For most of the twentieth century, the hopes and frustrations of the global left were stitched into the two red flags of communism and social democracy, political traditions marked indelibly by their European origins. Of these tattered traditions, Europe today, along with Latin America, stands as a last remaining redoubt.
Of course, the last decades of the twentieth century saw European socialism in its various guises lose much of the soil in which it had grown for generations, as the continent’s industrial towns decomposed and its leftist parties and trade unions were hollowed out. Still, despite everything, the socialist idea retains in Europe a cultural resonance and legitimacy, as well as an institutional base, that exceed anything comparable in the democratic world. If the twenty-first century were to bring any global resurgence of socialism, Europe would likely be among the first regions to feel the tremors.
This special section of Jacobin looks into the prospects and problems of the European left in the new age of austerity. Why now? What makes this perennial sad story worthy of another reexamination? I’d like to suggest that Europe today is witnessing developments that may soon bring an end to the last forty years’ trajectory of steady left decline; whether what comes next will be a revival or a final collapse will be determined by events that lie closer than we think.
The default mode of left politics in Europe in the past four decades has been a steady narrowing of political horizons, a lowering of expectations. This path has led from François Mitterrand’s 1972 Common Program, with its exuberant call to “changer la vie” via a “rupture” with capitalism, to his “U-turn” into austerity a decade later, to his helpless plaint a decade after that, when pressed on France’s endless mass unemployment, that “we tried everything.” It led from the socialist vision of the British Labour Party’s Alternative Economic Strategy, inaugurated in 1973, to New Labour architect Peter Mandelson professing to be “intensely relaxed about people getting filthy rich” a generation later. And it led, more modestly, from the “reform euphoria” of the Willy Brandt era in Germany – the electoral high-point of the Social Democratic Party’s 140-year parliamentary history – to an altogether different sort of “reform” euphoria under Gerhard Schröder, whose unprecedented assault on the German welfare state a decade ago forms a key moment in Alexander Locascio’s account of the rise of the German Left Party in this section.
In grasping for explanations of social democracy’s historic decline, commentators on the Left have tended to fall into two opposite traps. The first – a staple of vernacular left-wing analysis – is that of political voluntarism, in which a story is told of treacherous center-left politicians conniving to sell out their co-opted working-class constituencies at the first opportunity. This version gains its plausibility from a long history of social-democratic governance in which the imperatives of capitalist management have always, in the last instance, had to trump the interests of social progress.
The problem with fixing the blame on craven politicians, however, is that it explains too little. Why did the social-democratic betrayals of the postwar Golden Age typically take the form of failures of nerve regarding promised social advances, while the betrayals of the past forty years have so often amounted to the brazen championing of retreats?
When the question is posed this way, a different type of answer is often forthcoming – this one falling into the opposite trap, that of economic determinism. In this version, unfathomably profound tectonic forces within world capitalism are said to have changed the rules of the game in the 1970s, rendering social democracy unviable and obsolete. Politicians, in this account, though perhaps still two-faced, ultimately had no choice but to comply with the dictates of falling profit rates, or entrenched overcapacity in global manufacturing, or the end of “Fordism.” Where the voluntarist perspective gains its radical sheen by scorning “reformists,” the deep-structural explanation gains it through an ostensibly Marxist stress on the illusions of “reform.”
The starting point for understanding social democracy’s slow collapse since the 1970s is to grasp the economic underpinnings of its success in the Golden Age. As the Dutch political scientist Ton Notermans documents in Money, Markets, and the State, a penetrating history of social-democratic economic policy since World War I, the precondition of left governance under capitalism has always been the ability to reconcile full employment, requiring expansionary monetary policy, with price stability; and this depends on the availability of mechanisms to control inflation directly at the source, by repressing or moderating wages or prices without having to resort to the weapon of unemployment.
In the absence of such price-repressing instruments, maintaining a tolerable level of inflation requires the bludgeon of permanently high unemployment achieved through tight money. Social democracy under such conditions is impossible, since the only tools that politicians can now credibly claim to boost employment are microeconomic: “reforms” that attack union bargaining power, minimum wages, job protections, social insurance contributions, and the like. To make matters worse, the regime of high interest rates necessitates chronic austerity, as public debt increases faster than national income and social spending has to be constantly cut back. As Chris Maisano explains in his essay, this is the world Europe has been living in since the 1970s.
In the postwar Golden Age, a panoply of wage and price-repressing institutions were available to Western European governments – in some cases taking the clumsy form of wage and price controls, but more often various incomes policies and social pacts negotiated with unions to moderate their wage demands. By achieving inflation control through microeconomic means, they freed left-wing governments to focus on maintaining full employment through macroeconomic means — almost always via a steady supply of cheap money (rather than the somewhat mythical “Keynesian deficit spending” so often invoked in retrospect).
This Golden Age strategy began to come unglued during the boom of the late 1960s, when ultra-full employment gave workers an unprecedented degree of bargaining power on the shop floor. In the hothouse atmosphere of Vietnam era radicalization and generational change within the working class, union leaders were no longer able to contain rank-and-file workers’ wage demands, and a “wage explosion” set in around the turn of the decade. Repeated attempts to negotiate social pacts with union leaders foundered amidst wildcat strikes and local “wage drift.”
For a few years, there were hopeful signs throughout Europe – from the Meidner Plan in Sweden to the Social Contract in Britain — that these conditions might foretell a push beyond social democracy, toward some fundamental transformation. But after 1973, when the West was hit by the quadrupling of oil prices and a worldwide productivity slowdown, inflation and unemployment both surged simultaneously, and each seemed suddenly impervious to the usual remedies.
It cannot be overstressed how shocking and confusing these events appeared, not only to finance ministers and central bankers, but to left-wing party activists and trade union militants at the base. While in retrospect there is good reason to think that the adverse shift in the inflation-unemployment tradeoff was a temporary reaction to the instability of the mid-1970s, to them it did seem as if the rules of the game had suddenly changed, and they could only interpret the flow of events during these years as so much incoming data revealing the grim new laws of motion of a transformed economic world.
Of great importance in shaping perceptions was the relative stability that Germany’s Bundesbank achieved for a few years in the mid-to-late 1970s after switching to a strict anti-inflation monetarist regime, while in France an attempted stimulus in 1975 made no dent in unemployment, but sent inflation soaring to 12 percent. Observers drew the appropriate lessons. In 1976, the right-wing French government shifted to its own contractionary policy, explicitly justifying it by pointing to German success, and two years later French president Valéry Giscard D’Estaing decided to tie France to the mast of austere German monetary policy by creating, with Germany’s Social Democratic chancellor Helmut Schmidt, the European Monetary System of fixed exchange rates.
The last act of this morality play arrived when François Mitterrand came to power in 1981 on a radicalized Keynesian reflation program that had been devised a decade earlier. Inevitably, applying it in the new context of Europe-wide monetary rigor led only to a series of forced devaluations and, ultimately, to the Socialists’ ignominious March 1983 retreat into orthodoxy and realignment with Germany. This retreat was then institutionalized by Mitterrand’s agreement to a plan for a single currency under a German-style central bank — making France’s and Europe’s subordination to Teutonic monetary policy irrevocable, and sanctifying it with a halo of “European” idealism. By this point Germany itself was no longer immune to deflation. Unemployment rates, having averaged less than 1% in Germany and 2% in France in the decade before the oil shock, rose to heights of 8% and nearly 10% by the mid-1980s. With the exception of a few years in the late 1980s, they have largely stagnated in that range.
For a while, the partisans of old-style postwar Keynesianism, especially in its traditional American bastion, put up a fight. In 1984, Nobel laureate James Tobin bewailed the “prevailing attitudes” of “fatalism and complacency”: “The lesson learned by many policymakers, influential citizens and economists is that unemployment cannot be cured [by expansionary policies] without unacceptable risks of inflation. This view is more solidly entrenched in Europe than North America.” Tobin judged that analysis a “misreading of, or at least an overreaction to, the events of the 1970s.”
But by the mid-1990s, the vast, transnational apparatus of neoliberal policy economics – central banks, finance ministries, international institutions, academic departments, and elite economic journalists — had converged on a single, hegemonic intellectual framework for understanding these economic relationships, one that quickly hardened into an almost unthinking doxa.
The centerpiece of the received view is the concept of the “non-accelerating inflation rate of unemployment” – the NAIRU, or “natural” rate of unemployment, a construct that grew out of Milton Friedman’s late 1960s macroeconomic counterrevolution. At any given moment, the theory holds, an economy has an equilibrium rate of unemployment at which inflation will be stable. In the short run, policymakers can try to force the actual unemployment rate below the NAIRU by stimulating demand; but this course will show its futility by yielding ever-rising inflation rates, until the policy is finally reversed and unemployment restored to its equilibrium level — at which point inflation will stabilize, but now at its new, higher rate. (The reverse is also held: a negative shock that pushes unemployment above its natural rate will cause ever-falling inflation, until it is pushed back down again by demand stimulus.)
The natural rate, then, sets the limit of a capitalist society’s economic ambitions. Critical, therefore, is the question of how the NAIRU’s level is supposedly determined. As Friedman first argued in his celebrated 1968 presidential address at the American Economic Association, the level of the NAIRU is that which is “ground out” by the “actual structural characteristics of the labor and commodity markets,” including, first of all, their “market imperfections.” By preventing wages from adjusting to productivity, labor market imperfections (or, to use the current term of art, “rigidities”: unemployment insurance, union collective bargaining rights, disability benefits, employment regulation, payroll taxes, minimum wages, etc.) doom a country to a high NAIRU, and hence to mass unemployment.
The only solution is a comprehensive round of “structural reforms,” the going euphemism for the systematic dismantling of the social-democratic achievements of the twentieth century.
Throughout the 1990s and 2000s, this orthodoxy of rigidities, natural rates, and “structural reforms” was lent an air of plausibility by the ubiquitous comparison with the “flexible labor markets” of the United States, where unemployment rates were continuously held well below those of the major European economies without sparking inflation. And it was ruthlessly enforced by the actual policy of the European Central Bank itself, which made no secret of its opposition to the use of monetary policy to reduce unemployment, since, in its words, “the level of employment [is], in the long run, essentially determined by real (supply-side) factors…notably property rights, tax policy, welfare policies and other regulations determining the flexibility of markets.”
Thus the post-1980 regime of social-democratic decay has its origins in the interaction between two specific historical developments: first, subjectively, a creeping loss of belief – shared across the political spectrum and grounded in the traumas of the 1970s — that full employment could be sustained; then, objectively, the gradual “locking in” of this belief into the structures of European monetary and governance institutions, systems from which dissent and divergence became increasingly costly or even impossible. The inexorable logic laid out by Ton Notermans swiftly set in: once full employment via macroeconomic means was ruled out – by acts of political choice, though under the pressure of events – social democrats hoping to “manage the system” were all but forced to become microeconomic neoliberals. Meanwhile, microeconomic incomes policies that once aimed to stabilize domestic inflation in a Golden Age world of abundant demand degenerated into modern “social pacts” aiming, in beggar-thy-neighbor fashion, to pilfer scarce demand from foreign competitors by undercutting their wage and price levels. Capitalists and their political allies, naturally, were quick to capitalize on the Left’s defensive stance to push the counterrevolution even further.
But the global crisis of 2008 has set in motion forces that threaten the smooth functioning of this neoliberal regime. The first threat is intellectual. It is not simply that the crisis has tended to discredit neoliberalism in general. More specifically, the vast rise in American unemployment has dealt a serious blow to the specific NAIRU-based intellectual edifice supporting the status quo. By itself, the simple fact that America’s vaunted flexible labor markets have coexisted with sharply depressed employment rates – in 2010, the U.S. working-age population had a lower employment rate than every West European country except Italy, Spain, Greece, and Ireland – already makes it difficult to blame European unemployment on rigidities.
But even more damaging has been the behavior of U.S. inflation. In 2009 and 2010, when unemployment skyrocketed beyond all reasonable estimates of the NAIRU, mainstream center-left economists who accepted the consensus, such as Paul Krugman, duly predicted that inflation would fall continuously, even to the point of deflation. Instead, by the end of 2010, inflation stabilized and even rebounded; by the canons of mainstream theory, this should mean that the natural rate of unemployment – supposedly determined by slow-moving fundamental economic structures – had suddenly jumped to European levels. To most mainstream economists, especially those within the Democratic orbit, this was one credulity-straining bridge too far. Moreover, the parallel with the European experience of the 1980s was disturbingly evident.
At first faintly, but then louder, a long-neglected alternative theory began to make itself heard in policy debates. In 1986, Larry Summers and Olivier Blanchard published a paper, motivated by concern about the situation in Europe, suggesting that the “natural” rate of unemployment could shift simply due to a change in the actual unemployment rate. Borrowing a term from physics, they called this concept “hysteresis”: a situation in which the present state is influenced by the history of past states. Although the difference may seem technical, it overturns the fundamental logic of the Friedmanite view that only microeconomic rigidities and imperfections determine the NAIRU.
If an elevated NAIRU can be caused by high unemployment itself, then a protracted period of tight money can produce an unemployment rate that at first exceeds the NAIRU, pushing down inflation, but that eventually pulls the NAIRU up towards itself, congealing into a new “permanent” equilibrium. This sequence seems to describe the European experience of the 1980s. Presumably, then, the reverse would be true as well: a period of expansionary policy, though initially inflationary, could eventually push the NAIRU down and result in a permanent reduction in unemployment. Blanchard and Summers suggested a number of mechanisms that might produce this effect, but their concept found few supporters within the firmament of mainstream macroeconomics.
When the 2008 crisis hit, more than twenty years later, Summers was assuming the role of chief economic adviser in the Obama White House; Blanchard was chief economist at the International Monetary Fund. As Laurence Ball, a prominent macroeconomist at Johns Hopkins, wrote in 2008, “Blanchard and Summers have been poor stewards of their hysteresis idea” — either ignoring or explicitly denying the possibility of hysteresis in the twenty years since publishing their paper. “When even the creator of an idea doesn’t seem to believe it, the idea loses credibility,” he added wryly.
Ball himself was a lonely voice in the profession producing a raft of evidence for hysteresis, showing that extended periods of high unemployment do indeed raise the NAIRU, specifically by increasing the share of long-term unemployed, who gradually become detached from the labor market, exerting less and less downward pressure on inflation. Ball showed empirically that it was the European countries whose central banks refused to reverse their tight monetary policies in the 1980s, even in the face of soaring joblessness, that experienced large increases in equilibrium unemployment (in contrast to the U.S. experience). And he demonstrated that those few countries that have achieved large declines in equilibrium unemployment have done so following periods of rising inflation — suggesting that these success stories were brought about by expansionary policy or other forms of demand stimulus, not supply-enhancing “reforms” (which should tend to reduce inflation).
Versions of this sort of unreconstructed Keynesian view of the labor market were once the basis of macroeconomic policymaking by social democrats, but for decades now they have been virtually banished from the councils of mainstream economics. Under the pressure of the crisis, however, the consensus has recently begun to buckle. In a major paper released this March, Larry Summers finally returned to the idea he birthed almost stillborn a quarter-century ago. Written with Brad DeLong, a former Clinton administration official, Summers’ paper includes a lengthy review of the hysteresis hypothesis, citing the dissident work of Ball and others, and concluding heretically that “the case that high European unemployment in the 1980s and 1990s was a result of a long cyclical depression starting in the late 1970s is quite strong” – dismissing in a footnote “the principal alternative theory” that it was a “supply-side phenomenon” caused by a reaction to “rigid labor market institutions.”
Make no mistake: a paper by Larry Summers will not by itself change so much as a single basis point of interest rates in Frankfurt. But the thirty-year-long intellectual united front of transatlantic neoliberalism is beginning to crack – a loss of faith in long-accepted models reminiscent of the turmoil of the 1970s. And what makes this intellectual reassessment potentially so significant is that it comes just as the European institutions that embody and enforce the intellectual orthodoxy are facing an unprecedented degree of political and economic instability.
There is no need to rehearse the narrative of the endless Eurozone crisis that began in 2009. Suffice it to say it has, for the first time, thrown into question fundamental features of the monetary union first conceived twenty years ago: the no-bailout principle insisted on by Germany; the independence of the central bank; the irreversibility of euro membership. What was once seen as a bewildering technical issue has become a vital matter of day-to-day social stability in country after country. Austerity enforced from Brussels, Frankfurt, and Berlin is not only sinking Europe into an ever-deeper depression with no visible endpoint; it is searing the political connection between daily hardships and E.U. structures into the consciousness of the continent’s citizens. In the interview featured in this section, the French political scientist Emmanuel Todd speaks of a “vast debate on economic globalization which will inevitably take place after the [May presidential] election,” and predicts that the winner will face decisive pressure from the French middle and even upper classes, who “are now turning their backs on free trade and perhaps even on the euro.”
Moreover, the astonishing defiance of democratic norms that has become an essential feature of European Union governance – a key issue in the rise of the Dutch Socialist Party (SP) highlighted by Steve McGiffen in this issue – is increasingly becoming its defining characteristic in the eyes of Europe’s citizens. Already in 2005, after the European Constitution failed in referenda in France and the Netherlands, it was simply repackaged as an ordinary treaty and passed via national parliaments; when that treaty was then rejected by the Irish in a referendum of their own, they were made to re-run their vote like schoolchildren who had failed a test. Last fall, when Greek prime minister George Papandreou had the temerity to call for a popular referendum on the austerity package that will subject his country to years of impoverishment and social disintegration, he was swiftly forced to resign and replaced with a technocratic viceroy dispatched from the European Central Bank. The same month, a former European Commissioner, Mario Monti, was brought in to run Italy after Berlusconi lost the confidence of E.U. leaders.
Now the next major question will be the fate of the “fiscal compact” signed by European leaders at a summit last December. Adopted at the most perilous moment of last year’s debt crisis, after the head of the European Central Bank openly blackmailed heads of state by threatening to withhold a rescue of the continent’s teetering debt markets unless they signed, the document envisions a strictly enforced regime of permanent budget austerity imposed on every country in the Eurozone. It must now be sent to parliaments or popular referenda and ratified by twelve of the seventeen members of the Eurozone before next January. There have been growing signs that this effort will not be so easy. French Socialist presidential candidate François Hollande, favored to win election in May, has declared that he will insist on “renegotiating” the compact, and similar noises have been made by the German Social Democrats and Spanish Socialists – although none of these has so far questioned the treaty’s essential features. The Dutch Labor Party, under pressure from the SP, has announced that it will vote no if the current center-right government insists on meeting the 3% deficit target mandated this year by Brussels. And in Ireland, which will once again vote on the treaty via referendum, the odds are impossible to guess.
If the treaty were to fail the ratification process, no one could predict the consequences. Yet there is no guarantee of how these events will unfold. It is entirely possible, as Chris Maisano reminds us in his essay on the European center-left, that the permanent austerity regime will defeat all challenges and will end by undoing what remains of European social democracy. The balance of political forces will be decisive.
It is in this context that Jacobin examines a distinct new political trend that has become especially visible since the mid-2000s. As social-democratic parties have migrated to the right since the end of the Cold War, a new group of far-left challengers, many of them descended from various strands of the communist tradition, has gradually moved from the political margins to the center of political life, to fight for genuine left politics in a number of countries. Although still in its early stages, this evolution is growing in importance, and the articles by Alexander Locascio and Steve McGiffen in this section sympathetically profile two of its most important and intriguing examples: the German Linkspartei and the Dutch Socialist Party. Other examples abound throughout Europe: In Greece, the Coalition of the Radical Left (SYRIZA) is currently set to triple its vote share in elections this spring, polling ahead of the discredited social democrats of PASOK (as is the Communist Party). In France, Jean-Luc Mélenchon, a left-wing dissident who broke off from the Socialist Party to establish the Parti de Gauche in 2008, has formed an electoral alliance with the Communist Party to contest this year’s elections; although his standing in polls has essentially matched the typical ceiling of support for the fractious French far left (around 15%), Mélenchon, a commanding orator who opens his speeches by reading from Victor Hugo, has managed for the first time since the Communist Party’s heyday to unite that vote around a single standard-bearer. [Update: Preliminary results of the April 22 vote credit Mélenchon with 11.13% of the first-round vote.] And in Norway, the Socialist Left Party, while currently weak, has been that rare breed: a party of the radical left with real influence over government policy. After a remarkable grassroots campaign by the country’s unions in the early 2000s, the social-democratic Labor Party was forced to accept the once-marginal grouping as a coalition partner. Since then, Labor has been obliged to abandon much of the neoliberal program it had gradually adopted in the 1990s — privatization and marketization of health and social service, E.U. membership, participation in NATO wars lacking a “clear U.N. mandate.” The coalition continues today, and the current Norwegian government is, along with Iceland’s, probably the most left-wing in Europe.
Finally, the interview with Emmanuel Todd that we offer in this section presents an idiosyncratic but compelling analysis of the volatile state of French politics amid the Eurozone upheavals. One of the most perceptive observers of French society, Todd shares large parts of the radical left’s analysis of the crisis, but has little time for Mélenchon’s outsider campaign. Instead he believes that history may force the French social democrats themselves into the role of radicals malgré eux.
However improbable his predictions may seem, Todd’s analysis, like the other essays in this section, does much to lay bare the converging elements that promise to make the coming months and years a major turning point in Europe’s history.
If you like this article, please subscribe.