The Middle Way

Jul 10, 2011 Features / Columnists, Ravi Dev

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The triumph of the neo-capitalist model over the socialist alternative at the end of the 1980s was supposed to have delivered us to the end of history and beyond ideology.
The victorious neo-liberals never felt it necessary to really articulate an “ideology”. Its most popular exposition, dubbed the “Washington Consensus”, was merely the title an economist tagged on to his compilation of demands made by IMF/World Bank on faltering Latin American economies.
That happenstance served to reinforce the seemingly positivistic nature of the new dispensation – this was just how the world was and ought to be – and made debate appear frivolous and hare-brained.
Even now, after the collapse of the neo-liberal project, and fundamental changes are being implemented far and wide, discussion of “ideology” is still taboo – especially in the economy that sets the tone for the rest of the world – the US. It is clear that the extreme ideologies – pure socialism and unfettered capitalism – have failed the test: the former because of too little incentive and the latter because of booms and busts, unproductive speculations and uncontrolled negative externalities. And this is not to mention its norm that “greed is good”.
As most of the countries attempt to pick up the pieces from the neo-liberal Titanic, they are all adopting policies – to a lesser or greater extent – from the “middle-way” social democratic (S.D.) tradition pioneered in Europe over a century ago.
These include a “mixed economy” of both privately and publicly owned enterprises, a wide range of subsidized or publicly provided social services – especially health and education, regulation of enterprises for the benefit of wider societal interests, progressive taxation, rule of law and social justice and entrenched human rights etc.
Those counties that held on to their S.D. policies to a greater degree such as Germany and India have fared better than those that plunged deepest into the neo-liberal vertigo of market fundamentalism – such as Britain and the US.
The latter duo’s praxis, dubbed “Anglo-American” capitalism by the Germans, however, has still denied the assumption of any ideology.
At the onset of the crisis, the greatest focus was placed on rescuing the financial system which crumbled because of the false assumption that the self-regulated market could best spread the risks it was supposed to intermediate.
In S.D. fashion, governments have had to move in massively at both the national and international (IMF) levels to stop the hemorrhaging that is still ongoing. The EU is now taking this medicine.
As the crisis inevitably spilt over into the real economy, the major S.D. tools of governmental fiscal and monetary policy were ratcheted up – they had become standard after WWII.
This is also ongoing. Most crisis-hit countries – including the US – have responded even with equity injections, something that had long been accepted in the mixed economy S.D. framework.
At the G20 meetings, all governments have committed themselves to greater national and international regulation and supervision of financial institutions – a standard S.D. position.
There is now an acceptance of the fundamental S.D. position that government must play a greater role in ensuring that the goals of society are fulfilled and that the primary goal is that programs must deliver the greatest good to the greatest number and not just the top one percent. With this in mind, it is quite appropriate that other S.D. programs for social justice are being proposed at this juncture.
Most in the US initially balked at President Obama’s advocacy of a national health care program, but eventually (albeit reluctantly) fell into line.
The case for a widening of the S.D. approach may best be made at this juncture in terms of the handling of risks, which has been brought to the fore in the financial meltdown. Social democrats have long argued that the capacity to share and manage risks most effectively is at the societal rather than at the individual level.
The set of policies traditionally associated with social democracy may be regarded as responses to a range of risks facing individuals, from health risks to uncertain life chances.
The neo-liberal critique posited that the S.D. welfare state approach killed initiatives, but we have seen that unregulated markets are not the answer.
The collapse of the neo-liberal paradigm does not mean an atavistic return to the ideas, policies and practices of the post-war social democratic era.
Social democrats must learn from the mistakes of that era and retain what was valuable in the failed experiment, including a commitment to sound fiscal policy and a rejection of protectionist restrictions on trade in goods and services.
This constant adjustment to the test of experience, rather than arguing only from first principles, is the distinguishing feature of the ideology of social democracy. Dare we use the word?

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