Great Expectations - The Future of Progressive Politics

Social democrats are caught in a strategic trap. Across Europe the traditional policy ground of progressives is being infringed upon by a re-branded type of “flexible conservatism”. In Germany, for example, Angela Merkel is trying to avoid any sharp confrontation on issues she would find herself in a minority position regarding the public mood. She tries to kill her opponents by embracing them. For examples one need only look to her policy shifts on the issues of Nuclear Power, the minimum wage, the retreat from Afghanistan, military service and managing the financial crisis since 2009. Maneuverable politics is her way of disarming the opposition.

German social democrats therefore find themselves in a strategic dilemma: if they want to mobilise their followers and reclaim power, they have to go into combat mode, sharpening their opposition to Madame Merkel and her policies. However if they become too leftist, they will leave the political centre open for the Christian Democrats. In other words: if they keep on being moderate, pragmatic and consensus oriented, social democrats will hardly be able to present themselves as a profound alternative to the ruling party, but if they overstretch polarisation, they will lose the elections too.

In this sense it is clear that copying Monsieur Hollande will not be a success story in Germany. In a highly differentiated society with a multi-party-system, going to the extreme is not a winning strategy. In Germany, you win elections if you’re able to balance conflicting values and interests: competition and solidarity, equality and merit principle, security and change management, ecology and economic growth, entrepreneurial economy and regulation of markets, civil participation and effective government. If I got it right, this was one of the core ideas of 3rd way politics.

This leads us to the big question for those on the left after the global financial crisis: what is next after the third way? This debate is part of an internal struggle within the democratic socialist movement: a dispute between those who – roughly speaking – consider the concept of 3rd way politics a historical error which should be totally banned from progressive thinking, and those who think that we should draw our lessons from its failures, but still can build on basic ideas and concepts linked with 3rd way politics.

At a recent conference in Berlin focused on this “after the third way” debate, I was struck by the former German Minister for Finance Peer Steinbrück’s ominous opening polemic that social democrats may successfully have fulfilled their historical mission to build the welfare state and now lack a historical project. I doubt if German Christian Democrats or any other European centre right party would ever ask themselves such a question. Obviously it is the left that feels the need for a vision beyond the status quo. Perhaps Mr. Steinbrück is right in feeling that social democracy lacks a convincing narrative for the times we live in. After all, apart from defending its historical achievements, what can modern social democracy possibly be about in a period of rapid and confusing change?

In trying to respond to the question what social democratic policy in the 21st century should be about, the answer seems rather simple, maybe even too simple: social democracy is all about redefining social justice before the backdrop of the big challenges we are confronted with in the decades to come: economic globalisation, climate and demographic change, and the future of Europe. Of course there is a variety of political purposes, traditions and values affiliated with democratic socialism, but at its very centre all social democracy is essentially about social justice.

But how should modern social democracy set itself up to achieve this mission?

Social justice and economic strength
Former Swedish Minister of Finance, Par Nuder, made an interesting argument about this by insisting that the “Scandinavian Model” is still a successful blueprint for European progressive politics. His core thesis is that there is positive interdependence between social justice and economic strength. An extended, well organised public sector in Sweden contributes to the dynamics of the Swedish economy and vice versa.

Nuder offered quite an unusual policy mix: a combination of a highly deregulated, export oriented economy with strong public institutions, especially in the area of education and research & development, alongside an active labour policy which offers every person either a job or a professional qualification. His argument leaves no doubt that public services have to be paid for by the generation that benefits from them. That is, in other words that centre-left governments must be rigid with regard to public debt.

In this model, what is usually seen as a contradiction works instead in a complementary way: high taxes and high economic competitiveness are two sides of the same coin. A special benefit of a highly professional public educational system is high participation of women in the labour market. Maybe the Swedish model does not fit perfectly for a more diverse society like Germany, but I am convinced that social democrats can still learn a lot from this triad of a well established, professional public sector, financial discipline and a liberalised economy.

Pre-distribution
Nevertheless, the ‘tax and spend’ model of socialism is electorally difficult. Indeed, at the conference Alfred Gusenbauer, former Prime Minister of Austria, insisted that secondary redistribution policies - increasing taxes for the well off and higher social payments to the poor – will not achieve the purpose of minimising the social gap. Gusenbauer instead posits that pre-distribution is the way forward.

Instead of increased transfer payments to the poor it is much more efficient to invest in their education and professional training, and instead of ex-post redistribution we should promote straight profit sharing, be it via participation of the employees in the shares of their company or via bonus payments according to the annual profit of the business. The vision of broad participation in productive assets could become the next big step towards economic democracy.

Sustainable growth
In their official documents, social democrats of course refer to climate change and the idea of green growth. Still for most social democrats this seems to be an also-issue. As a result, the centre-left will miss the opportunity to develop a convincing strategy for smart, sustainable growth.

In this sense Germany is part of a historic experiment: the transition of Europe’s leading industrial country towards renewable energy sources in combination with high energy efficiency. And interestingly, in spite of concerns about rising energy costs, there is a wide spread consensus that this pioneering effort in the end will give Germany’s industry a cutting-edge advantage in green technologies, resource-efficient manufacturing and sustainable engineering.

Already today, the competitiveness of German companies is not least the result of ambitious environmental standards and policies over the last 25 years, which created incentives for green innovation and highly energy efficient processes. In a period of rising prices for oil and gas, saving energy is saving money, while replacing fossil energies by wind, solar and biomass results in investments at home instead of paying carbon-autocrats in the Middle East or Russia.

Beneficial interdependence
Should “progressives” embrace globalisation (including labor migration) or try to shield “the little man”, their traditional voter base, against it? Economic nationalism equals protectionism and will damage productivity, innovation and competitiveness. This also applies to attempts to protect the European internal market from global competition.

Interestingly, public attitudes towards globalisation has become a new defining paradigm in European politics. It divides protectionist parties (and movements) both on the right and on the left. I’m not advocating naïve “laissez faire” policies, but our idea of Europe shouldn’t be to build a solid fortress, but to interact on all levels with the world, creating a kind of “beneficial interdependence”.

Progressive politics towards globalization should focus on first empowering people by the best available education and professional training, second on investing heavily in research & development, third on modernising the economic infrastructure (transport, communication) and last but not least on promoting global standards with respect to labour rights.

The expectations gap
In the Policy Network pamphlet “A centre-left project for new times” it is offered that European social democrats suffer a credibility gap: “The central dilemma is that the left appears to promise much to voters – yet too many electorates are no longer convinced that centre-left parties have the capacity to deliver on their promises.

Perhaps a prescient example of this is the left’s use of popular slogans like the “primacy of politics” over the financial markets. This sounds good, but it remains quite unclear as to what this means in reality and how it would be implemented in practice. If you pretend to get rid of the control mechanisms of financial markets by allowing central banks to directly fund government spending, this will end in disaster. But equally, if you try to curb the financial industry and impose tougher rules at the national level, you will discover that national regulation of a global market is a contradiction in itself. And if you go for more effective regulation at the European level you will run into conflicting interests and economic cultures in Europe – look at Great Britain’s resistance towards even a moderate version of a financial transaction tax.

So you will end up with exactly the kind of incremental policies and gradual reforms we’re facing since the outburst of the financial crisis in 2009. Re-regulating financial markets has to deal with conflicts of aims: rightly so, we are demanding higher proprietary capital and better risk containment from the banks, but at the same time we’re asking for expansive (and cheap) lending to small and medium businesses. Unfortunately, you can’t have both at the same time. Furthermore, it’s a difficult exercise to differentiate between “good banking” (serving the real economy) and “bad banking” (speculation), because a big portion of currency swaps, credit default insurances, commodity futures and all that stuff are in fact facilitating international trade.

Nor is shrinking the banks as a response to the “too big to fail” slogan the perfect solution. Big is not necessarily more risky. The vulnerability of a bank depends more on its liquidity management than of its mere size. Have a look at the Deutsche Bank – the only remaining global player in Germany’s bank business. Up to now, it sailed quite well through the troubled waters of the financial crisis, while significantly smaller banks – among them some state owned institutes - had to be saved from bankruptcy with billions of government money.

Unfortunately, it’s only the big banks that are able to operate on a global scale – necessary for globalised industries like the German manufacturers. In the end, the reasonable task of re-embedding the financial industry into the “real economy” is a rather complex undertaking. Therefore, for the sake of credibility, I would recommend to abstain from popular bank bashing, because you will hardly be able to meet the expectations you’re pushing up rhetorically.  

Ralf Fücks is President of the Heinrich Böll Foundation, a think tank and international policy network affiliated with Germany’s Green Party.