It is this: David Held pits social democracy as, in effect, the “good guy” against the Washington Consensus and the Washington Strategy as the “bad guy”. The ills of the world are to be solved by letting the good guy try his cure; the bad guy is a part of the problem, not the solution.

This is a caricature but it does reflect the ordering assumption of David Held’s argument. I don’t accept it. In my view, social democracy has itself been in a deep crisis from which it has yet to re-emerge. This crisis is rooted in the fact that social democracy is a political formation appropriate to a certain, historic phase of capitalist development: namely, after the first world war, when the world “de-globalised” into an archipelago of national capitalisms loosely connected by trade and capital movements.

As I have argued in Marx’s Revenge (Verso, 2004), the 1870-1914 world was highly globalised; territorial states exercised only weak control over their economies. In the 1919-1980s period, the world de-globalised, thus allowing the territorial state to establish greater control over national eceonomies. This era was characterised also by Fordism, with its large manufacturing units and mass trade unions. When Keynesian economics was added to this mix after 1945, the tragic inter-war years were succeeded by the Keynesian “golden age” of 1945-1975. It was in precisely this period that social democratic parties, flourished as Donald Sassoon’s One Hundred Years of Socialism has shown.

It could not last. From the stagflation of the 1970s onwards, social democracy faced challenges it could not meet. The Fordist economy ended as the unionised working classes fragmented; continued full employment led to a crisis of profitability and consequent outward migration of capital and the decline of manufacturing industry across OECD countries. Public budgets came under pressure and welfare states everywhere became hard to sustain.

The trap of uniformity

The challenge of restructuring western economies and restoring profitability could only be met by a right-wing, libertarian agenda. To recover its electability, social democracy adopted their enemies’ garb, but called it “triangulation” or the “third way” to save their own blushes.

The most successful “social democratic” regimes, like Britain’s New Labour or the Clinton presidency, in effect abandoned social democracy in all its essentials. They rebuilt their welfare states around work rather than traditional welfare. Progressive income taxation has been replaced by incentive-based income taxes where most revenue derives from indirect taxes. While the rhetoric is about reducing inequality, poverty elimination is given greater weight in redistributive policies.

This is not a perverse but a logical response to the loss of control of the state over the economy. With unregulated capital movements in the OECD (and even further across the globe), it is not possible for the state to subdue the economy as in the halcyon days of Keynesianism. Rather, the state is subordinate to economic imperatives: capital needs to be retained at home and attracted from abroad, labour needs to be educated and re-educated, and labour markets need to be flexible; budgets have to be balanced, and an open economy is the rule. The social democratic parties which failed to meet such challenges have either faced defeat or been forced to adopt austerity measures, as in France under François Mitterrand.

But the biggest challenge to social democracy has been the issue of citizens’ freedom to access public services. Social democracy thrives on uniformity and allocation from the top; it finds diversity and choice difficult to accommodate. But such institutional approaches in an unequal society leads to unequal outcomes and the perpetuation of inequalities. The prime beneficiaries of programmes of universal provision of health and education are middle-class people who know how to play the system.

Moreover, as modern societies have fragmented and demands are made based on gender, race, ethnicity and age – competing with good old working-class status – social democracy is forced to recognise that statism has its limits. “Rainbow alliances” must be built to replace unionised, working-class parties. The provision of public services has to become partly private and seeks to accommodate choice and quality.

Social democracy has been most reluctant to decentralise and devolve power since it strongly believes in state control. But states everywhere, not just in the “third world”, are dubious guardians of the human rights of citizens. Civil society, especially in relation to women and ethnic minorities, has had to organise to protect rights and ensure benefits. The effort required for gays to obtain state benefits on the same basis as heterosexuals is one illustration of how oppressive the uniformity of the old welfare state has been.

A post-statist social democracy?

These problems of social democracy also have a global dimension. The problem here is not just that there is no global state, but that even if there were one, it might not be worth having. States do not protect the poor and the property-less; only such people’s self-organisation has historically done that. The social-democratic state imagines itself a protector of the poor, because it was once the protector of the gainfully employed (who might occasionally be unemployed) and eventual retiree. It excluded, until very recently, non-working women and men in informal labour markets.

But the deepest obstacle to the creation of a global order is the sovereignty of territorial nation-states. They are reluctance to cede or share sovereignty – whether in imposing import tariffs and export subsidies, restricting the free movement of labour by imposing passport and visa restrictions, or violating the human rights of minorities.

States are often reluctant even to comply with treaties they have signed, such as the Universal Declaration of Human Rights. Many practice ethnic cleansing and genocide with impunity. It is when the sovereignty of states has been challenged, ultimately by military power (as in the Balkans, Afghanistan, and indeed Iraq) that regimes grossly in violation of human rights have been removed. Europe’s failure to counter such violations in its own backyard and its reliance on United States military power does raise questions about who are the real friends of human rights.

The social democratic programme is engaged in recreating a state at the global level. But this outcome will not necessarily be the sort of state that modern democracies succeeded in creating after a hard struggle over centuries in which ordinary men and women fought for their rights. It will be more like a medieval order within which there will be more than 200 small and large principalities.

The United Nations itself is built on a principle of inequality via the five permanent members of the Security Council. What is needed is a democratisation of the UN through direct representation of “we, the people” in whose name the UN charter speaks.

A new global order will eventually be created – but not from a statist, top-down, “global new deal”-type approach. It will be created because in the course of globalisation, the responses of people moving to where the jobs are and of capital moving to where the profits are, will erode national sovereignty. The global order will be created because multinational corporations will demand a uniform standard of environmental or accounting practices in order to operate across the globe.

Indeed such global governance from below could happen faster if individual jurisdictions did not insist on preserving their own laws (as in the European Union). It will require the erosion of state sovereignty and the strengthening of human rights independently of territorial states.

The days when statism was any sort of answer to humanity’s problems are past. Certainly not global statism! The social democracy that evolved and decayed in relation to earlier periods of capitalism needs to reinvent itself for the age of globalised capitalism: as a bottom-up, people-centred social movement and philosophy that enables people to solve their own problems by self-organisation.