By Enrique Lescure
As the recovery after the Financial Crisis fails to improve the conditions of the working and middle classes, the ideological-political hegemony of “supply-sided economics” and “market politics” have started to unravel. In Central Europe, this has led to a growth of right-wing conservative parties, while in southern Europe – in Greece, Italy and Spain – large left-wing movements have grown. Now this unravelling has started to reach the Anglo-American countries, in the forms of political leaders such as Bernie Sanders and Jeremy Corbyn who are challenging the establishment hegemony within their own parties.
Sanders, a self-described “democratic socialist”, has gained widespread support amongst progressive voters, and is threatening Hillary Clinton’s Presidential campaign, while Corbyn leads the race to become the next leader of the British Labour Party.
While it is very uncertain if these two old males will eventually end up as representatives of their reputable parties, it stands clear that both enjoy a significant support amongst younger voters, and that this represents a trend where the political hegemony of an entrenched establishment is fracturing.
Even if the party establishments on both sides of the Atlantic are managing to stop this rebellion, it stands clear that the solutions of the 1980’s and 1990’s are ill-adapted to deal with the situation of today, and that it has opened up for alternative interpretations. Therefore, if the establishment continues to defend a system that cannot provide the young generations with what they learnt they should expect, it is not impossible that we within five to ten years will start to see neo-socialist governments gain power in major western countries.
The questions are: Will this be a beginning of a socialist or populist political revival in the West, will neo-socialist governments gain power and will they achieve their aims?
- During the 1970’s and 1980’s, a political shift occurred from demand-driven Keynesian economics to “Neo-liberal” supply-sided economics, creating a political-ideological-economical orthodoxy which has dominated in the western and developing worlds since then.
- The supply-sided economics have managed to create financial stability and growth until 2008, after which their reliance on credit has become more emphasized and apparent.
- Despite a large influx of credit into the system and a recovery, structural and long-term unemployment have stabilised on a higher percentage level, and wealth has become more concentrated amongst the elite of societies.
- Democratic socialists like Bernie Sanders and Jeremy Corbyn are running on a platform espousing re-regulation of the financial sector, which they blame for the development for the last decades.
- The reality is of course both simpler and somewhat more complex, and even if left-wing governments are elected into power, they will not be able to re-create the conditions of the Keynesianism of the 1960’s.
- An improvement of the strategy would be a wider analysis, which would lead to policy prescriptions of yet deeper reforms pointing towards overhaul of the tax systems and the introduction of basic income schemes.
What is Neo-Liberalism?
In general, people espousing Neo-Liberalism generally are disliking the term, since they either view themselves as ideologically committed classical liberals, or view themselves as politically neutral economists who just are advocating what they believe is the optimal solution for the economy. Detractors on the other hand, are viewing Neo-Liberalism as the cause for the reduction of western welfare states, unemployment, environmental devastation and much more. Most likely, both people seeing Neo-Liberalism as a positive development for western and developing societies, and people who dislike it or even hate it with vitriol would dislike this entry.
Originally, the Neo-liberal analysis originated from the University of Chicago, where Milton Friedman and other economists analysed the development of Keynesian economics which was the dominant paradigm during High Industrialization (1946-1973). The Keynesian model advocated that the state should take an active part in the economic development of societies by “smoothing out” the business cycle, by restricting the markets during good times and stimulating them during bad times.
During the early 1970’s, the western world entered a period of recession and “stagflation” (periods characterised by both high inflation and high unemployment). The Keynesian imperative had been to use the money supply as a way of allowing both high (nominal) wages and stimulating high employment, with the price of increasing the money supply thus increasing the inflation. It was however noted that the effects of these stimulus packages became smaller and smaller the more they were utilised, which the Neo-Liberals (this was before it became a slur word) meant showed that the expectations of the public was that higher inflation would neutralise the effects of wage increases, which meant that they responded by demands on more wage increases.
While the Keynesians saw unemployment as the big threat towards social stability, Neo-liberals tended to see inflation as the main problem during the 1970’s, since it undermined the savings of the middle class and thus their willingness to consume, thus in the end creating high unemployment.
The neo-liberals advocated more restrictive policies, which they interpreted as higher interest rates (by central banks reducing the money supply by swapping currency for bonds), thus reducing inflation, and more restrictive spending policies on the part of government, making cuts in social safety nets. Since most neo-liberals also were believers in classical liberalism in the sense of a smaller state, they also advocated lowered taxes (though that is understood as an expansive policy approach by Keynesians). The argument was that by lowering taxes for the wealthy and for the middle class, there would be increased room for private sector investments, and thus a higher demand for labour – reducing unemployment.
Initially, neo-liberal policies implemented in Chile, the United Kingdom, the United States and other countries saw an increase in unemployment figures (due to higher interest rates). Growth did however rebound during the 1980’s, partially due to cheaper raw materials and partially due to capital deregulation and the new innovations within the Computer Industry, which started to transform the entire economy. In the third world, a giant debt crisis began during the same time, leading to social instability in many countries, due to higher interest rates.
Due to the capital de-regulations, the new technologies and the lower taxes for the highest earners, income inequality started to increase, and more of the new growth ended up in the top percentiles of society.
The cat might have been dark blue, but it did catch mice, and when left-leaning governments retook power in many western countries during the 1990’s, they had done so by transforming their programmes to not worry the middle classes, which increasingly had come to see these policies as in alignment with their interests. At large, however, the policies prescribed had abandoned the idea of restrictive monetary policies for the idea of cheap credit during the Happy 90’s. This was not only a vice of the rebounding middle class, but also of governments such as the US – which already during the 1980’s had increased government expenditures by taking loans.
In 2007-2008, the credit bubble finally burst, leading to a world-wide Recession. Governments across the world increased their spending by initiating stimulus packages in a Neo-Keynesian style in order to save large banks and capital markets, on which they believed that the economy had grown dependent. This intervention succeeded, but the gains of the stimulus packages as well as the recovery at large came to benefit largely the super-rich, while unemployment (as during the 70’s and 80’s) had frozen on a seemingly permanently higher level.
Moreover, the stimulus packages had been a large wealth transfer from the public to the financial sector, and had created or deepened deficits in the state budgets, creating a debt crisis in many European countries. Thus, austerity measures were either implemented by governments or de-facto forced upon them, in a manner reminiscent of how many developing countries had been treated during the 1980’s and 1990’s by creditors.
Hardly surprising, it is difficult for policy-makers, governments and wider establishments to defend the idea that banks and financial institutions which have tanked the economy through irresponsibility should receive an influx of money from the tax-payers, and that said tax-payers should then pay for their previous payment by tax increases, lowered benefits, wide cuts broad and deep into the economy and indirect effects such as higher prevalence of homelessness, poverty and unemployment. This creates an atmosphere where populist politics and politics challenging the established ideological hegemony can thrive.
We’ll leave the issue whether or not Neo-Liberalism has “caused” this crisis, or whether a failure to adhere to Neo-Liberalism was the cause of it. Cases have been made for both, and ultimately what matters is that things don’t follow the expectations any more.
What Neo-Socialists want
During the 19th century, there were several socialist movements. Democratic Socialists, Marxists, Anarchist Socialists, Syndicalists and Utopian Socialists. As the 20th century dawned, with world wars and unparallelled technological advances, the social democratic governments of the western world generally embraced progressive government interventionism coupled with regulated capitalism – in short, Keynesianism, in some cases and during some periods more or less happily married with more “pure” socialist concepts.
While some commentators probably believe that political leaders like Sanders and Corbyn wants to outlaw private property and install totalitarian dictatorships, both politicians have stressed more than enough that they are democratic socialists, with Corbyn probably being somewhat of the left of Sanders – who have said that he strives towards a Scandinavian-style welfare state.
If we look beyond the policies intended to mobilise supporters, we would see a clear pattern emerge. Capital must be regulated and made to pay its share to society. With these regulations, both as a doorstop for predatory financial racketeering and as a way to gain funds, reforms could be made to benefit the working class and increase consumption amongst ordinary people, thus driving the economy to regain its confidence.
To a large extent, this can be seen as a conservative or even reactionary
approach, in that these policies aim to restore the pre-1973 economic equilibrium to as much an extent as possible. What Sanders and Corbyn are aiming for is not some kind of communistic utopia, but a world which a lot of people remember that they have experienced during their formative years, the years when things looked bright.
In short, anger and nostalgia is what drives the support for candidates like these. And there is nothing wrong with these feelings.
What Neo-Socialists don’t get
Jeremy Corbyn and Bernie Sanders are both very honest leaders who strive towards a society they believe will increase fairness in society, reduce inequality and be better for the majority of the people. Their policies are hinging on an analysis where the development which they see as counter-productive can be blamed on the implementation of a worldview – Neo-Liberalism – and associated policies such as financial deregulation and tax cuts for the wealthy and for corporations. If we roll back these reforms, they reason, we will reclaim some of the lost gains from the period of 1946-1973.
Alas, as a certain Russian has stated: “The struggle between Capital and Labour is over, and Labour lost.”
Due to new technologies, production can either be off-shored to the cheapest supplier, or – increasingly – automated fully, leading to a reduction of labour demand in the economy at large. This process has probably been exacerbated by the policies implemented from the 1980’s and onward until today, but will inevitably transform the economy into one where the demand for human labour has been reduced to a fraction of today – meaning that more people will either compete for less jobs that cover less hours than before, and either live on social security benefits (which rely on funds gained from taxes from those who are working) or grow potatoes in their backyards.
Progressives, Social Liberals and Socialists are to a large extent mentally locked to a paradigm that stipulates that taxes should primarily be levied as income taxes. If people are not hired to the same extent any more, due to reduced demand for labour, every subsequent crisis in the capitalist system will inevitably lead to higher long-term and structural unemployment – which would undermine the state’s ability both to gather income and to fund social expenditures.
Under these conditions, it is impossible to recreate the society which existed during the early 1970’s.
Alternate transitionary solutions
The Earth Organisation for Sustainability is believing that this current form of civilization that we are having on Earth is destroying our eco-systems, not by accident but as a logical conclusion of how it is constructed. We are researching and striving to field test post-monetary models on how to arrange the production factors in order to achieve a sustainable future.
Having said that, we believe in a gradual approach towards a fully sustainable society. This means that we must discuss how money should be designed and used during the transition period, and identify policies that could help in the transition.
Ultimately, the process towards greater automatization should be welcomed as a way of reducing human labour and increasing human quality of life. During the current society, it serves to create a higher degree of uncertainty and a more predatory competition for jobs.
Thus, the idea of a welfare state primarily aimed towards making people find jobs under a situation of full employment is probably moot for our generation, and will only become increasingly unfeasible as automation marches on. Therefore, instead various income floor schemes have to be investigated and discussed.
The tax systems will also need to be reformed, as the shift from Labour to other production factors mean that even if the GDP is growing, the actual tax revenues may either decrese or not increase enough in comparison to the increased expenditures due to more retirements. Therefore, a shift from Labour to Land, Capital or Technology must take place under ordered forms.
If Neo-Socialists can discuss these issues, they will build a firmament on which they can realize many of their aims regarding human well-being and creating a new political narrative. Otherwise, the pendulum will probably swing towards Market Libertarianism, or in the worst case, Fascism.