https://nybooks.com/articles/2025/01/16/never-too-much-the-crisis-of-democratic-capitalism-wolf/Never Too Much’
Trevor Jackson
If globalization has allowed elites to remove themselves from democratic accountability and regulation, is there any path toward a just economy?
January 16, 2025 issue
Reviewed:
The Crisis of Democratic Capitalism
by Martin Wolf
Penguin Press, 474 pp., $30.00
Illustration by Matt Dorfman
Something has gone terribly wrong. In his 2004 book Why Globalization Works, the economics journalist Martin Wolf wrote that “liberal democracy is the only political and economic system capable of generating sustained prosperity and political stability.” He was articulating the elite consensus of the time, a belief that liberal democratic capitalism was not only a coherent form of social organization but in fact the best one, as demonstrated by the West’s victory in the cold war. He went on to argue that critics who “complain that markets encourage immorality and have socially immoral consequences, not least gross inequality,” were “largely mistaken,” and he concluded that a market economy was the only means for “giving individual human beings the opportunity to seek what they desire in life.”
Wolf wrote those words midway through a four-decade global expansion of markets. Throughout the 1980s in Britain, the United States, and France, governments led by Margaret Thatcher, Ronald Reagan, and François Mitterrand set about privatizing public assets and services, cutting welfare state provisions, and deregulating markets. At the same time, a set of ten policies known as the “Washington Consensus” (because they were shared by the International Monetary Fund, the World Bank, and the US Treasury) brought privatization, liberalization, and globalization to Latin America following a series of sovereign debt crises. In the 1990s a similar set of policies, then known as “shock therapy,” suddenly converted the formerly Communist economies of Eastern Europe and the Soviet Union to free markets. Around the Global South, and especially in the rapidly industrializing countries of East Asia after the 1997 financial crisis, “structural adjustment” policies that were conditions for IMF bailouts again brought liberalization, privatization, and fiscal discipline. The same policies were enforced on the European periphery after 2009, in Portugal, Ireland, Italy, Greece, and Spain, again, either as conditions for bailouts or through EU fiscal restrictions and restrictive European Central Bank policy. Today there are far more markets in far more aspects of human life than ever before.
But the sustained prosperity and political stability that these policies were meant to create have proved elusive. The global economy since the 1980s has been riven by repeated financial crises. Latin America endured a “lost decade” of economic growth. The 1990s in Russia were worse than the Great Depression had been in Germany and the United States. The austerity and high-interest-rate policies after the 1997 East Asia crisis restored financial stability but at the cost of domestic recessions, and contributed to political instability and the repudiation of incumbent parties in Indonesia, the Philippines, and South Korea, as they did again across Europe after 2009–2010. Global economic growth rates in the era of globalization have been about half what they were in the less globalized postwar decades. Around the world, violent racist demagogues keep winning elections, and although they all seem very happy with the idea of private property, they are openly hostile to the rule of law, political liberalism, individual freedom, and other ostensible preconditions and cultural accompaniments to market economies. Both democracy and globalization seem to be in retreat in practice as well as in ideological popularity. Or, as Wolf writes in his new book, The Crisis of Democratic Capitalism:
Our economy has destabilized our politics and vice versa. We are no longer able to combine the operations of the market economy with stable liberal democracy. A big part of the reason for this is that the economy is not delivering the security and widely shared prosperity expected by large parts of our societies. One symptom of this disappointment is a widespread loss of confidence in elites.
What happened?
Martin Wolf is probably the most influential economics commentator in the English-speaking world. He has been chief editorial writer for the Financial Times since 1987 and their lead economics analyst since 1996. Before that he trained in economics at Oxford and worked at the World Bank starting in 1971, including three years as senior economist and a year spent working on the first World Development Report in 1978. This is his fifth book since moving to the Financial Times. The blurbs and acknowledgments are stuffed with central bankers, financiers, Nobel laureates, and celebrity academics. The bibliography contains ninety-six references to the author himself.
Wolf’s diagnosis is impossible to dispute: “Neither politics nor the economy will function without a substantial degree of honesty, trustworthiness, self-restraint, truthfulness, and loyalty to shared political, legal, and other institutions.” But, he observes, those values have run into crisis all over the world, and, especially since about 2008,
people feel even more than before that the country is not being governed for them, but for a narrow segment of well-connected insiders who reap most of the gains and, when things go wrong, are not just shielded from loss but impose massive costs on everybody else.
He describes in detail the mistaken policies of austerity in the US and Europe, the rise of a wasteful and extractive financial sector, the atomization and immiseration of formerly unionized workers, the pervasiveness of tax avoidance and evasion, and the general accumulation of decades of elite failure.
Most people have accurately realized “that these failings were the result not just of stupidity but of the intellectual and moral corruption of decision-makers and opinion formers at all levels—in the financial sector, regulatory bodies, academia, media, and politics.” And thus his conclusion: “Without ethical elites, democracy becomes a demagogic spectacle hiding a plutocratic reality. That also is its death.” Forty years of the corruption of our plutocratic elites has now led to what he views as an alarming populist reaction. Voters, especially young ones in the core democratic capitalist countries, have lost faith in the power of markets and liberalism. Serious international rivals have also emerged, in the forms of “demagogic authoritarian capitalism” in places like Turkey and Russia, and “bureaucratic authoritarian capitalism” in China, and Wolf views these systems, unlike earlier systemic rivals like communism, as serious threats. Liberal democratic capitalism is in danger both from within and without.
It’s a grim picture, and one that nearly any reader of any political persuasion can agree with. But for Wolf, these epochal global crises do not require radical change. The motto of the book (as he puts it) is “Never too much,” and he maintains that “reform is not revolution, but its opposite.” He is consistently contemptuous of any sort of structural change, quick to invoke despotism as the inevitable outcome of utopian thinking and to cite Edmund Burke on the inhumanity and impossibility of rebuilding society around first principles.
Instead, he prefers “piecemeal social engineering,” an idea that he adopts from the unconventional libertarian philosopher Karl Popper, and that he takes to mean “change targeted at remedying specific ills.” His targeted solutions for the specific ills that constitute the global crisis of democratic capitalism run from the anodyne to the surreal. Examples of the former include the idea that “public sector cash-flow accounts should be complemented with worked-out public sector balance sheets and accrual accounts,” or the need for corporations to have “excellent accounting standards” and diligent, independent auditors. Both are very reasonable proposals, and perhaps, at the margin, they really would erode the grip of plutocracy.
Others are standard repressive-technocrat fare. He rejects free higher education because too many people would go to college, imposing too high a fiscal burden on governments, and he doubts whether taxpayers should have to guarantee tertiary education as a universal right. He thinks there should be “controls on immigration that recognize the potential economic gains while also being politically acceptable and effective.” He thinks that defined-benefit
retirement plans should be replaced by large-scale defined-contribution plans run by trustees who “would be allowed to adjust pensions in light of investment performance.” It is difficult to imagine many people democratically choosing a system in which unelected trustees could cut their pensions when the stock market does poorly, and there are good reasons to think that education is advantageous to both capitalism and democracy.
