In the period between the world wars — or more precisely, in the wake of the October Revolution in Russia and the fall of empires throughout the world, and in the midst of the 1930s Great Depression — a search for moderation between the capitalist world and the rising communist world generated social democratic parties in Europe and inspired US President Franklin Roosevelt to implement his New Deal to limit the worst socioeconomic effects of global capitalism within the US.
While the galloping chaos of those times culminated in the globe-spanning conflicts of the 1930s and 1940s between the Allies and the Axis powers, the Cold War struggles between East and West that followed saw social democracy being accepted and developed as an effective middle path.
As hard-core communists understood it, social democracy was revisionism, a cowardly compromise and, worst of all, a capitulation to the ruthlessness and greed of capitalism. To the capitalist world, on the other hand, social democracy was closet communism, insidious because it wants to have its cake and eat it too.
Be that as it may, much of what we have come to recognise as post-war European culture, and indeed as democracy in its developed form, are outgrowths of a social democratic frame of mind. This is further intertwined with the ethos and pathos of “human rights” that grew out of societies overawed and shocked by the genocidal logic of Third Reich fascism played out in their midst.
The third way
Social democracy was thus the third way, hanging like a hammock between the planned economy and the market economy, as a tax-heavy and welfare-happy solution to the risky income and opportunity gap that rampant capitalism was bound to produce.
It was in truth a stop-gap measure.
With the fall of the Berlin Wall in 1989, what came crumbling down was much more than just communism and the Soviet Union. Having seen itself as a compromise, and its leaders and followers having already lost all ideological self-confidence in the face of pervasive Reaganomics and Thatcherism, social democracy failed to put up strong resistance against the pendulum of history swinging quickly all the way to the Right.
One sees how even the Scandinavian countries, by then the citadel of social democracy, took cautious steps into the super-capitalist and mega-nationalist world that the European Union was creating. Norway kept totally out while Finland went fully into the mix. Denmark and Sweden in 1995 joined but without adopting the euro. Iceland, though not an EU member, is integrated through the European Economic Area Agreement signed in 1992; it is also a member of the European Free Trade Association comprising European non-EU member states.
Whatever the academic history of Neoliberalism may have been, the context within which it blazed the world’s path into the 21st century contained hardly any mechanism to limit income gaps from growing. And so they grew to the shocking size they are today. According to the Economic Policy Institute’s report from November 2018, the situation worldwide was this:
The bottom 90% earned 69.8% of all earnings in 1979 but just 60.9% in 2017. In contrast, the top 1.0% increased its share of earnings from 7.3% in 1979 to 13.4% in 2017, a near doubling. The growth of wages for the top 0.1% is the major dynamic driving the top 1.0% earnings as the top 0.1% more than tripled its earnings share from 1.6% in 1979 to 5.2% in 2017.
The picture looks much worse if one analyses wealth inequality instead of wage inequality. A working paper published in 2014 by the National Bureau of Economic Research, measuring “Wealth Inequality in the United States since 1913” argues that “the rise of wealth inequality is almost entirely due to the rise of the top 0.1%, from 7% in 1979 to 22% in 2012 — a level almost as high as in 1929”.
One does not need to be a Nobel Prize-winning economist to see that this cannot end well. But one should also expect distractions to come into play to draw attention away from the need to do something about the historical pendulum swinging so far to the Right — threats of global conflict and the whipping up of nationalist fears are always easy tools to activate.
The middle path
What one wishes could have happened — and hindsight is so satisfying in its ability to grant us wisdom — is for the ability of social democracy to moderate the excesses of ideologies to have held its ground and not given in so readily to free market ideologies as soon as the threat of communism disappeared.
One should perhaps not consider social democracy to be merely a past compromise between Left and Right, and instead see it as the future step in a Hegelian dialectic moving towards a sustainable world order.
The Sustainable Development Goals (SDGs) adopted by the United Nations in 2015, to replace the Millennial Development Goals agreed to in 2000, have now become the common packaging for international and national policy making.
While SDGs are a competent enough formulation of conditions needed for human societies in a globalised and overpopulated world to survive, the chances of achieving them require us to understand its ideals within the dynamics of the conflicts of the last century, and in the process, highlight the desperate situation the globe is in.
In short, when the Left fell, the new direction for the global economy to follow should have been the Middle, and not the Right.
Datuk Dr Ooi Kee Beng is the executive director of Penang Institute. His recent books include The Eurasian Core and its Edges: Dialogues with Wang Gungwu on the History of the World (ISEAS 2015).