Class Conflict, Social Democracy, and Regulation in Australia Since 1890 and in a Global Capitalist Context Christopher Lloyd

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Saving Capitalism?

Class Conflict, Social Democracy, and Regulation in Australia

Since 1890 and in a Global Capitalist Context

Christopher Lloyd

Helsinki University, Finland

New England and Australian National Universities, Australia



Address to Summer School of Nordwel, Bergen, June 2009

Strands of the Analysis of Social Democratic Welfare Capitalism

Just as Marx argued in the 1850s that the anatomy of civil society had to be sought not in understanding the state or ideology (a la Hegel) but in political economy, so today we need to update that and say that the anatomy of Social Democratic Welfare Capitalism should not be sought in welfare states or welfare ideologies but in regulatory regimes of political economy. More particularly, it is argued here that the connections between social democracy, capitalism, welfare states, and welfare societies is a matter of the complex history of systemic regulation of capitalism both in its North Atlantic heartland and globally.

This paper tries to sketch an approach to this broad issue by tying together and analyzing three related problems.1 First, there is the problem of the origins, history, and possible futures of Social Democratic Welfare Capitalism (SDWC) as a specific, evolving form of capitalism with its own mode of regulation. Second there is the problem of how SDWC connects to and perhaps shows the probable trajectory for other varieties of capitalism in various parts of the world. And third, there is the problem of how to understand and locate the significance of the first case of SDWC in the world – the Australian case 2 – and which is not only the world’s first example of this form but one which could be thought to have evolved significantly away from this form, unlike some later and more developed examples, thus possibly showing the future for other examples. Nevertheless, it is clear that Australia today still exhibits both significant features of Social Democracy and a degree of macroeconomic dynamism and success possibly unmatched in the Western world in recent years including during the current recession. 3
In analysing the emergence, history, and structural consequences of social democracy and the associated welfare systems that were developed within the advanced capitalist regions in the 20th Century, we need to tie together the theoretical and historical themes of class conflict, liberalism, socialism, regulation, and systemic evolution to try to explain this broad historical process. A comparative analysis of varieties or types or models of capitalism is also essential in order to understand the broad development of capitalism and its long-run tendencies. Furthermore, the evolving interconnections of liberalism, socialism, social democracy, and capitalist socio-economic structure are still a practical question for policy in the advanced capitalist countries today and even more important for former communist countries, Latin American countries, Asian capitalist countries, and for emerging capitalist systems in Africa. A historical perspective on this set of issues is essential for an understanding of the present and for future strategies.
A central theme concerns the long-run stability of capitalist systems in general and of particular types, which is essentially about their formal and substantive regulatory structure. Stability has always been a problem for capitalism, beset as it is with cycles and periodic depressions, and the analysis of the organisation of capitalism by various regimes of regulation has been an essential task for understanding this instability. Regulation is a part of social systemics and of the ways in which social systems maintain their integrity and continuity against their own tendencies to dissipation and chaos. We can analyse the history of capitalism, then, as a dynamic complex structure of regimes of regulation of integrated systems and sub-systems that all derive their fundamental dynamic from the imperatives of capitalist accumulation and maintenance of systemic stability, neither of which are straightforwardly linear nor predictable. The history of capitalism and its variations reveals a non-teleological process that is full of contingency at many moments.

Has Social Democracy Saved Capitalism? A First Discussion

The particular question of the function of social democratic ideology and governance in ‘saving’ capitalism from destructive internal and external forces has been central in the discussion of the consequences of SD and the evolution of capitalism from the late 19th Century and continually ever since. The chief criticism of SD from both left and right has been that it’s a failed agenda in its own terms either because it has compromised too easily with capitalism and so has not even seriously attempted to transform it in a socialist direction or it has produced an inefficient and bureaucratic state with quasi-authoritarian tendencies that has undermined the accumulation strategy and therefore the dynamism of capitalism, in contrast with the laissez-faire, liberal-democratic (or neo-liberal) strategy.

The question of the connections between Socialism, Democracy, and Capitalism arose from the mid-19th Century when these very concepts of ‘Capitalism’, Social Democracy’, and ‘Democratic Socialism’ were developed, largely by Marx and Engels in Germany and to a lesser extent by Louis Blanc in France. In their early writings Marx and Engels theorised and argued that socialism could not be achieved except by the revolutionary overthrow of capitalism and this was going to happen because of the developmental logic of industrialisation that would convert most of the people of the world into disenchanted protelarians. Socialism was seen as the antithesis of capitalism. Democracy in this connection meant the democratic will of the majority as achieved through the uprising of the working class against their oppressors. Only later, towards the end of the 19th Century, with the emerging success of liberalisation and enfranchisement, due in large part to agitation by subordinate classes within Western Capitalist countries, did the issue of peaceful electoral politics enter centrally into the debate over the tactics to be pursued by the socialist workers movements. It was then seen by many, including Marx towards the end of his life and particularly by Engels, Bernstein, and Kautsky in the 1880s and 90s, as a strong possibility that socialism of some kind could be achieved through electoral seizure of power where the suffrage permitted working class parties to rise to dominance in the advanced capitalist countries of western Europe, North America, and Australasia.
It is easy to speculate that this socialist electoral dominance and at least a partial transformation of capitalism may well have happened in parts of northern Europe, given the rising trajectory of electoral success from about 1907, by the second decade of the Century. Of course the strength of Bourgeois reaction might have precipitated a violent confrontation at that point. But the First World War changed everything in all the advanced capitalist regions, including greatly widening the split in the workers movement globally between revolutionary and electoral strategies. Social democratic parties in the main western combatant countries more or less officially supported their national governments and the Second International dissolved along nationalist lines. It was not until the 1930s in a few places and mainly after the Second World War that social democratic governments became a central, even dominant, part of the political economy of Western Capitalism, in a context that included the division of the world into Communist and Capitalist blocs. Then, having achieved power, their socialist agendas were considerably less radical then they had been before WWI. The Bolshevik Revolution and failed communist revolutions elsewhere in 1918-22 and the rise of Fascism pushed the Social Democrats everywhere into a conservative, stabilisation direction. The achieving of government and even hegemony in some places transformed Social Democrats into managers of capitalism.
Thus before considering all varieties of capitalism, we must first ask did Social Democracy save Western Capitalism from economic collapse and revolutionary overthrow? Yes, it can be argued; it has turned out that Western Capitalism’s best friend is Social Democracy! Without its friend to save it Western Capitalism might have been destroyed by its own weaknesses and contradictions and internal enemies, especially the revolutionary working class, and externally by militaristic Fascism. This is just as the opponents, especially anarchists and communists, of electoral and class compromise argued in the 19th Century and later. The ‘historic mission’ of Social Democracy (SD), it seems, has been to defend and reform Western Capitalism as a system of political economy and in turn become part of the essential structure of capitalism itself. Taking this a step further, it can be argued that SD has in fact become the constructive developmental tendency of Western Capitalism itself such that destructive contradictions were neutred and perhaps largely removed. Is this developmental tendency inherent within all capitalism and will it manifest itself throughout the world eventually?
This argument can be taken too far, however, for we do not yet know whether in fact SD has removed or merely hidden or papered over the corrosive and even destructive contradictions of Western capitalism and we will never know this with any certainty unless there is a serious revolutionary moment again, more serious of course than 1968-69. But we do know that all socio-economic systems are inherently unstable to a greater or lesser degree – they contain a dialectic of their self-transformative nature (to use a Hegelian/Marxian mode of thought) or they are autopoietic but chaotic and so have a capacity to transform more or less rapidly into a quite different state (to use systemic-evolutionary concepts) – and so it should never be assumed that, a la Hegel, the process of history has ground to a halt. But whatever happens next in Western Capitalism, or anywhere else for that matter, it has to happen from the presently-existing context of SDWC, not from some earlier ‘starting point’ of the relationship between SD and capitalism. SD is a real force in the world as a whole still and is an essential part of all debates about the contradictory nature and future of all capitalism, wherever they occur.
In the end, then, we cannot give anything approaching a definitive answer to the question of whether SD ‘saved’ Western Capitalism but we can explore the issue historically conceptually, and theoretically to try to understand the evolving connections between capitalism, socialism, and liberal democracy.

Economic, Social, and Political Conditions in the Emergence of Social Democracy

In the 19th Century, in its homeland of Germany, social democratic ideology and its political expression were conceived as a revolutionary workers project of transforming capitalism into socialism. Marx and Engels set out their understanding of the necessity of revolution in The Communist Manifesto of 1848. While they were personally and intellectually influential in the whole history of the development of socialist organisations, theory, and ideology in the period from then onwards until the 1890s, they were far from influential in the program that was produced by the unity conference of German workers organisations, held at Gotha in 1975, that founded the German Social-Democratic Party. Marx wrote a powerful and destructive critique of the Gotha Program, especially for its failings in understanding the nature of capitalism and the necessity for a revolutionary transformation, especially in the autocratic circumstances that confronted the workers movement everywhere at that time. In 1891, however, the program was replaced by the Erfurt Program, a quite different document produced under quite different political and economic circumstances. The anti-socialist law of the Reich had gone as had Bismarck. The 1891 Program has to be read as falling within the reformist, democratic tradition that we subsequently associate with social democracy rather than revolutionary socialism. One of the authors was Eduard Bernstein, a chief architect of the ‘evolutionary’ or gradual and democratic route to socialism. That is, we can argue that liberalisation was significantly altering the context in which socialists were developing their ideological and political strategy to ‘accommodate’ (if that is the correct term) to the reality of capitalism as a maturing economic system in the late 19th Century. Of course we know that the ‘maturity’ of capitalism varied a good deal and was rather incomplete in Germany with its large landlord, peasant, and small business (or petit-bourgeos) classes. In the depths of the Great Depression the cross-class alliance that had developed during the Weimar Republic between Social Democrats and certain liberal capitalist interests was completely eclipsed by both leftist and rightist revolutionary, anti-democratic, movements. In the United States, on the other hand, a cross-class alliance, in effect, secured the New Deal, one of the world’s most advanced social democratic welfare regimes up to that that time.

The troubled history of social democracy and social welfare systems in capitalist industrial countries during the period up the Second World War was largely a consequence of the balance of class power, the strength of anti-socialist forces, and the trajectory of capital accumulation and economic development by that time. Industrialisation was still spreading and the agrarian context of economic development was till a significant component in national economies and societies. Class ideologies and politics were still those of semi-industrialised contexts in many places, especially central and southern Europe. The Great Depression was a transformative event in most places – leading to a rise all at once of socialist or social democratic strength, communist strength, and fascist strength, to varying degrees. Popular movements were roused and political conflict grew. Social democrats were the beneficiaries of this political awakening to some extent, notably in Scandinavia and the United States. In some places, especially central Europe, they were crushed by Fascistic, anti-democratic, reaction.
The development and maintenance of Liberal constitutions and electoral politics has always been an essential foundation for the emergence, survival, and success of social democracy / democratic socialism and indeed such constitutions have often called forth a SD response under certain conditions. This seems like a truism but it’s worth emphasising that when we consider the long-run history of SD politics and SDWC, entrenched democracy not only permits but seems to lead to the emergence of social democracy because of the electoral strength of those classes in certain economic circumstances. That is, working class strength and progressive ideology can only be electorally significant when the balance of social classes make such outcomes from elections possible. Marx was very clear about this when he criticized the 1875 draft Gotha Program for failing to understand that universal suffrage at that time would not have resulted in a social democratic government for the balance of class forces was very undeveloped compared with what it later became. By the 1890s, the German social democrats could glimpse a future when the working class electorate would indeed be a majority and the steady rise of voting strength that they and other parties experienced up to 1914 bore this out. Economic development was thus the other key to the rise of SD success because of the social structural foundation that it produced. We see the significance of these two foundations in the world today as SD spreads to other places or is prevented from spreading.

Towards Corporatist Class Compromise

Let us be in no doubt as to the significance of class conflict in the 19th and early 20th Century industrialising world. The working class that had been born out of capitalist industrialization everywhere was organising and conflicting with organised capital and authoritarian states. The fundamental demands of the earliest working class organisations – labour unions of various sorts – was for improved wages and working conditions (especially safety) and employment rights, especially the right to organize. This right was non-existent more or less everywhere and was only achieved gradually in some places as the 19th Century neared its end. That is, unions of workers were the foundation of the workers movement and the principle of solidarity was foundational of unions. The achievement of this basic right and organizational structure was co-developed with the aim of collective bargaining. Only by collective bargaining could workers begin to change the very unequal power balance within workplaces. Thus collective bargaining on an increasingly larger scale was always the central aim of union leaders. Social democratic political parties, which were closely associated with unions, fought to achieve political power in order to achieve labour rights, among other aims. Class compromises of workers with certain capitalist interests predated SD governments and were consolidated when SD governments came to power. These corporatist cross-class outcomes were the result largely of class conflicts within workplaces and in the wider society.

The development of workers movements was most advanced where capitalism was most developed in the second half of the 19th Century. Capitalist development, especially industrial development, gave birth to the industrial working class as a new social and political force in human history. But industrial capitalism was not really necessary to engender working classes with class conscious solidarity in a wider political sense. One of the most advanced in the sense of capitalist development and working class organization was Australia but its special form of capitalism – Anglo settler capitalism – in the 19th Century did not develop in the same way as European capitalists economies – as a manufacturing-led development. Industrialisation was later than in Europe and United States; rather it was through a capital-intensive, large-scale, resource-extractive development that was based on agriculture and mining in a labour-shortage economy with high wages, that Australia became an advanced, rich, urban society with a large working class. (see next section) It was there and in New Zealand that formally instituted quasi-corporatist class compromises were brought into being in the 1890s. In both cases the chief initial instigators were social liberals who were concerned about the social destructiveness of class conflict. The industrial working class was very little developed in New Zealand but it was militant in a few places. The role of small farmers and urban liberals was crucial in the establishment of early forms of corporatist collective bargaining, especially via state-established conciliation, arbitration, and wage setting institutions in the 1890s and collective marketing schemes for agricultural produce in the 1920s. In Australia the working class was more highly developed and conscious by the 1880s and many powerful unions had formed. Liberals were also prominent in the colonial parliaments.
It used to be said in the early 20th century, and more recently with a reminiscent tone, that Australia and New Zealand were social laboratories, experimenting with new forms of social organization and institutions that were designed somehow to resolve the fundamental problems of class-divided, unequal, capitalist societies. This antipodean new world, free from the constraints and legacies of old world social structures and ideologies, was supposedly able to more freely experiment with ways of organizing and regulating the socio-politico-economy. 4 But, as elsewhere in the capitalist world, class conflict lay at the heart of Australia’s ‘experiments’.

The 1890s Australian class conflict and the emergence of the first social democracy

After the gold rushes of the 1850s and reinforced by successive natural resource export developments Australia was the richest society per capita in the world. The highly prosperous settler economy had emerged as a peculiar mixture of laissez faire and “colonial socialism” with its development of a rudimentary “provider state” model out of the foundation as a penal service economy for the British Empire. The integrated public/private economic and state structure continued as a path dependent institutional arrangement well into the 20th Century and its echoes can be discerned still in culture, ideology, and institutions.

The resource-extraction and commercial economy of the 19th Century needed and generated a large urbanised service sector of finance, land transport, shipping, education, construction, and associated urban services. The largest industrial sites that developed in the late 19th Century were mines, railway workshops, ship building, public building construction, farm and mining equipment manufacturing, and textiles. These sectors, as well as rural workers, were becoming significantly unionised by the 1870s and 80s, in a context of union legalisation from the 1830s and universal male franchise from 1854.
By the 1870s a chief policy preoccupation was of how to generate employment for the highly urbanised population and immigrant inflow that was dependent upon the very productive, efficient, but labour-shedding resource export sector, which was itself highly dependent on world market prices. Like all resource-dependent (or resource-cursed) rich economies at that time (or since), the problem was of how to transfer the export wealth into a diversified and developed urban economy and society. Thus government policy centred on protection of manufacturing in most colonies (except NSW, whose politics was dominated by free trading pastoral and mining interests) and the nascent labour movement concentrated on trade or craft unionism as the means to redistribute the benefits of national wealth into high material living standards, especially for skilled workers. Labourism5 was a successful strategy in its own narrow terms while ever the economy delivered full employment, expansion, and surplus wealth for redistribution.
Thus Australia, as with all advanced western capitalist countries, developed a strong workers movement in the second half of the 19th Century. This organized movement took the form almost exclusively of labour unions based on crafts and trades. This model of organisation grew out of the British legal and socio-economic background of liberalisation and craft guilds. Before the direct formation of a political party by workers, consciously working class voters tended to support social liberals.
However, the severe economic and social crisis of the early 1890s depression, in which occurred a series of bitter and protracted strikes, verging on organised armed conflict in places, and a collapse of almost the entire banking system, shook this ‘paradise’ to its foundations and became an epochal moment in Australian political economy and society. From this period of severe class conflict sprang the Australian Labor Party, centralised industrial relations regulation, women’s suffrage, Federation of the Australian states, nationalistic culture, and, by the early 20th Century, a coherent new general regime of political economy that aimed to ‘civilise capitalism’ away from the causes of the financial, industrial, and social turmoil and degradation of the 1890s.
The defeat of the strikers and of their power to enforce closed shops and collective bargaining by a combination of employer associations and state power, in a climate of severe unemployment in 1890-94, motivated unionists and some liberals to believe that the capitalist economy could not be ameliorated by union power alone in the interests of working class prosperity whilever the state was controlled by nakedly capitalist interests. Unlike some other parts of the industrialising world at that time, the only strategy they developed was one of organised political mobilisation for governmental capture via electoral strength in the expectation of then using state power for labourist outcomes. This was a resolutely reformist rather than revolutionary strategy, led by and controlled by unions who were focused on bargaining over wages and conditions within a liberal democratic society. Labour unions were hegemonic in organising the working class. No significant space for extra-union political organisations opened in Australia during the long boom of 1860-1890 nor during the bitterness of the class conflict of the 1890s and no form of unionisation other than craft and trade unions were able to gain a significant foothold in the labour landscape. The colonial Labor Parties that were formed in the early 1890s were always the creation of the unions. Union leaders were on the whole imbued with a post-Chartist and labourist ideology of economic justice and egalitarianism via workplace struggles.
When it became clear that the greatly altered labour market conditions in the depression of the early 1890s would prevent the militant closed shop strategy from succeeding, the unions saw an advantage in an electoral strategy to try to legislate for national and industry collective bargaining via state institutions that would have the power to enforce agreements and protect workers from predatory capitalists. The almost immediate influence of Labor Parties at the colonial (state) level initially and later at the Federal level after 1901 meant that centralised industrial relations in the form of state institutions for conciliation and compulsory arbitration were legislated in coalition with so-called ‘Harmony Liberals’. The Liberal ideology centred on the role of the state in providing welfare and justice in the interests of social stability at the same time as protecting the economy and society from harmful external forces of economic, social, ethnic, cultural and geopolitical power. This kind of ‘liberal interest’ dominated most Australian states and the early Federal Parliament and was able to form a more or less united Lib-Lab front with Labor against large landed, mining, and foreign industrial interests until 1908. The free trade, laissez faire, interest was not able to command significant support until the 1970s and always remained subservient to liberalism within the united anti-Labor coalition until the1980s.
With the formation of Labor Parties in the pre-federation independent colonies from 1891, then, there was an immediate sea change in the electoral landscape. The Labor Party and independent labor candidates together polled 21% of the vote in the New South Wales election of 1891 and 22% in 1893. 6 The Labor Party was formed by the trade unions who wished to capture political power in order to advance the causes of workers rights, egalitarian redistribution (especially via wage maintenance), collective bargaining, and employment security by capturing state power via the electoral process. This social democratic agenda placed the Australian Labor Party (ALP) squarely within the world-wide social democratic movement of the late 19th Century.
This early and continuing success of the social democratic workers movement was the world’s most advanced in the electoral sense. The world’s first social democratic Governments were elected in Australia before the First World War. 7 In the 1910 election the ALP scored 50% of the vote. The Fisher Labor governments of 1908-1909 and especially the majority government of 1910-13 were able to legislate more of the Party’s social democratic program including formation of the Commonwealth Bank (a government-owned ‘peoples’ bank’), maternity allowances, workers accident compensation, and improvements to invalid and aged pensions. The First World War, however, had a major deleterious effect on the Party, causing a split in 1916 on the issue of conscription for the war. The ‘right wing’ minority faction of the Party, in favour of conscription, split to form a government with the conservatives, forcing Labor out of office. But the two conscription referenda were lost and Australia remained the only major participant in the war to have an all-volunteer army, which numbered over 400,000 soldiers by 1918. Social and industrial conflict was also greatly engendered by the war involvement and in 1917 a virtual general strike occurred.

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