Democracy is on the ballot this fall. So, too, argues Martin Wolf in his sweeping new book, is democratic capitalism—the interlocking framework of market dynamism and government responsiveness that has made the most affluent nations of the world richer and freer than any before.
Wolf’s book is both a wake-up call and a call to action, imploring defenders of democratic capitalism to celebrate its unique capacities while recognizing and remedying its many current defects. It is also, in its omissions as well as its arguments, a reminder of just how much needs to be done in the rich capitalist democracy that Wolf rightly argues is the most indispensable and troubled of them all: the United States.
Wolf, a veteran journalist and columnist for the Financial Times, comes from a place of hard-earned realism. His parents escaped the Holocaust, a genocide that emerged out of an unstable economy and the breakdown of democracy. He sees democratic capitalism as a remarkable human creation that is both rare and fragile—requiring a delicate balance between well-regulated markets and well-performing governments. Much about his diagnosis is familiar; he skillfully leverages the work of political economists, such as (recent Nobel Laureates) Daron Acemoglu and James Robinson, and he draws heavily on a pathbreaking book on democratic capitalism by Torben Iversen and David Soskice, “Democracy and Prosperity.” But Wolf brings an analytic clarity and capacious knowledge that allow him to integrate existing analyses and offer broader prescriptions that span the political and economic realms.
What Wolf does less well, perhaps inevitably, is convey how these prescriptions might be achieved, particularly in the country that worries him most. As Election Day looms, the distinctive nature of the U.S. challenge is on full display, requiring us to think more deeply and specifically about what has gone wrong and what must be done.
The Virtues of Democratic Capitalism
The foundation for Wolf’s argument is the notion that democratic capitalism is a superior model not in spite of, but because of, its basic internal tensions. Free markets and representative democracy share common elements—a commitment to individual liberty, trust in human judgment, reliance on the rule of law, not of the will of the powerful—but they are animated by sharply contrasting logics. Most simply, capitalism produces, even valorizes inequality, while democracy is premised on equality, the ideal that all citizens have the same potential sway. Market inequalities will always spill over into politics. Thus, a healthy democratic capitalism requires that institutions of politics and government prevent those with the greatest economic power from dominating governance as well.
At the most basic level, this means democratic capitalism requires an inclusive and active state. Not only do democratically responsive policymakers have to make the basic investments in education, infrastructure, the rule of law, and other goods the market either cannot or will not adequately supply. They also need to update policy over time to push back against market concentration (through antitrust policy, for example), protect against environmental degradation and other negative externalities, and ensure that there are countervailing sources of power (such as civic associations, labor unions, and consumer groups) that can represent diffuse interests and counter those with the most market power.
The payoff when all this is done well is a society that grows healthier, richer, more educated, and ultimately freer—witness the huge strides made in tackling gender and racial inequalities—because it can harness the dynamism of the market for the democratic collective good.
The Dangers of “Rentier Capitalism”
Such vigilance and balance are what have been lost, Wolf argues. He recognizes that the relative economic decline of Western democracies is inevitable, even welcome, to the extent that it brings citizens of poorer nations out of abject destitution. But he is scathing in his critique of the so-called neoliberal policies pursued in many Western democracies in recent decades, which he argues have simultaneously destroyed the economic foundations of the traditional working class and, no less serious in Wolf’s view, allowed the rise of what he calls “rentier capitalism” in which privileged insiders capture public policy and, with it, unjustly inflate their own rewards.
None of this will be news to those who have followed America’s stark rise in inequality and insecurity. Still, it is bracing to read a Financial Timescolumnist condemning contemporary Western capitalism as essentially rigged. Moreover, Wolf’s diagnosis makes two unconventional moves that reveal his acute understanding of the long-term challenge.
First, against those who see the present crisis as emerging mostly out of white citizens’ resistance to cultural and ethnic diversity, he argues for the primacy of the failure of rich democracies to protect their citizens (particularly those with less education) from economic inequality and insecurity during the transition away from an industrial economy. Since the 1980s, governments across the West have broken the economic bargain embodied in democratic capitalism, adding to the predictable resistance to social and demographic change that has fueled right-wing populism. Restoring that bargain, in Wolf’s view, should be the top priority for the United States and its European allies.
Wolf’s case for the centrality of economics is parsimonious and, to my mind, persuasive. Right-wing populism gained ground in the wake of the financial crisis precisely because of the slow growth, unnecessary austerity, and acceleration of deindustrialization that it precipitated. Iversen and Soskice have shown that right-wing populist values—as opposed to right-wing party success, which depends a lot on a country’s specific electoral structures—are strongly associated with blocked advancement of workers without high levels of formal education. In the United States, as Gordon Hanson and his colleagues have carefully documented, the “China shock” was associated with a sharp turn toward extreme-conservative Republicans (except in the most racially diverse import-vulnerable locales). As regional inequality has risen, separating urban knowledge hubs from declining manufacturing towns, these are places where previously secure blue-collar workers have experienced the biggest status hit.
To be sure, racial resentment and anti-immigration sentiments have been crucial, too—especially in the United States, with its fraught racial history. There’s no reason to treat “economics” and “culture” as mutually exclusive explanations engaged in a horse race that only one can win. But it is fundamental to Wolf’s argument that democratic capitalism has fallen short because it has failed to deliver the goods. How else to explain the massive anti-incumbent wave unleashed by the recent surge in inflation in rich democracies? No slow, insecure, uneven growth; no crisis of democratic capitalism.
The Threat of “Plutopopulism”
The second unusual move that Wolf makes is to correctly describe the U.S. version of right-wing populism as fundamentally distinctive and, as such, much more dangerous to democracy than its Western European counterparts. Far more than European right-wing parties, which typically promise public benefits for the aggrieved alongside anti-elite nativism, the Republican Party combines a governing agenda that fosters a highly unequal economy with an electoral strategy that focuses on mobilizing working-class resistance to immigration and religious, racial, ethnic, and cultural change.
Wolf calls this “plutopopulism”—a more pithy version of the phrase “plutocratic populism” that Paul Pierson and I used in our 2020 book, “Let Them Eat Tweets”—and he rightly argues that it is far more threatening than the welfare chauvinism (generous benefits for white natives) that is characteristic of right-wing populism abroad. The reason is that it combines the biggest threat to well-functioning capitalism—rampant influence-seeking in pursuit of entrenched privilege—with the us-vs.-them extremism that destroys democracy.
Indeed, the two fuel each other. Unlike business-ambivalent welfare chauvinists, the GOP can harness all the strengths of an influential segment of America’s incomparably wealthy corporate and economic elite—not just the billionaires who back Trump (think Elon Musk and Miriam Adelson) or who bankroll socially conservative organizations (think the big benefactors of Leonard Leo’s huge Supreme Court-centered spending machine), but also big-money seekers of conservative economic policies like the Chamber of Commerce and the influence empire of Charles Koch, which continue to side with down-ballot Republicans even as these party minions declare fealty to an anti-democratic demagogue.
Yet this elite backing comes at a price: a set of policies that deliver little in material benefits to the places that vote for Republican officeholders. As a result, Republicans have even greater need to ramp up the outrage of increasingly radicalized voters who are ambivalent at best about the specific policies the party advances.
Thus, Trump’s signature legislative initiatives when he was in office were tax cuts for the super-rich (passed) and efforts to gut the Affordable Care Act that would have devastated the areas that backed him most enthusiastically (barely defeated). The continuation of those tax cuts, as well as the return to retrograde energy policies that threaten planetary destruction, remain a prime attraction to conservative economic elites whatever their views on Trump. Meanwhile, Trump has kept turning up the outrage dial, fomenting an attack on the U.S. Capitol, calling for the forcible deportation of millions of undocumented families, and convincing his supporters that elections are battlegrounds where power and force prevail, instead of the means by which we peacefully resolve partisan differences. Looking across the Atlantic with a keen global eye, Wolf has the distance to see what makes America’s democratic crisis different.
Not all of Wolf’s observations are so perceptive. For example, he overstates the degree to which the contemporary Democratic Party has embraced what Thomas Piketty calls “Brahmin left” positions—cultural liberalism plus market-oriented economic policies. In fact, the party has become more progressive on economic policies and centered those policies in precisely the ways he would advocate. He is also too hard on the Biden administration for its expansionary fiscal policies, which no doubt boosted inflation somewhat but have caused the United States to emerge from the pandemic much stronger economically than other rich democracies (which also experienced a burst of inflation). But Wolf breaks through so much stale thinking that a few arguments past their sell-by date can be forgiven. The two big points he makes—that the role of the economy is fundamental and the threat of pluto-populism distinctive—justify reading Wolf’s book on their own.
Where Do We Go From Here?
Yet Wolf does not stop there. Fully a third of the book is dedicated to offering a set of prescriptions that are unusually broad and informed, and at times refreshingly iconoclastic. He is equally withering about the revival of enthusiasm for socialism (which he equates more with planning than common ownership) as he is about the libertarian vision of capitalism articulated by conservative elites (which he sees as mostly camouflage for corporate consolidation, market-rigging, and government giveaways to the rich). Wolf makes a strong case for a revived and robust welfare state, and against the trendy idea of a universal basic income (which, in one of his better lines, he dismisses as “robbing Peter to pay Peter”). Above all, he argues that capitalism without shared prosperity is financially volatile, corrosive of democracy, and ultimately unsustainable—no matter how much those benefiting from rising inequality would like to think otherwise.
Nor is his vision of a reformed democratic capitalism limited to the domestic realm. Climate change, the continuing promise (and problems) of the EU, the rise of China, and the breakdown of the liberal international order all receive appropriate and erudite analyses. Throughout the book, he also illustrates his ideas with revealing graphics that reinforce his key conclusions and strengthen his arguments for change.
And yet, the daunting scale of the challenge requires more than a set of informed prescriptions, as smart and necessary as they are. It requires more serious thinking about how to create a self-reinforcing political path to achieving these reforms. Here, Wolf has much less to say, and it is easy to understand why. It is extremely hard to envision the fundamental changes he wants American leaders to implement becoming reality anytime soon. But the difficulty of the task signals its necessity, as well as points to some of the barriers to reform that Wolf does not much discuss.
Perhaps the greatest is the U.S. Supreme Court. To an unprecedented degree in modern times, the Court’s right-wing majority has inserted itself into the policymaking process and arrogated to itself the power to decide what political and economic reforms are proper. Wolf mentions the 2010 Citizens United ruling, which has fundamentally accentuated the role of big money in American politics, and he alludes to the role of gerrymandering, which the Court has walled off from federal judicial scrutiny even as the GOP has used it more aggressively to cement its control in so-called red states. But at least as important as these decisions has been the Court’s eagerness to backstop a plutocratic agenda by weakening the countervailing power of unions and consumers and blocking the updating of rules by regulatory agencies. And, of course, the Court has recently allowed Trump to evade legal accountability prior to the election for his most serious crimes, while also granting a dangerously capacious writ of legal immunity to presidents more broadly.
The problem is not just that the Supreme Court is so unconstrained in our era of legislative gridlock. It is also that the court’s conservative majority reigns only because of profound biases in our political system that advantage Republicans. As density and partisanship have become more and more tightly linked, Democratic voters have become less efficiently distributed in our winner-take-all territorial system of elections. Crammed into dense metro areas, Democrats “waste” many votes on lopsided wins in House and statehouse elections—a bias exacerbated by gerrymandering. The density divide between the parties has the biggest effect in the Senate, where the Republican edge in less sparsely populated states has starkly favored Republicans since the 1990s. This bias partially carries over to the Electoral College, which is why Donald Trump (and George W. Bush before him) could lose the popular vote and win the presidency—and may well do so again. To grasp the scale of these compounding biases, consider the striking fact that three of the six Republican-appointed justices on the court were appointed by a president who lost the popular vote, five of the six were confirmed by a Senate majority representing less than half the population, and these are the only five such “numerical minority justices” in U.S. history.
These stark realities drive home just how weak the corrective mechanisms that once defined the American constitutional order now are. As my frequent co-author Paul Pierson has recently argued in a book written with Eric Schickler, “Partisan Nation,” the American political order is not well designed to handle unified partisan teams that work across all levels and branches of government. Without the cross-cutting cleavages that Madison celebrated, America’s two parties—and particularly the radicalized Republican Party—face few corrective mechanisms besides elections, which, in a highly polarized and closely divided polity, have limited capacity to discipline. What is needed is strong movements within parties—at the state level, for example, or within the universe of party-allied groups—that temper the most extreme partisan aims. Those factions may yet arise within the Republican Party—if Trump loses this fall. But Pierson and Schickler persuasively argue that they will be effective only if these losses are sustained across elections and accompanied by ongoing political reforms.
These reforms will have to be partisan in the sense that they will have to build power for pro-democratic forces now centered in the Democratic Party while weakening the anti-democratic Trumpism that now dominates the Republican Party. Such reforms will be possible only if Democrats have unified power, and they will be successful over the long term only if they weaken the power of the Republican-appointed majority on the Supreme Court, reduce the advantages that the GOP enjoys due to gerrymandering in the House, and lessen the impact of the two-senator-per-state rule in the Senate—for example, by eliminating the Senate filibuster and making D.C. and Puerto Rico states. Political reformers often shy away from partisan projects, but there is no way around it. The only way to get to a healthy two-party system—and competition is as essential to democracy as it is to capitalism—is to pull the Republican Party away from its anti-democratic turn.
This prescription turns Wolf’s astute diagnosis on its head. Over the long term, restoring a balanced economy that produces shared prosperity is the sine qua non of reconstructing democratic capitalism. But the Biden presidency showcases the weakness of simply seeking to improve the economic and policy foundations of American capitalism without restoring balance and moderation in American democracy. With his nearly four years of insistence that he won an election he lost—a lie that motivated the unprecedented mob attack on the U.S. Capitol on Jan. 6, 2021—former president Trump has made clear his contempt for democratic norms and practices. Worse still, his party has embraced rather than repudiated Trumpism’s reliance on constant lies, vilification of opponents and critics, embrace of white supremacy, and acceptance of violence as a legitimate form of political expression. If Trump loses, the Democratic Party should demonstrate their reverence for these norms and practices by making large-scale political reform their abiding goal until—we can only hope—it is achieved.
– Jacob S. Hacker is Stanley Resor Professor of Political Science and director of APEX (the American Political Economy eXchange) at Yale University, as well as co-director of the Ludwig Program in Public Sector Leadership at Yale Law School. Published courtesy of Lawfare.
