In response to an FT article by Martin Wolf on 30th August 2016, entitled ‘Capitalism and democracy: the strain is showing’
Martin Wolf’s article is the first he has written in the FT for a number of weeks. In my view it is also the best thing he has written for a very long time. I recommend that you read the whole article.
‘A natural connection exists between liberal democracy — the combination of universal suffrage with entrenched civil and personal rights — and capitalism, the right to buy and sell goods, services, capital and one’s own labour freely. They share the belief that people should make their own choices as individuals and as citizens. Democracy and capitalism share the assumption that people are entitled to exercise agency. Humans must be viewed as agents, not just as objects of other people’s power…
Yet it is also easy to identify tensions between democracy and capitalism. Democracy is egalitarian. Capitalism is inegalitarian, at least in terms of outcomes. If the economy flounders, the majority might choose authoritarianism, as in the 1930s. If economic outcomes become too unequal, the rich might turn democracy into plutocracy…
If the legitimacy of our democratic political systems is to be maintained, economic policy must be orientated towards promoting the interests of the many not the few; in the first place would be the citizenry, to whom the politicians are accountable. If we fail to do this, the basis of our political order seems likely to founder. That would be good for no one. The marriage of liberal democracy with capitalism needs some nurturing. It must not be taken for granted' - Martin Wolf
Thank you Mr Wolf, and welcome back to the fray. You've chosen an excellent and meaty subject for your re-entry. In doing so, you’ve referred to a number of western ‘ideals’ that I believe strongly in, as I think many others do. I think it’s important to look at what we mean by those terms. So, for me personally:
Liberalism – A society based upon freedom of choice for the individual, exercised within a commonly agreed rule of law, applied equally to all
Democracy - There is no chance for a society of 'liberal expression’, which excludes tranches of people from the decision-making
Capitalism - The desire to innovate and create wealth springs from human nature
Free markets - There is no way a politburo can control production and set prices better than the individual wants and needs of millions of self-determined individuals
So why doesn't it work? Because we don't have these things. The societies and economies we have in the west are a reflection of these ideals in decay, or perhaps more accurately, in a state of corruption.
To give two examples:
1. ‘Liberal Democracy’: The US Presidential election process currently underway, is a perfect example of liberal democracy in decay.
The so-called 'liberal democratic' party in the race has just been caught rigging its primaries in favour of its 'elite' candidate. A candidate, who is currently being investigated for a number of other corrupt activities, which, if found guilty, will further discredit liberal democracy around the world, and even if not, demonstrates the actions of someone who considers themselves above the rules, if not above the law.
Meanwhile, the other guy offends someone, often whole groups of people, every time he opens his mouth, even when he's got something sensible to say.
One hasn't done a press conference for months because she tends to blather when asked ‘real questions’; the other loves spontaneity but frequently threatens to ban someone or another in the press for misinterpreting his rants. This makes it difficult for the media to hold them to account, but that doesn’t really matter because all the major outlets picked sides on the basis of ideology months ago, and are only interested in shilling for their candidate in any case.
All in all, we should all be proud folks - liberal democracy at its best!
2. Our system of central banking, and our paradigm of 'economics' is anathema to capitalism and free markets. Economics is fundamentally about ‘choosing’. Economies work best when choices are made freely. There has never been a society anywhere, anytime, where a combination of academics, bureaucrats and politicians has been able to make better choices than millions of people pursuing their personal wants and needs within an agreed rule of law. But in the ‘free world’ we have a cabal of some 100 of these guys worldwide who think they can make the economy do what they want it to do through controlling the most important price in capitalism – the price of money. Unwilling to admit failure, unable to see that the economy is a complex natural system not an equilibrium machine, they battle on, printing claims on future production out of thin air, AKA currency, kicking the can down the road, trying to keep the bubble inflated.
Put this together with a banking system that is corrupt, too big to fail and too big to jail, and a group of politicians who rely on these banks to get elected, and we do not have capitalism – we have cronyism and socialism for the rich.
If you look at the corruption and decay in our political system and our financial system, it is clear, at least it is to me, that massive wealth redistribution from poor to rich is not an accident of this system, it is a feature of it.
Globalisation has evolved from this and has magnified its negative effects. TTIP and TPP are not really about free trade, or even capitalism – they are devices for the progress of corporate hegemony, and restriction of competition. As they exist right now, they are not extensions of liberal democracy – they are profit maximisation vehicles for cartels and oligarchs.
So, I agree with your sentiments Mr Wolf, and those of Professor Summers:
“My view increasingly echoes that of Prof Summers of Harvard, who has argued that “international agreements [should] be judged not by how much is harmonised or by how many barriers are torn down but whether citizens are empowered”. Trade brings gains but cannot be pursued at all costs”
But I would add, that whatever changes we consider looking forward, we need to take a long hard look at where we are right now, and before we do anything else, we need to clean house. Of course, that is the very last thing that the current householders will want! The hardest nut to crack is not ‘trade’ Mr Wolf…it’s ‘power’.
Thanks again for a thoughtful and timely article.
Mr Wolf and Professor Summers are both 'new’ to these 'realisations', but despite the fact that they are ahead of many of their colleagues in this respect, none of this stuff is new. The breakdown of the political and financial system has been in process for decades – it reached a critical point during the financial crisis in 2008, when governments rescued their cronies in the banks…threw the bill to Joe Public…then lied about the purpose of their ‘solution’. The money printing that followed was never really about the ‘little guy’ or the renewal of ‘Main Street’…first and foremost it was always about fixing the banks, maintaining the status quo, and keeping some very self-important people out of jail. What has been achieved over the past 8 years is this – they’ve made everything worse, much worse.
It remains to be seen whether the words of Martin Wolf and Larry Summers are a sign that they are starting to really get it, or whether this is another defensive reaction. Ultimately, however, it will not change the transition that is underway.