© Financial Times

This is an audio transcript of the Rachman Review podcast episode: ‘How to fix our flawed democracies’

[MUSIC PLAYING]

Gideon Rachman
Hello and welcome back to the Rachman Review. I’m Gideon Rachman, chief foreign affairs commentator of the Financial Times. Some weeks I have to travel a long way to secure an interview for this podcast. But this week, I just popped into the office next door to me. That’s because my colleague, Martin Wolf, has just produced an important new book called The Crisis of Democratic Capitalism. It’s about themes that both of us have been writing about for many years. So what are the connections between democracy and capitalism, and are they both in crisis?

Martin Wolf
I mean, in the end, I’m a policy wonk. So, I thought it would be valuable because I know a little bit about it. And I just went moderately rigorously through the policies you might want to follow and asked, so well, how much difference might they make?

Gideon Rachman
That was Martin Wolf chatting to me about the kind of book he’s written. As you’ll hear, he has views on most of the major policy debates of our era. But the crisis of democratic capitalism is about much more than that. It ranges far back into Greek philosophy, drawing upon Martin’s early education as a classicist. And it also takes on the big debates about the nature of both capitalism and democracy and tries to show how these arguments are connected, and then to resolve them. So, an ambitious agenda. I began our conversation by asking Martin why he’d decided to write this book.

Martin Wolf
Well, I started the project in 2016 and it was pretty obvious. There was Donald Trump and there was Brexit and I said, “What on earth is happening and why is it happening now?” But the reason I was immediately attracted to this topic is that it brought together two things that I thought about for much of my life. First, what happened in the interwar period, particularly in central Europe, in Germany, which affected my parents’ lives so profoundly. And second, my belief, which was itself one of the reasons I got into economics, that if the economy went really, really badly, just about anything could happen. And apparently stable and ordered societies could disintegrate totally. And suddenly in 2016, I was thinking, well, we had a financial crisis. We sort of looked as though we were recovering from it. But now we got this. They’re linked, aren’t they? What does it mean? And it’s in the process of writing the book I began to go back and see, well, this is sort of a repeat — in a very, very different context, of course, with different outcomes, I hope — of what happened to my parents.

Gideon Rachman
A stable, ordered society thrown into turmoil by an economic collapse.

Martin Wolf
My father was born in 1910 in the Austro-Hungarian empire. And as I pointed out in a recent article for the FT, nobody in 1910, however pessimistic they were, really imagined what was gonna happen in Europe over the succeeding 35 years. In 1910 sensible people will say, “We’ve got lots of problems, of course, but the last 30 years have been great. We’ve had peace. Prosperity has blossomed everywhere. We’re richer than we’ve ever been. We’re more powerful than we’ve ever been. This is gonna go on, isn’t it?” But it didn’t.

Gideon Rachman
So coming up to the present day, I mean, it seems to me the book is very ambitious in a quite exciting way because you try to take on the big problems in economics and politics and show the links. And it’s called The Crisis of Democratic Capitalism. We’ll talk about the linkages in a bit, but let’s talk about the two separate components, the economics first. What’s the crisis of capitalism?

Martin Wolf
Well, they are very closely linked, but the crisis of capitalism, the development in capitalism which I think is causing the crisis, is that over quite a long period two or three things have come together. One, growth has, on the whole, slowed in the developed world to varying degrees, but particularly since the financial crisis, which has been a real watershed, I showed that. And not only has growth slowed; by and large the growth we have has adversely affected some very significant parts of our body politic, particularly the industrial working class, broadly defined, and that has, I think, destabilised their role in society and their sense of themselves. So the economy is very important. And finally, this is linked with a dramatic transformation of relative economic power with the rise of China and other developing countries, but above all China. So the economy has been revolutionised. In addition, I’ve mentioned that, of course, there have been technological revolutions, particularly in the media, which have also added to these challenges. So that’s the economic side, though the latter clearly interacts, too, with the social and political side.

Gideon Rachman
And what’s the economic side? The result of policy mistakes or of bigger forces, or a bit of both?

Martin Wolf
Well, the argument in the book is that it’s very clearly both. There are people who would say if only we never had Reagan or Thatcher, none of this would have happened. But that seems to me basically to be nonsense. The forces leading to deindustrialisation, to the move to the service sector economy with its more precarious workforce, the forces that led to China’s growth, the technological changes that were, as economists like to say in their leaden way, skills-biased, which favoured people with skills — knowledge workers broadly defined as against manual workers, the ageing of our economies, the increased pressure on public finances, all these were bound to happen and they were probably the most important things. And of course, trade is a part of that, though not as important as some believe. But there were also very big policy decisions made for perfectly understandable reasons. But they had consequences, too, in creating a form of capitalism, a form of market economy, which treated the interests of very important groups of our society as relatively less significant and allowed the creation of a really extraordinarily blossoming and increasingly powerful plutocracy. And I hadn’t recognised that before. But that I think was at least in significant part but not entirely the product of policy choices that were made in some countries.

Gideon Rachman
Mmm. So I was at an event yesterday evening where almost the entire theme seemed to be the evils of neoliberalism in the sense that it was almost entirely policy-driven and an epoch that we must put behind it. I’m not sure if I even spotted the word neoliberalism in your book. I don’t think you use it.

Martin Wolf
I never use the word because I don’t know what it means except that it’s a boo word. Liberalism would be fine for me because it’s clear, there was an economic liberalisation move. I think the move towards economic liberalisation had good aspects to it, which I supported then and still support. And, some of the bad aspects of it were not inevitable and necessary. Even in my very first book on globalisation, written well over 20 years ago, I made clear that it was both possible and desirable to sustain, if not strengthen, the welfare state as a way of counteracting the impact. So I don’t think that it was at all necessary to degrade the safety net in the way we tended to, though that’s complex, depends on the country and so forth. But yes, I think that there are aspects of the market revolution which turned out not to work properly and were allowed to go far too far. But, the idea that what’s happened in the last half century is just because of that and that the 50s and 60s sort of economy and society were sustainable in what was gonna happen over the next 30, 40, 50 years to me is just quite implausible.

Gideon Rachman
So let’s move on to the democratic bit. How would you describe the crisis in democracy?

Martin Wolf
Well, my idea essentially is this: that the industrial revolution and the beginning of fast growth for the first time in human history, sustained fast growth in the 19th and 20th centuries, generated with it both directly and counter to it, forces desiring democracy. And they were forces that had to be pulled into the political system. They couldn’t be disregarded the way the old landless peasantry or the peasants and serfs could be disregarded. These were industrial working class. They were core to the modern economy. They were a huge part of society. They were urbanised, they were increasingly educated, and for good reasons. So they had to be dealt with. And the settlement that was reached in the course of the late 19th through to the middle of the 20th centuries was a move towards giving the suffrage to them all, making the suffrage universal, which is a revolutionary development mostly completed in the developed west, with just a few exceptions in the interwar period. And then, once we had universal suffrage, the people demanded basic security. That was inevitable. So the welfare state in various forms to different degrees, from Scandinavian social democracy at one end and FDR’s New Deal at the other, developed, and these were inevitable. And that was the point. We were in the middle of the 20th century, reasonably stable system where everybody felt they were sort of looked after and had a chance of prosperity. Over the last 30, 40, 50 years, that has unravelled not because the state has shrunk. Actually, if anything, it’s tend to get bigger, but that’s because there’s ageing, there are more social problems. But the economy has ceased to provide people with the sorts of jobs and the sort of income security that they expected. And with that went the decline of trades unions and the decline of the industrial workforce, which I’ve already mentioned, and of course other economic and social revolutions. So if you add these things together and then you have a huge financial crisis — which has been shown to be an event which tends to undermine political stability, with lots of research on that in European history and elsewhere — then suddenly people start saying, “This democracy thing is not delivering for us. Basically it’s just tweedledum, tweedledee between two bunches of elitists who don’t care about us, are only looking after themselves and their cronies, and we’ve had enough of that. We’re very angry and we want someone who represents us.” In other words, we’ve created the conditions for a, what’s sometimes called populist and I usually call demagogic response. Now, once you get a demagogic response, the question is what sort of demagogue? You can get demagogues who say, “OK, you believe in me and I’m gonna fix this.” And they really mean it. And probably the most famous example in the history of the west is FDR, who sounds like a demagogue if you listen to his speeches or read them. But he had serious policy proposals and he transformed the US, I think, unambiguously for the better. Or you can get someone like Trump, who’s also a demagogue, but he is policy empty. And what he offers is simply anger and beating up people you don’t like because they’re really responsible for (inaudible)? Unfortunately, most would-be strongmen, and you’ve written about this, tend to be more of the latter type, though there are varying types, and Trump is an extreme level. But once you’re dealing with the politics of anger, the likelihood that you’re gonna get leaders who will basically say, “I’m gonna protect you. I’m gonna protect you by beating up all those people about you.” And it turned out, I knew this anyway, but this is all in Plato’s Republic. This is the way democracy can go and at this point, there’s a very real risk. And we’ve seen this now many times again, that this democratically elected leader will absorb the political process and turn it into an autocracy.

Gideon Rachman
What if I were to argue to you, yeah, but the worst is over. I mean, you began to write this book in 2016. Trump’s no longer president. Biden is president, he’s a reformist. In the UK, some of the passions aroused by Brexit have gone. Corbyn is no longer leader of the Labour party. We’re through the worst.

Martin Wolf
Well, I very much hope that is the case, but I think it would be extraordinarily complacent to think that it’s all over. The Republican party, which is one of the two great parties of the United States and holds the House and basically 50/50 more or less in the Senate, quite like to be the next presidential party, you know; has immensely powerful elements in it that continue to back Trump, or people like him who are deeply suspicious of the electoral process and continue to back Trump’s lies about it. It has a large number of activists and the quite senior levels are perfectly happy in going along with those lines, including, of course, Kevin McCarthy, after all. And we have no idea who might replace Trump, who might be a really serious figure, much better organised, who knows how to use the power machine for his own end. Then, if I look more broadly, things in Britain look a bit better, but the government looks fantastically ineffective, unable to deal with our problems, and if democratic governments are unable to deal with their problems, this problem of populism will return. In France, who will succeed Macron? He was a one-off. He was a centrist populist, if you like. And I think many people would say it’s very plausible the next leader will be somebody from the radical right. Italy is governed by someone from the radical right. Now, at the moment, so far, she seems very well-behaved. But what happens if things start going wrong? How would she behave?

Gideon Rachman
And Germany, the industrial model that seemed to make them an exception, is now under severe challenge.

Martin Wolf
Yes. So as long as our economies are not working well, as long as we have elites who seem ineffective and dishonest and even corrupt, as long as we have politicians who think they can gain power by breaking through the system, as long as we have institutions like, to take the French case again, all the political parties have dissolved more or less so it’s become de-institutionalised, it’s become personal, these are conditions under which a return to the demagogic leader is perfectly plausible. And I think Trump may go. I very much hope so. But Trumpism is an active and powerful force in the American body politic today. And if you look at some of the things that some of the representatives in Congress believe in — QAnon, the anti-vax prejudice and all the rest of it — you can’t be confident that competent government will return. And if competent government doesn’t return, there’s always the chance that anti-system politicians, as it were, will return.

Gideon Rachman
Yeah. So that’s the diagnosis. What’s the solution? Because you start the book all, the kind of little quote at the beginning is from Greek and it’s, “Nothing in excess.” So you’re not the equivalent of the centrist strongman saying, you know, this is the one thing we must do. But if there’s no big-picture solution to all this, what is the solution?

Martin Wolf
I don’t think there is a big-picture solution to all this, and I would be very suspicious of anyone who proposed there was a big picture. One of the great things about FDR is he consciously, and often correctly and sometimes incorrectly, went for experiment. His policy was experiment. And that’s, I think, the right sort of thing to do because we don’t know the answers to these things. But I think we need to be more open to policy change than we’ve been. I discuss a lot of things and I expect most of them not to happen. And some of the things that are proposed, like universal basic income, I’m not persuaded by. But I want a vigorous debate on policy change and also institutional change. And the aim of that very clearly is to try and move our economy. And it’s gonna be genuinely difficult because it’s not the same economy as it was 50, 60 years ago, and it’s probably not gonna grow as fast anymore. I think there are big reasons which I discuss why that’s the case, but we have to move to an economy that does better than now in growth terms and better distributing the gains to give most people a sense of hope for their future and for their children’s future and security in that. That’s clearly the aim. And for that to work, you need quite a number of policies and it’s not easy in my view. I’m very much in the tradition, as I said of Karl Popper’s piecemeal social engineering, radical revolutions don’t seem to me ever to work. Transformation of society is impossible and monstrous. So what can we do to accelerate growth? What can we do to improve the welfare state in terms of security and to improve equality of opportunity and say, well, what can we do to reduce monopoly privileges by activating competition policy, by making the tax system over? A whole range of things! Now, the really big question, which I do not answer at all, because I have no idea what the answer is, is where do the politicians come from who’ll do any of this? And I think it’s very easy to be cynical and say, if you look at the forces we have now in politics and you look at how deeply entrenched facile political gimmicks are in this very difficult situation, if you look at our country or whatever — it looks a bit better with Biden’s America, he’s trying — you could easily say there just aren’t going to be the politicians able to sell to the people the sorts of policies that would make a difference. So in a sense, you might say our problem is, it’s not as bad as the 30s. This is not a recommendation. But I don’t know where it’s gonna come from and that’s one of the reasons I’m worried: that our politicians mostly look so ineffectual. And even when they are a bit effective, they are not able to get the sort of support for them, as we can see in America with a 50/50 country, to do anything big. And then I worry that we will continue to stumble. We will continue to make people very unhappy and angry, and that will lead to more outbreaks of cynical populism and quite possibly much worse than we’ve seen so far.

Gideon Rachman
Yeah, I mean, as you say, you go through a great many of the policy debates as well as being kind of big historical sweep. It’s a sort of a guide to some of the most urgent policy debates we’re having. And you consider lots and lots of different policies in different areas. We can’t consider them all. But if you had to pick two — or three, if you wanna be excessive — that you would most say this is what needs to be done, what would they be?

Martin Wolf
I did worry when I did it that I touched on too much, but I didn’t know quite how to separate the really important from the less important because I think we need to do some of all of them. Well, the first and I think most important thing is to regain growth, to do whatever we can to regain growth. The UK is an extreme example where basic living standards haven’t improved for 15 years. That’s the longest such period since the 19th century as far as we can see. And I think if people’s living standards don’t improve, then you’ve got what I think of as a zero-sum society. And a zero-sum society is probably very difficult to sustain as a democracy because the politics just become so fraught. So growth is absolutely crucial and that involves quite a lot of things we have to do. I think making the economy more competitive, opening up the capital market, promoting in our case, the UK’s case, promoting innovation and opportunity for more people to start businesses and so forth. In the US, the crucial thing is actually to increase competition by reducing the power of monopoly. So I’m very, very keen on competition policy. I think tax reform is really, really important. I’m open to the argument, but I haven’t decided on it, that capital flows across borders are really highly destabilising and should be reduced. It’s much more complicated, but I’m pretty convinced that trade is not the dominant source of problems. In fact, really not very much, but it has strategic aspects, which I don’t deny. But I suppose probably getting growth, making the welfare state more pro-growth with labour market policy and things like that, the competition and tax justice, these are probably the things I would favour.

Gideon Rachman
And you also have a quite innovative, radical, political proposal about electing a House by lot.

Martin Wolf
Yes, that’s my greatest fun. I had a lot of exchange in doing this with an Australian economist I like very much. He’s very, very original and might be called Nicholas Gruen. And he persuaded me to look at the citizen jury idea. So the jury is a great institution and the jury is, as de Tocqueville would say, one of the binding institutions of Anglo-Saxon democracy, because it’s selected by lot and it’s from everybody. The Irish have used a citizen’s assembly very, very well to discuss really vexed issues. And the best example of that, which I stress because it’s really happened, is when they got a citizen’s jury, which was together for quite a long time, to look at the question of abortion really, really carefully. And they reached a consensus. And that consensus, because it was done by ordinary people, then shaped the subsequent public debate, and here’s a Catholic country which voted overwhelmingly in favour of abortion. Now, I then thought, well, we could do that, we could have done that on Brexit. I would have been, I think, let’s have a couple of years of a citizen’s jury of 200 people or so; present them with all the evidence, the expert advice, and let them put together a view on whether Brexit makes sense for us. I think that would have been a wonderful thing to have done and would have given us the debate among ordinary people we otherwise would never have had. And then I thought, and here’s his proposal, well, the Greeks like the idea of a House by lots, and the electoral process is so defective. It’s so much lying and ridiculous newspaper and press and social media nonsense and the most cynical sort of advertising. Why do we have a House which would be selected by Lords rolling over perhaps every year and major new legislative proposals would have to be approved by this House? They would have to ask the questions and be allowed to ask questions, and they wouldn’t initiate legislation — that would still be the function of the government in the representative House. But the government would need to persuade ordinary people that these ideas, whatever they are, make sense. And this House would have the opportunity to bring in independent experts to assess this. They wouldn’t look at every legislation. We’d have to define in some way what really major legislation is. Maybe I think the referendum could have been done that way. We would have said to this House, well, how should we do such a referendum? I think this is a wonderful idea of bringing back the original idea of democracy, which is that the people, the ordinary people, not just professional politicians, elected, admittedly they should be there to run a government, but ordinary people should have a direct say in public affairs. And I think that’s a very exciting idea. I hope somewhere some country will try it and see what happens.

[MUSIC PLAYING]

Gideon Rachman
That was Martin Wolf ending this edition of the Rachman Review. And before you go, we’re keen to hear more from our listeners about this show. We’d like to know what you’d like to hear more of. So we’re running a survey, which you can find at FT.com/rachmansurvey. It does take around 10 minutes to complete, but you’ll be in with a chance to win a pair of Bose QuietComfort earbuds. We appreciate your feedback. Thanks for listening. And please join me again next week.

[MUSIC PLAYING]

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments

Comments have not been enabled for this article.