Has the social democratic model of society stopped working?

This chapter addresses the following question: can the weakening of the social democratic political project in Europe be explained by the fact the social democratic model of society no longer performs? In other words, can the recent electoral crisis in social democratic parties be seen as a rational response from an electorate saying goodbye to a socio-economic model? If you want to compare social democratic policies with some kind of utopian political programme, you will certainly be disappointed. As pointed out in the introductory chapter to this volume, social democracy was never a utopian political project and its earlier success can therefore not be seen as a result of fulfilling a nirvana type of society. In contrast to the utopian models historically launched by communists and anarchists, social democracy has traditionally been firmly anchored in a concrete, down-to-earth pragmatism based on a realist vision that politics must be based on what is ‘possible’.

Our argument is that the most reasonable way of judging the performance of the social democratic ‘model for society’ is to compare it with other existing macro-models. The most relevant in a European perspective is the centrist Christian democratic model and the political right's neo-liberal model. The questions are these: what should count as success for such macro-models and which countries should be seen as the best representatives of the social democratic model of society? We will start with the latter question.

The United States of America is the richest and most powerful nation on earth. It is, by definition, unique. Indeed, the study of American politics is generally considered to be so special that it warrants its own sub-field in most political science departments. Those who do try to compare America typically write about what is called “American Exceptionalism.” Of course this makes eminent sense, America is the dominant military and economic power in the world and it has used this power to shape the world around it. Even in the midst of one of the worst economic crises in history, America produces approximately 25 percent of the world gross product. No other country has the influence (for good or ill) as does the United States.

I argue below that America's particular political and economic systems are themselves products of its unique political origins and geographic position. But unlike some students of American exceptionalism, I do not believe that America's pilgrim origins defined its specific path. Instead, I try to weave an evolutionary narrative that shows how the initial conditions and timing of American democracy have interacted over time with this country's resource wealth, fragmented political institutions and historical experience. In other words, while it is true that we can draw a line back through history and sketch the developmental pattern, this does not mean that there was any kind of determinacy in the particular outcomes we find today.

A GLOBAL STANDARD?

March 1, 2002. I had just arrived in Tokyo. Jet lagged, but thinking I should get oriented as soon as possible, I decided to attend a lecture entitled “Globalization and Corporate Governance” presented by an American professor, Christina Ahmadjian, then teaching at a major private university in Japan (Ahmadjian 2002). In her lecture – which was attended by a large number of top corporate executives and academics – Professor Ahmadjian exhorted the Japanese to adjust to the new realities of globalized capitalism and adopt what she called the “Global Standard.” The Global Standard, she proceeded to explain, was used by the most successful companies in the world and differed from the standard governance practices in effect in most Japanese firms. Whereas Japanese firms were typically run in a manner similar to large hierarchical families, the Global Standard demanded greater separation and competition between the constituent parts of the firm, larger independence between financial interests and manufacturing interests, more flexibility in the labor market, and most importantly, greater transparency in corporate governance decisions. Professor Ahmadjian's major point was that the traditional “Japanese Model” firms needed to become more like American firms if they were to survive in the modern globalized economy.

I had heard versions of this argument before. Many had criticized Japanese firms for their lack of transparency, rigid employment ladders, and cozy relationships between financial institutions and borrowers.

One of the most difficult issues I have had in trying to write this book has been to confront the many ways that Japan is both different and similar to the other countries that I have studied. Quite frankly, Japan is not an easy country to understand. This is because Japan is both one of the most modern countries in the world and at the same time it is a remarkably traditional society.

Let me give you a few examples: Japan is clearly a successful democracy with universal suffrage, competitive elections and freedom of the press. Still, until 2009, a single party dominated politics and controlled the government for over 60 years. That party, the Liberal Democratic Party (LDP), however, never offered Japanese voters a coherent or programmatic policy agenda. Similarly, the economy is highly competitive, but at the same time it has been run like a giant cartel. This county is widely known for its hugely successful technically sophisticated international firms, but in reality small and inefficient producers, farmers and retailers dominate much of the economy. Japan has some of the largest and most modern cities in the world, yet throughout Japan one sees farmers and their families standing knee-deep in their rice paddies, hand-planting individual stalks of rice on their small one to two hector farms. Until very recently at least, the distribution of wealth in Japan has been almost as egalitarian as in Sweden.

In this book I have tried to present two interrelated arguments: First, contrary to the convergence theses that were so popular only a few years ago, advanced capitalist welfare states are not locked into a “race to the bottom.” Instead, different countries are moving in quite different directions, even as we move into an increasingly interdependent and globalized world. Second, history can be understood as an evolutionary process. The simple reason that different countries are moving in different directions is that they are in fact quite different systems adapting in an evolving environment.

In the following pages I will treat each of these arguments separately. First, we will explore the policy implications of the three narratives presented in this book. We will then explore in greater depth my argument that history is an evolutionary process.

THE END OF NEO-LIBERALISM?

In the early years of the twenty-first century, America and its particular form of neo-liberal economics, was ascendant. Communism was dead and American economic growth outpaced virtually all other industrial countries. The only countries that seem to be doing better were countries like Ireland, which had adopted even more radical forms of neo-liberalism than America. The “Washington Consensus” had taken over all the major international financial institutions in the world and conservative or center-right governments were winning elections around the globe.

There is much to admire about Sweden. Whereas in the late nineteenth century hundreds of thousands of Swedes were faced with the grim choice of either leaving their homeland or starving to death, by the 1970s Sweden had the highest per capita income in the world. Today, not only is the country rich, but virtually everyone shares in the country's good fortune. Swedes are some of the most highly educated people in the world, take the longest vacations, have one of the best health care systems, live the longest, are exposed to very low levels of crime and enjoy one of highest standards of living in the world (see World Bank, Human Development Index). At the same time, the economy is productive, efficient and dynamic. Finally, the government is democratic, highly stable and widely regarded as a model of tolerance and progressive idealism. Swedish Prime Minister Göran Persson nicely captured the irony of Sweden's success: “Think of a bumblebee. With its overly heavy body and little wings, supposedly it should not be able to fly – but it does.” It is a small wonder then that a virtual army of academics, labor union officials and politicians from around the world flock to Sweden to see exactly how this surprising system has been constructed. Table 2.1 suggests some of the reasons why.

I started the research for this book several years ago because I was curious about the effects of “globalization” on democratic welfare states. I was puzzled by the fact that, despite the enormous competitive pressures facing rich democracies, there was almost no evidence of the oft-predicted “race to the bottom.” I began this study with an analysis of the politics of taxation in four countries (Sweden, Germany, the United States, and Japan). I had some expertise in the political economy of taxation and thought that tax policy ought to be a good test of the various globalization hypotheses. It was, after all, rather obvious that taxes should be more sensitive to international competition than any other policy arena.

The deeper I looked into the relationship between tax policy and international competition, however, the more I realized that a nation's tax policies are so deeply intertwined with the structure of the national political economy and welfare state that I could not answer my original puzzle by looking at taxes alone. In other words, to really understand how and why tax systems were changing, I needed to examine how they related to other policy systems. This is fine as a general proposition, of course, but analytically and practically it presented rather significant problems: Trying to understand how different parts of a tax system affect other parts of the tax system is difficult enough – trying to understand their relationship to the broader political economy can be mind-bogglingly complex.

The deeper I looked at each of these countries, the more I came to see each of them as remarkably different systems.

Japan has long been held up as a model of fiscal discipline and budget restraint. Indeed, Japan has held the remarkable distinction of being the country with the lowest budget deficits and the lowest levels of public spending of any of the rich Organisation for Economic Co-operation and Development (OECD) nations almost the entire postwar period. Even in the 1960s and 1970s, for example, when most other advanced capitalist democracies were building extensive welfare states, Japan continued to practice spending restraint while it was experiencing economic growth rates nearly double the OECD average. Many assumed that it was precisely the strength of state institutions (or the bureaucrats who populated them) that accounted for both the high levels of economic growth and the remarkable budgetary constraint experienced by this country (Borrus et al. 1982; Pempel 1979; Savage 2000; Thurow 1992). Indeed, Japan was sometimes held up as a premier example of a successful democratic “strong state” (Johnson 1982; Samuels 1994; Thurow 1992).

In the early twenty-first century, however, Japan's position looks altogether different. Not only has the country suffered more than a decade of poor economic performance, but in addition the budget has apparently grown out of control. In 2006, for example, the budget deficit was approximately 30 trillion yen – or 6 percent of Gross Domestic Product (GDP). Even more surprisingly, the total national debt has accumulated to 160 percent of GDP.

The following figures graphically demonstrate the extent to which Japan's fiscal situation has changed in the past thirty years (Figure 7.1) and how badly Japan has done in this regard when compared to other advanced capitalist nations (Figure 7.2).

Historical institutionalism is neither a particular theory nor a specific method. It is best understood as an approach to studying politics and social change. This approach is distinguished from other social science approaches by its attention to real-world empirical questions, its historical orientation and its attention to the ways in which institutions structure and shape behaviour and outcomes. Although the term ‘historical institutionalism’ was not coined until the early 1990s, the approach is far from new. Many of the most interesting and important studies of politics – from Karl Polanyi's classic Great Transformations, to Theda Skocpol's States and Social Revolutions and Philippe Schmitter's Still a Century of Corporatism? – would clearly be categorized as historical institutionalist were they written today.

The best way to explain historical institutionalism (HI) is to situate this approach in a historical and comparative context, showing where the approach originated and how it is different from other approaches in the social sciences. In short, what follows is an HI account of historical institutionalism. The chapter concludes with a discussion of the implications of this approach for our understanding of political and social science as ‘science’.

Origins

Institutional theory is as old as the study of politics. Plato and Aristotle to Locke, Hobbes and James Madison long ago understood the importance of political institutions for structuring political behaviour.