The marriage of liberal economics and democracy has brought immense benefits to the world, but faces its toughest test in decades. What needs to be done?
“Universal suffrage democracy is only a little over a century old. Capitalism is older. But, in its modern corporate form, it is not all that much older. The system democracy and capitalism combine to create is one of social co-operation through competition and consent. Competition is at the heart of both the economy and politics. But that competition occurs within the context of rules and values internalised by society and embedded in law.
The most radical notion in democratic capitalism is that it seeks to separate political power from wealth. Power rests in the hands of the people and their elected representatives, while wealth rests in the hands of those who own economic resources and their agents.”
—
Martin Wolf is widely respected and chief economics commentator at FT. This article which is a prelude to his new book is exceptional.
Martin analyses the differences and similarities between autocracy (populist) and plutocracy (elites).
“A big part of the reason for the erosion of trust in elites has been a long-term relative economic decline of significant parts of the working and middle classes, worsened by economic shocks, notably the global financial crisis.
Despite the focus on it, international trade has had a relatively small, albeit concentrated, impact on economies. Indeed, many of the countries with the highest welfare levels have small and very open economies: Denmark is an example.
The ability of capital to move freely was certainly more important than trade. More important than either was the failure to help the domestic losers from radical economic change.”
All in all the book has promise to explain the rise of populism an solutions that rebalance the power. This would make less easy to have populations swept up by simplistic phrases (make America great again – Trump, take back control – Johnson, brexit promoters etc ).
“Franklin Delano Roosevelt achieved in the 1930s, by combining the innovative ideas and competence of people such as Frances Perkins, the labour secretary who laid the foundation of the US social security system, with barnstorming rhetoric against what he called “government by organised money”. Successful renewal is possible now, too. “
Martin Wolf is the FT’s chief economics commentator. His new book ‘The Crisis of Democratic Capitalism’ is published by Allen Lane on February 2
Bankwatch 