Francis Fukuyama is Senior Fellow at the Center on Democracy, Development, and the Rule of Law at Stanford University. A third-generation Japanese-American, he was trained as a classicist, but turned to political science. As well as being in government, before Stanford, he was at Johns Hopkins, RAND and Harvard. He is probably best-known in the UK as the author of an essay, The End of History, written in 1989 at the end of the Cold War, an event which he saw as bringing about universal liberal democracy. The essay led to considerable debate, much of it critical, and Fukuyama’s views have evolved since, including his comment, "there can be no end of history without an end of modern natural science and technology".
Ed Miliband is the leader of the UK Labour party and hence Leader of the Loyal Opposition to Her Majesty’s Government, currently led by the Conservatives in coalition with the Liberal Democrats. Like many British politicians he graduated in Politics, Philosophy and Economics at Oxford (PPE), and he has also spent time at Harvard. He gets to put six questions to Prime Minister David Cameron (also a PPE graduate) at the Prime Minister’s Questions (PMQs) on Wednesdays, a session closely watched by British political wonks. Miliband became Leader of the Opposition after defeating his older brother, David, (another PPE graduate) who was the favourite in the contest held in 2010 after Labour lost the election. Of late (early February 2012) there is a grudging admission that he has been getting better at a difficult job, but commentators speculate on his replacement by his brother, or Ed Balls or Balls’ wife, Yvette Cooper, who both, guess what, have PPE degrees. Certainly, it would seem from the opinion polls that Miliband still has much to do before the voters regard him as a potential PM.
The question posed in the title of this post stems from a January 2012 article by Fukuyama and a February speech by Miliband on similar themes. The article, The Future of History Can Liberal Democracy Survive the Decline of the Middle Class?, appeared in Foreign Affairs, and, as far as I can tell, has not received any attention in the UK. So, I will attempt to summarise it by drawing on the author’s words, starting with the key proposition he made at the start:
… despite widespread anger at Wall Street bailouts, there has been no great upsurge of left-wing American populism in response. … Something similar is true in Europe as well, where the left is anemic and right-wing populist parties are on the move. There are several reasons for this lack of left-wing mobilization, but chief among them is a failure in the realm of ideas. For the past generation, the ideological high ground on economic issues has been held by a libertarian right. The left has not been able to make a plausible case for an agenda other than a return to an unaffordable form of old-fashioned social democracy.He then offered a historical perspective on what has happened:
The first major secular ideology to have a lasting worldwide effect was liberalism, a doctrine associated with the rise of first a commercial and then an industrial middle class in certain parts of Europe in the seventeenth century. (By “middle class,” I mean people who are neither at the top nor at the bottom of their societies in terms of income, who have received at least a secondary education, and who own either real property, durable goods, or their own businesses.) …Fukuyama then expanded on his original proposition:
The Communist Manifesto was published in 1848, the same year that revolutions spread to all the major European countries save the United Kingdom. And so began a century of competition for the leadership of the democratic movement between communists, who were willing to jettison procedural democracy (multiparty elections) in favor of what they believed was substantive democracy (economic redistribution), and liberal democrats, who believed in expanding political participation while maintaining a rule of law protecting individual rights, including property rights.
At stake was the allegiance of the new industrial working class. Early Marxists believed they would win by sheer force of numbers: as the franchise was expanded in the late nineteenth century, parties such as the United Kingdom’s Labour and Germany’s Social Democrats grew by leaps and bounds and threatened the hegemony of both conservatives and traditional liberals.
Throughout the first half of the twentieth century, there was a strong consensus on the progressive left that some form of socialism—government control of the commanding heights of the economy in order to ensure an egalitarian distribution of wealth—was unavoidable for all advanced countries. …
Yet even as the great ideological conflicts of the twentieth century played themselves out on a political and military level, critical changes were happening on a social level that undermined the Marxist scenario. First, the real living standards of the industrial working class kept rising, to the point where many workers or their children were able to join the middle class. Second, the relative size of the working class stopped growing and actually began to decline, particularly in the second half of the twentieth century, when services began to displace manufacturing in what were labeled “postindustrial” economies. Finally, a new group of poor or disadvantaged people emerged below the industrial working class—a heterogeneous mixture of racial and ethnic minorities, recent immigrants, and socially excluded groups, such as women, gays, and the disabled. As a result of these changes, in most industrialized societies, the old working class has become just another domestic interest group, one using the political power of trade unions to protect the hard-won gains of an earlier era. …
There is a broad correlation among economic growth, social change, and the hegemony of liberal democratic ideology in the world today. And at the moment, no plausible rival ideology looms. But some very troubling economic and social trends, if they continue, will both threaten the stability of contemporary liberal democracies and dethrone democratic ideology as it is now understood. …
… what if the further development of technology and globalization undermines the middle class and makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status? There are already abundant signs that such a phase of development has begun. Median incomes in the United States have been stagnating in real terms since the 1970s. The economic impact of this stagnation has been softened to some extent by the fact that most U.S. households have shifted to two income earners in the past generation. … Americans may today benefit from cheap cell phones, inexpensive clothing, and Facebook, but they increasingly cannot afford their own homes, or health insurance, or comfortable pensions when they retire.
A more troubling phenomenon, identified by the venture capitalist Peter Thiel and the economist Tyler Cowen, is that the benefits of the most recent waves of technological innovation have accrued disproportionately to the most talented and well-educated members of society. This phenomenon helped cause the massive growth of inequality in the United States over the past generation. In 1974, the top one percent of families took home nine percent of GDP; by 2007, that share had increased to 23.5 percent. …
The other factor undermining middle-class incomes in developed countries is globalization. With the lowering of transportation and communications costs and the entry into the global work force of hundreds of millions of new workers in developing countries, the kind of work done by the old middle class in the developed world can now be performed much more cheaply elsewhere. Under an economic model that prioritizes the maximization of aggregate income, it is inevitable that jobs will be outsourced.
Smarter ideas and policies could have contained the damage. Germany has succeeded in protecting a significant part of its manufacturing base and industrial labor force even as its companies have remained globally competitive. The United States and the United Kingdom, on the other hand, happily embraced the transition to the postindustrial service economy. … There was a lot of happy talk about the wonders of the knowledge economy, and how dirty, dangerous manufacturing jobs would inevitably be replaced by highly educated workers doing creative and interesting things. This was a gauzy veil placed over the hard facts of deindustrialization. It overlooked the fact that the benefits of the new order accrued disproportionately to a very small number of people in finance and high technology, interests that dominated the media and the general political conversation.
One of the most puzzling features of the world in the aftermath of the financial crisis is that so far, populism has taken primarily a right-wing form, not a left-wing one. In the United States, for example, although the Tea Party is anti-elitist in its rhetoric, its members vote for conservative politicians who serve the interests of precisely those financiers and corporate elites they claim to despise. …He then considered what might be required:
It has been several decades since anyone on the left has been able to articulate, first, a coherent analysis of what happens to the structure of advanced societies as they undergo economic change and, second, a realistic agenda that has any hope of protecting a middle-class society. …
Over the past two generations, the mainstream left has followed a social democratic program that centers on the state provision of a variety of services, such as pensions, health care, and education. That model is now exhausted: welfare states have become big, bureaucratic, and inflexible; they are often captured by the very organizations that administer them, through public-sector unions; and, most important, they are fiscally unsustainable given the aging of populations virtually everywhere in the developed world. Thus, when existing social democratic parties come to power, they no longer aspire to be more than custodians of a welfare state that was created decades ago; none has a new, exciting agenda around which to rally the masses.
Imagine, for a moment, an obscure scribbler today in a garret somewhere trying to outline an ideology of the future that could provide a realistic path toward a world with healthy middle-class societies and robust democracies. What would that ideology look like?Is Ed Miliband, starting to address the “failure in the realm of ideas” which Fukuyama identified? The inaugural lecture he gave on 9 February to open the Sheffield Political Economy Research Institute suggests that he might be trying to. Again excerpting:
It would have to have at least two components, political and economic. Politically, the new ideology would need to reassert the supremacy of democratic politics over economics and legitimate anew government as an expression of the public interest. … The ideology would need to somehow redesign the public sector, freeing it from its dependence on existing stakeholders
Economically, the ideology could not begin with a denunciation of capitalism as such, as if old-fashioned socialism were still a viable alternative. It is more the variety of capitalism that is at stake and the degree to which governments should help societies adjust to change. Globalization need be seen not as an inexorable fact of life but rather as a challenge and an opportunity that must be carefully controlled politically. …
It is not possible to get to that point, however, without providing a serious and sustained critique of much of the edifice of modern neoclassical economics, beginning with fundamental assumptions such as the sovereignty of individual preferences and that aggregate income is an accurate measure of national well-being …
The ideology would be populist; the message would begin with a critique of the elites that allowed the benefit of the many to be sacrificed to that of the few and a critique of the money politics, especially in Washington, that overwhelmingly benefits the wealthy.
... It is possible that the developed world is on the cusp of a series of technological breakthroughs that will not only increase productivity but also provide meaningful employment to large numbers of middle-class people.
But that is more a matter of faith than a reflection of the empirical reality of the last 30 years, which points in the opposite direction. Indeed, there are a lot of reasons to think that inequality will continue to worsen. The current concentration of wealth in the United States has already become self-reinforcing: as the economist Simon Johnson has argued, the financial sector has used its lobbying clout to avoid more onerous forms of regulation. Schools for the well-off are better than ever; those for everyone else continue to deteriorate. Elites in all societies use their superior access to the political system to protect their interests, absent a countervailing democratic mobilization to rectify the situation. …
That mobilization will not happen, however, as long as the middle classes of the developed world remain enthralled by the narrative of the past generation: that their interests will be best served by ever-freer markets and smaller states. The alternative narrative is out there, waiting to be born.
There has never been a better time to open a centre which thinks about the challenges posed to our economy and our politics by the financial crisis. As a society, we must respond to the deep lessons of the crisis and find new answers, including by learning from historical and international experience, …For non-UK readers: in 1945, the Labour government put in place a welfare state, in particular the National Health Service. After 1979, the Thatcher government took the UK in a different direction, which other EU countries tend to regard as the anglo-saxon model of capitalism. New Labour came to office in 1997 with policies which were intended to ameliorate Thatcherism rather than reject it. However
My argument is that to command consent and to be sustained, the political economy of the country must deliver for the working people in this country. Tonight, I want to make the case that failure to do that has since the war led to radical transitions in the political economy of our country.
The 1945 welfare state settlement was built in response to the failures of the 1930s.
The 1979 market settlement was a response to the failures of the 1970s.
What you might call the 1997 settlement was a response to the failures of part of that settlement when it came to the public realm.
And now in the period after the financial crisis, we face such a challenge once again. The failures that led up to the financial crisis of 2007 and with which we are still living today demand a new settlement.
… the new settlement was incomplete. After the banks crashed, and the boom years turned into the toughest times for working people in a generation, a whole set of challenges were exposed.Miliband then started to “scribble”:
The first is that working people are being squeezed between stagnant incomes and rising costs. For thirty-odd years, the bargain had been clear: Let the economy grow, and everyone, including the low paid, would get richer.
And it worked for a time, partly because of greater productivity, and partly because of changes like more and more women coming into the workplace. But working peoples’ rise in incomes and living standards over those years was also supported by particular factors – the rise of credit, cheap imports from Asia and tax credits. But by 2007, it was clear that these factors were not enough to sustain rising living standards for working families.
The basic promise of the 1979 era, that those at the middle would benefit as well as those at the top, began to unravel. For the five years before the last recession, the economy grew by 11%, but the wages of everyone earning less than average incomes stayed the same. And on current forecasts, the average worker will be earning the same in three years’ time as they were ten years ago.
… anger at the old system’s flaws is not enough to produce change. It needs the ideas and the political movement to transform discontent with the old settlement into consent for a new one.So did Miliband begin to provide the alternative narrative Fukuyama thinks is needed? Well he certainly wasn’t offering “a serious and sustained critique of much of the edifice of modern neoclassical economics” in this lecture, anyway. But perhaps that isn’t as necessary in the UK, where the political centre has always been to the left of that in the US and many voters are far from “enthralled by the narrative of the past generation: that their interests will be best served by ever-freer markets and smaller states”. More seriously though, he didn’t address whether Fukuyama’s careful political control of globalisation would be needed if industry is to be expanded or the need to “redesign the public sector, freeing it from its dependence on existing stakeholders”. So there's plenty more to do, but if Fukuyama's prescription is right, Miliband seems to be making a start in providing Labour with the message that it would need to win an overall majority in 2015.
Stage by stage, we are taking on this project in Opposition. Identifying the issue itself, and beginning to set out solutions. This is the subject of our ongoing policy review, but let me today give some brief pointers to Labour’s agenda. We know the limits of the previous settlement: just getting the government out of the way won’t work. We know the economic climate will be far tougher: there will be less money to spend. And we know that in any case, if Labour wins the next election, it will not be good enough to simply rely on spending money to patch up the failures of the economy we inherit. A more fundamental change is needed. From the ashes of the kind of irresponsible capitalism which led to the crash, we need to build a new kind of capitalism, a responsible capitalism.
A capitalism based on long-term productive behaviour with a fairer distribution of rewards based on a new set of principles:
Long-termism not short-termism.
A fairer sharing of rewards not growing inequality.
An understanding that successful firms are those that invest in their people rather than neglecting them
And that the environment is not an enemy of economic progress but essential for it.
So what does this mean in practice?
First, Britain needs a new era of long-term wealth creation. Both to pay its way in the world and to create fairness in tough times.
We need to use the power of government in new ways. To set new rules that promote the long-term and fair wealth creation we need.
To share a vision with British industry of how we pay our way in an ever more competitive world with an active industrial policy. That’s why we are looking at plans for a British Investment Bank so small businesses can invest and grow.
That’s why we will need new leadership from industry, undertaking their responsibilities to bring on the next generation. As a first step, we say no major government contract should be awarded unless companies offer apprenticeships.
We must tackle the historic British problem of short termism in our corporate life. And it is why we have to end the situation where we have rewards for failure at the top, harming both the company and its workforce. That’s why Labour has suggested a number of reforms, including an employee on every remuneration committee.
Across the economy we need executives to recognise that exceptional rewards should only be for exceptional performance. Tackling excessive executive pay and bonuses is not an end in itself but a necessary first step towards a bigger change in our economy in which people get fair rewards for their contribution at every level of society.
Secondly, standing up for the squeezed middle today also means challenging the powerful vested interests which are squeezing working people in this country for every penny they can. It means standing up to the banks, the train operating companies, and the electricity firms with simple measures to cap fare increases, lower electricity prices, and guaranteeing the cheapest power for the most vulnerable. …
Third, standing up for the squeezed middle also means always making sure there is a fair tax system and a fair benefits system. That means everyone paying what they are supposed to, including those at the very top. It means cutting the 50p tax rate is the wrong priority. And it is why, for example, I have spoken out about offshore tax havens.
And on welfare, I believe in a welfare state based on contribution as well as need. We need a better welfare state when it comes to issues like childcare and social care. But we cannot deliver it, unless we continue to reform the welfare state so it delivers high employment and demands responsibility from all.