Is Social Democracy “Good Enough”?
In an article this past August, Meagan Day — a staff writer for the socialist magazine Jacobin — sought to clarify the differences between democratic socialism and social democracy. Although democratic socialists share many of the same interim goals as social democrats, Day explained, they ultimately believe that social democratic reforms are unsustainable within a system that allows for private ownership of capital. The wealthy and powerful will always be waiting for the right opportunity to reverse progressive changes, rendering any policy gains illusory.
Day argued that this pattern has already played out in the United States:
A robust welfare state in an economy that’s still organized around capitalists’ profits can mitigate the worst inequalities for a while, but it’s at best a temporary truce between bosses and workers — and one that the former will look to scrap as soon as they can.
The mid-20th century in the United States featured many elements of social democracy, at least for the majority of white workers: Public education became readily available, housing was heavily subsidized, and ordinary workers took home a greater share of income than ever before. But the rich moved quickly to throw all that out the window as soon as they could get away with it — starting in the 1970s, when stagflation and the oil crisis presented pretexts for pro-capitalist policy that set the stage for a weakened welfare state under President Ronald Reagan.
Bosses and the politicians supporting them (from both major parties) attacked collective bargaining, tried to privatize anything that wasn’t nailed to the floor (for instance by passing laws that began the process of privatizing public housing in the ’70s), and steadily eroded the social safety net. As a result, a handful of bosses became wealthier and more powerful while wages stagnated and quality of life eroded for everyone else.
This is a common argument among democratic socialists, which is at the heart of another recent piece published in Jacobin by Joseph Schwartz and Bhaskar Sunkara. Like Day, Schwartz and Sunkara contend that advocates for social democracy want to “change society for the better,” but their less radical ambitions will ultimately lead to a “dead end.” Since the 1970s, the wealthy elite have slowly abandoned the “class compromise” upon which social democracy was sustained, and begun to dismantle the welfare state, collective bargaining rights, and other progressive reforms aimed at curbing inequality and protecting the working class.
The only long-term solution to this problem, according to Schwartz and Sunkara, is a form of “radical democracy,” in which the entire economy is managed through various forms of collective social decision-making:
After all, we can’t have real political democracy without economic democracy. Corporations are “private governments” that exercise tyrannical power over workers and society writ large. The corporate hierarchy decides how we produce, what we produce, and what we do with the profits that workers collectively make.
To embrace radical democracy is to believe that any decision that has a binding effect on its members — say, the power to hire or fire or control over one’s work hours — should be made by all those affected by it. What touches all, should be determined by all.
At minimum, we should demand an economy in which various forms of ownership (worker-owned firms, as well as state-owned natural monopolies and financial institutions) are coordinated by a regulated market — an economy that enables society to be governed democratically. In an undemocratic capitalist economy, managers hire and fire workers; in a democratic socialist economy, workers would hire those managers deemed necessary to build a content and productive firm.
The exact definition of “democratic socialism” that Schwartz and Sunkara are working from is not always clear. Does “radical democracy” necessitate worker collectives that have the ability to hire and fire managers at will, or could other forms of social ownership achieve similar ends? For example, fellow Jacobin writer Matt Bruenig recently suggested that social wealth funds — in which the central government buys the majority of shares in an existing company, but leaves the corporate structure largely intact — may be the most promising avenue toward total public ownership over the economy.
Moreover, if radical democracy really demands that “any decision that has a binding effect on its members . . . should be made by all those affected by it,” does this imply that all social decision-making must be carried out democratically? What are the practical limitations of such a principle? At what point do Schwartz and Sunkara believe more indirect forms of representative democracy or administrative appointment become “dead ends”?
These do not seem like nit-picky questions. If Schwartz and Sunkara are going to argue that social democracy is not good enough, it seems important for them to clarify precisely what “good enough” entails.
More critically, what evidence do Schwartz and Sunkarathe offer that anything short of democratic socialism will allow corporations to exercise “tyrannical power over . . . society writ large,” with an effective veto over public decision-making? What is the evidence that social democracy is untenable?
What are “Democratic Socialism” and “Social Democracy”?
Before unpacking some of these questions, it is important to define how the terms “democratic socialism” and “social democracy” are typically used.
While democratic socialism and social democracy have similar conceptual origins in the workers’ movement, the core distinction between these two models is public ownership of the means of production. Social democracy aims at reducing inequality and promoting social welfare through regulation, the provision of public goods, and economic redistribution, but does not make the claim that democracy can only be fully realized if all capital is socially owned. Democratic socialism, on the other hand, requires that all capital ownership be fully “democratized” at some level of the economy — perhaps at the industry or the national level. The shift from social democracy to democratic socialism thus entails a move toward complete social ownership over capital.
As Matt Bruenig put it:
The socialist umbrella contains within it diverse viewpoints about what socialism is, what its core elements are, and how to achieve it. Some emphasize firm-level worker ownership (i.e. cooperatives), others industry-level worker ownership (i.e. syndicalists), and still others society-wide ownership (i.e. social wealth fund advocates). Some think wages and salaries are problematic (e.g. mutualists), others think product prices are problematic (i.e decommodifiers), and still others think both are problematic and that society should be organized into small units that consume what they produce directly (e.g. in a Fourier commune).
The one thing almost all strands have in common is the idea that collective ownership of capital within a relevant economic unit is a key socialist principle.
Without this distinction in mind, it is hard to know what Schwartz and Sunkara mean when they contrast democratic socialism and social democracy. More to the point, talking about social democracy as not being “good enough” does not make sense if the proposed solutions involve further regulation and economic redistribution within a framework where capital can still be privately owned.
It is important to keep in mind that virtually every industrialized democracy is characterized by some degree of public ownership. Even in the United States the federal government owns and manages huge swaths of land in the West. The U.S. government also charters and pours billions into a variety of public and quasi-public corporations.
Yet, even with these forms of public ownership, the United States is far from the poster child for social democracy, let alone democratic socialism. In Foundations of Social Democracy, the Academy for Social Democracy evaluates several modern industrialized countries according to the degree to which social democracy has been realized in each. The United States, according to this analysis, “is almost a libertarian country and exhibits only a few elements which realise social democracy[.]” Other countries — such as Germany and Japan — can be thought of as “moderately inclusive social democrac[ies][.]” Only Sweden, representing the Nordic Model in the report, is classified as a “highly inclusive social democracy.”
When we think about present-day social democracy — and whether social democracy is a “dead end” — we should be paying particular attention to those countries that have “fully realized” the model. More specifically, we should be thinking about countries like Denmark, Finland, Norway, and Sweden.
The War On Social Democracy
As a result of abandoning the “class compromise” of the 1970s, Schwartz and Sunkara argue, the past 40 years have seen a steady decline in the labor movement and dismantling of the welfare state:
The past forty years have witnessed an ideological and political war against once-powerful labor movements and the welfare states they helped build. This bipartisan class war advocated for the four “d”s of neoliberalism: deregulating the economy, decreasing progressive taxation; decreasing the scope of public goods; and decreasing the power of organized labor.
Corporations also moved their investment in production to newly industrializing nations or lower-wage regions and automated much of the higher-skilled manufacturing that remained. The focus of corporate profitability shifted to the FIRE economy (finance, insurance, and real estate), an economy based heavily on speculation and a low-wage service economy that mostly serves the richest earners.
Contrary to what Schwartz and Sunkara claim, spending on “the welfare state” has not declined throughout the industrialized world in any meaningful sense. In fact, according to data from the OECD, social welfare spending as a percentage of GDP has increased substantially in the overwhelming majority of first-world countries since the 1960s and 1970s.
But is it true that the past 40 years have seen a “political war against once-powerful labor movements”? In the United States this is almost certainly true — as businesses have pushed “right-to-work” laws that played a role in undermining union membership — but what about in countries that have fully realized social democracy? In fact, union membership in Denmark, Finland, Norway, and Sweden has remained relatively stable and consistently above 50 percent of the population since the 1960s.
The same is true when it comes to the proportion of workers covered by collective bargaining arrangements.
In other industrialized countries that have not fully realized social democratic model, union membership has declined gradually since the 1980s. Yet few of these countries ever achieved anything like the level of union membership seen in Nordic countries to begin with.
Most importantly, the difference between these countries seems to be attributable not to the degree of “democratic socialism,” but to a unique and relatively simple aspect of the Nordic systems: Unions run the unemployment insurance programs in most Nordic countries, and that gives people a huge incentive to join the union. In countries like France, virtually every worker is covered by sectoral collective bargaining agreements, but very few workers have an incentive to join the union, creating an enormous free-rider problem. Under the “Ghent system” that most Nordic countries rely upon, however, workers have to go to the union to sign up for unemployment benefits, and the union may even offer discounts on this insurance. This means that most people join the union.
In fact, the country that has the highest level of public ownership among Nordic countries — Norway — also has the lowest level of union membership and the lowest proportion of people covered by collective bargaining agreements, most likely because it abandoned the Ghent system and moved toward a public mandatory unemployment insurance model.
Social Democracy and The Capital Strike
Having identified a problem that does not seem to be supported by the data, Schwartz and Sunkara then set out to diagnose the cause of this problem:
So did it have to end this way? Could the old welfare state not only have survived but been expanded? Yes, but that would have required pushing back against capital’s power to withhold investment. Simply put, that would have required a more radical socialism.
Many of the last generation’s social democrats knew that capital would disinvest from societies that enjoyed strong social rights. Back in the 1970s and ’80s there were important attempts to gain greater control over capital to prevent just that.
Schwartz and Sunkara cite the failure of the Rehn-Meiderner Plan in Sweden — which would have required all companies above 50 employees to issue new stock shares to workers, constituting a substantial stake in the company — as evidence that social democracy cannot overcome the veto power of large corporations. Similarly, efforts by Mitterrand’s socialist government in France to nationalize significant portions of the economy and dramatically expand labor control were met with push-back from major corporations, ultimately leading to “denationalization” and “austerity” measures. These examples point to the real power that capitalists exercise over society: The threat of a “capital strike” wherein businesses withhold investment in society to force changes in public policy. Schwartz and Sunkara argue that the threat of a capital strike has led to extensive “neoliberalization” — privatization, austerity, and deregulation — of the economy.
In criticizing John Judis’s essay in the New Republic arguing for a more tepid form of “socialism” in the United States that Schwartz and Sunkara equate with social democracy, the authors write:
Judis mentions in passing social democracy’s rightward lurch over the past thirty years. But he fails to mention the extent of its neoliberalization or the historical lesson we must draw: when capital goes on the offensive, either labor must do the same or it will be forced to retreat.
In short, Judis writes out of history the conscious corporate offensive against constraints on its power. To sustain even the modest reforms he sees as the horizon of socialism, we need to legitimate a greater role for democratic and state regulation of capital.
Yet the evidence that Schwartz and Sunkara provide does not support this conclusion. The authors point to attempts in Sweden and France to dramatically expand social ownership over the means of production — that is, to move toward a system of democratic socialism — that were frustrated in part by corporate opposition. These are not examples of “modest ” social democratic reforms aimed at expanding the welfare state. Rather, they were attempts to do exactly what Schwartz and Sunkara claim has to be done in order to overcome capital strikes.
The Nordic example demonstrates that it is possible to have an extensive welfare state, a strong labor movement, and a business-friendly environment. According to the World Bank’s “Ease of Doing Business” rankings, Denmark has the third most business-friendly environment among 190 countries surveyed. Norway, Sweden, and Finland are not far behind with rankings of 7, 12, and 17, respectively. These countries are also consistently at the top of the Legatum Prosperity Index.
The level of public social spending (as a percentage of GDP) has not declined in these countries to accommodate business interests. Since the 1980s, it has increased. Another way to put this is that the “old welfare state” has survived and been expanded.
What about inequality? Has the share of pre-tax-and-transfer national income going to the top one percent of the income distribution increased dramatically in the Nordic countries? According to data from the World Inequality Database, inequality levels in these countries actually dropped after what Schwartz and Sunkara identify as the period of “class compromise,” and have since climbed back up to the level of the 1970s in most Nordic countries.
To the extent that the top one percent has made gains in the Nordic countries in recent decades, these gains have not been particularly substantial and have been wholly offset by tax-and-transfer programs. Based on the most recent data from the OECD, the Nordic countries remain among the most equal in the industrialized world, as measured by the Gini coefficient.
Social Democracy and Private Capital
Along with their concerns that business interests will use the capital strike to prevent progressive reforms from taking hold, Schwartz and Sunkara also argue that private capital is unwilling to make investments to address a range of social problems, from providing affordable housing to combating climate change:
Private capital simply refuses to invest in those goods needed to overcome radical inequality: affordable housing, mass transit, alternative energy, and job retraining. Capital is often reluctant to risk heavy investment in natural monopolies that almost inevitably come under state regulation or ownership (no company would invest in a competing alternative energy grid). Judis does not speak of the climate crisis, yet there is no road to solving it short of massive public investment and control over utilities.
However, given that the question under consideration is whether social democracy is “good enough,” it is hard to see this line of reasoning as anything other than a non-sequitur. Social democracies can and do provide subsidized and affordable housing. They can and do provide some of the most innovative public transportation in the world. None of this requires a shift toward substantial social ownership of the means of production. It requires regulation, tax-and-transfer programs, and the provision of public goods, which is at the heart of social democracy.
The final claim that “there is no road to solving” climate change other than “massive public investment and control over utilities” is equally bizarre, given that perhaps the most promising solution to climate change involves market-based carbon pricing — something the Nordic countries have had the greatest success implementing.
We Do Not Need to “Overcome” Private Ownership of Capital
Schwartz and Sunkara conclude by focusing on the United States as the country where social democracy would be “the most economically viable.” They argue that the historical examples demonstrate that any effort to move toward social democracy that seeks to “accommodate capitalist forces” will ultimately fall short:
We are a wealthy society that could easily afford universal health, elder, and child care, as well as high quality education for all. But on the road to achieving those nice things, corporations would resist and deploy their most powerful tactic: the capital strike.
Social democrats like Judis refuse to grapple with this, causing them at key moments to sound the retreat and accommodate capitalist forces, eroding the very reforms they hope to preserve.
To chart a different course, we would need a militant labor movement and a mass socialist presence strengthened by accumulated victories, looking to not merely tame but overcome capitalism. A socialism that refuses to deal with the “old nostrums about ownership and control of the means of production” will not only fall short of our democratic expectations of what a just society would look like — it will doom us to failure.
The United States has many problems and a shift toward true social democracy will be difficult. But it simply is not true that the wealthy elite “control” our democracy and maintain the ability to frustrate any efforts to expand the welfare state. Wealthy elites may have far too much power in our system, but they do not have anything like an absolute veto.
In reality, as the political scientist Peter Enns explained:
Even when policy preferences differ across groups … policy ends up about where it would have been if those in the middle received the exact same representation as the wealthy. These conclusions hold when we only consider economic and social welfare policies . . .
The United States has not made greater strides toward social democracy in recent decades largely because the American middle class has complicated views on social democratic policies and questions like whether “[i]t’s the government’s responsibility to take care of people who can’t take care of themselves.” The good news is that these attitudes may be changing, especially with the younger generation, but the path toward reducing inequality and promoting social welfare through regulation and economic redistribution does not seem to depend on eliminating all private capital ownership. The Nordic model provides precisely the opposite lesson: Getting rid of capitalism isn’t a prerequisite to promoting sustained social welfare and social equality.
In short, Schwartz and Sunkara haven’t made their case.
