Was this determined?
The discussion so far suggests that the center-left was a victim of circumstances, and that had the center-right been in power it would have suffered the same fate. The combination of a poor economy and the pressing need to save the economy form total collapse made its losses inevitable. Was this the case?
As we noted above, the historical record indicates that it has been possible to do well politically when times are bad; models predicting the outcome of midterm elections are not based on economic variables alone but include crucially variables such as evaluations of a president’s performance. If a political leader or party can make a plausible case for its policies, it may receive at least a temporary stay of execution even though economic times are bad. Unfortunately for the center-left it has failed to do so in the US and UK. Although counterfactuals cannot be proved, it is reasonable to suggest that this failure contributed to their problems.
One of the central puzzles of the Obama administration’s early record is why a supposedly great communicator during the election campaign proved so incapable of putting across his case in office. The most likely explanation was that, trapped by campaign promises of being a ‘post-partisan’ president, he felt obliged to pursue deals and compromise with Republicans even though they were intent on total, uncompromising opposition to all his policies. From the early days of the 2008 campaign he was saying he could work across party lines.
I think that there are a whole host of Republicans, and certainly independents, who have lost trust in their government, who don’t believe anybody is listening to them, who are staggering under rising costs of health care, college education, don’t believe what politicians say. And we can draw those independents and some Republicans into a working coalition, a working majority for change. (Washington Post, 7 January 2008)
Of course all politicians make comparable statements, but for Obama this promise to change Washington by bringing people together was more than the usual rhetoric. It was a means of signaling a key difference between himself and his principal rival for the nomination, Hillary Clinton, beloved by many Democrats and disliked as intensely by Republicans. It resonated with the appeal of crossing racial divides by voting for the first ever African-American president. It might even have reflected Obama’s personality and beliefs. In short, this promise to be a bridge builder not a partisan was central to Obama’s message, style and possibly personality rather than being mere rhetoric. It was therefore a major constraint on his strategy in his first years in office. Had this constraint been absent, Obama could have followed the playbook so frequently used in British politics in which a leader inheriting an economic mess places the blame for it over and over again on the party that was in power when it occurred. It is true that as the scale of the midterm disaster became apparent, Obama switched styles, warning against allowing the driver who had driven the car into the ditch to re-take control after it had been hauled out. However, it was a little late to blame the Republicans after many months of eschewing partisan criticism.
A not altogether different problem faced the Labour government in the UK. Gordon Brown, as incumbent prime minister in a Westminster model political system that concentrates power, could scarcely blame the Conservatives for the GFC. He could have blamed and excoriated the bankers. The limits on Brown following this strategy were that it was scarcely compatible with either the New Labour project in general (which he had helped create) or Labour’s support for the City of London and financial institutions in particular. The economic basis on which the entire New Labour strategy rested was the achievement of greater economic growth so that public sector services could be drastically improved without noticeably raising taxes. This strategy required fostering a pro-business environment and promoting sectors such as finance that generated not only employment but very large revenue streams for the Exchequer. It would have been totally unconvincing for Brown or Labour in general to attack in Rooseveltian language ‘the malefactors of great wealth’.
If one political alternative for the Democrats in the US could have been to emphasize Republican responsibility for the crash, another move could have been to emulate Bill Clinton’s use of policy initiatives with limited impact but great symbolic value; his endorsement of school uniforms was one such example derided by Obama. This also cut against the administration’s instincts not simply because it was associated with the Clintons but because it conflicted with the President’s commitment to focusing on serious policy issues. According to one inside account (Alter, 2010, p. 399), Obama said at one tense meeting as they fought for health care, ‘I wasn’t sent here to do school uniforms.’ This was a derogatory reference to President Clinton’s knack for seizing on a small-scale issue that had much wider meaning to the public; in this case, advocating school uniforms meant restoring discipline to American schools. Admirable though that sentiment might be, surely there was some room for ‘school uniforms’ or at least similar initiatives of limited cost and high symbolic value in the context of the bailouts.
One of the sources of public anger over the bailout was a feeling that it had received nothing in return for its money. Again, we might question why so little was done to assuage this sentiment. The recovery of the banks and the General Motors would surely not have been undermined if in return for the money, they had been required to make a series of politically popular commitments on job training, the environment and working with schools in the areas in which they operate. Except in the most altruistic actions, guarantees carry with them some implication that the rescuer gets to influence the future behavior of the rescued. The bailouts in the UK and the US provided a considerable opportunity to extract from rescued companies commitments to social responsibility. That opportunity was not taken, leaving both Democrats and Labour with certain businesses understanding that being ‘too big to fail’ confers on them significant commercials advantages. For example, a ‘too big to fail’ business being less risky than one that is not ‘too big to fail’ can borrow more cheaply because its bonds or debts have less risk attached to them. It would therefore be entirely reasonable to expect those businesses to make some sort of additional contribution to society. This opportunity was not developed. In consequence, governments were left looking as though they merely cared about the bankers who had triggered the crisis. Ironically it was the Conservative Chancellor of the Exchequer, George Osborne, who made the point well that little was received from the banks in return for being rescued:
It would have been better if, when we were bailing the banks out, we had secured something from the banks in return. Unfortunately I was not chancellor at the time. (BBC News Online, 8 February 2010)
Osborne himself, however, in the Merlin Project, an agreement between the government and the major banks, secured only modest commitments from the banks to invest more and restrain the magnitude of bonuses for executives. Meanwhile, in both the UK and the US, policy changes in reaction to the crisis were muted. In a quite extraordinary speech for a Governor of the Bank of England (normally expected to be a voice for financial interests), Mervyn King attacked the behavior of the banks and suggested that nothing had been done that would prevent a recurrence of the GFC. In the US, a massive law, the Wall Street Reform and Consumer Protection Act (sponsored by Senator Christopher Dodd and Representative Barney Frank) was passed whose long-term significance was unclear but which neither tackled the deeper causes of the crisis nor obtained commitments from the banks to act in a manner that furthered public policy goals. Crucially, the Act left untouched the high degree of concentration in the financial sector. Indeed, the demise of Lehman Brothers and the takeover of Merrill Lynch by Bank of America meant that the degree of concentration in the US financial sector since the onset of the GFC had in fact intensified. Fewer institutions were even too bigger to fail. Meanwhile, the agencies supposedly able to regulate and restrain the excesses of the financial industry remained numerous and in important respects in competition with each other. Financial instituti
ons can in effect choose which agency will regulate them and receive the fees levied on them. This has created powerful incentives for regulators to be adaptive to the needs of the institutions and has also left each of them without adequate resources to consider the systemic effects of their behavior (Financial Crisis Inquiry Commission, 2010). Moreover, the Dodd-Frank Act was more the beginning than the end of a political process and it requires the promulgation of hundreds of regulations to give it effect. The hordes of lobbyists employed by financial institutions vigorously contested any regulation – for example, limiting the percentage of a payment that a credit card company could take in fees – that they disliked. The process of promulgating regulations was therefore likely to see the modest provisions of Dodd-Frank diluted further.
Move on?
It is of course not difficult to imagine circumstances in which the center-left bounces back. Current opinion polls in the UK indicate that Labour has a clear lead over the Conservatives and that their coalition partners, the Liberal Democrats, have lost half their support. It is likely that President Obama will be re-elected and that if the Republicans allow themselves to be dominated by the Tea Party, the Democrats might yet retain a majority in the Senate and even recapture the House. The Republicans’ failure to win Senate seats in Delaware and Nevada points to the dangers, even though the Democrats have many more Senate seats at risk in 2012 than the Republicans. The full implications of the coalition’s cuts (and the Republicans’ proposed cuts in the US) may yet destroy their prospects in the UK. An implosion of Liberal Democratic support leaves Labour as the only alternative to unpopular Conservatives.
Yet this rosy scenario for the center-left is at best a scenario that produces a recovery by the center-left, a modest outcome for the part of the political spectrum that had seemed to be the natural beneficiary of the worst crisis of capitalism since the Depression. Moreover, the recovery of the center-left may well be a return to being in office but not in power. There would seem to be neither the appetite nor, to continue the analogy, the menu available for a return to the nostrums of the left. We have noted earlier the findings of the British Social Attitudes Report that the crash did not in fact result in an increased appetite for an activist role for government in the economy. The failure of the Obama health reforms to find majority support is a striking testimony to the American public’s lack of enthusiasm for an extension of the New Deal and Great Society programs, even if most of them would be beneficiaries of such an extension. While some of the unpopularity of health care reform might have been influenced by the messy congressional maneuvering that was required to secure its passage, Obama’s signature domestic program failed to gain additional support as time passed. Except in almost endearingly anachronistic parts of British society, such as unions such as Unite, the collectivist moment may have passed. One suspects that for many Americans, the response to the crash reinforced individualist tendencies by appearing to show that Big Government and Big Business were in cahoots at their expense and with precious few immediate benefits for the ordinary citizen except, of course, for preventing things from being even worse! The Tea Party reflects this Jacksonian tradition in which big is always bad and likely to hurt the interests of the ordinary citizen. The now much-derided New Labour approach provided a linked response to the problems of the center-left in an age of globalization. The economy would be operated in a manner that increased growth even if this meant accepting lower taxes on the wealthy and reduced power for labor unions. Increased growth would generate increased tax revenues that could be used to improve public services. The aspirations of most Labour supporters as well as of the rest of the population for a materially better life (homeownership, a new car, and so on) would be respected. ‘Mondeo Man’ was welcome in the Labour Party. (The Mondeo was an automobile popular with aspirational suburbanites who had moved out from the city.) So far the Labour Party has based its policies on cutting government expenditure less and more slowly than the coalition plans. This may well be popular but is scarcely a platform for achieving much in government. As for the Democrats, the most likely scenario is that they will retain enough power to prevent a substantial rollback of existing policies. New initiatives on topics such as climate change can be forgotten. If the Supreme Court displays enough of an appetite to make law from the bench and in a fit of judicial activism invalidates the health reform law, the Democratic achievement will look modest.
It would be unfair to suggest that the American and British center-lefts are alone in seeking a new way forward. The German SDP and Swedish Social Democrats are both currently (2011) trying to analyze the reasons for the past failures and clues to an effective strategy in the future. While there might be disagreement on their relative importance, there is probably widespread agreement on what the factors involved are. First, the base of the left, the traditional working class and unions, have both declined. Left-of-center parties have even less hope of winning today relying on working-class and union support than in the past simply because the proportion of the population in those categories is too small. Second, to make matters worse for the left, ‘class decomposition’ has resulted in reduced loyalty to the left even among the traditional working class that remains. Third, a more individualistic materialist culture makes the public less likely to support traditional center-left policies such as extending the welfare state, as the failure of President Obama’s reform of health care illustrates. Fourth, globalization creates important constraints on policy choice; even after the GFC, banks, for example, have been able to resist strict regulation, successfully threatening to relocate to another country, and corporation tax rates in all advanced democracies have shrunk in recent decades as countries compete for investment.
These challenges to the center-left have resulted in a variety of responses. The first exemplified by Old Labour and its friends in the labor unions is to deny the need to change, usually by denying the degree to which social class has changed and that globalization constrains policy choice. This approach avoids the need for possibly painful rethinking of policies but has the consequences of leaving the left seemingly irrelevant to current concerns of most voters. A second alternative approach is to recalibrate the focus of the left to a concern with the rights and problems of minorities defined on the basis of race, gender, ethnicity or sexual preference. While having the virtue of attracting new constituencies for the left, this strategy runs the risk of alienating even further some of the left’s traditional supporters. The third approach, often called the Third Way, was that of the New Democrats and New Labour to embrace capitalism and aim to boost spending on public goods and the welfare state through reserving a portion of the resulting growth for the state without increasing tax rates. This approach worked well for a time but was dependent on the continued growth and success of capitalism itself. If, as in the GFC, capitalism stumbled or seemed to have inherent problems such as contradictions between the interests of finance capitalism, on the one hand, and other sectors of the economy, on the other, the strategy faltered.
How a politician creates support for and implements policies aimed at improving the condition of the least well off and tackling challenges to collective interests such as climate change is hard to see. It has been suggested above that one strategy might be to take seriously the notion that responses to the GFC embodied a contract between corporations and society which, in return for the stabilization of the economy and individual businesses by the state, created social obligations on corporations. These obligations could be met through extensions of corporate social responsibility and by commitments extensions of civil regulation in which business voluntarily commits to higher performance, for example, on environmental issues. While civil regulation (like government regulation) is open to criticism, it can also be a means to the pursuit of social and collective goods. Finally, recent history suggests that perhaps the most effective approach for the center-left is to win an election on competence grounds (Clarke et al., 2009) – or rather on the incom
petence of opponents – and implement useful incremental changes once in power; Clinton’s increase in the provision of health care for uninsured children would be a case in point. This strategy has the disadvantage of being incremental, and yet incremental gains can be important. However, in a contest based on competence it is all the more important that the left be seen to be confronting honestly developments such as globalization rather than wishing them away.
The Legacy of the Crash Page 19