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Kemal Derviş ... A New Birth for Social Democracy

Burgess COMMENTARY

Peter Burgess

A New Birth for Social Democracy

ISTANBUL – Nowadays, with the global economy undergoing fundamental transformation, workers worldwide are coming under significant pressure. Particularly in developed economies, social policies must adjust to provide the support that lower-income groups need, while encouraging growth and advancing wellbeing.

The pressure has been unrelenting and inescapable. In the United States, real (inflation-adjusted) compensation for men with only a high school diploma fell by 21% from 1979 to 2013. In much of Europe, which provides stronger wage protection, unemployment has soared, especially since the euro crisis began in 2008. Germany and some Northern European countries remain an exception, although the German labor market contains a large low-wage, mini-jobs segment.

Driving these trends is the changing nature of work. For starters, services have been gaining ground worldwide, especially in developed economies. From 1970 to 2012, the GDP share of services in the OECD countries increased from 53% to 71%.

New technology and “intelligent” machines are not only displacing many types of workers in both the manufacturing and services sectors; they are also facilitating the rise of new business models, in which individuals perform (mostly low-paid service) jobs within loose networks, instead of as dedicated employees of structured organizations.

For example, the ride-sharing service Uber now has 162,000 active drivers in the US alone and is displacing traditional taxi services. The startup Handy hopes that its app achieves similar success in connecting customers to independent contractors providing various household services. As technology races ahead and value chains become globalized, workers must adapt, whether by changing jobs, relocating, or acquiring new skills – a challenge that is particularly burdensome for older workers, but demands a new approach to life planning for all.

Some people – especially those who acquired valued and flexible skills early in life, as well as those who are already in strong positions because of inherited wealth – can flourish in this new economy. Millions of others, however, are ill-prepared for the new age. And it is their growing anxiety that is fueling the rise of identity politics, with populist leaders and movements appealing to ethnic or religious solidarity in the face of the impersonal forces of change.

Center-left parties face a particularly difficult challenge, as their lower-income electoral base is lured away by anti-immigration, chauvinist competitors. Making matters worse, the fragmentation of production (whether in goods or services), together with intensifying fiscal pressures, militates against these parties’ traditional reliance on collective bargaining to create systems and policies that insure citizens against shocks and misfortune.

The right-wing response to this challenge – essentially to dismantle the welfare state – would leave the majority of citizens exposed to economic shocks and structural shifts (merely reinforcing their sense of isolation and vulnerability). The progressive response, by contrast, must entail strong social policies – including both insurance and protection – compatible with new technologies and types of work. Concretely, this means that, instead of generalized social protection, each citizen would have a lifelong individual budget of support and security, while requiring that eligible recipients show initiative in determining how to adapt.

The main difference between the progressive vision of a society underpinned by these “citizen accounts” and the conservative idea that individual citizens should create personal retirement accounts, take out student loans, or cover their own health insurance is the public sector’s role. Not only would the public sector take primary responsibility for financing social protection; public policy would also frame cooperation among government, employers, and recipients to eliminate duplication and bolster effectiveness and fairness.

For example, a lifelong “family account” would enable paid maternity and paternity leave, provide child-care support, and allow time away from work to care for the sick or elderly. It would combine some general rules with income-adjusted financial contributions by the state, employers, and individuals. A “learning account” would set the parameters for educational support, including lifelong opportunities to acquire new skills and to teach skills to others.

Basic forms of such a scheme already exist in many countries. Norway offers 49 weeks of parental leave with full pay, or 58 weeks with 80% pay. Both parents must use at least 10% of this budget, but they can also roll part of it over to use when their children start school (and again benefit greatly from parental support). Of course, few countries are as wealthy as Norway; but the principle – including support for elder care – can be applied to 30-, 40-, or 50-week periods.

France, too, is now moving in this direction, creating “individual activity accounts” that aim to streamline its social policies, without sacrificing its sense of national solidarity.

To be sure, this approach will not magically resolve all of the challenges countries currently face. Fiscal constraints will remain, as governments continue to fund public goods. Adequate taxation of high-income individuals and high-profit companies, together with strong and sustained efforts to reduce tax avoidance, will become even more vital to defend the revenue base. And unions will still be needed to defend their members’ interests.

Nonetheless, a new social contract is needed to account for the increasingly important role that individual preferences, and individual responsibility, play in today’s world. Each citizen should feel empowered, not isolated and abandoned, in the face of globalization and technological transformation.

With this approach, social democracy can again drive progress, instead of being stifled by identity politics and market fundamentalism. That would serve not only the cause of social justice, but also the goal of sustaining the skilled, happy, and healthy workforce that a successful economy requires.

Peter Burgess JUN 16, 2015 800 years ago the Magna Carta was signed, and the idea that the King was subject to law was established. It should be that the modern corporation and wealthy elite are similarly not 'above society' but part of society. I very much like this article, but converting these ideas into coherent public policy and corporate practice is going to be a challenge, some might say an impossibility. We are all part of a very complex global socio-enviro-economic system, yet we attempt to manage in this system simply by using some very limited metrics ... the money profit metrics for business, the stock value capital market money metric for wealth and the GDP money metric for economic health. We have no equivalent metrics for human capital and quality of life and no equivalent metrics for the impact economic activity has on the environment. I have no idea what would be the best possible policy formulation for the optimization of the socio-enviro-economic system, but it would be a great help if there were metrics that embraced everything in this system in a coherent way. With such metrics everyone could use the data to optimize all the facts from all the perspectives that impact them. Getting the right numbering system is not easy ... but it is way easier than getting a big policy formulation right. It is a version of Adam Smith for the 21st century, with everyone's behavior having an impact on the totality of the system. It builds on the Peter Drucker idea that you manage what you measure. With a numbering system that embraces everything and not just money profit, there is a fighting chance that the money resources that exist and doing nothing of substance could be reallocated to doing the zillions of things that need doing but, using the prevailing money profit analysis, are not profitable enough to fund. The game changer, Uber is built on technology that only became possible in the 21st century. A game changing new system of metrics needs to be based on thinking for the 21st century. While I appreciate the power of conventional double entry accounting, it, like the Magna Carta, also goes back to the 1200s ... and first written about in the 1400s ... and still at the core of numbering for modern society in this century. Think what would be possible with a system of metrics that enabled the optimum allocation of resources and deployment of technology! Peter Burgess TrueValueMetrics.org Read more Reply Commented

Petey Bee JUN 11, 2015 +{a lot} great article! Reply Commented

Tamer Kirac JUN 11, 2015 The affect of technological change on employment and income will be the next next generation's critical challenge. It will have cultural aspects, as well as economic ones. In this new cultural-economic environment, being underemployed and/or unemployed, receiving public assistance for food, shelter, child care, health and education will be considered as a legitimate right, as opposed to being lazy, not-as-smart and parasitic. As the services economy becomes the driving force of income generation, especially among the G20, there will be the need to re-define productivity and production and contributors to such a production cycle and resulting earnings. As defined in classic economics, the concept of marginal productivity and associated costs are becoming harder to grasp, given the magnitude of affects of technological innovations and corresponding rewards and associated production and consumption patterns in this new world. Read less Reply Commented

Mila Kasalica JUN 10, 2015 Great reading. Thanks. It is somehow believe that workers and state are totally unnecessary in contemporary economy. Only few academics that will provide for machines should live with those 0.1% owners of capital. Although 2008 proved that market fundamentalist are fully wrong, and they understood fully Pikkety-'s Capital still spinning that workers and state are the key development problems, remain strong. Reply Commented

lakshma reddy JUN 9, 2015 Keal dervis, Your description of changing composition of global economy in terms of weightage attached various component of national GDP as well as global GDP is in tune with Adam smith's technology led globaĺisation process and global division of labour and employments. This globalisation will encompass all walks people without... Read less Reply Commented

Stephen Stanley JUN 9, 2015 So, has the world's Right figured out that the best way to secure a voting base is to create more disenfranchised, poor people? Because that's what the Right's policies are doing and their influence seems to be growing.