November 23, 2017

Futures Entwined: Nation State & Welfare State – Hunsley

By Terrance Hunsley

First in a Series
It was a nice little quip for amateur philosophers. In Nixon’s 1972 visit to China, Premier Zhou Enlai was asked about the French Revolution and the development of democracy, and was reported to have replied “..it is too early to say.” Had that story not been debunked, those who like the long view of history might be resurrecting it.
Today, democratic nation states(1) are struggling to maintain their primacy as a form of government. They are stressed by globalization, transformative technological developments, flagging public trust, social division, prejudice and hatred, secession of wealth into tax havens, economic inequality, a growing class of precarious workers, terrorism, cybercrime and the manipulation of their markets and their internal politics by authoritarian regimes. Not what you would call the sweet spot.
International cooperation – to govern trade, to coordinate tax policy for mobile capital, for the movement of people across national borders, and for the treatment of intellectual property – is undermined by competing national interests. Although they do find some win-win trade-offs, global business is in the driver’s seat. Nations compete for corporate investments by lowering labour standards, reducing business taxes and regulations, and offering subsidies.
Our domestic social and economic policy infrastructures were designed in the days of industrialized national economies. But in a globally integrated high-tech economy, ensuring fairly-distributed opportunity and economic security is a problem. The cracks in what used to be called the welfare state are showing.
More than 30% of workers(2) are vulnerable with low-paid, precarious work. Many get no health or disability insurance, no sick pay, no vacation or holiday pay or employment insurance. Guaranteed (defined-benefit) pensions are an artifact of the past for private sector workers. Labour regulations permit employers to manipulate working arrangements, hire and fire at will, and fragment work into multiple part-time jobs. Workers who have invested their future in the employer’s retirement plan can find, as in the current case of Sears’ bankruptcy, that the employer has in effect used their savings as security for loans that they can’t repay.
Market disruptions from technological advance destroy jobs and create new ones. But the people who lose their occupations are not the ones who gain the exciting new opportunities. They resent the offshoring of their jobs and in many cases, also resent seeing immigrants come into the country when their families are struggling.
We have a huge array of social services funded and delivered by governments at all levels, thousands of charities, and millions of paid workers and volunteers. Yet the streets of our rich and prosperous cities are full of beggars, many of them sick and dying.
Little wonder that many voters reject established political parties in favour of radicals and “outsiders”. Public trust in collective security and democratic governance is fast disappearing. People who can, will game the system, splintering their incomes through personal corporations, paying for services in cash to avoid taxes, working under the table, shopping for citizenship benefits across countries.
New forms of remote work, including an explosion in digital platforms, give millions of workers opportunity to work flexibly from anywhere in the world, often for little pay, but also avoiding taxes. The OECD(3) has warned that nation states face increasing challenges to meet revenue needs through taxing income or capital. In today’s global market, it is not just the one percent who can secede from democracy.
A quick look at the historical context:
The nation state emerged as a form of government during the industrial revolution, as empires crumbled and colonies gained independence. Wars fed nationalist sentiments. Populist revolutions upended governments. Repugnance for the conspicuous consumption of the rich brought demands for fairer sharing of the wealth that was being generated by the economic transformation. (Sounds much like today). Workers began fighting for better wages and safer working conditions. Revolutionary communism arose as an alternative to oppressive regimes, (in turn creating new oppressive regimes). Democratic nation states expanded in competition with communism, many espousing “democratic capitalism”.
The construction of the 20th century welfare state helped to maintain social order and social consensus. It consolidated the power of governments to tax, fund public services, and provide security both for people and for business. It responded to the needs of workers, while also mitigating the power of unions, by socializing economic risk. Social security made sense because the extended family could no longer be the economic safety blanket for young adults who moved to cities for work, and dispersed in nuclear families. Among western nations, the welfare state was strongest in countries with culturally homogenous populations, with their strong social trust in collective institutions. It was weaker in the USA with its racial divisions, diverse population and inherent mistrust of government; and to a lesser extent, in Canada with a tiny and diverse population spread across a vast land mass. But the desire for economic opportunity and social integration outweighed social divisions. The wealth generated by technological advance, urbanization and a burgeoning population permitted the development of an affluent and educated middle class. The welfare state was the agent to make that happen.
The thirty years following WW2 were the halcyon period of the welfare state. It was fuelled in North America by Roosevelt’s New Deal of the mid-thirties – the adoption of Keynesian economics and a willingness to tax the rich as well as borrow to support workers and jobs, and extended to support the rebuilding of Europe. Workers gained power, nuclear families proliferated, and babies boomed. In France the period is referred to as “Les Trente Glorieuses”.(4)
Democratic participation increased, civil rights were won, education levels soared, health blossomed and life spans lengthened. Incomes grew. Inequality decreased and so did poverty. Governments gained size, regulatory power, and sophistication. Bureaucracies grew and provided good jobs for educated workers. Government “by the people” was emerging. And despite rhetoric about government being a drag on the economy, the social infrastructure stimulated economic growth, increased prosperity, and sustained rapid productivity growth.
During this time, enterprise was dynamic and fortunes were made. Productivity soared. Families had money to buy the new products. Everybody got richer. The growth and improvements in social programs were often supported (not without opposition of course) by conservatives as well as liberal democrats – Nixon proposing a guaranteed income for families and the working poor; Diefenbaker implementing a Canadian Bill of Rights, appointing the Royal Commission on Health Care, and extending the franchise to Aboriginal and Inuit peoples.
Democratic power was being consolidated in nation states. They in turn were forging international agreements, through the agencies of the United Nations, to codify a broad array of democratic human rights – rights accruing to people, protected by and embedded into the executive and judicial arms of the individual states. Perhaps the symbolic high tide of the expansion of power from the elites to the middle classes was the adoption in the mid-seventies of the UN International Covenant on Economic, Social and Cultural Rights (ICESCR). It extended the concept of rights to suggest that markets should serve social purposes, such as a right to employment, and for states to progressively implement full employment policies and free and equal access to education. It enshrined a right to the highest attainable standard of physical and mental health. It prohibited discrimination in any form and specified that living conditions be improved in step with the economic capacity of the country. It was an institutionalizing document for the welfare state. You might have called it a blueprint for Lyndon Johnson’s vision of The Great Society.
But every force creates its own resistance and in the early 1970’s, powerful interests, many of them in the USA, were saying “enough is enough.” Neoconservatism took root, combining business interests with fundamentalist Christian morality and militarist republicanism. America, with Canada in its economic slipstream, took a hard right turn.
Business leaders were alarmed that government was becoming too strong and too supportive of labour. They looked beyond their narrow business interests and started to collaborate to take back control of the state. New coalitions were formed, like the Business Roundtable, (and in Canada, the Business Council on National Issues). Extremely wealthy people put their money to work. Right wing think tanks sprung up with business funding. Resources flowed to right wing media outlets. Money flowed to campaigns of politicians in any party who were sympathetic to the cause of shrinking the state or cutting taxes. (You can’t hope to get elected in the USA now without a whole lot of money.) Cushy corporate jobs – vice- presidencies and special advisors – were (and still are) provided to politicians and senior officials when they leave office. A consistent reminder of the notion that at the top, self- interests converge.
The narrative quickly changed from “power to the people” (and “free love,” given the age of the baby boom at the time) to “free enterprise,” unshackled markets, cutting red tape, “free trade”, privatization and deregulation. A similar political philosophy, but without the religious morality overlay, spread through Europe under the label of neoliberalism.
Economists are pretty sensitive to power. Keynesian economics was accused of fuelling inflation. It was drummed out of fashion and replaced by monetarism. The NAIRU (Non- Accelerating Inflation Rate of Unemployment) incorporated planned unemployment levels as a wedge against inflation (and also against a right to employment). Public service downsizing came into vogue along with privatization. Unions were undermined by franchising, sub- contracting, off-shoring production to low-wage countries, deregulating domestic labour markets to permit job fragmentation and contingent work. Minimum wages were frozen and held below inflation, losing about 25% of their purchasing power for 30 years until increases in recent years. Median wages stagnated for forty years, despite the increasing wealth of the countries. But the abundance of new workers coming from the baby boom and the tsunami of women entering the labour market, permitted an increasing proportion of workers to be paid low wages. And social assistance levels were kept assiduously below the sinking wage levels.
Employers gradually but steadily abandoned the role of providing job and retirement security to workers. Publicly-funded health care began to erode as private market pharmaceutical products took an expanding role. Cuts to unemployment insurance shifted the risk from the employer and the state to families, since they now had two earners and were more resilient through more total hours of work, even though their wages were stagnating.
Little wonder with the abundance of low-cost labour that productivity growth slowed to a forty- year creep. Profits grew, and the returns went predominantly to owners – capital- and not to labour. The ICESCR was forgotten. The Great Society was forgotten.
And now:
The Canadian economy has done well and we are a rich and prosperous nation. The world is for half of us, an exciting place of boundless opportunity.
Many good things result from higher education levels, global value chains and scientific and technological advance. We have higher quality, more sophisticated and cheaper consumer products. Thanks in part to providing “big pharma” with extreme intellectual property rights we have made important advances in managing disease, if not in cures, and we live longer.
Increasing education levels support healthier lifestyles and a broader understanding of the need to protect the environment and ecosystems of the planet. Successful two-earner families can provide their children with opportunity, social status and economic security. We have safer highways, safer vehicles. Globally, and especially in China, huge numbers of people have been lifted out of absolute poverty. People with the needed skills find that the world is their workplace. Families, both because of globalization and population displacement, increasingly have members in many countries. The internet provides us with incredible access to information and communication.
Many of the social advances are embedded in strong institutions and protected by legislation and tribunals. And the ship of state is a large and sturdy vessel. It can sail on for great distances while still being battered by what Leonard Cohen called “the reefs of greed and the shoals of hate.” Women and social-cultural minorities have continued to gain ground in equality-seeking agendas. Increased education and embedded rights support the acceptance of greater social diversity, even in face of fierce resistance and political upheaval.
But the clouds of uncertainty and insecurity are gathering. Politics of identity and division threaten both national and international institutions. The concentration and secession of wealth undermines consumer-driven economies. Inequality undermines social solidarity. Automation undermines occupations. The media magnifies and glorifies terrorism, fuelling hatred and distrust. There are increasing calls for public security, which serves primarily to pull government revenues into the expanding police and security industry.
Nations are more likely to compete than cooperate in face of global issues. Plutocracy within a police state, and a continued race to the bottom of social standards under de facto global commercial rule, is not a fantastical scenario. Nor is social disintegration.
To maintain their role, nation states need to exercise power over factors which are not constrained by borders – such as capital, wealth, intellectual property, and increasingly, people. To maintain the internal social consensus to do so, they need to strengthen democratic trust and radically reform their management of the public welfare. The two tasks are directly linked and interdependent.
In subsequent articles we will explore these challenges and possible solutions.
Endnotes:
1 Some may rightfully quibble with applying the term “nation state” to countries like Canada and the USA, since “nation” originally defined a population joined by a single language or culture.
2The Changing Workplaces Review (Gov’t of Ontario)– Final Report May 2017. The figures are for Ontario but would not be smaller for Canada
3 OECD, Policy Challenges Over the Next Fifty Years, 2014
4Jean Fourastié. Fourastié coined the term in 1979 with the publication of his book Les Trente Glorieuses, ou la révolution invisible de 1946 à 1975 (from Wikipedia). The term is also an indirect reference to the days of the French Revolution.

Terrance Hunsley is a Senior Fellow with The Pearson Centre and editor of the International Social Policy Monitor (politudes.com) a past Fellow of the Queens University School of Policy Studies, Director General of the International Centre for Prevention of Crime, and Executive Director of the Canadian Council on Social Development. He is also a former member of the Council of Science and Technology Advisors to the Federal Government.