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Introduction: what are the priorities for social democrats?

Vince Cable

Political parties that could be described as social democratic have been in decline for some years, particularly in the countries where they have historically been strongest: Britain, Germany and in Scandinavia. Others, which were loosely associated, outside the Western world, as in India and Brazil, have largely disappeared. Almost everywhere, competing voices – nationalism, ethnically based populism and authoritarian ‘strong men’ – have drowned out the appeal of social democracy and captured a substantial section of the electoral base of social democratic parties. That base was in any event contracting because of structural change in the economy away from manufacturing and unionised employment, and the greater priority for younger voters of new issues like the environment. The main appeal of social democrats – that they offer the best of capitalism and socialism, both the economic effectiveness of the former and the fairness of the latter – was increasingly seen to be not credible or relevant.

The COVID-19 pandemic may produce big and long-term changes to the scenery against which political drama is being played out. It could hasten the decline of social democracy; however, it could also help it stage a revival. Certainly, the challenges now being thrown up are those to which social democrats have produced answers in the past: mass unemployment; the re-emergence of large-scale mass poverty in the poorest countries; protectionism and lack of international cooperation; and growing dependence on the state to coordinate, plan and be the health provider, employer and safety net of last resort. Social democrats, in government and out, were key to the post-war consensus that was instrumental in tackling these problems, which have now resurfaced in a new way.

However, there are competing political models and ideas. Nationalism and populism are powerful forces in some countries (the US, Russia, China, Brazil, Mexico and India). Overlapping with those is the cult of ‘the authoritarian strongman’. Then there are what can be called the ‘welfare technocracies’ of East Asia. There are pockets, which may grow, of aggressive and radical individualism. And, in contrast, there are strongly communitarian movements at local level: sometimes inclusive; sometimes exclusive. The issue for social democrats is whether they can offer a mixture of competence and compassion that can transcend the competition in a democratic context.

Who are the social democrats?

The social democratic tribe is a lot bigger than represented by the parties that are descended from the socialist tradition like the UK Labour Party and its Antipodean cousins, the Social Democratic Party (SPD) in Germany, and the assorted social democrat parties around Europe. There are some social democratic parties that call themselves ‘socialist’, as in Spain, or ‘labour’, as in Norway, or ‘democrat’, as in Italy, and we should not include some that call themselves ‘social democrat’ but are rebadged ‘communists’. We should include the US Democrats, who never went through a socialist phase. There are also ‘social liberals’ who emerged from classical liberal parties but are now largely indistinguishable from social democrats, like the Canadian Liberals (though they have competition from the New Democrats), and others like the Dutch 66, the Swedish Liberals and Macron’s En Marche where there are big areas of overlap. The Liberal Democrats in the UK are such a hybrid, and the identification often has more to do with a country’s voting system and its history of political schism than meaningful working definitions of social democracy.

What is striking and disappointing is that social democracy has not travelled well outside the heartland of Western Europe, North America and Australasia. In Asia, Lee’s People’s Action Party (PAP) in Singapore was modelled on the British Labour Party but came to despise the welfare state. On the bigger canvass of India, the Congress Party seemed to have similar values to European social democrats but succumbed to rampant corruption. The same can be said for the Brazilian Workers Party. There are recognisably social democratic parties in many places (Ghana, Jamaica, South Africa, Costa Rica, Japan, Taiwan and Korea) but national idiosyncrasies tend to outweigh what they have in common.

Those national variations stem from different histories. Some social democratic parties, as in Sweden, broke with their revolutionary socialist ancestry over a century ago and have maintained a consistently reformist and democratic personality ever since. In some cases, as in Germany, there was a moment when the party redefined itself as unambiguously social democratic – the Bad Godesberg conference in 1959 – and it has remained aloof from parties of the far Left like Die Linke.

Despite the efforts of Anthony Crosland and others to achieve a similar clarification in the UK, ambiguity remained, leading initially to the SDP breakaway. Moreover, despite the efforts of Neil Kinnock, John Smith and Tony Blair to cement the social democratic character of the Labour Party, they succeeded only temporarily, leading to the bizarre spectacle of their party being captured by revolutionary socialists. Brexit has also created new geographical and ideological wounds. In the meantime, the Liberal Democrats became the voice of many social democrats, as well as liberals, but it is marginalised by the electoral system.

This very varied, eclectic, mix of parties and political traditions makes it difficult to locate the common denominator. There is a common thread in the Rawlsian tradition of thought, which emphasises individual freedoms alongside a shared sense of fairness and that has at its heart a ‘social contract’. The current crisis is also forcing social democrats to come up with new or reworked policy ideas to tackle new problems or old problems in a new guise.

What is to be done?

I see the main political challenge as to fashion what have been called ‘visions to touch’ as opposed to small-scale technocracy, on the one hand, and abstract slogans, on the other. I would identify four major areas where these ‘visions’ are required: large-scale unemployment; poverty and the interaction of tax and benefits; the workings of modern capitalism, especially in relation to data and the big data companies; and the threats to multilateralism.

Mass unemployment

The pandemic and lockdown have recreated a problem thought to have been solved except in specific areas like structural unemployment among young people in Southern Europe and underemployment in emerging economies in Africa and South Asia. The full scale of the problem is not yet clear, but when the temporary furlough schemes are phased out in the autumn, millions will be out of work in the UK.

In one respect, there has been an advance in policy thinking since the last depression in the 1930s to the extent that all major governments have accepted that they have a responsibility for maintaining adequate levels of aggregate demand through fiscal policy and/or the monetary policy of central banks. Aggressive monetary policy was used after the financial crisis and is being tried again. In addition, since the pandemic commenced, the main governments – the US, Germany, Japan, China, the UK and France – have all provided a large fiscal stimulus. To do so, they have accepted that they will incur substantially more public debt. There is an implicit acceptance that higher deficits and debt are not now an issue in the short run. That is not a worry for countries like the US and Japan, which can borrow in their own currencies, or like Germany and China, which have low initial debt levels. Many poorer and more indebted countries are more constrained. Others, like the UK, will need to set out a long-term debt financing plan to reassure their creditors. Social democrats will be needed to maintain commitment to a Keynesian approach – in a very fluid and uncertain world.

Not all unemployment can be dealt with through cheap money and fiscal stimulus. Much will be structurally caused by the disappearance of many firms and the obsolescence of specific skills. Various initiatives will be needed: cuts in employment costs by reducing employers’ national insurance contributions (NICs); large-scale and sustained public works projects; and investment allowances, incentivising early investment. Some groups will find it very difficult to join or rejoin the labour force, especially young people without work experience and older workers close to retirement age. For the former, there are tested schemes offering a guarantee of post-school education, training or employment. For the latter, there is a need to ensure access to adult and continuing education, as well as retraining opportunities. The more successful schemes of the 1980s and the ideas successfully trialled in Sweden and Germany should inform policy.

The dogmas of the past have no role in an emergency of this kind and social democrats have an important role in escaping the public good–private bad or private good–public bad dialectics of the past. The approach will need to be eclectic and practical, and involve maximising the contributions of the private and public sectors. One of the legacies of the Coalition years is the Industrial Strategy, which provides a forum for public–private coordination and cooperation at a sector level to address long-term issues. That structure needs to be revived and strengthened to give focus to what would otherwise be random interventions at firm level.

Poverty, tax and benefits

The pandemic has exposed the limitations of the British welfare system after years of reform and cuts. Large numbers have fallen through the cracks; others have been forced to rely on the stringent benefits of Universal Credit and a patchwork of specific supports for disability and other needs. On the other hand, pensioners, protected by the ‘triple lock’ on the state pension, have been insulated from the economic effects of the crisis, as they were after the 2008/09 financial crisis.

The reforms of Beveridge (like Keynes, a liberal) provide a template for a comprehensive social safety net that social democrats have regarded as the right starting point. Recent adaptation of the post-war welfare state involved an attempt to create a form of negative income tax under Gordon Brown’s tax credit system. The principle was good but it suffered from complexity and the practical problems of offsetting continuous changes in income in current highly volatile labour market conditions, with ‘gig’ work and numerous part-time earnings. The Coalition model was to simplify means-tested benefits in Universal Credit, which has however become discredited by cuts and delays in payment, while also lifting the income tax threshold, thereby lifting low earners out of income tax.

The new idea that is being embraced by many social democrats is universal basic income. The immediate attraction is that, in an emergency, it enables money to meet basic needs, and to provide purchasing power in the economy, to be paid to everyone (in principle) without time-consuming and discriminatory checks. At present, in the UK, millions of ‘self-employed’ and recently unemployed are not adequately covered. As a temporary measure, it should be tried.

However, as a permanent system, universal basic income is being promoted with evangelical fervour, which is unfortunate since its impact depends on precisely what it replaces and on the availability of some continued means-tested support in the form of housing benefit for high-rent areas. Social democrats should welcome localised universal basic income experiments and should, in the meantime, be pressing for changes to Universal Credit in order to make it significantly more generous to low-earner families, without the current delays and impediments.

The pandemic has highlighted some of the underlying injustices and inequities in society, such as between young and old, and in respect of wealth and income. One of the side effects of the necessary use of extraordinary monetary policy is to inflate the value of assets, both property and financial. These, in turn, are disproportionately held by older people. Social democrats should be making the case for more effective and tougher taxation of assets through inheritance taxes, capital gains taxes and taxes on high-value property.

Modern capitalism

In the Great Depression of the 1930s in the US, which potentially bears comparison with today, the New Deal was President Roosevelt’s social democratic response. In fact, the New Deal was not, as widely believed, Keynesian in its economics. However, it did effect major changes to the conduct of business and strengthened the bargaining power of workers. A modern version of the New Deal is needed, not to destroy capitalism, but to remedy some of the most egregious abuses.

My main focus in the UK would be creating a tax and regulatory environment that favours stable, long-term commitment by investors over short-term, speculative activity. Some steps were taken in the Coalition years to change the culture – quarterly reporting is no longer required – but the problem remains. One important step would be to give long-term shareholders bigger voting rights. Another would be to shift the taxation of capital gains back to penalising short-term speculative activity.

Much has been written about the obligations of companies to stakeholders more widely than shareholders. Legislation in the UK already reflects those wider concerns. However, unless the legal primacy of shareholders is removed from companies, there will continue to be insufficient weight given to employee well-being and environmental and other societal factors. At the same time, it is important that entrepreneurs and investors of risk capital should be properly rewarded. The continued tax bias against risk capital and in favour of debt is a big disincentive – and has to be reversed.

There are now particular issues as a consequence of the big data companies that have come to dominate the world economy and exposed the weakness of national governments in respect of tax collection and competition policy. The European Commission has been the sole authority (outside China) to exercise some effective control over the monopoly power of the Internet platforms, and then only to a limited extent. One of the main casualties of Brexit has been the loss of that countervailing power. A major task of policy now is to create at national level a much more effective and aggressive Competition and Markets Authority to counter takeovers that further stifle competition, to impose strong standards to protect privacy (using the existing European rules), and to regulate abusive content.

Multilateralism

For social democrats, there is a clear understanding that many policy objectives in relation to trade and financial flows, tax avoidance, crime, defence, environmental commons and climate change, human rights, poverty, and development cannot be achieved at a national level alone, but require cooperation. One of the most alarming developments in recent years has been the weakening of support for multilateral bodies like the World Trade Organisation, the Bretton Woods institutions and United Nations (UN) agencies, which are more relevant than ever in repairing the damage wrought by the pandemic, especially in the poorest countries. The fact that Britain has walked away from the EU has damaged regional cooperation, as well as the UK itself. Britain will now have a less credible presence in global institutions but has a particular responsibility nonetheless for the climate negotiations soon to be held in Glasgow.

The Brexiteers’ slogan of ‘Global Britain’ may or may not have been sincere or thought through. However, social democrats should adopt it and seek to make it meaningful in trade, development, environmental, human rights and other forums. Governments in the social democratic tradition in Sweden and Canada have shown that middleweight countries can have considerable influence for good. At the same time, a major project for the next generation will be to rebuild links with the EU, not necessarily through full membership, but through the kind of close association already enjoyed by neighbours who are not members.

Conclusion

Among the most significant challenges for social democrats are mass unemployment, poverty, the problems posed by big data companies and the weakening of multinational institutions caused by rising populism. Social democrats should remain committed to a Keynesian approach to economic matters, should learn from best practice in other countries and should adopt pragmatic, evidence-based policies.

The policies they should pursue include: a commitment to lifelong training and education; support for generous in-work benefits to low-earner families; making the case for taxing assets whose value has been inflated by recent monetary policies; a more effective authority to counter business takeovers that stifle competition or undermine the country’s science base; and rebuilding the UK’s relationships with our overseas partners to pursue policy objectives that cannot be achieved at a national level. However, social democrats will not return to power in Britain on the basis of policy ideas alone; they will have to overcome the tribal divisions of British political parties and the obstacles of the British ‘first-past-the-post’ voting system by means of tactical cooperation.