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When Karl Marx was forecasting revolution in the British Museum Reading Room in the 1860s, he relished the idea that capitalism was prone to recurrent crises that would ultimately bring down the state. What he did not anticipate was how the growth of democracy over the next century and a half would manage and mitigate those crises, developing a symbiotic relationship in which capitalism provided the prosperity while democracy set the rules and created a shared interest in the outcome.
It is not too much of a stretch to see Martin Wolf, the FT’s chief economics commentator, as a modern Marx. He, too, is an economist forever looking for the bigger political and social picture, as well as for the crises that may shape it. But unlike Marx, he does so without relish. And in his fine new book, The Crisis of Democratic Capitalism, his principal concern is with democracy rather than capitalism.
Or, rather, it is with the way in which, he fears, capitalism may be undermining, or even destroying, the democracy that for so long has saved it from itself. There is nothing new in worrying about democracy, nor about capitalism. But, to borrow a phrase from the 2011-12 euro sovereign debt crisis, Wolf’s fear is that this once productive pairing might now have trapped itself in a kind of doom loop.
The key moment for him is the attempted overthrow of US democratic process and laws on January 6 2021, by followers of would-be autocrat Donald Trump. But the key episode, both for what it revealed and what it caused, is the 2008 global financial crisis, in reality a crisis spawned in the democracies of America and Europe and then inflicted on the world.
To Wolf, this calamity was not just some technical error in economic policy. It was, and is, the result of “the rise of rentier capitalism”, in which inequality in many of the liberal democracies has grown while too much of capitalism has come to consist of creating quasi-monopoly profits, or “rents”, and then using the resulting wealth to buy the political influence needed to defend them.
One of Wolf’s strengths is his ability, as the Chinese say, to seek truth from facts. His data on the entrenchment of inequality is especially compelling, although he glosses over the point that his own data shows it has grown not just in the US, UK and Canada but also Japan and Germany. Compelling too, is his analysis of the rise of the financial sector to a disproportionate role in the economy and in politics, and the way those two trends distorted the policy response to the 2008 crash especially in the UK and US.
So why hasn’t democracy once again righted its own ship? Why, in an era of technological disruption, haven’t the forces of innovation and competition eroded those excess profits and power? They could still do so, and much of the book is devoted to recommending ways in which enlightened political leaders and policymakers should help this to happen.
Some of those recommendations will be familiar to readers of Wolf’s columns, especially his desire for a restoration of tough antitrust enforcement and for stricter financial regulation to create much bigger capital requirements (and lower profits) for banks. Others will surprise and provoke, such as his defence of trade unions — “public policy should support the creation of responsible worker organisations, within the law” — and of higher taxes to enable states to provide the “security, opportunity, prosperity and dignity” that are, he argues, the correct aims of economic policy.
How to nurture and empower those enlightened political leaders, the successors to Franklin D Roosevelt who Wolf credits with saving democratic capitalism in the 1930s? That is a much harder question, for which there are no straightforward answers.
Shining a bright light on the doom loop is an important start. The loop itself is not new: as he writes, Adam Smith warned two centuries ago of “the tendency of the powerful to rig the economic and political systems against the rest of society”. But each time it needs to be fought against.
This problem, while all-too obvious in the huge lobbying industry and unlimited campaign finance of the US, can be seen in the personage of Boris Johnson. The idea the former UK prime minister promoted of “levelling up” to remedy inequality was admirable as well as politically astute. A glance at his personal and political finances, dependent on billionaires and hedge funders, shows that he would never actually carry this out.
Wolf is no dystopian shoulder-shrugger. He thinks democratic capitalism can be saved, and closes with an appeal for a renewed concept of citizenship to make this possible. But, as befits someone whose forebears suffered terribly from fascism, he feels a duty to be worried: “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.”
The Crisis of Democratic Capitalism by Martin Wolf Allen Lane £30, 496 pages
Bill Emmott is a former editor of The Economist, and author of ‘The Fate of the West’ (2017)
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