This edited extract from The Crisis of Democratic Capitalism by Martin Wolf, published by Allen Lane, is included by kind permission of the author and publisher.
The Forum Network is a space for experts and thought leaders—from around the world and all parts of society— to discuss and develop solutions now and for the future. It aims to foster the fruitful exchange of expertise and perspectives across fields, and opinions expressed do not necessarily represent the views of the OECD.
This post was among your favourites this year. We are re-publishing it to share it with those who might have missed it and to help it reach a wider audience!
Economics provides the principal rationale for human cooperation. Politics provides the framework within which that cooperation works. Economics and politics are necessarily symbiotic. What, then, is the relationship between market capitalism and liberal democracy?
Capitalism cannot survive in the long run without a democratic polity, and democracy cannot survive in the long run without a market economy
The answer is that capitalism cannot survive in the long run without a democratic polity, and democracy cannot survive in the long run without a market economy. We might then think of market capitalism and liberal democracy as the “complementary opposites”— the “yin and yang”— of the world created by the market economy and modern science and technology. They are married to each other. But theirs is also a difficult marriage. Managing this productive, yet fraught, relationship requires awareness of these realities. […]
Democracy and market capitalism are being challenged by authoritarian alternatives to the former and state-led alternatives to the latter. The financial crisis, the poor quality of subsequent political leadership, and the inadequate response of many Western democracies to COVID-19 have made this competition more acute. We cannot take it for granted that democratic capitalism— the union of complementary opposites on which contemporary Western society is built— will thrive. It may not even survive. […]
Yet we should remember that universal suffrage democracy has come through many challenges over the past century. So, too, has the market economy. In Europe, the situation looked vastly more hopeless in 1940 than it does today. […] Successful renewal is again possible. It has happened before. To achieve it, there must be imaginative and decent leadership. Yet there must also be ideas. That is what [my] book The Crisis of Democratic Capitalism offers.
Also on the Forum Network: Democracy: What’s at stake?, by Elsa Pilichowski, Director for Public Governance, OECD
Our modern democracies, while not without flaws, are worth fighting for: they guarantee us many freedoms that we now take for granted. The OECD is at the forefront of the effort to advance concrete actions to address the pressing challenges facing democracies today.
The underlying thesis is that it will be impossible to combine universal suffrage democracy with a market economy if the former does not appear open to the influence— and the latter does not serve the interests— of the people at large. The democratic societies that have been most successful in achieving these objectives are those I would call “welfare capitalist.” […] Crucially, this type of arrangement appears to be a necessary condition for the long-term survival of universal suffrage democracy. […]
As is true of any marriage, the relationship between liberal democracy and market capitalism may fail. It is sure to do so if the polity or the economy fails to deliver what is needed
The strengths of democracy are representation and legitimacy, while its weaknesses are ignorance and irresponsibility. The strengths of capitalism are dynamism and flexibility, while its weaknesses are insecurity and inequality. As is true of any marriage, the relationship between liberal democracy and market capitalism may fail. It is sure to do so if the polity or the economy fails to deliver what is needed— political representation and competent government in the case of the polity, and attractive opportunities and widely shared prosperity in the case of the economy.
In good marriages, the strengths of each partner offset the weaknesses of the other. In bad ones, the weaknesses of each partner overwhelm the strengths of the other. Improving the two systems, as well as the balance between them, is, accordingly, a core theme of [my] book. […]
In brief, we need radical and courageous reform of the capitalist economy, while preserving what is good about it and remedying what is bad, just as was required in the 1930s and 1940s. The reforms we need are not the same as those needed then, because the context and challenges have changed, especially the climate challenge. Moreover, most of what was done then survives today. But the fundamentals are the same: we need to strengthen the economic bonds of citizenship, while deepening international cooperation. We must act radically and yet incrementally, learning from experience as we go. […]
Liberal democracy is a morally better and more successful regime than authoritarianism has ever been. That does not make it perfect. But it does make it worth fighting for and so worth renewing. We need to make our democracies stronger, by reinforcing civic patriotism, improving governance, decentralizing government, and diminishing the role of money in politics. We must make government more accountable. We must have a media that supports democracy rather than destroying it. Only with such reforms is there any hope of restoring vigorous life to that delicate flower, democratic capitalism.
Find out more about The Crisis of Democratic Capitalism, by Martin Wolf