The Crisis of Democratic Capitalism (2023)
Martin Wolf (1946)
474 pages
“Almost a quarter of respondents in a new [October 2023] poll say American politics have gotten so far off track that “patriots may have to resort to violence” to save the United States … [including] one-third of Republicans surveyed … 13 percent of Democrats … and twenty-two percent of independents.”
These recent polling results make manifest the disturbing depth of the political and social divisiveness that has spread in the US since at least the Great Recession of the late 2000’s. Antipathy, and increasingly even anger towards those with whom one disagrees politically has not only deepened distrust in government institutions fundamental to the stability of the country, but indeed fostered violent attacks against them.
Liberal democracies globally face similar challenges, notes economist Martin Wolf in his timely book The Crisis of Democratic Capitalism. The heady days of the early 1990’s, when the West celebrated its victory in the Cold War as an end of history moment in which the combination of liberal democratic politics and free-market capitalist economics had seemed to prove itself successful, feel like a distant memory. Instead, we now face an internal crisis, one that Wolf argues has arisen not from outside threats, such as alternative political-economic regimes, but rather due to inherent characteristics of democratic capitalism itself:
The health of our societies depends on sustaining a delicate balance between the economic and the political, the individual and the collective, the national and the global. But that balance is broken. Our economy has destabilized our politics and vice versa. (xix)
It is this delicate balance between the economic and the political in democratic capitalism that Wolf explores in his book: how it first emerged; what has destabilized it in our present moment; and, finally, which reforms could help reestablish an equilibrium.
To demonstrate this profound interdependence, he notes that a key element in the development of capitalism was the shift to permitting individuals to participate in a marketplace in which they could sell their labor for money. This led to “an economic and social revolution that … was brutal and exploitative, [but] also transformative” (22): as ever larger groups were allowed to participate in the marketplace, it became politically untenable to withhold suffrage from them. Admittedly, it was a slow process; the shift to universal suffrage took well over a century in Western democracies, and particularly long in the US: “when George Washington was elected president, only 6 percent of the population of the United States could vote” and more than a dozen countries granted universal suffrage before “the US in 1965.” (42-43)
The emergence of democratic political systems in turn supported capitalism, by establishing and maintaining a rule of law that enabled a market economy to thrive. Wolf argues that a capitalist economic system can, in fact, only survive in conjunction – symbiosis – with a democratic governing system. So dependent are the two systems on one another that “democratic capitalism … is the only form of democracy we are likely to see.” (31)
Even as democracy and capitalism play critical roles in each other’s success, however, they exist as “complimentary opposites” in a marriage Wolf describes as “always fragile”. If independence between the systems is not maintained, the “delicate balance between politics and market can be destroyed, [through either] state control over the economy [or] capitalist control over the state.” (29)
In his elucidation of this delicate balance, and the risks to maintaining it, Wolf highlights a crucial point: the profound symbiosis between the two systems “does not mean that economic and political freedoms are the same: the freedom to transact is different from the freedom to act politically.” (31) Historians Naomi Orestes and Erik M. Conway explore this critical distinction in depth in The Big Myth, describing how wealthy US business owners waged a decades long propaganda campaign in the 20th century to dissolve it, attempting to persuade Americans to believe that the two freedoms are indeed the same – that any loss of economic freedom inherently leads to a loss of political freedom. Business’s goal was to tilt the playing field in its favor, by having the country adopt a free market fundamentalist belief that viewed any kind of regulation on business as a step toward socialism or communism. (My review of their book linked to at right.)
Orestes and Conway document the ultimate success of this campaign, and how it has led since the 1980’s to precisely the outcome Wolf describes in his book as:
the rise of rentier capitalism, in which a relatively small proportion of the population has successfully captured rents from the economy and uses the resources it has acquired to control the political and even legal systems, especially in the US, the world’s most important standard-bearer of democracy. (173)
Referencing one of market fundamentalism’s own heroes, Wolf notes that “a good part of what has gone wrong is what Adam Smith warned us against – the tendency of the powerful to rig the economic and political systems against the rest of society.” (119) (In The Big Myth, Oreskes and Conway expose the selective editing market fundamentalists have done with Smith’s work, to make it appear that he supports their extreme interpretation of the free market.)
Wolf presents a range of economic indicators that make evident the destabilizing rise in inequality in recent decades, but the following observation perhaps best crystalizes the situation:
The ratio between average chief executive pay and employee pay in the UK was 129 to 1 in 2016, an increase from 48 to 1 in 1998. In the US, the corresponding ratio was 347 to 1 in 2016, up from 42 to 1 in 1980. (90)
The essayist Pankaj Mishra makes a similar case for the origins of populist frustration in his book Age of Anger. (My review linked to at right.) Mishra argues that large segments of the global population have come to feel that a successful elite has rigged the system against them, resulting in
their natural rights to life, liberty and security[,] already challenged by deep-rooted inequality, [now further] threatened by political dysfunction and economic stagnation, [leading to] an existential resentment of other people’s being, caused by an intense mix of envy and sense of humiliation and powerlessness, … [which] poisons civil society and undermines political liberty, and is presently making for a global turn to authoritarianism. (14, Age of Anger)
In one sense, the distinction between the arguments of Wolf and Mishra could be considered slight, with Wolf’s fragility of democratic capitalism due to the ever-present tendency toward increasing inequality leading to the frustration that Mishra makes clear is poisoning civil society. However, there remains a fundamental and critical difference between the two: while Mishra provides no path out of our civilization’s current predicament – the frustration and anger may recede for periods, only to return because it’s a fundamental characteristic of our economic system – Wolf claims that a fragile balance can be reestablished that allows democracy and capitalism to coexist successfully.
In the final portion of his book, Wolf makes the case for how to restore this balance, offering a string of recommendations for, as he titles the section, Renewing Democratic Capitalism. He presents ideas for both our economic and political systems, and they certainly all seem quite reasonable. But even Wolf acknowledges that “the obstacle to any of this is the power that corporations and wealthy people have over governments, not the inability of governments to get their way … if they wanted to” (309) This, however, is precisely the rub, and what makes it difficult not to lean toward Mishra’s view.
Yes, capitalism has lifted many across the globe out of abject poverty; yes, it has driven innovation on many fronts, including medications and technologies that make life easier; yes, a competitive, market-based economy seems so much more effective than the other forms that have been tried over the past several centuries. And, to all that, one can add Wolf’s argument that capitalism played a central role in getting us to universal suffrage democracy.
But.
Even in the moments when Wolf’s fragile balance has been achieved, this success appears to have come at great cost. One could consider, for example, the 1950’s as such a period, and even argue that the resulting economic stability allowed the civil rights movement of the 1960’s to gather just enough support to be successful legislatively (as Wolf’s argument for capitalist economics supporting universal suffrage suggests.) But, at what cost? The effective – stabilizing – regulatory and tax structure in the 1950’s grew out of reaction to Gilded Age excesses and the pain of the Great Depression, as Wolf notes, but also the financial needs of governments to fight World War I and World War II, and the subsequent rebuilding, as Piketty describes in Capital in the 21st Century. And even then, stability was relatively short-lived: beginning in the 1980’s, after an extended period of relative peace, the regulatory infrastructure and progressive tax rates instrumental to maintaining Wolf’s fragile balance were dismantled, enabling the rising inequality, and crisis of democratic capitalism now apparent.
Even if we could implement some number of Wolf’s suggestions, and so renew democratic capitalism’s stability, the very nature of capitalism is to create wealth for a few, and human nature then tends to lead those economic elite to want to corrupt the political system to their will, to legislate a regime in which they can further increase their wealth. Can the long arc of history continue to bend toward periods of increasing justice in the presence of a capitalist system that actively undermines it? How many times can we oscillate through this cycle between fragile stability and wild excess before populist anger explodes in a revolution that destroys the system completely?
Perhaps, however, if we believe democratic capitalism is indeed the best political-economic system for our civilization, as Wolf clearly does, occasional populist violence is simply the risk we must abide. Because, to give Thomas Piketty the last word, the history of the past two centuries has shown that significantly reducing inequality in our current system will likely take a revolution:
Long-term movement toward equality [since the end of the 18th century] … is a consequence of conflicts and revolts against injustice that have made it possible to transform power relationships and overthrow institutions supported by dominant classes, which seek to structure social inequality in a way that benefits them, and to replace them with new institutions and new social, economic, and political rules that are more equitable and emancipatory for the majority. Generally speaking, the most fundamental transformations seen in the history of inegalitarian regimes involve social conflicts and large-scale political crises. (10, A Brief History of Equality)
Other notes and information:
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