Review: The Crisis of Democratic Capitalism by Martin Wolf

Martin Wolf is rightly considered one of Britain’s most accomplished economic commentators. He is the chief economic commentator on London’s Financial Times – where his regular columns, displaying a perceptive and rigorous analysis of global economic and political developments, have won him a loyal readership.

The Crisis of Democratic Capitalism, his latest book, is a timely examination of a pertinent and worrying trend. Perhaps 10 or 20 years ago it was commonly accepted that democracy and capitalism were together the desirable and nearly inevitable destination of a new world order. But geopolitical developments blew the idea – which some equated to Western hegemony – out of the water.

Wolf writes: “Liberal democracy is under growing external pressure. The most important sources of such pressure are today’s autocratic states, especially China, but also revanchist Russia (as shown dramatically by its invasion of Ukraine), North Korea and Iran. It is essential, in response, to strengthen alliances among liberal democracies across the world.”

Wolf’s focus on China is notable. China observed and learned from what it saw happening in the Soviet Union. The country liberalised its economic model, but at the same time the Communist Party of China ruthlessly strengthened its political control.

That created what Wolf describes as “something paradoxical: Communist capitalism”. Wolf describes China as developing “a stunningly effective blend of a dynamic market economy with a totalitarian state”. In March, Xi Jinping was elected by China’s rubber-stamp parliament for an unprecedented third five-year term as president, paving the way for him to become leader for life.

Just days after this historic coronation, Beijing announced that it had secured an agreement between Saudi Arabia and Iran that brought two former Middle East adversaries into a development pact. This extraordinary diplomatic event illustrates China’s growing influence in global affairs, at the expense of US clout.

Later, in arguing that China is a far greater threat to the West’s hegemony than the Soviet Union was or Russia is, Wolf quotes the Harvard analyst Graham Allison, who writes: “The time has come to recognise China as a full-spectrum peer competitor of the US.”

Be that as it may, Wolf outlines the West’s strengths and China’s weaknesses. He notes that China’s real output per head is still less than a third of that of the US and that it is far easier to play catch-up – as China is doing – than to take the lead – as China aspires to do.

There is another argument for the survival of democratic capitalism: as Wolf asserts, capitalist countries provide the best places to live. For the most part democratic-capitalist countries remain “strikingly rich and honest,” he writes. And he concurs with two of the leading sceptics of democracy, Christopher Achen and Larry Bartels, who made the point in their book Democracy for Realists: Why Elections Do Not Produce Responsive Government that “an independent judiciary, freedom of speech and assembly, and other features of democratic institutions and culture are undoubtedly important”.

By contrast, Wolf rails against the alternatives to democracies; both demagogic authoritarianism, in which would-be autocrats and their enablers erode liberal democracy from within – a clear reference to the US presidency of Donald Trump – and bureaucratic authoritarianism, in which a self-selecting mandarin elite controls all power, as in China.

Democracy’s tenuous partnership with capitalism is, of course, central to how the future could play out. Wolf examines the history of capitalism in depth, and analyses the reason that the great hopes for globalisation, which was expected to stimulate growth and prosperity, have been disappointed.

Globalisation and its discontents?

Wolf concludes that the most likely explanation for this stagnation is that liberalisation “ran out of steam” by the early 2000s. Instead, the trend since has been of a global deglobalisation, he argues.

He writes: “The last global trade liberalisation was the Uruguay Round, completed in the mid 1990s. “The only significant liberalising event since then has been the accession of China to the WTO in 2001. After that a series of important attempts – the Doha Round of multilateral trade negotiations, the Trans-Pacific Partnership (TPP – rejected by Donald Trump in early 2017), and the Transatlantic Trade and Investment Partnership (TTIP, between the US and EU) failed, were rejected, or languished.”

While that points to the conclusion that capitalism has hit something of a buffer, reports of its demise are surely premature. Market economies are still extant, but as Wolf concludes in his chapter on democratic capitalism, their survival is not inevitable: “The history of modern representative systems of democracy is brief, that of a global capitalist economy is not so much older.”

Indeed, liberal democracy and global capitalism need to be saved together, he suggests. This fine book, well argued and elegantly written, provides some perceptive analysis on what needs to happen.

A blind spot

But the author does seem to have a blind spot, and that blind spot is Africa. The continent barely gets a mention. In fact, in the book’s index the only reference to Africa is a global demographic profile in which we learn that just under three quarters of the increase in the share that the developing countries have of the world’s population was in sub-Saharan Africa. The population of sub-Saharan Africa rose from 30% of that of all high-income countries together in 1960, to 89% in 2018 – that is from 230m to 1.1bn.

Wolf passes over the Africa Continental Free Trade Agreement (AfCFTA) when he lists the global trade liberalisation events since the Uruguay Round of the mid 1990s. That is a remarkable omission, and perhaps illustrates the unfortunate fact that Africa is still frequently marginalised, misunderstood or ignored by many of the West’s economic thinkers. The home for nearly 1.5bn people – over 16% of the world’s population – the source of key resources and a dynamic and expanding business class; surely Africahas many lessons to impart on the future relationship between capitalism and democracy.