The Crisis of Democratic Capitalism 
by Martin Wolf.
Allen Lane, 496 pp., £30, February, 978 0 241 30341 2
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Martin Wolf​ believes that capitalism and democracy are like an old married couple. Neither partner can cope alone. Without democratic checks and balances, capitalism grows greedy and corrupt: the people with money reward themselves with power, which they use to make more money. It takes politicians with a popular mandate to stop them. However, without capitalist get-up-and-go and economic independence, democracy too grows greedy and corrupt: the people with power reward themselves with money, which they use to cement their power. Democracy inclines towards toxic populism, just as Plato warned. Capitalism inclines towards self-serving oligarchy, just as Marx predicted. Each works only if the other is there.

Wolf would like to think that democracy and capitalism suit each other, despite their differences. Both rest on an idea of individual human agency. In a capitalist economy consumer choice determines what gets made, what gets sold and for how much. This helps to keep manufacturers honest. In a democratic society, citizen choice – particularly at the ballot box – determines who rules, what they get to do and for how long. That helps to keep politicians honest. Or so the story goes. The problem is that democracy and capitalism don’t much like each other any more. Their underlying affinities have got lost in the miserable business of coexisting day to day. Businesspeople don’t want to be hectored by politicians who have never run a whelk stall. Politicians don’t want to be patronised by businesspeople who have never won a vote (‘Fuck business,’ as Boris Johnson neatly put it). So they snarl and joust, looking for any advantage they can get, while taking every opportunity to stitch up deals behind the scenes. Meanwhile, citizens and consumers (who are often, but not always, the same) watch the antics of their so-called leaders with growing exasperation. Voters can end up valorising the renegades, the ones who promise to cut through the crap in order to get things done. And that, of course, just makes things worse, because cutting through the crap also means ignoring the checks and balances that stop the system from blowing up. The result is ‘pluto-populism’. Or to give it another name: Trump.

What to do? Wolf’s answer is deceptively simple, though it has many moving parts. The epigraph for his book comes from the shrine of Apollo at Delphi: nothing in excess. It’s a question of getting things in balance, as well as into perspective. ‘The fragile marriage of liberal democracy and capitalism,’ Wolf writes, ‘requires maintaining difficult balances between individual and community, between private and public, between freedom and responsibility, between economics and politics, between money and ethics, between elites and people, between citizen and non-citizen, and between the national and global.’ It’s a Goldilocks problem, as he sees it.

The difficulty is that the more Wolf itemises the challenges the world currently faces – from climate change to the war in Ukraine, from ever widening inequality to the erosion of public standards – it starts to look like a chicken-and-egg problem. How can we achieve a balance if each side takes self-restraint on the part of others as an invitation to ramp up its own demands? If the politicians hold back, capital will pounce. If capital tempers its demands, the politicians will ask for more. A strong state is needed to keep capitalism in check, but a vibrant capitalism is needed to keep the state under control. They depend on each other, but they also know that whoever blinks first is liable to end up the loser. Balance here depends on sequence, which depends on making sure that both sides act together. But if both sides were capable of acting together, we wouldn’t need to call for balance.

This is not an insuperable problem, any more than not knowing which came first means that we can’t have both chickens and eggs. What gives Wolf hope is that capitalism and democracy have found ways to support each other in the recent past. For much of the second half of the 20th century, democratic politics and capitalist growth were mutually reinforcing: as voters became better off, they grew more committed to democratic decision-making; as they took part in those decisions, they pushed for a more equitable distribution of the fruits of prosperity. This golden age came to an end in the 1980s, and in the 1990s the relationship became more detached, with both sides complacent about the mutual benefits: corporations started to put profit above all else; politicians became narrowly focused on securing party advantage; time horizons shrank; tempers rose.

In that sense, we know what we have to do to get back to what we once had. We need to recalibrate our priorities. Wolf provides an exhaustive list of the policy changes that are required to make bloated corporations appreciate their wider social responsibilities, politicians the longer-term interests of their constituents, and regulators the risks they are running. We should accelerate the transition to renewable energy, sort out our healthcare systems, collectivise pension funds, curb corporate political influence, improve transparency, find a better way to tax capital and so on. Wolf also has a clear sense of what won’t work. Universal Basic Income, for example, gets short shrift (‘In the end, the UBI is too ill-targeted to be a good use of the additional tax money that would have to be raised to pay for it. That is, in the last resort, all there is to say about this idea’). The aim is to make changes that can show themselves to be mutually beneficial: good political choices that generate greater economic security which in turn allows for a steadier politics; fairer business practices that restore faith in political decision-making which in turn enables better regulation of business. Win-win is the only way to restore faith in the system.

There are two big barriers in the way. The first is that someone has to go first. Even if we know what to do, who is going to choose to do it in the absence of the improvements that the posited change promises? Better democracy is needed for better capitalism, but better capitalism is needed for better democracy. That’s why it’s a chicken-and-egg problem. Second, how can we be sure that the period when capitalism and democracy got along so well hasn’t gone for good? Wolf is haunted by the sense that his own life has been a charmed one. Both his parents narrowly escaped the Holocaust, which destroyed much of their extended families. He grew up in postwar Britain, which appeared to him ‘stable, peaceful, democratic and free’. His parents died in the 1990s, in a world that was better by almost any measure than that of their youth or early adulthood. Yet Wolf is, by his own account, a pessimist. Why? Because he is descended from people who were saved by their pessimism: if his parents and their parents hadn’t feared the worst, they would never have got out in time. And because – as chief economics commentator for the Financial Times since the mid-1990s – he has been burnt by over-optimism once too often, particularly when it comes to ‘the wisdom of finance and the good sense of electorates’.

Wolf can’t shake the feeling that it ought to be possible to recapture the glory days, even though he recognises that the postwar period was a very particular time, not just in his own life and the life of his family, but in the history of capitalist democracy as well. Three things, in particular, look like they have gone for good. First, the good times followed the worst of times, including two world wars and a global depression. From the 1940s to the 1970s the marriage between capitalism and democracy was anchored by vivid living memories of what happens when they part. It is possible that China – where capitalism has been annexed from liberal democracy – will serve as a warning of what we stand to lose if we don’t restore what we once had. But it would be foolish to rely on China to remind us what’s at stake: it would have to fail, which would be bad news for everybody. And its fate would be a morality tale, not a memory. We need to marry capitalism and democracy ourselves. But the hard fact is that we have never really done this except in the aftermath of war.

Second, the postwar alliance of capitalism and democracy was built on the ready availability of well-paid jobs for relatively unskilled workers. Now most of those jobs are gone, and the industrial knowhow on which they depended has been distributed around the globe (the US and Europe once knew how to do things that the rest of the world did not; this is much less true today); labour movements have withered with them (trade unions are still active, but are stronger, increasingly, among the educated classes); and democratic contention has been reduced to party bickering. Some of what Wolf is proposing is designed to bring better jobs back. But not the old jobs and not the old ways of working.

Connected to this is the third big difference: ours were, until quite recently, deeply patriarchal economies. Work was done by men, who also did the organising. The entrance of women into the workforce, along with the offshoring of manual labour and the shift away from the stable arc of a working life – birth, school, work, death – has had two effects. Many men are angry about the change and have been left feeling disempowered, both the indebted young and the embittered old. That makes bad politics. And organising resistance to capital has become harder, because there are so many more interests to reconcile. Work is now part of the great unbalancing.

War, labour, patriarchy: these were the building blocks of a stable relationship between democracy and capitalism. The first is far too high a price to pay. If it survives its current conflict with Russia, Ukraine will almost certainly find its democracy revitalised (before the war, it was just another corrupt, sclerotic, semi-oligarchic regime). But who would think Ukraine’s travails were worth this? The second is a relic from the past: even if a green industrial revolution does generate plenty of new jobs, most of them will be skilled, many of them will be short rather than long-term, and some will be automated. Labour can no longer do the heavy lifting required to anchor capitalist social democracy. This is literally true in the case of the Labour Party, which ceased to be the party of labour around the turn of the century and is now the party of university graduates, public sector workers, city-dwellers and the young. With a fair wind it’s a potent combination. But it’s not a counterweight to global capital. That leaves the patriarchy. Enough said.

Wolf isn’t nostalgic for what’s not coming back. But he does wish we could recapture that sense of possibility from an earlier time when it was thought worth trying new things. He thinks we’ve become miserable and unimaginative at the same time: indeed, we are miserable partly because we are so unimaginative, and unimaginative partly because we are so miserable. Unfashionably, he champions a return to what Karl Popper called ‘piecemeal social engineering’, whereby grand schemes are avoided in favour of pragmatic experiment. We know that grand schemes don’t work, although part of what makes us miserable is our hankering for a world in which they might. You can’t have untamed capitalism without destroying democracy. Out-and-out libertarians, as Wolf says, must ‘openly admit their opposition’ to universal suffrage democracy. And you can’t have state socialism without undermining market-driven economic growth.

Social engineering is unfashionable because it smacks of technocratic elitism or, worse, of treating the little people as pawns in government or corporate games. Wolf is alive to the danger. ‘Social engineering of this kind depends on expertise, but expertise is never enough. We also need public engagement in formulating desired goals and consenting to the outcomes.’ Try as he might, however, he can’t help sounding a bit like someone who has seen it all before. For all the talk of trying new things, he tends to know what’s likely to work, and what isn’t (UBI is a case in point). That, however, isn’t the real problem. The fundamental difficulty is that he discusses the need for a more pragmatic approach to policymaking as though it were simply a matter of being willing to try out new ideas. Yet we’re not – and haven’t been for a long time – short of new ideas. We’re drowning in them, from think tanks and tech companies to newspaper columnists and economic advisers. What we need is a better understanding of how to give them a chance of taking hold. We don’t know where to start. What we lack are new ideas about how to breathe life into new ideas.

It’s telling that this book spends far more time itemising the different ways global capitalism and the corporations that dominate it could be better regulated than it does discussing the ways democracy could be reformed. The economic analysis Wolf provides is weighty and well-informed, as one would expect, but the political analysis feels throwaway. We are told that our democracies would work better if we were less in thrall to identity politics, if we had more trustworthy news media, if we could educate young people into a coherent idea of patriotic citizenship, and if we could get the money out of electoral politics while paying public officials better. There are lots of practical proposals: citizens’ juries, weighted voting systems (more votes for younger adults or for those with children), a third chamber of Parliament chosen by lottery, a public regulator to monitor the baleful influence of news algorithms. None of these ideas is new, which doesn’t mean they aren’t worth pursuing. But there is a reason they haven’t been pursued so far. We don’t know how. How, in the absence of a reformed democracy, do you empower citizens’ juries to take consequential decisions, or public regulators to take on overmighty corporations? I am not saying there are no answers to these questions, but you won’t find them here. Declaring that there should be a third chamber made up of randomly selected citizens tells us nothing about the circumstances under which that might seem to British democracy as currently constituted an idea worth trying. We have to start somewhere, of course, but we can’t forget that we are starting from here.

After his speech in February announcing five ‘missions’ for the next Labour government, Keir Starmer said that in politics ‘the how is not as important as the what.’ This is probably true for winning elections. But as a prospectus for governing it is false. Democratic politics is overweighted towards the what and the who – What do they stand for? Do we trust them? – when what really matters is the how and the when. How might a good idea take root? When should we try it out? These questions are much harder to answer because there is always something in the way, always a reason to wait. They are also less appealing because they turn on constitutional reform, bureaucratic procedure and democratic method. It is much easier to talk about the what of politics – here’s an idea! – and to assume that political will is what’s needed to put it into practice. So we look for people with the will. But we are not short of political will. Anyone who thinks politics is currently lacking in resolve on the part of politicians hasn’t been paying attention. Brexit would be inexplicable without it. What we are lacking is better ways of changing the way we do politics. Brexit is the perfect illustration of that too.

Sometimes Wolf’s reluctance to engage with the means by which his proposed policies might get enacted is farcical. In his discussion of what’s gone wrong with the American welfare system, he singles out the failures of its approach to healthcare.

The most damaging lacuna in the welfare states of high-income economies is the US health system, which does not provide universal insurance. It [is] staggeringly expensive yet fails to deliver acceptable health outcomes to the population. All other high-income countries have universal health coverage. Such systems do, on the evidence, deliver far better health outcomes at far lower overall cost. The US should follow these examples.

There’s the what. But how? He doesn’t say. Follow the example of the people who do it better. That’s it. If the American political system were capable of doing that, this would be a very different world. The British healthcare system is another case in point, though Wolf doesn’t discuss it. The UK is one of the advanced economies that have universal coverage, yet the NHS is in bad shape, and generating worse outcomes than other places. Mixed-payment, less centralised systems do better (Australia, France). We should probably do more of what they do. There’s the what. But how? Is it a question of electing politicians who say they’ll fix it? That seems unlikely: it hasn’t worked so far, and it’s hard for politicians to get elected while challenging the sacrosanct status of the NHS. Is it a question of changing the way decisions about healthcare get made? And if so, do we need to elect the politicians who say they’re going to do that? How will that happen? The alternative would be to change the way politics gets done without waiting for an election to signal that the change is wanted. That would require new ways of doing democracy – more direct, more deliberative, more consultative, whatever. Can we make those changes now? It seems unlikely without some triggering event such as a constitutional convention. But who is going to waste time on a constitutional convention when there are far more pressing things to be done, like saving the NHS? It is easy to feel overwhelmed.

Wolf’s central motif is that the relationship between capitalism and democracy is like a marriage in need of repair. Yet as marriage guidance his book falls short. He tells the unhappy couple all the things that go to make a successful marriage and then points to examples of people who do it better than they have. But where should we start, they want to know. How can we get along better if we can’t stand the sight of each other? If we were able to trust each other we wouldn’t be here in the first place. The answer, of course, is that you have to start somewhere. It’s a question of working out what’s possible, and of identifying some small things – even some boring things – that might make a difference. But Wolf has nothing to say about the sequence in which the fixes he proposes should be tried. He has nothing to say about possible short cuts and how we might trick ourselves into trying something new. Instead he tends to fall back on the injunction to be better people.

Members of a functioning elite, which includes the business elite, need wisdom as well as knowledge. Above all, they need to feel responsible for the welfare of the republic and its citizens. Indeed, if they are to be citizens at all, members of the elite must be exemplars. It is not hard: instead of lies, honesty; instead of greed, restraint; instead of fear and hatred, appeals to what Abraham Lincoln called ‘the better angels of our nature’.

As a result, this book leaves you feeling that what’s needed is a miracle.

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Vol. 45 No. 8 · 13 April 2023

Alice Spawls writes about the diminution and degradation of NHS services (LRB, 30 March). As a GP I meet patients almost daily who have been obliged to seek private treatment. They are often rueful about the cost, and say that they’d rather pay a little more in tax than spend tens of thousands of pounds of savings.

David Runciman, in the same issue, notes that mixed-payment, insurance-based health services such as those in France and Australia have better outcomes than the NHS, and thinks we should probably do more of what they do, i.e. make use of insurance companies to fund healthcare, rather than rely solely on general taxation. Runciman suggests that the NHS is too ‘sacrosanct’ for politicians to meddle with, but the truth is they meddle with it all the time. I’d argue that what is sacrosanct isn’t the service itself, but the principle of paying for it through general taxation rather than insurance, add-ons and top-up fees.

The solution to the NHS’s current problems is quite straightforward: fund it properly. If any political party wishes that funding to be supplied via insurance and add-on payments rather than taxation then so be it; they should put it in their manifesto and let us vote on it. That might make it ‘hard for politicians to get elected’, as Runciman puts it, but isn’t that the point of democracy? The NHS is in a dire state, worse than I’ve known it since the mid-1990s. If the government doesn’t want to fund the service to the standard that the electorate wants, then perhaps it’s time to make way for a group of MPs who will.

Gavin Francis

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