The Enigma of the Social Democratic Post-War Consensus

Many believe that the post-war consensus marked the zenith of social democratic politics, with the creation of the NHS and social housing. Alas, this consensus also planted the seeds for social democracy's transformation into one-nation conservatism.

After the Great Depression and the Second World War, capitalists lacked self-confidence in the strength of their cause. In 1942, Joseph Schumpeter gauged the fatalistic zeitgeist seeing the inevitable demise of capitalism with socialism supplanting it. The post-war consensus, prima facie, gave credence to Schumpeter's prediction. Three years later, the spectre of the Eastern bloc haunted Western liberal capitalism. Socialism held the ascendency, not capitalism.

The SDP's Godesberg Program

Instead, the post-war consensus oversaw the corrosion of social democracy into capitalist welfarism. In 1959, the Social Democratic Party of Germany (SPD) ratified the Godesberg Program which ended social democracy's objective of replacing capitalism with socialism via evolutionary means.

Instead, social democrats embraced the social market economy regulating and planning it ensuring it produced desirable ethical outcomes. Social democrats sought an egalitarianism capitalism based on cooperation, and humanism. They abandoned nationalisation as the forefront policy for implementing socialism. They now advocated for a humanistic, pragmatic, and gradualist Keynesian management of the economy.

This rupture was disastrous for social democratic and centre-left parties throughout Europe. Working class consolidation was the power base of these parties. Abandoning class consolidation severely weakened the power base of these parties. In the long run, this limited their ability at achieving power and governing in a transformational fashion. Neoliberal globalisation further vanquished whatever remained of class consolidation among the centre-left and left.

Not only was the Godesberg Program a terrible strategic move, but it also watered down the social democratic ideal. Social democracy was no longer an evolutionary emancipation movement for workers, but the managerial and technocratic progressive politics which blights the centre-left today.

By distancing themselves from the interests of the working classes, they paradoxically became more elitist. If you try to be everything for everyone, you end up not representing much at all except the interests of those who gave you power - the elites and the interests of marginal voters in critical battleground seats. How do you impassion people gaining crucial popular support for reforms when technocratic government is the order of the day? That is aside from the party faithful and policy wonks.

Social Democracy becomes Tory Democracy

In Britain, social democracy followed the lead of the SDP morphing itself into a Tory democratic paternalism, or one-nation conservatism. Today's social democrats are the heirs of Lord Randolph Churchill, not Keir Hardie. The right-wing of the social democratic movement converged towards conservatism, and conservatives converged towards right-wing social democracy.

Over time, however, social democrats began facing a conundrum: they were not conservative enough for true conservatives heavily inspired by the charisma of Thatcher and her neoliberalism, but neither were they radical enough for leftists either.

This blew up in the 1980s after the collapse of James Callaghan's Labour government. The Labour left wanted democratic socialism but the Marxist-Leninist Trotskyite organisation Militant Tendency infiltrated them. The Labour right both fought within the party for control, while others abandoned Labour altogether supporting the Social Democratic Party (SDP). Without working class consolidation, social democratic parties throughout Europe hollowed out.

This also explains the existing civil war among the left between modern social democrats - Tory democrats - and democratic socialists - classical social democrats. The most moderate socialists are at war with the most moderate capitalists over who truly has claim over the left.

Old Labour - When Social Democrats were still Socialists

Old Labour not only accepted a class-based society but maintained it. They tolerated inequality both defined in terms of class, income, and property, albeit with restrictions. The upper middle classes still went to elite public schools receiving a privileged university education.

Hugh Gaitskell epitomised the Labour right during the post-war consensus. Alongside the Conservative Rab Butler, Gaitskell's social democracy was the post-war consensus. They supported a mixed economy with Keynesian demand management backed by a strong welfare state. Gaitskell opposed the nationalisation of industries unless specifically required.

The influential and controversial thinker Anthony Crosland essentially suggested that social democracy was advocacy for capitalism with a human face. Anthony Crosland's ideas are the pillar of the modern Labour Party.

Harold Wilson's primary achievements were liberal reforms on decriminalising homosexuality, abolishing capital punishment, making racism a civil offence, and making abortion accessible to women.

However, he also oversaw the devaluation of the pound in response to the 1967 Arab-Israeli conflict. His actions did not stabilise the economic situation but in fact worsened them by deflationary policies implemented by Chancellor of the Exchequer Roy Jenkins, who'd later found the Social Democratic Party (SDP). James Callaghan's government oversaw both the Winter of Discontent and the rise of monetarism.

Callaghan's $3.8 billion loan request to the International Monetary Fund during the 1976 currency crisis hit Britain's national prestige hard.

But how did the consensus start? Clement Attlee's Ministry was the only true social democratic government in British history. Health Secretary Aneurin Bevan built a universal health-care system free at the point of access - the National Health Service (NHS) - while facing significant opposition from medical authorities. They also built a new far more reaching social security system which would last "from cradle to grave" while also nationalising 20% of the economy.

These acts certainly weren't conservative. Despite only lasting six years, Attlee's Ministry was the sole example of what a genuine social democratic government looked like.

However, there were two fatal flaws of Attlee's Ministry.

First, they wasted the Marshall loan funds on preserving the UK 's global stature. than investing in capital improvements and modernisation of industries. John Maynard Keynes sought investment in industry, not chasing imperial pursuits that Britain no longer could afford.

Labour and Conservative governments went in the opposite direction. Consequently, British industry was uncompetitive. Political leaders ignoring the wisdom of John Maynard Keynes was the key reason for this. The UK was well behind in capital investment compared to Germany, who used American funding far more wisely. Germany remains the economic powerhouse of Europe to this day.

Only in 1956, during the Suez Crisis, did Britain, and France, finally learn their place in the international hierarchy. Britain never learned that Keynes was right all along about modernising, even to this day. After the consensus collapsed, we mistakenly thought that moving towards a post-industrial economy was modernisation. Modern Britain doesn't know how to invest and competent build an economic order around it. It's why we're in a state of decay today. The post-war consensus only championed a bastardised form of Keynesianism.

The Trade Union Congress and the Collapse of the Consensus

The second fatal flaw was they gave the trade unions too much prominence within the institutional design of the consensus. The institutions of the consensus placed the trade unions at the centre of government decisions in industry, which both Conservative and Labour governments accepted. However, trade unions serve the interests of their members. They are not public servants despite the consensus necessitating they were. At the heart of the consensus lay a contradiction - between a lite syndicalism and paternalist governance.

Attlee's Ministry didn't establish a syndicalist political economy, but the post-war consensus contained traces of it through its institutional design. Syndicalists believed trade unions should form the government and manage the economy. The trade unions never held such power, but they eventually sought it even if unconsciously.

"The TUC became an estate of the realm" - Vernon Bogdanor.

This lite syndicalism eventually undermined the consensus because the interest of union members and the preservation of the consensus diverged. The consensus's legitimacy was based on balancing the interests of all the social classes, including the working classes. However, the Trade Union Congress began striking to the point governments were falling and the consensus lacked any legitimacy. Politically, this created the space needed for the new Thatcherite consensus which would never again allow trade unions such power and influence in modern Britain.

The unions did not represent all the working classes either. The Attlee Ministry confused class consolidation with the trade union movement itself. The trade unions were certainly part of the class consolidation but albeit a big subset of it. Union members held privileges in the workplace that non-union member workers didn't.

Social Democracy and Tory Democracy

What distinguishes social democracy from Tory democracy? Tory democracy, one-national conservatism, or christian democracy, is a derivative of Toryism and religious social teaching; whereas, social democracy was a derivative of socialism.

Prima facie, this looks far too big of a difference to reconcile. However, we've all typically misunderstood conservatism and socialism. Conservatism, traditionally, is not advocacy of free-market economics. Its chief goal is the preservation of organic social and economic order.

Distributism, for instance, is a conservative economic system seeking the wide dispersal of ownership of productive entities, e.g. a property-owning democracy. Cooperativism, for instance, is born from both distributism and (libertarian) socialism. Distributism influenced the growth of consumer cooperatives, meanwhile the socialist advocacy for workers self-management encouraged the growth in worker cooperatives. In practice, where does the red line between distributism and libertarian socialism lay?

Phillip Blond's Red Toryism was explicitly a conservative ideology influenced by distributism. Blond was no statist Keynesian demand manager, but his goals were compatible with social democracy. Otto von Bismarck's creation of the German welfare state, albeit for cynical motivations, also highlights how conservatism is also compatible with social democracy.

Social democrats who narrowly define social democracy as statist Keynesian demand-management economic interventionism promoting welfarism is less compatible with Tory Democracy. But that variant has limited appeal in the UK and for good reason as well. Statist social democracy is a shallow ideology glamouring the state as the solution to all our problems while ignoring the critical role civil society plays as well.

However, social democrats who broadly define it as aiming for an egalitarian and humanistic society founded upon classical philosophy is a variant of Tory Democracy and Red Toryism.

New Labour - When Social Democrats were Social-ists.

New Labour, for instance, did little in tackling widening inequality but did introduce working and child tax credits helping many families avoid the trap of poverty. They also introduced the Sure Start programme designed to give children the best start possible in life. They also widely expanded access to a university education ensuring one's socioeconomic background didn't determine someone's educational choices.

Nevertheless, New Labour also helped further deregulate the financial industry and encouraged reckless lending ensuring as many people bought a home as possible. This fuelled rentierism and made many dependent on inflating house prices as a means of remaining solvent and staying wealthy. This all resulted in the 2008 financial crisis which was the chime that ultimately destroyed the New Labour project.

Summary

Liberal capitalism was the cornerstone of the post-war consensus. Both the United States and Germany, through their ordoliberalism, best exemplified this. Germany was explicitly a social market economy. Meanwhile, the US was the exemplar of Western capitalism. Britain, on the contrary, was the ugly duckling having more 'socialistic' characteristics than either the US or Germany did. Nationalisation of industries was more widespread in the UK. However, the UK became the sick man of Europe. The UK adopted a less successful liberal political capitalism in contrast to Germany's more corporatist social market capitalism.

Today European social democrats are under attack by populist forces seeking the overthrow of the status quo. Social democrats rightly fear that the successes of the post-war consensus they've preserved through neoliberalism will be fatefully undermined. Modern social democracy is a conservative ideology with socialist pretensions highlighting its birthmark. The democratic left are splitting into those who want a return to socialism, the emergence of green radicalism, and social democrats whose flame is flickering.

Should we want a return to the post-war consensus? - No! Why?

First, such a politics is inherently reactionary - it seeks the status quo ante. History is a great teacher, but we should never let the past define our politics.

Second, the material conditions of the world today are substantially different to what they were between the late 1940s to the late 1970s.

Rentier capitalism dominates the West now. We create wealth nowadays by manipulating resources at our disposal - rentierism - rather than through productive activity. China and Asia are now the industrial powerhouses of the world, not the West. The global economy is also far more integrated than it was back in 1945.

Western society generates wealth by two principal means: services and rentierism. They're not mutually exclusive. Some services involve manipulating resources for financial gain which is rentierism. Issuing loans, currency manipulations, trading, and so forth all involve rentierism but are also services. These services are vital. Financiers who create new markets of cheap currency exchange facilitating trade is beneficial while also being rent seeking.

However, systematically our economies are addicted to rent-seeking because of the absence of more productive means of generating wealth. Private banks issue 96% of the money supply. Banks create loans and deposits simultaneously when lending. Interest is the mechanism by which debtors - typically the masses - distribute their wealth to creditors - typically financial institutions and the wealthy. We've never tried trickle-down economics, but trickle-up economics.

The extraordinary increase in house prices over the last few decades, which has helped cause the cost-of-living crisis and vastly increase intergenerational inequality, is a testament to this fact. Governments and builders haven't been building houses en masse resulting in a flood of higher-quality housing causing an increase in house prices. Instead, the unimproved value of land is substantially increasing. We're manipulating the ground rent that derives from utilising land in an inequitable and inegalitarian fashion.

Land reform is the path forward. Silvio Gesell's proposed socialising land through nationalising it and leasing it back to citizens. Lease holders would extract the economic rent of the land paying it to the government of the commons distributing it into a citizen's dividend or public infrastructure investment. Singapore follows a similar model to Gesell's proposal, so this model is workable and successful.

Economic rent must be socialised and distributed evenly to all whether through a citizen's dividend or public investment in strategic areas in infrastructure, services, etc. Land is a commons belonging to us all equally and indivisibly. Realising that will be crucial for ensuring we don't continually degrade the environment and that we take responsibility for governing the land.

Only then shall the "euthanasia of the rentier" salvage us, whereas the post-war consensus merely locked the rentiers away in a prison for a time long enough by which they plotted their revenge.

“In general you must either pamper people or destroy them; harm them just a little and they’ll hit back; harm them seriously and they won’t be able to. So if you’re going to do people harm, make sure you needn’t worry about their reaction.”― Niccolò Machiavelli

You don't euthanise the rentier as Western civilisation did and do it half-arsed. Social democrats mistakenly thought free marketeers were their ultimate enemy; no! it was always the rentier. Their folly is the greatest mistake committed by Western civilisation in modern times. Even today they still have not learned from their fatal mistake.

Furthermore, classes in modern Britain are substantially different than during the post-war consensus. There is only a small industrial working class today labouring in the steel industry, for instance. Workers belonging to a new industrial class must ensure they're educated with a STEM background given how 'advanced industry' is the future for the West.

The well-educated and overqualified precariat working in retail and hospitality lack political consolidation and organisation but will represent a significant bulk of the socio-economic demographics of the UK for a long time. For that to change, the UK's economy must undergo a major structural adjustment so graduates find work more befitting their educational background.

Third, the ideological differences are substantially different. The Soviet Union posed a threat to the West through a command capitalist state, while ideologically committed towards revolutionary communism, whereas today the threat lies with the totalitarian political capitalism of China who's only nominally communist. The Chinese Communist Party (CCP) could rename itself the Guómíndǎng and not much would change ideologically.

Fourth, liberal political capitalism is not a strong antidote to a Chinese totalitarian political capitalism which is relishing Westerners eroding liberalism through internal division. Liberal state capitalism is not as effective as authoritarian state capitalism at sustaining growth. Social markets were the bedrock of Western success. Now there was sufficient distinction between the Western and Eastern economies during the Cold War that social democracy was permissible despite its socialist derivation. The liberal pillars of modern Western societies are corroding within. Liberal political capitalism lacks the strength in resisting an aggressive authoritarian political capitalism in the ascendancy.

Fifth, the social market economies aren't easily distinguishable from the neoliberal models of today. The anti-social ideology of neoliberalism has metastasised into the heart of Western society. We must fundamentally break with the current political economy. Social market economics does not fit the bill. We cannot reform neoliberalism by merely giving it a conscience.

Sixth, the challenges of the 21st century lay in tackling climate change, biotechnology, and artificial intelligence. Tackling these problems requires very different economic and political models. Climate change is a globalist problem, not a national one; how do we manage the Anthropocene? A new Bretton woods system is insufficient for only Western liberal capitalist societies participated in it. Artificial Intelligence will disrupt the very socioeconomic foundations of our societies. The preservation of the class system made the post-war consensus palatable to the governing classes, whereas AI and automation will disrupt, even destroy, class structures as we know them. Worse, AI will facilitate surveillance which existentially threatens the notion of a private life and liberalism as a result.

Conclusion

Socialists and social democrats can learn from the post-war consensus. However, it is not a model we can follow. The post-war consensus offers us few answers towards the challenges of today and the future except for the need for prolonged investment. Wanting its return signifies a dearth of thinking, vision, and imagination. The paradox of today's left is the old guard seeking an inapplicable status quo ante; today's guard seek the preservation of the status quo; while the new guard engage in the mistakes of the utopian socialists of yesteryears. Instead, the left must show the courage of envisioning a different future for the West and humanity, while remaining realistic, nevertheless.

To move forward, we must develop a political economy prioritising sustainability, equity, and a democratically rational control over the forces shaping the future—from climate action to AI governance.