The Fourth Way: An Alternative Future for Social Democracy

A series of different coloured human hands piled on top of each other, as to signify teamwork from a group of people

“I can’t help but believe that in the future we will see in the United States and throughout the Western world an increasing trend toward the next logical step, employee ownership. It is a path that befits a free people.”
— President Ronald Reagan (1987)

The old reinvention of social democracy (1945–2007)

Social democracy is a nebulous term, encompassing the political ideals of everyone from Vladimir Lenin to Tony Blair, but it has shifted and changed with time and place. Today it is used to the describe the somewhat big tent of the Western centre-left, advocating reformation of capitalism to align it with the ethical ideals of social justice; a long time ago that social justice was simply the adoption of socialism — collective ownership of the means of production, distribution, and exchange— over time however, most social democrats shifted towards a commitment to a reformed capitalism, one with legislated worker protections and a strong welfare state to redistribute the proceeds of economic growth.

The new reinvention of social democracy (2007- today)

The Third Way project, with notable exceptions such as the presidency of Emmanuel Macron and the short-lived premiership of Matteo Renzi, is on it’s last legs. In a post-Great Recession world, the social democrats of today have had to reinvent themselves to remain relevant, just as they did after the the various economic and political crises of the 20th and early 21st centuries. Many of these social democrats have taken two main routes to reinvention that have seen any significant level of electoral success:

  1. The ‘Broad Left Coalition’ Route
    More typical of the social democrats in Southern Europe, a changing of rhetoric and alliance with left-wing splinters is one possible route to success. Pedro Sánchez, then opposition leader of the social democratic PSOE in Spain, successfully staked his claim to the premiership by declaring intent towards a “post-capitalist” society of a 30 hour work week and a basic income, allied with socialist and populist parties he formed a broad coalition of the left — with his party forming the more moderate and gradualist wing of an overall movement to stop the excesses of the neoliberal right. Similarly in Portugal, António Costa (leader of the social-democratic Partido Socialista) also successfully won power with an explicitly anti-austerity message and broke precedent by forming a broad confidence and supply agreement with left-wing populists and communists. Similarly in Italy, the social democratic Partito Democratico forged an unlikely coalition with the populist Movimento 5 Stelle to seize power. In all these cases, social democrats can achieve power by curbing the excesses of austerity (although notably not rejecting it outright), adopting more left-wing rhetoric, and by allying with the socialist and populist left in broad coalitions without sacrificing too much in terms of policy concessions.

Identifying the long-term problems with the Third Way and its post-recession reinventions

The welfare state, particularly in its more liberal guise of cash benefits, is a particularly expensive endeavour. With an ageing population and slowing economic growth, the financing of large public spending initiatives will always come to a crisis whenever a recession anywhere near the scale of 2007/8 comes knocking. Despite what some heterodox economists may say, even with the abandonment of austerity a Keynesian response to economic downturns will leave less and less to spend on welfare or public services and more to repaying large borrowed sums. In other words, social democracy (as we know it) may simply be unsustainable as time goes on.

Learning from the past to understand why we’re here

The policy positions of high public spending and cash transfers as the heart of social democracy comes from economic history. The failure of the Soviet Union’s central planning to produce significant growth prevented social democrats from folding leftwards into socialism, and the cases of state-interventionist, highly nationalised social democracies like post-war Britain and 1980s France also shifted the narrative. Britain’s architect of market reform Margaret Thatcher, rather facetiously, referred to this state of affairs as TINA (There is No Alternative) and to a limited degree, social democrats largely agreed with her when it came to the general role of markets in building wealth.

A demonstration of the twin failures of “hard” nationalised, state-centric social democracy and centrally-planned socialism to the “soft” welfarist social democracies of Germany and France

Learning from the past to see the future

The 1970s and 1980s was a particularly tumultuous time for social democracy and a schism was created between those who wished for a leftwards shift to more state-driven socialism and those that (tentatively) wanted to embrace markets. A no more clear example of this schism is that within the British left. The Labour Party, under leadership of Michael Foot, had embraced a programme of further nationalisation and collectivisation that would make the British economy adjacent to the centrally planned communist states of the Eastern Bloc. The breakaway Social Democratic Party (SDP) (in alliance with the Liberals) were willing to embrace many of the market reforms of Thatcher’s Conservatives but unwilling to merely ape it. Both represented competing visions of social democracy but ultimately, despite electoral failure, the SDP-Liberal Alliance’s broad vision involving a combination of free markets and social justice won through the rise of the Third Way within Blair’s New Labour.

What Fourth Way Social Democracy can look like

Ultimately, these proposals in Britain, Sweden, and (bizarrely) the United States were the only little explorations of what could be possible in the future. Like the more socialist social democrats of the early 20th century, these plans were derailed by a combination of electoral failure and faith in a long term plan that could not be guaranteed when out of government.

A diagram explaining the difference between Third and Fourth Way social democratic policy prescriptions

Conclusion

Social Democracy has adapted with the economic realities of our times, constantly maintaining a desire to see a more equitable and socially just political economy. Taking on lessons from mainstream economics, social democrats developed the Third Way model of the late 20th century. That model, due to an over-reliance on a large and expensive state apparatus, may no longer be fit for purpose. Social democrats, in looking at recent history towards what created the Third Way, can build a new, radical but workable means to deliver social and economic justice through employee share ownership and workplace democracy within a free and open market. These policy prescriptions avoid the economic sacrifices a more nationalistic or broad left-wing front would entail and instead be a sustainable and understandable method for social and economic justice going into the future.

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