SOCIAL DEMOCRACY READER 2 Simon Vaut, Carsten Schwäbe et al. Economics and Social Democracy SOCIAL DEMOCRACY READER 2 NEW 4th, Revised Edition Economics and Social Democracy ISBN 978-3-96250-310-9 4th revised edition Published by Friedrich-Ebert-Stiftung German Edition: Political Academy, Bonn, August 2018 English Edition: Division for International Cooperation, Berlin, March 2019 Editors: Jochen Dahm, Carsten Schwäbe, Markus Trömmer, Simon Vaut Contact: [email protected] / [email protected] Printing: Druckerei Brandt GmbH, Bonn Layout and composition: DIE.PROJEKTOREN, Berlin / Cover photo: Nyul/Hans12/Chesse Translated by James Patterson The authors of the individual sections are responsible for the contents of this publication. The opinions expressed do not necessarily reflect the views of the Friedrich-Ebert-Stiftung in all respects. Commercial use of FES publications in all media is prohibited without the written permission of the FES. SOCIAL DEMOCRACY READER 2 Simon Vaut, Carsten Schwäbe et al. Economics and Social Democracy CONTENTS Foreword 4 1. Introduction 6 2. Foundational Economic Theories 9 2.1. The Classics of Economic Theory 12 2.2. Ideal-Types of Economic Theory 29 2.3. Key Tasks and Challenges of Economic Policy Today 36 2.4. More Equality: Economically Warranted, Politically Necessary, Socially Just! 38 2.5. New Visionaries: Towards a Pluralistic Economics 42 3. Economic Systems and Economic Orders 56 3.1. Capitalism and Democracy 56 3.2. Coordinated and Uncoordinated Capitalism 64 4. Economic Policy Orientations of Social Democracy 68 4.1. Fundamental Rights and Values of Social Democracy 68 4.2. Economic Policy Principles 75 4.3. How much Growth is enough? Qualitative Growth and Post-Growth Economics 84 4.4. Assessment of Party Platforms in accordance with the Goals of Social Democracy 89 5. Economic Orders: Country Models 91 5.1. United States 91 5.2. United Kingdom 96 5.3. Germany 102 5.4. South Korea 111 5.5. Sweden 117 6. Concrete Economic Policies: Practical Examples 123 6.1. Achieving the Energy Transition: An Entrepreneurial State for a Sustainable Electricity Market 124 6.2. The Economy and Labour in the Digital Age 133 6.3. Budgetary Policy: Debts – Making – Growth 141 6.4. Decent Work and Codetermination: The Policy of ‘Decent Work‘ 146 7. Keep on thinking 156 Bibliography 157 Authors / Editorial Team / Collaborators 161 Social Democracy Readers 163 12 Key Terms 165 FOREWORD to the 4th German edition Germany is a rich country with prosperity and opportunities for many – but not for all. Our society is becoming more and more unequal in terms of income, wealth and life chances, as well as regionally. This inequality damages our econo- my every bit as much as our democracy. More than ever, then, we need to tame the centrifugal forces of capitalism, to harness its productivity, but also to ensure that it benefits the many, not just the few, and that democracy does not end at the factory gates. The market is a good servant but a bad master. But how can we make this happen? What characterises a modern, value-ori- ented social democratic economic policy? Answers to these questions are cru- cial to anyone who wants to make a difference in politics. Only those who know where they are headed will be able to inspire others to get behind their ideas and achieve their goals. All the more reason, then, to try to clarify one’s own trajectory. The aim of this Reader is to contribute to such clarification. In it, key economic theories are explained, economic orders are described, central values and ori- entations are established and defined and we ask what these values mean for practical social democratic economic policy. It goes without saying that there are no conclusive answers. What makes a social democratic economic policy work has to be subject to continual revision and rejustification. This volume therefore does not seek eternal solutions but to invite the reader to keep on thinking. This book is the second in the series Social Democracy Readers, in which basic questions of social democracy are put on a solid scholarly foundation and expressed in clear language. 4 No discussion of economics in the twenty-first century would be complete with- out looking at the upheavals that globalisation has brought in its train. In this volume we shall examine globalisation in terms of its effects on the framework and shaping of the German economic order. In the Reader Globalisation and Social Democracy we examine the context of globalisation and the political options for shaping it. Further volumes deal with the issues of the foundations and the history of social democracy, the welfare state, Europe, integration and migration, the state and civil society, peace and security. We would like to thank Simon Vaut, Tobias Gombert and Carsten Schwäbe. Simon Vaut was the principal author of the first edition, which Tobias Gomb- ert enriched through his editorial work and teaching activities, while Carsten Schwäbe has developed it further for this fourth edition. Our thanks go also to Thomas Meyer and Michael Dauderstädt, as well as Andrä Gärber and Markus Schreyer for their advice on the book’s conceptualisation and reconceptuali- sation. Further thanks go to all the authors for their outstanding cooperation. Without their contributions the Reader would not have been possible; any shortcomings are down to us. The symbol of the Academy for Social Democracy is a compass. The purpose of the Academy for the Friedrich-Ebert-Stiftung is to provide a framework within which standpoints and orientations can be clarified. We would be delighted if you were able to benefit from this in working out your own political path. Social democracy thrives on constant public debate and commitment. Dr Jochen Dahm Dr Markus Trömmer Director Project Director Academy for Social Democracy Social Democracy Readers Bonn, August 2018 5 1. INTRODUCTION »Global capitalism is heaping up large quantities of capital which, however, do not necessarily create new wealth. Untrammelled financial markets boost specu- lation and expectations that conflict with sustainable and long-term economic action. If the sole aim is rapid and high returns on capital, all too often jobs are destroyed and innovation hindered. Capital must serve the purposes of value creation and prosperity.« (Hamburg Programme 2007: 7) Harnessing The relationship between state and market and the opposition between labour capitalism and capital are timeworn issues of political contention. This predates the market economy and modern democracy but today they are more contentious than ever. It is clear that a democracy must be unrelenting in its efforts to counteract the increasing inequality to which capitalism is prone; otherwise it will itself come under threat. The super-rich have been able to convert economic into political influence; political representatives continue to be remote from the electorate; and public trust and thus the basis of coexistence are being eroded. But how can such countermeasures avoid putting the brakes on capitalism’s enormous productivity? What should a modern, value-oriented social demo- cratic economic policy look like? The basic values of social democracy are freedom, justice and solidarity. Their aim is to bring into being a society in which the basic values and comprehensive political, social, economic and cultural fundamental rights are realised for all. Balance between In this context what would a successful economic policy look like? According to economic growth, the approach taken in this book, a modern social democratic economic policy social justice and should satisfy three principles simultaneously, reconciling growth, social equali- environmental ty and sustainability. sustainability This book is intended to provide fundamental guidance to the questions of what Aims and structure theoretical foundations social democracy can build on, which economic systems of the Reader and orders favour its implementation, what economic orders may be found in other countries and what these theoretical problems might mean for specific policy prescriptions. 6 Economic policy orientation of social democracy, Chapter 4 Subject of the Reader Liberal democracy Foundations of Social Democracy Social democracy Libertarian democracy Subject of the Reader Economics and Social Democracy Chapter 2 Theory Marx Keynes Smith Chapter 3.1. System Capitalism Chapter 3.2. Orders Authoritarian Coordinated Uncoordinated Chapter 5 Countries Sweden South Korea Germany UK USA Thematic structure Chapter 6 Practical examples First of all, at the level of economic theory, we shall present the analyses and Chapter 2: conclusions of probably the most influential economists of all time, Adam Smith, Economic theory Karl Marx and John Maynard Keynes. We shall then assess the ideal types of eco- nomic liberalism, anti-capitalism and managed capitalism derived from this from a contemporary standpoint and with an eye towards the aims of social democ- racy. We shall also look at some more recent economic thinkers who address current problems of economic theory and policy (Chapter 2). At the level of economic systems and orders we trace the relationship between Chapter 3: Economic capitalism and democracy and present the two dominant economic orders in systems and orders the Western industrialised countries, coordinated and uncoordinated capital- ism (Chapter 3). At the level of economic policy programmes we look at the development of Chapter 4: Economic the economic policy orientation of social democracy from the interaction policy orientation of between basic values, fundamental rights and economic policy goals (Chapter 4). social democracy We conclude the volume with a comparison of the different economic orders Chapters 5 and 6: in the USA, the UK, Germany, South Korea and Sweden (Chapter 5) and Country models and present selected policy proposals in the following areas of economic policy: practical examples energy transition, the economy and labour in the digital age, budgetary policy and decent work and codetermination (Chapter 6).