n his “Democracy in America,” Alexis de Tocqueville issued a stark warning about the accumulation of capital and the effects of the resulting income inequality. He wrote, “I am of the opinion, on the whole, that the manufacturing aristocracy which is growing up under our eyes is one of the harshest that ever existed in the world.” He continued, admonishing that “the friends of democracy” should watch for this as “if ever a permanent inequality of conditions and aristocracy again penetrates into the world, it may be predicted that this is the gate by which they will enter.”
De Tocqueville’s warning would likely sit well with the Financial Times’ Martin Wolf, especially after reading his latest book, “The Crisis of Democratic Capitalism,” in which he finds that democracy is alarmingly weakened, though not fatally, due predominantly to economic factors. It is an appealing, though ultimately incomplete argument for the ills of the West’s political system.
Indeed, roughly a third of the way into reading Wolf’s book, I was struck with this nagging feeling that something was missing. All the components of a strong argument from the Financial Times’ chief economics commentator were there—incisive analysis, supporting data, and a compelling case, yet something just wasn’t quite right. That missing element was why, perhaps, it provoked such starkly divergent views, with The Economist offering a fairly positive review while the Wall Street Journal’s reviewer (from the conservative American Enterprise Institute) offered a far more scathing assessment. After finishing Wolf’s book, I find myself somewhere in the middle, but leaning towards The Economist’s determination that “The case he makes is authoritative and compelling. Yet in the end it is not fully convincing.”
“The Crisis of Democratic Capitalism” is indeed an “authoritative and compelling” book. It has one of the most cogent explanations of the parallel and mutually necessary rise of capitalism and democracy, but also the deep interconnections between both systems. Wolf’s presentation of not just these interconnections, but the malaise affecting both democracy and capitalism is well done and thoroughly enlightening. For him, the most pressing threats to liberal democracy are economic in nature. Successive decades of economic shortfalls and the stagnation of citizens’ financial lives have inexorably led to a decline in faith in democracy.
The thesis in “The Crisis of Democratic Capitalism” appears to be a satisfying if teleological answer to what appears to be a highly complex question: what is behind the trend of democratic erosion? For Wolf, the reasons are wholly economic. Income inequality is markedly higher today than in the past. Opportunities for economic advancement are much reduced—millennials are likely to be worse off than their parents’ generation, for example. The system does appear rigged in favor of economic, financial, and political elites, and faith in those elites is much reduced both by virtue of their performance in managing those institutions, and the rise of “rentier capitalism.”
Wolf’s analysis ultimately suffers from two interrelated structural weaknesses. First, it is far too sweeping in its diagnoses of what ails democracy today. The book is understandably fixated on the rise of President Donald Trump and the threat that he posed (and arguably still poses, for some) to America’s democracy. Wolf is right that the economic conditions of many in the lower and middle classes was a precursor or driver for support for the president. It was, however, one of many drivers, something that Wolf does not fully capture. It is an analogue to many commentators’ assumptions that the former president’s supporters were either duped by the Russians or simply racists and fascists. It is an intellectual shortcut that fails to appreciate the underlying complexities of political identity.
There were undoubtedly extremists within the Republican Party and among Trump’s supporters. Yet, their reasons for his support were as much frustration with the political status quo as they were economic in nature. For many on the right, they felt—and not without merit—that their issues were ignored by the administration of President Barack Obama, that the “elites” talked down to them (or took them for granted), and that there had been very little substantive progress in the face of not inconsiderable issues. Their paychecks were an issue, but not the sole issue. To boil their grievances down purely to economics alone is to ignore what are inherently political challenges.
He writes with sincere concern about the state of American democracy in particular, closing his book saying, “As I write these final paragraphs in the winter of 2022, I find myself doubting whether the US will still be a functioning democracy by the end of the decade.” There is much to unpack in that statement as undoubtedly some within the United States would question whether it is a functioning democracy at the moment—witness the floor fight for Speaker of the House Kevin McCarthy’s election—or whether Wolf’s perspective is too hyperbolic. It is worth noting that Wolf’s fears are not held in isolation. Wolf quite rightly shows that the oft-cited issues of immigration and the effects of globalization, for example, are themselves insufficient alone to explain the rise of populism. It is, however, equally insufficient to suggest that it was economic drivers alone that led to these issues’ emergence in the 2016 election cycle, for example. Indeed, it was a conscious decision by political leaders to use these dog-whistle issues that brought them prominently to the forefront of the debate. America’s gerrymandered political districts, a primary system that drives extremism, incentives for hyper-partisanship, and disincentives for cooperation are all equally as responsible for the populist moment. While Wolf makes these points in passing, they require greater emphasis.
Moreover, geographically extrapolating Wolf’s analysis outward erodes its coherence. While there are parallels between the United States and the United Kingdom’s experiences in 2016, the differences are far more important. Brexit was far more a Tory Party fight that became a national disaster than a reflection of European Union-related economic weaknesses. Prime Minister David Cameron’s efforts to stave off the far-right UKIP led to an ill-thought-out referendum that had Britons Googling “What is the EU” and “What is Brexit” after the polls closed. The Leave campaign certainly played on fears of immigration and unverifiable promises of returning funds to the National Health Service, but if there is an issue with British democracy it is less economic in nature and more the spillover of narrow partisan politicking onto the national stage.
As one moves further away from Washington and London, the echoes themselves become even fainter. Wolf’s explanation does little to explain the unique developments and circumstances of democratic erosion in Poland or Hungary, or Turkey or India. Here, “Spin Dictators,” by Sergei Guriev and Daniel Treisman, offer a complementary argument that it is more the diffusion of authoritarian tools rather than the erosion of democratic norms alone that explains the present dynamic. Wolf’s argument also fails to explain why other high-income democracies have not suffered as much democratic erosion despite being buffeted by similar economic disruptions.
The second structural weakness of Wolf’s argument is that if it is followed to its logical end, merely addressing the economic shortcomings of the lower and middle classes would have prevented populism from emerging and the democratic malaise from setting in so deeply. It is an attractive argument: imply throw money at the problem and it will go away. It is almost far too econometric in its orientation—greater financial inputs yield increased faith in democracy as an output. The reality is that this argument is, again, necessary, but not sufficient. Addressing income inequality, improving living standards, developing a more coherent technocracy, and better bounding the rules governing financial markets may well offset some of the reduced faith in democracy, but not all. Bread and circuses are all well and good, but it will never fully satisfy the hoi polloi especially if they continue to feel aggrieved and overlooked, and if there is a politician willing to exploit those perceived grievances for personal and political gain.
It also assumes that Washington or London, or other capitals for that matter, would have had the political or financial capital to address the issue in the first instance and successfully in the second. There is little to suggest that either would have been the case. The structural shortcomings of America’s politics, the two- and four-year political cycles, increased partisanship, and the limited powers of the presidency and Congress to manage a global economy all stand in the way of affecting the substantive changes necessary to achieve the desired outcome. Adjusting marginal tax rates is all well and good, but won’t achieve the ends Wolf desires.
It then follows that there are both deeper and wider issues affecting democracy. Previous decades held as great if not greater social and economic disruptions. The 1970s saw the oil shock, stagflation, increased crime, social and racial divisions, particularly in the United States, but there was little discussion at the time of a concerted threat to democracy. The United Kingdom experienced the miners’ strike in the mid-1980s, widespread industrial action, a terrorist campaign by the Irish Republican Army, and more, yet even in London there was little question about the viability of democracy. In both countries, even in the wake of the 2008 financial crisis, a point to which Wolf often returns, there were very few alarm bells ringing about the fate of democracy, even with the significant and widespread government intervention in the economy.
There is a risk that politicians read Wolf’s argument and assume that merely throwing money at the problem is the solution. All of the economic issues identified by Wolf are certainly present, but they are not the sole issues causing a malaise in democracy. Addressing them will go some way to ameliorate a bit of the public’s discontent with democracy, but money will not reduce partisanship, increase civility, build faith in democratic institutions, or restore trust between citizens and their elected officials. To address those issues requires serious political leadership. To Wolf’s credit, he does dedicate the third portion of the book to offering up fairly sensible, if conservative (in temperament and implementation, not political) solutions to the weaknesses he identifies in both democracy and capitalism, but it is decidedly in the latter where he sees the biggest issues and shortcomings.
In the end, Wolf is not wrong: there is a crisis in democratic capitalism. His reasoning and the thesis of his book are necessary, but not sufficient arguments for why that is the case. It is deterministic, as though if only previous administrations had provided more financial assistance, social programs, reduced income inequality, and improved the living standards of the middle class, then Trump would never have come to pass. This is wishful thinking and fails to engage with the substantive, underlying issues that are responsible for much of Trump’s own support, but also the support other illiberal democrats or would be autocrats enjoy.
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Seeking an Economic Answer to the Question of Democratic Erosion
Photo by Erol Ahmed on Unsplash
March 11, 2023
Democracy is in crisis, but so are the capitalistic economic systems underlying most democracies. In his latest book, Martin Wolf tries to provide answers for democracy through reforming capitalism. While compelling, his arguments are at times too sweeping, write Joshua Huminski.
I
n his “Democracy in America,” Alexis de Tocqueville issued a stark warning about the accumulation of capital and the effects of the resulting income inequality. He wrote, “I am of the opinion, on the whole, that the manufacturing aristocracy which is growing up under our eyes is one of the harshest that ever existed in the world.” He continued, admonishing that “the friends of democracy” should watch for this as “if ever a permanent inequality of conditions and aristocracy again penetrates into the world, it may be predicted that this is the gate by which they will enter.”
De Tocqueville’s warning would likely sit well with the Financial Times’ Martin Wolf, especially after reading his latest book, “The Crisis of Democratic Capitalism,” in which he finds that democracy is alarmingly weakened, though not fatally, due predominantly to economic factors. It is an appealing, though ultimately incomplete argument for the ills of the West’s political system.
Indeed, roughly a third of the way into reading Wolf’s book, I was struck with this nagging feeling that something was missing. All the components of a strong argument from the Financial Times’ chief economics commentator were there—incisive analysis, supporting data, and a compelling case, yet something just wasn’t quite right. That missing element was why, perhaps, it provoked such starkly divergent views, with The Economist offering a fairly positive review while the Wall Street Journal’s reviewer (from the conservative American Enterprise Institute) offered a far more scathing assessment. After finishing Wolf’s book, I find myself somewhere in the middle, but leaning towards The Economist’s determination that “The case he makes is authoritative and compelling. Yet in the end it is not fully convincing.”
“The Crisis of Democratic Capitalism” is indeed an “authoritative and compelling” book. It has one of the most cogent explanations of the parallel and mutually necessary rise of capitalism and democracy, but also the deep interconnections between both systems. Wolf’s presentation of not just these interconnections, but the malaise affecting both democracy and capitalism is well done and thoroughly enlightening. For him, the most pressing threats to liberal democracy are economic in nature. Successive decades of economic shortfalls and the stagnation of citizens’ financial lives have inexorably led to a decline in faith in democracy.
The thesis in “The Crisis of Democratic Capitalism” appears to be a satisfying if teleological answer to what appears to be a highly complex question: what is behind the trend of democratic erosion? For Wolf, the reasons are wholly economic. Income inequality is markedly higher today than in the past. Opportunities for economic advancement are much reduced—millennials are likely to be worse off than their parents’ generation, for example. The system does appear rigged in favor of economic, financial, and political elites, and faith in those elites is much reduced both by virtue of their performance in managing those institutions, and the rise of “rentier capitalism.”
Wolf’s analysis ultimately suffers from two interrelated structural weaknesses. First, it is far too sweeping in its diagnoses of what ails democracy today. The book is understandably fixated on the rise of President Donald Trump and the threat that he posed (and arguably still poses, for some) to America’s democracy. Wolf is right that the economic conditions of many in the lower and middle classes was a precursor or driver for support for the president. It was, however, one of many drivers, something that Wolf does not fully capture. It is an analogue to many commentators’ assumptions that the former president’s supporters were either duped by the Russians or simply racists and fascists. It is an intellectual shortcut that fails to appreciate the underlying complexities of political identity.
There were undoubtedly extremists within the Republican Party and among Trump’s supporters. Yet, their reasons for his support were as much frustration with the political status quo as they were economic in nature. For many on the right, they felt—and not without merit—that their issues were ignored by the administration of President Barack Obama, that the “elites” talked down to them (or took them for granted), and that there had been very little substantive progress in the face of not inconsiderable issues. Their paychecks were an issue, but not the sole issue. To boil their grievances down purely to economics alone is to ignore what are inherently political challenges.
He writes with sincere concern about the state of American democracy in particular, closing his book saying, “As I write these final paragraphs in the winter of 2022, I find myself doubting whether the US will still be a functioning democracy by the end of the decade.” There is much to unpack in that statement as undoubtedly some within the United States would question whether it is a functioning democracy at the moment—witness the floor fight for Speaker of the House Kevin McCarthy’s election—or whether Wolf’s perspective is too hyperbolic. It is worth noting that Wolf’s fears are not held in isolation. Wolf quite rightly shows that the oft-cited issues of immigration and the effects of globalization, for example, are themselves insufficient alone to explain the rise of populism. It is, however, equally insufficient to suggest that it was economic drivers alone that led to these issues’ emergence in the 2016 election cycle, for example. Indeed, it was a conscious decision by political leaders to use these dog-whistle issues that brought them prominently to the forefront of the debate. America’s gerrymandered political districts, a primary system that drives extremism, incentives for hyper-partisanship, and disincentives for cooperation are all equally as responsible for the populist moment. While Wolf makes these points in passing, they require greater emphasis.
Moreover, geographically extrapolating Wolf’s analysis outward erodes its coherence. While there are parallels between the United States and the United Kingdom’s experiences in 2016, the differences are far more important. Brexit was far more a Tory Party fight that became a national disaster than a reflection of European Union-related economic weaknesses. Prime Minister David Cameron’s efforts to stave off the far-right UKIP led to an ill-thought-out referendum that had Britons Googling “What is the EU” and “What is Brexit” after the polls closed. The Leave campaign certainly played on fears of immigration and unverifiable promises of returning funds to the National Health Service, but if there is an issue with British democracy it is less economic in nature and more the spillover of narrow partisan politicking onto the national stage.
As one moves further away from Washington and London, the echoes themselves become even fainter. Wolf’s explanation does little to explain the unique developments and circumstances of democratic erosion in Poland or Hungary, or Turkey or India. Here, “Spin Dictators,” by Sergei Guriev and Daniel Treisman, offer a complementary argument that it is more the diffusion of authoritarian tools rather than the erosion of democratic norms alone that explains the present dynamic. Wolf’s argument also fails to explain why other high-income democracies have not suffered as much democratic erosion despite being buffeted by similar economic disruptions.
The second structural weakness of Wolf’s argument is that if it is followed to its logical end, merely addressing the economic shortcomings of the lower and middle classes would have prevented populism from emerging and the democratic malaise from setting in so deeply. It is an attractive argument: imply throw money at the problem and it will go away. It is almost far too econometric in its orientation—greater financial inputs yield increased faith in democracy as an output. The reality is that this argument is, again, necessary, but not sufficient. Addressing income inequality, improving living standards, developing a more coherent technocracy, and better bounding the rules governing financial markets may well offset some of the reduced faith in democracy, but not all. Bread and circuses are all well and good, but it will never fully satisfy the hoi polloi especially if they continue to feel aggrieved and overlooked, and if there is a politician willing to exploit those perceived grievances for personal and political gain.
It also assumes that Washington or London, or other capitals for that matter, would have had the political or financial capital to address the issue in the first instance and successfully in the second. There is little to suggest that either would have been the case. The structural shortcomings of America’s politics, the two- and four-year political cycles, increased partisanship, and the limited powers of the presidency and Congress to manage a global economy all stand in the way of affecting the substantive changes necessary to achieve the desired outcome. Adjusting marginal tax rates is all well and good, but won’t achieve the ends Wolf desires.
It then follows that there are both deeper and wider issues affecting democracy. Previous decades held as great if not greater social and economic disruptions. The 1970s saw the oil shock, stagflation, increased crime, social and racial divisions, particularly in the United States, but there was little discussion at the time of a concerted threat to democracy. The United Kingdom experienced the miners’ strike in the mid-1980s, widespread industrial action, a terrorist campaign by the Irish Republican Army, and more, yet even in London there was little question about the viability of democracy. In both countries, even in the wake of the 2008 financial crisis, a point to which Wolf often returns, there were very few alarm bells ringing about the fate of democracy, even with the significant and widespread government intervention in the economy.
There is a risk that politicians read Wolf’s argument and assume that merely throwing money at the problem is the solution. All of the economic issues identified by Wolf are certainly present, but they are not the sole issues causing a malaise in democracy. Addressing them will go some way to ameliorate a bit of the public’s discontent with democracy, but money will not reduce partisanship, increase civility, build faith in democratic institutions, or restore trust between citizens and their elected officials. To address those issues requires serious political leadership. To Wolf’s credit, he does dedicate the third portion of the book to offering up fairly sensible, if conservative (in temperament and implementation, not political) solutions to the weaknesses he identifies in both democracy and capitalism, but it is decidedly in the latter where he sees the biggest issues and shortcomings.
In the end, Wolf is not wrong: there is a crisis in democratic capitalism. His reasoning and the thesis of his book are necessary, but not sufficient arguments for why that is the case. It is deterministic, as though if only previous administrations had provided more financial assistance, social programs, reduced income inequality, and improved the living standards of the middle class, then Trump would never have come to pass. This is wishful thinking and fails to engage with the substantive, underlying issues that are responsible for much of Trump’s own support, but also the support other illiberal democrats or would be autocrats enjoy.
