mae became careless speculators, knowing that they were too big to fail, and that they would be bailed out if their speculations went south. What some might have called the free market was for these two giant mortgage companies a form of government-subsidized, risk-free capitalism. The net effect of this whole process was that the public interest – making low-interest mortgage loans widely available – was not the priority it should have been: on the contrary, public funds were routinely recycled to the investors in and the executives of Fannie Mae and Freddie Mac.

Rethinking and reclaiming the state: the return of the social question Renouncing the lessons of the past, or deliberately forgetting them, has been costly. If forgetting were to be factored into the measurement of wealth, we would be much poorer than we think we are. Relying on the market to accomplish what we used to do collectively via the state has cost us the kind of social security that we used to take for granted. Nor has the assault on the institutions which still give us some protection – Social Security and Medicare and Medicaid and even progressive taxation in both the US and UK – necessarily come to an end. Even the once sacred obligation to protect consumer well-being by the government – for example in finance – has been questioned by conservatives on both sides of the Atlantic, who argue that this is unwarranted intrusion into the market and a hindrance to corporate investment. By privatizing pieces of the state, from education to military training to postal services, by disrespecting public goods and permitting the privatization of public

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spaces, resources, and services, we abandon everything that binds us together; we negate whatever it is that we share in common. The result is what we have, though perhaps it is unintended: younger generations who look exclusively to their own needs because we have abandoned our own collective interests and the very notion that the public interest includes all of us. And if there is no public interest, then we have no choice but to pursue our own private ends. This holds for politics as well; if running for office and serving are not about defining and pursuing the public good, but getting the state out of the way for people to make more money more efficiently and more rapidly, then there is no abiding public interest, and no reason to defend civic engagement for higher public purposes. Politics, in this modern reality, is only about careerism and the pursuit of self-gain. We may still have goals, and make choices, but mostly as individual consumers and not as citizens engaged in the pursuit of whatever will benefit most of us. In the society that emerged in much of postwar Europe, people looked after one another because of shared experiences and shared suffering that they had endured together; people embraced this post-war reality because they knew that society would be safer, fairer, and dedicated to the well-being of everybody. Although these conclusions were certainly pushed along by the devastation and suffering of war, the obvious lesson was that survival depended on social and political co­operation and solidarity. Since the 1970s, however, by all indicators, poverty has broadened in the US and the UK (and in some parts of Europe). Both countries have seen a rise of infant mortality, a decline in regular and permanent employment, and a growing inability of citizens to purchase the basic necessities of life. Both have experienced a decline in living standards and a rise in the usual pathologies that accompany inequality and poverty: crime, alcoholism, drug addiction, violence, obesity, and mental illness. In this, too, history has returned. The social question, once thought resolved throughout the West, has revived – especially in the US and the UK, which have turned the clock back on the welfare state and the very notion of public responsibility for collective social welfare. In the US and the UK the question is not under what conditions its citizens can live decent lives, and what makes life worth living, but how best to liberate the individual to freely make decisions in the market. The difference is clear: the freedom from want has been replaced by the freedom to choose. But as the citizens of both countries are learning, without the freedom from want, there can be no freedom to choose. Moreover, there is a vast difference between a nation committed to the well-being of all, and to collective public goods that we can all share, and a system that raffles off everything from health care to education to the highest bidder or to whomever can afford the goods on offer in the marketplace. It can be conceded that the social question has emerged also because of technological change. Since the Industrial Revolution, for at least two centuries, every technical advance has put men and women out of work by making their skills redundant. The steady advance of capitalism has created new kinds of work and employment, but all too often these have offered reduced pay and status. However, with mass public education and almost universal literacy, achieved in most

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Western countries by the decades following World War II, new jobs in new industries making new kinds of products for expanding domestic and global markets have made it possible to ensure a higher standard of living for most people. But this situation has changed. Unskilled and semi-skilled (and even some highly skilled) work is rapidly disappearing because of mechanized production, but especially because the globalization of the labor market means that unskilled and semi-skilled labor in developed countries must compete with low-wage and repressive economies such as China, where masses of former villagers are eager to take any kinds of jobs on offer. Yet there is one way to reverse the drain of jobs away from developed countries, and that is by pursuing the comparative advantage of the West, which can best be done by promoting capital-intensive industries where knowledge counts for everything.43 Developing a knowledge-based economy implies a growing demand for highly skilled and knowledgeable workers, and this means higher pay and living standards, and diminished competition from workers in the global market who remain at lower skill and lower knowledge levels. As we know quite well, however, this is not happening in either the US or the UK. As a result, many continue to believe that globalization itself is eroding the living standards and stable economies of the past, without considering the rules of globalization – put in place by corporations and their political allies to their own advantage – which have failed to protect the employees of Anglo-America. But, as we have seen, there are alternatives – rules can be changed. In the good society that we all want, people look out for their mutual interests because they have shared life experiences and similar life chances regarding their health, education, childcare, and the kind of careers and lives they can expect. But mutual interests and shared experiences have become far less common in the UK and the US, both of which have reduced access and inclusion to increasing numbers of their populations. Currently in Britain, there are ten million British adults earning less than £15,000 per annum. Of these, close to three million are without work and not even seeking a job any more. These conditions are likely to persist through the generations because hard work and diligence will not matter. Reward and position will not correspond to talent, effort, or virtue, but will be determined increasingly by social origin and geography. The old corrective institutions – trade unions, cooperatives, and factories – are feeble and becoming feebler; they can no longer be relied upon to redistribute income or wealth. Meanwhile, schools will act as involuntary enforcers of class privilege and social status, while family background will become even more critical than it already is. “Society,” says Will Hutton, “values and needs wealth. But it should not be disproportional to effort, socially useless, or largely generated by luck, while those who possess it should not disavow any social responsibility or debt to the public institutions that have enabled them to acquire it.”44 Today, diminished social mobility reflects a growing social divide in the UK. Upward social mobility during the tenure of the last Labour government all but ceased. Though only 7 percent of British children were privately educated, they accounted for 75 percent of judges, 70 percent of finance directors, 45 percent of

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top civil servants, and 32 percent of MPs. Given current trends, tomorrow’s professionals and leaders will come wholly from the richest 30 percent of families. The Sutton Trust has argued that if the “bottom” were to be lifted to a high educational attainment, by 2050 British GDP would be raised by 4 percent, or a cumulative gain of £1.3 trillion over the next four decades. How can all these qualitative and quantitative changes come about? Certainly not by relying on the market.45 The US fares little better: well over half the population believes that their children will be far worse off than the parents of today. Confidence in upward mobility, once the hallmark of the US, has evaporated. Nor is there sufficient evidence to believe that economic conditions will improve for much if not most of the population. The disintegrating public sector in the US and the UK has come with a cost – which we are still paying. As public goods have diminished, it has become increasingly difficult to understand what we all have in common. If shared purpose is no longer relevant, then what is it that binds us together as a nation? If we are not working toward a common goal, which includes all of us, then we are alone. And without a sense of collective identity or common purpose, democracy becomes little more than self-indulgence, or individual consumption, and the state no more than an organization for the protection of the assets of the affluent. The latter increasingly withdraw into private compounds protected by a state which was – and is – increasingly indifferent to the claims of the growing numbers of the impoverished and unemployed. Without a benevolent state, and a shared experience in relating to public authority – and public policy – there is no longer a meaningful sense of shared citizenship. And without public goods that are all-inclusive, benefiting all members of society, there is an inevitable evisceration of civic sensibilities. In such a society, citizens no longer have claims upon each other and upon the state: as a result many withdraw from the public arena altogether, alienated and devoid of ideals. We can all agree that 1989 symbolized the death of apocalyptic visions of the future. Communism as political utopia failed, and after 1989 its end was widely heralded. And yet its purported replacement, neo-liberalism, has also failed: as a creed for the future, it has become the latest failed utopia, rejected by much of the world which sees it only as a new form of invidious Western, especially American, hegemony. What we must learn from this is that history does not always turn out the way we think it will; hope is often frustrated by the collective inability to steer it in a chosen direction. But this only begs several questions: should we abandon human intention to History writ large? Does constraint compromise human rights, or make it possible to exercise them? And if we are able to accept some restraints as necessary and proper, why not others? Do we really want to believe that progressive taxation, the common ownership of public goods, and the regulation of commerce, are intolerable? And if these provisions are unacceptable, why are foreign wars, the daily intrusion into our lives in the name of enhanced security, hundreds of billions of dollars of bailouts for banks speculating with other people’s money, and tax credits for corporations to encourage investments – which are then made abroad – any more desirable?

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Reclaiming the state: reinventing democracy It has become self-evident that the political institutions of Anglo-America are now dysfunctional: parliaments, senates, presidents and prime ministers, elections and lobbies, have all been degraded, abusing the trust that was formerly put in them. It is also self-evident that we need new laws, electoral regimes, and reform of campaign financing and lobbying. But none of this is happening, and for good reason. The people who should be leading the charge for reforms are the ones who have the most to lose by enacting them. They have managed the institutions that led inevitably to the Great Recession and the emergence of the society of Great Inequality. They are the same elites who have invited Wall Street and the City into the recesses of government to make and defend the policies that have created the modern messes. Some of the leaders of these institutions even refuse to admit that government policies – unleashing capital markets, for example – or debilitating unions, or relieving the rich while ignoring the middle classes (think of the housing markets in the UK and the US), are the causes of the crisis: the crisis, they assert, is caused by cheap Chinese labor, globalization, the lack of training and/or skills, debt, and deindustrialization generally. Nowhere are the escapades of investment banks and the fraudulent instruments they have created, which were deregulated by Washington and London, put down as leading to the current crisis. It is tempting to believe or to hope that some politicians will sooner or later ignore the mathematical models and rhetoric of the experts and drive the streets of London, or Detroit or even Washington, and observe what is in front of them. If they did so, would they still exempt the City and Wall Street and the economists who defend them from blame for the Great Recession? Would they still admonish the unemployed to acquire skills that will do them no good? Would they be willing to tell the poor and the middle class that they are better off if the government spends less (on them) while continuing tax breaks for the affluent, who claim they should be entitled to keep the wealth they have created? Would they continue to bail out the rich, while standing by as families who bought artificially overpriced houses are evicted? Would they continue to insist the economy is growing although much of the growth is in the money economy, not the real economy inhabited by most of us? The big surprise in contemporary politics is the paucity of dissent. Ordinary citizens have forgotten that they have the right to participate in public conversations; they have in sum lost confidence in their own instincts – not a surprise in Anglo-America where the public is hardly encouraged to defend or to express dissenting views, except in opinion polls where their views are tabulated often for their usefulness for the next elections, but hardly to plumb social and political alternatives. In fact, if public opinion polls were taken seriously, Anglo-American political, economic and social institutions would reflect a vastly different environment. In the US, a number of polls have indicated that the majority of Americans would have preferred a single payer system for national health care, where the only insurer is

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the government. This, however, was one option that both Democrats and Republicans avoided; after all, this was not preferred by private health insurers, hospitals, and pharmaceutical companies. Across the Atlantic numerous public opinion polls have demonstrated that the English are apprehensive about the privatization of public goods, including utilities, the London Underground, regional hospitals, retirement homes, and even nursing services. When told that these services had to be privatized to save the public money and to improve efficiency, the public swallowed the argument. But once again, as we know, privatization has in many cases been to the distinct disadvantage of the public in whose interest privatization theoretically occurred.46 When told by neo-liberal economists that the Great Recession was caused by Keynes, or China, or public debt caused by the welfare state itself, or technological displacement of jobs, many tend to believe it. Even when common sense and our own observations tell us that deregulating the capital markets has completely failed us. And even when we observe that the greatest beneficiaries of the largesse of the state are the super-affluent, we readily believe the ‘experts’ if they tell us the Market is infallible, efficient and just. And because we think we no longer have any alternatives, we conclude that the rich deserve their wealth, and that the welfare state is not only expensive and unaffordable but is also preventing growth, reducing efficiency, and ultimately costing jobs.47 And so once again we are forgetting that many of the super-wealthy acquired much of their wealth fraudulently, or because of the crisis that they helped create (derivatives again and bailouts and bonuses subsidized by taxpayers and corporate takeovers and currency speculation). But the super-wealthy do not need to depend on acquiring wealth fraudulently, not when they can inherit it and then defend their inheritance as the result of legitimate wealth creation to which they are entitled. Thomas Piketty, in his magisterial work, Capital in the Twenty-First Century, has explained why wealth has become super-concentrated in the latter decades of the twentieth century and the first decade and a half of the twenty-first century. One reason is that the return on capital for the same period, roughly 4–5 percent per annum, was much greater than the growth of GDP for the same period, roughly 1–2 percent. This means, inevitably, that much of the new wealth goes straight to the top. But we know this already. What makes the work of Piketty especially vexing to conservatives is that he directly challenges the myth that the owners of wealth are also wealth creators. The role and magnitude of inheritance is much greater than we are led to believe. And, insists, Piketty, the concentration of wealth through inheritance is unlikely to be reversed, no matter how free and competitive markets become. On the contrary, “inherited wealth probably accounted for at least 50–60 percent of total private capital in the United States in 1970–1980.”48 There is no reason to think this has changed since. Nor is the US unique: the UK has roughly emulated the US in recent decades, even if wealth in the UK is still somewhat less concentrated. But, suggests Piketty, the high concentration of wealth is likely to rise further, especially given the modern neo-liberal ideology of the perfectly efficient market and the myth that the super-wealthy deserve their wealth. In other words, we are stuck with a modern class of rentiers living off their capital.

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So why does neo-liberal ideology continue to hold sway over ‘opinion’? Consider the following statement summing up the dominant neo-liberal (market fundamentalist) ideology of today: The completeness of the [neo-liberal] victory is something of a curiosity and a mystery … That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often palatable, lent it virtue … That it could explain much social injustice and apparent cruelty as an inevitable accident in the scheme of progress, [with] the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted the support of the dominant social authority. But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, over the course of time, the prestige of its practitioners. For professional economists … were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation; a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists.49

This statement was not made by a radical economist reflecting on the Great Recession of 2008, nor was it uttered by some insouciant modern critic trying to explain why the collapse of Wall Street and the City was somehow the fault of China, or debt, or technology, or even of Keynes: anything but the financial world and its penchant for gambling with other people’s money and then transferring risk to those from whom they borrowed. On the contrary, this was John Maynard Keynes, himself, describing how an earlier generation of laissez-faire market fundamentalists had helped bring us the Great Depression, and then counseled the same as today, a diet of austerity, deregulation, and a free market without government ‘intrusion’. We have heard this before. When we listen to an economist like John Cochrane insisting on public television (17 February 2010) that government spending has no net effect on the economy, or when he cynically repeats the nostrum that you cannot fool Mother Market (as Philip Mirowski wryly puts it), or when Cochrane says that “the economy can recover very quickly from a credit crunch if left on its own,” we should trust our own memories and instincts rather than the conceited wisdom of Cochrane.50 Over in the UK, in 2010, Mother Market was also being touted as the way to go, by both Chancellor George Osborne and like-minded economists. Undergirding Osborne’s conviction was faith in the efficient markets theory and the (spurious) claim that all relevant information for each party involved in a transaction was embodied in the market price of a financial instrument. And just in case the market was a trifle off, there were also derivatives providing insurance against failure. And if the insurer failed to pay off? Well, there was the government standing in the wings to enforce contracts: which ultimately would mean bailing out the insurer

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because contracts after all are legally binding.51 But let us return to Chancellor Osborne. He resorted to reliance on the efficient markets thesis as the way to grow the British economy. Back in 2010, he adopted a strategy of promoting economic growth through fiscal austerity and budget cuts. On 14 February 2010, twenty British economists signed an open letter supporting this strategy. Unfortunately, the strategy failed, and continued to fail, prompting further contraction of the economy, and pushing Treasury far beyond its spending limits. In other words, no deficit reduction – quite the contrary – and rising unemployment levels.52 But even this failure did not disturb the economists, some of whom even blamed Keynes for the crisis; forgotten in this was the inconvenience of the letter the economists had signed. On the other side of the Atlantic it was much the same: market orthodoxy continued to reign, so much so that after he became head of the FED in 2005, Ben Bernanke testified to Congress, on 20 July 2006, that “the best way to achieve good oversight of hedge funds [wa]s through market discipline.”53 But we already know about the failures of market discipline. What we have not been told by the FED, however, is the magnitude: according to Philip Mirowski, in the wake of the Great Recession, the FED made loans of $7 trillion to financial institutions at negligible rates of interest without a specific quid pro quo (leaving the way open for bonuses at financial institutions). Among the saved were Citigroup and Morgan Stanley, receiving $2 trillion each, and some foreign banks like UBS and Barclays, as well as other lesser billionaires and millionaires with addresses in the Cayman Islands.54 These items are worth repeating; after all, the economists who defended market fundamentalism and the financiers who were bailed out had assailed government intrusion, at least up until bailout time. That is, these were the same principals who had vehemently opposed stimulus packages as a way to refloat economies, expand employment, and provide necessary skills and education. They also argued that the loans had all been paid back, and therefore the public had lost nothing. But this omits the millions who had lost their homes, or their jobs, or their hopes, and it says nothing about the growth that could have occurred had there been no crisis at all: nor does it consider the distortion of the polity when too much financial power is concentrated in too few hands, allowing the plutocratic few to sideline (or capture) the government and largely avoid the regulations that might have prevented the Great Recession. Above all, we should ask what would have happened had the US put a share of the $7 trillion spent bailing out gambling institutions into direct investment in infrastructure, research and development, and education. Much the same could be said of the UK, even if the sums are somewhat less. Which returns us to the question: what can a (social) democratic state do to solve problems in the modern age? Can it create meaningful work, or provide the capital that is necessary to rebuild cities and infrastructure? Can it put a wall between a parasitical wealth management industry and the real economy from which it extracts wealth? What is left of the prescriptions given us by Keynes? Are these no longer possible in an age in which the developed countries have aban-

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doned exchange controls over the movement of capital? Is demand management – creating jobs so that workers can also become consumers – no longer feasible because manufacturing jobs have been exported to China? There is an answer to these questions if we remember that we are collectively the authors of our institutions and our cultures. As such we can change what we do not like. We can retain our entitlements, and we can preserve the values on which they are based, but we shall have to become far more engaged in mutual responsibilities. That is because we can no longer depend on the market to do everything for us. We must find a better way to invest in what really matters to most of us, especially in research and innovation. That means encouraging genuine innovators with generous government support, within a system of proportional reward: it does not mean deregulating capital markets which drains resources from the real economy to be used elsewhere. Today, nobody expects miracles from the market, despite the odd economist who still touts the market as universal panacea. The collapse of the financial system and our economies has inclined many to look toward the state again, though in the US a strong distrust of government remains, prompted especially by fringes on the political right. But we have learned that innovation can only be achieved by governments taxing and spending, leading the process of research and development, massively investing in schools, and rebuilding infrastructure. Erhard Eppler has reminded us that “the neoliberal penchant for replacing politics with the market at every opportunity is … doomed to failure.”55 Friedrich Naumann tells us why this is true: because the only thing that makes real freedom possible is social security, to be free one must know where the next month’s wages are coming from. And here is journalist Heribert Prantl, writing at the end of March 2004: “When inequality exceeds certain limits, it becomes a form of servitude. The risk of this is greater now that it was 150 years ago – and it is the job of the state to prevent that risk from arising. To that extent the right to social justice is the right of our citizens to expect action on the part of the state to avert excessive inequality by appropriate means.”56 Which is why the social security state and social democracy matter so much. For without a democratic state, one dedicated to maintaining social equality, we will have only the market despite its massive failures.

Notes   1 Joseph E. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our

Future (New York: W. W. Norton & Company, Inc., 2012), 74.

  2 Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 145.   3 Richard Wilkinson and Kate Pickett, The Spirit Level: Why Greater Equality Makes

­Societies Stronger (New York: Bloomsbury Press, 2010), 238–41; and World Bank, The East Asian Miracle (Oxford: Oxford University Press, 1993).   4 John M. Page, as quoted in Wilkinson and Pickett, Spirit Level, 239.   5 Wilkinson and Pickett, Spirit Level, 239–40; see Richard Titmuss, Essays on the ‘Welfare State’, 3rd edition (London: Allen and Unwin, 1976).   6 Wilkinson and Pickett, Spirit Level, 239–40.

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  7 OECD, “How’s Life? At a Glance,” in How’s Life 2013: Measuring Well-being (Paris: OECD

Publishing, 2013), 40, 42. See especially figures 2.2 through 2.5. The entire document may be accessed at http://dx.doi.org/10.1787/9789264201392-en. Accessed 4 September 2014. See also James K. Galbraith, The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too (New York: Free Press, 2008), 92–4.   8 Ibid., 94. Italics are Galbraith’s.   9 Ibid., 124. 10 Ibid., 130–1. 11 Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Picador, 2007), 15. 12 Ibid., 18. 13 Ibid., 16. 14 Ibid. 15 Ibid., 17. 16 Galbraith, Predator State, 140–1. See also Heiner Flassbeck et al., Economic Reform Now: A Global Manifesto to Rescue our Sinking Economies (New York: Palgrave Macmillan, 2013). 17 Galbraith, Predator State, 142. 18 Ibid. 19 Ibid., 133. 20 Will Hutton, Them and Us: Changing Britain – Why We Need a Fair Society (London: Little, Brown, 2010), 172. 21 Ibid., 173. 22 Ibid., 174. 23 See Jeffrey D. Sachs, The Price of Civilization: Reawakening American Virtue and Prosperity (New York: Random House, 2011) 129–30. 24 Hutton, Them and Us, 279. 25 Peter H. Lindert, Growing Public: Social Spending and Economic Growth Since the Eighteenth Century, vol. 1, The Story (Cambridge: Cambridge University Press, 2004), 280–1. 26 Hutton, Them and Us, 292. 27 Ibid., 293–4. 28 Ibid., 294–6. 29 Ibid., 143. 30 Stewart Lansley, The Cost of Inequality: Why Economic Equality is Essential for Recovery (London: Gibson Square, 2012), 60. 31 R. E. Rowthorn and J. R. Wells, De-Industrialization and Foreign Trade (Cambridge: Cambridge University Press, 1987), especially chapter 10. 32 Andrew Glyn, Capitalism Unleashed: Finance, Globalization, and Welfare (New York: Oxford University Press, 2007), 98 33 Lansley, Cost of Inequality, 61–2 and Tom Nairn, The Break Up of Britain: Crisis and Neo-Nationalism, 2nd edn (London: Verso, 1981), 392. 34 Lansley, Cost of Inequality, 62–3. 35 Hutton, Them and Us, 145. 36 Ibid. 37 Ibid., 150–1. George Irvin, Super Rich: The Rise of Inequality in Britain and the United States (Cambridge: Polity Press, 2008), 2–3, 31, 36, has commented also on the cozy relationship between New Labour and the financial industry. 38 Hutton, Them and Us, 152–3. 39 Ibid., 153.

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40 Ibid., 154. See also Irvin, Super Rich, 36. Irvin dismisses the notion that so many jobs have been lost to globalization. Globalization, he concludes, explains everything and nothing. He estimated that fewer than a million US service jobs had been lost because of globalization as of 2008. 41 Hutton, Them and Us, 175–6. 42 Ibid., 176. 43 Judt, Ill Fares the Land, 176–7; see especially Galbraith, Predator State, 69–70, 185–92, where he debunks “comparative advantage,” because among other factors knowledge in the information age can be acquired anywhere. However, he argues that developed countries like the US and the UK must protect and develop more high-wage jobs, as do Scandinavia and Germany. The net effect is not to make the products of highly skilled workers too expensive, but to make the firm that employs more highly skilled workers more efficient, and, therefore, more competitive. 44 Hutton, Them and Us, 272. 45 Ibid., 273 46 Judt, Ill Fares the Land, 176–7. 47 For a refutation of this view, see Lane Kenworthy, Egalitarian Capitalism: Jobs, Income and Growth in Affluent Countries (New York: Russell Sage Foundation, 2004); and Lane Kenworthy, Jobs with Equality (Oxford: Oxford University Press, 2008). 48 Thomas Piketty, Capital in the Twenty-First Century, trans. Arthur Goldhammer (Cambridge, MA.: The Belknap Press of Harvard University Press, 2014), 428. 49 John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace and Co., 1936), 32–3. The puzzle brought up by Maynard Keynes, why neo-liberalism remained ascendant, despite the catastrophic failures to which it contributed, is taken up by Colin Crouch, The Strange Non-Death of Neoliberalism (Cambridge: Polity Press, 2011); and Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (London: Verso, 2013). 50 John Cochrane, as quoted in Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (London: Verso, 2013), 176. 51 Ibid., 176–9. 52 Ibid., 176. 53 Ibid., 182. 54 Ibid., 185. 55 Erhard Eppler, The Return of the State, trans. Allan Blunden (London: Forumpress, 2009), 150. 56 Heribert Prantl, as quoted in Eppler, Return of the State, 160.

7

Rethinking the past: reimagining the future The past is never dead, it is not even past. — William Faulkner

The myth of globalization as the end of history Shortly into the twenty-first century, a new master narrative resurrected the old mythology of globalization: universal economic and financial integration would lead all of us to endless productivity and unlimited economic growth. Implicit in all of this was that all of humankind would benefit, improvement was endless, and in any case it was inevitable. Globalization, accompanied by technological innovation and rational methods of management, was the ineluctable result of the laws of economics, and it was good for everybody. As we are learning, however, the globalized economy has not produced anything like greater equalization of wealth, even if there are fewer economic disparities between countries – which is also disputable. Despite all the rhetoric that globalization is going to transform life for the better, and that sustained economic growth is by definition a good thing, advanced Western economies – notably in the UK and the US, but in pockets of continental Europe as well – have experienced levels of inequality and disparity in wealth and income last seen seven decades ago. Nor have developing countries such as India lived up to all the acclamations of neo-liberal supporters of globalization, which is nothing more than a mantra for free markets. India’s per capita GDP in 2006, after decades of growth, remained at $728, just ahead of sub-Saharan Africa. By 2012, India’s per capita GDP had risen to $1,489, almost doubling its 2006 mark, but still only slightly ahead of Zambia and Vietnam. On the UN’s Human Development Index, India ranked some seventy places behind Cuba and Mexico.1 In 2012, India still remained more than seventy places below Cuba and Mexico. As for modernization, India has hardly advanced despite its participation in a globalized economy. Of India’s 400 million workers, only 1.3 million hold jobs in the high-technology industry and service sector of the economy. China has doubled its per capita GDP between the years 2006 and 2011, from $2,651 to $5,430, but this has largely been driven by low wages – and low rights – which have attracted capital investments from many of the developed economies. 179

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The advance in per capita GDP there is not a result of the miracles wrought by globalization, but rather because of the shift of industrial production generally to China and other low-wage countries – the result, also, of low rights. The globalization of the labor market, therefore, favors low-wage, repressive regimes such as in China. And this in turn has had an impact on the rights – and wages – of countries that must compete with China.

The age of globalization: who really benefits? Globalization is nothing new. It had a long history before the modern name for it was adopted. The nineteenth century celebrated the emergence of a global economic order, whose arrival – like its modern counterpart – was supposed to bring unprecedented prosperity and stability. The internationalization of wealth would defuse great power rivalries for the control of markets, the monopoly of resources, and the quest for profits. Given advances in industry, communication, transport and trade, petty quarrels over borders and colonies were deemed absurd: why fight wars when everybody stood to gain by simply sharing the wealth? In short, global markets not only seemed to make universal progress inevitable, they also made it possible to replace the nation-state as the focus of human activity: why fight for national advantage, making wars more likely, when the internationalizing of markets solved everything? Despite the new faith, two world wars sandwiched around the Depression followed. Yet, today, it is as if we have forgotten the twentieth century. A new master narrative has emerged of “integrated global capitalism,” based on assumptions of earlier master narratives that were much the same thing: endless economic growth and indefinite productivity gains are good for all of us, and in any case they are all part of our destiny, a part of natural law, not human intention.2 But we should be skeptical about such claims: embracing technology, and the ‘laws’ of capital(ist) development excludes politics and policies as arenas of choice, and assumes that economic relationships are a result of nature: we have simply to understand these laws better to take advantage of them. Absent in this narrative of the end-of-history-utopia that awaits all of us are a number of realities lurking in the shadows of the latest fashionable ideology. Although rapid economic growth has come to China and India and Brazil and other countries, and while gaps between countries may have diminished, wealth and income gaps within developed countries, especially in the UK and the US, have increased to levels unprecedented in the modern era. Moreover, even in China and India, much of the new wealth is concentrated at the top, just as it is in Anglo-America. And this is not just the ‘inevitable’ result of globalization: it is often the ‘captive’ state that has pursued policies which have led to sharp social polarities among us, while instilling in us the belief that globalization is good for all of us, and in any case it is irresistible. The result is that governments are more relevant than ever. As many of us have already discovered in the wake of the Great Recession, it is the withdrawal

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of the state that has produced our contemporary crisis. Deregulation, especially the unleashing of capital markets and the dismantling of social programs, which have gone much further in the US and UK than continental Europe, has been credited with the economic growth we are all said to need. But much of the growth in developed countries has been an illusion. Half the growth in the UK between 2000 and 2008 was bogus, unsustainable, and illusory. Although the contribution to the economy in the UK made by financial services – the bubble effect – more than doubled for the same period (rising by 123 percent), manufacturing shrank by a quarter and mining by more than a quarter. During the post-millennial so-called boom years following 2000, the money and productive sectors of the economy were moving in opposite directions. What followed was far worse: as the world economy plunged into deep recession, the worst since the Depression years, economic output in the UK fell by over six percent in 2008–9, while in the US it fell by 4 percent. In the wake of global recession, unemployment levels soared around the world. The ‘economic miracle’ of globally integrated markets was now exposed for what it really was. Freer markets with upwardly escalating rewards – and rising inequality – had failed to deliver as promised. Freeing the market, as the new orthodoxy had preached, had only had a negative impact on the real economy. Deregulation and increased market flexibility produced greater inequality and instability.3 And inequality exacted its own price. The bipartisan US Financial Crisis Inquiry Commission, which published its findings about the causes of the Great Recession of 2008–9 in January 2011, blamed many of the actors from politicians, regulators, and Wall Street banks, to credit rating agencies, for the collapse of 2008, but it failed to mention even once the word ‘inequality’ in its mammoth report.4 Yet British economist Gary Holtham linked inequality directly to deregulation of the financial and labor markets, and the hands-off policies of government, noting that profit growth had outstripped wage growth, setting up imbalance and ultimately economic collapse.5 Absent in his calculus was ‘globalization’. Economist Stewart Lansley came to similar conclusions: he found that the wage squeeze had played a major role in the recession; had the wage share in the US held steady at 2001 levels it would have led to a mild boost in consumption and growth, a weaker recession and a slightly faster recovery, lower asset prices, and lower debt levels. Moreover, as Lansley argued, in both the 1920s and in the pre-2007 period, inequality rose sharply prior to deep recessions, which it helped cause.6 The other side of declining wage shares was cash surpluses, producing monumental liquidity for the ever-growing banking and financial sector, which then injected higher and higher levels of risk into its financial speculations. As a consequence, Britain’s power elites dominated politics as never before: and as we know, this was true under both Labour and the Conservatives.7 In 2010, City donors, including a mix of bankers, hedge fund managers, and private equity financiers, contributed more than half the donations received by the Conservative Party, a significant sum of £11.4 million. A half-decade earlier the City had accounted for only a quarter of the contributions, while in the five years leading up to 2010,

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the City donated £42 million to the Conservative cause. The influence of the City became so pervasive that British economist Stewart Lansley called the Treasury itself little more than an “outpost” of the City. It was City lobbying that convinced Treasury to support financial innovation and the notion that the City would be the generator of economic growth. Thus, the force that drove instability was primarily internal: as the accountability of the City – and Wall Street – declined, the inevitable outcome was turmoil.8 As a result of what was euphemistically called financial innovation – or the easing of restrictions – it became typical for banks to innovate in mortgage lending by extending loans up to more than five times the income of a family. In the UK, Northern Rock became a pioneer, often lending more than the value of a house, 125 percent, for example, in order to create incentives to borrow. With the prices of homes being pushed up constantly by the ease of credit, homes became cash cows for borrowers, at least until the crash. As a result, personal debt soared in the UK, until it was unsustainable. What followed was predictable: 40,000 home repossessions in 2008, double the 2005 figure. The number of households in arrears was 183,000. Personal bankruptcies, which averaged 22,000 annually in the 1990s, reached 120,000 in 2008.9 It was much the same in the US. Once again, turbulence had arisen from domestic policies enriching the few at the expense of the many: as for globalization, this was a convenient rationalization, but hardly a cause of the increasing concentration of wealth at the top. Globalization became more a means to transfer and conceal wealth abroad – it was as much the result as the cause of the new rules of finance. Not surprisingly, as the financial markets were increasingly liberated from government restrictions, on both sides of the Atlantic, the increasing power of the financial sector was used to increase its wealth even more, always with the complicity of politicians. Britain’s power elites – the same was true for America’s business and power elites – used their expanding influence to establish tax havens, dozens of them, creating mock subsidiaries around the world. They then transferred their profits to low-tax countries, or simply sent hot cash into and out of countries by speculating on currency fluctuations – which speculation often caused. The result was quick profits that were almost impossible for governments to find, measure, and tax, presuming of course that they wanted to do so. A consequence of the enrichment of business executives through massive rewards for themselves was the divergence of their interests from those of the real economy where most people worked. Business incentives were now more perverse than ever. It became easier, given the new rules of deregulation, to make money using strategies that were unproductive: speculating in the money economy; buying assets (takeovers) and then stripping them; real estate speculation fueled by easy access to government money; and financializing (leveraging) assets, which ultimately fueled risk-taking and speculation, shielded increasingly by a withdrawing, deregulating government. In conclusion, it was not globalization that was destabilizing Anglo-America, so much as the rich who were able to capitalize on the rules of globalization that they had helped to establish to their singular advantage.

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Why globalization does not mean the end of social democracy Once again, we hear the same rhetoric we heard before the great crash of 2008: because of the intensity of globalizing markets, we must all accept a vision of society in which the competition for wealth is the only recognized value, and virtually all social decisions are best left to unregulated markets. The role of government should be reduced to the protection of private property. To protect jobs, to maintain high levels of social protection, and to keep taxes high to do so will only lead to inefficiency and the inability to compete in international markets. Government regulation, in other words, will cost us much more than a government that withdraws from the market. We have heard these arguments before. In the postwar decades the policies of welfare states did not matter as much for the economic viability of advanced industrial countries. The international economic environment was not the challenge it would become. That was because the nation-state still controlled its economic borders – something that eroded in the 1970s and 1980s. Until the change, exchange rates were still adjusted by the policy decisions of nation-states rather than currency markets (following the collapse of Bretton Woods in the early 1970s), and countries could readily impose tariffs and non-tariff barriers to trade. As long as nation-states controlled their own economic boundaries, then, they still had choices making welfare states feasible. They could, as Fritz W. Scharpf and Vivien A. Schmidt have argued, decide between “lean and generous public benefits, between tax-financed and contribution-financed social security, and between restrictive and liberal regulations of production and employment.”10 All these choices could still be determined by domestic political decisions rather than the “compulsion of international competition.”11 The authors acknowledged that imports would still have to be paid for by exports, but differences in average production costs caused by welfare state taxes and regulations could easily be made up by the choice of an appropriate exchange rate. Who actually paid the costs of the welfare state within domestic economies did not matter so long as governments could adjust currency values to account for structural differences: “whether taxpayers, consumers in the form of higher prices, workers in the form of lower net wages, or capital owners in the form of lower profits” should pay the costs of welfare benefits was not contentious as long as those costs could be borne by adjusting exchange rates with little if any sacrifice by taxpayers, workers, or employers.12 So what changed? And why did it matter? In the simplest terms, national economic borders disappeared: exchange controls over capital movements were eliminated, fixed exchange rates were replaced by floating exchange rates determined by the market, and tariff walls were lowered or abolished and replaced by international trade agreements that – in theory at least – created a borderless world. Citizens who had long embraced the social security society that had been fashioned in the postwar decades in the West were now told to expect adjustments: life would be different and social welfare would be less secure, but the borderless world would ultimately bring all of us great benefits. We would have to work

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harder and better, but we would become leaner and more efficient, while those who could not compete would have to make adjustments by acquiring the education and skills needed in a more demanding labor market. The new world order was presented as an accomplished fact, inevitable and desirable. Jeff Faux has given us an apt summary of this argument – which he summarily dismisses – in which we can still hear echoes of Presidents Bill Clinton and George W. Bush, as well as Prime Ministers Margaret Thatcher, Tony Blair, and Gordon Brown: We are entering an information age that is obliterating economic national boundaries. It is a time of change equivalent to the shift from the agricultural to the industrial age. The resulting deregulated global economy is bringing freedom, democracy, and technological wonders to the rest of the world. In order for you to survive and prosper in this new global market you will have to compete against some six billion people out there, most of whom will work for a lot less than you will. The price of labor is set in South China, where people will work for onetwentieth of your wage. If you want to live better than the Chinese, you have to be more than twenty times more efficient. Therefore, you should get all the technical training you can get, be willing to work longer and harder, and make wise investments. You are on your own.13

Globalization, in other words, was eliminating the economic security that had formerly been taken for granted: social security once provided by the pooling of risks through social insurance, subsidized higher education, and collective bargaining could no longer be maintained in the face of international competition and the borderless world. The social security world of the past was now the Social Darwinist world of the present. The only law that mattered was the law of buying low and selling high: the social contract of the past was no longer affordable, nor was it even fair since it awarded those who could not compete in the market by increasing their social security benefits without insisting on their obligation to earn those benefits with their work. But it was not only international competition that provided an opportunity for reshaping the global economic and financial architecture. The collapse of the Soviet Union, and earlier the ‘opening’ of China to the West, created new possibilities also. The failure of communism to become an alternative model to the liberal-capitalist West meant the foreclosing of utopian models as possible future. Capitalism was as good as employees were going to get, not the managed Keynesian version, but the new neo-liberal version which told workers they were on their own, and it was good for them. And so the new world of globalization arrived, not because it was inevitable (in the way that it arrived), and certainly not because it was desirable, as we have seen, nor even as a result of some intractable economic logic. Nor was it more efficient or fair: we have seen the inequality gaps that opened up and the concentration of wealth that emerged in the Anglo-American world. What did matter – though it was rarely stated – was that the ideas of Friedrich Hayek and Milton Friedman at last took hold: absent communism or socialism, and opposing ideologies suggesting alternative futures, and given the weakening power of unions in both the UK and the US, virtually the entire globe was open for business. Integrated

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markets would now become the rule, much to the advantage of those who could create and shape them. At last, corporations and investors, unburdened by limits on the movement of capital and tariff walls protecting domestic economies, and lured by an increasingly integrating global economy (which they were helping to create), could escape the leash of social regulation. Once the business elites in Anglo-America understood that their interests no longer converged with those of their home countries – in fact there were no ‘home countries’, Big Business was after all multinational – then there was no more reason to protect workers who were readily replaced by cheaper labor elsewhere. Nor was there reason to see workers as anything more than a cost of production, less costly in less developed countries. In truth, why defend a welfare state which was funded by corporate taxes, why protect workers who were redundant, and why accept accountability for easily replaced and costly employees? After all, there were now alternatives. American and British corporations understood intuitively the advantages of outsourcing production to places where labor costs were cheaper, where environmental standards were non-existent, and where corrupt or vulnerable governments could easily be convinced to keep labor unprotected. The ability to produce elsewhere and still sell in America – and in Britain – would allow the corporate world to abandon the irksome twentieth-century social contract. Multinationals were not naïve, they had to be sure they could open up the US and the UK economies to imports from abroad, but to do this they had to permanently eliminate import restrictions to ensure that products produced elsewhere could be marketed at home. And to ensure this, they had to discredit Keynes while embracing an increasingly competitive world that they were helping to shape, and in which they were, inevitably, sure to be the greatest beneficiaries. Keynes’ economics required that a government’s influence should extend to and be restricted by its national borders. If government policies were to work, there had to be walls or limits. National economic borders were necessary, otherwise government-induced spending would draw in imports, rather than expanding domestic employment.14 Keynes was not a protectionist, but he acknowledged that the capacity of the government to maintain full employment was strongest when the economy was reasonably self-contained. He advised that countries should keep their foreign trade and investment at modest levels and for good reason: after all, the post-World War II social contract, and the profits of capital, depended on workers as both producers and consumers. Full employment was necessary for shared prosperity in an economy that depended on a growing domestic market: which was why this became an enduring objective of the Nordic social democracies and even of many of the continental welfare states. Keynes was prescient, he foresaw the coming dangers of deregulating capital and labor markets. As economies globalized, high wages buoying the domestic economy and the taxes needed for social protection put domestic firms at a cost disadvantage by comparison with firms in other countries with low wages and low levels of social protection: if goods can be manufactured anywhere, why not in the countries with the lowest taxes and the most desperate workers? For Big Business, this meant supporting and abetting compliant governments needing capital

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in their domestic economies. In return for cash, Big Business wanted restrictions on foreign ownership lifted: this included the privatization of foreign-state-owned utilities and other industries, low business taxes, weak unions, and low or nonexistent environmental standards. The ultimate intention was to achieve ‘free trade’ globally, though earlier all developed nations had succeeded under regimes of managed trade which enabled them to become competitive. This augured well for the corporate rich: but it was hardly a good omen for the working classes, especially in the US and the UK, where the deregulation of capital and labor markets had been pushed much further than the continental social democracies and welfare states. When Bill Clinton, supported by Republicans, supported the entry of China into the World Trade Organization (WTO) in 1999, he assured Americans that transnational clients were interested in China’s consumers, not its workers. But Clinton was wrong. In 2004, several years after China became a member of the WTO, the US sold $35 billion worth of goods to China; in return, it bought $197 billion. In 2005, the world agreement that limited textile and apparel imports into the US expired. Shipments from China soon surged 60 percent from the previous January. In January 2004, China had sent 941,000 cotton shirts to the US. In January 2005 it sent 18.2 million. And in that same month ten thousand workers were laid off by the US textile industry.15 This would seem to add weight to the argument that American workers were losing jobs because they could not compete with cheap Chinese labor. But this conclusion is misleading. That is because it was not cheap Chinese labor that was flooding the world’s markets. It was, as Jeff Faux has put it, “Chinese labor combined with the capital of ‘American’ and other first world transnationals who persuaded a Democratic president and a Republican Congress to approve China’s entry into the WTO, and therefore the US market, with no protection against China’s virtually limitless supply of exploited labor. Today, some 60 percent of China’s exports are shipped by foreign firms.”16 Moreover, China is hardly unique. Transnational firms can now produce goods and services in thousands of locations throughout the world, from India to China, from Indonesia to Malaya, without the ‘annoying’ interference of governments offering social protection to their workers. As Jeffrey Garten, one of the architects of the new global order, has warned, the US has to figure out how to promote research and development at home when so much of it is now dispersed abroad. Garten concluded that the interests of US multinationals no longer dovetailed with the US national interest.17 And what was true of the US was also true of the UK: its elites had interests diverging far afield from those of the British population. In 2012 China exported $46.3 billion in goods to the UK, while importing only $16.8 billion from the UK. The same year, British direct investment in China reached $18.1 billion.18 An apt illustration of the divergence between the interests of the financial and political elites and everybody else in Anglo-America was unintentionally made by Bill Clinton during the years of his presidency. Throughout his tenure he told Americans to go out and get the training they needed for the good jobs in the emerging global economy. Americans listened, went to college, or entered business schools, while many others returned for retraining. After all, they believed

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that those with the right skills would be able to secure employment as programmers, accountants, financial researchers, medical technicians, biochemists, technical writers, and many more niche occupations that would be lucrative and were badly needed for the global economy. As a result, even those with the requisite training, but without college education, prepared for employment in the coming call centers, or for work as bookkeepers, in drafting, or in computer maintenance. But Americans were once again to be disillusioned: they found out that globalization was not to their advantage after all, but was in the interest of those who made the rules governing the globalizing economy. Americans, like their British counterparts, discovered that the outsourcing of production did not stop with blue-collar workers: given the direction of investment and trade, and the technology of the Internet, transnationals could outsource virtually any occupation to places in the world where labor was cheaper and governments more compliant. Suddenly, people trained as radiologists, auditors, computer programmers, and software engineers, having acquired the credentials they were told they needed to enter the new global economy, found themselves deep in debt, abandoned by the corporations they were promised would hire them after they had acquired their new skills. They also discovered that the same government insisting they match their skills to the emerging high-tech jobs was helping to shed those jobs by supporting companies that shifted research and development – and jobs – abroad. Trained in so-called areas of boom, many suffered the ultimate humiliation of training their replacement.19 It would seem, then, that globalization is undercutting the economies of the US and the UK, and in Europe to a lesser extent, and that globalization is costing jobs and undermining the social security systems set up in the decades following World War II. But this conclusion is somewhat misleading because there have always been ways to counter these challenges. For the US and the UK to secure any kind of competitive advantage, governments in both countries would have to invest much more – and much more continuously – in research and development and cutting-edge technology. They would have to invest in much more infrastructure than they are doing presently, and they would have to do the same for schools and education. That this is not happening is because governments in both countries have preferred austerity and tight budgets, citing fiscal deficits and the inflation they presume will follow, as reasons for shrinking government spending: it is the market after all. Or they simply have other priorities, such as bailing out banks. In both cases, deregulation and government withdrawal from the market have been costly. They have licensed Big Business to invest in low-wage, low-rights countries, which also have high skill levels that come cheap. Instead of domestic investment, Anglo-American business leaders, have presided over the erosion of the living standards of ordinary citizens in the brutally competitive world that business elites – and their political allies – have helped create. Buoyed by the rules of globalization they have established, without any restrictions on the outflows of capital, or the inflows of goods, and with government willingness to tolerate the evisceration of organized labor, facilitating the export of jobs, it is little wonder that many have concluded globalization is the problem: but it is the rules governing

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globalization, and those who make them, that have seriously undermined the Anglo-American welfare states and their ability to protect their citizens.

What can be done? To repeat: jobs are not being lost because of global competition between the Anglo-American economies and China. Jobs are being lost because the workers of America and Britain have been abandoned by their former employers. AngloAmerican workers are not competing against Chinese and Indian workers, they are competing against corporations which have found it cheaper to invest and innovate in China, and then bring Chinese-produced products to the UK and the US, governed by the trade rules of the WTO which they also helped to establish. And this does not even begin to address the evasion of taxes, through tax havens and the use of mock subsidiaries, costing the domestic economies of Anglo-America the capital that might have been invested in research and development at home, ultimately saving and no doubt developing the kinds of jobs that are increasingly being sent abroad. The results of corporate outsourcing – while keeping domestic markets open for the innovations made elsewhere – are predictable. The US has lost its once formidable lead in many of the key indicators of competiveness, while the British lag behind as well. The Japanese have taken the lead in robotics – robot density in the workplace – followed by Singapore, and Germany, Sweden and Italy in Europe. Several years ago the Japanese government predicted that every household would have at least one robot by 2015; the US could hardly make this claim, nor could the UK. Continental Europeans are well ahead of Anglo-America in fuel-efficient cars and appliances, while Switzerland has the world’s largest atom smasher. The US ranks tenth in the world in the number of twenty-four year olds with engineering or natural science degrees. American high school students rank behind some eighteen other industrial nations in math and science, while less than half of American high school students have studied a foreign language, a trend that does not appear to be changing.20 Finally, American public education has sunk to abysmal lows, dogged by mindless disputes over creationism, sex education, and the argument that home schooling is better than education in the public schools. But British schools are slipping too, despite the fact that the UK spends at comparatively high levels per pupil. In 2010, the Program for International Assessment (PISA), reported that Britain’s reputation for having one of the best systems of education was at risk. That year the UK ranked twenty-fifth in reading, twentyeighth in math, and fourteenth in science, just behind Poland, out of the 57 countries included in the study.21 As many in the US continue to debate global warming while accusing environmentalists of tree hugging, European businesses have generally been more committed to an enduring social contract. They have moved ahead in both low-tech and high-tech industries, motivated by the need to conserve resources because of the efficiencies demanded by social democratic and social welfare states. Increasingly, businesses are going high-tech, incorporating green building

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concepts that use more efficient location and design such as skylights and courtyards to maximize daylight; they have also resorted to using photo sensors to dim lights when there is sufficient daylight.22 Sweden’s IKEA has been a leader in adopting green business practices to help conserve the environment as well as to increase profitability. IKEA has placed solar panels on rooftops, reducing electricity use by half: in turn, it demands that its suppliers adopt green practices. IKEA also has installed its own miniturbines that run a decentralized energy grid, enabling the company to generate its own system of combined heat and power. This process, known as cogeneration, recycles the 65 percent of the fuel that is normally lost as wasted heat in the process of power generation, producing energy savings of about 40 percent compared to conventional generation, an obvious competitive edge. Nor is IKEA alone in conserving energy. About 25 percent of total power production in some European countries is generated by decentralized energy creation, while in the US only 4 percent of total power creation is produced using this technology; the corresponding figure for the UK is just over 7 percent.23 Europe’s technological prowess has often been compared unfavorably with that of the US. But the World Economic Forum’s “Global Information Technology Report 2008–2009,” which ranks nations by their advances in information and communications technology, tells a different story. The US ranks third, as might be expected, but seven of the top nations are European, and five of those are social democracies, including Denmark and Sweden in the top two slots.24 Social democracies can be quite competitive despite their enduring commitments to social welfare. The UK, however, does not make the top ten in this category. Under the aegis of the European Organisation for Nuclear Research (CERN), Europe houses the world’s largest particle accelerator and physics laboratory, close to Geneva, Switzerland. Some sixty-five hundred scientists representing eighty nationalities – about half of the world’s particle physics community – conduct research at CERN. Nearby, in southeast France, an international consortium led by the EU, with assistance from China, Japan, Russia, the US, and other countries, works on the first fusion power reactor which, with minimal radioactive waste, has the potential to produce almost unlimited power.25 Corporate elites could easily reverse adverse trends if they wanted to create a more competitive Anglo-America. They could target investment for basic research instead of sending capital around the globe, or they could invest in the real economy instead of wildly speculating in financial instruments like derivatives, helping to cause bubbles that inevitably burst. If corporate leaders cared more about the future of the UK and the US, they would insist on massive government investments in renewable energy technologies, biomedical research, and nanotechnologies; they would demand more funding for stem-cell research instead of bowing to religious fundamentalists as they do in America. And they would be supporting world-class public education, instead of blaming teachers’ unions for protecting incompetent teachers. Instead, the same business elites cozy up to political elites, sending their lobbyists to demand more tax cuts without, however, making any promises to invest in the employees they are abandoning, or the research that

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preserves and develops the kinds of jobs they are now exporting.26 Today, America and Britain are much less competitive than they should be, not because of China or India, but because they have been largely abandoned by their business and governing elites. These have preferred to establish a global order that values and privileges the owners of corporate wealth, although there has been an increasing disconnect between corporate managers and the rest of us. But it does not have to be this way. Government can step in and undo what was done earlier. It can use its taxing authority to help rebuild infrastructure. It can invest in public education in meaningful ways instead of shifting blame to teachers. It can, as James Tobin has suggested should be done, charge a tax on all foreign currency exchanges as a way to raise revenues – and to discourage currency speculation. Government can break up giant derivatives banks, ban derivatives altogether, and wind them down. According to Paul Craig Roberts, the former Assistant Treasury Secretary under Ronald Reagan (and therefore hardly a Keynesian), “the only major effect of closing out or netting all the swaps would be to take $230 trillion of leveraged risk out of the financial system.”27 Roberts was referring to the US, but much the same could be said for the UK. It is evident that the world got along without derivatives until the past few decades; it is equally evident that these new instruments do not deliver on their promises, and that they can be (and have been) catastrophic. As the late Hyman Minsky pointed out, the major purpose of financial innovation is to evade regulation. James K. Galbraith, worrying about the ability of governments to regulate derivatives in a digital age, has suggested that one solution might be to “withdraw the support of the state for the enforcement of derivative bets; once the courts refuse to enforce them, the markets may fade away.”28 In fact, derivative speculators are only willing to take risks if they are reasonably assured there will be no risk, or if they are “too big to fail.” Government can also regulate hedge funds. Just as importantly, it can redirect research and development through subsidies and tax advantages, instead of allowing capital to be freely deployed abroad. Capital markets can be reregulated; commercial and investment banks can once again be separated as they once were in the US under Glass-Steagall until the separation was repealed in 1999; the UK could do likewise, as it has promised to do by 2015. Financial institutions should not be allowed to insure assets they do not own. That is gambling, not investing: at the least, this is a form of insurance, and insurance is supposed to be regulated. And whatever happened to the idea that capitalism means risk? Why have the governments of both the US and the UK reduced and even eliminated risk – think of the recent bank bailouts on both sides of the Atlantic – while charging that everybody else has to accept responsibility for their debts and be fiscally prudent? Finally, the US, and the UK as well, should be prepared to foster and protect cutting-edge industries based on new technologies as they once did in the days of managed capitalism. Governments can also remember the advice of John Maynard Keynes during economic downturns. Summing up several passages in Keynes’ General Theory of Employment, Interest, and Money, Robert Frank has reminded us – as Keynes

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had earlier – that a depressed economy cannot recover on its own. Only an activist government can get us out of the current economic and financial morass. “Consumers won’t lead the way … because even those who still have jobs are fearful they might lose them. Nor will businesses invest, since they already have more capacity than they need. [Government alone] has both the motive and the opportunity to boost spending significantly during deep downturns.”29 As Frank has argued, government can do this in a variety of ways: it can borrow cheaply, especially in today’s low interest environment; and it can create jobs by simply borrowing and spending Only the rhetoric of conservatives prevents this from happening. Before 2007, total government spending helped create jobs for almost everyone. Then the housing bubble burst. Consumption, inflated by home equity loans based on illusory housing prices, fell sharply. Businesses laid off people, which reduced consumption further. Falling consumption led to a decline in investment because most businesses already had the capacity to produce more than people wanted or were able to buy.30 Frank was simply acknowledging something that had been around since Keynes: the idea that a government can spend us out of recession. Conservatives argue that this only increases public debt, and leads to higher taxes and ultimately to a dead end. But this is not simply a matter of reflating an economy to allow the state to backstop insolvent institutions by assuming their debts; on the contrary, this was precisely what happened in both the UK and the US in the aftermath of the Great Recession, and with mostly negligible results.31 Today, governments have to summon political courage to do something more: if they have fiduciary powers, they can expand money supply at will and reflate economies: and they can distribute cash as they please without incurring new debt, by ‘borrowing’ from the treasury or, if necessary, by floating bonds. But to accomplish this, there must be the political will to restructure the banking and financial industry of Anglo-America and Europe by, if necessary, regarding banks as public utilities. Consider how the private financial and banking sector has profited from the public it often demeans. In the US, a third of all purchases goes to interest. At the height of the financial bubble, over 40 percent of US corporate profits went to the financial industry, up from 7 percent in 1980. One consequence of ballooning profits is that somewhere between $21 trillion and $32 trillion are now hidden in offshore tax havens, between a third and a half of global GDP. The figures for financial sector profits are roughly the same for the UK, Germany, and France, between 1985 and 2008, as a percentage of GDP.32 With this kind of money escaping taxation – and obviously not invested in domestic economies – one can easily imagine the impact on growth in the real economy such monies would have if brought home. Although extractive (private) banking is the main banking model in the West, in much of the world banking is based on the public model: interest and profits belong to the community and credit is delivered organically. Publicly owned banks operate in the public interest by law. Bank profits generated through credit to the public are returned to the public, unlike private banks that focus on profits and often escape heavy taxes if they pay any at all.33

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Brazil provides a contemporary illustration of how this can work. In 2003, Luiz Inácio Lula da Silva, popularly known as “Lula,” a former worker in the automotive industry and one of the founders of the Workers’ Party, became the president of Brazil. During his eight years in the presidency he launched a program similar to the New Deal in the US, ultimately paying off Brazil’s debts and accumulating more than $200 billion in reserves. How was this accomplished? By funding programs with self-liquidating loans: government loans were paid back by the proceeds of the project. As in the American New Deal, this was made possible by a financial institution owned by the government – the National Economic and Social Development Bank – which had free access to the treasury. The result was that an insolvent country provided credits to a number of projects – everything from road construction, to public transport projects, dam building, mining companies and slaughterhouses – saving itself from the predation of an “unregulated financial sector bent on extracting private profit, even when at the cost of development and social conditions.”34 But we do not have to go to Brazil to find a development bank that worked: the US created the Reconstruction Finance Corporation (RFC) during the Depression to inflate an economy that was in free-fall, and with similar success. The RFC operated much like the Brazilian bank noted above: many of its loans were selfliquidating, paid off by tolls on bridges, for example, that the RFC had helped build. The result was that in the twenty-five years of its operation, between 1932 and 1957, without tapping into the federal budget or raising taxes, the RFC loaned or invested somewhere between $40 and $50 billion dollars. It borrowed more than $50 billion directly from Treasury, and $3.1 billion from the public by way of bond issues, but it produced a net profit of almost $700,000 based on proceeds from road and bridge tolls, mortgages, and electrical power.35 Most of us agree that this is better than to rely on the kind of so-called market fundamentalism that today gives us predatory lending, a world of derivatives and super-profits that the public underwrites in case of default, and endless predation in mortgages and credit that continue to extract wealth from the real economy. Once before, we were told that the WTO would benefit all of us by knocking trade walls down and opening up international commerce. We now know differently: the WTO was mostly helpful to the transnational corporations that helped promote and establish it. With the WTO in place, transnationals have been able to procure resources in foreign countries, buying cheap labor with little or no additional labor costs (in the absence of unions and democracy), while keeping their home markets open for what they produced more cheaply abroad. When arguments have been made that this arrangement hurts the employees of high-wage and high-rights countries, the reply is always the same: become more efficient or find something else to do. In other words, accept lower pay and become more competitive, though this means abandoning all the advances made by workers over the last century and ending what remains of the social contract. In the end, the establishment of the WTO, and of other free trade agreements like the North American Free Trade Agreement, protected transnationals and their CEOs, but did little for everybody else. These agreements encouraged more imports,

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provoked more outsourcing, and required more debt (to finance the imports). Since transnational corporations, which have disconnected their objectives from Anglo-America’s, have no interest in paying more taxes to make the society they are abandoning more competitive, it is crucial that government once again assume the task of defining a common interest and fighting for a common future.36 Unless governments in both the UK and the US, and elsewhere, prevent tax evasion and profit concealment by transnationals, which use tax havens and subsidiaries to do so, unless capital gains taxes are raised to more appropriate levels, or stock options are not counted as capital gains but subjected to normal income tax levies, then education, infrastructure, research and development, and investment in human capital will continue at levels far too low: as a result there will be no common interest, and the promised benefits of globalization will not occur except for the elite few.

The EU, social democracy, and the welfare state: what can be done? Can Europe afford social democracy and the welfare state in an age of globalization? And if it can, does not this mean dramatically reducing benefits such as maternity leave and the length of vacations, raising retirement age, paying more for health care, and accepting reduced pension income? For some two decades Europe has had relatively anemic economic growth, unacceptably high rates of unemployment – especially in France and in peripheral countries like Greece, Ireland, Portugal, and Spain – and generous rates of social protection to buffer the unemployed, sick, and aged populations. Critics argue that there is a relationship between European stagnation and the benefit packages which offer social protection: state spending for generous welfare benefits ratchets up deficits, taxes have to be kept high to keep deficits from accelerating, and needed investments have to be postponed or canceled altogether. They conclude that Europe cannot afford to maintain its welfare states anywhere close to current levels of support. This is because the cost of social security and high taxes on business and reduced profits not only encourage businesses to shift operations abroad, they are also robbing the ability of Europe to compete in the global market. The result is massive levels of unemployment.37 Moreover, the argument continues, EU countries are over-regulated, leading to rigidity in starting new businesses, in hiring and firing workers, and in creating a culture of dependency on the social welfare state. Gordon Brown, in particular, though of the Labour Party, argued strenuously during the early years of his Chancellorship, that Britain had one of the lowest unemployment rates because it had flexible labor markets as well as prudence in its monetary policy. He meant that more people were working because they could not depend on welfare benefits to tide them through, and fiscal austerity was succeeding because benefits were more limited and taxes were reduced, and a tight monetary policy (higher interest rates) was working because it was attracting footloose capital from around the world. This was a tidy argument, but it avoided inconvenient facts. The welfare state worked fine for decades: European labor productivity was not far behind that of

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the US, rates of growth were comparable, and unemployment was generally low. Moreover, Europeans, by all measures, were among the happiest in all developed nations, precisely because of their welfare states and social democracies. This was especially true of the Nordic countries where social inequality was far below that of Anglo-America, the state was actively involved in securing ‘full’ employment, there was less gender inequality than in Anglo-America, and people knew the state would be there for them when they needed it most. Europeans generally did not have to worry about the market bringing them the rewards they already were entitled to as a matter of law and human dignity. Moreover, Europe was less threatened by globalization and the cheap goods that were supposed to dislocate Europeans and cause large-scale unemployment: most of the trade of European nations took place within the EU, while a number of European countries remained committed to full or fuller employment and an export-driven economy, something especially true of Sweden and Germany. If there was a crisis in Europe, it was not the result of zealous over-spending by EU member states on needy citizens requiring social protection. On the contrary, under the terms of the Maastricht Treaty of 1992, and the Stability and Growth Pact of 1997, EU members were required to limit annual deficits to 3 percent of GDP, and overall debt to 60 percent or below of GDP. As a consequence, by the late 1990s, the share of public investment in the EU economies fell by nearly a third compared to the previous decade’s figures. Lower public sector investment meant less private sector growth, and lower employment growth: as some economists have noted, a 1 percent fall in the investment share in GDP, results in a 0.7 percent rise in unemployment.38 Well before anything like a crisis, and hardly as a result of globalization, or of the ‘unaffordable’ benefits of the welfare state, European growth was constrained by the EU itself and Maastricht-imposed spending limits. This was partly because of the insistence of German bankers for whom inflation was a cardinal sin: it just was not allowed. But we know that Tony Blair and Gordon Brown in the UK, and Gerhard Schröder in Germany, did not have to be convinced of the new orthodoxy: they preached austerity and were equally dedicated to reining in spending to avoid even the hint of inflation. The so-called Eurosclerosis was not the result of protecting populations during hard times, it was a consequence of the banking sector protecting its own assets against the erosion of inflation, and then getting the political elites to agree with them. Since Maastricht, the EU has concentrated on limiting inflation rather than promoting growth: unlike the FED in Washington, which is mandated to promote job creation, economic growth, and control inflation through monetary policy, the ECB is mandated only to control inflation, and this it has done with a vengeance and with the usual results: limited growth, low job creation, and often the threat of deflation. In 2003, Germany, the engine of the EU, was on the verge of joining Japan in the deflation league. GDP growth rates in Germany after 2000, until about 2005, were barely on the positive side, and they remained stagnant. Italy fared almost as poorly. France grew slightly faster, but had high unemployment. Toward the end of 2004, Germany and Italy were experiencing negative growth, as did Italy and the Netherlands in early 2005.39 Much of this was because of stagnant

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consumer demand, which provoked downward pressure on prices: the result of the EU’s determination to avoid inflation was little or no growth. And things got much worse after 2008 because of a crisis precipitated by Anglo-American banks. More than seven decades ago, Lord Keynes argued that to counter deflation, a central bank should ease monetary policy: this meant lowering interest rates and pumping more cash into the economy. But Keynes knew that monetary policy was not enough because even if the bank distributed free cash or just printed money, households might still hold the extra money in savings, putting the economy into a ‘liquidity’ trap. Thus, neither the market nor a central bank could solve the problem by itself; a sustained fiscal stimulus was also needed to get the economy started again. Despite this, the EU’s political class and its bankers have remained wedded to the supply-side ideology of the 1980s: they remain tied to monetarism despite its evident failures to resolve the ongoing crisis in Europe.40 Austerity remains the creed of the ECB, though this has become only a prescription for unemployment, recession, and worse. What is tragic about this is that we have had the tools for more than a halfcentury for solving problems of economic growth, stability, and unemployment. Keynes himself had provided them. The best way to get out of recession – the cure, according to Keynes, as we have seen – was for the state to jump-start the economy by investing in public works to create jobs: jobs mean greater demand, and increases in demand change business expectations, leading to new investment. Today, we know that government can do many other things as well: it can invest in education and in research and development, spawning whole new industries, as many European countries have been doing for innovative high-tech and highend industries. And those governments not in the euro club, such as Sweden and Norway, have even more options: they can print money and use it as economic stimulus, as the US has been doing for some time through ‘quantitative easing’. Or they can simply devalue the currency as Iceland has done, making them more competitive by the degree of devaluation. Yet all these lessons have been forgotten or ignored by many Europeans, and by Anglo-Americans as well, because of the profound influence of financial elites putting their interests ahead of the rest of us.

The search for a moral compass Populations that are deprived of everything, of modern life and its attendant pleasures, of bourgeois lifestyles and consumer choice, are increasingly aware of their exclusion, even while they have to endure the celebration of the winners in the media which has consensually ignored them. For the victims of social inequality, any lingering notions of fraternity, let alone liberty, have long vanished. For the populations that are dependent, finding a balance between liberty and equality, or between equality and fraternity, is irrelevant. None of these matter to them. We know about the corrosive effects of poverty, about the envy and resentment among the poor and the excluded as they watch the world’s treasures on their television sets. And we know about an all too common reaction in Anglo-America: blaming the victim or globalization or the in-migration into cities containing

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populations deficient in the right kinds of job-skills. And yet we all know that without an urgent sense of commonality, without common purposes and collective goals, without fraternity and mutual inter­ dependence, and without the reconstruction of community based on shared goals and fraternal relations – rather than the Hobbesian universe which pits all of us against each other – we shall continue to have gated communities for the rich, and the fog of politics for the rest of us. If we want to avoid incarcerating more and more of us, if we want to improve our collective health, if we desire a more educated population that is both literate and grounded in the virtues of civil society, and trained vocationally in a rapidly moving and changing work environment, then we shall have to become more equal. And to do this we shall have to mitigate social inequalities, to improve our schools and make them more equal, funded by all of us collectively rather than by the local communities – and states – in which we live. Smoothing out the gaps in inequality is a good way to start because it gives all of us the same life chances. The more educated we become, the better our ability to adapt to technical changes; and the better we shall become at adapting our skills to increasing globalization, provided that we work together toward shared goals that benefit all of us. For it is a given that the more we feel in charge of our own lives, and the less we feel victimized by others, the more satisfied we will be because we will be able to improve the lives of all of us, even while we are improving our own. We intuitively know that the most prosperous feel uncomfortable when they are in proximity to those who are deprived, or who are less fortunate.41 Many of the former would be happier if the gap separating them from the majority of their fellow citizens was diminished. As Tony Judt has observed: “Selfishness is uncomfortable even for the selfish.”42 The privileged would prefer not to be reminded of their privileges: that is why they live in gated communities, avoid public spaces, and generally deride the very public goods many of them have privatized or ­deregulated to their personal advantage. Some at least – Warren Buffett for example – have expressed discomfort if not shame at their privileges and have said they would prefer to be taxed at a higher rate. Others have rejected these admissions as unfairly taxing the job creators who benefit – according to them – the rest of us. Altogether, mostly in the US and the UK, the last three decades have seen the promotion of self-interest and a departure from the norms of the three decades following World War II. The direction that the US has taken – followed to a large extent by its trans-Atlantic cousin, the UK – has not been inevitable. Promoting self-regard and selfishness are at best morally dubious, as are self-proclaimed and self-righteous assertions that we are better off if we follow our natural instincts and individual interests. To argue this is mere cynicism, and it is untrue for most of us. The Anglo-American world has lost whatever moral compass it used to possess, in domestic as well as international affairs. The British, in the past several decades, have almost equaled their American counterparts in the depth of poverty, income, and wealth gaps between the rich and poor. The US in particular has worried over the place of God in public affairs and policies, but has quickly set aside any higher

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morality on a number of critical public issues: the US failed to ratify an inter­ national treaty to ban land mines when it was passed at the United Nations by a vote of 142 to 0. Instead, the US abstained, putting it in the company of Russia. The US opposed, also, the international Biological Weapons Convention, sharing its opposition with China, Cuba, India, Iran, Pakistan, and Russia. The US was one of only two states that refused to ratify the 1989 Convention on Children’s Rights; the other was Somalia. While the death penalty is precluded as a condition for membership in the EU, America continues to execute prisoners at a rate matched only by China, the Congo, Iran, and Saudi Arabia. The American doctrine of preventive war is a chilling reminder that the US reserves the unilateral right to intervene anywhere it pleases and for any reason: this was the doctrine that helped the US rationalize the perfidious invasion of Iraq, which was a war of choice. And the US has continued to oppose an International Criminal Court – a policy it shares with Egypt, Indonesia, Iran, Iraq, Israel, and Pakistan – for fear of compromising its sovereign power (or that American operatives could be convicted in an international court for war crimes, such as torture).43 It was not just history as the story of progress that ended in the horror chambers of the twentieth century. What also ended was a coherent moral narrative that ascribed a sense of purpose to human actions, a moral compass that would enable humanity to select one set of policies over another. But, in the aftermath of World War II and the Holocaust, policy planners like Jean Monnet and Robert Schuman were wary of abstract first principles. All normative structures appeared potentially, maybe inherently, intolerant and potentially self-destructive. They could be the basis of collective ideals that we might all embrace, but they could also contain the seeds of ideological certainty and rectitude that denied any competing normative claims.44 But it is precisely competing claims that we must recognize and address. There are some first principles that we must always defend if there is to be any kind of moral narrative for our future. We must recognize that it will be difficult to balance those that have divided us in the past: the most obvious are freedom (liberty) and equality. There is an inherent tension between them, but we can hardly sacrifice one to the other. Merely defending first principles, without admitting that some of us may advocate more for one than the other, is to again refrain from what we must do: find the balance which makes both possible, without sacrificing either. We instinctively recognize that this is most difficult to do, but also that there is no way forward without this recognition. What we should not do is base all our discussions on economic growth alone, because we have to recognize that there are limits to our needs and to economic development, and that economic growth by itself cannot answer the question of what it is we want for our lives. The question resolves itself into the following: what kind of political and moral purpose can be proposed to replace the Grand Narrative that has become obsolete? If we cannot fully embrace moral purposes on the basis of theological arguments, we should not forget that many of our contemporary debates about war, torture, abortion, and the extent of public responsibility for our health and education and general human welfare are couched in terms that draw instinctively on religious

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and philosophical reflections made in the past.45 Today, the public is not fully conscious of the gap that exists between the ethical nature of public decision-making and the pragmatic nature of much of our public discourse. Liberals and social democrats are also guilty of dismissing the ethical pronouncements of theologians as too bland and pious to deal with the complexities of modern life. Policy-makers, they assert, cannot deal with the absolutism of pieties when faced with the contradictions of the contemporary world. But that should not give policy-makers license to dismiss those who insist that a moral discourse is needed in which we can address the kinds of ends that we all desire, and then to find a suitable means to get us there. We must decide what we mean by a purpose for our collective endeavors, what gives our shared lives meaning other than our merely material interests, and what it is we mean by the good society other than the ability to get and the right to possess an ever higher standard of living. The pronouncements of Pope John Paul II, in various encyclicals and words of wisdom presented on a number of occasions, have offered the kind of moral narrative that is urgently needed. In John Paul’s II encyclical, Centesimus Annus (Hundredth Anniversary), composed and published in 1991 on the centennial anniversary of Pope Leo XIII’s Rerum Novarum (Right and Duties of Capital and Labor), in the midst of the collapse of the Soviet Union and the end of any lingering faith in communism as a viable future, political and moral, the Pope instinctively recognized the need for humanity to find a new creed which would serve as a discourse for global unity. And not only unity, but social justice as well. He warned against the modern tendency to reduce workers to commodities, and defended the right of workers to social security. He called for a just compensation for labor, and explicitly denied that employers had no other obligations toward employees than the agreed wage. Just as Pope Leo XIII had insisted, in the nineteenth century, that public authorities had a strict duty to provide for the welfare of workers, so did John Paul II urge the same a century later. And like his predecessor, Paul VI, John Paul II criticized the version of (neo)-liberalism that had emerged in the world of Anglo-America, and among the elites of the EU as well. The state, he argued, should not limit itself to favoring that portion of its citizens which is prosperous while neglecting the majority. The poor, the unemployed, the elderly, the sick, the marginalized, low-end wage-earners, even the middling sorts who had been left behind because of ‘globalization’, were all entitled to security, stability, and protection, against vulnerability and change. The alternative to this sense of social contract was ‘liberal individualism’, or minimal state and maximum profit. And this clearly would not do, for John Paul II had also noticed the consequences of excessive reliance on the ‘free market’, individualism (minimal taxes on the superaffluent), and minimal regard for most of us. John Paul II understood the limits of liberal individualism and the absence of a guiding moral discourse. Social relations, he argued, ought to be restrained by ethical boundaries, and those boundaries should recognize the dignity of others. The general good must come before partisan individual interests. As in Rerum Novarum, John Paul II offered an explicit moral framework, a sustainable

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discourse for how we should move forward toward shared goals: “The state … has the task of determining the juridical framework within which economic affairs are to be conducted and thus of safeguarding the prerequisites of a free economy, which presumes a certain equality between the parties …”46 John Paul II did not endorse the free market as likely to get us to a social heaven. He defended liberty, but not at the expense of social equality: the limits were palpable, the guideposts not utility but the principles of universal justice: It would appear that on the level of individual nations, and of international relations the free market is the most efficient instrument for utilizing resources and effectively responding to needs [but] there are many human needs which find no place on the market. It is a strict duty of justice and truth not to allow fundamental human needs to remain unsatisfied and not to allow those burdened by such needs to perish.47

Human beings were entitled to elemental justice just because human dignity demanded it. But that was not all. John Paul II insisted that a just society “demands that the market be appropriately controlled by the forces of society and by the state so as to guarantee that the basic needs of the whole society are satisfied.”48 The rich do not need protection by the state, but “the mass of the poor have no resources of their own to fall back on, and must chiefly depend on the assistance of the State. It is for this reason that wage-earners, since they mostly belong to the latter class, should be specially cared for by the Government.”49 For anyone schooled in the history of the Left, the words of the pontiff might appear bland, vague, jejune, and possibly hypocritical. After all, the Left made many of the same claims and arguments for better than a century, without much support or acknowledgement from the Vatican. Though the narrative of John Paul II officially invoked Pope Leo’s nineteenth-century message on behalf of the working classes, and even parroted some of the language of the historic Left, the message of John Paul was anodyne for an entirely different historical narrative: it came on the eve of the collapse of the Soviet Union, a demise to which the Pope was more than passive witness. There were other fissures that ran deeper. John Paul II was at war with much of modernity: with the secular state, with modern science, with the European Enlightenment, and with modern philosophical discourse. He entered into dialog with all of these, but not for the purpose of engagement. He warned that there could be no compromise with the relativism that he took these, collectively, to be. Good and evil, right and wrong, were moral absolutes; in this vernacular, ecumenism represented compromise, and liberation theology moved a bit too closely to secular ideology. This was a pope who appeared to be at war with the entire modern world. He criticized Marxism as a political philosophy and as a political practice, but he condemned modernity much more broadly, attacking capitalist profit, Western worship of the free market, and the kind of self-indulgence that went with the secular world. Modernity itself, he argued, was the source of the modern crisis: Marxism was but one of its symptoms, not its only embodiment. Consumerist capitalism was also severely censured, as was the neo-liberal

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political faith which celebrated “human freedom” and “freedom of the market” as though they were all but synonymous.50 John Paul II raised hopes throughout Latin America and in much of the world where poverty had not diminished by asserting the natural right of all to share in the use of the world’s resources. He seemed to be a resolute foe of the ugly side of capitalism, just as strongly as he had argued against the godless ideology of communism. Was it possible, then, to construct a moral cosmos with a narrative that could replace the utterly discredited narrative of Marxism–Communism, and the excessive materialism and individualism in the West with its attendant relativism? The pope instinctively grasped for a system of universal values, a broadly acknowledged moral compass that could provide a vision of public space and a community of shared values. He intuitively was aware that without a moral community there could only be communities of origin, of nationalist and ethnic nations based on exclusion, anything but the universal moral cosmos desired by the pope. But what exactly did Pope John Paul II mean by a “moral community?” His repeated opposition to the abuses of private property, his defense of the natural right of all to share in the resources of the planet, his refusal to accept the ugly side of capitalism, as well as his determined opposition to Marxism and communism in all its guises, his sympathy for the victims of all kinds of political and social repression, gave hope to millions who were often the victims of both. He reiterated in a speech in 1979 in Puebla, Mexico, his “preferential love for the poor,” and decades later in speeches in El Salvador and France he expressed his opposition to wars and conflicts of all kinds, no matter whether they were civil and transnational. In 1996, he visited the tomb of the Salvadoran archbishop, Oscar Romero, who had been assassinated by a right-wing death squad during Mass in 1980. Yet, during his visits to Chile and Argentina in 1987, a decade earlier, he devoted many hours to making speeches that attacked proposals to liberalize divorce laws, then refused to meet with victims of Augusto Pinochet’s repression in Chile or with the Mothers of the Disappeared in Argentina.51 In the end, John Paul II was more resolved to deal with matters eternal than with ‘passing’ worldly concerns. But what about his successor, Benedict XVI? Was he more resolute when discussing the social question, which in the wake of the Great Recession of 2008 had become ever more pressing? In his encyclical, Caritas in Veritate (Charity in Truth), published in 2009, he gave some reason to think that he might go beyond John Paul II’s admonitions regarding the common good and universal welfare. “Once profit becomes the exclusive goal,” he noted, “if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty.”52 This could hardly have been a more fitting judgment of much of the financial industry, which had contributed to – or caused – the Great Recession of 2008, and the almost global financial collapse that followed. Pope Benedict continued: he insisted that economic growth had to benefit everyone, but he recognized that the unregulated exploitation of the earth’s resources was the source of much global social injustice.

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The world’s wealth is growing in absolute terms, but inequalities are on the increase. In rich countries, new sectors of society are succumbing to poverty, and new forms of poverty are emerging … The scandal of glaring inequalities continues. Corruption and illegality are unfortunately evident in the conduct of the economic and political class in rich countries, both old and new, as well as in poor ones. Among those who sometimes fail to respect the rights of workers are large multinational companies as well as local producers. These same corporations and rich countries use excessive zeal in protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care.53

There is much more, this pope was the enemy of unmitigated capitalism, and his criticisms will remind us of much of the rhetoric of the Left, as was the case with his predecessor. The search by multinationals for profits has transformed the globe, he argued, but not necessarily for the better, making the pursuit of social justice ever more difficult. This had led to competition among poorer and developing states to attract foreign businesses and capital, he continued, through favorable fiscal regimes and deregulation of the labor markets. The result has been “a downsizing of social security systems as the price to be paid for seeking greater competitive advantage in the global market, with consequent grave dangers for the rights of workers, for fundamental human rights, and for the solidarity associated with the traditional forms of the social State.”54 This would seem precisely the kind of rhetoric that most of us could endorse. Wealth production is not a good thing if it is concentrated at the top of a population, as in the US and the UK. Deregulation is not a good thing if it causes the loss of jobs, leads to psychological instability, and challenges marriages and the survival of human families. Globalization is not a good thing if it threatens the workings of national economies and the populations living in them. “Being out of work and dependent on public or private assistance for a prolonged period undermines the freedom and creativity of the person and his family and social relationships.”55 Social security systems can fail because cuts in social spending, often the result of pressure by financial institutions, leave citizens powerless.56 This pope’s language is again vaguely reminiscent of progressive thought of the historical Left; but Benedict XVI was also at odds with modernity. Like Pope John Paul II, he was hardly prepared to return to Vatican II. He criticized the cultural eclecticism (gay marriage, open lifestyles) that he found more commonplace everywhere; he seriously questioned modern science because it was one-dimensional and intolerant (opposing itself to theology and metaphysics). He challenged the secular state because it could not provide spiritual sustenance, though for many the state was all they had. He claimed that human beings should have the right to employment to sustain themselves – helped by the state – and yet he seriously questioned the welfare state because it induced and sustained dependency. He was a bitter critic of capitalism because the free market failed to redistribute wealth in an equitable manner, yet he rejected the principles of liberation theology, as did John Paul II, which defended social egalitarianism. So what is left? Perhaps it is enough that Pope Benedict XVI demanded moral

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solidarity and distributive justice: or that he refused to see the market as final arbiter because there must first be “internal forms of solidarity and mutual trust.”57 Many would agree with the pope that justice demanded redistribution, or that wealth creation itself must have a purpose transcending growth. Or that we must draw on moral energies from outside the market. But how should this be done? Was it enough to say, as Benedict XVI did, that economy and finance are instruments and that these can be good, but they also can be warped by man’s darkened reason? And if we appeal to moral conscience, what should be the role of the state? The pope advocated mutualist principles, but were these to be only voluntary?58 Like his predecessors, John Paul II and Benedict XVI, Pope Francis has been consistently orthodox on matters of sexual morality: he has strongly opposed abortion, same-sex marriage, and contraception. He has even argued against abortion in the most extreme cases, such as rape, admonishing that abortion is the moral equivalent of murder under all circumstances. He has refused to consider the ordination of women, or the admission of married men to the priesthood, even though married Anglican priests have been admitted to the Catholic clerisy. Nor has Pope Francis reversed the reprimand of American nuns issued by his immediate predecessor, Pope Benedict XVI: instead, he has endorsed a plan to have three Catholic bishops restructure the largest national umbrella group of American nuns, the Leadership Conference of Women Religious, because the group was influenced by feminist voices, too focused on economic and social justice, and not concerned enough with abortion. For any observer who had hoped this pope might be more reconciled to modernity, these early pronouncements will be disappointing. Despite his obvious sympathies for the poor, he has not endorsed political activism on their behalf, though in Pope Francis’s Apostolic Exhortation, Evangelii Gaudium (The Joy of the Gospel), he has advocated some promising initiatives. “In this context,” he begins, “some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power.” Later, in the same document, the pope is critical of “ideologies which defend the absolute autonomy of the marketplace and financial speculation.” And, he notes, these same ideologies “reject the right of states, charged with vigilance for the common good, to exercise any kind of control.”59 Again, we have seen such sentiments before in Pope Francis’s immediate predecessors, but always with a reticence to endorse political activism, including the Church’s. Nor has Francis given any hint that he is ready to return to Vatican II, despite his enduring populist message. Yet, we remember, also, this pope’s message of inclusivity, and there is this in the Joy of the Gospel: “I prefer a Church which is bruised, hurting and dirty because it has been out on the streets.”60 Indeed, we shall have to wait and see whether Pope Francis prefers a Church in the streets, or a Church which is confined and concerned for its own security.

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As we have found out repeatedly, it is not enough to reject unlimited freedom in the market – which in practice means no restraint or moderation in our commercial practices – and the usual excess, ostentation, and social inequality that accompany it. We must also avoid extremes, embrace moderation, and reframe contemporary debates to help us identify which ideals we can still share. Unless we do this, unless we can identify what public welfare means, unless we can again defend and pursue public goods, then we shall be left only with a discourse in which we all seek abundance and security for ourselves, without reference to our neighbors. We shall worship economic growth and individual wealth alone, even as more and more of us are deprived of it. It is a fitting irony that America, where socialism has always been shunned, though it attempted to define the good life based on social inclusion – and moderation – instead has adopted in its place the unlimited right to private accumulation, or the right to be greedy without shame. It is to avoid such ethics, and the radical individualism that has resulted, that we would do well to accept the counsel of Popes John Paul II, Benedict XVI, and Francis, as voices of wisdom, reminding us of the kind of trust, community, and solidarity, that we once hoped to possess. We should also remember, as Erhard Eppler has said: “Here in Europe, the idea that the state has a moral responsibility was not invented by socialists, and certainly not by Marxists, but by Christians.”61

Notes   1 Tony Judt, Ill Fares the Land (New York: The Penguin Press, 2010), 194. Fareed Zakaria,

The Post- American World (W. W. Norton & Company, 2008), has argued the opposite, that countries like India and Brazil are closing the gap between them and the developed world. But he ignores the growing inequality of wealth within developing and developed countries. See United Nations, Human Development Report 2013 (New York: United Nations Development Program, 2013), 143. Accessed 4 September 2014 at hdr.undp. org/sites/default/files/reports/14/hdr2013_en-complete.pdf.   2 Judt, Ill Fares the Land, 193.   3 Stewart Lansley, The Cost of Inequality: Why Economic Recovery is Essential for Our Recovery (London: Gibson Square, 2012), 125.   4 Ibid., 136–7.   5 Gerald Holtham, as quoted in Lansley, The Cost of Inequality, 137.   6 Lansley, The Cost of Inequality, 137–8.   7 Hywel Williams, Britain’s Power Elites: The Rebirth of the Ruling Class (London: Constable, 2006), 164.   8 Lansley, The Cost of Inequality, 144.   9 Ibid., 150–7. 10 Fritz W. Scharpf and Vivien A. Schmidt, eds., “Conclusions,” Welfare and Work in the Open Economy, vol. I, From Vulnerability to Competitiveness (New York: Oxford University Press, 2000), 316. 11 Ibid. 12 Ibid. 13 Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future – and What It Will Take to Win It Back (New York: John Wiley & Sons, Inc., 2006), 47 14 Ibid., 88.

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15 Ibid., 181. See also David Barboza and Elizabeth Becker, “Free of Quotas, China Textiles Flood the US Market,” New York Times, 10 March 2005, sec. 1A. 16 Faux, Global Class War, 181. 17 Jeffrey Garten, “The High-Tech Threat from China; America Inc. is Rushing Beijing Ahead by Sharing R&D Treasures,” Business Week, 31 January 2005, 22. 18 “China–UK Trade in Robust Growth Despite Euro Crisis,” China Daily, 13 January 2013, accessed 27 December 2013, www.chinadaily.com.cn/china/2013-01/13/ content_16108853.htm. 19 Faux, Global Class War, 182–7. 20 National Center for Education Statistics, Digest of Education Statistics: 2012, Tables 463, 473, 474, accessed 4 September 2014, nces.ed.gov/programs/digest/d12/tables_6. asp#Ch6Sub3. 21 Jessica Shepherd, “UK Schools Slip Down World Rankings,” Guardian, 7 December 2010. 22 Steven Hill, Europe’s Promise: Why the European Way is the Best Hope in an Insecure Age (Berkeley, CA: University of California Press, 2010), 40. 23 World Alliance for Decentralized Energy, “World Survey of Decentralized Energy, 2006,” 31. Accessed 5 September 2014, www.localpower.org/documents/report_worldsurvey06.pdf. 24 World Economic Forum, “Global Information Technology Report 2008–2009,” accessed 5 September 2014, www.weforum.org/pdf/gitr09fullreport.pdf. 25 Hill, Europe’s Promise, 47. 26 Faux, Global Class War, 189. 27 Paul Craig Roberts, “Collapse at Hand,” as quoted in Ellen Hodgson Brown, The Public Bank Solution: From Austerity to Prosperity (Baton Rouge, LA.: Third Millennium Press, 2013), 345. See also Paul Craig Roberts, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West: Towards a New Economics for a Full World (Atlanta, GA.: Clarity Press, Inc., 2013). 28 James K. Galbraith, “New Thinking and a Strategic Policy Agenda,” in Heiner Flassbeck et al., Economic Reform Now: A Global Manifesto to Rescue Our Sinking Economies (New York: Palgrave Macmillan, 2013), 49. 29 Robert H. Frank, The Darwin Economy: Liberty, Competition and the Common Good (Princeton, NJ: Princeton University Press, 2011), 53. 30 Ibid., 52–3. 31 Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (London: Verso, 2013), 176. 32 Brown, Public Bank Solution, 10–11. 33 Ibid., 16–17. 34 Jayati Ghosh, “Development Banks Still Have a Role to Play, as Brazil’s Success Shows,” Guardian, 28 April 2013. 35 Brown, Public Bank Solution, 165–7. 36 Ibid., 203. 37 Scharpf and Schmidt, Welfare and Work, especially “Conclusions.” 38 George Irvin, Regaining Europe: An Economic Agenda for the 21st Century (London: Federal Trust, 2006), 410–12. 39 Ibid., 44–5. 40 Ibid., 45. 41 Mike Davis, Planet of Slums (London: Verso, 2007); and Hill, Europe’s Promise, both describe the perils of inequality.

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42 Judt, Ill Fares the Land, 186. 43 Tony Judt, Reappraisals: Reflections on the Forgotten Twentieth Century (New York: The Penguin Press, 2008), 405. 44 See Alain Finkielkraut, The Imaginary Jew, trans. Kevin O’Neill and David Suchoff (Lincoln, NE: University of Nebraska Press, 1994), 139; and Judt, Ill Fares the Land, 178–84. 45 Ibid., 179–80. 46 John Paul II, Centesimus Annus, Encyclical letter on the centennial anniversary of Pope Leo XIII’s Rerum Novarum, in Michael Walsh and Brian Davies (eds), Proclaiming Justice and Peace: Papal Documents from Rerum Novarum through Centesimus Annus, revised and expanded edn (Mystic, CT: Twenty-Third Publications, 1991), 443. 47 Ibid., 458. 48 Ibid., 459. 49 Ibid., 439. The words in this quotation belong to Pope Leo XIII, but are repeated by Pope John Paul II. 50 Judt, Reappraisals, 155–6. 51 Ibid., 157. 52 Benedict XVI, Caritas in Veritate, Encyclical letter on integral human development in charity and truth
 (Washington, DC: Libreria Editrice Vaticana, 2009), 19. 53 Ibid., 21. Italics are Benedict XVI’s. 54 Ibid., 24. Italics are Benedict XVI’s. 55 Ibid., 25. 56 Ibid., 23–4. 57 Ibid., 37. 58 Ibid. 59 Pope Francis, Evangelii Gaudium, Apostolic Exhortation, sections 54 and 56, accessed 23 May 2014, at w2.vatican.va. 60 Ibid., section 49. 61 Erhard Eppler, The Return of the State, trans. Allan Blunden (London: Forumpress, 2009), 75.

8

Europe versus America: a summing up Today Europe is in crisis. Nevertheless, in the last sixty years, Europe achieved a quiet revolution, hardly mentioned – and sometimes denied – in the American media. In these postwar decades, Europe reached a balance between individual property rights and the common good, between the free market and government regulation, between the unmitigated freedom of enterprise and cooperative partnerships between business, labor, and government, between liberty and equality, and between equality and fraternity. America, with its naïve faith in the so-called free market, which it has celebrated as a universal curative, has tended to deride the miracles of Europe. Yet, in the space of six decades Europe eliminated enmity between the nations that had fought each other in two world wars, created a united Europe (mostly) with a single currency (for seventeen European countries), a common market if not a unified economy, a European Parliament and executive in the European Commission, and even a feeling of European identity based around a core of common values enshrined in a European Charter of Fundamental Rights. These rights include respect for human dignity, the rule of law, the maintenance of peace, the conservation of the environment, religious and cultural tolerance, respect for life, liberty, the pursuit of happiness, and the freedoms of conscience, speech, the press, and assembly. But Europe has gone considerably beyond all these rights – which after all are not specifically European. It has developed European institutions, which have made all these rights manifest. Europeans have chosen different routes toward their common goals, but they are mostly agreed on what those goals are, and for the most part how to achieve them. Above all, Europe has insisted on the collective well-being of its citizens, the right of families to a decent income and to decent housing, the right of individuals to an education, the duty of the state to help provide employment, to make public provision for all, and to narrow gaps in social inequalities. Europe consciously has made choices to benefit the welfare of its publics. Social equality, from the European point of view, is a goal requiring commitment: it will not occur without deliberate planning, the result of social and economic policies based on universal inclusion. As a result of the quiet revolution, Europe has achieved postwar peace, prosperity for most Europeans, even in the crisis years following the Great Recession of 2008, social justice, and ecological protection undreamed of in the US. In Europe the homicide rate is only a quarter of that in the US, the literacy rate is higher, and the lifespan of Europeans longer than their American counterparts. Europe 206

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incarcerates far fewer of its citizens than does America. Europeans generally are happier because they have a social contract they can rely upon. Europeans know they have access to publicly subsidized housing, they know there is public provision for their health care, and they know their pensions will protect them in retirement, comfortably above the poverty line. This seems a better way to live, and most Americans would agree. When Americans wonder why they do not have the same institutions in the US, they are told a number of things: Europe is socialist; the government is too intrusive, and Europeans enjoy less freedom as a result; Europeans are taxed to death, whereas Americans are allowed to keep more of their own money; Europe has a lower standard of living than Americans because Big Government over-regulates everything and slows down the pace of growth; and Europe is a dead or dying continent which is self-destructing in a mountain of debt caused by a welfare state system that rewards the indolent and punishes its most innovative, resourceful, and diligent, citizens. There is some truth in these assertions, but for the most part these arguments are untrue. America with far less regulation is doing no better. On the contrary, by refusing to remember where Europe has come from, or to acknowledge that Europeans have made great economic progress without sacrificing the social contract and the well-being of its citizens, by insisting that history has ended, and by believing that the free market is a universal cure-all, America is in danger of slipping ever further behind. The US, with the UK close behind, is today the most unequal of developed nations, and is as a consequence in danger of becoming less free as well. If one looked backwards a century across time from the year 1970, it would appear that Europe had achieved many of the standards once dreamed about in socialist utopias. Far from descending into the kind of barbarism predicted by Marx, European social democracy had reduced economic inequality and poverty, produced almost universal literacy based on systems of mass education that worked tolerably well, and minimized many if not all of the social pathologies that usually followed from social and economic inequality and high levels of poverty. Violence, mental illness, capital crime, and alcoholism, while hardly absent, were vastly reduced by the relative affluence that a century of economic and social advance and social equality had produced. Inequities once thought unavoidable and inevitable were flattened; the grinding poverty of the nineteenth century, which resurfaced in the catastrophic Great Depression, accompanied by high infant mortality, low life expectancy, and irregular employment, was solved by an interventionist state committed to using government stimulus and planning to produce social equity. Moreover, many European nations were committed to Keynesian economic policies and to maintaining full employment – or something as close to full employment as possible – as a matter not only of government responsibility and engagement but also of human entitlement. To some extent this was utilitarian, but it also was a response to Europeans who had endured World War II and who demanded far greater social security and economic justice; it was generally acknowledged that too little of both had led to the kind of ideological divisions

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that had produced the war in the first place. Human dignity required common goals, shared purposes, collective well-being, social equality, and solidarity.

For Europe: economic and social democracy Today Americans and some Europeans criticize Europe for a variety of reasons: Europe is stagnant; its workers, employers, and regulations lack flexibility and adaptability; the costs of European welfare benefits and public services are not sustainable; and Europe’s aging and protected populations are unproductive and self-satisfied. On the other hand, Europeans think it is the American way of life that cannot be sustained: the American pursuit of wealth, size, and abundance not only produces ugliness, it is ecologically catastrophic; the American economy is built on sand and other people’s money; and mass culture in America is empty, squalid, and meretricious. Moreover, as American journalist T. R. Reid, and historian and activist Jeremy Rifkin have written, Americans work longer hours, but they get little for their efforts, unless they are rich. Americans have less health coverage than Europeans, and they do not live as long; and America no longer has a distinct advantage in wages and productivity.1 British historian Timothy Garton Ash, though also a Euro-optimist, is judicious in his nod toward America: “To choose Europe is to place a premium on social justice, solidarity, the environment, the welfare state, and the quality of the public sphere. Many on the Right agree: to choose America means for them, to prefer the free market, an enterprise culture, the American business model, low taxes, and the minimal state.” 2 Europeans, for their part, have preferred the European social model to the American ‘enterprise culture’. The European social model protects people against accidents of nature, it sustains families against the ravages and unpredictability of economic downturns, it constrains social inequality, and it helps families avoid poverty. This prevents what has happened in the US, where the top 1 percent owns more than 42 percent of financial wealth and one American in six lives in poverty. In the US, wealth does not trickle down, in Europe it is shared in principle. Europe is not perfect; it has eyesores of its own. Its welfare programs will be seriously underfunded in the decades ahead if Europeans do not have more children, bring in more immigrants, work a few more years before retiring, accept less generous unemployment benefits, and make it easier for businesses to employ young people. But none of this is a criticism of the European welfare state or of social democracy as such, or an insinuation of deep structural failings; it is an acknowledgement that adjustments must be made because people are living longer, and there are more retired people as a percentage of the entire population.3 Critics of social democracy and the social welfare state allege that they penalize wealth producers with excessive taxation, and burden employers by making it difficult to shed workers, ultimately discouraging economic growth, squandering wealth, and raising unemployment levels. In the wake of the Great Recession, these criticisms appear to hold some merit. European unemployment levels, more in the southern peripheral states than in Scandinavia and Germany, have reached levels unprecedented in the modern era, especially among youth.4

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Yet, many historians and economists have argued otherwise, and statistics offered by the IMF, the World Bank, the OECD, and others seem to support their contentions. Until the Great Recession began in 2008, Europe was anything but a continent experiencing double-digit unemployment rates (and many continental European countries have seen considerably lower than double-digit unemployment rates since). The OECD reflected this in its standardized data of July 2008, which showed that the EU was experiencing its lowest unemployment rate in twenty-five years at 6.9 percent. By comparison, unemployment in the US was lower at 5.8 percent.5 By the spring of 2009, however, the US unemployment rate had increased by 3.5 percent, while the European rate of unemployment rose by only 1.3 percent. By May 2009 the rates in Europe and the US were almost identical at 8.5 percent. However, unemployment in America soon rose even above that of the EU. But there is much more to say about unemployment rates in Europe and the US. Jeremy Rifkin has argued that the jobs created in the US prior to the Great Recession had little to do with entrepreneurial skills or with management or even with the adoption of new technologies, but rather with artificial boosts that stock market bubbles quickly flattened. As evidence, he noted that although official unemployment rates in the economic surge of the late 1990s were given as 4 percent, a national study found that the actual rate of unemployment was much higher, closer to the rates in the EU. The reason? More than two million discouraged workers had simply given up, dropped out of the workforce, and were no longer counted in official statistics. In addition, the prison population soared from a half million in 1980 to two million by 2004. More than 2 percent of the potential adult male workforce was therefore incarcerated and uncounted in official statistics. Additionally, many of the workers who found employment in the boom period between 1995 and 2000 were temporary and part-time, had no benefits, and remained for the most part unemployed. And many soon lost their temporary jobs. Had these workers been added to the ranks of the unemployed when the US Labor Department put the official rate of unemployment at 6.2 percent in the summer of 2003, the unemployment rate would have been 9 percent of the workforce in America. But it was even worse than that, because in the US the ‘real’ unemployment rate was much higher, as much as 17 percent, if one counts part-time workers, the underemployed, and those no longer seeking work. This was true of the pre-Great Recession period, and it is at least as true today (2014). The economic miracle of the late 1990s turned out to be a bubble, except perhaps for the financiers who created it.6 We know that the costs of maintaining the benefits of social security welfare states have spiraled as a percentage of overall growth, while growth has itself slowed precipitously. And the burden of taxation has grown to levels that are not sustainable – not a surprise since higher unemployment rates have reduced state revenues. Nevertheless, prior to the Great Recession, which was mostly induced by irresponsible banks in Anglo-America, Europeans, even in the peripheral states, were enjoying growth rates comparable to those in the US, while unemployment rates were roughly the same on both sides of the Atlantic. Moreover, if taxes

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have been higher in Europe, as generally they have been, they have also returned many advantages to Europeans that Americans have to purchase on the market, including health care. When one calculates what Americans have to buy, which Europeans receive as social transfers (pensions, health care, family assistance), the tax advantage of Americans quickly evaporates.

The future of social democracy Europeans have countered that many of their problems are not the result of the European welfare or social democratic state; similar problems exist in the US as well, even though the US redistributes far less wealth in social benefits than does Europe. Europeans question the American path, which has led to unprecedented economic recession and virtual collapse. They wonder if America has over-­ militarized its political economy, only to see other nations surpass it in quality of life. Or whether the US has deregulated too much, leading to an economic meltdown that is historic and causing debilitating inequality and economic insecurity for millions of Americans. They think that America has clung too long to a seventeenth-century conception of property rights and laissez-faire government that treats wealthy corporations as private individuals (with the same rights as all other individuals). Europeans wonder if America has protected the property (rights) of corporations at the expense of private individuals. They ask if the wastefulness of the American economy, and its habitual over-consumption, can be sustained. They doubt that American economic efficiency can be maintained – or revived – when the health of millions is neglected. Europeans do not think American social and economic health can be sustained when millions remain unemployed with no jobs-plan in sight. They assert that America’s fragile democracy cannot endure the kind of polarization that is inevitably entailed by massive and almost unpre­cedented inequality, with less and less social protection. Europeans think that solutions will be difficult in America, at least as much as in Europe. Many in Europe blame the Great Recession of 2008–9 on America because of its huge debt, the fraudulent behavior of many of its banks, and the American government’s refusal to rein in US banks by imposing stricter controls. But Europe does acknowledge weaknesses. It is an aging continent, which means that there will be ever fewer wage earners to support growing numbers of retirees, though we know this can be countered by having more children, delaying retirement, and increasing immigration. Europeans will have to encourage more women to grow families and still pursue careers, as Sweden already does, allowing for higher rates of employment while countering the decline in population. Europe will have to find ways to reduce unemployment, as some of the Nordic countries and Germany already have. And Europe will have to change its economic policies; it can hardly afford to continue preaching austerity, which inevitably produces high unemployment, low growth, and even threatens deflation. The ECB – and Germany – will have to get over its fear of inflation; it will have to resort to good old ‘Keynesian’ stimulus policies, as (ironically) did the US and the UK in the wake of the Great Recession.

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None of these problems are intractable. Some demographers argue convincingly that the aging of Europe will be reversed, especially in countries that encourage women to grow families and start careers (affordable childcare, family assistance, universal health care).7 We know that the costs of the welfare state can be limited or reduced by raising the retirement age (already accomplished in countries like Germany, the Netherlands, and elsewhere), by lowering generous pension benefits, and maintaining cost controls in health care, as much of Europe already does. We know that Europe will have to reduce unemployment to levels it enjoyed prior to the Great Recession, though the real unemployment rates of many European countries are today no higher than real unemployment in the US. Social democratic Norway has an unemployment rate of less than 4 percent, while Sweden’s jobless rate is 7 percent. Germany, a social welfare state, remains at 5 percent. The UK, having mimicked the American path closely, remains at an unemployment rate of 7 percent, though this figure does not include a significant number of the ‘self-employed’. Americans tend to blame social democracy and the welfare state for Europe’s unemployment and lack of growth. But we know that the EU itself – through the ECB – has caused a self-inflicted wound by pursuing austerity, and with mostly negligible results for well over a decade now. This could be fixed easily by spending to stimulate economies that today are dormant or worse. Back in 1944, Michael Kalecki suggested that governments borrow more and invest the cash either in building schools and hospitals or in providing benefits and tax cuts, boosting demand and generating employment.8 John Maynard Keynes, in “How to Avoid a Slump,” published in 1937, gave similar advice: “The boom, not the slump, is the right time for austerity.”9 Paul Krugman seconded the wisdom of Keynes and Kalecki in his book, End This Depression Now : the answer is not austerity, which tends not to bring workers and work together, but on the contrary tends to separate them even further.10 The economic problems of today in some peripheral European countries, like Spain, have little to do with welfare benefits and social transfers: on the contrary, social benefits have increased overall demand by adding income to the economy. The problem is that, in the wake of the Great Recession, credit dried up, banks were no longer lending, and demand, even if it existed, could no longer be met. In the wake of the Great Recession, everything stopped. Which brings us to the ‘Eurobubble’. The creation of the euro made investors feel safe by putting their money into countries previously considered risky. Before the euro appeared, interest rates in southern Europe had been historically higher than rates in Germany. That was because investors had demanded a premium as compensation for the risk of devaluation, default, or both. Borrowing for the southern countries was, therefore, more expensive. When the euro was adopted, however, those premiums diminished: the debts of Greece, Ireland, Portugal, Spain, and Italy (GIPSI) were regarded almost as safe as German debt. The result was that the cost of borrowing in southern Europe became much less; and this quickly led to huge housing booms, which in turn produced housing bubbles as excessive demand pushed prices of housing stock dramatically upwards.11

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The debt that accumulated in the GIPSI countries, leading to ‘bubbles’, was therefore privately held. When markets collapsed, it was the banks, not the governments, which were unable to meet their obligations. And it was the bursting of the bubbles that led to rising unemployment rates, saddling GIPSI countries with the rising burdens of the newly jobless. But what made all this catastrophic was that the GIPSI countries were all in the euro-zone and did not have their own currencies. If they had, they could simply have devalued them, allowing them to fall, as Iceland did, bringing the cost of their exports down by the rate of devaluation. Iceland had another advantage because it refused to salvage its banks. But GIPSI countries had committed themselves to bail out lenders, and so the public ended up backstopping the banks. This, essentially, is what caused the crisis, but in the American press and in some European media the story was told quite differently. The fictive narrative insisted that Europe’s problems were caused by fiscal irresponsibility: countries ran large budget deficits and got too deeply into debt, largely because of the everinflating costs of the European welfare state and social model. To rectify this, new (draconian) rules were required so there would not be a repeat. There was some truth to this narrative – after all, Greece did run up large deficits – but budget deficits and fiscal irresponsibility did not occur in the other countries, certainly not prior to 2008. And if this were a Greek problem it would not be a crisis since Greece accounts for only 3 percent of the combined GDP of the euro nations. In fact, on the eve of the crisis, both Ireland and Spain had a budget surplus and low debt, while Italy had high debt lingering from the 1970s and 1980s but had been reducing its debt as a percentage of GDP. Overall, GIPSI countries had been steadily reducing their debt to GDP ratios all the way up to 2008: debt was not the problem. But it was identified as the problem even by European leaders, including the ECB; and their proffered solution, therefore, was to reduce government spending, shrink social programs, and embrace austerity.12 But this has not provided a solution, nor will it. An austerity regime in Spain or Greece will certainly reduce wages as intended, making them comparable to wages in Germany and other core nations within the euro-zone, but it will also reduce demand, prices, income, and ultimately jobs. We have learned that it is better to ‘cut’ wages and prices by devaluing a currency, as Iceland did, instead of pushing down wages by resorting to austerity.13 But Spain cannot devalue its currency because it is a member of the euro-zone. There is an alternative: instead of pushing Spain into austerity to bring Spanish prices down, Germany could inflate its economy by spending more to bring German prices up, which could help achieve greater parity and make countries like Spain more competitive. The ECB (and Germany), however, is more concerned with inflation than with creating jobs. It wants to rein in spending to reduce deficits, even though austerity inevitably diminishes growth and leads to a rise in joblessness. The ECB could easily provide credits directly to governments, but it does not and it will not: not as long as it is in tow to bankers who put the defense of the value of money – by guarding against inflation – ahead of the cre­ation of employment.

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The ECB is constrained by Germany, which is the engine of Europe. And Germany, under Chancellor Angela Merkel, has vigorously pursued a policy that is favorable to Germany’s financial interests, but not to those of many of the peripheral countries experiencing economic and financial distress. As erstwhile Chancellor Helmut Schmidt has put it, Angela Merkel does not feel the European Union in her heart; she lacks the sentiment of solidarity with Europe. Schmidt, with a more European vision, believes Germany could do much more than it has done for the debtor nations of the EU. With a €240 billion surplus in its current account (mid-2014) – the most of any country in the world – it could increase spending, as could other surplus countries. More spending in Germany would heat up its own economy, causing mild inflation and raising wages, and leading to greater parity between the cost of labor in peripheral nations and Germany. But Schmidt also advocates that debt be forgiven and long-term credits provided until Spain and Greece can recover: after all, German debt was forgiven in the 1950s.14 Germany, in other words, should act more European and less German. We know that debtor nations will still have to reduce deficits by trimming social benefits; and retirement age generally must continue to be raised throughout Europe and the euro-zone. The way forward is not to get rid of social democracy, but rather to adjust it to the new demographics of populations, the needs of modernized economies, and the long-term goal of fiscal unity. But we have learned from John Maynard Keynes, Paul Krugman, and others, that government spending – who spends and how much – can make a difference. Once again, historical memory has failed us and the lessons from the past are forgotten, causing needless pain and suffering for millions on both sides of the Atlantic. We have learned how to rescue the bankers, whether those of Wall Street or the City or on the European continent, while accepting pain for the rest of us; and we have done this when remedies are at hand, even if they are more difficult to implement than they were several decades ago. As John Maynard Keynes once sharply observed: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.”15 This warning, too, has been willfully ignored by too many of our contemporary policy-makers. They talk about economic efficiency, but they ignore or reject the language of social democracy which once put on the table the things that matter most to us, notably, social and economic equity, fairness and justice, greater equality, and social security. What is needed today is to reclaim the public space which social democrats once so ardently defended, to put the social back into democracy, and democracy back into the social. We need to democratize how we work, and where we live, to build on the things we share, and to collectively secure each other: and above all, to remember that these are values we once embraced, and that many of us still cherish. Social democrats once told us that there were alternative ways to finance ourselves, and alternative ways to organize our economies and to improve our social welfare, until they too lost their vision. We tend to forget that social democracies are not only about equitable tax

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schemes and the redistribution of wealth. They are ‘social’ democracies because they shift economic and social power so that all levels of work and life are democratized. They build cooperative societies shaping common goals for everybody, and they enlarge the public space by transforming working and living environments to accommodate those values. They promote cooperation over competition, the public good over private accumulation. They democratize the work place through employee participation in management. Social democracy is about building democratic and egalitarian futures. It is about democratizing the workplace. It is about democratizing management and creating shared values, and it is about universal inclusion in those things we all value. Insisting on universal inclusion, limiting social and economic inequality, which we all know how to do, and equalizing the pain as well as the benefits, are the only ways to achieve social emancipation. Shared management, healthy unions, collective responsibility, universal inclusion, and redistribution of wealth, do not just lead to fairer and more just societies that we all want. They also lead to more effective and efficient economic and social orders, more balanced and egalitarian, with fewer social pathologies, and more human welfare. Societies built on shared values produce happier people, less alienated because they are no longer on their own, more collaborative because they have something in common with everybody else.

Notes   1 T. R. Reid, The United States of Europe: The New Superpower and the End of American

Supremacy (New York: Penguin Books, 2004), 144–76; and Jeremy Rifkin, The European Dream: How Europe’s Vision of the Future is Quietly Eclipsing the American Dream (New York: Jeremy P. Tarcher/Penguin, 2004), 11–36.   2 Timothy Garton Ash, Free World: America, Europe, and the Surprising Future of the West (New York: Vintage Books, 2005), 28.   3 For a Euro-pessimist’s view, see Walter Laqueur, After the Fall: The End of the European Dream and the Decline of a Continent (New York: Thomas Dunne Books/St. Martin’s Press, 2011), 190–230.   4 John Gillingham, European Integration, 1950–2003: Superstate or New Market Economy? (Cambridge: Cambridge University Press, 2003).   5 Michael Elsby, Bart Hobign and Ayşegül Şahin, Unemployment Dynamics in the OECD (Cambridge, MA: National Bureau of Economic Research, 2008), 41. Accessed 5 September 2014, www.nber.org/papers/w14617.pdf. France’s unemployment rate was its lowest in decades, while the same was true for Germany at 7.3 per cent.   6 Rifkin, The European Dream, 52–7.   7 Steven Hill, Europe’s Promise: Why the European Way is the Best Hope in an Insecure Age (Berkeley, CA: University of California Press, 2010), 345.   8 Aditya Chakrabortty, “Austerity? Call It Class War – and Heed This 1944 Warning From a Polish Economist,” Guardian, 14 January 2013; and Michael Kalecki, “Political Aspects of Full Employment,” Political Quarterly 14, no. 4 (October 1943): 323. See also John Maynard Keynes, Essays in Persuasion (New York: Palgrave Macmillan, 2010), 126; John Maynard Keynes, “How to Avoid a Slump,” The Times, 12–14 January 1937; and Paul Krugman, End This Depression Now (New York: W.W. Norton & Company, 2012), ix–xii.

Europe versus America: a summing up   9 Keynes, “How to Avoid a Slump,” Times, 12–14 January 1937.

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10 Krugman, End This Depression Now, x–xii. 11 Ibid., 174–7. 12 Ibid., 177–8. 13 Ibid., 180–2. 14 Roger Cohen, “A Time for Courage,” New York Times, 21 November 2013, OP-ED. 15 John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace and Company, 1936), 372.

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Index

Abramoff, Jack 154 Affordable Health Care Act 158 Alperovitz, Gar 124 Argentina 200 Armey, Dick 99 Arnold, Matthew 7, 42–50 Ash, Timothy Garton 208, 214 Atlantic Charter 72 Attlee, Clement 76 Auschwitz 10 Australia 123 Austria 26, 53–4, 62, 68, 75–8, 86, 89 Bank of England 165 Belarus 115 Belgium 25, 56, 75, 87 Bell, Clive 61 Benedict XVI (Pope) 200–5 Bernanke, Ben 175 Beveridge, William 48, 65, 72 Biological Weapons Convention 197 Bismarck, Otto von 143, 151 Blair, Tony 5, 30, 119–120, 125–9, 139, 145, 160, 164, 184, 194 Bosnia 10, 24 Branson, Richard 123 Brazil 180, 192, 203–4 Bretton Woods 8, 88–9, 137, 183 Brown, Gordon 30, 123, 164–5, 184, 193–4 Bundestag Bank 125 Bush, George W. 1, 16, 99, 131, 154, 158, 184 Byers, Stephen 124 Callaghan, James 99

Canada 15, 25, 123, 125, 158 Carter, Jimmy 96–8 Cayman Islands 123, 175 Center for Survey Research (US) 18 Cheney, Dick 158 Chile 144, 200 China 9, 94, 138, 144, 162, 166, 173–80, 184–90, 197, 204 Christian Democratic Union (Germany) 119 Citigroup 159, 166, 175 City of London 29, 111, 159, 164, 172 Clinton, Bill 119, 136, 145, 160, 184–6 Cochrane, John 174, 178 co-determination 67, 125 Cold War 6, 69, 83 communism 8, 11, 17, 51, 54, 56–9, 62, 69, 75, 114–17, 138–9, 144–7, 171, 184, 198, 200 Confédération générale du travail 75–6 Congo 197 Conservative Party (UK) 70, 78, 89, 149, 181 Convention on Children’s Rights 197 corporatism, 69–70 Corporatocracy 159 Costa Rica 25 credit default swaps 165 Cuba 25, 79, 197 Daley, William 160 Darling, Alistair 121 Declaration of Human Rights 72 DeLay, Tom 99 Democratic Party (US) 133, 135–6 Denmark 25–6, 68, 74–7, 151, 189

224 deindustrialization 86–90, 96–8, 146, 163–4, 172 Depression see Great Depression deregulation 1–2, 7–8, 13–16, 51, 85, 96– 8, 105–7, 110, 114, 137–8, 181–2, 186–7 derivatives 121, 136, 146–7, 165–6, 173– 4, 189–92 Drucker, Peter 53 East Germany 115 Eastern Europe 11, 52, 115–17, 139, 144 egalitarianism 37–8, 44, 79, 130, 148, 151 Egypt 197 Eisenhower, Dwight 155 El Salvador 200 Eley, Geoff 66, 69, 88, 112 employment (full) 22, 64, 69, 88–9, 98, 106, 194–5, 207, 213 end of history 6, 10–12, 114–18, 138, 145, 179–80 Eppler, Erhard 176, 203 Erlander, Tage 76 EU see European Union European Central Bank 5, 9, 194–5, 210– 13 European Charter of Fundamental Rights 206 European Commission 206 European Monetary Union 131 European Monetary Unit 164 European Parliament 206 European Social Charter 120 European Union 16, 107, 167, 195–8, 213 fascism 2, 51–8, 63 Faulkner, William 179 Faux, Jeff 184–6 FED see Federal Reserve Federal Reserve 14, 98–9, 157, 167, 175, 192–4 Finland 24–6, 68, 74, 77 Florio, Massimo 106 France 14–15, 55–7, 62–6, 70–7, 189–94 Francis (Pope) 202–5 Frank, Robert 190–1 Fraser, Nancy 141 French Revolution 11, 26, 38 Friedman, Milton 7, 13, 53, 82–8, 95–7

Index Free to Choose 84, 97 Fry, Roger 61 Fukuyama, Francis 10–11, 114–16, 138, 144 Germany 55–7, 125–9 Sweden 70, 130–1 United Kingdom 106, 120 United States 98 Galbraith, James K. 102, 190 Garten, Jeffrey 186 Gaulle, Charles de 66 German Federal Republic see West Germany German Social Democrats (SPD) 63, 69, 114, 121 Germany 55–7, 125–9 Glass-Steagall 136, 190 globalization 8, 23–4, 28–30, 89–90, 162–72, 179–88 Goodwin, Sir Fred 167 Gorz, André 89 Gramm, Phil 99 Greenspan, Alan 157, 164 Grand Narrative 8, 114–20 Gray, John 21 Great Depression 1–2, 7, 13, 17, 22, 54–6, 62, 68, 74, 84, 94, 146, 180–81 Great Recession 13–18, 136, 142–6, 164–6, 172–5, 180–1, 209–11 Greece 167 Green, Philip 123 Hacker, Jacob 15 Halliburton 155–6 Hampton, Sir Philip 159 Hansson, Per Albin 151 Harz, Peter 127 Hayek, Friedrich 53–4, 184 Healey, Dennis 99 health care 24, 28, 30, 169–72, 210–11 Germany 128–9 Sweden 130–3 United Kingdom 65–8 United States 14, 19, 154–60 Heath, Edward 99 hedge funds 121, 146, 158–9, 167, 175, 190 Hedges, Chris 134

Index Himmelstein, David 158 Hitler, Adolph 56–7, 78, 125 Hobbes, Thomas 109, 196 Hobsbawm, Eric 21, 115, 161 Hollande, François 5 Holocaust 197 Holtham, Gary 181 Human Development Index 179 Hume, David 35 Hutton, Will 16–17, 162, 165, 170 Iceland 25, 68, 195, 212 Illinois 87 IMF see International Monetary Fund India 162, 179–80, 186, 188, 190, 197 Indonesia 186, 197 Industrial Revolution 116, 169 International Criminal Court 197 International Labor Organization 72 International Monetary Fund 5, 82, 99, 166–7, 209 Iran 197 Iraq 155, 197 Ireland 25, 86, 193, 211–12 Israel 155, 197 Italy 52, 55, 57, 62, 67, 75, 86–7, 125, 188, 194, 211–12 Japan 15, 24–7, 125, 159, 189, 194 John Paul II (Pope) 198–205 Johnson, Lyndon B. 4, 24, 51, 89, 99 Judt, Tony 10, 21, 30, 76, 93, 103, 196 Kalecki, Michael 211 Keynes, John Maynard 5, 7, 9, 41, 48, 53–7, 85, 174, 190, 211–13 Keynesianism 55, 66, 69, 88–90, 97–8, 142–3 Klein, Naomi 86, 155 Kohl, Helmut 119 Krugman, Paul 211–13 labor markets 89, 146 Germany 125–7 United Kingdom 20–1 105–6, 110, 123–4 United States 125–7 Labour Party (UK) 66, 69–71, 76–9, 88, 99–100, 119–27, 136, 160–4, 181

225 Lafontaine, Oskar 121, 139 Lansley, Stewart 181 Lehman Brothers 165 Lenin, Vladimir 115–16 Leo XIII (Pope) 198 Lindblom, Charles 23 Maastricht Treaty 9, 121, 125, 128–9, 194 McGoldrick, Mark 159 Major, John 107, 110, 119, 160–1 Malaysia 151 Mali 124 Mandelson, Peter 124 Marcuse, Herbert 90 Marshall, T. H. 73, 120 Marshall Aid 69 Marx, Karl, 207 Marxism, 83, 114–17, 120, 147, 161, 199–200 Matthewson, Sir George 18 Medicaid 3, 168 Medicare, 6, 156–7, 168 Merkel, Angela 213 Mexico 14, 25, 179, 200 Michigan 87 Mill, John Stuart, 7, 38–46, 147 Autobiography 39 Mills, C. Wright 90 Minsky, Hyman 190 Mirowski, Philip 174–5 Mises, Ludwig von 53 Monnet, Jean 65, 67, 197 Montesquieu, Charles de 35 multinational companies 13, 18, 159–60, 163, 165–7, 175, 185–6, 189, 201 Murdoch, Ruppert 123 National Health Service (UK) 3, 27, 64–5, 89, 110, 114, 143 nationalization 75, 101, 110 National Socialism 2, 53, 76, 78 Naumann, Friedrich 176 Nazis see National Socialism Netherlands 15, 26, 74–5, 86, 194, 211 New Deal 4, 51, 54, 57, 62, 72, 81, 85, 92, 98–9, 143, 154, 192 New Left 90–5 Nicaragua 94, 124 Nixon, Richard 88, 90, 95

226 North American Free Trade Agreement 192 Norway 25–6, 68, 74, 76–7, 86, 89, 151, 195, 211 Obama, Barack 2–3, 16, 160 OECD see Organisation for Economic Co-operation and Development Ohio 87 Old Left 87, 90–5 Organisation for Economic Co-Operation and Development 81, 130, 132, 151, 163, 209 Orwell, George 3, 22, 116, 142 Osborne, George 174 outsourcing 124, 185–8, 193 Page, John 150 Pakistan 197 Patinkin, Don 83 Paul, Ron 149 Paulson, Hank 160 Pickett, Kate, 24 Piketty, Thomas 173 Pinochet, Augusto 200 Poland 115, 188 Popper, Karl 53 Portugal 16, 25–6, 193, 211 Prantl, Heribert 176 privatization Sweden 131–2 United Kingdom 110–11, 160, 173 United States 150, 153–5, 168, 186 Reagan, Ronald 8, 89, 95–100, 156, 163 Regan, Donald 160 Reich, Robert 13, 121 Reid, T.R. 208 Republican Party (US) 18, 96–9, 120 Rifkin, Jeremy 208 Roberts, Paul Craig 190 Romero, Oscar 200 Roosevelt, Franklin Delano 4, 57, 72, 89, 143 Rove, Karl 158 Rowntree Foundation 123, 161 Rubin, Robert 160 Russia 14, 96, 115–17 see also Soviet Union

Index Russian Revolution 11, 52, 189, 197 Sachs, Jeffrey 159 Sarkozy, Nicholas 5 Saudi Arabia 197 Scandinavia 64–70, 73–9, 136–7, 143–4 Scharpf, Fritz W. 183 Schmidt, Helmut 213 Schmidt, Vivien A. 183 Schröder, Gerhard, 119, 125, 194 Schuman, Robert 197 Schumpeter, Joseph, 53 Shaw, Eric 120, 123 Silva, Inácio Lula da 192 Singapore, 26, 151, 188 Smith, Adam 7, 34–6, 38, 48, 84 Theory of Moral Sentiments, The 34–5 Wealth of Nations, The 35 social citizenship 73, 120, 137 social contract 2, 29–30, 47, 61, 72, 74, 78, 184–5, 188, 192, 198, 207 social inequality 25–6, 35, 48, 52, 88, 141, 194–6 Germany 15, 25–7, 125–6 Sweden 24–6, 29, 70, 130–1, 151, 194–5 United Kingdom 16, 43–5, 106–8, 120–5, 162, 170–1 United States 22–9, 38, 99, 102 social market 125–6 social mobility 25–6, 69, 170 United Kingdom 47, 54, 161–2 United States 25, 134–5 Somalia 197 Soviet Russia see Soviet Union Soviet Union 11, 56, 60, 115, 117, 144 Spain 27, 52, 87, 157, 193, 211–13 Sperling, Gene 160 Stability and Growth Pact 194 Stiglitz, Joseph 134, 142 Summers, Larry 160 Sweden 14–15, 25–6, 29, 65, 73–7, 86–9, 130–3, 188–9, 194–5, 210–11 Swedish Social Democrats (SAP) 70–1, 76–7, 119, 130–2 Switzerland 25, 53, 68, 77, 188–9 tax evasion 123, 182, 188–193, 196–8 Tea Party (US) 149

Index Thatcher, Margaret 84, 88–9, 95–7, 100–11, 119–21, 137, 163–4, 184 third way 119–20, 125–6, 145 Thompson, E. P. 12, 55, 115 Titmuss, Richard 71, 151 Tobin tax 190 trade unions 97–100, 104–7, 122 Transport and General Workers Union 88 Trotsky, Leon 115 Troubled Asset Relief Program (TARP) 167 United Nations (UN) 132, 197, 203 Vatican 199, 202 Vietnam War 88–95 Volcker, Paul 98 wage councils 105 Wall Street 144 wealth creation 30, 202 Webb, Beatrice 7, 46–9 West Germany 55, 63–7, 70, 72, 74–8, 86 Woolf, Virginia 61 Woolhandler, Steffie 158 World Bank 150 World Trade Organization (WTO) 186, 188, 192 World War I 21, 52–5, 65, 76 World War II 2, 5, 16, 41, 48, 51, 53–5, 62–5, 67–8, 71–6, 96, 116 Zambia 179

227