Book Review: "The Crisis of Democratic Capitalism", Martin Wolf
Humanity’s most remarkable characteristic is the ability to turn what it has imagined- gods, tribes, states, nations, money, companies- into social reality.
-Martin Wolf
Darwin
sailed out
of Good Success Bay
to carcass-
conclusions—
the universe
not built by brute force
but designed by laws
The details left
to the working of chance
“Let each man hope
and believe
what he can”
-Lorine Niedecker
It is difficult to argue with the fact that the past quarter century has been a trying one for liberal democracy. Following a high-water mark in 1991 with the collapse of the Soviet Union (or perhaps the entrance of China into the World Trade Organization in 2001), high income liberal democracies like the United States, United Kingdom, and Germany experienced an acute financial crisis in 2008 that was followed by a decade of stagnating economic growth and political instability. As acute as this crisis was in these high-income nations, it was accompanied by an even more dramatic reversal of democracy on the periphery of the USA’s sphere of influence: think Hungary’s Orban, Russia’s Putin, Turkey’s Erdogan. But why has this crisis occurred?
If we are to believe the FT’s Martin Wolf, the explanation is largely economic. In his narrative, universal suffrage liberal democracy first emerged for the usual reasons (motivating soldiers to fight to the death with citizenship, greater access to lower interest rate financing when an autocrat can’t credibly threaten to seize assets, etc), but was also crucially buttressed by unique economic conditions in the 20th century. These unique economic conditions are particularly important because true universal suffrage democracy itself did not emerge until the 20th century.1
These unique economic factors, which are also noted by Rees Mogg in “The Sovereign Individual”, principally concern the strength of trade unions in the 20th century. Valuable, large stocks of physical capital had to be in constant use by and for their owners to achieve desired returns, and huge and concentrated labor forces were relatively easy to organize and capable of inflicting huge losses on their employers. The result was politically empowered trade unions, which shaped politics in a new era of wide and universal suffrage. The developments in turn created a well-paid (and relatively unskilled) industrial working class, which Americans of course call the middle class.
This era of Industrial production was dominated by these Trade unions, as well as the fact that worker outputs were largely uniform. In the 20th century, it didn’t matter how good you were- for the most part, worker A produced as much as worker B on the factory line. Thus, high, equal wages were the norm for the period.
Unfortunately for liberal democracy, the Information Revolution has done away with these circumstances. Labor is an increasingly irrelevant factor of production, and the jobs that do remain have extremely unequal pay. After all, Bob the 100x SWE makes 100x the revenue as Alice the 1x SWE, so why not pay him 100x as much as well? In Martin Wolf’s view, slowing economic growth has been damaging on its own, but this inequality is the true acid eating away at the bedrock of global Democracy.
Martin Wolf does also make some reference to social or technological factors when he presents his case for why Democracy has faltered. He names the wise and venerable Martin Gurri, and he also references “Imagined Communities” by Benedict Anderson a couple of times. But Martin Wolf himself titles an entire Chapter “It’s the Economy, Stupid”, so I think it’s fair to characterize the economic thesis as his main argument. Martin Wolf then goes on to make some recommendations for solving this situation, which mostly involves wealth redistribution and large-scale public investment in domestic industry to soothe people’s discomforts.
However, when reading through the book, I can’t help but shake the feeling that Martin’s trying to change gravity, when it’s not in his power to do so. To contrast him against another Brit-
The rewards for rare skills have increased and are increasing… the factory age may prove to have been a unique period in which semistupid machines left a highly profitable niche for unskilled people. Now that the machines can look after themselves, the Information Age is pouring its gifts onto the Top 5 percent of Otto Ammon’s turnip. The Information Age was already looking far better for the 10 percent, the so-called cognitive elite. Yet it will be the best of all for the top 10 percent of the 10 percent, the cognitive double top. In the feudal age, it took one hundred semiskilled peasants to support one highly skilled warlord (or knight) on horseback. The Sovereign Individuals of the information economy will not be warlords but masters of specialized skills, including entrepreneurship and investment. Yet the feudal hundred-to-one ratio seems set to return.
-William Rees Mogg, “The Sovereign Individual”
I find Mogg’s vision of the world frightening, but I also think it’s the right one. The marriage of the complementary opposites of Capitalism and Democracy seems set for an unavoidable divorce, and the types of concessions that Martin Wolf wants Capital to make seem unlikely to occur.
Turning away from my disagreement with Martin Wolf on economics, I also think he underestimates the social and technological factors at play, despite the quote this article begins with. The internet has gravely wounded our ability to believe in the “elites” and each other, which is at least as important as the economic problems discussed above, at least in the short term. Redistribution is predicated on a feeling of togetherness, after all.
3/5 Stars.
For example, in the US, black voting was largely restricted until the civil rights movement. The Great Reform of 1832 somewhat liberalized the UK, but it too did not offer universal suffrage to men and women until after (and largely because of) the horrors of WW1.