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Social democracy or Neo-liberalism?
The cases of Germany and Sweden
Author
Lavelle, Ashley
Published
2007
Book Title
Globalising Government Business Relations
Copyright Statement
Copyright 2007 Pearson Education Australia. The attached file is reproduced here in accordance with
the copyright policy of the publisher. Please refer to the book link for access to the definitive, published
version.
Downloaded from
http://hdl.handle.net/10072/18534
Link to published version
http://www.pearson.com.au/9780733986277
CHAPTER 6
Social Democracy or Neoliberalism? The Cases of Germany
and Sweden
INTRODUCTION
The onset of economic globalisation has helped give rise to a sense in which there are no
choices when it comes to public policy: neo-liberalism appears unrivalled. After the fall of
the Berlin Wall in 1989, with the collapse of the Soviet Union imminent, American
p
hi
l
os
o
ph
e
rFr
a
nc
i
sFuk
uy
a
maa
dv
a
nc
e
dhi
sf
a
mous‘
e
ndo
fhi
s
t
o
r
y
’t
he
s
i
s
.Hepr
o
c
l
a
i
me
d
‘
a
nun
a
ba
s
he
dv
i
c
t
or
yofe
c
onomi
ca
ndpol
i
t
i
c
a
ll
i
b
e
r
a
l
i
s
m’a
ndt
h
e‘
t
ot
a
le
xha
us
t
i
onofv
i
a
b
l
e
s
y
s
t
e
ma
t
i
ca
l
t
e
r
na
t
i
v
e
st
oWe
s
t
e
r
nl
i
b
e
r
a
l
i
s
m’
.Li
be
r
a
lde
moc
r
a
c
y
,hes
ug
g
e
s
t
e
d,mi
g
htbet
he
‘
e
ndpo
i
nto
fma
nk
i
nd’
si
de
ol
og
i
c
a
le
v
ol
u
t
i
o
n’a
n
dt
he‘
f
i
n
a
lf
or
m ofhuma
ng
ov
e
r
nme
nt
’
(Fukuyama 1989, 3, 4, 14). Acceptance of elements of his influential thesis was not confined
to the conservative side of politics (e.g. Blackburn 1991). British socialist Perry Anderson
argued in 2000 that, for the first time since the religious wars that erupted in the 16th century
(known as t
he‘
Re
f
or
ma
t
i
on’
)
,‘
t
he
r
ea
r
enol
ong
e
ra
nys
i
g
ni
f
i
c
a
ntopp
os
i
t
i
o
ns–that is,
s
y
s
t
e
ma
t
i
cr
i
v
a
lou
t
l
o
ok
s
’
. Da
v
i
dHa
r
v
e
y(
2005,2
,3
)wr
i
t
e
so
ft
he‘
e
mpha
t
i
ct
ur
nt
owa
r
ds
neoliberalism in political-e
c
onomi
cpr
a
c
t
i
c
e
sa
ndt
h
i
n
k
i
ngs
i
nc
et
he1970
s
’a
n
dh
ow virtually
‘
a
l
ls
t
a
t
e
s
’ha
v
ee
nd
or
s
e
de
l
e
me
nt
sofn
e
o-liberal theory and policies.
Political parties in the social democratic tradition have historically stood in opposition to neoliberalism. However, in recent years they, too, have embraced neo-liberalism. Taking the
examples of social democratic parties in Germany and Sweden as illustrative of a broader
trend, this chapter argues that social democracy does not offer an alternative to neoliberalism. Structural pressures related to world economic decline and globalisation prevent
the enactment of traditional social democratic policies, which were predicated on specific
circumstances that no longer exist. The result is that at the level of elite parliamentary
politics, neo-liberalism seems to be the only model of government available. Nonetheless,
while neo-liberalism is unchallenged at the level of elite politics, this is not so in wider
society. The emergence of the so-c
a
l
l
e
d‘
a
n
t
i
-g
l
oba
l
i
s
a
t
i
onmov
e
me
nt
’i
nt
hel
a
t
e
-1990s was
accompanied by intellectual critiques of global capitalism and parliamentary democracy.
There are also signs of radical political parties emerging to occupy some of the ground
v
a
c
a
t
e
dbys
oc
i
a
lde
moc
r
a
c
y
’
sa
c
c
e
p
t
a
n
c
eo
ff
r
e
ema
r
ke
t
.
Social Democracy and Neo-liberalism
Social democracy comes in various national, political and ideological forms. There are,
however, numerous features common to all. Fielding (2003, 11) argues that:
Mainly based in the manual working class, social democrats initially sought to
improve theirc
ons
t
i
t
u
e
nt
s
’l
o
tbyc
ont
e
s
t
i
nge
l
e
c
t
i
ons
,wi
nn
i
ngof
f
i
c
ea
n
dus
i
ng
1
power to extend the state ownership and regulation of capitalism. Their object was to
make the economy operate more efficiently and in the interests of the majority: by
using the opportunities offered by political democracy to influence economic activity
they hoped to make society more equal.
Na
t
i
on
a
ld
i
f
f
e
r
e
nc
e
sa
s
i
de
,‘
a
l
ls
o
c
i
a
lde
moc
r
a
t
ss
oug
htt
ot
r
a
ns
f
or
mf
r
e
ema
r
k
e
tc
a
pi
t
a
l
i
s
m
into a more regulated system they described as soci
a
l
i
s
m’(
Fi
e
l
d
i
ng2003,60)
. Wh
i
l
e
sometimes influenced by Marxist ideas, they have generally opposed those in the Marxist
t
r
a
d
i
t
i
on who ha
v
ea
r
g
ue
dt
ha
te
x
i
s
t
i
ng pol
i
t
i
c
a
ls
t
r
uc
t
u
r
e
sc
a
nno
tr
e
s
o
l
v
ec
a
p
i
t
a
l
i
s
m’
s
inequalities and injustices, and that in fact a revolutionary transformation of society is
necessary to usher in new political and economic structures. Lars Klingbeil (2005) of the
German Social Democratic Party (Sozialdemokratische Partei Deutschlands (SPD)) argues
that the key issue for social de
moc
r
a
t
si
s‘
the role of the nation state, how we can guarantee
t
ha
tt
hes
t
a
t
ei
sa
na
c
t
o
r
…a
ndc
a
nc
on
t
r
o
lt
h
ema
r
k
e
t
’
.TheSwedish Social Democratic Party
(Socialdemokratiska Arbetarpartiet –SAP) has allowed greater scope for market forces but
shares with its international siblings a belief in government action to achieve equality and
social justice. According to SAP think-tank director Anne-Marie Lindgren (1999, 48), it has
h
i
s
t
or
i
c
a
l
l
ys
uppo
r
t
e
da‘
mi
xe
de
c
onomy
’
,auni
v
e
r
s
a
lwe
l
f
a
r
es
t
a
t
e
,a
nda
na
c
t
ive labour
market policy.
The‘
g
ol
d
e
ne
r
a
’o
fs
oc
i
a
lde
moc
r
a
c
yoc
c
u
r
r
e
di
nt
hequa
r
t
e
rc
e
n
t
ur
ya
f
t
e
rWor
l
dWa
rTwo.
During this period, many social democrats relied heavily on the ideas of the British economist
John Maynard Keynes, who argued that in the interests of economic growth and full
employment the state should establish:
certain central controls in matters which are now left in the main to individual
i
ni
t
i
a
t
i
v
e
… Th
eSt
a
t
ewi
l
lha
v
et
oe
xe
r
c
i
s
eag
ui
di
ngi
nf
l
ue
n
c
eont
h
epr
op
e
ns
i
t
yt
o
consume partly through the scheme of taxation, partly by fixing the rate of interest,
a
nd pa
r
t
l
y
,pe
r
ha
p
s
,i
n ot
he
rwa
y
s
… Ic
onc
e
i
v
e
,t
he
r
e
f
o
r
e
,t
ha
ta s
ome
wha
t
comprehensive socialisation of investment will prove the only means of securing an
approximation to full empl
oyme
nt
…(
Ke
y
ne
s19
73,3
77,378)
.
While it is debatable to what extent the conscious application of such policies contributed to
the consistently high economic growth rates in the post-war years (see further below), social
democrats seized upon Keynesian ideas because they allowed for an expansion of the role of
government and rejected the notion that the economy worked best when the free market was
left to its own devices. Crucially for social democrats, Keynes (1973, 377, 378) rejected the
adoption ofas
y
s
t
e
m of‘
St
a
t
eSoc
i
a
l
i
s
m’t
ha
t‘
wou
l
de
mbr
a
c
emos
toft
hee
c
on
omi
cl
i
f
eo
f
t
hec
ommuni
t
y
’
.Th
i
sa
pp
e
a
l
e
dt
os
oc
i
a
lde
moc
r
a
t
swhodi
dno
twa
n
tt
ob
ea
s
s
oc
i
a
t
e
dwi
t
h
communists. Because Keynesianism was the dominant ideological approach to public policy
in the post-war era, social democrats were able to support both mainstream economic policy
and government intervention to raise living standards (Scharpf 1991, 23).
Thus while a certain suspicion of capitalism is inherent to social democracy, it is the
suspicion of an unrestrained capitalism not forced by government –through policies such as
higher taxes on the wealthy, generous welfare provision, public ownership, and legal
protections for employees –to meet certain standards of social justice. In practice, however,
social democrats have frequently failed to implement such policies in government, and have
instead ended up enacting policies beneficial to the wealthy.
The most persuasive explanation for this failure has come from those in the Marxist tradition.
The German philosopher and political economist Karl Marx described government as a
‘
c
ommi
t
t
e
e
’r
e
p
r
e
s
e
nt
i
ngt
h
ei
n
t
e
r
e
s
t
so
fb
i
gbus
i
ne
s
s
.Fol
l
owi
ngonf
r
om t
hi
sPol
i
s
hMa
r
xi
s
t
2
Rosa Luxemburg, in her attack on the German social democrat Eduard Bernstein, argued that
the state was not a neutral political player able to rise above social conflict, but rather a
‘
r
e
p
r
e
s
e
n
t
a
t
i
v
eofc
a
p
i
t
a
l
i
s
t
[
s
]
’
,a
ndt
he
r
e
f
or
ei
t
s‘
s
o-called social reforms are enacted in the
1
i
nt
e
r
e
s
t
so
fc
a
pi
t
a
l
’(
1
989
,41)
.
Ev
e
ns
omet
he
or
i
s
t
sf
r
om t
he‘
pl
ur
a
l
i
s
t
’t
r
a
di
t
i
onha
v
e
r
e
c
og
ni
s
e
dt
he ‘
pr
i
v
i
l
e
g
e
d’po
s
i
t
i
on ofbus
i
ne
s
si
nc
a
p
i
t
a
l
i
s
ts
o
c
i
e
t
y by e
mpha
s
i
s
i
ng
g
ov
e
r
nme
nt
s
’‘
s
t
r
u
c
t
ur
a
ld
e
pe
nde
nc
e
’ont
hep
e
r
f
or
ma
nc
eo
fb
i
gbus
i
ne
s
sf
o
re
c
onomi
c
growth, tax revenues and employment generation, which in turn compels them to introduce
policies conducive to business profitability. Sections of business may lose out, but the
business system as a whole predominates irrespective of which political party is in power
(Lindblom 1977).
Social democrats fail to achieve reforms because they overlook these facts of political life.
Br
i
t
i
s
hMa
r
x
i
s
tAl
e
xCa
l
l
i
ni
c
osi
d
e
nt
i
f
i
e
sa
soneo
fs
oc
i
a
lde
moc
r
a
c
y
’
sma
j
orf
l
a
wsi
t
s
separation of politics from economics: the belief that decisions can be made in the sphere of
parliament and law-making (politics) independently of the daily acts of business investment
and production (economics). The flaws of this approach are revealed all too starkly when
social democrats gain power:
They are confronted with the following dilemma. Reforming capitalism necessarily
means interfering either directly or indirectly with the economy. Even limited
improvements in social welfare imply increases in public expenditure and taxation.
Such interference may well produce adverse reactions from big business –for
example, the flight of capital from the country –which will weaken and may even
destroy the government. But if the social democratic ministers therefore avoid
reforms for fear of annoying the bosses, then parliamentary democracy turns out after
all to be incapable of even moderating the inequities of capitalism (Callinicos 1997,
17).
From this flow the inevitable charges of betrayal from their supporters in the trade union
movement. It is therefore not new for social democratic governments to implement policies
t
ha
tbo
t
hf
a
v
ourbu
s
i
n
e
s
sa
nddi
s
a
p
po
i
n
tt
hewo
r
k
i
ngc
l
a
s
s
.Wha
ti
snov
e
li
ss
o
c
i
a
ld
e
moc
r
a
t
s
’
r
e
f
u
s
a
lt
oe
v
e
nt
r
yt
or
e
f
o
r
mc
a
pi
t
a
l
i
s
m,a
ndt
he
i
rs
u
ppor
ti
ns
t
e
a
df
or‘
n
e
o
-l
i
be
r
a
l
’orf
r
e
e
market policies. Harvey (2005, 2) outlines the essence of neo-liberalism thus:
Neoliberalism is in the first instance a theory of political economic practices that
proposes that human well-being can best be advanced by liberating individual
entrepreneurial freedoms and skills within an institutional framework characterized
by strong private property rights, free markets, and free trade. The role of the state is
to create and preserve an institutional framework appropriated to such practices.
Soc
i
a
lde
moc
r
a
t
s
’embrace of neo-liberalism differs in both degree and form. Magnus Ryner,
for example, argues that the SAP has pursued policies consistent with its occupation of the
‘
l
e
f
tpol
e
’o
fne
o-liberalism (Ryner 2004, 98, 102). The type of policies it has implemented
are also different from social democrats elsewhere. Typically involved in most cases,
however, is support for elements of what American economist John Williamson coined the
‘
Wa
s
hi
ng
t
onCo
ns
e
n
s
us
’
.Th
i
sc
o
ns
i
s
t
e
doft
e
nne
o-liberal policy areas: fiscal austerity, tax
reform, free trade, privatisation, deregulation, public spending priorities, interest rates set by
markets, competitive exchange rates, foreign direct investment, and property rights (cited in
Callinicos 2003, 2). While a reduced role for government is the outcome of nearly all these
policies, as Robert Pollin argues neo-liberals may support free market policies at one time,
but at a different time embrace policies that conflict with market principles so long as they
meet the needs of big business (Pollin 2003, 8).
3
The Neo-liberalisation of German and Swedish Social Democracy
One can see this social democratic embrace of neo-liberalism in the policies of German and
Swedish social democracy. Paterson (1986, 127) has argued that, becauseoft
h
eSPD’
sa
g
e
,
p
os
i
t
i
o
n
,s
i
z
ea
ndi
n
t
e
r
na
t
i
ona
lc
onne
c
t
i
ons
,i
na
t
t
e
mpt
i
ng‘
t
oa
s
s
e
s
st
hef
u
t
u
r
eofs
oc
i
a
l
d
e
moc
r
a
c
ynopa
r
t
yi
smor
ei
mpor
t
a
ntt
h
a
nt
heSPD’
.Since its origins in the late-19th century
a
sapa
r
t
yt
ha
td
e
ba
t
e
d‘
r
e
f
or
mv
e
r
s
usr
e
v
ol
ut
i
on
’(
Wa
l
dma
n195
8)
,t
heGe
r
ma
nSPD ha
s
moved far away from this traditional relationship to the working class and socialism and
embraced market economics. The SPD in 1959 at the town of Bad Godesberg adopted a
p
ol
i
c
yofs
uppo
r
t
i
ng‘
a
smuc
hma
r
k
e
ta
spos
s
i
b
l
e
,a
smuc
hp
l
a
nn
i
nga
sne
c
e
s
s
a
r
y
’
.TheSPDled government in the 1970s and 1980s did implement more liberal economic policies but it
still pledged to protect the welfare state right up until the heralding of the Neue Mitte (
‘
Ne
w
Ce
nt
r
e
’
)p
r
i
o
rt
ot
he199
8f
e
de
r
a
le
l
e
c
t
i
on
. AsMe
y
e
rc
omme
nt
s
,t
hi
sc
o
ns
t
i
t
u
t
e
d‘
a
s
i
g
ni
f
i
c
a
n
ts
h
i
f
ti
nt
heSPD’
sp
r
og
r
a
mme
’(
Me
y
e
r1999,2
5)
. Th
eNeue Mitte entailed
fostering close relations with business leaders, supporting smaller government, and accepting
the political constraints of globalisation (Meyer 1999, 27-30).
After taking power in coalition with the German Greens after the 1998 election, the SPD
implemented significant neo-liberal policies. It made cuts to welfare spending, reduced
corporate tax rates, abolished capital gains and wealth taxes, and effectively reduced the
pension rate (Padgett 2003, 45; Kitschelt 2003, 137; Conradt 2003, 230). Regressive and probusiness tax changes were based on the neo-liberal notion that greater social inequality
generates higher levels of employment and investment (Eissel 2002, 147-153). The 2001
p
e
ns
i
onr
e
f
o
r
mi
nv
ol
v
e
da‘
s
hi
f
tb
yt
heSPD,t
oapub
l
i
c
l
ys
uppo
r
t
e
dpr
i
v
a
t
ep
e
n
s
i
ons
y
s
t
e
m’
(Erb 2001, 195). Prior to the 2002 federal election, the SPD-led Government began
implementation of the Hartz labour market reforms, named after the recommendations of a
commission headed by Volkswagen executive Peter Hartz. These reforms included the
privatisation of the state-run employment agency, reductions in unemployment benefits, and
regulations requiring the unemployed to accept any work offered to them (Henning 2006).
The neo-liberal program was continued after the SPD retained power at the 2002 election. At
the centre of its policies was Agenda 2010, a package of broad-ranging reforms to areas such
as the economy, labour market and health (Federal Government of Germany 2004). The
package included legislation to make it easier for firms to dismiss worker, cuts to health,
dental care and other provisions, and new limits to unemployment benefits (Camerra-Rowe
2004, 13-16). Complementing these policies, the government implemented the remaining
elements of the Hartz labour market reforms. It was public opposition to these policies
among many social democratic supporters that saw the SPD-Green Coalition defeated at the
2005 federal election (see Lavelle 2007). SPD parliamentarian Dietmar Nietan (2005)
conceded that after many years of attacking the conservatives for neglecting social justice
‘
[
i
n]t
hee
n
dwedi
dt
hes
a
me
,nots
oha
r
dbu
ti
nt
hes
a
medi
r
e
c
t
i
ona
ndIt
hi
nkt
ha
t
’
s
d
i
s
a
p
poi
nt
e
d[
ma
nype
opl
e
]
’
.
Like their German counterparts, the Swedish social democrats have embraced neo-liberal
policies in recent years. Swedish social democracy once represented to many international
observers the pinnacle of social democratic achievement (eg Crosland, in Castles 1978, xi).
TheSAP’
sl
ongpe
r
i
odi
ng
ov
e
r
nme
ntf
r
om 1932-1976 saw the development of the Swedish
model of so-c
a
l
l
e
d‘
c
r
a
d
l
e
-to-g
r
a
v
e
’we
l
f
a
r
ec
a
pi
t
a
l
i
s
m,di
s
t
i
ng
ui
s
he
dby its generosity and
universality. In the quarter-century after 1945, living standards doubled alongside the
enactment of reforms such as a national health service, supplementary pensions, child
benefits, sickness insurance, and public housing programs (Tilton 1990, 166).
In recent decades, however, social democrats in Sweden have implemented significant neol
i
b
e
r
a
lpo
l
i
c
i
e
st
ot
hee
xt
e
ntt
h
a
tma
nybe
l
i
e
v
et
h
e‘
Swe
di
s
hmode
l
’t
ob
ede
a
da
ndbu
r
i
e
d.
TheSAP’
sne
o-liberal direction can be traced back to the policies it introduced after regaining
4
power in 1982, including a redistribution of income from labour to capital, spending cuts, the
deregulation of financial markets, a prioritisation of profitability by state enterprises, and the
privatisation of some state firms (Huber and Stephens 1998). According to Ryner (2004, 98,
99), the removal of controls over capital markets in 1985 marked the beginning of Swedish
neo-liberalism. Schwartz (1994) argues that Finance Minister Kjell-Ol
ofFe
l
d
t
’
sde
pa
r
t
me
nt
(1982-90)‘
f
ol
l
o
we
dat
y
pi
c
a
ln
e
ol
i
be
r
a
ll
i
ne
’
.Th
eg
ov
e
r
nme
nt
’
sr
e
g
r
e
s
s
i
v
et
a
xr
e
f
or
mswe
r
e
modelled on those introduced by the conservative Reagan Government in the US (Pontusson
1994, 35, 36).
I
nt
hee
a
r
l
y1990
st
heSAPa
dopt
e
d‘
awho
l
es
e
r
i
e
sofne
w policy initiatives that departed
f
r
om t
r
a
di
t
i
o
na
lSoc
i
a
lDe
moc
r
a
t
i
cpo
l
i
c
yc
ommi
t
me
nt
sa
nd…r
e
p
r
e
s
e
nt
e
da
ne
mbr
a
c
eof
b
our
g
e
oi
spol
i
c
ypr
e
s
c
r
i
p
t
i
ons
’(
Pont
us
s
o
n1992,3
07,
308)
.Af
t
e
rf
a
i
l
i
ngt
og
e
tp
a
r
l
i
a
me
nt
a
r
y
a
ppr
ov
a
lf
orFe
l
dt
’
sp
l
a
nst
of
r
e
e
z
ewa
g
e
sand prices and ban trade union strikes in 1990
(Hancock 2003, 390), the SAP opted instead for cuts to welfare entitlements and other forms
of public spending (Pontusson 1994, 37). When the SAP returned to power in 1994 after
three years in Opposition, then-SAPPr
i
meMi
ni
s
t
e
rI
ngv
a
rCa
r
l
s
s
on‘
i
ne
s
s
e
nc
e
…a
f
f
i
r
me
da
n
e
ol
i
be
r
a
lr
e
o
r
i
e
nt
a
t
i
ono
fpubl
i
cpo
l
i
c
y
’(
Ha
nc
o
c
k2003,393
)
. A pa
c
k
a
g
eo
fne
o-liberal
measures was introduced, including tax increases and spending cuts; labour market outcomes
t
ha
ti
nc
l
ud
e
d‘
r
e
s
p
ons
i
bl
epa
ya
g
r
e
e
me
nt
s
’
;a
nd s
t
r
uc
t
ur
a
lc
h
a
ng
e
st
oe
c
ono
mi
cpol
i
c
y
,
including independence for the central bank and limits on public expenditure (Persson 2005).
The SAP scaled back compensation rates for parental leave and for sickness and
unemployment benefits, it halved benefits for orphans, and oversaw significant cutbacks and
a decline in the quality of other social services (Verlin Laatikainen 2000, 162).
Thu
s
,wh
i
l
eSwe
de
n
’
suni
q
uewe
l
f
a
r
es
t
a
t
eha
sno
ty
e
tbe
e
nd
i
s
ma
nt
l
e
d,t
hepol
i
c
ydi
r
e
c
t
i
on
in recent years has been unmistakably neo-liberal. Finance Minister Par Nuder (2004)
conceded that one distinction between social democrats and conservatives in Sweden was
‘
e
r
a
s
e
d
’whe
n‘
wes
oc
i
a
lde
moc
r
a
t
s[
we
r
e
]i
nf
l
ue
nc
e
dbyt
hene
o-liberalism of the 1980s
wi
t
hou
tbe
i
ng f
ul
l
ya
wa
r
e ofi
t
’
. A wi
de
s
pr
e
a
ds
e
ns
eo
fdi
s
i
l
l
u
s
i
o
nme
ntwi
t
hs
o
c
i
a
l
d
e
moc
r
a
c
y
’
sa
ba
nd
onme
ntoft
r
a
di
t
i
o
na
lpo
l
i
c
i
e
si
nf
a
v
ourofne
o-liberal ones has contributed
t
ot
h
eSAP’
sr
e
c
e
nte
l
e
c
t
o
r
a
lp
r
ob
l
e
ms
,i
nc
l
u
di
ngi
t
sd
e
f
e
a
ta
tt
h
e2006 Swedish election
(Lavelle 2007).
While so far we have focussed on the embrace of neo-liberal policies in Swedish and German
social democracy, the trend is much broader. Ali (2005, 7) argues that European social
d
e
moc
r
a
t
si
ng
e
ne
r
a
lha
v
e‘
pr
omot
e
dne
o
-l
i
be
r
a
lpo
l
i
c
i
e
swi
t
ht
hef
e
r
v
ouro
fne
wc
onv
e
r
t
s
’
.
Social democrats have also embraced neo-liberalism in countries outside of Europe, such as
Australia (see Lavelle 2005). Perhaps some might argue that social democracy is not yet dead
because of recent developments in Latin America, in particular the reforms of Hugo Chavez
in Venezuela, including the nationalisation of some sectors of the economy and programs to
r
e
duc
epov
e
r
t
y
.I
ns
omes
e
ns
e
s
,
t
h
i
ss
u
ppor
t
st
hea
r
g
ume
ntoft
h
i
sc
ha
p
t
e
rbe
c
a
us
eCha
v
e
z
’
s
reforms have been driven by strong economic growth and large oil revenues. It is also
i
mpor
t
a
n
tt
or
e
a
l
i
s
e
,
howe
v
e
r
,
t
ha
tCha
v
e
z
’
sr
e
f
or
msh
a
v
ebe
e
nv
e
r
yl
i
mi
t
e
d.On
e
Venezuelan sympathetic to Chavez estimates that the reforms have touched only around 25
p
e
rc
e
ntoft
hep
opul
a
t
i
on.Hec
l
a
i
mst
ha
tt
h
e‘
who
l
ep
i
c
t
ur
e
’i
soneof‘
ma
r
g
i
na
l
i
s
a
t
i
on,of
u
ne
mpl
o
yme
nt
,
ofe
x
c
l
u
s
i
o
n,a
nd[
t
h
e
]r
e
f
o
r
msha
v
enotr
e
a
c
h
e
dma
nyoft
he
s
e
’(
De
ni
s
2006). An additional problem with seeing Chavez as representing a revival of social
democracy is the absence of democracy under Chavez: witness his recent decision to seek
p
owe
rt
or
u
l
eby‘
d
e
c
r
e
e
’wi
t
ho
utt
hen
e
e
dt
og
a
i
na
p
pr
ov
a
lf
r
omt
hec
oun
t
r
y
’
sl
e
g
i
s
l
a
t
i
v
e
b
ody
,a
ndt
ob
e
c
ome‘
pr
e
s
i
de
ntf
orl
i
f
e
’(
BBC200
7)
.Fi
na
l
l
y
,i
ti
s notable that the traditional
social democratic parties of the advanced capitalist world appear to have shown no interest in
Chavez or his policies.
While social democrats have embraced neo-liberal policies, some will argue that they are still
social democratic. Modern social democrats, according to this argument, operate in different
5
contexts, face different pressures and circumstances, and so their policies are different. The
problem with this argument is that it could be used to claim that even a completely freemarket agenda indistinguishable from the policies of those on the right-wing of politics is still
social democratic because it has been developed by social democrats in different
circumstance from those which shaped post-war social democracy. This position is in fact
a
k
i
nt
ot
hes
o
c
i
a
lde
moc
r
a
c
yi
s‘
wha
ts
oc
i
a
lde
moc
r
a
t
i
cpa
r
t
i
e
sdo’po
s
i
t
i
on
,apo
s
i
t
i
onwhi
c
h
of course requires no argument in its defence (Morrison, cited in Hay 1999, 56). If social
democrats no longer stand for policies such as higher taxes on the wealthy, public ownership,
strong labour market regulations, a generous welfare state, and significant spending on areas
such as health and education, and have instead embraced free market policies, then they can
be social democrats only in name.
The question arising from all this, however, is whether this is just a temporary blip or
something more permanent. The evidence suggests the latter is more likely. In the following
we examine two sources of pressures commonly thought to undermine social democracy:
globalisation and economic decline. Other factors have played a role in the undermining of
social democracy, including the pressures generated by the European Union, of which both
Germany and Sweden are members. However, for the purposes of this chapter we shall
concentrate on the above two structural pressures. Ideological pressures emanating from the
dominance of neo-liberal ideas about public policy also should not be discounted, but this is a
subsidiary factor given that it was the end of the post-war boom in the 1970s that created a
climate more receptive to neo-liberal ideas (Swank 2002, 234, 235). The argument that
traditional social policies were abandoned for electoral reasons is similarly superficial, and is
dealt with elsewhere (Lavelle 2007). Of the two structural factors we consider, it is argued
that economic decline is the most important.
Globalisation
The political consequences of economic globalisation –in particular, greater capital mobility,
rising foreign investment and increased international trade –for social democracy has been
the subject of some debate. John Gray nominates globalisation as the key reason for what he
r
e
g
a
r
dsa
st
h
ed
e
a
t
ho
fs
o
c
i
a
lde
moc
r
a
c
y
:‘
[
T]
hene
wg
l
oba
lf
r
e
e
d
om off
i
na
n
c
i
a
l capital so
hems in national governments as to limit severely, or to rule out altogether, traditional socialdemocratic full-e
mpl
oyme
ntp
o
l
i
c
i
e
s
… [
I
t
]de
mol
i
s
h
e
st
hee
c
onomi
cf
ounda
t
i
o
nsofs
oc
i
a
l
d
e
moc
r
a
c
y
’(
Gr
a
y1996,12,13,26)
.The
r
ea
r
e
,howe
v
e
r
,many who contest such statements
and the assumptions underpinning them (e.g. Garrett 1998). There are, indeed, serious
problems with the arguments of Gray and others, for while it is true that the negative reactions
of global financial markets can devastate governments' policy programs, this is not new:
social democrats since at least the 1930s have fallen victim to pressure from the flight of
c
a
pi
t
a
l(
Ca
l
l
i
n
i
c
o
s2
001,27)
. The‘
f
oot
l
oo
s
e
’a
ndt
r
a
ns
n
a
t
i
ona
ln
a
t
u
r
eofc
a
pi
t
a
la
l
s
oi
s
exaggerated (Hirst and Thompson 2003, 102, 103). The obstacles to most firms relocating
quickly mean that states retain some degree of leverage over corporations (Harman 1996, 19).
The globalisation argument also tends to ignore the fact that neo-liberal policies helped give
rise to globalisation. Policies such as free trade, the liberalisation of foreign investment
regimes, and capital market deregulation, have been critical to increased economic
integration.
Commentators are correct to highlight these flaws in the globalisation argument. However,
often neglected are the views of social democratic politicians themselves, who appear to
accept that globalisation puts pressure on governments to implement neo-liberal policies that
promote business investment. This is evident in the cases of both Germany and Sweden.
For
me
rSPD Cha
nc
e
l
l
o
rGe
r
ha
r
dSc
h
r
oe
de
rc
l
a
i
me
di
n20
05t
ha
t‘
g
l
oba
l
i
s
a
t
i
ona
ndt
h
e
e
c
onomi
cc
ha
ng
e
si
th
a
sc
a
us
e
d
’me
a
ntGe
r
ma
nywa
s‘
nol
ong
e
r
’ac
oun
t
r
yi
nwhi
c
ht
he
r
e
‘
wa
ss
uf
f
i
c
i
e
ntr
oom f
o
rr
e
di
s
t
r
i
b
u
t
i
ngwe
a
l
t
h
’(
Pu
r
v
i
sa
ndBos
t
on2
005)
. Anot
he
rSPD
6
p
ol
i
t
i
c
i
a
nde
s
c
r
i
be
dg
l
oba
l
i
s
a
t
i
ona
st
h
e‘
b
i
g
g
e
s
tc
ha
l
l
e
ng
e
’f
orp
a
r
t
i
e
sont
hel
e
f
tbe
c
a
u
s
ea
ny
attempt to put forward distinctive platforms based around traditional social democratic
policies would visit capital flight and upheaval on the economy (von Weizsaecker 2005).
Fe
l
l
ow SPD pa
r
l
i
a
me
nt
a
r
i
a
nDi
e
t
ma
rNi
e
t
a
n(
200
5)a
r
g
ue
st
h
a
twec
a
nno
t‘
g
i
v
et
hes
a
me
a
ns
we
r
st
h
a
ty
oug
a
v
e20o
r30y
e
a
r
sa
g
o’
.Gl
oba
l
i
s
a
t
i
onp
r
omot
e
sak
i
ndof‘
be
a
ut
yc
ont
e
s
t
’
in which ther
ei
sc
ompe
t
i
t
i
onbe
t
we
e
nna
t
i
onsa
st
o‘
whoc
r
e
a
t
e
st
heb
e
s
tc
ondi
t
i
on
sf
o
r
f
or
e
i
g
ni
nv
e
s
t
me
ntf
o
rne
we
nt
e
r
pr
i
s
e
s
’
.Fur
t
he
r
mor
e
,i
ti
n
s
t
i
l
sf
e
a
ri
ng
ov
e
r
nme
nt
s‘
t
h
a
ti
n
o
t
he
rc
ou
nt
r
i
e
st
h
e
y[
mi
g
ht
]c
r
e
a
t
epe
r
ha
p
sbe
t
t
e
rc
ond
i
t
i
ons
’
.
Swedish social democratic politicians offer very similar arguments about the consequences of
g
l
oba
l
i
s
a
t
i
on.OneSAPp
a
r
l
i
a
me
nt
a
r
i
a
na
c
k
nowl
e
dg
e
dt
h
a
tg
l
oba
l
i
s
a
t
i
onpu
t
s‘
pr
e
s
s
ur
eon
h
i
g
ht
a
xc
oun
t
r
i
e
s
’a
nd t
hos
ewi
t
h‘
v
e
r
y we
l
lbui
l
ts
oc
i
a
ls
y
s
t
e
m[
s
]
’s
uc
ha
sSwe
de
n
(Skoldes
t
i
g2005)
. Ac
c
or
di
ngt
oPa
rAx
e
lSa
hl
b
e
r
g
,‘
what you see is companies making
global decisions, moving factories and using cheap labour and so on in other parts of the
world and that means in a way that we are permanently challenged by neo-l
i
be
r
a
l
i
s
m’(
2
005).
Si
mi
l
a
r
l
y
,f
or
me
rSAPPr
i
meMi
n
i
s
t
e
rGo
r
a
nPe
r
s
s
oni
n2005e
xp
l
a
i
ne
dt
ha
t
:‘
Gl
o
ba
l
i
s
a
t
i
oni
s
a powerful force. We must learn to live with increased competition and the rapid changes it
i
nv
ol
v
e
s
’(
Pe
r
s
s
on2
005)
.
Of course, we need to recognise the political interests underlying such rhetoric. If
globalisation is an irresistible force that makes neo-liberal policies inevitable, then social
democratic politicians are not to blame. If the globalisation argument does perform this
function then we can only speculate as to the real reasons for the implementation of neoliberal policies for which it provides politicians with political cover. Either way, because of
the weaknesses we have highlighted in the globalisation argument, it does not provide a very
persuasive explanation for why social democrats embraced neo-liberal policies. The collapse
of the post-war boom in the 1970s provides more satisfactory answers to this question.
Economic Decline
In the post-war period, the world economy expanded at an unprecedented rate. As Kidron
wr
ot
ea
tt
hepe
a
koft
hebo
om,‘
t
h
es
y
s
t
e
ma
sawhol
eha
sne
v
e
rg
r
o
wns
of
a
s
tf
o
rs
ol
onga
s
s
i
nc
et
hewa
r
’(
1970,11
)
. Tope
c
on
omi
s
t
sp
r
oc
l
a
i
me
dt
h
ee
ndoft
h
eboom-slump cycle
(Harman 1984, 10). It was thought that mass unemployment was a thing of the past because
of Keynesian policies (Stewart 1967, 251, 252). Any recessions that did occur were mild and
viewed as errors of economic management rather than a natural functioning of the system
(Windschuttle 1979, 19; Whitwell 1986, 3).
The plunge into recession in the 1970s after a quarter century of continuous growth therefore
c
a
mea
sama
j
ors
ho
c
k
.Th
eI
nt
e
r
na
t
i
ona
lMon
e
t
a
r
yFund’
s(
I
MF)ma
na
g
i
ngdi
r
e
c
t
orr
e
po
r
t
e
d
in 1975 that the falling output and rising unemployment we
r
e‘
unp
r
e
c
e
de
n
t
e
di
nt
hep
os
t
wa
r
p
e
r
i
oda
st
obo
t
hma
g
ni
t
udea
nddur
a
t
i
on’(
c
i
t
e
di
nHa
y
de
n,1977,7)
.Ta
bl
e
sOnea
ndTwo
below reveal the much lower economic growth rates from that point on.
7
Table One: Economic Growth in Sweden, Germany, and the World, 1960s-1990s (annual
average per cent)
Sweden
Germany
World
1960s
4.6
4.44
5.0
1970s
N/A
2.15
3.6
1980s
2.02
2.16
2.8
1990s
2.03
1.47
3.08
Sources: (Thurow 1996, 1; IMF 2001; Swedish Institute 2004; Silva 2003).
Table Two: Economic Growth Rates for Six Major Nations (percentage increase per year)
Country
USA
UK
Germany
France
Italy
Japan
1950-73
3.8
3.0
6.0
5.0
5.6
9.2
1973-97
2.5
1.8
2.1
2.1
2.4
3.3
Source: (Kotz 2001, 94)
The economic decline has continued up to the present day. Global economic growth in 2003
was less than half the worst figure for any year between 1960-73 (Harvey 2005). Despite
hype about the success of the US economy at the end of the 1990s, Kidron notes that the
f
a
me
d‘
Gol
d
i
l
o
c
k
s
’e
c
o
no
my(
‘
nott
o
ohot
,nott
ooc
ol
d
’
)c
ou
l
dpos
ta
na
v
e
r
a
g
ea
nnu
a
l
growth rate of just 2.2 per cent, compared to 3.5 per cent and 4.5 per cent during the 1950s
and 1960s respectively (2002, 92). While the advanced capitalist world –including Western
Europe, North America, Australia, New Zealand and Japan –posted an average growth rate of
6.04 per cent per year in the 1950s and 1960s, this fell to 2.69 per cent per year in the 1970s,
1980s and 1990s (Kidron 2002, 92). Individual nations and regions have experienced shortlived booms but the global picture is one of continuous decline.
Historically economic conditions have been critical to viability of social democratic reforms
TheGe
r
ma
ns
oc
i
a
lde
moc
r
a
tKa
r
lKa
ut
s
k
y
,f
ore
xa
mpl
e
,a
r
g
ue
di
n1928t
h
a
t
:‘
Themor
et
he
capitalist mode of production flourishes and thrives, the better the prospects of the socialist
r
e
g
i
met
ha
tt
a
k
e
st
hepl
a
c
eoft
h
ec
a
pi
t
a
l
i
s
ton
e
’(
c
i
t
e
di
nCa
l
l
i
ni
c
os1997,17
)
.He
a
da
nd
Pa
t
i
e
nc
e(
1
979,5
)e
x
pl
a
i
nt
ha
tbe
c
a
u
s
ea‘
r
e
f
or
mg
ov
e
r
nme
nt
’
spr
og
r
a
mmei
s likely to be
v
e
r
ye
xpe
ns
i
v
e
’
,i
nt
i
me
sofe
c
on
omi
cdown
t
ur
nt
he
r
ea
r
e‘
f
e
w opp
or
t
uni
t
i
e
sf
ore
x
pe
ns
i
v
e
n
e
wr
e
f
o
r
ms
’
,s
oas
oc
i
a
lde
moc
r
a
t
i
cg
ov
e
r
nme
nti
s‘
obl
i
g
e
dt
obe
c
omemor
emode
r
a
t
e
’
.
Mor
eb
r
oa
d
l
y
,Pi
e
r
s
on(
2
0
01,116)c
omme
nt
st
ha
t
,‘
s
e
c
ur
i
ngt
hemaximum possible levels of
employment, improving social provision and finding forms of compromise with private
i
nv
e
s
t
o
r
sh
a
sa
l
wa
y
sbe
e
np
r
e
mi
s
e
donag
r
owi
ngs
oc
i
a
lp
r
o
duc
t
’
.
In economic recessions sufficient money exists to fund welfare and help the poor. But
reforms in these circumstances are more threatening to large firms because they need to be
funded by higher taxes on profits and the wealthy, rather than the stronger revenues and
incomes generated by the high economic growth that accompanies booms. The influential
British social democrat Anthony Crosland correctly surmised that it would be easier to
redistribute wealth in boom conditions, and that higher income earners and others would be
8
more willing to accept higher taxes if they thought such policies were contributing to stronger
economic growth from which they in turn benefited (Hickson 2004, 123). As Callinicos
(
1997,1
7)pu
t
si
t
,hi
g
hpr
of
i
t
s‘
s
we
e
t
e
nt
h
ep
i
l
lofr
e
f
or
mf
ort
hec
a
pi
t
a
l
i
s
t
s
’
.
Not surprisingly the most significant social democratic reforms occurred during the post-war
boom, which provided the material economic base for these reforms. Thus when the boom
ended there were major repercussions for social democrats. The shift in economic conditions
in the mid-1970s was conducive to the neo-liberal policies to which social democrats had
traditionally been opposed: reduced economic growth rates rendered social programs
relatively more expensive, and therefore vulnerable to desires to reduce the size of
g
ov
e
r
nme
nt
,c
r
e
a
t
i
ng a‘
r
a
c
et
ot
h
ebo
t
t
om’i
nl
a
bourl
a
w de
r
e
g
ul
a
t
i
on,c
or
por
a
t
et
a
x
reduction, and welfare retrenchment. The poor results of government responses to the 1970s
recessions (Harris 1983, Ch.3), served only to bolster the neo-liberal case for minimising
government intervention in the economy.
Social democrats also suffered from the damage done to Keynesianism, which was badly
discredited by the return of recession. Some have argued that Keynesian measures were
marginal factors in the success of the post-war economy compared to the rebuilding of the
economy after the devastation of the war, and the impact of high arms spending during the
Cold War.9 Nevertheless, the return of crisis to the world economy in the 1970s revealed the
inability of Keynesianism to prevent recession in the long-term. Keynesian measures initiated
in response to the slump had no impact, or simply made matters worse (see Harris 1983,
Ch.3). Furthermore, the existence of high inflation, low economic growth and rising
u
ne
mpl
o
yme
nt(
‘
s
t
a
g
f
l
a
t
i
o
n’
)c
o
n
s
t
i
t
ut
e
da
n‘
a
noma
l
y
’i
nt
hes
e
n
s
ed
e
s
c
r
i
b
e
db
yt
hes
c
i
e
n
t
i
s
t
Thomas Kuhn, preparing the way for a paradigm shift in policy-making approaches (Hall
1993, 284, 285).
As well as depriving social democrats of the economic base on which their traditional policies
rested, the discrediting of Keynesianism saw social democrats lose the post-war luxury of not
having to choose between orthodox economics and government intervention to raise living
standards (Scharpf 1991, 23). Social democrats now had to choose to be responsible
ma
na
g
e
r
sofc
a
pi
t
a
l
i
s
m ora
dv
oc
a
t
e
so
fi
mpr
ov
e
me
nt
si
nwo
r
k
e
r
s
’l
i
v
i
ngs
t
a
nd
a
r
ds
,butnot
both. Their choice –c
on
s
i
s
t
e
n
twi
t
hs
o
c
i
a
ld
e
moc
r
a
c
y
’
sa
c
c
e
pt
a
nc
eoft
hel
i
mi
t
sofe
x
i
s
t
i
ng
political-economic institutions –was to be successful managers of capitalism.
The Impact on German and Swedish Social Democracy
After discussing the consequences of the downturn on social democracy more broadly, we
c
a
nnow t
u
r
ns
pe
c
i
f
i
c
a
l
l
yt
oourt
woc
oun
t
r
yc
a
s
es
t
udi
e
s
.I
nGe
r
ma
ny
,t
heSPD’
spol
i
cy
d
i
r
e
c
t
i
onov
e
rt
hep
a
s
t30y
e
a
r
sha
st
obes
e
e
ni
nt
hec
on
t
e
x
to
ft
hec
ount
r
y
’
se
c
onomi
c
decline. Compared to an average of 7.7 per cent in the period 1950-61 and 4.4 per cent
between 1961-73, growth in West Germany between 1973-89 was 2.1 per cent, while in
reunified Germany between 1992-2002 it averaged a mere 1.4 per cent per year (Silvia 2003,
1
,3;Fu
nk2000,20
)
.I
n2003,i
twa
sobs
e
r
v
e
dt
h
a
tf
or‘
t
h
ef
i
r
s
tt
i
mes
i
n
c
et
heSe
c
ondWor
l
d
War, the economy has been essentially stagnant for three straig
hty
e
a
r
s
’(
Si
l
v
i
a20
03,1,3)
.
There is evidence to suggest that the international economic recession that ended the post-war
boom was the immediate impetus for neo-liberal economic policies implemented by the SPDled government during the 1970s and 1980s. When Germany was hit hard by the recession,
‘
t
heSPD…t
ur
n
e
di
nc
r
e
a
s
i
ng
l
yt
owa
r
de
c
onomi
cl
i
be
r
a
l
i
s
m,a
nd i
nt
r
oduc
e
d as
e
r
i
e
sof
a
us
t
e
r
i
t
ypo
l
i
c
i
e
s
’(
J
a
hna
n
dHe
nn2000,31)
. TheSPDwa
sou
tofpowe
rbe
t
we
e
n1
982a
nd
1998. The neo-liberal policies of the SPD-Greens Coalition that came to power in 1998 have
similar roots in the deep economic problems of Germany post-unification (see above). The
SPD t
husa
r
g
ue
di
na200
3pol
i
c
ydo
c
ume
ntt
ha
tt
h
e‘
e
xt
e
ntof
…t
h
ed
i
s
ma
nt
l
i
ngofs
o
c
i
a
l
9
s
e
r
v
i
c
e
s
…wi
l
lul
t
i
mately be determined by the extent of economic growth in Germany and
h
owt
hef
r
ui
t
so
ft
h
i
sg
r
o
wt
ha
r
ed
i
s
t
r
i
but
e
d’(
SPD20
0
3,4,7)
.TheSPDa
l
s
obe
l
i
e
v
e
dt
ha
ti
t
s
neo-l
i
be
r
a
lr
e
f
o
r
mswe
r
ene
c
e
s
s
a
r
yt
oputGe
r
ma
ny‘
ba
c
kont
her
oa
dt
og
r
owt
h
’
.I
tf
ur
t
h
e
r
a
r
g
ue
dt
h
a
t‘
e
c
on
omi
cg
r
owt
hov
e
rt
h
epa
s
tt
h
r
e
ey
e
a
r
sha
sr
e
ma
i
ne
dwe
l
lb
e
l
owt
hef
o
r
e
c
a
s
t
s
,
indicating that the reforms did not go far enough and that there is a need for more far-reaching
me
a
s
ur
e
s
… Th
i
si
st
het
h
r
u
s
to
fAg
e
nda2
010
’(
SPD2
00
3,7)
.
The reforms aim to attract business investment. A federal government paper stated in 2004
t
ha
tt
h
ea
g
e
ndap
o
l
i
c
i
e
swe
r
ea
i
me
da
tma
k
i
n
gGe
r
ma
ny‘
s
uc
c
e
s
s
f
ula
sas
t
r
ongb
us
i
ne
s
s
l
oc
a
t
i
on
’(
Fe
d
e
r
a
lGov
e
r
n
me
ntofGe
r
ma
ny2004,5
)
. Hi
g
he
rbus
i
ne
s
si
nv
e
s
t
me
nt
,i
t was
hoped, would ease the fiscal pressures generated by economic slump. The SPD noted in 2003
t
ha
t
:‘
Ta
xr
e
v
e
nuei
sdwi
n
dl
i
ng
.Ta
xr
e
v
e
nuei
n200
2dr
op
pe
dbya
r
oun
d1.
2p
e
rc
e
ntor5.
3
billion [Euros] compared with 2001. This trend continued in the fir
s
tqua
r
t
e
rof2
003’
.Att
h
e
same time, however, it pointed out that social security spending in the federal budget had
risen from 4.1 billion Euros in 1961 to 106.9 billion in 2002 (SPD 2003, 3, 4, 2). In this
context, the agenda health reforms were projected to save 23 billion Euros per year by 2006,
h
e
l
p
i
ngt
o‘
e
ns
u
r
et
h
a
tGe
r
ma
ny
’
she
a
l
t
hc
a
r
es
y
s
t
e
mr
e
ma
i
nsf
i
na
nc
i
a
l
l
yv
i
a
bl
ei
nt
hef
u
t
ur
e
’
(Federal Government of Germany 2004, 14).
Whi
l
eSwe
d
e
n’
se
c
onomi
cpr
ob
l
e
msha
v
ebe
e
nl
e
s
sa
c
ut
e
,t
h
e
yha
v
ebeen sufficient to push
the SAP to make inroads into its famously generous welfare state. Growth in Sweden
averaged just two per cent annually in the years 1980-2003, compared with an average of 3.3
per cent in the 1950s and 4.6 per cent in the 1960s (see Table One). Economic growth fell by
five per cent in the years 1991-93 (Vartiainen 1998, 35). While this coincided with an
international recession, Sweden was especially hit hard (Swedish Institute 2004). According
to the IMF, not only was the 1990s economic crisis in Sweden longer and more severe than its
p
r
e
de
c
e
s
s
ori
nt
he1980
s
,i
tc
ons
t
i
t
ut
e
dt
he‘
de
e
p
e
s
ta
ndl
on
g
e
s
tr
e
c
e
s
s
i
o
ns
i
nc
et
he1930
s
’
,
and challenged the very viability of the Swedish welfare state (Lachman, Bennett, Green,
Hagemann, & Ramaswamy 1995, 1-3).
Swe
de
n’
sma
j
ors
o
c
i
a
lr
e
f
or
ms–including the introduction and expansion of primary and
secondary education, public housing policies, labour laws, hospital care, and care for the
elderly –we
r
ei
n
t
r
odu
c
e
dd
ur
i
ngt
h
e‘
ha
r
v
e
s
tpe
r
i
od’of the 1940s through to the early 1970s
(Carlsson & Lindgren 1998, 92, 93). Ryner argues that the post-war boom, and high demand
for Swedish exports in particular, put a lid on the conflicts and tensions in Swedish society,
allowing the extensive development of the universalist welfare state (Ryner 1998, 34).
When the boom ended, the process of reining in the welfare state began. Kesselman (1982,
4
16)a
r
g
ue
di
nt
h
ee
a
r
l
y1980st
ha
t‘
t
heSAPha
smov
e
dt
ot
her
i
g
hti
nr
e
s
pons
et
ot
h
e
international economi
cc
r
i
s
i
s
’
.Thel
i
mi
t
st
ot
h
eSwe
d
i
s
hs
oc
i
a
ld
e
moc
r
a
t
i
cmode
l
,whi
c
hwa
s
b
a
s
e
do
n‘
c
a
pi
t
a
l
i
s
tmo
de
r
ni
z
a
t
i
ona
nde
xpa
ns
i
onont
e
r
mst
ha
tg
e
ne
r
a
t
e
db
e
n
e
f
i
t
sf
ort
h
e
wor
k
i
ngc
l
a
s
s
’
,we
r
e‘
r
e
a
c
h
e
dwhe
ne
c
onomi
cg
r
o
wt
hs
l
owe
d
…’(
Ke
s
s
e
l
ma
n198
2,
434)
.We
saw earlier the major neo-liberal measures taken by the SAP in the 1990s. These have to
been in the context of the aforementioned deep slump in Sweden in the early part of that
decade. An IMF report noted that the necessity of reform of the social security system was
n
ota
c
k
nowl
e
dg
e
di
nSwe
d
e
n‘
unt
i
lt
h
ea
dv
e
r
s
ebudg
e
t
a
r
ye
f
f
e
c
t
soft
hemos
tr
e
c
e
nte
c
onomi
c
d
ownt
ur
n[
e
a
r
l
y1990s
]be
c
a
mea
ppa
r
e
n
t
’(
La
c
hma
n,e
ta
l1995,
31)
.
The relationship between declining economic growth and the cuts to welfare was evident in
then-SAPPr
i
meMi
ni
s
t
e
rGor
a
nPe
r
s
s
o
n’
s(
2004
)c
omme
nt(
ma
dei
naEur
ope
a
nc
ont
e
xt
)t
h
a
t
‘
wea
r
es
ohe
a
v
i
l
yde
pe
nd
e
ntone
c
o
nomi
cg
r
o
wt
ht
oma
i
nt
a
i
nourEur
op
e
a
ns
o
c
i
a
lmode
l
’
.
Social democrats Carlsson and Lindgren (1998, 77) assert that social reforms require the
‘
mone
yt
of
i
na
nc
et
he
m wi
t
h!I
ft
hee
c
on
omyt
ur
nsdo
wni
ti
sno
tpos
s
i
b
l
et
oma
i
nt
a
i
nt
h
e
l
e
v
e
lofwe
l
f
a
r
ebe
ne
f
i
t
s
’
. SAPFi
na
nc
eMi
ni
s
t
e
rPa
rNude
ri
n2004r
e
f
e
r
r
e
dt
ot
he‘
t
i
me
10
whe
ng
r
owt
hwa
sn
e
g
a
t
i
v
ei
nt
hee
a
r
l
yni
ne
t
i
e
s
’a
ndt
he‘
de
vastating consequences for
s
e
c
u
r
i
t
ya
ndj
u
s
t
i
c
et
ha
tz
e
r
og
r
owt
hs
oc
i
e
t
yc
a
us
e
d’(
Nude
r200
4)
.
I
ti
sc
l
e
a
rf
r
om a
ne
xa
mi
n
a
t
i
onoft
he
s
et
woc
ou
nt
r
i
e
st
h
a
ts
oc
i
a
lde
moc
r
a
c
y
’
sne
o-liberal
policy direction was a response to economic crisis. Social democrats in much of the
advanced capitalist world embraced neo-liberalism for many of the same reasons (Eley 2002,
7). The inability of the world economy to emerge from the crisis that first engulfed it in the
1970s virtually precludes social democrats returning to egalitarian economic and social
policies. The post-war boom of the 1950s and 1960s –and ipso facto, the expansive
programs of those years – was the result of peculiar geo-political and historical
circumstances. According to Marx, there is a tendency towards a falling rate of profit
(determined by the ratio of profit to investment in capital) under capitalism, a tendency for
which there is few offsetting factors. Offsetting factors during the post-war boom included
the impact of the destruction of capital during the war –and the way in which this allowed
economies to re-expand after the war –and the impact of high arms spending during the Cold
War between the Soviet Union and the United States. These were successful in counteracting
the falling rate of profit only temporarily, however, before the rate began to fall again in the
late-1960s in the lead-up to the end of the boom. Profit rates have continued to fall in the
decades since then (Brenner 2002). Moreover, little short of a large-scale nuclear war or an
ecological catastrophe that wipes out much of human civilisation would be likely to create the
conditions for a world economic boom akin to that of the post-war era.10 If these are the only
circumstances in which the economic base of social democracy could be restored, then the
prospects of it ever again representing an alternative to neo-liberalism hardly look promising.
Is There Anything Else on Offer?
It has been clearly shown that social democracy is not an alternative to neo-liberalism, and it
is highly unlikely that it can provide such an alternative in the future. This does not, however,
preclude the development of alternatives to neo-liberalism beyond social democracy.
Arguably, an alternative has been put forward by the so-cal
l
e
d‘
a
n
t
i
-g
l
oba
l
i
s
a
t
i
on
’mov
e
me
nt
that first received headline news coverage in Seattle in November-December 1999, where
tens of thousands demonstrated against the WTO talks held there (Danaher and Burbach
2000). While composed of diverse groups with particular grievances, the movement can
mor
ea
c
c
u
r
a
t
e
l
ybec
h
a
r
a
c
t
e
r
i
s
e
da
s‘
a
nt
i
-c
a
pi
t
a
l
i
s
t
’b
e
c
a
us
eo
ft
hewa
yi
nwhi
c
hi
ti
de
n
t
i
f
i
e
s
t
hes
y
s
t
e
m ofg
l
oba
lc
a
p
i
t
a
l
i
s
ma
st
h
er
o
o
tc
a
us
eofmos
to
ft
hewor
l
d
’
sp
r
ob
l
e
ms
,a
ndi
sa
b
l
e
to connect key issues such as environmental sustainability, war and the exercise of corporate
power (Callinicos 2003, 14). As Ashman (2004) argues, the movement is also much more
internationalist than the right-wing opponents of globalisation with whom it is often
conflated. Importantly, along with the demonstrations at meetings of international
organisations such as the WTO and the IMF came the resurgence of intellectual critiques of
global capitalism and liberal democracy, and the positing of alternatives (eg Albert 2003;
Monbiot 2004; Danaher and Burbach 2000; Bello 2002). As Burgmann (2004, 203) argues,
t
hemov
e
me
n
tr
e
p
r
e
s
e
nt
s‘
t
hemo
s
ts
uc
c
e
s
s
f
u
lr
e
s
pon
s
e
’t
oFu
k
uy
a
ma
’
st
h
e
s
i
sy
e
t
.
Another challenge to neo-liberalism may arise in the form of radical political parties. While it
was noted earlier that neo-liberalism has taken hold of mainstream party politics, in recent
years some minor radical parties that reject neo-liberalism have gained ground in
parliamentary elections. In many cases they capitalise on the disillusionment with social
democracy.
The rise of the Greens in Australia and the Left Party/PDS (Die
Linkspartei/Partei des Demokratischen Sozialismus) in Germany are examples of this process.
Thel
a
t
t
e
rde
s
c
r
i
b
e
di
t
s
e
l
fa
sa‘
c
a
t
c
hme
ntt
a
nk
’f
o
rdi
s
e
n
c
ha
n
t
e
dSPD v
oters and opponents
of neo-liberalism. Former SPD leader Oskar Lafontaine became a leading member of the
Left Party (Bhatti 2005). At the 2005 federal election, it won almost nine per cent of the vote
and became the fourth largest party in the German lower house of parliament by winning 54
11
seats. It campaigned for a withdrawal of German troops from Afghanistan, for higher wages
i
nGe
r
ma
ny
,a
nda
i
me
dt
oma
k
epe
ns
i
one
r
s‘
onc
ea
g
a
i
np
r
oudt
owa
l
kt
hes
t
r
e
e
t
s
’
.I
ta
l
s
o
called for: higher taxes on corporations and the wealthy and on stock market transactions;
i
nc
r
e
a
s
e
dwe
l
f
a
r
es
pe
ndi
n
ga
nds
ubs
i
d
i
e
s
;t
hes
c
r
a
p
pi
ngoft
heSPD’
sl
a
b
oura
ndwe
l
f
a
r
e
r
e
f
o
r
ms
,whi
c
hi
tde
s
c
r
i
be
da
s‘
l
e
g
a
l
l
yde
c
r
e
e
dpov
e
r
t
y
’
;a
ndas
hor
t
e
rwor
k
i
ngwe
e
k(
Fur
l
ong
2005; James 2005). Political commentator Friedhelm Hengsbach described Lafontaine and
f
e
l
l
ow Le
f
tPa
r
t
yl
e
a
de
rGr
e
g
orGy
s
ia
s‘
a
l
t
e
r
na
t
i
v
e
st
op
ol
i
t
i
c
i
a
nswhos
a
yt
he
r
ea
r
eno
a
l
t
e
r
n
a
t
i
v
e
s
’(
Bha
t
t
i20
05
)
.
These movements and parties do face significant challenges. The anti-capitalist movement
currently appears to be weak in some parts of the world (in Australasia and North America,
for instance) but stronger in others (Latin America and Europe). It also confronts important
political questions about, among others, what it stands for, the nature of the capitalist state,
and how significant social change can be achieved (Callinicos 2003). Radical parties such as
the Left Party in Germany face similar challenges and questions about strategy and political
agency. In order to succeed in the long-term they will need to learn the lessons from social
d
e
moc
r
a
c
y
’
si
n
a
bi
l
i
t
yt
oa
c
hi
e
v
ema
j
ors
o
c
i
a
lc
ha
ng
e
. Howe
v
e
r
,t
h
et
hr
e
a
tf
r
om g
l
oba
l
warming and ecological degradation make the success of these alternatives to neo-liberalism
all the more urgent and necessary.
Conclusion
Neo-liberalism has dominated government policy-making approaches in recent decades. This
chapter argued that social democracy has largely embraced this neo-liberal approach under
the pressure of declining economic conditions since the 1970s. The inability of the world
economy to return to the economic conditions on which previous social democratic reforms
were based suggests that social democracy is not likely to represent an alternative to neoliberalism in the future. The evidence suggests that any such alternatives will emerge outside
the social democratic tradition. There are some signs of this occurring in the intellectual
critiques of global capitalism and liberal democracy put forward by the anti-capitalist
movement, and in the policies of some radical parties. However, it is too early to say whether
or not these challenges to neo-liberalism will succeed.
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1
Of course, this statement preceded the wave of reforms of the post-war period. But even welfare
reforms, for example, were by no means exclusively enacted in the interests of vulnerable sections of
17
society, with capital benefiting at the very least from the social and economic stability they helped to
engender.
2
This growth rate average is for 1980-2003 (Swedish Institute, 2004).
3
See previous footnote.
4
Figures are for West Germany, 1961-73 (Funk 2000, 20).
5
Figures are for West Germany, 1973-89 (Funk 2000, 20).
6
Figures are for West Germany, 1973-89 (Funk 2000, 20).
7
Figures are for 1992-2002 (Silvia 2003, 1, 3).
8
Based on figures in IMF (2001).
9
For an elaboration of t
h
et
h
e
or
yoft
h
e‘
pe
r
ma
n
e
nta
r
mse
c
on
omy
’
,s
e
eKi
dr
on(
1970,Ch
.
3)a
n
d
Harman (1984, Ch.3).
10
Th
epr
e
c
e
di
n
ga
n
a
l
y
s
i
si
sba
s
e
donMa
r
x
’
st
h
e
or
yoft
h
ef
a
l
l
i
n
gr
a
t
eofpr
of
i
t(
Ma
r
x1981,
e
s
p.Ch
.
2). For a commentary and explanation of this theory and its relevance to understanding the post-war
boom, see Harman (1984) and Kidron (1970).
18