Professor at Stanford University. CAN LIBERAL DEMOCRACY SURVIVE THE DECLINE OF THE MIDDLE CLASS?
Published in the journal Foreign Affairs , No. 1, 2012. © Council on Foreign Relations, Inc.Translation: Journal Russia in Global Politics, 01-02/2012, https://www.globalaffairs.ru/articles/budushhee-istorii/
Something strange is happening in the world. Both the global financial crisis that began in 2008 and the current euro crisis are the result of a model of loosely regulated financial capitalism that has developed over the past 30 years. However, despite widespread irritation with the measures taken to bail out Wall Street, there has not been a significant rise in leftist American populism. It is quite clear that the “Occupy Wall Street” movement will gain momentum, but the most dynamic populist movement today is on the right. Tea party The main target is the regulatory state, which seeks to protect ordinary citizens from financial speculators. A similar situation is unfolding in Europe, where the left is weak, while the activity of right-wing populist parties, on the contrary, is growing.
There are several reasons for the absence of mobilization among the left, but the main one is a failure in the realm of ideas. For the previous generation, ideology was based on economics supported by libertarian principles. Today’s left has failed to offer anything beyond a return to old social democracy. The lack of a compelling progressive counter-narrative is dangerous, as competition has a beneficial effect on intellectual debates just as it does on economic activity. Serious intellectual discussion is essential, as the current form of globalized capitalism is eroding the social foundation of the middle class, which is crucial for sustaining liberal democracy.
Democratic wave
Public forces and conditions do not simply “determine” ideologies, as Karl Marx once claimed; ideas cannot gain strength unless they address the needs of a large number of ordinary people. Liberal democracy is currently the dominant ideology in almost every part of the world, partly because it meets the needs of various socio-economic structures and is promoted by them. Changes in these structures can have ideological consequences, just as ideological changes can lead to socio-economic transformations.
Almost all the influential ideas that shaped human society until the last 300 years were religious in nature, with one important exception: Confucianism in China. The first major secular ideology that had a long-term impact on global development was liberalism, a doctrine associated with the rise of the commercial and then industrial middle class in certain parts of Europe during the 17th century. (By “middle class,” I mean people whose incomes are neither at the top nor the bottom of society, who have at least a secondary education, and who own real estate, durable goods, or their own businesses.)
As classical thinkers such as Locke, Montesquieu, and Mill argued, liberalism holds that the legitimacy of the state is based on its ability to protect the individual rights of citizens, while state power must be limited by law. One of the fundamental rights that must be protected is the right to private property. The “Glorious Revolution” of 1688-1689 in England was crucial for the development of modern liberalism. It was during this time that the constitutional principle was established that the state cannot lawfully tax citizens without their consent.
Initially, liberalism did not necessarily imply democracy. The Whigs, who supported the constitutional settlement of 1689, were predominantly the wealthiest landowners in England, and the parliament of that period represented less than 10% of the population. Many classical liberals, including Mill, were very skeptical about the virtues of democracy: they believed that responsible political participation required education and a certain status in society, i.e., property ownership. Until the end of the 19th century, voting rights in almost all European countries were restricted by property and educational qualifications. The election of Andrew Jackson as President of the United States in 1828 and his decision to abolish the property requirement for voting, at least for white men, marked the first significant victory on the path to sustainable democratic principles.
In Europe, the exclusion of a significant majority of the population from the political process and the rise of the working class created fertile ground for the emergence of Marxism. The “Communist Manifesto” was published in 1848, at a time when revolutions were raging in almost all major countries of Europe, except for Great Britain. This marked the beginning of a century-long struggle for leadership in the democratic movement between communists, who were willing to abandon procedural democracy (multi-party elections) in favor of what they considered substantive democracy (economic redistribution), and liberal democrats, who believed in expanded political participation while ensuring the rule of law that protects individual rights, including the right to private property.
At stake was the support of the new industrial working class. Early Marxists believed they could win due to their numerical superiority: when suffrage was expanded in the late 19th century, parties like the British Labour Party and the German Social Democrats began to grow rapidly, posing a threat to the hegemony of conservatives and traditional liberals. The rise of the working class provoked fierce resistance, often employing undemocratic means, in response to which communists and many socialists abandoned formal democracy, opting for a path of direct power seizure.
In the first half of the 20th century, there was a strong consensus among progressive leftists. They unanimously believed that some form of socialism—state control over key sectors of the economy to ensure an equitable distribution of wealth—was inevitable for all developed countries. Even the conservative economist Joseph Schumpeter could write in his 1942 book “Capitalism, Socialism and Democracy” that socialism would ultimately prevail because capitalist society undermines itself culturally. It was implied that socialism in modern society represents the will and interests of the overwhelming majority.
But even when great ideological conflicts of the 20th century were unfolding on the political and military levels, significant changes were occurring in the social sphere that undermined the Marxist narrative.
First, the real standard of living for the working class continued to rise, resulting in many workers or their children being able to move into the middle class. Second, in relative terms, the size of the working class stopped growing and even began to decline, especially in the second half of the 20th century, when the service sector started to displace industrial production in so-called post-industrial economies. Finally, a new group of poor or disadvantaged individuals emerged, positioned below the working class—a heterogeneous mix of racial or ethnic minorities, recent immigrants, as well as socially isolated groups such as women, homosexuals, or people with disabilities. As a result of these changes, the old working class in most industrially developed societies transformed into yet another interest group, using the political power of unions to protect the hard-won benefits they had previously achieved.
Moreover, the working class did not become the banner under which the population of industrially developed countries could be mobilized for political action. The Second International received a troubling signal in 1914 when the workers of Europe rejected calls for class struggle, rallying instead around conservative leaders who shouted nationalist slogans; this pattern still holds true today.
Many Marxists have tried to explain this with the so-called theory of misaddressing, in the terminology of philosopher Ernest Gellner: “Just as radical Shia Muslims believe that the archangel Gabriel made a mistake in delivering a message intended for Ali to Muhammad, so Marxists prefer to think that the spirit of history or human consciousness has made a terrible blunder. The urgent call was directed at the classes, but due to some dreadful postal error, it was received by nations.”
Gellner believes that in the modern Middle East, religion serves a function similar to nationalism: it effectively mobilizes people because, unlike class consciousness, it has spiritual and emotional content. Just as European nationalism in the late 19th century was driven by the movement of people from rural areas to cities, Islamism is a reaction to urbanization in contemporary Middle Eastern society. Marx’s letter will never be delivered to its recipient under the name “class.”
Marx believed that the middle class, or at least the layer that owns capital, which he referred to as the “bourgeoisie,” would always remain a small, privileged minority in modern society. Instead, the bourgeoisie and the middle class as a whole eventually came to represent the overwhelming majority of the population in the most developed countries, which became a serious problem for socialism. Since the time of Aristotle, thinkers have argued that a stable democracy is based on a broad middle class, while societies divided into rich and poor are prone to oligarchic dominance and populist revolutions.
As most developed countries managed to create a society based on the middle class, the appeal of Marxism began to wane. Among the few places where leftist radicalism remains an influential force are areas with high levels of inequality, such as Latin America, Nepal, and impoverished regions of Eastern India.
What political scientist Samuel Huntington referred to as the “third wave” of global democratization, which began in Southern Europe in the 1970s and reached its peak with the fall of communist regimes in Eastern Europe in 1989, increased the number of electoral democracies in the world from nearly 45 in 1970 to more than 120 by the late 1990s. Economic growth led to the emergence of a new middle class in countries such as Brazil, India, Indonesia, South Africa, and Turkey. As economist Moises Naim noted, this middle class is relatively well-educated, owns property, and is technologically connected to the outside world. They demand more from their governments and can easily mobilize due to their access to technology. Therefore, it is not surprising that the main activists of the “Arab Spring” were educated Tunisians and Egyptians, whose expectations regarding jobs and political participation could not be met under the existing dictatorial regimes.
Members of the middle class do not necessarily support democracy in principle: like everyone else, they are actors driven by personal interests, wanting to protect their own property and status. In countries like China and Thailand, the middle class fears the demands of the poor for wealth redistribution, and therefore supports authoritarian governments that safeguard their class interests. Moreover, democracy does not always meet the expectations of the middle class, and if it fails to do so, unrest may arise within this group.
Not the worst alternative?
Today, there is a global consensus regarding the legitimacy of liberal democracy, at least in principle. As economist Amartya Sen writes, “although democracy is not practiced everywhere and is far from being universally accepted, from a global perspective, democratic governance has now reached a status where it is generally considered to be the right form of government.” It is most widely accepted in countries that have reached a level of material well-being where the majority of citizens can consider themselves part of the middle class, which is why there is a correlation between high levels of development and the stability of democracy.
Some societies, such as Iran and Saudi Arabia, reject liberal democracy in favor of Islamic theocracy. However, these regimes represent a dead-end path of development and are sustained only by vast oil reserves. In the past, the Arab world was an exception to the third wave of democratization, but the “Arab Spring” demonstrated that society there can be mobilized against dictatorship just as it happened in Eastern Europe and Latin America. Of course, this does not mean that the path to a well-functioning democracy in Tunisia, Egypt, or Libya will be easy or perfectly straightforward, but it suggests that the desire for political freedom is not a characteristic exclusive to the cultures of Europeans and Americans.
The most serious challenge to liberal democracy in today’s world comes from China, which combines an authoritarian form of governance with a partially market-based economy. China has inherited a long and proud tradition of high-quality bureaucratic governance that spans two millennia. Chinese leaders have successfully navigated a very complex transition from a centralized, Soviet-style planned economy to a dynamic and open market economy, and it must be noted that they have managed this task quite competently—frankly, with greater competence than American leaders currently demonstrate in implementing their macroeconomic policies. Many today admire the Chinese system not only for its economic performance but also because it allows for large-scale, complex decisions to be made relatively quickly compared to the agony and political paralysis that the United States and Europe have suffered from in recent years. Following the recent financial crisis, the Chinese themselves have begun to promote the “Chinese model” as an alternative to liberal democracy.
However, the Chinese model is unlikely to become a serious alternative to liberal democracy outside of East Asia. First and foremost, it has a specific cultural context: the Chinese form of governance is based on a long tradition of meritocratic recruitment, civil service examinations, a special role for education, and respect for the authority of technocrats. Few developing countries can successfully adopt this model; those that have, such as Singapore and South Korea (at least in their early periods), were already within the Chinese cultural sphere. The Chinese themselves are skeptical about exporting their model; the so-called Beijing Consensus is more of a Western invention than a Chinese one.
It is also unclear how sustainable this model is. Neither the growth driven by exports nor the top-down decision-making will yield results indefinitely. The fact that the Chinese government did not allow open discussions about the high-speed rail disaster last summer and failed to hold the Ministry of Railways accountable suggests that there are other ticking time bombs hidden behind the facade of effective decision-making.
Finally, Beijing is vulnerable from a moral standpoint. Leaders at various levels are not required to respect the dignity of citizens. Protests against land seizures, environmental violations, or corruption by officials occur weekly. While rapid growth is ongoing, these abuses can be concealed. But this won’t last forever, and the authorities will have to pay a high price for the accumulated discontent. The regime no longer has an ideal around which to unite people; the Communist Party, which claims to adhere to principles of equality, governs a society where inequality thrives.
Therefore, the stability of the Chinese system cannot be perceived as an axiom. The Chinese government claims that due to cultural peculiarities, citizens will always prefer a prosperous, growth-oriented dictatorship over an unstable democracy that threatens social stability. However, it is unlikely that the growing middle class in China will behave any differently than in other regions of the world. Other authoritarian regimes may try to replicate Beijing’s success, but it is improbable that much of the world will resemble today’s China in 50 years.
The Future of Democracy
Today, there is a connection between economic growth, social changes, and the dominance of liberal-democratic ideology in the world. At the same time, a competitive ideological alternative is not emerging. However, some troubling economic and social trends, if they persist, could threaten the stability of modern liberal democracies and undermine the democratic ideology as it is currently understood.
Sociologist Barrington Moore once stated emphatically: “No bourgeoisie – no democracy.” Marxists failed to realize their communist utopia because mature capitalism created a society based on the middle class, rather than the working class. But what if the further development of technology and globalization undermines the middle class and makes it impossible for the majority of citizens in developed countries to achieve middle-class status?
Numerous signs that this phase of development has begun are already visible. Since the 1970s, real median incomes in the United States have been stagnating. The economic impact of this has been somewhat mitigated by the fact that, over the past generation, two earners have become common in most American households. Furthermore, as economist Raghuram Rajan convincingly points out, since Americans are reluctant to engage in direct redistribution of wealth, the United States has resorted in recent years to a very dangerous and ineffective form of redistribution by subsidizing mortgages for low-income families. This trend, fueled by an influx of liquidity from China and other countries, has given many ordinary Americans the illusion of a continuously rising standard of living over the past decade. The bursting of the housing bubble in 2008-2009 was a harsh return to reality. Today, Americans enjoy cheap mobile phones, affordable clothing, and Facebook, but an increasing number of people cannot afford their own homes, health insurance, or a sufficient pension.
A more concerning phenomenon noted by financier Peter Thiel and economist Tyler Cowen is that the benefits of the latest waves of technological innovations have been disproportionately distributed among the most talented and well-educated members of society. This phenomenon has contributed to a significant increase in inequality in the U.S. over the past generation. In 1974, the top 1% of the wealthiest families received 9% of GDP, while by 2007, that share had risen to 23.5%.
Trade and tax policies may have accelerated this trend, but the main “evil” has been technology. In the early stages of industrialization—during the era of textiles, coal, steel, and internal combustion engines—the benefits of technological changes almost always reached other layers of society through employment. But this is not a law of nature. Today, we live in an era that Shoshana Zuboff has called the “age of smart machines,” where technology is capable of replacing many human functions, including complex ones. Any major breakthrough in Silicon Valley means the elimination of low-skilled jobs in other sectors of the economy, and this trend is unlikely to disappear anytime soon.
Inequality has always existed as a result of natural differences in talent and character. However, the technological world significantly exacerbates these differences. In the agrarian society of the 19th century, people with mathematical abilities had few opportunities to profit from their talent. Today, they can become financial wizards or software developers, thereby earning an increasing share of national wealth.
Another factor undermining the incomes of the middle class in developed countries is globalization. With the decrease in transportation and communication costs, along with the integration of hundreds of millions of workers from developing countries into the global labor market, the work that was once done by the old middle class in the developed world is now much cheaper to perform elsewhere. In an economic model that prioritizes maximizing total income, outsourcing is inevitable.
Rational ideas and sound policies could have mitigated the damage. Germany is successfully pursuing a protectionist course to preserve a significant portion of its manufacturing base and industrial workforce, while its companies remain competitive globally. The United States and the United Kingdom, on the other hand, eagerly embraced the shift to a post-industrial service economy. Free trade has become not just a theory but an ideology: when members of the American Congress attempted to impose trade sanctions on China in response to the undervalued yuan, they were indignantly accused of protectionism, as if the playing field were already level. There was much talk about a knowledge economy, suggesting that dirty, dangerous manufacturing jobs would inevitably be displaced, and highly educated workers would engage in interesting creative endeavors. This turned out to be merely a thin veil concealing the harsh reality of deindustrialization. Meanwhile, it went unnoticed that the benefits of this new order are concentrated in a very small group of people in finance and high technology, whose interests dominate the media and political discussions.
Missing leftists
One of the most surprising phenomena following the financial crisis is that populism has predominantly taken on right-wing rather than left-wing forms.
Although the American Tea Party is anti-elitist in its rhetoric, its members vote for conservative politicians who act in the interests of the very financial and corporate elite they claim to disdain. There are several explanations for this phenomenon, including a deeply rooted belief in equality of opportunity rather than equality of outcomes, as well as the intersection of cultural issues, such as abortion and gun rights, with economic concerns.
However, the main reason for the absence of a leftist populist force lies in the intellectual sphere. It has been several decades since anyone on the left has been able, firstly, to conduct a detailed analysis of what is happening to the structure of developed societies against the backdrop of economic changes, and secondly, to propose a realistic action plan that has a chance of protecting a society based on the middle class.
The main directions of leftist political thought over the last two generations have, to be honest, been failures both conceptually and as tools for mobilization. Marxism has long since died, and the few remaining supporters are already on the brink of retirement homes. In academic leftist circles, it has been replaced by postmodernism, multiculturalism, feminism, critical theory, and other fragmented intellectual movements that are more focused on culture than on economics. Postmodernism begins with the denial of the possibility of any dominant narrative in history or society, which undermines its own authority as a voice for the majority feeling betrayed by the elites. Multiculturalism justifies the victimhood of virtually any group of outsiders. It is impossible to create a mass movement based on such a disparate coalition: most representatives of the working class and lower middle class, sacrificed to the system, are culturally conservative and would not want to be seen alongside such allies.
No matter what theoretical justifications are used in leftist programs, their main problem is a lack of trust. For the past two generations, the majority of the left has adhered to a social democracy agenda focused on providing a range of social benefits—such as pensions, healthcare, and education—through the state. Today, this model has become outdated: social systems have expanded, become bureaucratic, and inflexible; through state structures, they are often effectively controlled by the very organizations that are supposed to perform purely administrative functions. Moreover, and perhaps more importantly, they are financially unsustainable, given the aging population almost everywhere in the developed world. Thus, when existing social-democratic parties come to power, they no longer aspire to be anything more than mere guardians of the welfare state established decades ago, and no one has a new, compelling program around which to rally the masses.
The ideology of the future
Imagine for a moment an unknown writer, huddled somewhere in an attic, trying to articulate an ideology for the future that could provide a realistic path to a world with a healthy middle-class society and a stable democracy. What would this ideology look like?
It would contain at least two components: political and economic. Politically, the new ideology must affirm the superiority of democratic governance over the economy, as well as reestablish the legitimacy of the state as the representative of public interests. However, the programs it should promote to protect the middle class cannot rely solely on the existing welfare state mechanism. This ideology must somehow transform the public sector, making it independent from current vested interests and utilizing new, technology-based approaches to service delivery. It must also firmly assert the need for wealth redistribution and present a realistic path to ending the dominance of interest groups in politics.
In economic terms, ideology cannot begin with a condemnation of capitalism, as if old socialism were still a viable alternative. The focus should be on correcting capitalism and determining the extent to which the state should assist society in adapting to changes.
Globalization should be viewed not as an inevitable fact, but as a challenge and an opportunity that must be carefully managed politically. The new ideology will not see the market as an end in itself; rather, it should assess global trade and investment in terms of not only accumulating national wealth but also contributing to the prosperity of the middle class.
However, achieving this goal is impossible without serious and consistent criticism of the foundations of modern neoclassical economics, starting with fundamental principles such as the sovereignty of individual preferences and the notion of aggregate income as an accurate measure of national wealth. It should be noted that people’s incomes do not necessarily reflect their actual contribution to society. Moreover, we must go further, acknowledging that even if the labor market operates efficiently, the natural distribution of talents is not necessarily fair. Therefore, a person is not a sovereign unit, but rather a being that is largely shaped by the society around them.
Many of these ideas have already been partially expressed, and our author only needs to bring them together. It is also important for him to avoid the problem of “misaddressing.” Therefore, criticism of globalization should be linked to national interests as a mobilization strategy, while the latter should not be defined too simplistically, as seen in the union campaign “Buy American.” The product will be a synthesis of ideas from both the left and the right, separated from the agenda of marginalized groups that today represent the progressive movement. The ideology is destined to be populist; its message will begin with a critique of the elites who have allowed the well-being of many to be sacrificed for the prosperity of a small group, as well as a condemnation of monetary policy, especially in Washington, which benefits only the wealthy.
The dangers posed by such a shift are evident: the United States’ withdrawal, particularly from promoting a more open global system, could trigger a protectionist response from other countries. In many ways, the Reagan-Thatcher revolution was successful, as its supporters had hoped, resulting in a world that is much more competitive, globalized, and stable. Enormous wealth has been accumulated, and almost everywhere in the developing world, a growing middle class has emerged, contributing to the spread of democracy. It is possible that the developed world is on the brink of a series of technological breakthroughs that will not only increase productivity but also create a significant number of jobs for the middle class.
But this is more a question of faith than a reflection on the empirical reality of the last 30 years, which points in an entirely opposite direction. In fact, there are many reasons to believe that inequality will persist and even worsen. The current system of wealth concentration in the U.S. is already reinforcing itself: as economist Simon Johnson notes, the financial sector uses its lobbyists to avoid burdensome and inconvenient forms of regulation. Schools for children from wealthy families are now better than ever, while the quality of public schools continues to decline. Elites in all societies use inaccessible opportunities to engage with the political system to protect their interests, while there is a lack of a counterbalancing democratic mobilization capable of correcting the situation. The American elite is by no means an exception.
However, mobilization will not happen as long as the middle class in developed countries remains committed to the ideas of the past generation, meaning as long as it believes that its interests are best served by freer markets and smaller government systems. An alternative idea is already emerging and is about to come to the forefront.