A crisis of capitalism turns into a crisis of social democracy

Higher education has been hit hard in the British spending review, with funding to be reduced from £7.1 billion to £4.9 billion by 2014-15. Reports suggest that their low-tech subjects may have their funding cut entirely. The fee increases flowing from the Browne report will presumably make up most if not all the losses.

In Australia HECS successfully transferred costs from taxpayers to students/graduates with no loss of graduate numbers. It will be interesting to see how these UK changes go, as the cuts are much larger and quicker than anything seen here.

This financial crisis is not having the political consequences I expected two years ago, or what our unlamented former leader predicted in his Monthly essays. In Europe, it has become a crisis of social democracy. Their bloated welfare states were in bad financial shape before the financial crisis struck; now they simply unable to cope.

In the United States the Republicans, who when Obama was elected looked set for many years in the political wilderness, now look like they will soon be back in charge of the Congress. Unlike the European centre-right leadership, however, I see few signs that the American Right has regrasped reality and has a responsible plan for extracting the US from its disastrous fiscal position.

In Australia, it’s not clear that the financial crisis greatly changed the ideological dynamics either way. We are still in a centre-left phase of the political cycle, but it started well before the financial crisis and was not enhanced by it, with the right gaining seats in the 2010 election.

We will be spared the social division that eventually flows from resizing unsustainable big government.

15 thoughts on “A crisis of capitalism turns into a crisis of social democracy

  1. Centre left? Maybe in Melbourne, definitely in Tasmania and ACT. Not sure about NT/SA but the rest of the country is centre right at best.
    The current federal Labor government has almost no progressive policies other than the NBN which is being argued in terms of productivity increases, and the MRRT which is being used to fund infrastructure, self-funded retirement and company tax reductions.
    The claim we are centre-left is on par with the claim that the ABC is left… The ABC is centre-left at worst, with the majority of the rest of the media sitting between centre-right and right.


  2. “I see few signs that the American Right has regrasped reality and has a responsible plan for extracting the US from its disastrous fiscal position.”
    I’m not sure that many of them had any sense of reality to start with.


  3. Alex – I’m not sure that a massive subsidy to the online entertainment industry (the only likely use of the NBN for ordinary people) counts as progressive, though for various partisan reasons support for it has divided on left/right grounds. Download your porn at record speed… But with Labor in power, a significant return to the government-controlled past in industrial relations, and the end to the small government agenda (which happended during the Howard years, but entrenched by Labor) this is a time for the centre-left.

    Conrad – Admittedly we have to go back a long way.


  4. I don’t think the fundamental social democratic nature of Europe will change – they will always have universal education and healthcare, we Australians don’t understand just how ingrained these things are in Europe. The UK is a bit different, it’s not ‘as social democratic’ as Continental Europe. I reckon the main problem for social democrats in Europe is that they just expected a resurgence after the crisis, but they have no coherent narrative when it comes to the economy.


  5. I think it’s a big-government conservative phase that we’ve entered (as you point out, this happened during the Howard era but has continued since then). Social progressives and economic liberals will naturally disagree on whether this is “left” or “right”, but really such labels are inadequate.

    The American Right is in difficulty because unlike Europe, the US Government is saddled with the costs of expensive military adventurism and empire maintenance.


  6. Krystian – I think that’s right. But building a culture of entitlement makes it very hard to adjust, as seen in violent protests on the continent and presumably soon to be seen in the UK – which is a bit of a mid-way welfare state, much larger than the USA or here but smaller than most European countries.

    Caf – I think Australia is a mix.

    Classical liberal welfare state: purely focused on poverty relief.
    Social democratic welfare state: attempts to narrow differences in living standards. In Australia, mainly via progressive income tax and free or cheap services. For people with kids, substantial income redisribution to them as well.
    Big government conservative welfare state: similar to social democratic welfare state, but with more attempts to foster particular social institutions, esp. the family, and limit the pathologies of the welfare state via spending controls, work for dole etc.


  7. Capitalism or social democracy, either way, the expenditure needs to be funded.

    The US and Europe were headed for crises in any case. Their governments simply cannot meet their commitments. It’s just that the US financial crisis has accelerated the process.


  8. “Their governments simply cannot meet their commitments”
    and isn’t the fuss over who should pay in order to meet the commitments? Haven’t the wealthy been increasing their share of the pie over these past few decades? Let them pay then, they can well afford to. The right’s solution is ‘private affluence, public squalor’.


  9. Russell – Unfortunately for this theory, when you have states as big as European welfare states the local rich are simply too few in number and not rich enough (and in % terms took the biggest hit to their incomes in the GFC). Even if you took what they have left it would not solve the problem.


  10. The facts:

    The USA and the UK have unemployment as well as government deficits as well as current account deficits as well as housing crises as well which are way worse than those in northern Europe. Job growth 2000-2010 in the USA has been absolutely dismal, compared with historical data as well as with European countries. I agree: Australia did well to, but the social democratic Netherlands did as well.

    The track record of social democratic countries has not been that bad… (in fact: to the contrary).

    An experiment: the Scandinavian countries had the good idea to give mothers about one year of paid maternity leave (theoretically part of this time can be changed to ‘paternity leave’). Abhorrent? Just look at their GDP per capita, unemployment etcetera.


  11. Merijn – The European social democracies are pretty much all nice places; the Scandinavians deserve a special prize for being outliers in just about all comparative research. This is not the point being made. A significant number of these states – France and UK being most in the news recently – have made social democratic promises to their people that cannot be met. Though Germany is in better shape than most, its dreadful demographics suggest it is in longer-term trouble too. The process of trimming these back (and they will all still be generous welfare states after the cuts are over) is causing political pain. The elections held in the financial crisis period provide no evidence (as I expected a couple of years ago) that it has given the left electoral impetus.


  12. The financial crisis has become a crisis of social democracy because of the depth of the recession in many of these countries. The option to raise taxes is simply not available, principally because even the left are concerned about stalling economic recovery. Whereas in Australia, raising taxes on mining has been seen as a means of making sure we don’t grow too fast! The only thing restraining the size of government here is the government’s own commitment to bring the budget to surplus. That is looking incredibly shaky now and would be shot if the NBN were brought on budget.


  13. caf The American Right is in difficulty because unlike Europe, the US Government is saddled with the costs of expensive military adventurism and empire maintenance.
    The costs of the US military establishment and the Iraq and Afghanistan commitments is not the problem. The US spends less of GDP on defense than it did in the 1950s, 1960s, etc. It is still spending less of GDP on defense than it did under Reagan. The problem is increased domestic spending under Dubya funded mainly by debt followed by massively increased domestic spending under Obama funded by debt. Fairly pointless spending in the latter case, since the Fed’s tight money policy counteracted any stimulus effect and the US electorate, according to the polls is very unimpressed.


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