Where Now for European Social Democracy? - Policy Network

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JEAN PISANI-FERRY 51and full employment suddenly became a handicap; the Keynesianview cannot explain why the growth performance across countriesappears to be uncorrelated to the extent of the recourse to demandreflation policies.An alternative approach emerges from recent research and policypapers. 2 It emphasises that the economic institutions that areconducive to growth in a catching-up economy whose development isbased on imitation – such as long-term credit relations between banksand companies, lifelong labour contracts, oligopolistic competition,and so on, and can become dysfunctional in an economy approachingthe technology frontier, whose growth must be based on innovation.For example, barriers to entry that limit competition are hardlydetrimental to growth in developing economies that are far from thetechnology frontier, but become increasingly costly as the distanceto that frontier diminishes. By the same token, spending on highereducation does not significantly impact on growth in developing andemerging economies, but becomes a key long-term growth factor inadvanced economies.This approach does not deny the need to embark on structuralreforms in order to revive growth. However, it stresses that thosereform must be guided, not by a need to conform to an eternalparadigm, but by the need to make the economy better able toembrace the modern growth fundamentals of advanced economies. Forexample, it puts emphasis on ensuring an appropriate level of spendingon higher education and research, or on making sure that competitionpolicy aims at favouring the entry of new players rather than atcontaining the market share of the incumbents.This approach does not deny the role of macroeconomic policyeither. Investment in innovation inherently involves risks which can beeither magnified or contained by a well-designed macroeconomicstabilisation policy. As the US experience suggests, structural andmacroeconomic policies should be regarded as complements ratherthan substitutes 3 and reforming the EMU macroeconomic frameworkis an integral part of a European growth programme.If this view is correct, it has strong implications for European socialdemocrats: first, they should avoid playing again the same old tunes
52WHERE NOW FOR EUROPEAN SOCIAL DEMOCRACY?and cease limiting the policy debate to a ‘structuralist vs. Keynesians’controversy (in fact, as emphasised in Strauss-Kahn, 2002), 4 there isnothing in the intellectual and political history of the Left that shouldmake it unable to address supply side issues and lead it to limit itselfto managing the demand side); second, they should give thoughts todefining a common reform agenda that both addresses the new issuesand corresponds to their values and priorities.What agenda?European political currents are likely to be increasingly heldaccountable for their ability to put forward and implement a crediblegrowth agenda. As usual when an issue is taking centre stage on thepolicy agenda, voters will make their choice on the basis of theperceived quality of the various programmes on supply.In such a context, social democrats have to beware of two risks.The first one is to be short on new proposals and ideas, with the dangerof giving the impression that they are not really able to tackle theissue. This risk is especially prominent in countries where the Rightholds power and presses on a pro-reform agenda, while the Left, inopposition, tends to resist it. Conservatives miss no occasion to portraythe Left as the new status quo party.The other risk is to embrace a pro-growth reform agenda that turnsout to be indistinguishable from that of the Right. This is a danger thatthe centre-left especially faces in countries where it holds governmentpositions and must act in coalition with centre-right parties or withcentre-right governments in the rest of Europe. But it can even affectthe home-grown reform agenda in countries where social democratsare in a majority. Such policies may be justified in their own right, butthey risk undermining the legitimacy of the Left in the eyes of its basicconstituencies.What is frequently missing is a reform programme that bothpromotes growth and has roots in the core values of the Left. TheLisbon agenda, which was elaborated when social democrats were inpower in a majority of EU member states, was a first common attemptand it still provides useful guidance, however its credibility has
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Where Now forEuropeanSocial Democra
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Published in 2004 by Policy Network
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AcknowledgementsThis collection of
Page 8 and 9: Notes on the ContributorsTony Blair
Page 10: PrefaceTONY BLAIRI welcome this pub
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Page 18: What is a just society?For a radica
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Page 48: GrowthandProsperity
Page 56 and 57: Growth Policies for Europe:Is there
Page 60 and 61: JEAN PISANI-FERRY 53diminished as c
Page 62: JEAN PISANI-FERRY 55macroeconomic f
Page 80: The NewPolitics ofInsecurity
Page 92 and 93: Freedom in Security:A Social Democr
Page 94 and 95: BRIGITTE ZYPRIES 87that these recom
Page 96 and 97: BRIGITTE ZYPRIES 89appropriate case
Page 98: BRIGITTE ZYPRIES 91dispute regardin
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