Archive for January 12th, 2011

The Great Compromise

(Part I of a two part post concerning the future of politics in the industrialized West)

In trying to figure out where politics is going in this era of radical transformation, it’s important to look back at the “Great Compromise,” a societal agreement that has set the framework for stability and prosperity over the last sixty years.   One of the reasons Europe fell into warfare and the “battle of ideologies” in the first half of the 20th century is because of a deep cleavage in European societies between the wealthy “middle class” and the masses — the working class.

The middle class had, with various degrees of success, overcome the conservative “nobility” by the middle of the 19th Century.  This victory was most complete in Great Britain, as the aristocracy faded and the industrial class arose.  But workers in the industrial revolution were very poorly treated.  They often worked 80 hours a week or more, were paid just enough to survive, and their children were forced into labor in order to make enough to feed the family.   Many mark the victory of the middle class over the British aristocracy with the repeal of the corn laws in 1846, allowing cheap food to flow into Britain from the Commonwealth.  This meant a decrease in labor costs as workers could now be fed more cheaply.

Treated little better than animals, subject to what many consider “wage slavery,” the workers resented their condition.   While the industrialists rationalized that workers could choose to leave employment, there really was no choice.  To survive and feed their families they had to work, and no better jobs were out there.  Moreover, children did not develop skills that could be used to do something else, as they were forced into factory work at a young age.   Living in squalor and filth, the disparity between the workers and the wealthy industrial class — and the professionals who serviced them — grew larger.

Just as liberalism emerged as the ideology of the middle class, the working class drifted towards a new ideology, socialism.   (Aside: most Americans associate the term ‘liberal’ with leftist.  That is political jargon.  In political philosophy liberalism is a belief in limited government, often associated with John Locke’s notion of natural human rights – life, liberty and property.) Socialism called for the abolition of private property, with the workers owning the factories and sharing the profits fairly.   Rather than a few elites who owned the factor raking in almost all the profits and paying the workers enough to survive and continue their labor, everyone would get paid the same.

As the industrial revolution spread and expanded, socialism grew in popularity.    In Germany, the conservative government of Otto von Bismarck (under Kaiser Wilhelm I) hit upon a possible solution.   As a conservative, Bismarck did not like the raw capitalism of the liberals and felt socialism was obscene.   What if the state could convince the workers that it had the power to make sure the industrialists were forced to treat workers well, and the state could intervene to make sure that health care, education, and basic living standards were granted to all citizens?  In short, German conservatives designed the first social welfare system in order to undercut the rise of socialism.

In Great Britain, the second half of the 19th century also saw a rise in limits on the industrialists and efforts to protect labor unions and workers rights.  Unrestrained capitalism, they realized, allowed the powerful to exploit and treat the less powerful as if they were simply means to an end — the end being increased wealth and power for the elites.    It was structural violence, dismissed by the industrialists as simply choice (they choose to work here) but seen by most British as being just as destructive and brutal as raw physical force.

As war came to Europe in the 20th century, this battle was continuing.   The liberals were fighting against socialism, often allied with conservative forces.    Business in Germany supported the Nazis not out of a love of their ideology (they preferred an aggressive national liberalism), but out of fear of socialism.   Communism had triumphed in Russia, and the Great Depression had many convinced capitalism was failing.   Socialism seemed a viable option.

After the war capitalism survived, thanks to the work of the United States and the creation of the Bretton Woods system of free trade and stable monetary policies.  More importantly, faced with the prospect of communist dictatorship, workers and owners in the industrialized West made the great compromise.   It wasn’t a signed document, and the political parties often pushed its limits (and was never completely accepted by Communist parties in France and Italy), but it brought social stability and set the framework for a half century of unprecedented prosperity.

The compromise was that the working class would give up demands for ownership of the factories and means of production, and accept the inequalities and difficulties inherent in capitalism.   In exchange for accepting market capitalism, the elites would provide a viable social welfare system (called by the Germans the Sozialmarktwirtschaft or ‘social market economy’) that would assure basic needs were met (education, health care, unemployment insurance, pensions, etc.) and would create conditions whereby the children of the workers could become ‘upwardly mobile.’    This brought labor peace and social stability — two ingredients necessary for economic growth.

The Great Compromise was a great success.   Dedicated revolutionaries and capitalist utopians disliked it, wanting instead to continue the fight for their pure “correct” ideology, but those fights had brought nothing but turmoil and death to Europe.   Within decades even the working classes were living better than most elites had a century earlier, and more importantly, their children could go on to become societal leaders, even starting their own businesses.   Workers realized that equality of outcome was unobtainable and would have disadvantages outweighing the advantages.  Social welfare promised greater equality of opportunity, and that created incentives for everyone in society to produce, learn and work.

As we think about the future, it’s important to remember that we should not put the ‘great compromise’ in jeopardy.  Without it, social fissures grow.   Yet it is being challenged.   If social welfare programs become too expensive or act to inhibit ambition, they could lead to an entrenched “welfare class.”  This is the opposite of what the great compromise was meant to achieve.  If global business and capital get too strong, crossing borders to exploit cheap third world labor, and evading taxes, the working class in the first world could find itself marginalized, lacking opportunity.   It won’t be ‘liberalism vs. socialism,’ but a different kind of social breakdown as first world economies become unable to provide the prosperity and opportunity that sustained the ‘great compromise.’

In my next post I’ll explore how politics might change in the future to meet the challenges of this ‘era of crisis and transformation,’ and rejuvenate the great compromise, thereby avoiding economic catastrophe and political instability.