Financial crisis, social democracy and social policy

During the financial crisis of the 1930s unemployment was rampant and many banks were driven to a state of collapse, losing millions from the savings accounts of depositors. The crisis was overcome in time and as a result governments introduced strict regulations designed to ensure that banks had adequate funds and would not engage in high risk ventures for the sake of profits. And so, the resultant political economic strategy was to ensure that government-owned savings banks were available for low income savers.

From the mid 1970s until quite recently we have witnessed a government romance with markets, due to its alleged efficient and systematic responses to political economic stimuli. Thus, privatisation and deregulation of the banks, and the finance sector more generally, effectively removed the safeguards that had been put in place after the 1930s crash.

During this period it became sensible for banks to merge: this helped create giant global banks focused only on short term profits. In turn this led to an economics focused the “financialisation” of the economy - a new science - in which the finance sector as a whole has grown faster than the rest of the economy. It has been driven by highly profitable but complex financial products that derive from currency trading, futures markets and the management of corporate and consumer debts.

And now we have had to face the recent global financial crisis, which has put an end to the political economic romance with free markets. We seem to have entered a new social democratic era. Thus, latter-day reformers tend to agree about the nature of today’s global economic crisis and the place of the emerging market and developing countries within it. The new and updated social democratic agenda claims to have already instigated significant changes for the better in the global political economy. Such reforms, it is said, have been enough to counter balance and reverse the damage created by financial markets, which are susceptible to market failure.

The processes that we call globalisation have once more proved productive in developing widespread community debates among regions and across the world concerning the way current political and economic policy ought to be formed. Many people are suggesting that the current global financial crisis has helped develop a wisdom and logic about economics and its relevance as a social science. Reliable sources acknowledge that the global financial crisis has everything to do with the market failure of “financialisation” - the attempt to turn finance itself into a consumer item.

Scott and Wood, in their article "Keynesian, monetarist and supply-side policies: an old debate gets new life", believe that the situation that pertains in the current global political economy has inspired policy debate once more. As they put it:

Debates over how to promote a healthy economy are pervasive once more, after decades when it seemed such debates had been put to rest. The market meltdown of 2008 ended a long string of years in which monetary policy reigned supreme. Monetary policy is the regulation of money and the banking system to influence economic variables. Its adherents, the "monetarists," had faced little challenge as they de-emphasized the role of fiscal policy, defined as the control of taxes and spending to influence economic variables.

In 2002, Nobel laureate Gary Becker, in the debate between Keynesian and Friedmanite economics was reckoned it was a victory for the Friedmanite monetarists. Today Stefan Collignon believes differently, noting in his article "The Dawn of a New Era: Social Democracy after the Financial Crisis", that in 2009 the tables have finally turned. We now understand that politicised economics has an intrinsic social cost.

Can social democracy on its own harmonise globalisation?

John Quiggin in his recent article (PDF 615KB) for The Whitlam Institute argued:

A social democratic response to the crisis must begin by reasserting the crucial role of the state in risk management. If individuals are to have security of employment, income and wealth, governments must establish the necessary legal and economic framework and enforce its rules.

The global financial crisis has created and developed the conditions in which a new social democratic agenda can be realistically put forward. That is, the new system of social democracy will be changed to incorporate global complexities, while maintaining the political, social and economic logical standpoint that has emerged as a result of global financial meltdown.

Unlike the failed Third Way version of social democracy this new form will not have to align itself with a neoliberal political economy. Thus, the social democratic tradition can draw upon valid and socially beneficial reasons for reform as we face new challenges and constraints, after the collapse of economic order that for three decades was said to replace everything that had preceded it.

In the past, facing a financial crisis, traditional social democratic policy would have focused upon financial and macroeconomic management that in turn dealt with the national and international banking system. Such a policy can provide the most effective stimulus to the economy at both international and national levels. That is, the delivery of social and economic good that comes out of the global financial crisis may promote radical transformations in political decisions to bring about the most pragmatic transformation of social life.

In addition, Christopher Rude, in his article "The Global Financial Crisis What Needs To Be Done?" (PDF 317KB), points out:

Two positions are discernable. On the one hand, there are those who believe that the financial market’s informational difficulties can be solved by better market transparency, who are more concerned about stability than equality, and who believe that the necessary changes are minimal. On the other hand, those who mistrust lightly regulated or unregulated markets, and for whom the existing arrangements have led to serious and negative economic and social consequences, see the need for major structural change.

The former position is one that can be typified by the theory and analyses of the Third Way Such a political device was developed to deal with the complexities of globalisation, and justified its approach by aligning itself to the neoliberal ideal of increased individual freedom, maximising choices and enhanced equality of opportunity. It thus favoured light regulation, limited by its focus on macroeconomic stability, while leaving markets to play the larger role in the over global economy.

The other position is more pragmatic in its methods of implementing social democratic policies. It believes that regulation should interfere with the harsh systematic market agenda, promoting the development of emerging markets and developing nations, assisting in the creation of new ways of directing systematic market outcomes to ensure a more equal distribution of social goods.

Any answer to the global financial crisis must take into account the social costs, because human suffering through market failure is disproportionally affecting the developing countries, as well as the poor in richer countries where the labour markets are put under increasing pressure. The stability of a workable banking and financial system within the global economy produces a means to an end, not an end in itself. Ultimately, it is ends that matter, ends which are social.

Globalisation and disabled or differently abled people

President Barack Obama accepted the 2009 Nobel Peace Prize for his progressive approaches to social policies. This commitment is also shown in his vision for including disabled and differently-abled people in social life. He set this out in one of his campaign speeches:

We must build a world free of unnecessary barriers, stereotypes, and discrimination ... policies must be developed, attitudes must be shaped, and buildings and organizations must be designed to ensure that everyone has the chance to get the education they need and live independently as full citizens in their communities.

In this speech, Obama highlighted some of his deep-down assumptions about a just society: it also must involve the inclusion of disabled/differently abled people. Are Obama’s progressive political theories demonstrating concern for disabled/differently abled people? Have his resultant policies given expression to his vision of equality and the end of discrimination? He has shown his intention to create pathways to realise objectives, by ensuring an increase in funding for the enforcement of the American’s with Disabilities Act.

High on Obama’s agenda is the lifting of the employment rate among disabled/differently abled people. To achieve this he plans to firstly require compliance in the American public sector with a wave of Affirmative Action (positive discrimination) type legislation, from which disabled/differently abled people will be the beneficiaries. The next phase of this agenda will be to implement similar reforms in the private sector. Obama argues that policy should encourage those employers to use existing tax benefits to hire more workers with disabilities and support small businesses owned by disabled/differently abled people.

However, we need to keep in mind that the concept of individual merit had been introduced as far back as Michael Young's The Rise of Meritocracy (1956). In a more recent article, the author has suggested that:

[a] line of argument that is also made much of in the book is that a meritocracy can only exist in a full form if there is such a narrowing down of values that people can be put into rank order of their worth.

This connects with a political insistence on the rise of a new form of meritocracy, which can also be prejudicial and ultimately discriminatory against those with socially defined lesser abilities or different abilities. Young argues that what one is born with, or without, is not of one's own doing. To put it in a more crude form of discourse, being a member of the “lucky sperm club” confers no moral right to advantage.

Another, good example in the field of such progressive policies for the disabled/differently abled is found in Australia's Federal Labor government led by Prime Minister Rudd. The initiative, to be overseen by Bill Shorten as the parliamentary secretary for disabilities and children services, seeks to reduce the stigmas created by the neoliberal agenda of global social and economic reform. In a speech to the West Australian Disability Collective, Shorten spoke optimistically about the political processes that are addressing disability. As he puts it:

In politics, there is no premium on bad news. The premium is on the good news, the announcables, the releases, the positive stories, but I believe in disability - if we're to move to the positive, taking nothing away from the many accomplishments of many people over many years and decades - we have to promote and recognise the bad news.

Shorten was quick to point out, as an Australian politician, that Australians are not malicious. Unfortunately though, we still have a two-class society when it comes to disability and impairment. He continued:

Like all prejudice, prejudice against people with impairments is an opinion not sustained by any fact. In fact, it is born of ignorance and a lack of empathy for the experiences of others.

Will this government policy initiative to counter the stigma associated with disability make much of a difference? We shall have to wait and see. But at least we can hope that the global economic crisis has sharpened people's awareness of the need for careful policies that truly care for the vulnerable and those who tend to be left behind in the mad rush of political lobbying by well financed lobby groups. It's my belief that Bill Shorten's efforts deserve to be strongly supported.