With the swearing in of the Republican-dominated 115th Congress and the inauguration of Donald Trump as president, we are now faced with a series of unknowns about the future of liberalism and democracy. The politics of nationalism are one aggravating factor, but perhaps even more acute is that the positive economic trajectory that underpinned the rise of liberalism and democracy first in the West and then throughout the world is clearly shifting into a lower gear — despite the recent good news from Wall Street. That much we know; what we don’t is to what degree the viability of these systems depends on the perception of perpetual economic growth. Listening to America’s new president, it would seem that growth is the essential ingredient. As Trump said in his inaugural address, “Together, we will make America strong again. We will make America wealthy again.”
If democracy and open societies depend on constantly providing their citizens with more wealth tomorrow than today, then the Western world — and soon enough the whole world — is in for tough times. No wonder governments sense they are on thin ice. Already, faced with the challenge of economic dislocation, the new U.S. government is pulling back from global trade, with Trump in one of his first official acts pulling out of the Trans-Pacific Partnership and announcing his intention to renegotiate NAFTA. The U.S. government, like all governments, has some tools at its disposal to accelerate the economy. Leaders can juice economic output in the short term through various forms of stimuli, but government cannot create structural long-term growth. The question is whether that is truly necessary. If democracy and open society thrive in stable societies that generate consistently high living standards for citizens — even with lower measured growth — then the future may be considerably more benign.
The powerful winds that swept Trump to victory are hardly unique to the United States. Much has rightly been made about the comparison between Trump’s victory and the triumph of the Brexit referendum. This year will see elections in France and Germany, where many of the same forces of nationalism and deep skepticism about international trade and governing institutions are on the rise. Combined with similar inclinations in Indian politics under Prime Minister Narendra Modi, in Chinese politics under Xi Jinping, and in the Philippines under Rodrigo Duterte, to name just a few, the world is confronting a question that would hardly have been asked a decade ago: Will the 21st century bring an expanding arc of freedom and prosperity to the vast majority of humanity, or will it not?
Liberalism and democracy are fuzzy words — adolescent concepts relative to the tenure of recorded history. Democracy is attributed to the ancient Greeks, but theirs was so highly selective that it bears precious little resemblance to today’s variants, which did not emerge until the mid- to late 18th century, and then only in a few select countries such as the new United States, France, and England. The idea that every citizen has a fundamental right to vote for elected representatives and for various laws through referendums only took hold in the mid-19th century, and only became prevalent in the early 20th — with the enfranchisement of women in parts of Europe and the United States.
Modern liberalism is a product of the 19th century (with some effort, one might squeeze it back into the 18th century). And it is hardly a clear concept with an accepted definition. Does it mean individual rights? If so, which? Does it mean a set of social mores that defines and contains that power of government? If so, what are they? Does it mean religious tolerance and a society open to all ideas, no matter how challenging? If so, does that even exist?
These questions and that history are key to understanding where we are and where we might be going, not because the past is determinant but rather to underscore just how recent, tenuous, and fluid these concepts are and how vulnerable the resulting institutions may be.
One pound coins beside U.S. dollar bills on January 16 in Bristol, England. (Photo credit: MATT CARDY/Getty Images)
It’s the economy, stupid
There’s a critical factor that underpins both: The argument for liberalism and democracy has rested on economic success. More wealth for more people has been generated in societies calling themselves liberal, democratic, and capitalist. The 1930s represented the greatest threat to the legitimacy of those systems, when the economies of Europe and the United States seemed on the verge of collapse. While democracy was never seriously threatened in America, it was deeply challenged in Europe by the rise of fascism. Absent World War II, it’s unclear whether the United States would have found a new path to economic vibrancy, but the end of the war left so much of the industrialized world decimated that the United States would account for as much as 50 percent of global output into the 1950s.
The fusion of economic prowess and national strength seemed to make an iron-clad case for the unique virtue of democracy, liberalism, and capitalism. Indeed, one reason for the opening and then crumbling of the Soviet Union during the 1980s under Mikhail Gorbachev was Moscow’s recognition that it could not compete with the United States economically and hence would never be able to demonstrate that Communism was a preferable organizing principle. As the Soviet Union disintegrated, the other major Communist country, China, essentially abandoned Communism as an economic doctrine and embraced capitalism.
China, however, managed to separate capitalism from liberalism and democracy, and it has over the past two decades become the first modern country to generate massive prosperity for its citizens without a concomitant political openness. As we look ahead to a world that is increasingly questioning and rejecting what was largely unquestioned in the last half of the 20th century, China’s example will loom ever larger.
But as important as China will be as an alternative model, its success or failure will unfold separately from the struggles over democracy and liberalism in the West. The retreat from the basic principles of an open society in today’s Poland and Hungary, for instance, is largely separate from how China fares, and speaks more to the pressing question of whether economic success undergirds democracy and liberalism or not. What we do know now is that illiberal governments that define freedom differently or more narrowly can emerge even where there is decent economic growth, and that decent national economic growth is not in itself sufficient to prevent the erosion of democracy and liberalism.
For much of the past decades, the United States has touted the fusion of democracy, liberalism, and capitalism as the most robust formula ever known to generate prosperity, security, and innovation. It is hard to argue against the success of that cocktail in the 20th century. Today, however, not only is measured economic output slowing, but so is population growth in the West. This raises a question that should have been asked more pointedly years ago: Is the West’s economic success simply a product of the massive demographic explosion the world has seen in the past two centuries? In short, more bodies demanded more stuff. Since democratic societies loosely organized around the fuzzy idea of liberalism practicing what came to be known as market capitalism were actually pretty good at making more stuff (food, clothing, shelter), the idea crystalized that history had reached its apogee. In other words, it doesn’t get any better than this; no system is better at providing for basic needs and wants the Western liberal democracy. And thus all countries should inevitably move toward this form of governance.
Pedestrians walk in the center of Munich, Germany in March 2011. (Photo credit: ALEXANDRA BEIER/Getty Images)
The demographic time bomb
That seemed convincing as long as population in the West and globally was booming. But what happens with plateauing populations? This demographic inevitability is bringing lower levels of growth. Even if productivity continues to expand somewhat more, that will be due to technology that is more efficient and cheaper than human labor. We will be able to produce enough stuff to feed and house all of us, but that could happen with no real income growth or wealth creation for the vast majority of people. In almost every country, that is seen as a problem. (Japan seems to be weathering that shift with a minimum of social chaos, but it looks to be the exception.) Politicians and governments rise and fall based on how successfully they have been seen to address the problem of wealth and jobs — not the problem of food, shelter, health, and quality of life. (Health care costs are a debate, but a more heated one than the quality of care). One of the reasons for Hillary Clinton’s slim defeat was the degree to which significant swaths of society perceived that their economic prospects have deteriorated and were getting worse.
There is a different dynamic in places such as the Philippines, India, Indonesia, and Turkey. Those countries have seen a surge in nationalism of late, a questioning of democracy and skepticism about liberalism even as economic growth has been strong and deep. In none of those countries, however, was democracy or liberalism or market capitalism ever strongly embedded. Those were, instead, imported from (and at times imposed by) the West.
For a while, the dominance of the United States made the “American model” attractive to copy, but with the perceived waning of the American model, tarnished by the invasion of Iraq, the 2008-2009 financial crisis, and now the inauguration of Trump, the gloss has faded. As a result, countries around the world are attempting to chart their own course to future prosperity that feels and looks more homegrown. It’s impossible to know how that will play out, but if China is any guide, it will result in multiple organizing philosophies that look and feel quite different from the liberal, democratic order that seems ascendant at the end of the 20th century.
Already, Hungary, Poland, and Turkey are retreating from their recent brief flirtations with democracy. More surprising is the erosion of support for democracy and the norms of liberalism — even of capitalism — in the United States, France, Spain, Greece, and elsewhere. You could of course argue that France, for instance, has always been uneasy with capitalism, that Turkey has been a functional democracy for only a few decades, and that Greece has been under such economic duress that any governing system would be roundly rejected as a failure. Still, other than Brazil, where democracy seems ascendant even amid a political crisis, the rise of populist, protectionist nationalism throughout the West is in most respects a clear rejection of the liberal, democratic, international capitalism that was the accepted mantra for much of the latter half of the 20th century.
Traders work on the floor of the New York Stock Exchange on Dec. 18, 2014. (Photo credit: ANDREW BURTON/Getty Images)
The growth addiction
That leaves the acute question of whether in a lower growth, demographically stagnant world, democracy and liberalism can survive in those societies that reaped its greatest benefits. If you judged purely from the politics of today, you’d have to be skeptical. But it’s too easy to get lost in the noise of the present. Yes, economic growth is slowing in the developed world, and, yes, that has led to a wide gap between those profiting from technology and changing patterns of work and trade and those bearing the brunt of its dislocation. But growth is only one side of the ledger. The other is cost and living standards that may not be well-captured by the gross domestic product.
Economic growth was and is simply one way to meet societal needs. After all, if everything were free, you wouldn’t need capitalism or growth. Capitalism was and is just an effective means of providing incentives. As many have noted, the net effect of today’s technologies is to drive the costs of almost every basic need lower: food, shelter, clothing, medicine, transportation, entertainment, and so on. In such a world, theoretically, growth can be completely absent; in fact, economic output could shrink — and the preponderance of people would still be able to access ever more of what they need.
But the optics would be terrible. That’s because we know no other way to assess economic strength and societal success except by the metric of growth. Three hundred ago, the metric was armies and territory. Today, it is GDP, jobs, and wages. You could craft a lovely society with zero growth, but nobody would believe it if GDP, jobs, and wages were shrinking and the rewards remained unevenly dispersed. Sure, a few ethnically homogenous societies such as Finland have modest growth and high levels of freedom and social comity, but it is hard to argue that a small country with a population less than a few boroughs of New York City constitutes a model for significantly larger, more complex societies.
In a time of leveling economic growth, inequality has become a first-order issue. Even as the basics of life become cheaper and more prevalent (after all, almost no one starves in the developed world; whereas famines were one of the great threats to humanity from time immemorial), the distribution of income and economic security create wide gaps among citizens within societies. Global wealth gaps have shrunk, with less divided between France and Gabon or between the United States and Brazil, but domestic gaps have increased between rural Alabama and Silicon Valley or between central London and Yorkshire. How people react to inequality is hardly straightforward; the populist wave that elected Trump doesn’t yet mind a billionaire cabinet. But the perception that some are reaping rewards at the expense of the many is deep and strong; that, too, was a line almost verbatim in Trump’s inaugural address.
The fact is that while basic needs might be cheaper, far too many legitimately fear for their ability to meet those needs. We may be doing brilliantly providing more at less and less cost, but in the United States and in parts of Europe, we are failing spectacularly in providing everyone with the basic security and knowledge that come what may, they will not starve; they will not lack for education and health care; they will not be without a decent home; and they will be able to see their children secure in the future.
The issue is not whether can we feed, clothe, educate, house, heal, and entertain a global populace; the issue is whether we can structure society so that everyone can access that securely and consistently. We clearly are able to provide basic material needs to everyone. But in the developed world, we are failing to provide a sense of security even while most people’s lives are de facto more secure. An analogy is food production and supply in the 20th century. Starting in the second half of the 20th century, various agricultural innovations from seed genetics to Norman Borlaug’s work in India, produced more than enough food to feed the world. That did not prevent repeated episodes of famine in Asia and Africa. In Ethiopia in the 1980s, one of the worst cases, mass starvation was a political crisis, not an agricultural one; it wasn’t that nature had created a crisis of too little water and food, or even that people weren’t able to harvest enough. It was simply a political crisis. Today, that is exactly the case with the basics of a prosperous society.
Visitors use HTC mobile phones on the second day of of the Mobile World Congress on Feb. 23, 2016 in Barcelona.(Photo credit: DAVID RAMOS/Getty Images)
Technology is not a bubble
There is little evidence that democracy and liberalism (and capitalism) in their current form are the best or only conduit for providing for economic needs and wants for all. If they were, there would be less roiling discontent. There is, on the flip side, no evidence that something else would be better. There are, however, more and more deviations from the mold of the last half of the 20th century, as governments and people around the world turn to hybrids and variants (the Dutertes, Erdogans, Putins, Trumps) that they hope will lead to more consistent, reliable economic outcomes.
Even though the challenges facing the Philippines or India are different than those facing the United States or France, the main concern almost everywhere is how to structure society and government to continue the massive expansion of living standards that have occurred in the past few decades. The more affluent and developed societies such as the United States, Europe, and Japan — having reached a level of collective wealth unparalleled in human history — are faced with the added challenge: What now? Trump and many other voices argue that we are simply a series of reforms and new policies away from picking up the thread of the 20th century. We will see if they are right, but given that nowhere in the world has satisfactory answers, it is more likely that after a short period of growth stimulated by lower taxes and more spending, we will find ourselves with the same question: What now?
The arc of technology almost certainly means we can provide for all basic material needs for everyone. The arc of politics and ideology, however, challenges whether we will. The nationalism and populism on the rise promise more for those who feel that they have less than they should (and may in fact have less than they should). As Trump said at his inaugural: “Washington flourished, but the people did not share in its wealth. Politicians prospered, but the jobs left and the factories closed.”
There’s lots of evidence that we have the ability to meet our collective needs and wants; there is also ample evidence that many countries lack the political will or social consensus to make that happen. Affluent countries such as the United States and much of Europe face an uncertain future of declining populations and lower growth combined with the increasing ability of technology to mitigate the worst effects. Developing countries face still-rising populations that expect their needs to be met. The net result is that our systems are fraying even as the basic necessities of life have never been more easily available.
What is most evident is anger. But anger needs fuel, and absent systemic economic collapse and violent decay of social order, it is unlikely that anger alone will destroy the open societies of the West that have deep roots. Slow growth combined with declining costs is a vastly better formula than no growth or negative growth with increasing costs. The 20th century saw societies collapse in the face of inflation and economic contraction; that challenge is almost completely absent today.
Odd though it is for a relatively young country, the United States has the oldest democratic government in the world and one of the longest uninterrupted legacies of an open society. While there is little evidence the Americans are prepared to sit down and think about what is needed to maintain collective affluence in the future, that history and those institutions matter greatly, as does the continued viability of an economic system that — however frayed — continues to provide material goods to most. The situation elsewhere, where those institutions have existed for far less time or where collective needs are still impartially met, is less positive, but we shouldn’t underestimate just how much of the world is succeeding in meeting material needs even as headline economic growth waivers. That may matter more than we think.
The greatest questions for the coming years is whether material stability is enough to mitigate against political chaos and societal decay. Just from the tenor of the times, more people are skeptical than not. But fear and skepticism, just like anger, are not themselves barometers of the future. We live in roiling times of angry passion and confusion, but that should not obscure the fact that most people living today are freer and more affluent than was true even a few decades ago. That is easy to forget, and vital to remember.
Top photo credit: Getty Images/Foreign Policy illustration
Zachary Karabell is head of global strategies at Envestnet and president of River Twice Research. His latest book is “The Leading Indicators: A Short History of the Numbers that Rule Our World.”
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