Monday, June 15, 2009

Wasting a good crisis

Rahm Emanuel, Obama's Machiavellian chief of staff, famously let slip the new administration's intention to make the most of the financial meltdown: "You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before."
Indeed Obama has introduced radical healthcare reform and a more redistributive tax system, progressive measures which would have been hard to get away with in normal times.

But in Europe, the crisis is going to waste, and progressive politics is on the backfoot. The European elections at best confirmed the dominance of moderate conservatives like Sarkozy and Merkel, and at worst given new momentum to nasty right-wing populists in Holland, Italy and even in the UK. The centre-left - what in the old days we called socialists and social democrats - is in retreat just about everywhere. And yet the collapse of the liberalized financial system should - should - have undermined the right, not the left. A paradox.

I'm trying to work out why, and this is what I've come up with so far.

First, the collapse of deregulated finance brought discredit on the Republican right in the US, because it was so closely associated with Bushism - although perhaps unfairly, given the Clinton administration's enthusiasm for free-wheeling finance (look at the subsequent career of Robert Rubin). But in Europe it's not so clear - continental European banking remains more regulated than the Anglo model, so it is harder to pin the blame for the crisis on the parties of the right. In the UK the situation is even worse, given that the worst excesses of finance occurred under Labour's watch.

Second, if the European right cannot be blamed for financial liberalization, the European left has trouble presenting itself as an opponent of financial excess. The reason for this is that European social democrats have, for the most part, bought into large chunks of the neoliberal orthodoxy over the past two decades. Social democratic governments in Britain, Germany, and Italy have adopted liberalizing measures in labour markets and sometimes financial and product markets too. Although these measures are not necessarily incompatible with progressive goals (see my paper with Mark Blyth here), it does make it hard to sell social democracy as being an alternative to neoliberalism.

Third, why do people vote for the right when markets fail? Karl Polanyi has the classic economic history take on this: people crave protection, markets destroy protective institutions, and the main political forces offering strong discourses about protection are the extreme left and the extreme right. This is how he interprets the 1930s, at any rate. Given that the recent events have been constantly paralleled with the 1930s, this analysis is worth taking seriously. Clearly, some things have changed: the extreme left is completely discredited by the failure of the Soviet model, and not surprisingly has not gained much from the crisis. The moderate left - social democracy - has been so successful that no-one challenges the fundamentals of the welfare state anymore, so socialist parties have trouble monopolizing the welfare capitalism option.

That leaves the extreme right, which blames everything on immigrants. The extreme right is basically exploiting the instinctive human tendency towards xenophobia, but it is also challenging one of the key concepts of the neoliberal age: globalization, and the free movement of goods, services, and ultimately people, across borders. One of the consequences (perhaps largely unintended) of the push for globalization since the 1980s is that flows of labour have vastly increased too, allowing the perception to develop that workers' interests are threatened by immigration. In part of course they are, since an increase in the supply of unskilled labour will exert downward pressure on wages, although up to now it is not clear how strong this effect has been in a Europe of strong welfare states. But aggressive campaigns against immigration also pick up discontent at the increased competition facing lower skilled labour in the world economy more generally. Socialist parties, which quite rightly prefer to defend the rights of immigrants and oppose xenophobia, find themselves exposed and outflanked by right-wing populism.

So the left is perceived as promoting globalization and liberalization, ignoring social problems relating to immigration, and offering little more than the continuation of welfare capitalist policies which are broadly accepted by all the other parties anyway. More on this in a day or two.