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20 December 1999

The social democrats come roaring back

Robert Taylor finds the European left advancing to new triumphs without reference to the Third Way

By Robert Taylor

At the beginning of the 1990s, it was not just the Soviet model of communism that seemed discredited, but also social democracy, its sworn enemy since 1917. The planned economy, the social citizen, demand management: all these ideas, it seemed, were in terminal condition. Social democracy had come under sustained and successful intellectual assault from a revived liberal economics. Restive electorates wanted more individualism and less collectivism, more consumer choice and less taxation. Even in their Nordic strongholds, the social democratic parties faced growing unpopularity.

But now the political mood has changed again. Centre-left governments run 11 out of the 15 countries in the European Union. More impressively, their ideological revisionism shows every sign of re-energising western Europe without any need to embrace Tony Blair’s neo-liberal Third Way. Indeed, new Labour’s project is more often regarded as a warning than as a model for those who want to modernise the European left. For many of them it represents an attempt to import the unfettered American approach into their social market economies.

The most eloquent expression of the new upbeat spirit on the European left can be found in the Declaration of Paris, signed at the Socialist International conference in November. Drawn up initially by the Spanish party, it deserves much closer public attention than it has received in Britain. It sets out a wide-ranging exposition of fundamental left-wing values in response to the forces of globalisation and technological innovation that are sweeping across the western world. It is quite unlike anything new Labour has published.

The Paris manifesto says that European social democrats want to ensure “a critical relationship with capitalism” which, they claim, has always defined their political approach, “improving the possibilities of redistribution while at the same time making the social model sustainable”. It warns: “To abandon public monopolies wholly for the sake of private oligopolies whose only aim is to optimise corporate profits could lead to the serious inequalities that are starting to appear in many countries.”

It is true the document calls for the “redistribution of initiative, the encouragement of personal creativity, a willingness to take risks since this has the social value of creating wealth and opportunities for others”. But the spirit of enterprise envisaged in the manifesto is couched in the language of co-operation “as an expression of solidarity that is directly opposed to the mercenary individualism that rejects society”.

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Throughout the declaration, the political language used is of solidarity, freedom, equality. None of those words finds any echo in Blair’s free market Third Way. More fundamentally, European social democrats insist on continuing to hold a highly critical view of an economic system they still choose to call capitalism. They regard a “fairer distribution of benefits” as well as “the struggle for social justice, equality of the sexes and the fight against discrimination” as the raison d’etre of democratic socialism.

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The declaration accepts the “creative and productive function of the market” and observes that “democracy has always developed in free market societies”. But it adds: “We do not demand more of the market than it can offer. We recognise there are societies that have authoritarian systems and markets, whereas there are no democratic societies without markets. Hence we do not confuse markets and democracy.”

The European social democrats believe there are “other human values besides those that govern the optimisation of profits”. They do not accept the view that education, health and culture can be left simply to market forces. Unlike new Labour, they emphasise the importance of the public interest – the “proper operation of public services” in areas such as transport, power, communications and telecommunications “regardless of the manner in which they are managed”.

This is not simply a matter of contrasting ideological rhetoric. New Labour and much of the British media do not seem to appreciate the importance of what is happening on the other side of the Channel. European social democrats have translated their eternal values into successful political action, and done so while avoiding the vacuities of the Third Way. Centre-left governments have opened dialogues and created pacts with trade unions and employer associations. They are trying to ensure financial stability and social cohesion through wage moderation and practical job creation strategies. As a result, the economic recovery of mainland Europe has been impressive in many countries that are run by social democrats.

One of the most remarkable and unnoticed revivals has been in Sweden. Many new Labour enthusiasts like to sneer in a condescending manner at a country that invented the Middle Way nearly 70 years ago. It is true the Swedish economy – always open and liberal – went through troubled times during the early 1990s. But now, under the social democrats, it has come roaring back, not by jettisoning the famed Swedish model but by modernising it.

The neo-liberals in the Organisation for Economic Co-operation and Development may dislike it, but they have to admit that Sweden’s recent economic performance has been achieved without destroying the country’s universal and generous welfare state or its emphasis on equality of outcomes. The latest OECD report on Sweden is a hymn of praise for the ruling social democrats. Price inflation has all but disappeared. Unemployment is falling rapidly. Interest rates are at historically low levels. Fiscal consolidation “has surpassed that in most other EU countries”. Public expenditure is under control.

All of this was achieved without radical measures to deregulate the labour market or privatise public services. It is a triumph for the Swedish social democratic way.

Neighbouring Denmark is an even better example. Ten years ago, the country was written off as a hopeless case of high unemployment, over-regulation, welfare dependency and labour and product market rigidities. Now it has replaced the Netherlands as the success story of western Europe.

Under social democratic governments, the Danes have enjoyed five years of economic growth at above the EU average. A more active labour market strategy based on more training, improved job placement services and an integration of the employment with the social welfare system have helped to cut dole queues.

But it is perhaps recent events in France that best demonstrate the exciting revival of European social democracy. It may remain fashionable among Blair’s young acolytes to pour scorn on Lionel Jospin’s “old-style socialism”. But to judge by his speech to the Socialist International in November his analysis provides a much more convincing answer for the European left than anything so far concocted by new Labour.

Like all social democratic modernisers Jospin accepts the role of the market but argues it is an instrument, not a value, at the service of society. “The market – even regulated, even controlled – does not eliminate the demands of the social contract,” he told his audience. Jospin evoked the “useful side of the methodology of Marxism” as a way of looking at the capitalist system “to challenge it, to control it and to reform it”. The French prime minister believes in an “active state” to regulate capitalism and promote equality of opportunity.

Unlike Blair and new Labour, the French socialists do not believe globalisation is benign or so overwhelming that it cannot be regulated. “It has not come about from the workings of fate,” declares Jospin. “It has been created by humankind.”

After the failure of the World Trade Organisation’s Seattle conference, the French socialist plan for new forms of regulation at a global level may find more support than before. Internally the French socialists can point to their country’s economic revival by pursuing active state policies through far-reaching youth employment programmes that are much more comprehensive than the welfare-to-work approach in the UK. The 35-hour working week, far from being the predicted disaster for industry, is modernising the use of time at work and improving productivity. Jospin talks of focusing on both production and redistribution through positive state involvement and a “new alliance of the classes”. His astute blend of ideo-logy and pragmatism rooted in traditional left values is far more appealing than new Labour’s rootless admiration for the American model of wild west capitalism.

Even the social democratic German Chancellor Gerhard Schroder has grown less enthusiastic for Third Way politics after his party’s disastrous series of provincial election defeats in the summer. His joint manifesto with Blair enthused about entrepreneurship, deregulated markets, a minimalist state and cuts in taxes and public spending. But it found few supporters among the German social democrats, let alone the voters. The German electorate may have recognised it was not necessary to dismantle their social market model in order to ensure an economic revival. Not for the first time, outsiders have failed to recognise the underlying flexibility and adaptability that lies at the heart of what on the surface looks like an over-rigid system. The OECD may castigate Schroder’s government for its timid labour market reforms; but there are clear signs of economic recovery.

At his recent party congress in Berlin, Schroder delighted his audience with attacks on the financial markets, banks and insurance companies. His decision to bail out Philipp Holzmann, the building group, with taxpayers’ money and his opposition to Vodaphone’s hostile bid for the Mannesmann company suggest that his admiration for the Third Way is heavily conditioned by pragmatism. Moreover, Schroder seems to have rediscovered the language of social justice.

The ferment of European social demo-cratic thought and action may have so far failed to break through the intellectual insularity and hostility to public debate that dominates new Labour. But there are enough practical examples from north to south to reveal that Blair’s project is of limited relevance to mainland Europe.

The real truth is that centre-left leaders from Goran Persson in Sweden to Jospin in France are wrestling more substantially with the modernisation of social democracy than new Labour. They are doing so because they continue to recognise and believe that liberty, equality and fraternity can still give shape and purpose to the European left cause.

New Labour’s sister parties see no reason why they should tear down their social market economies, with their protections for the old, the sick and the poor, and embrace Silicon Valley capitalism with its inequalities and insecurities. Ensuring a credible balance between efficiency and equity, between regulation and deregulation, does not mean embracing the American model.

The encouraging recovery of European economies going on under social democratic governments suggests that a new synthesis of rights and responsibilities can succeed without any need to hanker for a Third Way that is nothing but a euphemism for the crude import of US capitalism into western Europe.

As on the euro and allied matters, Blair looks increasingly like an offshore islander, isolated from the mainstream of European democratic left politics.

Robert Taylor writes for the “Financial Times”