Summary and Appreciation:
Main Point:
In this work, Martin Wolf asserts that “if core Western values of freedom, democracy, and the Enlightenment are to survive” substantial changes must be made (page xviii). He believes that “economic disappointment is one of the chief explanations for the rise of ‘left – and right-wing populisms in high income democracies” (page 3). Democratic capitalism is in crisis because the synthesis of the two (democracy and capitalism) has been frayed and a “new equilibrium between the market economy and democratic politics” must be found (page 4). To establish this new equilibrium, Wolf contends that a “renewal of capitalism and democracy must be animated by a simple, but powerful idea: that of citizenship (page 380). He proposes that these new citizens implement a “New New Deal” that will enable all citizens to better flourish in our complex world.
Summary:
The book is divided into four large sections. In the first section, Wolf describes how both the market economy and universal suffrage democracy rose to prominence in our world, and how the relationship between the two became necessarily intertwined. He asserts that “capitalism cannot survive in the long run without a democratic polity, and democracy cannot survive in the long run without a market economy;” and yet, the relationship between the two has often been a difficult one (pages 13 – 14). Central to both systems is the “proposition that people’s choices have inherent value” (page 25). Additionally, “the ability and willingness of oligarchies to create and sustain effective political coalitions while tolerating genuine democracy is central” to the argument in this book (page 27). Holding political power must not be necessary for obtaining wealth, nor should having wealth be a necessary condition for gaining political power. The delicate balance between these two can be destroyed by either “state control of the economy” or “capitalist control over the state” (page 29). The way this delicate balance works is through “compromise and cooperation among the social, economic, and political actors in democratic capitalism” (page 33). Trust forms the basis of the social capital that makes this work.
Wolf then moves on to describe the development of universal suffrage democracy over the last 200 years and its relationship to the rise of market capitalism. Over that time, suffrage greatly expanded, and the markets became much more complex. Along with these changes, market capitalism spread beyond national borders. As capitalism spread democracy spread. But as capitalism collapsed in certain areas so also did democracy. And this linkage has not been the only factor in the rise or decline in democracy. Instead, “huge economic and social disturbances” have been fueled by “financial crises” which have fed the current crises in Western liberal democracy – characterized by “slow growth, rising inequality, [and] loss of good jobs” (page 77).
In the second section, Wolf seeks to answer the question of “what went wrong” (page 79). He begins by describing what happened in higher income countries. He shows that after the explosive growth of the post war period, long-term economic changes have occurred in these countries. Those changes destabilized important parts of the body politic “especially less-educated (male) workers” (page 115). This caused a move away from “historic political attachments” and led to a severe erosion of trust in established institutions along with an erosion of perceived security – economic and otherwise (page 116).
Wolf then examines the underlying roots of the economic failures in the high-income countries of the democratic West. He contends that the “why” of what went wrong is not a simple conclusion (page 119). At the base, is what he says Adam Smith “warned us against – the tendency of the powerful to rig the economic and political system against the rest of society” (page 119). He maintains that the inevitable slowdown of productivity growth, though a concern, is not the main driver of the problems we face. Those instead center on the rise of “rentier capitalism” in which a “small portion of the population has successfully captured rents from the economy and uses the resources it has acquired to control the political and even legal system…” (page 173 – 174). The reaction to this in the rest of society has been a rise in populism married to nationalism.
Wolf then contends that democratic capitalism is now confronted with two very different versions of authoritarianism: demagogic and bureaucratic (page 176). Demagogic is the threat faced from within and bureaucratic is the threat presented by the system prevalent in China. In the demagogic version, rather “than mounting coups or starting revolution, the would-be autocrat eats up democracy from within…” (page 176). Demagogic threats have been aided by populist tendencies with two characteristics: hostility to elites, and rejection of pluralism (page 179). Four signs of the would-be demagogic despots seeking power include: “a rejection of or at least a weak commitment to the democratic rules of the game; denial of the legitimacy of political opponents; toleration and encouragement of violence; and willingness to curtail civil liberties of opponents, including media” (page 181). Contributing to this rise of authoritarianism according to Wolf is a “hyper-individualism” that has developed, particularly in the US. This individualism has confused the concept of liberty with “licentia” or license. A prerequisite for true liberty is “the renouncement of self-willed actions” whereby true liberty can “only be enjoyed under the law” (page 209). Instead, license provides the seed bed for tyranny to grow in order to dispel the disorderly chaos of a licentious environment. Within this disordered environment, the elites and those charged with maintaining institutions have lost credibility and authority. Into the void has risen the demagogue.
In his concluding summary of the problem, Wolf declares that left-wing populism is less successful in winning the day because it only promises hope. The right-wing variety, on the other hand, “feeds off of fear and anger…Hope requires trust. Fear does not: it requires an enemy” (page 214). He contends that “[p]olitics must respond to the fear and rage that brought populists to power…” (page 214).
Next in part three, Wolf begins to lay out his view of an agenda for reforming “Democratic Capitalism.” Within our current context where the reigning consensus holds to a view of the necessity of market forces and private ownership to drive an economy, two questions must be considered: “what sort of capitalism” should rule the day – a democratic model or an authoritarian model. And secondly, is that model of capitalism “to be competitive and dynamic” or is it to be “rent-extracting and rigged capitalism?” (page 217).
Wolf starts the discussion by describing the importance of engaging in reform versus a revolutionary upheaval. He calls this “piecemeal social engineering…fighting against the greatest and most urgent evils of society, rather than searching for, and fighting for, its greatest ultimate good” (page 227). He contends that “evidence strongly supports the simple idea that a combination of widely shared prosperity…[and democratic politics] is crucial to societal well-being” (page 229). As a result, he suggests that “the goals of security, opportunity, prosperity, and dignity need to be turned into something more concrete”…what he calls a “New New Deal” (page 229). This will include the following: A rising…and sustainable standard of living…; Good jobs…; Equality of opportunity…; Security for those who need it…; [and] Ending special privileges for the few” (page 231). He recognizes that “[r]esilience is one of the greatest virtues of market systems,” but the most successful participants in the market system “must not be allowed to control the political system, rig markets, inflict harms (such as environmental damage), establish a hereditary oligarchy, or avoid paying the taxes” required to secure all the other objectives he outlines in his proposal (pages 231 – 239).
To obtain this prosperity, Wolf thinks that there are four requirements: macroeconomic stability; investment and innovation; sustainability; and sensible openness to the world economy (page 240). To achieve macroeconomic stability, he believes that the incentives associated with the accumulation of debt need to be reduced. He argues that the chief engine for economic growth is innovation, fueled by the market force of “creative destruction” (page 247). As a result, government needs to be very cautious when encouraging the markets to innovate and avoid the temptation to try and “pick the winners” within the economy (page 249). In terms of sustainability, he recognizes that changes needed to achieve desired results will be “enormously politically, socially, and technologically challenging” (page 254). Finally, in terms of being open to the world economy, Wolf contends that the free movement of people and goods must be carefully implemented (and the movement of people is very different than the movement of goods and ides). He recognizes that the “debate on how to best do this is complex and difficult” (page 263).
In the next section, Wolf outlines several proposals that he hopes will be “realistic reforms designed to deliver a market economy within a democratic polity that seeks to provide welfare to the population at large” (page 309). While striving to encourage the development of the “New New Deal” he believes a “good welfare state will gain legitimacy by allowing people to do things they would otherwise be unable to do, and by insuring them against risks they would otherwise be unable to bear. At the same time it should not encourage idleness or fecklessness. Striking this balance is at the heart of modern democratic politics” (page 289).
In the next chapter, Wolf turns his attention to his perspective on necessary reforms of democracy. He contends that “The notion that citizens can oppose the incumbent rulers and organize to replace them, yet remain loyal to the nation, is fundamental both to real democracy and to social harmony” (page 318). He believes that we have no other choice but to strive to make our current system of liberal democracy coupled with market capitalism work better because both aspects need each other to thrive. To that end, he begins by discussing the important difference between patriotism and nationalism. The central difference being patriotism’s innate defensive nature, in contrast to nationalism’s thirst for power. He proposes that we concentrate our efforts on restoring a sense of citizenship centered on “an ethical education” that includes “what democracy means, how it works, and what the responsibilities of citizens must be” (page 325). In contrast, he highlights the dangers of identity politics and how our history has worked against us in trying to harmonize diverse peoples into our society. In addition, immigration must be managed and controlled. He believes that both the right and left of the political spectrum have been disingenuous in their approach to solving differences on immigration.
In addition, he believes that significant reforms must be made to ensure competent government in order that citizens actually respect those in leadership during times of crises or stress. He cites the response to Covid-19 as a particularly poor example of government leadership in the midst of crisis. In a similar vein, he believes that accountability needs to be strengthened within democratic systems. Safe and secure voting must be maintained, and complete transparency on political donations must be implemented to ensure trust within the system (in other words, dark money must be eliminated).
Finally, Wolf offers several ideas to reform how the media function in democratic societies. He offers five ideas: Public broadcasting should receive more funding because of the service it provides; Restrictions should be placed on political advertising; Local news sources should be funded from public sources; On public or social media, anonymous posts should be prohibited; And finally, the algorithms associated with social media should be publicly regulated.
In the last two chapters, Wolf describes the importance of defending democratic capitalism and restoring the idea of citizenship within that system. In terms of defending democratic capitalism, Wolf believes that the process begins with restoring democracy domestically. However, because no country functions as an island within our connected world, there are interlocking issues that we face when meeting this challenge. An important aspect of meeting these challenges is maintaining the alliances between other liberal democracies to keep the stability of the world economies. In this context, we must appreciate the strengths of Western democracies and the weaknesses of China, while avoiding “destructive conflict with China, and yet engaging China in a balance of “cooperation, confrontation, and competition”…(page 350).
In terms of restoring the idea of citizenship, Wolf contends that central to the delicate marriage between democracy and competitive capitalism is a “belief in the value of human agency” (page 372). A healthy balance in this marriage has produced “the most successful system in the history of the world” for encouraging the flourishing of this human agency. “The renewal of capitalism and democracy must be animated by a simple, but powerful, idea: that of citizenship” (page 380). Wolf’s idea of citizenship has three main aspects that he views as critical: “concern for the ability of fellow citizens to have a fulfilled life; the desire to create an economy that allows citizens to flourish in this way; and above all, loyalty to democratic political and legal institutions and the values of open debate and mutual tolerance that underpins them” (page 380).
Balancing our human activities between individuality and collective action requires functioning as responsible citizens who recognize and value the benefits of meritocracy. Wolf believes that “[w]ithout decent and competent elites, democracy will perish” (page 379).
Appreciation/Critique:
The magnitude and wide scope of Wolf’s treatment of his subjects is truly impressive. The number of subtopics he touches and the amount of detail he presents associated with his proposed solutions is striking. Overall, I am very happy to highly recommend this book to anyone who wants to consider the many topics presented.
However, I do believe there are several areas where his treatment of his subject could be strengthened. One of those areas has to do with his insistence on the importance of trust in our systems of government and society. I think his readers would have been much better served if he had explored the basis for the trust and morality that he says is necessary to animate the society that he envisions. Also, what is the basis for his assertion that “peoples’ choices have inherent value” (page 25)? On what basis does that value rest?
Along a similar vein, I think the reader would be much better served if Wolf would have discussed more deeply his ideas regarding the basis for ethics that he recommends being taught in the context of the education that he advocates as part of developing good citizens. At the same time, I believe that he should also discuss the place of religion, and how religion should function in a pluralistic world. I think the work of Miroslav Volf (The Yale Center for Faith and Culture) would be helpful here. Finally, what does the trust he advocates for look like? I think providing historical examples would have been helpful (even if those examples were incomplete or limited). I believe readers find it very difficult to gain any feel for what he means by something abstract like “trust” without the color of an historical example.
Todd Rivetti 