JOHN QUIGGIN. Socialism with a spine: the only 21st century alternative

Socialism is back, much to the chagrin of those who declared it dead and buried at the “end of history” in the 1990s. When the New Republic, long the house organ of American neoliberalism, runs an article on The Socialism America Needs Now, it’s clear that something has fundamentally changed.

The soft neoliberalism represented by Tony Blair, Bill Clinton and Paul Keating has exhausted its appeal, and not just in the English-speaking world. Throughout Europe, new movements of the left have emerged to challenge or displace social democratic parties discredited by the austerity politics of the last decade.

Support for socialism is particularly strong among those under 30, whose economic experience has been dominated by the global financial crisis (GFC) and the subsequent decade of economic stagnation and rising inequality. The most striking example is the recent UK election where Jeremy Corbyn received over 60% of the votes of those aged 18-25. Similarly in the US, Bernie Sanders drew his most enthusiastic support from the young.

For most of the current political class whose ideas were formed in the last decades of the 20th century, the superiority of markets over governments is an assumption so deeply ingrained that it is not even recognised as an assumption. Rather, it is part of the “common sense” that “everyone knows”. Whatever the problem, their answer is the same: lower taxes, privatisation and market-oriented “reform”.

Unsurprisingly, people are looking for an alternative, and many are looking back at the postwar decades of widely shared prosperity. Some have turned to the tribalist politics of nostalgia (Make America Great Again, We Want Our Country Back), exemplified in Australia by Pauline Hanson’s One Nation party.

But it is already evident that this is a dead end. The disastrous mess being made by Donald Trump’s Republicans and Theresa May’s Tories is the inevitable result of a politics based on what academic Lionel Trilling described, in the foreword to his essay collection The Liberal Imagination (1950), as “irritable mental gestures which seek to resemble ideas”.

The dominant advocates of free markets have long derided any kind of government intervention as “socialism”. This has been taken to a ludicrous extent recently, the studiously moderate Bill Shorten being described by senior government ministers as a “red socialist” who will turn Australia into the next Cuba.

But what do today’s resurgent socialists mean by socialism? It’s easier to see what they dislike than to describe a socialist policy agenda. Most obviously, socialism implies an unqualified rejection of the system of financial capitalism (variously called neoliberalism, market liberalism or, in Australia, economic rationalism) that emerged from the economic chaos of the 70s.

Neoliberalism has massively enriched the 1%, and particularly the financial sector, while delivering nothing but economic insecurity and stagnant living standards to the great majority of the population. This is obvious in the United States, but the same patterns are emerging in market economies throughout the world.

The traditional notion of full employment, focused on full-time jobs for male breadwinners, is no longer adequate

More significantly, contemporary socialism repudiates the vaguely humanised capitalism marketed as the third way. It’s a break with those social democrats and liberals who embraced, or capitulated to, the politics of austerity in the wake of the GFC, such as the New Labour of Blair and Brown, PASOK in Greece and the Dutch Labour party, and, most importantly of all, the Clinton Democrats in the United States.

On the other hand, there’s no detectable enthusiasm for a centrally planned economy like that of the former Soviet Union or Mao’s China. Communism is a distant and discredited memory, even for those old enough to recall the days when it seemed like a possible alternative.

As it is used today, the term socialism does not reflect a well-worked ideology. Rather it conveys an attitude that could be described as “unapologetic social democracy” or, in the US context, “liberalism with a spine”. It’s expressed in support for proposals that break with the cautious incrementalism of the past, and are in some cases frankly utopian: universal basic income, free post-school education, large increases in minimum wages, and so on.

That’s important, but a real alternative needs more than attitude and a grab-bag of policy ideas. After decades in which the focus has been on critiquing neoliberalism, the task of thinking about positive alternatives is urgent, but efforts in this direction are only just beginning.

Discussion of economic policy in socialist terms is confined to a handful of small publications, such as Jacobin, a US magazine edited by Bhaskar Sunkara, with notable contributors including Seth Ackerman, Peter Frase and Noam Chomsky.

Equally significant has been the resurgence of the left in mainstream economics, represented by Paul Krugman, Thomas Piketty and Joseph Stiglitz. While not explicitly socialist (Krugman’s blog is called The Conscience of a Liberal) these economists have focused attention on issues of inequality and unemployment, and on progressive policy responses.

These are, however, only first steps. To develop a serious socialist alternative, we need both to look backwards to the social democratic moment of the 50s and 60s, and forwards to the prospects for a genuine sharing economy based on the internet and other technological advances.

The middle of the 20th century was a unique period of sustained economic growth and broadly shared prosperity in developed market economies. The crucial feature underpinning this success was full employment, guaranteed by Keynesian macroeconomic management. In an economy with full employment, workers are no longer dependent on the goodwill of individual employers or the confidence of business as a whole. If one job does not suit, there is always another.

In these circumstances, the distribution of market income between wages and profits, and among wage-earners, tends naturally towards greater equality. Conversely, as we’ve seen since the 70s, when governments are driven by the need to please financial markets, ever-growing inequality is the inevitable result. The most striking evidence is the rising share of income going to the top 1%, as documented by Piketty and others.

The success of Keynesian stimulus in the immediate aftermath of the GFC and the disastrous outcomes from the shift to austerity after 2010 show that Keynesian economic management is as vital as ever. Going beyond crisis management, socialist governments would reinstate the commitment to full employment, and solidify it through policies such as a jobs guarantee, ensuring the availability of a full-time job for anyone who has been unemployed for some minimum period.

However, the technological and social changes that have taken place over the past 60 years mean that the traditional notion of full employment, focused on full-time jobs for male breadwinners, is no longer adequate. We need a more flexible approach, accommodating the more diverse patterns of life and work of the 21st century.

In this context, the idea of a universal basic income set at a level comparable to the age pension has considerable appeal. The ultimate goal would be to provide an unconditional payment lower than the return from working but sufficient to sustain decent living standards. An interim step, proposed by the late Tony Atkinson in his final book, Inequality: What Can Be Done?, would be a participation income available to people who undertook voluntary work to benefit the community.

The combination of a job guarantee and a universal basic income would free workers from dependence on employers. But this would only be feasible if society could ensure adequate production of crucial goods and services, without dependence on the wishes of big business.

The first step in this regard is to revive a term that was widely used and is still relevant to describe the economy of the mid-20th century: the mixed economy. This phrase refers to an economy with major roles for both public and market provision of goods and services. Typically, the public sector provided infrastructure such as electricity, water and road networks, and human services such as health and education. Most of our existing assets in these fields were built up under public ownership. The market sector provided consumer goods, and the wholesale and retail trade networks needed to distribute them, along with a wide range of services.

The push for privatisation, beginning with the Thatcher government in the 80s, was based on the premise that private ownership and market competition would outperform public-sector provision. The process of privatisation and marketisation was far from complete by the time of the GFC, and large areas of public provision continued.

The privatisation movement has produced some successes. Although it was built up under public ownership, Qantas has prospered as a private firm. There’s no obvious need for a national flag carrier in a competitive airline market.

These successes have been more than outweighed by disastrous failures. Recent, but by no means exceptional, Australian examples include the disaster of for-profit vocational education and the comprehensive failure of the national electricity market.

The most common outcome of privatisation has been somewhere in between the handful of successes and spectacular failures such as those mentioned. In essence, public monopolies have been replaced by regulated private monopolies and oligopolies. Investors and top managers have done well out of this process, while workers and consumers have lost.

The public has long since lost faith in the promise of privatisation and is in fact supportive of re-nationalisation. Yet, as with the labour market, we can’t simply revive the mid-20th century economy.

First, technological change has radically changed the structure of the economy and society. The central role in the industrial economy of the mid-20th century was played by manufacturing, which took the resources produced by mining and agriculture and transformed them into goods to be distributed through transport, wholesale and retail trade systems to consumers.

By contrast, the 21st century economy is dominated by services including health, education and telecommunications, which require different forms of economic organisation.

Second, the mid-20th century was a period when economic activity (work for governments or businesses, undertaken for pay or profit in factories, shops and offices) was sharply distinguished from non-economic activity (housework, voluntary activity and non-government organisations).

In the aftermath of neoliberal failure, some utopian vision is what is needed

These sharp distinctions are no longer tenable. Thanks to mobile phones and the internet, much paid work is done at home. More importantly, the economic value of the internet as a whole depends entirely on its content, much of which (Facebook and blog posts, Twitter, personal and group websites and so on) is produced by users rather than for economic return.

To reimagine a 21st century socialist economy we need to consider a much broader mix of forms of economic activity than those of the 20th century mixed economy. These include:

  • big business
  • small business
  • government businesses
  • public non-market provision
  • not-for profits and NGOs
  • household production

Under financial capitalism, the standard way of providing goods and services is through big business: large corporations, with an associated network of subsidiaries and dependent contractors. Big business has grown at the expense of the public sector through privatisation and at the expense of independent small businesses through increased market concentration.

At the same time, labour market reforms have reduced the bargaining power of workers and increased that of employers. The combined effects have included increasingly concentrated wealth and power, wage stagnation and slow economic growth. Even the OECD has recognised this.

A socialist program would allocate much less economic activity to big business, and more to other forms of organisation. In deciding what kind of economic activity belongs where, a range of considerations are relevant. These include the scale of the activity, the extent to which it is possible and appropriate to charge market prices, the scope for competition and the relative importance of economic and non-economic motives.

In part this would imply reversing the neoliberal program of privatisation and marketisation. Large-scale capital intensive activities with limited scope for competition, such as the provision of infrastructure, would be returned to public ownership.

We are already seeing the beginnings of this process, with a notable example in the South Australian government’s investment in electricity generation. The Turnbull government denounced South Australia’s policies as those of a “socialist paradise”, sure to lead to economic disaster.

In very short order, however, Turnbull was announcing his own interventions, with the expansion of Snowy Hydro and restrictions on gas exports. We have even seen the suggestion that the commonwealthmight buy the Liddell power station (recently privatised by its state counterparts) to extend its operating life. This is a nonsensical idea, but it illustrates the extent to which the taboo on government intervention has lost its power.

Similarly, we are seeing some attempts to reconstruct the public Tafe system after the fiasco of for-profit vocational training and the Fee-Help system. The Victorian government in particular has taken some positive steps.

A socialist program in the 21st century needs to involve much more than a reversal of neoliberalism. The internet and the information economy have broken the link between productive activity and market returns. Information is a pure public good, which can be shared again and again with no additional costs.

So the production of information (ranging from scientific research to Instagram pictures) has potentially huge social value. On the other hand, the market value of internet activity depends, almost entirely, on the ease with which it can be packaged up with commercial advertising – meaning access is artificially constrained.

The fact that information is naturally a public good creates a huge potential for economic and social benefits of which we have realised only a small fraction. The combination of strong intellectual property laws and reliance on advertising to finance internet content mean that our access to information is artificially constrained. Governments could address this problem, providing vastly increased access to resources of all kinds, from artistic and cultural content to designs to be used in 3-D printers.

But the policies of neoliberal austerity have pushed us in the opposite direction, cutting budgets and pushing public institutions of all kinds towards more reliance on user pricing and advertising.

There is also much more room for voluntary and non-government activity. The neoliberal state, through contracting, competitive tendering and the audit culture, has sought to turn voluntary work and non-government organisations into low-cost providers of government services. In the process, much of the creative potential of civil society has been lost. Expanding the scope for voluntary social initiatives would fit naturally with a socialist program, and this is already beginning with the rise of social enterprises.

The idea of a socialist economy with unconditional access to basic incomes and greatly expanded provision of free services might seem utopian. But in the aftermath of neoliberal failure, utopian vision is what is needed. To re-engage people with democratic politics, we need to move beyond culture wars and arguments over marginal adjustments to tax rates and budget allocations, necessary as these may be in the short term.

Socialists have always seen short-term political struggles as part of a long-term project of transforming society for the better. It is this fact which explains why conservatives have always used the term “socialist” as a bogeyman. It’s also why the term has retained its appeal through decades of neoliberal retrenchment. Social democratic and liberal parties, compromised by their acquiescence in, or embrace of, neoliberalism, need to make a decisive break with the recent past. An explicit embrace of socialism would make that break clear.

John Quiggin is an Australian laureate fellow in economics at the University of Queensland. He is prominent both as a research economist and as a commentator on Australian economic policy. He is a fellow of the Econometric Society, the Academy of the Social Sciences in Australia and many other learned societies and institutions

This article first appeared in the Guardian on 9 October 2017

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6 Responses to JOHN QUIGGIN. Socialism with a spine: the only 21st century alternative

  1. Dog's breakfast says:

    Wonderful Prof Quiggin.

    That is a model that can be played out anywhere really. For Australia, sorting out what exactly is infrastructure and claiming that back for the public benefit is the low hanging fruit. Roads, health, education, energy markets and most obviously for the 21st century, the best NBN we can build whether it’s on the public books or not.

    The costs effects of outsourcing these essentials to the market has been high cost essential services, and they then feed into every other good and service. They need to be provided, whether by government or highly regulated private players, with the aim of essential provision and lowest possible cost for that provision.

    In all of this however you have spared one of the great sinkholes for common wealth, that being the banking and financial services sector. Basic banking in particular must be considered part of the infrastructure necessary for a functional society, and again it has to be the lowest cost provision of the essential needs for an economy. Nicholas Gruen’s recommendation for the Reserve to provide the basic banking services at a low cost provides exactly those essential services.

    “The combination of a job guarantee and a universal basic income would free workers from dependence on employers. But this would only be feasible if society could ensure adequate production of crucial goods and services”

    And yet our current society already provides most of the best paying jobs in the financial sector that at best provides little actual production, clips tickets all the way along (superannuation and insurance sectors) and in many cases destroys wealth at a vast rate (shonky financial planning and bank debacles of recent times should be enough evidence of that). A fundamental re-think of the way that the banking and financial services sector works must be a key longer term strategy.

    The fact that this sector can be supported and richly rewarded while producing so little suggest that we already produce all of our ‘crucial goods and services’ with only a small portion of our workforce. A universal basic income seems more than affordable, and I would like nothing more than to see former bankers working for landcare or dunecare, or the Smith Family, or the Salvos etc.

    There is a model out there, and I would rather steer clear of any ideology, just acknowledging that there are ways that work better for society, and other ways that clearly don’t. That these ideas would be considered socialist is only an indication of how far we have gone down an extreme financial capitalism experiment, that failed us.

  2. Colin Cook says:

    Affordable access to land is a pre-requisite for any decent society; a UBI would be of little benefit if most of it went to landlords. Perhaps, Professor Quiggin could elaborate on land access under ‘socialism with a spine’.

  3. Bruce says:

    Almost all the great leaps forward were brought about not by capitalism but by Social or Liberal Democracies. Almost all these things, infrastructure and safety net welfare systems were financed by government debt. That debt was of little consequence because it was supported by a very strong asset base and eroded by mild inflation caused by an increasing standard of living and consistent wage growth.
    The future cannot be the past, growth does not work like that. Full employment as John says is a thing of the past. Technology has ensured that. If we want to increase wages, essential for a growing economy we need to make good workers scarce.
    That is where a UBI can help.
    Broad stroke nationalisation of essential services is now out of the question. A real alternative is nationalisation by stealth, using government funds like the Future Fund to slowly buy back these industries using the share market. Currently they invariably pay dividends at a much higher rate than that which the government can borrow money.
    Once the government becomes the majority shareholder, company by company, industry by industry it can do as it chooses, basically forcing nationalisation by sheer power of majority ownership.
    The Australian Budget spend in 2016 was more than the combined wealth of the eight richest individuals in the world. Governments have enormous financial power, it is about time it was used for the benefit of the common good.

  4. Jim Coombs says:

    Good on you, John. We sing from the same song sheet. You may have seen my pieces about Public Goods (remember Welfare Economics?) and about Nick Gruen’s proposal to take the Reserve Bank back to where the Commonwealth Bank was before Menzies.

  5. Brian Doolan says:

    John, I would be interested to hear how you think a new program could deal with globalisation effects – something you mention only slightly in this piece. It’s the single biggest paradigm change between now and the period of more benign social policy before Reagan and Thatcher. Communications and transport acceleration, plus education and technological improvements in developing countries has allowed producers and traders to ‘economy shop’ and buy their labour and inputs in the lowest cost locations. ‘World car’ production schemes, Bangladeshi piece work, even a coffee in an Australia cafe is likely to be served by an international backpacker on a wage basis that can only be guessed at. A few goods and services are immune to this – such as housing, which has massively inflated while other prices have deflated. You can’t live in Sydney in a house located in the Philippines. Forty years of intense rule making and unmaking in GATT, WTO etc brought us to this point but seems to have not even imagined today’s huge digital oligarchy problems with Facebook, Google, Amazon and News Corp. Is an equivalent multi-decadal effort on transnational re-regulation needed at the core of the sort of program you are describing?

  6. michael lacey says:

    Good post John!

    One wonders how far down the Neoliberal track we will go! We certainly need a change and a philosophy that better embraces the trials a tribulations of both a local and global future.

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