I have been arguing for some time on this blog that contemporary capitalism faces a profound legitimation crisis. It has failed to deliver on its promises, and therefore is being calling into question.
As it turns out, Martin Wolf, the chief economics commentator at the Financial Times, has also sounded a warning about the ongoing legitimacy crisis. But for him it’s a bit different. The problem, as he sees it, is the tension between democracy and capitalism.
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.
Historically, the rise of capitalism and the pressure for an ever-broader suffrage went together. This is why the richest countries are liberal democracies with, more or less, capitalist economies. Widely shared increases in real incomes played a vital part in legitimising capitalism and stabilising democracy. Today, however, capitalism is finding it far more difficult to generate such improvements in prosperity. On the contrary, the evidence is of growing inequality and slowing productivity growth. This poisonous brew makes democracy intolerant and capitalism illegitimate.
One can find plenty to pick apart in Wolf’s story, starting with the idea that there’s a “natural connection” between democracy and capitalism. There’s nothing natural about it, although clearly there is a historical relationship—complex, fragile, and contested—between democratic political structures and capitalist economies.
But Wolf does understand that today’s capitalism is global:
Left to themselves, capitalists will not limit their activities to any given jurisdiction. If opportunities are global so, too, will be their activities.
And while Wolf forgets or overlooks the fact that capitalism has been global from the very beginning, he demonstrates his awareness that the disappointing recent performance of global capitalism (“not least the shock of the financial crisis and its devastating effect on trust in the elites in charge of our political and economic arrangements”) has once again created tensions between capitalism and democracy. One source of tension is the rise of a global plutocracy (“and so in effect the end of national democracies”), the other is the rise or illiberal democracies or outright dictatorships (“in which the elected ruler exercises control over both the state and capitalists”).
Wolf is most worried about the danger to democracy, and therefore has come around to the view that the continued pursuit of international trade agreements (like the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership), which “tightly constrain national regulatory discretion in the interests of corporations,” needs to be curtailed and rethought.
The alternative, of course, is to safeguard and strengthen the future of democracy—in which, in Wolf’s words, economic policy can be “orientated towards promoting the interests of the many not the few”—by doing away with capitalism itself.