The Rise of Labor

Let’s be clear: the quality and level of welfare services is a question of economic, social, and political power. The emergence of the trade union movement, in alliance with other popular movements, and their struggle over decades against capital and business interests, created new power relations through market regulations, public ownership, and democratic control of basic infrastructure. This gave us universal, high-quality social protection and public services.

The welfare state, however, was also the result of a very specific historical development which ended with an institutionalized class compromise. The late nineteenth and early twentieth centuries were dominated by social confrontations in the industrializing capitalist countries. There were general strikes and lockouts, and the use of police and military force against workers was common. People were wounded and killed in these confrontations — this was prominently the case in Scandinavia, which is widely considered to be the most socially peaceful part of the world today.

However, as labor organizations became stronger, they gradually gained ground in the social struggle and increasingly represented a potential threat to capital’s interests. This process was solidified when a big part of the movement turned politically toward socialism, breaking its old alliances with liberalism, as a means to end capitalist exploitation. Demands for more systemic changes grew accordingly and prepared the ground for a class compromise.

An important feature in the wider political landscape was the existence of a competing economic system in the Soviet Union and Eastern Europe. As historian Eric Hobsbawm pointed out, this was instrumental in making capitalists in the West accept the need to come to terms with labor. It is important to note that the welfare state was never an expressed aim for the labor movement before it was created. The stated aim, of course, was socialism. It was the fear of socialism that drove capital to concede — something which increased after the Russian Revolution but reached a height in the interwar period and the Second World War, as socialists and communists took prominent roles in the fight against fascism and a consensus in favor of social change developed across society.

The 1930s were a time of historic economic crisis and poverty. The 1940s saw mass slaughter tear societies apart for the second time in the century. In their wake, politics came to be shaped by popular demands for peace, social security, full employment, and political control of the economy. This was the backdrop to the Bretton Woods conference, and then agreement, which formed the basis of the postwar economic order: unregulated, crisis-stricken capitalism had to come to an end because, if it didn’t, the balance of forces meant that capitalism itself might fall. It was under the Keynesian model of regulated capitalism that the social and economic foundation for the welfare state was created.

The power of capital was reduced in favor of politically elected bodies. Competition was dampened through political interventions in the market. Capital controls were installed, and financial capital came under significant regulation. This made it possible for governments to pursue a policy of national and social development without continuously being confronted by capital’s blackmail, wherein big corporations threatened to move to other countries with more favorable conditions if their interests were hurt.

Through a strong expansion of the public sector and the welfare state, a great part of the economy was taken out of the market altogether and made subject to political, democratic decisions. This was the welfare state’s most radical edge, and the general taming of market forces became even more important than labor legislation in providing better working conditions. It was a particular balance of social forces, not the spirit of compromise itself, which made the welfare state possible.

The Social Pact

In more traditional parlance, the class compromise came to be known as the “social pact.” Although it was substantially a product of the postwar era, its earliest roots can be traced to the 1930s, when the trade union movement struck accords with employers’ organizations in the north of Europe — a practice which was then followed after the Second World War in most of Western Europe. From a period characterized by hard confrontations between labor and capital, societies entered a phase of social peace, bi- and tripartite negotiations, and consensus policies. It was the balance of power within the framework of this social pact between labor and capital, from country to country, that formed the basis for the welfare state’s development.

At this point, international capitalism experienced more than twenty years of stable and strong economic growth. This growth made it easier to share the social surplus between labor, capital, and the state or public sector. The employers and their organizations by this time came to accept that they were not able to defeat the trade unions outright. They had to recognize them as representatives of the workers and negotiate with them. The cohabitation between labor and capital, in other words, rested only on the foundation of a strong labor movement — as soon as unions became vulnerable again, capital began exploring strategies to break the pact.

At the same time, there were ideological and political contentions within the labor movement about the way forward. The more radical or revolutionary currents wanted to socialize ownership and production, while the more moderate or reformist currents aimed at delimiting the power of capital through regulation and reforms. While it was the power of more radical elements which had first convinced capital of the need to do a deal, as time went on, the moderate forces — who progressively saw their role less as fighting on labor’s behalf and more as maintaining the social peace — rose to dominate the social-democratic tradition and its parties, trade unions, and institutions.

Many of these moderates came to believe that society had reached a higher level of civilization; or that crisis-free capitalism had become a reality. There would be no more mass unemployment, wealth concentrated among the rich and privileged, or misery among working people. Perhaps no one better represented this tendency than Labour’s own Anthony Crosland, whose book The Future of Socialism claimed that “traditional capitalism had been reformed and modified almost out of existence.” With the benefit of huge new social programs such as the National Health Service being felt, there was a material basis for a social partnership ideology, which became, and still is, deeply rooted in the Western labor movements.

But compromises were made on both sides. For the trade union movement, the social pact meant the acceptance of the capitalist mode of production, an economy still governed by private ownership and employers’ right to lead the labor process. In exchange for the gains in terms of welfare and working conditions, unions were expected to guarantee industrial peace and restraint in wage negotiations. Simplistically, the welfare state and the gradual improvement of living conditions were what dominant parts of the labor movement achieved in exchange for giving up its greater socialist ambitions.

It seems clear, in retrospect, that the capitalists better understood the nature of the social pact as a truce between warring factions rather than a partnership that could be sustained indefinitely. They used it to win time, embed new consumer ideologies, and dampen socialist sentiments in the labor movement.

However, it has to also be accepted that the social pact gained massive support from the working class due to the important achievements in terms of welfare, wages, and working conditions. This, in addition to the widespread anti-communism of the Cold War era, made radical challenges to the center-left difficult to sustain.

Due to this dynamic, the dominant parts of the labor movement increasingly saw social progress as an effect not of struggle but social peace and cooperation with a conciliatory capitalist class. This led to the depoliticization of the labor movement and the bureaucratization of its leadership and staff. It became the historic role of unions and social democratic parties then to administer this policy of class compromise. Over time, each atrophied — transitioning from mass organizations for the working class into bureaucratic mediators between labor and capital. This represented the beginning of the end of social democracy’s heyday.

The Neoliberal Offensive

As the reconstruction and rebuilding of the economy after the Second World War came to an end, the postwar economic model ran into increasing problems. Stagnation, inflation, and a profit squeeze became prevalent. Spurred by these international crises, capitalist forces went on the offensive in order to restore profitability, withdrawing gradually from the social pact and introducing more confrontational policies. The era of neoliberalism began, and the political and ideological hegemony which business had obtained by the 1980s was used to carry out a systematic project of privatization, deindustrialization, and deregulation.

Even though the crisis carried on throughout the decade — weaving, in Britain, through both Tory and Labour governments, the intervention of the IMF, and the so-called Winter of Discontent — the trade union movement struggled to adapt. The shift from peace to confrontation on behalf of capital was incomprehensible within the consensus-oriented social pact ideology of its leadership. This was also shown in its incapacity to deal with renewed rank-and-file activity, as workers organized from below to resist the attacks on their conditions, which would herald a new era.

The breakdown of the historic class compromise also led to a political and ideological crisis in social democracy. Alternatives did emerge from the Left: in 1971, Sweden’s LO trade union confederation proposed Löntagarfonderna, worker-owned funds which would take over a substantial portion of the stock of larger companies. In Britain, Tony Benn used his ministerial brief to pioneer worker cooperatives in failing companies, and then brought forward a more radical plan to democratize the economy.

But perhaps the only place where there was an actual breakthrough was in France. In 1981, François Mitterrand won the presidential election and opted to govern with the Communist Party. Their programme commun had been developed in 1972 and reflected a left-wing response to the crisis of that decade: an increase in the minimum wage, a reduction of the working week, greater holidays, a wealth tax, and extended rights of workplace consultation for workers. Alas, this singular anti-neoliberal experiment did not last, and under pressure from domestic and international financial interests, Mitterrand executed an about-turn — announcing his tournant de la rigueur, or turn to austerity.

Most social-democratic parties did not attempt to fight back. In fact, they adapted surprisingly quickly to the dominant neoliberal agenda, simply proposing softer alternatives to the right-wing policies.

The cumulative result was the erosion of the basis of welfare state economics: the abolition of capital controls, the deregulation and liberalization of markets, the redistribution and concentration of wealth, the privatization of public services, the downsizing of the workforce and consequent increasing labor intensity, and the flexibilization of labor markets.

It is thus not an accidental or temporary setback we are facing, but a fundamental change in the development of our societies. An immense shift in the balance of power between labor and capital has taken place — this time in favor of capital. The big multinational companies have been at the forefront of this development with their newly achieved freedom from democratic regulation and control. The consensus policies of the social pact have gradually been replaced with an economy whose class relations are beginning to regress to a position which more resembles the period before the welfare state.

The Left’s response for a long time has been to appeal for a new class compromise. The labor movement is still nostalgic for an era of gradual improvement of social conditions. We want the industrial peace of the 1960s to return, and to get back around the table as partners. But those days are not coming back. Labor is weak, capital knows it, and there are no incentives for the social dialogue we so often call for. The forces which want to defend public services and the welfare state will have to meet the attacks from the capitalist class with a counteroffensive. More confrontation is coming, and we had better be prepared.

Where to Now?

Today’s labor activists should be honest enough to ask ourselves, Why is the welfare state now being attacked and undermined? What went wrong? There are clearly some lessons.

First, the social pact was not a stable situation. It was a compromise in a concrete historical situation, and the main features of the capitalist system remained intact. Something which could have been considered an important short-term tactical compromise from the point of view of the labor movement became the long-term strategic aim. This was an epochal mistake, which defined the failure to resist the neoliberal. Rather than seeing the welfare state as a step toward more fundamental social emancipation, it gradually became the end of history — for us more than them.

Second, the ideology of the social pact was simply wrong. There can be different kinds of capitalism — but its fundamentals always remain. There cannot be democratic control of the economy, it cannot be crisis-free, the class struggle cannot end. These are written into the DNA of an economic system based on private ownership, the profit motive, and capital’s relentless desire to expand.

Third, because it misunderstood the nature of the system, the labor movement was taken by surprise by the neoliberal offensive. Rather than mobilize the working class to defend the achievements that were won through the welfare state and take the social struggle forward, many of the leaders of the trade union and labor movement were pushed onto the defensive, clinging to social peace and dialogue and negotiated concessions, and became a part of the neoliberal project — in fact, through the 1990s, social-democratic parties achieved reforms that no right-wing parties could manage because of their ability to discipline labor.

The flaw of the twentieth-century welfare state was that it did not go far enough. The concentration of private ownership formed a solid power base that prevented any democratization of the economy — a fortress for capital from which an attack on the workers’ movement, social progress, and public goods could be launched. This is exactly what we have been witnessing since the 1970s.

It is time to confront neoliberalism and the increased power of capital. There is no other way to break the cycle. Today, more and more people realize that the neoliberal model not only represents an offensive by capital, but also its weaknesses, vulnerability, vulgarity, and internal contradictions. Capitalism and its global institutions are undergoing a protracted crisis of legitimacy.

In the end, this is all about power. Left-wing policies presuppose a fundamental shift in the balance of forces in society. The main short-term aim of the labor movement today must be to limit the power of capital and to subject the economy to democratic control. This will not be achieved through social dialogue, partnership, pacts, compromise, or cooperation, but through class struggle and confrontation. The history of the welfare state shows us that power is never willingly relinquished by capital. It has to be pushed back.