Global financial crysis

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To respond effectively to the global financial crisis in the future requires the resolution of profound questions from the past, principal among which is: What caused such a crisis to result in widespread economic and social devastation? The magnitude of the crisis and its impact across the world means that minor tweakings of long-established orthodoxies will not do. Two unassailable truths have already been established: that financial markets are not always self-correcting or self-regulating, and that government (nationally and internationally) can never abdicate responsibility for maintaining economic stability. These two truths in themselves destroy neo-liberalism's claims to any continuing ideological legitimacy, because they remove the foundations on which the entire neo-liberal system is constructed.

The extent to which social democracy responds effectively and sustainably to the challenges now left to us by the neo-liberals remains an open question. Tempering any tendencies towards ideological triumphalism from the centre-Left at neo-liberalism's demise is Robert Skidelsky's recent and reflective reminder of the cycles of history:  

Societies are said to swing like pendulums between alternating phases of vigour and decay; progress and reaction; licentiousness and puritanism. Each outward movement produces a crisis of excess which leads to a reaction. The equilibrium position is hard to achieve and always unstable.

In his Cycles of American History (1986), Arthur Schlesinger Jr defined a political economy cycle as "a continuing shift in national involvement between public purpose and private interest" ... 

Others have argued that we are seeing a more fundamental regime change: the third in postwar history, starting with the Keynesian model, from the 1940s to the '70s; the neo-liberal ascendancy, from 1978 to 2008; followed by a new regime, which is currently being shaped. Perhaps this new regime will come to be called ‘social capitalism' or ‘social-democratic capitalism', or simply the term ‘social democracy' itself. Whatever the nomenclature, the concept is clear: a system of open markets, unambiguously regulated by an activist state, and one in which the state intervenes to reduce the greater inequalities that competitive markets will inevitably generate.

Either way, seismic changes are underway, fault lines yielding to fractures which in time may yield to even deeper tectonic shifts. Neither governments nor the peoples they represent any longer have confidence in an unregulated system of extreme capitalism. As President Sarkozy put it: "Le laissez-faire, c'est fini." Or, as China's Vice Premier Wang Qishan reportedly said, somewhat more elliptically: "The teachers now have some problems."

For social democrats, it is critical that we get it right - not just to save the system of open markets from self-destruction, but also to rebuild confidence in properly regulated markets, so as to prevent extreme reactions from the far Left or the far Right taking hold. Social democrats must also get it right because the stakes are so high: there are the economic and social costs of long-term unemployment; poverty once again expanding its grim reach across the developing world; and the impact on long-term power structures within the existing international political and strategic order. Success is not optional. Too much now rides on our ability to prevail.

I believe that social democrats can chart an effective course that will see us through this crisis, and one that is also capable of building a fairer and more resilient order for the long term. This can only be achieved through the creative agency of government - and through governments acting together. How could it possibly now be argued that the minimalist state of which the neo-liberals have dreamt could somehow be of sufficient potency to respond to the maximalist challenge we have been left in the wake of this most spectacular failure of the entire neo-liberal orthodoxy? Government is not the intrinsic evil that neo-liberals have argued it is. Government, properly constituted and properly directed, is for the common good, embracing both individual freedom and fairness, a project designed for the many, not just the few.

The current crisis is catalyzing an array of responses, including

searching for causes, reworking regulations, scapegoating

and a massive capital injection. Without a clear understanding

of the cause, the remedies may do more harm

than good, innocents may be scapegoated, and valuable

progress in financial tools may be lost. Worse, it will happen

again.