21 Mar 2011

The Link is Broken

By David Held

Globalisation expert David Held on the future of social justice

DIE ZEIT: Professor Held, since the economic crisis it could hardly be said that social justice has enjoyed a political resurgence. In Germany, the parties have not been able to agree on Hartz IV; in the UK, the government is cutting welfare like never before; in the USA, despite the devastating economic slowdown, there is stiff resistance to any extension of unemployment benefit…

David Held: Do you mind if I take a slighter wider perspective? We should look not only at the past three years, but go back much further, to the nineteenth century. At that time, there was a strong feeling of mutual dependence between factory owners and workers. Whether in the USA or Great Britain or Germany, industrialists were also philanthropists who invested their money in the community, for example, funding public libraries or concert halls. At the same time, workers felt jointly responsible for their factories in which they often worked their whole lives. Since the end of the twentieth century we have had to deal with the fact that this link has been broken.

DIE ZEIT: You talk about globalisation…

David Held: … since the emergence of which there has no longer been this close link between industrialists and workers. Our lifestyle is built on whatever can be bought most cheaply, wherever that might be. Retail chains procure their supply wherever it suits them best, while the financial markets organise cross-border trade and production. Relations between these capital owners and particular local population groups are purely instrumental.

DIE ZEIT: No one is calling for the return of the charitable industrialist. Since the economic crisis voices have rather been raised in favour of a rebirth of strong welfare states…

David Held: Yes, but we shouldn’t forget that the welfare state came into being as an important connecting link in this form of social contract between labour and capital. It helped to preserve this reciprocity within a national framework. That is no longer the case today. Workforces are still localised and bound to the nation-state, but not capital: owners always have the option of threatening to move to another country. As a result, power relations have changed dramatically over the past 30 to 40 years. In such circumstances, it isn’t surprising that notions of social justice or social welfare are no longer very high on the agenda.

DIE ZEIT: Is it your argument that politicians who might want to pursue a more social policy are powerless against capital?

David Held: German companies are currently shifting their operations to eastern Europe on a large scale; even high tech companies from Silicon Valley have already gone to China. There are no longer any robust links between employment security and the social responsibility of the state. The big break probably began with Ronald Reagan and Margaret Thatcher. But above all it was Tony Blair, Gordon Brown and the social democratic imitators of the Third Way in Europe who declared that we now live in a new global era. It is the task of the state to ensure the competitiveness of the population.

DIE ZEIT: Was the courting of foreign investors really the sole reason for reforming welfare states? In some countries, an underclass that was completely dependent on the state solidified as early as the 1970s. That didn’t work either.

David Held: Yes, and here in Great Britain the underclass was also a major issue for Blair and Brown. The social policy of both basically consisted of getting as many people as possible into work: to that end, they introduced measures to help employers, expanded job creation schemes and brought in the minimum wage. All of a sudden, a completely new concept of social security was being applied: there is social justice when people have a job. It is socially unjust when people are excluded from the market.

DIE ZEIT: And are you critical of that?

David Held: I believe that this policy of the »new social democrats« or of the »Third Way« worked only in a certain historical context, which went on longer than usual. For Tony Blair in Great Britain, Bill Clinton in the USA and also for the German Social Democrats under Schröder it initially looked like a stroke of genius. The loosening of capital market regulations in the 1980s resulted in a flood of capital throughout the world and every time the markets threatened to founder the central banks helped out with interest rate cuts. This drove globalisation forward; export-oriented industries and services boomed; but it was primarily the middle classes who benefited from it, playing a major role as employees or investors. At the margins, however, among workers and the unskilled this new age was primarily one of growing uncertainty.

DIE ZEIT: Not any more, since the financial crisis.

David Held: The situation was confused even before that. Look at the French »non« vote against a European Constitution in 2005, which was partly directed against global capitalism. In Germany, similar worries are expressed, despite the fact that Germans find themselves in a rather different position to many other countries in Europe: thanks to its enormous export success Germany has been able to cushion the shock of the financial crisis.

DIE ZEIT: Do you think that German worries about globalisation are unfounded?

David Held: No, I don’t believe that. These developments which led to this enormous bubble before the financial crisis also have other and more far-reaching consequences, which have by no means been resolved. Our world is changing extremely quickly. The enormous amount of capital has allowed new superpowers to grow large, especially China and India. Europe in particular is under pressure on all sides, more so than the USA. Suddenly, our states look more vulnerable and can no longer offer us much protection. Consequently, people are worried.

DIE ZEIT: These worries are increasing, although for the past 15 years we have been concerned about the competitiveness of Western companies.

David Held: The irony is that we have lowered our barriers by liberalising trade and the financial markets. The new emerging economies have, to some extent, been doing the opposite. There are state controls on the introduction of capital into China; companies have to work in partnership with domestic firms; and imports are tightly restricted. This has frustrated Western economists and runs counter to Western interests to a considerable extent. We now have a host of successful state companies as competitors.

DIE ZEIT: If the big rethink on the role of the nation-state in the economy ever gets under way, do you see any chance of a renaissance of the traditional welfare state?

David Held: At least in the short term, interest seems to have reawakened in national politics and in the state itself, as well as a backlash against the period of neoliberalism. As far as I can see, this new debate is being conducted primarily by social democrats in Europe: there is no trace of it in practical politics. Recently, I met a couple of financial market traders from the City and asked them what had changed for them in the past two to three years. They replied »nothing at all«.

DIE ZEIT: Is a renaissance of the welfare state even conceivable, then?

David Held: That’s a very difficult question. Can we have a concept of social justice and implement it without there being a certain agreement on social justice at a global level? Europe is trying to find an answer to that by creating a common framework for a particular group of countries. Beyond that, however, we need a reformed global system which can really tackle global injustices. At the moment, we have a set of institutions – the UN, the World Bank – which are still based on the distribution of power of the old world which emerged after 1945, financed according to a kind of voluntary code. On this basis one couldn’t even run a country, let alone a new world order.

DIE ZEIT: In other words, you’re saying that until we secure our competitiveness we cannot concern ourselves with the reorganisation of the welfare state?

David Held: Naturally, we have to give some thought to competitiveness, even today. India and China are catching up in every area in which we have traditionally been strong. How will Europe survive in the long term?

DIE ZEIT: Do you have an answer?

David Held: On the one hand, we must immediately strengthen our education system from primary school to university. In my view, in particular the German higher education system has a great deal to do. Internationally, however, we need strong institutions which address the externalities of globalisation and find solutions which individual states cannot implement on their own. That applies especially to social policy. Without such a policy at the global level, it seems to me that we will witness an accelerating polarisation between rich and poor throughout the world.

DIE ZEIT: Applying European ideas throughout the world seems like a distant goal.

David Held: And do you know what? Sometimes moments come along when a breakthrough can be made. It may be that we had one a couple of months ago. The USA was weak, the dollar fell, Asia’s ascent is still work in progress. Europe and European ideas about economic and social policy could have had their moment; we could have had a major impact. And what did we do? We slid into a crisis and got to grips with it much too late. I would say that we let slip a historic opportunity.

This interview was first published in German by DIE ZEIT on 17th February 2011

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