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Global Financial Crisis, Social Democracy and Nepal's Choice

Dev Raj Dahal, Head, FES Nepal Office


The current global financial crisis marks the end of one epoch to begin the next. The triumph of neo-liberalism - defined by the Washington Consensus- caused the regulatory failure of state and has become one of the greatest threats to global economic stability. It had reduced politics and government to the elite control akin to pre-democratic era. Obviously, as economy was disembodied from society the crisis spilled over the credit regime and has produced negative ecological, social and political consequences. George Soros has rightly said, "The crisis was generated by the system itself." In the G-20 meet of April 2, 2009 in London British Prime Minister Gordon Brown rightly proclaimed the farewell to Washington Consensus. The meet made essential strides in battling current crisis through fiscal stimulus, limits on borrowing and spending, healthy banking, reducing trade imbalances, fighting trade barriers, providing support to developing countries to mitigate the effects of crisis, cutting tax heavens for investors. The crisis provided an opportunity to reshape new global order. To put in simple words: create a stakeholder's economy embedded in society and careful of nature. Still, many challenges remain.

Key Challenges

" The first challenge for social democrats is to create a stable global financial system that properly balances private incentive with public responsibility and maintains a balance between market and the state. Neo-liberalism's interest in tax holidays and refusal to acknowledge the long-term economic cost of privatization of health, education, skills and training undermined long-term economic growth and transformed citizens into mere consumers. The key task now is to transform consumers into citizens. This is possible only when elected representatives shape economic policies according to the needs and priority of citizens and engage them in the polity.

" The second challenge is to minimize the impact of crisis on massive job layoffs. The ILO estimates that about 1 billion workers will lose their jobs. Social democracy's historical promises to balance the private and the public, profit and wages and the market and the state offers the best guarantee of promoting economic growth through market mechanism and distribution of public goods through the state, civil society and community organizations. A new social contract is, therefore, essential at the global level for the creation of a just international order.

" The third challenge is to minimize the impact of the crisis on poverty, inequality, declining labor standards and political stability in the developing world. New movements and identities are formed in opposition to certain groups. It is fragmenting political spheres, vitiating state-society harmony and generating structural rifts and conflicts. Proper implementation of World Bank's poverty reduction strategy paper, judicious use of bilateral official development assistance and the national capacity building for the implementation of the Millennium Development Goals have become essential to reduce conflict producing causes--poverty, unemployment and social and political discontents.
" The fourth challenge is to manage climate change and find alternative mechanism of energy that is less polluting to environment. Reckless exploitation of nature and total deregulation of the labor market have created a divide in society. This divide has been institutionalized by the commercialization of media, education, health and economy thus creating more losers than winners. If profits are privatized and losses socialized, the social system cannot become cohesive and stable. Without proper role of the state in the redistribution of benefits and vibrant civil society groups to care for the voiceless, the markets cannot become self-correcting. The lifeblood of politics, the link of political classes and their parties to the people, needs strengthening to attach the electorates to public life. The declining capacity of leadership now to solve the problems of society marks doubt on their legitimacy and mirrors the deficit of trust. Only the compatibility of the ends of means of politics can rejuvenate it.

Renewal of Middle

The message of London Summit is clear: judicious role of state in social, economic and ecological justice. Accordingly, it laid the urgency of rescuing the financial system from collapse, provided stimulus to the real economy and underlined the necessity of a national and global regulatory regime in which the state has the duty to determine and enforce the rules of the system. In this context, social democratic response mirrors the middle way: support for the market economy rather than market society and strong role for the state as regulator, funder and provider of public goods and services. It accepts the power of market to increase innovation, efficiency, competition, investment and productivity growth in a framework of social justice. For social democrats, stability of democratic polity represents public goods and public goods always take precedence over individual pursuit for profit maximization. Justice at the social, ecological and inter-generational level is an essential component of social democracy world wide. It is beefed by the ideals of freedom, solidarity and peace. It is rooted in the Universal Declaration of Human Rights, humanitarian laws and constitutional principles. The pursuit of social justice is founded on the belief that all human beings have an intrinsic right to human dignity, equality of opportunity and the ability to lead a self-fulfilling life.

Nepal's Choice

The ideals of social democracy cannot be achieved for all citizens under the conditions of social and economic inequality and poverty. It, therefore, stresses that the state has to fulfill not only civil and political rights but also social, economic and cultural rights. In order to enable democratic conditions for "positive citizenship," the Nepalese people of various positions require different policies for equitable and just distribution of resources through a thriving public sector, gainful employment and a support to the welfare state. In this context, the poor and dispossessed Nepalese requires not only protection but also additional opportunities so that democracy creates level playing field for all for life chances and equal participation in public life rather than creating winners and losers. It views that if losers do not have any stake in the political system, democracy becomes a game of power-specializing elite and electoral politics cannot generate political and constitutional stability.

Realization of social justice requires substantial democratization of power, investment in job-creation, health, education, disabilities, critical development infrastructures and fulfillment of basic livelihoods. Some interests are non-negotiable such as basic needs while others rest on matters of individual choice-like professional job preference. The structural condition of Nepalese society, the nation's constitutional commitment to the enlargement of social rights, endorsement to the Universal Declaration of Human Rights and ILO Core Labor Standards are orienting Nepal's constitution making process towards a social state. The World Summit for Social Development of 1995 found a convergence of liberal and social democracy on poverty alleviation, productive employment, social protection, social dialogue and right to work as mutually supporting strategies for democracy and civilized life.


An economy cannot grow without social support and ecological sustainability. Coping with structural change requires support for the lifelong learning including the learning of public policy by citizens and their positive and negative citizenship rights. The crisis of global proportion in food, energy, finance and ecology requires global democratic accountability for its resolution and a sound partnership of the states, markets, civil society groups and international regimes as well as enhanced rules and institutions for democracy rooted into the basic values of freedom, social justice, solidarity and peace.

Copyright©2001. Friedrich Ebert Stiftung, Nepal Office
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