Social Democracy, Anyone?
J. Bradford DeLong
December 10, 2004

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In the search for new, big ideas, Brad DeLong is onto something.  Now that 
America is competing in a global economy, companies are  less willing to fund 
health care and pension programs. Unless we  want to accept a massive trend in 
downward mobility, we need to do  something. That means a hard look at the 
relationship  between corporate subsidies, social welfare and taxes. 
J. Bradford DeLong is professor of economics at the  University of California 
at Berkeley and a former assistant U.S.  treasury secretary. 
Almost all of the world’s developed countries  consider themselves, and are, 
social democracies: mixed economies  with very large governments performing a 
wide array of welfare and  social insurance functions, and removing large 
chunks of wealth and  commodity distribution from the market. The United States is 
 something different. Or is it? Whatever it has been in the past, the  United 
States in the future will have to choose whether, and  how much, it will be a 
social democracy. 
Once upon a time, according to mythology at least, America had  little 
downward mobility. On the contrary, before the Civil War you  could start out 
splitting rails, light out for the Western  Territory, make a success of yourself on 
the frontier, and wind up  as president—if you were named Abraham Lincoln. In 
the generation  after World War II, you could secure a blue-collar unionized  
manufacturing job or climb to the top of a white collar bureaucracy  that 
offered job security, relatively high salaries, and long,  stable career ladders. 
This was always half myth. Setting out for the Western Territory  was 
expensive. Covered wagons were not cheap. Even in the first  post-WWII generation, 
only a minority of Americans—a largely white,  male minority—found well-paying 
stable jobs at large, unionized,  capital-intensive manufacturing companies 
like GM, GE or  AT&T. 
But if this story was half myth, it was also half true,  particularly in the 
years after WWII. Largely independent of  education or family, those Americans 
who did value stability and  security could grasp it in the form of jobs with 
“a future.” Even  for those not so lucky, economic risks were usually fairly 
low: the  unemployment rate for married men during the 1960s averaged 2.7  
percent, and finding a new job was a relatively simple matter. It  was during 
this era—roughly from 1948 to 1973—that sociologists  found that a majority of 
Americans had come to define themselves not  as working class, but as middle 
class. 
The post-WWII period stands as a reference point in America’s  collective 
memory, but it was in all likelihood an aberration. In  the early postwar 
decades, foreign competition exerted virtually no  pressure on the economy, owing to 
the isolation of America’s  continental market from the devastation of WWII. 
At the same time,  the war left enormous pent-up demand for the products of 
mass  production: cars, washing machines, refrigerators, lawn mowers,  television 
sets and more. 
Government policy back then began with a permanent military  program of 
spending and R&D and continued through massive public  works program and 
suburbanization, underpinned by the Federal  Highway Program and subsidized home 
ownership loans from the Federal  Housing Administration. The regulatory institutions 
and behavioral  norms that originated in the New Deal and developed during 
WWII came  into full force: Social Security, a system of unionized labor  
relations, market regulation. 
Favorable macroeconomic circumstances, the absence of foreign  competition, a 
system of government support and regulation, and  large-scale private 
provision of what in Europe would have been  public social insurance all combined to 
give post-WWII America many  of social democracy’s benefits without the costs. 
The economy did  not stagger under the weight of ample benefits or high 
taxes.  Americans—at least white, male Americans—did not have to worry about  
tradeoffs between security and opportunity, because the United  States offered the 
advantages of both. Corporate welfare  capitalism substituted for what in 
Europe would have been government  provided social democracy. 
America was thus a special place. It had its cake and ate it,  too: a 
combination of security with opportunity and  entrepreneurship. It seemed that this 
was the natural order of  things. Hence there was little pressure for 
government-sponsored  social democracy: Why bother? What would it add? 
Now things are very different. The typical American employer is  no longer 
General Motors. It is Wal-Mart. Private businesses are  providing their workers 
with less and less in the form of  defined-benefit pensions, health insurance, 
and other forms of  insurance against life’s economic risks. 
Sharply rising income inequality has raised the stakes of the  economic game. 
A government that cannot balance its own finances  cannot be relied on to 
provide macroeconomic stability. Indeed,  former chairman of the U.S. Federal 
Reserve Paul Volcker sees the  United States as so macroeconomically vulnerable 
as to be  running a 75 percent chance of a full-fledged dollar crisis  over the 
next several years. 
The coming generation will be one of massive downward mobility  for many 
Americans. The political struggles that this generates will  determine whether 
America will move more closely to the social  democratic norm for developed 
countries, or find some way to accept  and rationalize its existence as a country 
of high economic risk and  deep divisions of income and wealth. 
Copyright: Project Syndicate, December  2004.
 
    
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