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CHAPTER 9

Has politics ever really mattered? Drifting to the right: the centre-left in Europe Privatization Flexible labour markets? Bringing an end to tax and spend? The EU: deadweight or driving force? Separating the facts from the hype why it still makes sense to be different No easy explanations: the rise of the far-right

Politics over economics: enduring differences between left and right

Nowadays left and right are becoming meaningless terms as governments and parties from both sides of the political divide are obliged to follow the same policies in order to cope with globalization and (less often mentioned in the media) Europeanization. Definition Social democracy traditionally describes the ideology of the (centre-) left and is associated with the promotion of equality and social and collective well-being via universal welfare and state intervention in the economy. Neoliberalism, an ideology that has come to be associated with the conservative (centre-) right, is about shrinking the state by lowering taxation and privatizing its assets, and about rewarding and encouraging individual responsibility and achievement. Opinion poll evidence across Europe clearly shows that more and more voters claim to be able to tell little difference between right and left. Has politics ever really mattered that much, or have left and right never been much more than interchangeable management teams? Representative democracy in Europe assumes, and even relies on, political parties standing for a set of ideas-based policies rather than simply competing for the spoils of office. We should expect, then, that who governs (and, therefore, politics as a whole) matters. In other words, there should be some observable link between a party or parties being in power and public policy. One way of trying to find out whether parties make a difference is to see to what extent parties manifesto promises (the promises that they make in writing at election time) are translated into the formally announced programme of the governments they form or help to form.

But this means of measurement is only talking about the translation of one form of words into another, not the translation of words into action. But most European democracies are run by multiparty majority coalitions or either multiparty or single party minority governments, making it much harder for a single party to see its ideas translated into deeds. Taking cross-national studies first, states that have experienced left wing government for a considerable time (in Scandinavia and Austria) seem to have a bigger public sector than those for which the opposite is the case (Ireland, Switzerland and Germany). There also seems to be a link between left-wing government and more spending on education and welfare, though not health. Within-country studies (which can, of course, be added together to produce a cross-national conclusion) also seem to show a relationship between left-wing governments and higher spending and conservative governments and lower spending, although the effect is confined to majority as opposed to minority governments and is influenced by the size and strength of the opposition (as well as the existence of a strong trade union movement). On economic policy, there also appears to be a historical tendency for governments of the right to prefer lower inflation at the cost of higher unemployment and governments of the left to prefer the opposite. Income inequality also seems to be affected going up when there are rightwing parties in government and down

when their counterparts on the left are in charge. Historically, then, there does seem to be at least some truth in the argument that politics makes a difference: that parties and governments of the left and right do different things and have different priorities.

Drifting to the right: the centre-left in Europe


In seeking to win office from centre right parties who had been in power for over fifteen years, both Tony Blair and Gerhard Schrder insisted that they were pragmatic centrists. Their so-called Third Way or Neue Mitte sought not to expand nor to shrink the state, but to reconstruct it in order better to equip ordinary people to cope and compete in an increasingly global economy. It was no longer a tiny minority that would be affected by, say, rises in taxation: the majority were now net contributors rather than beneficiaries and had a stake in the health rather than the hounding of capitalism. Governments of the left had to work with, not against, the grain. They had to admit that they had no monopoly on good policies, and that some of what their opponents had done needed doing: unions were important but they could not be allowed to run the show; welfare benefits should provide a handup not a hand-out; sometimes the market did know better than the state, the consumer better than the civil servant.

It may be fashionable to say there is no longer much difference between left and right. The growth of welfare states throughout Europe had as much to do with the racketing-up of government intervention during the twentieth centurys two world wars, and the resulting expectations of voters, as it did with socialism. After all, many, if not most, of Europes welfare states were built, at least in part, by conservative and Christian Democratic parties who otherwise might have been obliged to surrender power to their opponents. Their aim, like that of the centre-right after the Second World War, was to get into power and to stay there in order to do as much good (as they saw it) as possible. This often meant accepting things as they were rather than as they might have liked them to be. It also meant courting floating voters who would sometimes be attracted by the arguments of the other side. Utilitarianism and pragmatism has always been a strong streak in European social democracy: if the old ways of achieving the greatest good for the greatest number cannot be successfully implemented in the socio-economic and cultural environment of advanced capitalism then they ought no longer be pursued and swapped for something that might work better. The same goes for European states. Simply because they take this or that headline policy on board may not mean that they have swallowed the neo-liberal prescription wholesale. Nor does it necessarily mean that they abandoned all that characterizes, say, the French, or the

German or, indeed, the Swedish model.

Privatization
Beginning (somewhat more haltingly than many now remember) in the United Kingdom during the 1980s, the transfer of state assets into private hands has been going on all over the continent. In the post-communist countries, privatization was a crucial part of the move away from the party-state past: outside Romania and Bulgaria (though they are now catching-up) most governments (even those run by communist successor parties) showed themselves to be reasonably keen systemic privatizers. In the West, where public ownership was clearly far less important than it was in the Soviet bloc, privatization has not proceeded quite so rapidly and has often taken place in stages rather than as a big bang. Social democrats have sold off parts of the state points to the fact that the pursuit of privatization, especially on the left, has frequently been driven by instrumental rather than ideological motives. It has also had an EU dimension. One obvious example was the need for some states to lower debt or cover spending in order to meet the qualifying conditions for the single currency without raising the tax burden to politically intolerable levels. Another reason was the need to respond to demands (expressed through the European Commission, but coming from corporations in countries that had already privatized such sectors) that states open up their telecoms and energy markets to competition. Such demands were

Manifesto Tracking
One of the longest continuous research projects in political science is the collection and coding of the manifestos of (western) Europes political parties. The findings of the project known as Volkens 2004 are clear: in the 1940s 1960s, most centre-left parties moved to the left; but it also finds that they were followed in the same direction by almost all their centre-right opponents. From the 1970s onwards, the move was in the opposite direction: the centre-right moved right, and the centre left, needing to keep in touch with the electorate, followed. Volkens study cautions us, however, against exaggerating the extent of these shifts. Contrary to other scholars who use similar data, Volkens also argues strongly against the idea of convergence: parties continued to maintain at least a semantic distance from each other. Interestingly, she also concludes that the policy shift to new Third Way issues ... is no recent development, but started as early as the 1950s. Other analysts of the manifesto project data, including those, such as Caul and Gray, who do see more convergence, also make the point that it has been going on for four or five decades, rather than being a knee-jerk response to resurgent neoliberalism.

designed to kick-start the so-called Lisbon process by which European leaders left and right rather ambitiously promised at a summit in Portugal in March 2001 to make the EU economy the worlds most competitive and dynamic economy by 2010! For instance, Norway seemed to stand out among Scandinavian countries as a keen privatizer, raising approximately 1.5 billion from the sale of shares in its fantastically wealthy Statoil company and almost 500 million from a massively oversubscribed sale of shares in Den Norske Bank in 2001. Indeed, the technique originated in the home of privatization, the UK, in the 1980s. Recently, however, the British government, and governments in Germany, Italy, the Netherlands and Spain, have been taken to task over the practice by the European Commission. Sensible governments postponed asset sales in the hope that they would find a better price in the future: Italy, for instance, delayed the sale of further stakes in the electricity company, ENEL, which it had begun selling off in 1999. But Italy, and its supposedly market-oriented Prime Minister, Silvio Berlusconi, was also criticized for lacking the political will to overcome another big barrier to privatization in some European countries; namely, the extent to which public ownership is not merely a matter of central but also of regional and local government.

The slowdown in privatization in Europe is also due to the fact that much of what can easily be sold has in many countries already been offloaded. European governments are also having to face the fact that some sectors may simply be too risky (strategically or financially) to privatize at least, to privatize fully. This does not mean a complete halt to private sector involvement in previously state-run areas. Thus, much was made of Germanys social democratic Chancellors apparent recommitment to privatization in 2001, when the federal government sold off its shares in Hamburg airport, diluted its holdings in other companies and promised to move on the sales of Deutsche Telekom and Deutsche Post. This had apparently been squared with the European Commission (responsible for policing big takeovers and acquisitions) despite the fact that German industrial giant, Siemens, was hoping to buy parts of Alstom and despite the Commissions supposedly strict rules preventing such blatant state aid! A recent European survey (Curzon Price, 2004) notes that it is gradually being brought under control, but most governments find it difficult to relinquish this instrument of policy. It also notes that the European Commission still has problems enforcing discipline on member states and that any decline could still be put at risk in an economic downturn not just in France and Germany, but also in other big offenders such as Spain and Italy.

Privatization as Politics Privatization can be motivated by politics rather than pure economic theory. These political motives are often mixed, but can be analytically separated as follows. Systemic privatization hopes to alter a countrys socio-economic and political environment fundamentally by reducing the states role (and peoples expectations of the states role) in it. The privatization programmes of Central and Eastern Europe, and to a lesser extent those of Southern Europe before it, could be labelled systemic. So, too, could those pursued towards the end of the 1980s and the early 1990s by the Thatcher and Major governments of the UK; they also aimed at the reduction of the power of organized labour, which is often at its strongest in the public sector. Tactical privatization, by contrast, is mainly about achieving the short-term, often electoral, goals of parties, politicians and the interest groups that support them. The adoption of privatization by centre-right politicians in France during the late 1980s was driven by a desire to distinguish themselves from their Socialist opponents, as well as the need to reward key supporters. The revenue thus gained, however, allowed the government to finance measures to combat unemployment (and, ironically, to keep afloat Supply-side social democracy in Sweden In recent years, Sweden has looked less immune than previously to recession, and social democratic-led governments have had little regret in slowing the growth of welfare spending, not least on pensions. They have also, like Labour in the UK, granted independence to the central bank

other state-owned holdings) that otherwise it would have had trouble affording. Pragmatic privatization is even more ad hoc and often crisis-driven: governments simply need the money to offset debt or public spending and are prepared to override even their own reservations in order to get it. The privatization which went on in European countries in the late 1990s, was one way of ensuring that countries such as Italy qualified for entry into the single currency a process that required them to bring their budget deficits, their debt and their current spending into line with agreed norms. Privatizations carried out by centre left governments in France and Germany also qualify as pragmatic. Privatization as politics It was both surprising and disappointing to many that former French Prime Minister, Lionel Jospin, began his doomed campaign for the presidency in 2002 with an assurance that it was not a socialist one. But Jospin was also the man who presided over what was the biggest sell-off of state assets in the country s history. Even though many of them were only part-sales (the state continued to hold majority stakes in France Telecom and Air France, for instance, and still owned a quarter of well-known car-maker, Renault), the Jospin government raised over 30 billion between 1997 and 2002 a figure its centre-right successor will find it hard to surpass. to set interest rates. Indeed, they have gone further than their UK counterparts by cutting income tax and privatizing the Swedish postal service in order to allow it to compete more efficiently in Europe.

Resisting the Anglo-Saxon hire and fire culture In March 2001, UK retailer Marks and Spencer (M&S) announced that its French stores were to shut, with the loss of hundreds of jobs. In the UK, such closures may be regarded as local tragedies, but they are also looked upon with a degree of fatalism: in business cest la vie. Not so in France. There were condemnations by politicians, demonstrations in Paris and the company was taken to court and successfully prosecuted for breaking French labour law, which insisted on the right of workers to be consulted on such matters. A few weeks after the M&S decision, French food manufacturer Danone announced the loss of over 2,000 jobs. Bringing an end to tax and spend? Social democrats in Europe, particularly in the UK, Germany and Italy, have been accused by critics to their left of trying to dismantle the welfare state. There is no doubt that most social democrats now buy into what, for them anyway, is a new macroeconomic consensus: fiscal stabilization = reduction in government debt burden = lower interest rates = more investment = increased economic growth = lower unemployment and stable inflation In health improvements in medical technology mean that people expect to be treated for conditions that previously would have been ignored and that might have served to decrease the surplus population.

Not only were there demonstrations, and even a consumer boycott, but the French government went so far as to tack on amendments to a bill already going through parliament: where over 1,000 people were to lose their jobs, businesses would have to offer retraining and enhanced severance pay. Meanwhile, at the EU level, the European Commissioner for Employment matters praised the French action. She insisted that workers and not just shareholders must be seen as stakeholders in companies and used the affair to rally support for a proposal to extend to small firms works councils that would facilitate employee involvement in company strategy plans that the UK insisted infringed the business freedom and flexibility that were vital to a dynamic European economy. As regards social security, there are several reasons why the state is more likely to spend in the future rather than save. These include the end of the concept of a family wage (i.e. one big enough to support a non-working wife bringing up children) brought about by the entry of women into the labour force, the inability (or unwillingness) of governments to ensure full employment and the low wages paid to many in the (largely nonunionized) service sector economy all situations that the state often ends up subsidizing through income support. Old age pensions, Europes ageing population was one of the biggest challenges facing its politicians. An obvious exception to this rule has been Sweden, where a commission involving stakeholders and five political parties in

the 1990s managed to produce a package which essentially supplemented the state earnings-related scheme with private provision and went some way to meanstesting the basic pension. In office, most governments in Europe have at least attempted to tackle the problem by a combination of the following: by reining back entitlements, most obviously by indexing to inflation rather than average wages; by raising the retirement age and by de-privileging public sector employees on particularly generous schemes (a real problem in France and Italy); and by encouraging or mandating private provision. In opposition, however, many parties have opportunistically supported (or, at least, declined to criticize) protests. The lack of consensus, especially when combined with popular protest, makes it difficult, and even impossible, for those supposedly in power to act decisively. Of course, this is not always the case: Austria s right-wing government faced mass protests and strikes over its planned The EU: Deadweight or Driving Force? We have already observed that the EU has played a role in privatization and the debate over flexible labour markets. Not only does it provide a framework of binding legislation and decision rules within which both economic and political activity in European countries must take place, it provides an arena in which politicians and the representatives of interest groups articulate their views and attempt to move that framework in their desired direction. To these radical critics, the EU is the creation of politicians who are convinced

pension reforms in the summer of 2003, but promised to soldier on partly perhaps because the country has no recent history of such events bringing down governments. In Hungary, for instance, it was the excommunist Social Democrats who, in the mid- 1990s, radically reformed the countrys pension system, introducing mandatory second-tier private provision. Again, this does not necessarily mean that right and left have no meaning. But because Europes voters seem to want to have it all (for instance, low taxes and early retirement on generous pensions) they have helped create a new division that does, indeed, threaten to go beyond left and right. This is the division between parties and politicians who, however reluctantly, force voters to face up to the impossibility of having it all (and are often as in Hungary thrown out at the next election) and those who are prepared to pretend for the sake of office that hard choices can be avoided. that there is no alternative, yet sceptical about their own ability (or the ability of their counterparts in other countries) to persuade their voters of the case. The key to this project is the single market, and the single currency. These will apparently encourage capital, among other things, to relocate to where labour is cheapest, regulation is lightest and taxes are lowest and, in so doing, force governments to shrink the state in order to ensure that their country remains an attractive place in which to do business.

More explicitly, the run-up to joining the euro was supposed to oblige Europes overspending governments to tighten their belts by forcing them to meet convergence criteria (set levels of debt, deficit and inflation) in order to qualify. And, when the single currency was adopted, it meant governments surrendering control of interest rates to the European Central Bank (ECB) thus depriving them of an important tool of economic policy and control. At the same time, their new-found inability to devalue their currencies in order to adjust to balance of payments problems was designed to force them into structural measures (such as lowering real wages and taxes and introducing supplyside measures) to regain international competitiveness. Moreover, in order to ensure that all countries in the Eurozone they have to sign up to the Stability and Growth Pact (SGP), policed by the Commission (This is supposed to stop them building up debts and deficits by, for example, countercyclical spending to offset a Eurozone (one-size-fits-all) interest rate that might be set so high that it risks choking off their economic growth. Higher taxes, privatization and lower interest payments, facilitated by falling interest rates on smaller national debts, all allowed welfare states to keep on growing.

Now that the euro is in use, it would appear that the will of politicians has proved far stronger than the rules they (or, rather, their predecessors) designed in order to constrain themselves. In fact, real wages continue to grow throughout Europe and are one reason why, for instance, the EUs bloated agricultural budget. EU, irrespective of whether its institutions increase their power over national governments, has expanded both the opportunities and the options available to businesses in Europe both of which they can use to their advantage. In 2004, for instance, Germanowned industrial concerns, DaimlerChrysler, Siemens and Bosch, were able to force longer working hours in factories in Germany and France partly by threatening to re-locate plants to the Czech Republic and Hungary, where wages are lower. For one thing, the economies of the new member states are growing much faster than their western counterparts and the continuation of such growth is not only likely but clearly in the interests of the EU and all its member states. Member states, after all, have been so determined to prevent the EU from having any say about how they organize social provision that they have expressly denied it competence in the field in recent treaties.

The EUs Stability and Growth Pact Under the terms of the SGP, Eurozone countries are not supposed to run budget deficits of more than 3 per cent of GDP. If they do, they are eventually liable to fines payable to the European Commission. However, it is not the Commission but the other member states, acting through the Council of Ministers, that decide on punishment. So far, they have proved reluctant to allow the Commission to do anything other than issue warnings and reprimands. One of these, issued in 2001, was enough to make Portugal cut spending in order to keep below the ceiling in 2002. Since then, however, the failure to take action against Germany and France, the most persistent offender, has rendered the Pact something of a laughing stock so much so that, in 2004, six of the twelve Eurozone countries (Germany, France, Italy, Greece, the Netherlands and a rather bitter Portugal!) looked set to breach the rules. The Commission responded by taking the Council of Finance Ministers to the ECJ for failure to act. In July 2004, the ECJ found in favour of the Commission, although this moral victory Why it still makes sense to be Different Social Democrats are now more preoccupied with horizontal redistribution (between old and young, sick and healthy, employed and unemployed) than with vertical redistribution (between rich and poor).

may well be rendered redundant by a review of the Pact, at which some of its rules may be relaxed. The fact that the Eurozones supposedly sovereign nations have agreed to permanent surveillance (and potential sanctioning) of their governments spending and borrowing by a supranational institution represents a major development in the political economy of Europe and European integration. Martin Rhodes notes the following (Rhodes, 2002: 412): European welfare states remain large, expensive and highly redistributive and their systems of labour market protection both generous and extensive. Broadly speaking, richer European countries are preserving levels of social spending while poorer ones tend to increase it in order to catch up. Meanwhile, permanent contracts remain dominant (and highly regulated by collective agreements and statute), and although there has been a spread of new contract forms (short-term, part-time work) in Europe, countries with high levels of social protection have also extended that protection to these new forms of work.

In the 1998 election in Sweden, when the Social Democratic SAP lost significant support to the Left Party and was henceforth distinctly more cagey about rationalizing the welfare state. France is the best example, though Italy and the Netherlands, to cite just two more examples, also have party and electoral systems that consistently deliver up small,

radical parties to whom unwary centrists can lose votes if they stray too far. There is, of course, one country in Europe where the electoral systems power to squeeze out smaller parties presents no such constraints the UK. European social democracy, then, has always been accommodating and has always operated in diverse institutional, cultural and competitive settings.

The left bloc generally contains Left parties, Greens, social democrats and some progressive or social liberals. Its counterpart on the right includes Christian Democrats, conservatives and market liberals. It also includes, increasingly, the far right a force whose rise is also blamed by some on the presumed decline of difference between right and left and reforms to the state that apparently make it incapable of protecting people from the predations of globalization

THE NETHERLANDS
History
After breaking free from Habsburg and Spanish rule by the mid-seventeenth century and French rule by the beginning of the nineteenth, the Netherlands assumed its present status as a constitutional monarchy in 1848. Even though much of its Roman Catholicdominated south became part of Belgium in 1839, the Netherlands remained a religiously divided society, with profound cultural and social differences not just between Catholics and Protestants but also between different branches of the latter. These differences were both maintained and contained by the verzuiling (pillar ) system: social groups marked off from each other by their denomination or ideological affiliation led largely separate existences, with their own welfare services, unions, business groups, political parties and media. From 1958 to 1973, all coalition governments were dominated by the centrist Christian Democrats. By the 1970s, however, the declining importance of religion and the consequent crumbling of the pillar system, allowed more governing flexibility. The Christian Democrats finally made it back into office in 2002, but not without the help of the far-right List Pim Fortuyn (LPF) a collection of political novices put together by a media-savvy maverick who was assassinated by an animal rights activist just before the election. After it, the LPF and, consequently the government, fell apart.

Economy and Society


Nevertheless, the Dutch economy has for some time been regarded as one of the strongest in Europe, resulting in a per

capita GDP that in 2003 was around 20 per cent higher than the EU-25 average. Rotterdam, half of whose population are said to be immigrants or from immigrant families, is the continents biggest port, but the country as a whole is strong in road transportation, petrochemicals, consumer electronics and banking. It also has a highly efficient agricultural sector. Recently, however, more attention has been paid to its downsides, not least the extent to which sickness benefit and parttime work masks unemployment. And, while the Netherlands (or at least its cities) famously tolerant attitude to drugs and alternative life-styles continues, its embrace of multiculturalism appears to be under strain especially after episodes of religiously motivated violence. This may make life more difficult for the countrys 650,000 Muslims.

Majority coalitions are very much the norm, even if two or three months of hard bargaining elapses between election night and the government being sworn in by the Queen. The Supreme Court (the Hoge Raad) is a comparatively weak institution since, unlike its counterparts in other countries, it cannot pronounce upon the constitutionality of laws passed by parliament, nor subject the actions of politicians and public servants to full judicial review.

Foreign policy
The Second World War put paid to the Netherlands century-old policy of tradeboosting neutrality, as well as to its empire in South America and the Dutch East Indies (most of which is now Indonesia). It was a founding member of NATO, and worked hard to maintain a good relationship with the USA, as well as the UK, despite the fact that the latter was initially cagey about joining the EEC, which the Netherlands helped found in 1957. Some observers also argue that the Netherlands, one of the biggest net financial contributors to the EU, is also cooling in its enthusiasm for further European integration.

Governance
The Netherlands is a parliamentary democracy, elected under a PR system affording seats in the legislature to parties that gain just two-thirds of 1 per cent of the national vote. This low threshold facilitates a large number and spread of parties in the more powerful, popularly elected Tweede Kamer (Second Chamber). The less powerful First Chamber is chosen by the councils of the countrys twelve provinces.

GDP: 4.2% of EU-25 Area: 0.9% of EU-25 Population: 3.6% of EU-25 Joined EU: founder member 1957 Capital city: Amsterdam

No easy Explanations: The Rise of the Far Right


The rise of the far-right something which pundits and politicians themselves often put down to what they claim is the lack of clear alternatives presented by the political mainstream. This explanation for the impressive performance of far-right parties since the 1990s has some merit. The far-right has done particularly well in top-performing, low unemployment, welfare states such as Austria, Denmark, Norway, and the Netherlands, and hopelessly in countries whose economies are either in much worse shape (e.g. Germany) or have much bigger differences between rich and poor (e.g. Spain and the UK). Moreover, and rather depressingly for the social democratic parties, the loss of office many of them experienced in the late 1990searly 2000s losses that could be blamed on the far-right helping the centre-right back into power (Bale, 2003) occurred even though nearly all of them that lost office did so after presiding over economies that were performing pretty well.

EXECUTIVE SUMMARY
Politics or at least the occupation of office by one party rather than another can and sometimes does make a difference, if not a huge one. The oft-heard assertion that the social democratic centre-left, and indeed Europe as a whole, is drifting towards policies that are traditionally associated with the more neo-liberal centre-right needs qualifying. Evidence for it on several key indicators privatization, labour market policy and the supposed end of tax and spend presents a decidedly mixed picture. The equally familiar assertion that the EUs economic governance and its single market and currency will lockinneo-liberalism may also be wide of the mark, as are suggestions from the other side of the ideological spectrum

that European integration necessarily promotes corporatist sclerosis. The facts about European political economy and the state in Europe need to be separated from the hype: for instance, welfare provision is not in terminal decline in the West and has survived the post-communist transition in the East; its systematic varieties, like those of capitalism, still seem to exist. Politics continues to engage with, if not necessarily to trump, economics. There are sound political (and more specifically electoral) reasons why the centre-left is unlikely to meld or morph into the centre right. The idea that such melding and morphing explains the rise of farright parties across Europe is deeply flawed, however attractive it may seem to pundits and politicians alike.