Crisis Management
Martin Wolf’s new book is a work of sombre brilliance, but it fails to grapple effectively with the postliberal analysis of what ails liberal democracies.
A review of The Crisis of Democratic Capitalism by Martin Wolf, 496 pages, Allen Lane (February 2023)
In his 2004 book, Why Globalization Works, the economic commentator Martin Wolf draws a distinction between his own political views and those of his father, whom he reveres and sees as a model for his own life. A writer who left Austria in 1937 and met and married Wolf’s Dutch-Jewish mother in London (both of whom had extended families who left leaving too late), the elder Wolf was a “cautious” social democrat. The son writes that he, by contrast, became more of a “classic liberal.” Why Globalization Works is indeed a liberal’s testament—classic in its preference for a small state and an emphasis on individual freedom, and liberal in the late 20th-century sense of believing that social and political problems could be solved by more globalisation. “Most critics of globalization,” he wrote, “are fervent opponents of a market economy that embraces the world as a whole” (the idiots).
Nearly two decades later, the son has drawn closer to the father’s beliefs. The Crisis of Democratic Capitalism is a work produced over several increasingly despairing years, and it is probably best described as a social-democratic book. Consider the five “goals for reform” Wolf sets out in its what-must-be-accomplished section:
- A rising, widely shared, and sustainable standard of living.
- Good jobs for those who can work and are prepared to do so.
- Equality of opportunity.
- Security for those who need it.
- An end to special privileges for the few.
More to the point, it is a book written in the awareness “of the fragility of civilization. Any well-informed Jew should know this.”
You don’t have to be Jewish to know this. Imperial ambition, demagogy, and repression (of differing severity) in some of the world’s most important states have brought us, if not to the brink of a nuclear conflagration, then to a feeling that such a development is now more possible than any time since the Cuban Missile Crisis of October 1962. China, Iran, India, Russia, and Turkey—to which might be added North Korea—are “worlds of arbitrary despotism, unbridled corruption and self-dealing, intimidation and endless state-manufactured lies.” “This is a moment of great fear,” writes Wolf gloomily, “and faint hope.”
Wolf has assembled a formidable inventory of reasons for anxiety. At times, reading this intense, meticulously argued book, the faintness of hope is overwhelmed. That inventory includes:
- The disconnection of the young from conventional politics—that is, the nature of democratic governance and the need for its public support—and their increasing sympathy for authoritarian or military alternatives to bypass the endless arguments, compromises, and cul-de-sacs of elected governments.
- The emergence of a chasm in wealth and power between the exceedingly rich and everybody else. This, he worries, is likely to make democracy increasingly fragile and hasten moves towards plutocracy and demagogy—“Democracy is for sale!”
- Collapsing trust in political and economic elites, the malign results of which include hostility to immigration and support for protectionism and authoritarian populism.
- A growing belief that globalization no longer simply “works,” as Wolf had previously contended. It “corrodes the loyalty of businesses to the countries in which they were initially built … so many people feel that business has abandoned them”; workers have “lost their privileged access to the know-how and capital embedded in the companies considered their own … inevitably affect[ing] their bargaining position and their jobs”; robotic technology and the widespread adoption of artificial intelligence means that “it is close to certain the employment in industry will continue to decline.”
- The consequences of rent extraction—making money from money and from exploiting tax loopholes and tax shelters, tax-shifting from higher to lower tax jurisdictions—which include an erosion “of the legitimacy of the tax system and even of the market economy.” Some 10 percent of global output, he points out, is now held offshore. Much of that is held by the wealthy in autocratic states, fearful of expropriation and scornful of tax, but it is also, increasingly, held by democracies. “No doubt, some tax is paid on these offshore holdings. But how much? ‘Very little’ would be a reasonable guess.”
- The well-attested shift of the highly educated (and usually highly paid) to vote for left-of-centre parties, while the working and lower middle classes turn to the Right (described by Thomas Piketty as “the Brahmin Left and the Merchant Right”) has meant that “the old coalition [of leftist intellectuals and the working class] has ceased to exist.”
- Increasing pressure on democracy, exacerbated by the COVID pandemic, which has “shifted [people] towards a desire for competent authoritarian government.” Quoting Shawn Rosenberg of the University of California, Wolf writes that “the task of making people think and behave as conscientious and well-informed citizens is hopeless.”
One figure above all others moves through the first dystopian part of the book—that of Donald Trump. The US, Wolf reminds us, “is not just any country: it is the creator of the post-Second World War liberal order. Trump lacked the character, intellect and knowledge needed to be the president of a great democratic republic.” Plato, Wolf reminds us, had argued that reaction against plutocracy by the lower classes risked “turning democracy into tyranny. That is arguably what we have witnessed under the presidency of Donald Trump.”
But we are not left to die of despair. The latter part of the book offers plans for a fresh New Deal in the mould of FDR’s initiatives during the 1930s, and for renewing capitalism and democracy itself. Education for the majority must be improved and subsidised more generously, Wolf argues, while the fiscal benefits for the schools and universities which largely serve the wealthy should be ended. And since various economic incentives encourage corporate executives to indulge in immoral and illegal behaviour, these incentives should be curbed and the guilty properly punished—as they rarely are, especially in the US and the UK. For example:
[M]embers of the Sackler family, which bears heavy responsibility for the mass prescription of opioids in the US, probably the worst drugs-related scandal since the opium wars by the British against China of the 19th century, are not going to prison, but just losing some of their billions of dollars. Such power without responsibility is a monstrous privilege, redolent of feudalism more than of a contemporary liberal democracy.
High-earning, law-governed liberal democracies are usually less corrupt than authoritarian alternatives, but they enable corruption in less blatant ways. They wash dirty money, pander to those who have it, and in the US, place no limit on campaign financing, “a classic example of buying and selling favours.” This further tears at the webs of trust that ought to surround businesspeople and politicians. And when that happens, voters tend to conclude that, “since all politicians are crooks, why should they not vote for a crook who is at least open and honest about his crookedness?”
Current rates of tax are unable to sustain current and future rates of debt, so “taxes will have to rise to meet current promises, let alone some of the needs for a better future.” Wolf dismisses most of the objections that this would render the tax-raising country less successful in wooing investment—“the ratio of tax to GDP,” he writes, “seems, in practice, to have relatively insignificant effects on prosperity … there are prosperous high-tax countries and also prosperous low-tax ones.” With this proposal, and others intended to rescue us from the cycles of pessimism in which the democratic world is caught, Wolf goes far beyond his father’s “cautious” social democracy. Indeed, he floats solutions at which Sir Keir Starmer—leader of the Labour Party and a cautious social democrat—would likely balk, despite his party’s commanding poll lead.
Wolf also wants to abolish the House of Lords—a place for cronies and 91 hereditary peers—and replace it with a merit-based second house, filled with citizens whose useful public life and good judgment gives them the right to sit in a revising chamber. He wants to take on a mendacious and irresponsible media, which has left us “drowning in divisive lies,” and to tax social media to fund public-service broadcasting. Bloggers and others must be identified by name, and local news sources—currently falling like ninepins—must be salvaged and given public support.
This is a work of sombre brilliance. The depth of Wolf’s disquiet is matched by the quality of his analysis and the boldness of the answers he produces to the anxious questions pressing on governance everywhere. I have two reservations, although these do not detract from the vigour of his exploration of our present melancholies.
The first is that Wolf too easily casts a variety of political responses to these ills into the box labelled “populism.” He agrees with Yascha Mounk of Johns Hopkins University that “in more and more countries, vast swathes of policy have been cordoned off from democratic contestation … citizens on both sides of the Atlantic feel that they are no longer masters of their political fate.” He agrees that Italians were right to feel aggrieved that they are “free only to do what the eurozone rules and the most powerful member state allowed them to do.” Nevertheless, he still tends to see the response—in the Italian case, to elect the Fratelli d’Italia party—as simply “populist.” In fact, Italian Prime Minister Giorgia Meloni is governing Italy, for the most part, conventionally, at least in economic matters.
Likewise, he dismisses the Brexit vote as “a brilliant diversion from the realities of high inequality.” But the Brexit vote was not a diversion. As polls taken after the referendum show, it resulted from a widespread feeling that British governance should be conducted by a British parliament, the workings of which are relatively transparent and the governing class of which is, if unloved, at least familiar. This was not a populist protest against foreigners or immigrants, whose presence in the UK—provided they entered legally—is given a larger welcome than in any other European state. It is better described as a pro-democratic vote.
“The mutual bonds of citizenship,” Wolf writes in one passage, “are of enormous significance to electorates.” But there is no evidence in any European state, except at elite levels, that European citizenship enjoys anything like that significance. To preserve bonds of national citizenship, on the other hand, while remaining broadly liberal, averse to bigotry, and thus open to sharing these with well-intentioned strangers seeking citizenship, is a civic society in action.
Wolf too easily sees Trump and Boris Johnson as comparably “malignant” and “irresponsible,” brothers under and over the skin. Granted, neither should lead their respective country again. But Trump is in a different league of malignancy to Johnson. More importantly, the constraints which hobbled Johnson seemed to be largely lacking in Trump’s US. Trump was impeached twice, but was spared conviction on both occasions by his own party. It was left to the voters to depose him, and one of a number of possible court appearances may yet prevent him from running again. Britain’s parliamentary system, on the other hand, and a generally more utilitarian approach to politics, can be brutally unsentimental once a job—Johnson “getting Brexit done”—has been successfully completed.
My second reservation is that, although Wolf has moved from classic liberal to daring (rather than cautious) social democrat, he has not broached the critical matter of status. In several passages, he rightly laments the weakness of trade unions and the difficulty of their organisation now that workplaces are so fragmented and workforces so diverse. But he does not pick up on the arguments of postliberals like Michael Lind in the US and Adrian Pabst in the UK who point to the incompleteness of democracies in which the majority are bereft of all but occasional or symbolic power. As Lind writes in The New Class War:
[A]chieving a genuine class peace in the democracies of the West will require uniting and empowering both native and immigrant workers while restoring genuine decision-making to the non-university-educated majority in all three realms of social power—the economy, politics and culture. Technocratic neoliberalism is the disease. Democratic pluralism is the cure.
Martin Wolf writes that he has promised his family he will write no more books. But as The Crisis of Democratic Capitalism convincingly shows, his thought is capable of major development. Another perhaps slimmer volume might see him grapple with the challenging paradox of the largely powerless majority in a liberal democratic society.
