A. The Historic Compromise in Advanced Industrial Societies

In advanced industrial societies, democracy was consolidated through a class compromise based on an exchange between capital and labour. In return for capital providing economic concessions to labour (high wages, full employment, social welfare) labour accepted the capitalist system and in particular capital’s prerogative to manage the enterprise. That a rising standard of living and full employment could be delivered through the institutions of a democratic capitalist state led workers to develop an interest in defending and maintaining the institutions that willy nilly bolstered capitalism. Capital was willing to make such concessions in return for favourable conditions for capital accumulation; it too, developed an interest in maintaining democratic institutions.

Underpinning the compromise, then, was a strong investor response to growing demand fuelled by rises in wages and full employment. Thus, as Glyn (1995) argues, wages and employment grew simultaneously in a virtuous circle linked by high investment levels, increasing productivity, and rising wages, resolving - temporarily - competition between the employed and the unemployed.

In historical perspective this class compromise was made possible by a series of contingent factors: the development of Keynesian macroeconomic demand management; the Pax Americana; and Fordist production systems supported by corporatist-style labour relations systems. (Marglin and Schor, 1990) It also depended upon a labour movement organisationally capable of attaining optimal militancy: too much militancy meant that accumulation would be too slow, and ultimately material benefits would be reduced; too little militancy meant that accumulation would take place without capital making any concessions. (Przeworski, 1985)

Since the 1970s the conditions underpinning the historic compromise have eroded, and with them many of labour’s gains have been rolled back. In particular, it has been argued, that the consequences of the new global economy undermine any possibility of a nationally based class compromise on the lines forged during the "Golden Age" of capitalism. (Teeple) International competition around unit labour costs makes a wage-led strategy more difficult to sustain. Furthermore, Keynesian demand management solutions are - according to these arguments - more difficult when firms are increasingly oriented towards global rather than nationally based markets, where, as Wright argues, "the realization of the economic value of those commodities depends less upon the purchasing power of workers in the countries within which those firms are located." (Wright, 1997:20) The globalisation of financial markets has made it more difficult for national governments to control monetary and fiscal policy.

Finally, globalisation has also contributed to a radical recomposition of the labour market. Whereas the class compromise had been founded upon permanent full-time employment, over the last twenty years this base has been transformed: the permanent full-time worker, according to Giddens "has been assaulted,

Globalisation has encouraged the view among many analysts that class compromise per se is no longer possible, and that discussion of the concept is futile. We do not reject the argument that globalisation constrains domestic policy choices, and renders unworkable any simple return to the postwar historic compromise. In a recent paper, Wright resuscitates discussion of compromises, which he defines as:

Arguments against the likelihood of a contemporary class compromise thus ignore that they were also struck outside of the specific conditions of western Europe, and continue to be constructed today. Indeed, many argue that globalisation in fact makes such compromises necessary, although their terms are different from the historic compromise of the post-war period. According to some analysts, such compromises have reemerged in the 1990s in western Europe, where globalisation and increased competition are making it difficult for companies to compete only on product quality and flexibility; containment of labour costs has regained prominence. Where labour movements are strong, this has been achieved through tripartite income policies and a variety of pacts where labour’s compromises on wages are matched by capital’s commitment to invest. (Regini, 1996)

A second example is the manner in which welfare states in Europe have responded to globalisation. According to Esping-Anderson (1996) rather than following the American model of deregulation and flexibility, these countries have retained generous egalitarian social protection with a relatively inflexible labour market. In all cases there is a seemingly universal trade-off between equality and employment: in the United States rising employment has been combined with greater job flexibility and increasing polarisation and poverty, while in many European countries high levels of social protection has been retained side-by-side with growing unemployment. (Esping-Anderson, 1996:1-4)

A final example of continued possibilities for class compromise is defined by Rogers and Streeck as "left productivism". Their argument builds from the increased influence workers may be able to acquire under conditions of "flexible specialisation". At the centre of their argument is a search for "a post-Keynesian equivalent of effective demand where the alchemy will have to come on the supply side, in production rather than consumption." (Rogers and Streeck, 1994: 129) This is to be found in

B. "Southern Compromise": The Historic Compromise in Developing Countries

At the same moment that the historic compromise in advanced industrial societies was being forged, a parallel compromise emerged in developing countries in the wake of decolonisation. However, the configuration of classes and the key actors that brought about the compromise were different. Whereas in advanced industrial society the compromise was essentially an exchange between organised capital and organised labour, in the third world the compromise was struck between the state, urban classes (including workers, the informal sector, the unemployed) and domestic and international capital. According to Seddon and Walton, this "developmental pact" was a "class coalition of industrial and export interests that paid the price of social peace with concessions to the urban masses." (Seddon and Walton, :47) These programs:

The developmental pact, like the northern historic compromise, was underpinned by the same configuration of post-war political and economic conditions, and it was changes in these conditions that led to the unravelling of the developmental pact from the 1970s. However, the crisis in the third world took a much sharper form. The debt crisis into which many developmental states were plunged from the mid-1970s led to the now familiar IMF-inspired austerity programs. In turn these prompted large scale collective actions,

The crisis of the developmental pact led to two distinct but interlinked projects: democratisation to replace the authoritarian political regime and economic restructuring to replace the statist and protectionist economic regime. However there are conflicting views on the relationship between political and economic reform. An optimistic perspective sees these as necessary and complementary, (Diamond, 1988, 1993; Diamond and Plattner, 1993; Joseph, 1990) and raise political conditionality to an equal status with economic adjustment.

A more skeptical reading of these two processes emphasises the contradictions between them. The latter produces winners and losers while the former gives voice - and the capacity to block change - to well-organised interests threatened by liberalisation. If there must be a choice between economic and political liberalisation, some argue preference should be given to the former. (Callaghy, 1994:35) To overcome these special interests, Killick argues for the "insulation of policy-makers from pressures exerted by special interest groups."(Killick, 1995:28) In this sense insulation means protection from special interest groups - such as trade unions - who bear the brunt of adjustment, even if it means abandoning democracy.

Others acknowledge this contradiction, and argue instead that if a choice is to be made it should be on the side of democracy, both formal and substantive. They reject both the easy abandonment of democracy and the shrunken version embraced by many political scientists. This position, put forward by many critics of structural adjustment in Africa, seeks to embrace more participatory forms of democracy and alternative forms of economic development focussed on basic needs. (Ferguson, 1995; Harsch, 1993; Mkandawire, 1994; Schmitz, 1995)

Indeed, a recent study acknowledges the tension between political and economic reform as the key problem facing new democracies, but insists that only democratic institutions can resolve this tension. (Przeworski et al., 1995) Rampant economic liberalisation, they argue, leads to a decline in consumption, which not only undermines attempts to consolidate democracy, but may lead to social disintegration, descending into "decentralized collective violence." (Przeworski et al., 1995:110) New democracies, the authors argue, must find ways of creating "incentives for political forces to process their interests within the democratic institutions, when material conditions continue to deteriorate." (Przeworski et al., 1995:113)

But whereas the pessimists see democratic institutions as creating little more than an obstacle to economic reform, Przeworski et al. argue they are necessary for economic restructuring, but restructuring of a different type: a social democratic alternative to neo-liberalism that in our assessment amounts to a class compromise. This consists of three recommendations. First, liberalisation must be accompanied by social policies that minimise social costs. Second, policies must be designed with a view towards growth (and these include an expansion rather than a shrinking of the state). Finally, policies must be formulated and implemented through corporatist-style consultation and negotiation beyond the state and parliament to include unions, employers and other interest groups. (Przeworski et al., 1995:85) "Concertation" is central to their argument: it subjects the reform strategy to the competitive interplay of political forces, improves policy outcomes, builds support for the continuation of reforms, and helps consolidate democratic institutions. (Przeworski et al., 1995:82)

Surprisingly, the same authors are largely silent about the possibility of a social democratic alternative being realised in most countries undergoing double transitions.(1) Consolidation of democracy, they argue, depends on strong union organizations that can participate in pacting, reaching and enforcing agreements with capital and the state. Yet, the authors assert that concertation is impossible because unions "are too weak and too decentralized to serve as partners..."(2) (Przeworski, 1995:82) The implications of this conclusion for the consolidation of democracy are, to be sure, distinctly troubling.

This need not be the case. Underlying this conclusion is a set of assumptions about the social actors who will produce this class compromise: that labour in a particular form (centralised, industrial, encompassing) delivered the historic compromise in Europe, and its absence makes class compromises per se impossible. On the one hand, these assumptions mis-read the dynamics of trade unions in countries undergoing the double transition. Labour movements are emerging in countries such as South Korea, Brazil and South Africa that have the power to stalemate liberalisation and are increasingly demanding the rights to bargain over its terms and pace. On the other hand Przeworski et al. overlook the fact that class compromises have been constructed by a variety of collective actors, including left parties, often in alliance with trade unions and other social movements, such as women’s organisations and cooperative societies.

The best example of the successful politics of class compromise is from the south Indian state of Kerala. In the late 1980s and early 1990s a class compromise was forged by an alliance of popular organisations led by the Communist Party (CPM). This compromise has linked "the state with a mobilized working class in a developmental pact that has prioritised redistributive and welfarist reforms." (Heller, 1995:647) The compromise has institutionalised working class power, including the right of workers to claim a share of the social surplus through the welfare state.

Rather than representing a privileged segment of the workforce, labour - in its broad alliance with the CPM and other organisations - represents the working class as a whole cutting across traditional urban-rural and skilled-unskilled divisions. The unions’ ties to the CPM create a cohesive and politically oriented labour movement. In the late 1980s the movement shifted from a tradition of militant class struggle which focussed on economistic wage demands and traditional welfarist redistribution, a process which exhausted itself and had become counter-productive. In its place the movement sought to locate its redistributive demands on a more viable productive base through a larger social pact "in which growth was tied to the expansion of the social wage." Side by side with this shift from "class struggle" to "class compromise" was a strategic engagement with capital and the state in a negotiated compromise that incorporated working class power within the state. Heller calls this compromise a form of democratic corporatism where working class power "finds expression through, and not outside of democratic institutions." (Heller, 1995:658)

The Kerala case illustrates an alternative view that popular movements such as labour have the potential to reconfigure democratisation through participation in negotiated compromises.(3) Class compromises have the potential to discipline capital and the state and ensure that the social costs of adjustment are not borne by workers alone. Pacting should not be seen simply as a way of disciplining workers, but as a conflictual process of class compromise, the results of which may produce workers’ loyalty to democratisation while ameliorating the social costs of adjustment.

The Kerala case suggests that a class compromise is possible where economic resources are limited and capital cannot extend economic concessions to the working class. But such a compromise takes a different form to that of the postwar historic compromise in Europe and the developmentalist pact in the third world. Such a compromise is not based on high wages and high labour standards for organised workers, but on two different kinds of compromises. Firstly, the introduction of a social wage to all citizens - what could be called a form of social citizenship consisting of the right to income security, other forms of welfare such as education, health, and shelter; a right to share to the full in the social heritage; and the right to live in a safe environment. This compromise allows for the productivist effect of social welfare identified by Rogers and Streeck. It also provides a redistributive mechanism for the poor and some compensation for those workers who have made wage and labour standards concessions. For the latter, it allows cuts in nominal wages without sacrificing workers’ real standard of living.

The second compromise provides workers and their representatives with significant influence over investment decisions and productivity gains, to ensure that surpluses generated by growth benefit the population as a whole. This could be done at the workplace through allowing for participation and co-determination, while at societal level it could be achieved through agreements over macroeconomic policy that encourage growth and redistribution. In this compromise the state ensures that labour gains increased control over the distribution of the surplus and that this is used - through social welfare - in the interests of working people as a whole. Capital gains a more productive workforce and flexibility conducive to job creation, while committing itself to longer-term productive investment. The state achieves economic growth and stability. These interlocking concessions and gains are a way to resolve the potential contradictions of the double transition.

Such a compromise must be negotiated through a range of multi-partite institutions at the micro, meso and macro levels. In Part 2 of the paper we identify the emergence of a range of institutional innovations that have laid the preconditions for a class compromise in South Africa. But the compromise also requires collective actors willing and able to make concessions. The constraints and opportunities facing these actors will be identified in Part 3.