Social Democracy and Labour Market Policy

Developments in Britain and Germany

Knut Roder

• Publisher: Routledge
• Year: 2003
• Topic: Politics & International Relations
• eBook ISBN:
  9781134423040
• Subtopic: Politics
• Index: Politics & International Relations

This highly topical study reflects on the current problems faced by social democratic parties in government when espousing policies of severe pragmatism and fiscal prudence, and provides an historical medium-term perspective to both parties' substantial changes in labour market policies. There is now a good deal of interest in the Third Way and the Neue Mitte, and this book provides much needed empirical detail, and solid analysis of the substance of these ideas. It will be of great interest to students and researchers in comparative politics, social democracy and economic policy.

Part I

Changing conditions for policy design

1
Challenges of post-war social democracy

This chapter considers the development and problems encountered by European social democracy since the early 1980s in order to give a frame of reference to the development process of their labour market policy-making. It also attempts to set the ‘external’ historical party context in which the Labour Party’s and the SPD’s institutional and LMP development activities must be viewed.

Briefly, since the experience of the great economic depression with its severely high levels of unemployment in the 1920s there is possibly no single aspiration with which social democratic parties in Europe have identified themselves more closely than the achievement or maintenance of full employment. In fact, social democratic theory has been primarily concerned with searching for and applying a strategy which viewed the welfare state and full employment policies (i.e. social and economic citizenship) as necessary preconditions for a socialist transformation of society that was envisaged to be based on a modified efficient capitalist economy.¹

During the thirty ‘golden’ years of economic growth (1945–75) the problem of unemployment seemed to have been contained with the help of Keynesian-led economic policy, a policy approach that is often understood as the embodiment of the post-war ‘social democratic’ model of managed capitalism. Keynesian policies (not exclusively, but in various forms) were adopted throughout Western Europe and became a synonym for what ‘traditional’ social democracy is widely imagined to stand for today. Keynesianism unified social democratic revisionist theory and practice, creating the conditions that enabled the parties to enact their principal policy ideas of freedom, social justice and equality more effectively than ever.

However, the renewed occurrence of high levels of unemployment during the 1970s began to call into question the widely held belief that social democratic labour market policies and Keynesian economics were sustainable. The policy model that had previously grown to be a consensual part of the economic policy toolkit of Western European states was increasingly undermined. In fact, it became clear that the previous economic growth rates in Western Europe were an unsustainable precondition for the success of social democratic economic and public policy, and that new challenges, such as rising inflation, could not be dealt with effectively under the old economic policy regime.

The fact that Keynesian policy was so closely associated with social democracy, and that social democratic parties all over Western Europe had incorporated a high degree of state interventionism in the economy into their ideology, eventually created enormous problems for those parties. As significant changes in the socio-economic environment began to undermine ‘traditional’ social democratic policy prescriptions, and while parties of different ideology moved away from formerly widely consensually held state interventionist policy prescriptions, most social democratic parties faced an enormous problem in adjusting and modifying their policy approach in response to newly evolving circumstances.

The development of Western European post-war Social Democracy

The term ‘Social Democracy’ is used throughout this book as a generic concept referring to parties that call themselves labour, socialist or social democratic. Herbert Kitschelt has rightly underlined that ‘names do not directly reveal differences and similarities in the parties’ appeals and strategies’.² Therefore, during the course of this book centre-left labour, socialist and social democratic parties will be referred to as ‘social democratic’, as they generally belong to the same generic group of parties.

To define what precisely makes up social democratic party policy is a little trickier. The concept of social democracy includes many facets and has evolved as well as changed over the years. In fact, social democracy has been a mixture of many different influences, with different national parties drawing on a mélange of ideological and policy traditions. For this study W. E. Paterson and A. H. Thomas’s definition of social democracy as consisting of five parameters (revalidating Anthony Crosland’s 1956 theses)³ that describe parties as social democratic if they ‘advocate political liberalism, the belief in a mixed economy, the welfare state, Keynesian economics, and the belief in equality’ appears to be most helpful.⁴

However, the choice of Paterson and Thomas’s five parameters is not entirely unproblematic, as they describe again the features of what social democracy was perceived to entail between the post-war period and the mid-1970s. Since then, two decades of sustained pressure on Keynesianism and public ownership have raised the question of whether it is still appropriate to build conceptually on the Paterson and Thomas model. The answer, however, must still be yes, and although social democratic policies have moved on since, the parties and policies are still based upon those traditions. Even the recent modernization of their programmes can be understood best if it is related to those parameters.

After the Second World War, in the context of the experience of the depression, the defeat of fascism, and above all with the onset of the greatest boom period in the world economy, the conditions were established for the successful expansion of Social Democracy. With Keynesianism and the welfare state providing a substantive content to ‘state interventionism’, it seemed no longer necessary for Social Democratic parties to emphasize public ownership as the centrepiece of planning or control over the economy. Instead, emphasis was placed on the idea that a sufficiently state-controlled capitalist economy could deliver adequate levels of social justice, equality and wealth.

By the early 1950s the large majority of European Social Democratic parties had dropped the idea of abolishing capitalism and replaced it with a strategy of state interventionism to counteract uneven development of the capitalist economy. This strategy owed its real inspiration to Keynesianism, which popularized the idea of the state using steering mechanisms to aim at economic growth, high wages and full employment. In accepting a role for both, the market and the state, social democracy accepted capitalism under the condition that limited state interventionism would be acceptable to capital in the overall management of the economy. Furthermore, an essential part of social democratic policy became the idea of the state redistributing the economic surplus in progressive ways with the help of social insurance, welfare programmes and tax laws.

Finally, the post-war years brought a period of Social Democratic government to large parts of Western Europe. Parties like the Austrian, Scandinavian or German Social Democrats, who had abandoned the aim of creating a socialist economy and instead advocated the idea of a mixed economy, were most successful. Some socialist party leaders and members (including significant elements within the socialist parties of France, Italy, Britain and Greece) criticized their contemporaries for managing the capitalist system rather than making the transition to ‘socialism’. However, much of this criticism was rhetorical as – for instance – in the case of the British Labour Party socialist principles on ownership (such as stated in Clause IV), which were not officially abandoned until the 1990s, played no major role and there was never any attempt to implement them by a moderate and highly pragmatic Labour Party whenever it was in government.⁵

Overall, describing the post-war decades as ‘social democratic’ is of course a generalization that relates to the role of social democratic parties during that period as much as to the overall policy consensus that existed within many Western European countries – a consensus that often cut through various political party lines and which was based on principles that can predominantly be accredited to social democratic policy ideas and principles rather than those of any other ideological tendency.⁶

Pillars of corporatism and the role of trade unions

The ‘traditional’ social democratic state consisted of working towards collaboration between labour and capital (often referred to as ‘revisionism’), based on the idea that the state intervenes when the balance of power seems to be shifting too strongly towards one side. This kind of ‘state appeasement policy’ grew – during the 1950s – into an all-encompassing party policy consensus in most of Europe’s political systems. Social Democrats also derived prestige from some nationalization and the establishment of social insurance systems, which were introduced as a cornerstone of the desired ‘welfare state’. In addition, the most unacceptable feature of capitalism, namely unemployment, seemed to be dealt with successfully through Keynesian demand management techniques.

Economic growth was the underlying central assumption of the social democratic approach, an assumption which led eventually to the crisis of the model. Growth was essential in order to accommodate a continuous increase in state spending. The period of economic boom encountered during the 1950s, 1960s and early 1970s was therefore a precondition of the successful implementation of social democracy throughout Western Europe.

This system worked best in countries where powerful and centralized trade union movements where able to organize the working class, enforcing a strong degree of discipline on their members in order to support wage restraint and hence keep inflationary pressures low. However, the degree of corporatist structures has varied substantially among northern European countries. In addition, the role of trade unions and their influence on social democratic parties has undergone substantial changes during the last twenty-five years. An important component of the activities of social democratic parties in their domestic policy systems has been the roles played by the national trade union organizations and the degree to which corporatist structures have been established.⁷

In the case of the Labour Party, the role of the trade unions had been very distinct, not only because of traditional links, common interests, personnel and membership base, but also because the unions helped to found and finance the party, and played a vital part in Labour’s overall (policy) decision-making procedures. Until the mid-1970s the unions played a predominantly supportive role whenever a Labour government was in office. However, the lack of a traditionally strong corporatist arrangement in Britain, decentralized and pluralistic union structures, and a strong shop steward movement led to a sectionalized union movement and a localized collective bargaining structure. This meant that the degree of centralization and union discipline was far less developed than that of the powerful centralized trade union movements on the continent, something that had grave consequences. In contrast, in Germany the state as well as industry and employers accepted the ‘centralized’ role of the Deutscher Gerwerkschaftsbund (DGB) in participating in corporate decision-making.⁸

Gøsta Esping-Andersen and Kees van Kersbergen have argued convincingly that social democratic parties have been more capable of altering the distribution system and maintaining growth with full employment when they are linked to powerful and centralized trade unions. Even though social democratic parties have not necessarily escaped trade-offs between equality and efficiency, they have succeeded in shifting distributional pressures from the market to the state. Hence the labour movement has often successfully traded market wages for a social wage and, by doing so, reaped the benefits of full employment and strong social citizenship.⁹

Nevertheless, in Britain the unions played an important role during Labour’s spell in government in the 1970s as the party required union support to fight inflationary pressures by initiating a social contract to keep wage increases low. Folklore has it that in 1978 union leaders increasingly failed to moderate their members’ demands and that the powerful and highly influential trade unions not only brought the country to a grinding series of strikes (‘winter of discontent’) but also ensured – as a consequence – Labour’s defeat at the following general election, in 1979. In other words, trade unions played – in particular during the 1970s – a very undisciplined and destructive role right up until the anti-union legislation initiated by the new Conservative government undermined their ability to hold the country to ransom.

However, this version of the union role has been strongly questioned in recent literature on the 1970s and 1980s, with Eric Shaw arguing that the description of ‘brute union power’ is a clear misrepresentation of the fact that the unions’ actual influence on Labour’s economic decision-making, as well as their failure to avoid the ‘benefiting no-one and harming many’ strikes, was, rather, a consequence of Labour’s deflationary economic strategy, applied from 1976 onwards.¹⁰ Similarly, Gourevitch and Bornstein have argued that the ‘social contract’ (1973) negotiated between the trade unions and the Labour Party meant that in return for the union’s co-operation on incomes policy Labour committed itself to a programme of public investment and stimulation of domestic demand, industrial restructuring through nationalization and economic planning. However, as soon as the conditions for a loan from the International Monetary Fund (IMF) in 1976 became clear Labour abandoned its part of the bargain.¹¹

What is clear is that in Britain the unions lost much of their influence throughout the 1980s (because of anti-union legislation and overall changes in employment patterns), while their influence on the Labour Party’s decision-making also began to ebb away with party institutional reforms and Labour’s search for new sources of finance. Now the unions have become one of many organizations which the Labour Party may consult during its policy-making process. However, the continuous lack of corporate structures and ‘New Labour’s’ failure to develop any enthusiasm for engaging in a more continental-style industrial relations approach means that Labour’s link with the British trade union movement is still evolving, if not cooling even further.

In Germany the relationship between the SPD and the DGB (which consists of eight individual unions) has been one of mutual recognition. Although the trade unions have neither (in comparison to the Labour Party) been as directly involved in the institutional decision-making processes of the SPD nor held similar financial clout within the party, the overwhelming majority of the SPD’s party executive has traditionally consisted of trade union members.¹² It is also clear that both organizations have been strongly dependent on each other, with the SPD having traditionally been the party most sympathetic to demands from...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Illustrations
• Preface
• Acknowledgements
• Abbreviations
• Introduction: Social Democracy Under Pressure
• Part I: Changing Conditions for Policy Design
• Part II: The Development of Labour Market Policy
• Part III: Conclusions