“Can the debt and deficit laden European welfare states . . . rescue their public finances and reform their social market economies?” asks Timothy Garton-Ash in a column in the Guardian this week. Can any of the Western democracies work their way out of their sovereign debt while maintaining their social fabric? Including the U.S.!?
Even before the bank debt crisis was transferred to the public purse in 2008, gaping holes had started to open in the public accounts of every developed society that was unable to exploit fortuitously local natural resources. The full development of the “social market economy” had not actually been possible until the latter half of the 20th century, and then only the most industrialized societies were able to give it a try. And give it a try they did, without employing the same cold, hard analytical skills that they used to develop their burgeoning, ravenous and muscular economies.
The reality in those countries that did look like social market economies was that they had split into two internal realities. Cold, clear market economies on the one side and warm, fuzzy political fantasies on the other. So long as the political reality didn’t infringe on the operations of the market reality, each could live in their own space, peering occasionally with bemusement into the other reality. The deal centered around the political reality being able to sustain itself without imposing too great a burden on the market reality.
You could ask anyone on the market side and they’d tell you that the politicians weren’t living in reality, that their math skills stunk, and that that “it” would never work – but heck, so long as vast swathes of society were happy to be deluded, and those delusions didn’t interfere too much with the “natural” market forces that really made the world tick… who were they to try and correct the fallacies, right the wrongs or destroy the fantasy?
On the other side, in the political reality, everyone was agreed, with great frustration, that the inhabitants of the market reality were just one enlightenment short of recognizing the inevitable self-destruction inherent in a market economy model that failed to recognize that it was supposed to serve the needs of the political reality.
The disconnect was pretty universal and early in life most people picked or found themselves in one reality or the other, which then shaped and framed their worldview thence forward. The actual reality, the real shared universe, got little attention and virtually no recognition.
What allowed these two realities to persist for a century, and what has now virtually collapsed in 2010, was the subtly corrupted accounting on which the market economies were based, and which sustained the illusion of self-funding welfare societies.
At the beginning, the social welfare provided was very meagre and was available to only a few. For instance, pensions were only subsistence and only a few lived long enough to collect them. In the middle, the economies that supported (funded) the slightly better welfare programs of their age were unconsciously over-muscular, leveraging unbalanced trade, resource exploitation, uncosted environmental pollution and unfair competition to generate unnatural wealth (profits) that made the welfare states that relied on them look affordable. In fact, they weren’t.
The collapse of the Soviet communist system mid-way through this period just “proved” to everyone that asserting the political reality over the market reality was a road to doom. In actual fact it proved the necessity of allowing natural markets to operate and the fundamental role of freedom in human society, but it did not help to frame the proper and useful placement of market economies – it just proved that we need them.
The the later stages, as social welfare developed more fully and costs rose significantly, the market economies of the West started to run out of resources and face greater competition from the rest of the world. In response to those pressures a complex system of debt was used to replace real wealth. The political reality encouraged the markets to manufacture a debt delusion that was bound to crash when it ran out of bubbles to inflate. This happened in 2008 and the real reality, that the political reality is dependent on the market reality, came home to roost. The first response, the understandable reaction to the shock, was denial; and the remedy was to repair the debt damage in the market reality by transferring it to the political reality, by bailing out the banks.
Now we must face the fusion of our political and market realities, if we are to forge a path forward for cohesive human societies. We must face the reality that we cannot account for our social needs with the same mechanisms that are appropriate for our market economies. If we are to build sustainable market societies we must recognize the social rewards of social work alongside monetary rewards for market success. The reality is that the market economy is a smaller realm of activity than the social services realm, and the market economy simply cannot produce sufficient monetary wealth to pay for the the necessary social activity with money.
Transitioning to this fused reality is not hard, or far away. The future of the “social market economy” is the “market economy society“. A subtle but profound transition of emphasis accomplished by an equally subtle and profound change of our priorities. The market economy remains but the political reality is profoundly altered by accepting responsibility for itself and transitioning from dependent to independent.
The market economy society establishes a framework within which the market can operate without responsibility for society, because society has assumed responsibility for itself and the market operates within a space created and nurtured for it by the society. The mechanisms that create this reality are simple and universal as well as being accessible and immediately effective.
In a market economy society the monetary cost of labor is only its commercial value adding quotient. This is true because the society provides the basic services necessary to sustain a reasonable life (shelter, sustenance, transport, education, healthcare, information and the protection of the law) for free – the majority of the cost of these services is absorbed by the citizens of the society in return for the reward of living in a peaceful, free, market economy society.
This is the only desirable and feasible human society. The debt bubble has burst, the industrial growth train has run out track and steam and the elevation of social awareness is irreversible.
The looming “age of austerity” being offered up by the old disconnected realities is neither necessary nor acceptable, as we shall see. The measure of our skill as a product of Nature will be our ability to reimagein our actual reality, with clarity of practice and intention.