Monday, October 31, 2016

Branko Milanovic — Will social democracy return? A review of Offer and Söderberg

Avner Offer and Gabriel Söderberg (“The Nobel factor: the prize in economics, social democracy and the market turn”) look at the strange death of social democracy at the hands of market liberalism. That death was accelerated by the role of the Nobel prize in economics that conferred to economics an allure of science and that was used to much greater profit by neoliberal economists to push for their version of economic policies.

Offer and Söderberg define social democracy as a continuation of Enlightenment: from equality before God to equality before law, to equality between men and women and races, to equality of entitlements between citizens. Since each citizen goes through periods of dependency (as a child, as a mother, as unemployed, or as an old person) when he/she cannot earn an income, he has to depend on transfers from the working age population. This life-cycle pattern is shared by all, and thus society, in a form of social insurance, sets a system that provides redistribution from the earners to the dependents.

How does market liberalism solves the life-cycle problem? By positing that everyone is a free agent with his endowments of capital and labor. When he cannot work, he uses the proceeds from his capital (assuming of course that he originally either inherited or saved enough wealth to have a capital). It is not a “society” in a true sense of the word, but a group of “agents” who manage own income over the life-cycle. Since returns are to one’s ownership of labor and capital and there is no redistribution, it is a “just world” society where one gets back what he has put in, and where income inequality is never an issue—precisely because income is exactly proportional to one’s contributions.

These are indeed two different views of the world. As Offer and Söderberg write, social democratic view was extremely successful empirically but was not theoretically worked out much by economists. The neoliberal view has exactly the reverse characteristics: empirically it was not much of a success (look at private pension schemes in Chile), but economists have extensively worked on it theoretically…
The difference between social democracy and market liberalism can be summarized as a difference in approach.

Market liberalism assumes methodological individualism based on ontological individualism, so that economics can be pursued as an autonomous discipline.

Social democracy assumes that individuals are embedded in social systems, one aspect of which is economic.

Perhaps the most telling difference is that market liberalism assumes that efficiency and economic growth are the chief criteria of economics. Economic" has come to mean efficient.

Social democracy, being based on systems thinking, posits that overall effectiveness of the system in accomplishing its social, political and economic goals is of a higher priority than economic growth and economic efficiency, and that economic efficiency must be brought into balance with systemic resilience.

A chief problem with theoretical economics based on the methodological choices of market liberalism is that the necessity for restrictive assumptions makes much of the theory inappropriate for informing policy.

A second issue is that market liberalism does not consider policy goals but assumes that market efficiency leads to systemic optimization in all major respects, which goes illogically beyond the assumptions and data.

Social democracy begins with desired outcomes and seeks to achieve those outcomes based on historical experience and evidence provided by data as well as social, political and economic theory.

The question of return implies that the answer is historical. History is dialectical, proceeding experimentally and adapting to emergence. There is no categorical "end of history." While history does not repeat itself it does rhyme in the sense that experiment draws on experience.

The dialectical nature of both experience and history is that when one position is posited, its complement, although excluded, is necessarily included as a potential. As anomalies arise with a particular view, since no view is can be a comprehensive account owing to emergence, the complement is called forth as opposing views. The human experiment is never complete.

For example, market liberalism is a political stance that equate political liberalism with economic liberalism.

Social democracy views economic liberalism as only one aspect of liberalism along with social and political liberalism. The challenge is to harmonize this trifecta by acknowledging its paradoxes as they arise and transcending them by innovating the system.

The rest of the post examines how an interest elite intentionally conflated economic liberalism with political liberalism., for example, through by establishing the "Nobel prize in economics."

Milanovic then posits what he views as the four major challenges to the return of social democracy.

I view such challenges to the return of social democracy as it formerly existed as examples of emergence. The next stage of the experiment will not be a return to the past but rather drawing on the past while innovating in order to surpass the deficiencies of the present approach.

MMT speaks to this economically and socially in terms of macroeconomic theory and policy formulation based on the fiscal space that the current monetary system provides to address overcapacity owning to demand deficiency in a market-based world.
These, and perhaps a few other, elements seem to me to imply that a return to the Golden Age of social democracy is unlikely to happen. On the other hand, there is a realization of inadequacy of the neoliberal model that bequeathed a huge crisis (which did not turn into another Great Depression precisely because the key rules of neoliberalism were abandoned in order to save the system). As many times in history, we are now at the point where neither of the two established doctrines seems to provide reasonable answers to today’s issues. That leaves the field open to new thinking and experimentation.
Global Inequality
Will social democracy return? A review of Offer and Söderberg
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace


Anonymous said...


Hi Tom - just wondering if you have an article reference that lays out (overviews) the development of Western historical thought on 'individualism and collectivism' and their relations? Thanks ....

Tom Hickey said...

See Kwang-Il Yoon's dissertation, Political Culture of Individualism and Collectivism. It's a useful overview and cites many relevant references.

The modern debate centers around Locke's individual will and voluntary choice as the basis of freedom versus Rousseau's general will as the basis for social order and the common good. This is one of the foundational areas in Western social and political thought, hence, central to the Western intellectual tradition.

The other issue is whether human are essential good, hence properly oriented, or bad, hence needing authority to control them. This is the Hobbes's "war of all against all" in the "state of nature" versus Rousseau's noble savage. Rousseau assumes an advanced level of collective consciousness, where as Hobbes assumes "fallen man." The reality seems to be that man is neither angel or beast.

My view is that individualism and collectivism, although I would prefer holism) are two sides of the same coin. Different cultures and individuals and groups characterize them differently and prioritize them differently. A more realistic what of looking at it is in terms of advantages and disadvantages and in the case of any particular society, trade-offs.

History also counts, so hysteresis and path dependence are also involved.

Anonymous said...

OK. Thanks Tom. Kind of interesting when you think the vast majority of 'individuals' are highly conditioned. Might comment here later on ..

Peter Pan said...

One factor was the decline of organized labour from a political force to a corrupt arm of management. Without a countervailing power to block the interests of capital, 'social democracy' and other reforms are not sustainable. These hard fought concessions to labour will continue to be dismantled.

A new countervailing power will develop as conditions for workers/losers/deplorables becomes sufficiently dire. What we are observing today is not the return of organized labour, but of nationalism and populism. The nation state with its protectionist policies may be back in vogue. Free trade is out, fair trade is in. In place of laisser faire, the trend is towards authoritarian state capitalism. Authoritarianism in general seems to be on the rise as an ingredient to promote 'stability'. The rise of nationalist/populist sentiments may result in supranational organizations losing influence and trust, while regional and localized democratic institutions become more important to ordinary people's lives.

I think this is a relatively optimistic scenario. The future could turn out to be much worse. For example, the decentralized gig economy that Milanovic fantasizes about would be worse. A future where pampered elites do slightly less well is our best hope. When conditions deteriorate beyond that, the elites are replaced by warlords.

The age of 'enlightenment' and munificence has ended.

Anonymous said...

Yes – thankyou Tom; that was exactly what I was looking for.

I agree ‘individualism and holism’ arise from a common source. Krishna: "having pervaded the whole universe with a fragment of Myself, I remain." In this view, the soul of man is an individualised part of the Universal Soul, one step up from the group soul of the animal kingdom or sentient soul of the vegetable kingdom. An aspect of this human soul incarnates in the human personality, and it is the growing awareness of the personality of this ‘fragment’ and the overarching Self that ‘remains’, and the relation of that Self in its own realm to the Universal Soul and that which brought it into being, that is reflected in the persona (far below) as individualism and collectivism.

In this view, (without wishing to be arrogant) the masses of people are not really ‘personalities’. They do not have adequate control over or integration of their physical, emotional, and mental nature; and are subject to upheavals in such, the ‘I’ (personality) being swept back and forth almost helplessly, coloured and influenced by everything. Life is a roller-coaster ride (for the ‘I’). They are physically, emotionally, mentally, conditioned by the world - and have little sense of identity apart from the conditioning. Swept into the world and back out again without any significant emergence of the ‘I’, they are of no great difference to each other, individually or culturally; any development taking place mainly confined to the emotional or mental body. In terms of the ‘I’, they are more like peas in a pod; generic ‘seeds’ that are yet to sprout as an individual plant. As I mentioned elsewhere, conscience is their guide.

So, in this sense, a personality, when it does emerge, is a separated human being.

One, who has struggled with the integration and development of the bodies, transformed, and emerged as a separate entity, able to function with coordination. These true personalities ‘live beyond their time’, having a very powerful sense of self and destiny; and are marked by a sense of power, by self-love, by exalted ambition, by a superiority complex - and by a determination to reach the top of their particular tree – no matter in which Age they find themselves. When it comes to good or bad, at the extremes they can manifest as either a Hitler or Joan of Arc. The exaltation of the ‘I’ the dominant motivation in the former; its liberation the other. They are a measure of the success of evolution, up to the stage. Evolution has brought them to a place where the door of the personality will begin to close, and the door of the Self begin to open. The transition is often painful, because of resistance.

If we could look back over time (like watching a movie) of the ‘I’ evolving, from the primitive tribes up to modern man, we would see its beginnings as a dull collective, frightened by nature, superstitious; then swept by emotional registration of existence, awe, up to the dawning mentality of modern man and the emergence of an ‘I’ able to use all of its equipment in investigation. This process is individualism.

Without the heart, personalities are dominant and aggressive, and their presence in the collective colours it. The ‘I’ uses the Will selfishly; deploying the mental and emotional nature and physical nature to achieve whatever they deem desirable. The world is a reflection of their ‘Punch & Judy are US!’ activities. There are also great scientists and humanitarians; people working in the world in their own way to bring peace so that the human soul may flourish. These are more in tune with the inner Self, hence collectivism.

The Ageless Wisdom then describes the renunciation and dissolution of this ‘I’ as the human being seeks a deeper sense of Self that incorporates all that has gone on before and the new. I think this is the hidden process behind ‘personalism’ – if that is the term that covers both individualism and collectivism - as after 200,000 years on the road, human beings twist and turn, seeking to embrace a new energy.