Adaner Usmani: I wanted to begin by asking you about the history that precedes the crisis, and specifically about the evolution of European social democracy. On the one hand we have seen social democratic governments in Greece, France and elsewhere entirely complicit in the evisceration of the welfare state, and in the imposition of austerity. On the other hand, the tradition of which they’re a part brought many benefits to Europe’s working classes. The welfare state is a real achievement, after all, and it’s arguably held up better than many radicals argue. Certainly there’s a strong current of academic literature, known as the Varieties of Capitalism (VOC) school, which argues that its degeneration has been overstated.

This is a horribly broad question, of course, but how would you assess the legacy of social democracy?

Leo Panitch: Well, there’s no question that the reforms that social democracy secured in the post-war period were substantial reforms that have had very positive effects for the working-classes. No question.

That said, it depends where you’re coming from. If what you’re looking for is reforms within capitalism, fine. But these were parties that, initially, and in fact in their constitutions until the late 50s, were all committed to getting out of capitalism.

What the welfare state did — and here Gøsta Esping-Andersen has it backwards — is increase commodification. Yes, of course, the welfare state provided a certain level of job security, but it didn’t free people from the obligation to sell their labor. The way the welfare state was structured was largely designed to facilitate a mass, high-wage proletariat for the consumption of commodities. In this sense, social democracy was complicit in the deepening of capitalism. By the time of the Godesberg Program in the late 1950s, they were explicitly saying that they were in for a more humane capitalism.

The other dimension of this, however, is that they thought that they had done much more than they actually had to shift the balance of class power, and the relationship between states and markets. For example, in his famous The Future of Socialism (1956), Anthony Crosland argues that anybody who derides Marx is an intellectual pygmy, and that it was sensible to be a Marxist through the 1930s. However, he continues, since then there’s been a fundamental shift of power away from financial capital, a fundamental shift in power in favor of labor vis-à-vis industry, and a fundamental shift in power towards the state. That, in effect, the state is now autonomous.

You look at that today and you think, "What!?"

So, in short, it depends. I certainly agree that it’s not that easy to dismantle the welfare state, as the VOC school argues. That said, there’s no question that the reforms have been reversed. Most people are less dependent on the welfare state, because it’s not doing what it used to do. The country that has had the greatest increase in inequality over the neoliberal period, and I believe in the OECD, has been Sweden! And yes, Sweden still probably has the highest level of benefits. Nevertheless, you see the shift.

So my line has always been that there was this realization inside social democracy, by those who remained socialists (who were inspired by Tony Benn, by the student movement of the 1960s, by the social movements) who argued that unless we now move to go beyond capital, to actually institute reforms that take power over investment decisions away from capital, we are going to lose those reforms. Lose may have been too strong a word. But those who remained socialist were all defeated.

AU: Can we talk about this history a bit? This is what I found most insightful about the article that you wrote in the Socialist Register’s 1985 issue on the future of social democracy, in which you offered your assessment of why those efforts floundered. Because, as you’re saying, there was this incipient radicalization — not just workplace-based in the 1960s and 1970s, but also these shifts to the left within the structure of Social Democracy itself. Tony Benn, but then also in France, Germany, Sweden, even Greece. Why did they lose?

LP: Well, my fundamental answer to that, which goes back to my being a graduate student at LSE in the late 60s, and the first article I ever published in Political Studies on ideology and integration, is that it has to do with the strong tradition within all these parties (most explicitly the British Labour Party, but implicitly in the Second International Social Democrats from at least 1902-1903 on) that it was not class struggle but class harmony that was their goal. The Fabian goal of educating the ruling class to socialism. That largely became the German trade union federation’s goal as well, which is what Rosa Luxemburg was railing against by 1905.

So when that challenge came out of the growing mobilization of the 1960s and the crisis of the 1970s, from the left inside Social Democracy, the establishment of those parties had as much right as the left, maybe more, to deny that their tradition was a socialist one. The left was always saying that the party needed to return to what it had stood for. But the right could accurately say that the tradition of the party was class harmony. Furthermore they could argue that what the left was proposing the capitalists would not play with.

AU: Which was true?

LP: Which was true. Even with the Meidner Plan, which involved tremendous mobilization on the part of the LO [the Swedish Trade Union Confederation]. I knew Meidner, and spent time talking about this with him, and he told me very explicitly that he was called in by Olof Palme, who asked him, "Why the hell are you doing this? They won’t cooperate with this. We’ll give you the best health and safety regulations you can ask for — even better than what you are asking for. But call this off! Because this kind of thing they will never tolerate." It’s not that Palme was an idiot. He was right!

After the LO convention passed the proposal to introduce the wage-earner funds, which represented a gradual commitment to continuing wage-restraint in exchange for passing profits over to trade union funds, it was proposed that it apply only to firms with over 100 employees. The radicals amended this, and it was applied to firms with only 10 employees, which included many more firms, and many more workers. And they all got up and sang "The Internationale" for the first time in 20 years at an LO convention.

But the effect of this was to create an alliance between big capital and small capital. By the early 1980s, despite the fact that the plan had already been watered down by successive Social Democrat governments, you’ve got mass demonstrations by business against the Meidner plan.

AU: Isn’t there a very sobering implication of that fact, which is that the conditions for the success of the left within the left, in that time period, were absent?

LP: Well, I think the terrible conclusion one has to draw is that you cannot change these parties into socialist parties without splitting them apart. And I don’t mean into insurrectionary parties, but into electoral socialist parties. And if you do split these parties, you lose elections. And in the face of a crisis and an assault by the right, the left then gets accused of bearing the burden. It is the one that always backs off, because it has a greater concern for solidarity — more easily guilted, always. The right is prepared to split, as you saw in the case of British Labour Party. It’s a catch-22. A game theorist would have a field day.

AU: There’s that, certainly — the difficult implications of splitting. But it seems to me that the political independence of the left wouldn’t have solved the challenges of that conjuncture. Because one of the other things you argue in that article is that you needed a mobilized and politicized working-class if you were to confront the employers’ offensive and the right, and you didn’t have that. Nor was it up to the left to generate that — even as an independent left. Isn’t it partly, as you argued in that article, that the absence of working-class mobilization was itself the product of the long legacy of social democratic institutions?

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