20 Century

Created 2/12/1997
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Slouching Towards Utopia?: The Economic History of the Twentieth Century

-XXII. The High Tide of Social Democracy-

J. Bradford DeLong
University of California at Berkeley and NBER

February 1997

The Social Insurance State

The growth of Keynesian doctrines of macroeconomic management as a result of the Great Depression carried with it an expansion of government social insurance spending: if the government was to be spending a fortune to stimulate the economy and avoid depression, then it should at least spend its fortune in a way that enhanced the general welfare. Few sought, after World War II, to see the government return to its pre-Depression role. Centrists feared that abandonment of social insurance would lead to abandonment of the Keynesian stabilization mission, and a return of the Great Depression. Left-wingers and unions saw in an expanded role of the government a way to eliminate, or at least to reduce, the evils of laissez-faire. Right-wingers and industrialists hoped that the "cooperative" social and production climate could be continued, and saw the social insurance state as offering the possibility of doing so at a low price in terms of taxes levied to finance the programs.

Herman van der Wee sees three variants of the fully-developed post-World War II "mixed economy," the social insurance state: a "neo-collectivist" variant (representative case: France), a "market-heavy" variant (representative case: ), and a "consultative" variant (representative case: Sweden).

Equality of Opportunity--and Perhaps Result

On June 4, 1965, President Lyndon Johnson was scheduled to deliver a speech at Howard University....[The speech was] going to make the President who had completed the civil rights legislation call that achievement inadequate.... The right to eat at an integrated lunch counter, buy a home in an integrated neighborhood, go to an integrated school, join an integrated work force--all these things had been vindicated without giving men the money to buy hamburgers or a home....

The civil rights laws had been based on a concept of equal opportunity.... President Johnson... was going to move blacks straight from stage one (equal rights) past stage two (equal opportunity) to stage three (equal results): "You do not take a person who, for years, has been hobbled by chains and liberate him, bring him to the starting line of a race and then say, 'You are free to compete with all the others,' and still justly believe that you have been completely fair.'

'Not just equality as a right and a theory, but equality as a fact and a result.'

from Garry Wills, Nixon Agonistes.

Blue Collar, White Collar, Pink Collar

In the 1950s trade unions seemed permanently established in the economies. of the industrial core.


Civil Rights

In 1940 the average African-American worker in the United States had three years fewer of education than the average white worker. A substantial majority of white Americans approved of discrimination--in employment, in housing, in education, and in voting. African-American men were concentrated in unskilled agricultural labor, primarily in the low-productivity and low-income (even for whites) south of the United States; African-American women were concentrated in unskilled agriculture and in domestic service. Both were extremely low-paid occupations: African- American men and women earned an average weekly wage some forty-five percent of their white counterparts. African-American male college graduates earned some $280 a week (in today's dollars); white high school graduates earned some $560 a week. In 1940 some 48 percent of white families fell below today's "poverty line" according to official statistics; some 81 percent of African-American families were in poverty.

All indications were that this combination of offical discrimination against African-Americans would continue to enforce relatively low rates of education, relatively low wealth, and rampant poverty into the indefinite future. As Gunnar Myrdal entitled his book, the inconsistency between an "American creed" of equality of opportunity and the actual position of African Americans was An American Dilemma. But there seemed to be no reason why the country could not live with this dilemma. The contradiction had been there in 1775. Yet it had managed to coexist with the institution of slavery for ninety years--and would have coexisted with slavery much longer had nto the issue of opposition to slavery become attached to the issue of preserving national union. President Abraham Lincoln could abolish slavery in the Civil War because it was seen as a means of preserving the nation in a strongly nationalist context. Myrdal's "American creed" managed to coexist with official state-sanctioned discrimination and disenfranchisement for another full century. There are still some who think that the Democratic Party's rejection at its 1964 convention of a Mississippi delegation with no African-American representation was an unconscionable mistake. Discrimination is still a reality in America today.

Yet by the end of the century things were very different. Virtually all whites would publicly espouse the principle of equal employment opportunity for African-Americans. Educational attainment by race was almost identical for those finishing school in the late 1980s and 1990s. African-American men's average weekly wages were two-thirds those of whites; African-American women's average weekly wages were more than ninety-five percent those of whites on average.

It is impossible not to credit the change to the extremely wise leadership and the extremely skillful use of moral force by the leadership of the African-American community. Martin Luther King Jr., Ralph Abernathy, Thurgood Marshall, earlier leaders like Booker T. Washington and W.E.B. Du Bois, and many others played an extremely weak hand with immense skill and patience, and with extraordinary long-run success. They are among the greatest of the heroes of the twentieth century.

The major sources of gains from 1940 to 1970 involved three factors: the end of formal, legal, state-sanctioned discrimination; the migration of African-Americans from the rural south to the urban north; and the associated shift from low-paid low-skill agricultural employment to industrial and service industries. The period was accompanied by large increases in African-American's educational levels, and high rates of employment growth and productivity growth in the rest of the economy.

Title VII of the 1964 Civil Right Act made employment discrimination illegal. There is every reason to think that civil right enforcement made a significant difference in speeding the economic advance of African Americans. Employment discrimination lawsuits acted as a spur to boost hiring. Government contractors expanded their African-American workforces much faster than did non-contractors.

The period from 1940 to 1970 was one of substantial relative advance. The picture from 1970 to 2000 was more mixed. By the end of the 1980s at least one in five of African-American prime-aged men (aged 25-54) reported no earnings in a given calendar year. Real per capita family income for African-Americans at the end of the twentieth century was some sixty percent of whites: almost exactly what it had been at the end of the 1960s.

The less favorable relative income performance of 1970 to 2000 had two causes. The first was a general, economy-wide cause: the growth in income inequality as changes in technology and production appeared to greatly diminish employers' relative demand for less-skilled and educated workers, and to greatly increase employers' relative demand for more-skilled and more-educated workers. The second were changes in family structure: the rise in divorce, the rise in births outside of marriage, and the consequent rise in single-parent almost inevitably female-headed households. The poverty rate for two-parent African-American families with children today is 12.5%. The poverty rate for single-parent African-American families with children today is 56.3%. More than half of African-American children in the last decades of the twentieth century spent more than half their childhood below the poverty line.

The traditional explanation for the decline in African-American two-parent families--the explanation provided by ideologists like Charles Murray and George Gilder--was that more generous welfare payments had triggered the collapse of the African-American family. But it was hard to escape the conclusion that those advancing this traditional explanation simply had not done their arithmetic. Welfare and food stamp payments for a mother with three children rose by one-third between 1960 and 1970, but then declined. By the mid-1990s welfare payments were lower in inflation-adjusted terms than they had been in 1960; real wages were some one-third higher--some fifty percent higher for African-American males. Maintaining a two-parent household was, in material terms, a much more advantageous option relative to split-up and welfare receipt in the 1990s than it had been in the 1950s and 1960s.

A better explanation was that African-American families were caught in the backwash of broader society-wide changes--but were especially vulnerable to them. The 1980s saw the election of America's first divorced president, Ronald Reagan. By the 1990s the children of one Speaker of the House of Representatives--the Republican Newt Gingrich--had grown up in a single-parent family. And trends in the 1990s suggested that a majority of white children in America would spend at least some time in a single-parent household.

The Regulatory State

Further Left?

Further to the "left", as the political spectrum was defined in the mid-twentieth century, were those coming out of a Marixist tradition who felt that Social Democracy was insufficient. What were the prospects of a shift from social democracy to something futher to the left?

The prospects were always small, in large part because of the intellectual reaction of the First World left to the economic history of the twentieth century.

The most powerful intellectul criticism of Marxism was the "it ain't so" line of criticism: that the claims of Marxism-as-social-science were simply ludicrously wrong. This criticism is powerful because true. And it is one that the far left has avoided answering. Instead, they have steadily retreated from the analysis of economic reality. This retreat has been a great irony: a thinker who spent his life trying to focus the attention of the left on the extraordinary economic revolution gathering speed has had his doctrines twisted into a knot that has crippled left-wing economic analysis for a century.

Since the lingua franca of the left has been this dialect of retreating and increasingly abstracted Marxism, those positioning themselves to the left of social democracy have remained committed to the principle that the essence of the market system is evil--as Marx intuited--and that the relevant task is to figure out just how. The puzzle is how to reconcile the evil essence of market capitalism with its relatively benign appearance in advanced industrial economies-rapidly growing wealth, steadily advancing real wage levels, no radical growth in the degree of inequality, and so on. This has kept the far left's attention away from real issues of reform and progress. It has had little constructive to say to the mixed economies and democratic governments of the industrial west in the late twentieth century.

The first stage on the retreat was to argue that the market had temporarily avoided immiserizing its own working classes by imperialism. This was always implausible from a quantitative standpoint: however large in proportion to peripheral economies were the spoils squeezed by imperial cruelty, the spoils were always small relative to production and investment in the core industrial west. From the seventeenth century on the west was too rich, and the non-west was too poor, for exploitation of the peripheries of empire to significantly affect the economic dynamic. This stage of the retreat added to the left's burdens a suspicion of international trade and investment as a form of "unequal exchange."

The second stage on the retreat was to argue that even though capitalism made workers productive, it "alienated" them from their true selves. In their advertising-induced thirst to consume, they sold their creativity and life-activity to become less than human cogs on the assembly line. But this ducked the question: people become cogs only if they have insufficient wealth and insufficient skills to live well while working at jobs that reward and nurture their creative impulses.

"Alienation" is a consequence of a skewed distribution of income. When society becomes richer and other opportunities become more attractive, people stop being willing to perform "alienating" jobs: the collapse of employment in domestic service in the industrial west in the twentieth century-the same collapse that helped convince Orwell that the system was impoverishing the upper middle class-is an example of how a richer and more equal society allows those close to the bottom of the income distribution to become more choosy both about the types of jobs they will take and about the terms under which they will take them.

But the major harm done by the retreat has been the stamping into the left of a fear of markets, and thus by default a love of hierarchies and bureaucracies. Marx showed that markets are bad, goes the current of thought, and lead to inhuman social outcomes. So whatever arrangement is chosen, it must be better if we avoid choosing the market.

But in practice the alternative has always been control by the government, or by some fraction of its administrative bureaucracy. And the government has limited administrative competence, limited degrees of accountability to those in whose name it is acting, and objectives other than that of providing for the general welfare. The tasks of designing institutions so that they advance the general welfare rather than the narrow power and wealth interests of those who hold positions that turn out to be key ones are very difficult.

Paul Baran and Paul Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966). pp. 138-39:

One need not have a specific idea of a reasonably constructed automobile, a well planned neighborhood, a beautiful musical composition, to recognize that the model changes that are incessantly imposed upon us, the slums that surround us, and the rock-and-roll that blares at us exemplify a pattern of utilization of human and material resources which is inimical to human welfare.

from "A Supermarket in California"

by Allen Ginsburg


What thoughts I have of you tonight, Walt Whitman...

In my hungry fatigue, and shopping for image, I went into the
neon fruit supermarket, dreaming of your enumerations!

What peaches and what penumbras! Whole families shopping
at night! Aisles full of husbands! Wives in the avocados, babies
in the tomatoes!--and you, Garcia Lorca, what were you doing
down by the watermelons?...

We strode down the open corridors together in our solitary
fancy tasting artichokes, possessing every frozen delicacy, and
never passing the cashier.

Where are we going, Walt Whitman? The doors close in an hour.
Which way does your beard point tonight?...

Ah, dear father, greybeard, lonely old courage-teacher, what
America did you have in mind when Charon quit poling his
ferry and you got out on a smoking bank and stood watching
the boat disappear on the black water of Lethe?

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20 Century

Created 2/12/1997
Go to
Brad DeLong's Home Page

Associate Professor of Economics Brad DeLong, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax