By Clive Hamilton
Plenary paper to the Congress of the Foundation for European Progressive Studies
organised by the Kalevi Sorsa Foundation, Helsinki,
6th November 2009
1. Social democracy and the GFC
There are two lessons from the global financial crisis. The first is that capitalism always moves in cycles. The second is that we are destined always to forget the first. Social democrats will always be gainfully employed trying to protect capitalism from its own excesses. They will be proven right about the need to regulate financial markets to dampen the speculative urge, but they will be proven right over and over again because they fight a losing battle. After all, the window of opportunity to impose effective restraints on secondary financial markets after the crash has now closed; the tough talk has led to very little.
Of course, the neoliberal model has been discredited by the crash of 2008. For critics of the free market model there was more than a pang of schadenfreude to be had from Alan Greenspan’s astonishingly frank testimony to Congress: ‘Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity—myself especially—are in a state of shocked disbelief’. We shook our heads in dismay as he owned up to being ‘very distressed’ at finding a ‘flaw’ in his free market philosophy. Of course, clever people had been pointing to the flaw for years, but good advice is always drowned out by ideological conviction as long as the economy is growing. Greenspan was a long-time acolyte of Ayn Rand, the god-mother of US free-market ideology.
It seems natural to expect that a financial crash after years of market deregulation would see the resurgence of social democracy. Yet in the 1980s and 1990s most social democrat leaders and intellectuals had made themselves as much the students of free market economics as their conservative or neoliberal counterparts. So when we examine post-crash elections the only trend is the ejection of incumbent governments, whatever their political colouring. Whoever was in power, including Gordon Brown in Britain, is seen to have been responsible. If Angela Merkel’s re-election in Germany seems to be an exception it only reinforces the deeper point that the SPD is seen to have little substantial to offer as an alternative.
Historically, social democracy has been in the ascendant when it has had the authority of economic credibility. The Keynesian response to the Great Depression provided an opening for social improvement through economic intervention, and the post-war consensus was the golden era of social democracy. Even the conservatives were kinds of social democrats. The collapse of Keynesianism in the early 1970s created space in the 1980s for the emergence and then dominance of neoliberalism, with both a plan for economic recovery (monetarism, financial deregulation, free trade and so on) and a program for social reform based on ‘economic freedom’, the shrinking of the state and the cultivation of a property-owning culture. But the ideas of neoliberalism had been some decades in the making. The ground had been prepared thoroughly by conservative intellectuals, think tanks and commentators, which leads us to ask:
2. The new capitalism (...)