Collective Provision, Not Cash-in-Hand

If Pigou had famously argued that ‘any transference of income from a relatively rich man to a relatively poor man’ would logically ‘increase the aggregate sum of satisfaction’, such an increase couldn’t simply be expected from cash transfers. Increasing public welfare didn’t only depend on the distribution of income but also, he argued, ‘the manner in which income is spent’. For example, ‘the reflex effect upon people’s characters of public museums, or even of municipal baths,’ Pigou thought, ‘is very different from the reflex effect of equal satisfactions in a public bar’.

There would, perhaps, be no better advocate for this line of argument than the socialist economist R.H. Tawney. In his 1931 book Equality, Tawney had argued that ‘the equal division of income per head is not a satisfactory expedient for increasing equality’. The argument relied essentially on the observation that a society driven by private investment and consumption wasn’t able to fulfil most social needs. ‘High individual incomes,’ Tawney wrote, ‘will not purchase the mass of mankind immunity from cholera, typhus, and ignorance, still less secure them the positive advantages of educational opportunity and economic security.’

It was only when ‘society begins to make collective provision for needs no ordinary individual, even if he works overtime all his life, can provide himself’ that it could ‘make accessible to all, irrespective of their income, occupation, or social position, the conditions of civilisation which, in the absence of such measures, can be enjoyed only by the rich’. Among the early Tribunites, Aneurin Bevan took up the mantle of rational economic planning by the state most forcefully. Collective provision, he argued, offered ‘people a share of the national product in accordance with their need’. But in doing so, it also reduced rather than expanded the grip of the market on people’s lives and undermined ‘the wage system’ itself. For Bevan, the aim of progressive reform wasn’t to make better consumers within the market, but to reorganise society on such a basis that market logic no longer predominated.

In its most radical form, such a view would mean that the division of labour itself could not be dictated solely by consumer choices and private investment. ‘Money spent on drink,’ Liberal MP William Beveridge had written in his 1944 report Full Employment, ‘does not give employment to the miner, but to the brewer; money spent on milk does not help to solve the problem of the unemployed engineer. It may be said that the consumer’s demand should be supreme, and that, if the consumer ordains, the miner should become a brewer and the engineer a dairy farmer’. While this transformation of the market-driven division of labour was never realised in post-war Britain, it offered a glimpse of what a society shaped by collective deliberation might look like.

Planning and Price

These ideas were put forward at a time when the Left was proposing a policy of full employment — which implied a conscious economic coordination by the state of investment and of production. This differed from social market theories, which merely sought a fairer redistribution of the social surplus after the fact. For the Left which built Europe’s welfare states, no aggregation of decentralised individual choices would ever achieve what state planning could in terms of increasing collective welfare and generating a fair division of labour.

‘Whether we can do this’, Beveridge noted, ‘depends upon the degree to which social conscience becomes the driving force in our national life.’ In the place of a price system, his ‘social conscience’ called for the empowerment of a ‘democratically controlled state’ to secure the allocation of goods ‘in accord with the wishes of the citizens’. Unsurprisingly, the welfare regime that emerged after the Second World War relied on a strong politicisation of needs and on a normative vision of the ‘good society’. Tackling the causes of human destitution implied the existence of a lively civil society and network of institutions such as unions, parties, or associations that would organise citizens to translate their needs into concrete and collective demands.

While this view remained dominant within broader social democracy until the late 1950s it was, however, strongly contested among economists. The socialist calculation debate of the interwar period—concerning how a socialist economy would determine value—had eroded the legitimacy of the state as a collective decision maker in these circles. The debate contrasted the views of neoliberal economist Friedrich Hayek with ‘market socialists’ such as Oskar R. Lange and Abba P. Lerner, all of whom had shown a common concern for the centrality of the price mechanism to allocate goods.

James Meade’s 1948 Planning and the Price Mechanism and what he called ‘the liberal-socialist solution’ was probably the clearest statement of this perspective, arguing that the price system was ‘among the greatest social inventions of mankind’. While equality could be worth pursuing, the means to get there had to be market-friendly. State planning and control over the market was, Meade wrote, ‘bound to be clumsy, inefficient, and wasteful as compared with a properly functioning price system.’

For Meade, the best way to tackle poverty was then through ‘an extension of the use of the price mechanism to promote the more efficient use of resources associated with a socially desirable redistribution of income’. In other words, by disqualifying any political definition of ‘needs’, only a policy narrowly focused on income redistribution could guarantee an efficient allocation of wealth according to the wide variety of what economists were now calling ‘individual preferences’. Needs, rather than being ‘constituted’ through a democratic process, would be ‘revealed’ as choices in a market.

Social Market

It was this philosophy—the social market ideal—which came to replace the more authentically social democratic one of Marshall and Bevan. The state assessing needs a priori was slowly replaced by an a posteriori adjustment of production resulting from market exchanges. This approach would allow for the realisation of what the neoliberal economist Arthur Kemp called ‘welfare without the welfare state.’

In terms of policy, this market turn, as historian Peter Sloman has shown, fuelled the growth of a ‘transfer state’. There were fewer public jobs programmes, housing, and services and more tax cuts, tax credits, and vouchers. In the US, this ‘modernised Keynesianism’ made a spectacular arrival with the election of John F. Kennedy in 1961. The fiscal Keynesianism of his Council of Economic Advisers pushed the president to break with balanced budgets, but instead of heavy state interventions they advocated for tax cuts to boost private investment and consumption.

Their idea marked a significant departure from the traditional Keynesian emphasis on increased government spending. If ‘jobs, more and better schools, are certainly the most appealing solutions’, James Tobin, who sat on the council, argued, ‘private employers and free markets do much of the work [ . . .] without public expenditure and government bureaucracy’. The central tenet of what John Kenneth Galbraith called a ‘reactionary kind of Keynesianism’ consisted of borrowing money from the private sector and giving it back to businesses and households to spend it.

Even during the two Reagan administrations, income support programmes, unemployment benefits, and food stamps were more or less spared from harsh cuts whereas housing construction was decimated. Reagan dramatically reduced the budget of the Department of Housing and Urban Development, and introduced a new scheme of housing vouchers instead. His overall shift ‘from subsidising “bricks and mortar” to subsidising people’, as political scientist Paul Pierson noted, reduced by 80 per cent the number of new projects and strongly pushed for the privatisation of existing ones, giving cash to specific poor individuals instead of taking a systemic approach to poverty. In the UK this trend was even more radical, with the passing of the 1980 Housing Act giving council housing tenants the right to buy their home from the local authority while halting any new construction of public housing in favour of housing benefits. The outcome was a dramatic shortage of affordable housing with millions registered on never-ending waiting lists.

This ‘fiscal revolution’ marked a significant evolution in the field of economics, that would slowly, as economist Herbert Stein noted, make ‘the distinction between Keynesians and non-Keynesians’ less significant. ‘Within this general consensus’, he added, ‘differences’ existed of course, but they were ‘of emphasis and of degree’.

It was a starting point for what the British economist John Kay called ‘Redistributive Market Liberalism’. This approach rapidly cemented, within a modernised social democracy, an understanding of social policy in which ‘the state must have a dominant role in matters of income distribution, but should discharge this responsibility with as little interference as possible in the workings of the free market’. It marked, in sum, the birth of a particular kind of political centre around which much economic consensus could be established.

Third Way International

In this new regime, the state wasn’t designed to be a properly economic agent. It would instead focus on shaping the ‘incentive structure’ of meritocratic competition. ‘Government does all it can to support enterprise,’ British Prime Minister Tony Blair and German Chancellor Gerhard Schröder wrote in their 1998 manifesto, ‘but never believes it is a substitute for enterprise’.

In the 1990s this ‘Third Way’ had stormed socialist parties in Europe and the Democratic Party in the US while radically reforming government through the New Public Management. Privatisations, subsidies, fiscal incentives, and outsourcing services to private contractors created a ‘Leviathan by proxy’, spending more but employing fewer and fewer public servants.

In the US, as surprising as it may seem, there were about 200,000 more federal civil servants when Ronald Reagan began his second term in 1984 than when Obama left his in 2016, while government spending substantially increased over the same period. In the UK, it is even more dramatic: public sector employment peaked at 7 million immediately before Thatcher before falling to under 5.5 million today, although the labour force expanded significantly.

The ‘anti-statist form of big government’, as the political scientist John Dilulio called it, sharply accelerated public distrust in the executive. Expectations about what politics could achieve were, as sociologist Wolfgang Streeck has shown, slowly ‘eroded’ and the ‘organisational structures needed to develop effective public demand’ were ‘atrophied beyond redemption’. This decline of a political conception of equality, implied also, and perhaps more dramatically, as Streeck notes, ‘a demobilisation along the broadest possible front of the entire post-war machinery of democratic participation and redistribution.’

In what came to be called ‘post-democracy’, the mass participation of parties, unions, and civil society organisations gave way to frustration, political apathy and an anaemic conception of what T.H. Marshall had once called ‘social citizenship’.

The ideological shift towards the market had dramatic economic outcomes, but also severe political consequences. While the social institutions and public services envisioned by people such as Marshall or Bevan were subject to public deliberation and represented a way for society to shape its own destiny, the reduction of social policy to income concerns ‘hollowed out’ the idea of equality from any democratic content. You cannot hand the most important decisions in people’s daily lives and broader society over to the market without undermining the very idea of democracy itself.

‘Market sovereignty,’ Eric Hobsbawm wrote, ‘is not a complement to liberal democracy: it is an alternative to it.’ In fact, he added, it is ‘an alternative to any kind of politics, as it denies the need for political decisions’, ‘participation in the market replaces participation in politics. The consumer takes the place of the citizen.’

Ending the End of History

But the time of apathetic citizens more focused on individual concerns than their social conscience may be coming to an end. By relying on ‘private economic mechanisms to replace the active and passive mobilisation of its citizens’, Hobsbawm observed, neoliberalism would provoke a return of the repressed — and so, in recent years, it has. Certainly, fewer and fewer people are now prepared to just leave the economy to the market forces.

The ‘dethroning’ of the demos seems to be coming to an end and with it, a technocratic conception of equality that has, in reality, coincided with an explosion of inequality in wealth, income, and power. In the age of Trump and Brexit, narrow claims for cash won’t deliver any return to normality, but that doesn’t mean the social market project will disappear by itself. Despite the disastrous effects these policies of outsourcing and undermining state capacity had on the Covid-19 response, preserving the price system as an economic allocator remains the dominant approach in contemporary social democracy. In this, they share a lineage not with those who built the post-war welfare state — but with those who began to unravel it. It is only by reinvesting the ideal of equality with politics and, as Beveridge once argued, limiting the strength of ‘private enterprise’ as ‘a sovereign power independent of the state’ that socialism can offer a true end to the end of history.