The Crisis of Democratic Capitalism | LSE Event

is um good evening everyone too many and a very warm welcome to this evening's event including to our I'm sure a very extensive online audience as well as those of you who are in in here in person um this is an event uh supported by uh the Meridian foundation and organized by the economics department at the lse my name is Tim besley and I'm a member of the economics department and we're here this evening to both celebrate but also to interrogate the ideas in Martin Wolf's new book the crisis of democratic capitalism um not in the very little by way of introduction many of you will be Avid readers of his columns in the financial times as well as his uh uh extensive collection of books um but he uh his main title is the chief economics commentator at the financial times we have two excellent discussants who are going to respond to some of the ideas in in Martin's book um Diane Coyle who's the Bennett professor of public policy at Cambridge um also having a very very interesting career both as a journalist as a practicing Economist than now as an academic and uh Jesse Norman MP for Hereford minister of State for decarbonization and technology in the Department of Transport but also uh an author of books on Adam Smith on uh on Edmund Burke um and uh also with a PhD in philosophy which is a somewhat unusual uh background for an MP um anyway we we are delighted to welcome you here I'm going to invite Martin to the podium he will speak for approximately 20 uh 25 minutes we'll then hear from the two respondents we'll have a little bit of a conversation and then we'll throw it up uh throw it open to the floor for questions and further discussion so over to you Martin and thanks for joining us so um I'm stunned by the size of the audience the idea there are lots of people online too makes it even more remarkable I assume this is because of the title um people really love talking about crises in my experience and not about me um Let me let me um explain what I'm going to do this is quite a large book it's smaller than it was before the editors got to work very helpfully but it's a pretty large book and it contains a lot of different subjects and ideas and in 25 minutes I cannot possibly cover them so what I'm going to do in my speech um uh is basically focus on how I see the problem what is the crisis and its nature and the the core idea I have of how we're going to have to tackle it um but the discussion of policy and institutional reforms which is I think much more open-ended than one's understanding of the crisis to which there can be many different responses will be left to the subsequent discussion or perhaps to some of you I hope many of you reading it so let me start off then with my analysis of the crisis um actually perhaps explain that the book was conceived uh already in 2016 it took a long time for me to work through the subject to my satisfaction to understand how we got to where we are which was pretty obviously by then uh a breakdown of some things that we took for granted about how democracy was working and would work in future I'm going to start with two quotations um I'll tell you who the author of the first one was after I've given it to you um it is clear then that the best partnership in a state is the one which operates through the middle people or the middle classes and also that those States in which the middle element is large and stronger if possible than the other two together by which the author meant the plutocrats the aristocrats on the one hand and the very poor on the other or at any rate stronger than either of them alone have every chance of having what's wrong oh sorry yes I have to read it again I'm not sure why that's not why it's this one yes this is good yeah that's it no okay thank you I haven't seen that was page hey guys oh there we go it's Democratic energy experience well one of the best one of the biggest themes of This Book Is that technology is destroying civilization and and I think we have seen a perfect demonstration so um so what I was saying that they um the best partnership in the state is the one which operates through the middle people and um if the the middle people the middle class are stronger than either the aristocracy or uh the poor um or or any rate stronger than either of them alone these states have every chance have it been a well-run democratic Constitution and this analysis comes from one of the two most important books on politics ever written and certainly on Democratic politics it's Aristotle and the uh and the second quotation which is I suppose a motto for me and my life and will probably absolutely infuriate everybody here under 40 is um but explains how I think of these things come from the Temple of Apollo at Delphi and it's Meriden a gun or never too much in other words a good Society depends on balancing irreconcilables it isn't possible to have a society in which you have everything some people want without living in a permanent Civil War um that's my view in 1937 my father left Vienna for England on his own his immediate family managed by a miracle to escape to Palestine in 39. their wider family was stuck in Poland and with the exception of one young woman perished in the Holocaust in May 1940 my mother's father a self-made Jewish fish Merchant hijacked a trawler in order to take his family to England as German armies poured across the Dutch Frontier he was one of nine siblings he asked his brothers and sisters to join him with their families none came their families also all perished in the Holocaust I'm not certain that the numbers but somewhere between 40 and 50 of my parents Aunts Uncles and cousins were killed and this was of course the result of the collapse of civilized order in the interwar years in Europe there were many reasons for this but without doubt in my view and many others a central one was the economic calamities including the shattering disaster of the Great Depression and that indeed this awareness for possibility of economic failure was one of the reasons I first became interested in economics long ago and that is also why the theme of this book which I began as Donald Trump became president of the US and we were seized by the brexit campaign matters to me personally one cannot assume the stability of a civilized democracy one simply cannot assume it this does not mean that I am forecasting the 1930s let me be quite clear but do not assume that what one has will last let me talk about what I call the Democratic recession actually it's what Larry diamonds a very famous scholar of these of democracy and teachers Stanford calls it in a liberal democracy a democracy characterized by civil rights the rule of law and respect for both the rights of the losers and the legitimacy of the winners Fair elections determine who holds power attempts by head of government and state to subvert the election or overtone the vote are treason yet that is clearly what Donald Trump attempted to do both before and after last year's presidential election he failed decent and brave people ensured that but to this day despite what happened recently in the midterms Trump has largely continued to hold the Loyalty of his party's base just look at the recent polls and it is perfectly possible that his successor could be worse because more ruthless and better organized but Trump is not alone but what is happening in the U.S is clearly more important than any other country because of its political significance freedom in the world 2021 the last issue of that August publication from the Independent U.S Watchdog Freedom House published in February reported a 15th consecutive year of decline in the health of liberal democracy worldwide so the Democratic recession noted by Larry diamond in the of the of Stanford about 15 years ago is now surely by those standards closer to a democratic depression the decline Freedom House notes has occurred in all regions of the world including notably in democracies that emerged after the end of the Cold War but most significantly it is also observable in core Western democracies and above all in the U.S the most important of all of them indeed the country that surely saved democracy in the middle of the 20th century so let me start with I'm not going to go through all these this is the book that's the quote I've just given you this is a bit of Greek for you and and uh I spend a lot of my life reading Greek so um this is the estimate one of the most recent estimates the end of the Trump presidency of the relative quality of the major core democracies of the world and 100 is near perfect so we can say their judgment there were a number of countries close to perfect uh UK was significantly well behind but basically the US has been a category of its own in terms of its quality I seriously bad so that's where we are in the view of Freedom House so let's turn then to the second question I want to discuss which is where do Democratic capitalism come from where did the system we run let me just make clear when I talk about capitalism I just mean a market economy with private ownership I don't want to get into lots of semantics about what capitalism means though that's discussed in the book according to one well-known database which goes back to centuries the quality 4 database there were no democracies in the world as they Define it 200 years ago there were only oligarchies or monarchies even where Republican institutions did exist the franchise was dramatically restricted on the grounds of sex race and wealth in the U.S for example in 1800 according to One Source the proportion of the adult population with a vote in 1800 was about six percent then in the 19th century franchise began to be widened and through many conflicts and which I can't discuss universal suffrage democracy emerged finally in fits and starts to cover about half of the world's countries of the 1990 but in the West Western World the world of Europe and in the the North America and some other places around the world universal suffrage democracy is about a hundred years old that's a little bit more but it's only about 100 years old so let me just show you this I think rather interesting chart which shows what happened to democracy according to this Source over the last um 200 upwards actually 140 years and I think it's really a rather fascinating picture and on the whole really quite an encouraging one so this shows the brown line which I'm going to focus on shows the proportion of the world's countries not people world's countries that lived in democracies as Quality Ford defines it and that though is not Universal suffering democracy just a significant amount of democracy back in 1870 they think that of the countries then were independent remember many were in Empires they were about 10 were in democracies that Rose to 40 by just after the first world what was it was a dramatic democratization in the interwar Years there was a calamitous of colossal collapse which is what I was referring to at the beginning of my lecture after the war it Rose somewhat to 30 percent but a lot of the reason it didn't rise more is there were vastly more countries and many of them became dictatorships but then after the fall of the Soviet Union there was a dramatic race if we were unfortunately I don't have data off for the 2010 but if we had it now it would probably have fallen back to a little under 50 so we're on the decline but not that dramatic I also put in the ratio of World Trade to GDP which is one measure of how capitalists we were and the interesting thing is that there seems to be a correlation the correlation I suggest is generally we favor open trade when things are going well when we're feeling optimistic and we're when we're pessimistic and the economy is going badly we close it down that's what happened the interwar years and what beginning to happen uh again so why were Democratic principles accepted by so many so many countries this was an extraordinary revolution in the last two centuries after all as we know very well the normal way to structure the economies and politics of complex society has been for power to to be married to wealth and wealth to be married to power in other words the rich had all the power and the powerful had all the rich all the wealth that was basically how most societies were organized including very much our own prior to um the the recent Centrics so uh the explanation for this transformation then lies with the emergence of a marriage built on liberal ideas and various other things I'm going to talk about between those extensively very different partners a liberal economy and a democratic polity I regard these two systems for the economy and the polity I call them complementary opposites the market economy and universal suffrage democracy share things that matter they reject describe hereditary status market capitalism rests on ideals the Free Labor individual effort rewards for merit and the rule of law can't exist without the latter democracy rests on the ideals of pre-discussion and debate among citizens in making the law historically the market economy brought urbanization an educated Workforce very important and a newly organized working class industrial working class as a potent political force creating new parties and transforming politics throughout the um the world in our world so I argue markets protect Democratic politics from an excessive concentration of political power if the state con owns and controls all everything in a society it's almost impossible to run Democratic politics because there's no basis from which to do so but Democratic politics protects markets from an excessive concentration of Market power while dealing with the most disastrous consequences of markets for the majority of the people and this then is the way in which market economies and liberal democracy are complementary but they are also fundamentally opposed to each other capitalism is inherently Cosmopolitan the Democratic state is of course territorial the market is a domain of exit democracy that a voice the market economy is in egalitarian but potentially radically so democracy is egalitarian it's basic premise is that all people are equal tensions inevitably emerge if the economy fails to serve the interests of the majority the sense of shared citizenship on which democracies depend will Fray and populist demagogues are bound to arise populism is not necessarily lethal for democracy so as long as it takes the form of a Justified even highly fruitful hostility to Elites but too often in the past and now it turns into hostility to pluralism itself and pluralism pluralism is an inevitable and essential element in any true Democratic Society democracy May then be transformed into a publicity dictatorship and ultimately a dictatorship to core alternatively the concentration of wealth in the market may lead to outright plutocracy as wealth is transmuted into power and both dangers are very present today so what has gone wrong on in our democracies I argue that large raises in inequality in the deteriorating prospects of many people in particular the old working and important parts of the middle classes in core democracies have played a crucial role in Breaking the foundations and the legitimacy of our democracy in particular the emerging fear of downward mobility in stagnant economies has created status anxiety and profound political cynicism these have been diverted by skilled propagandists propagandists Intercultural and racial resentments the emergence of the New Media has clearly facilitated these Trends but in my view they have not created them a big question is what has happened to create these concerns in the people and I argue the most important phenomenon about much more have been economic de-industrialization Rising inequality and falling productivity growth these are in profoundly important transformations of our society in the recent past so this shows the end the in dramatic decline in the industrial the share of industry in employment and with it of course a dramatic decline as you all know in the trade Union role in our public life um so the red column shows the shares of industry in the labor force in 1970 the the the dark blue uh looks black and dark blue is the chair now and these are ranked by the declines in the chair you will be interested to see that the absolute decline in the share of marketing industry in the UK is the biggest of these countries which are the G7 plus Spain the US and UK are also by the way the most unequal of the big high-income democracies according to standard oec data and they have also had some of the most potent populist politics I doubt that whether that's actually an accident another crucial complementary fact is that there has been a dramatic decline in the rate of productivity growth or outbreak for growth of output per hour in our economies since the 50s 60s and 70s with the 2010s the last 10 years being particularly bad and as you can see the UK's productivity growth has declined to really negligible levels since 2010 the only country that's done largely worse than ours is Italy so the combination of very low growth dramatic decline in the in the sorts of jobs that used to be create supported by industry and high inequality has to stay stabilized economies the legitimacy of our political system I think but through its impacts on people's lives um ragharam Rajan of the Chicago University well-known figure argued that easy credit paper over these Trends but that blew up then in the next huge shock uh well the next huge development which is the financial crisis the scale and visibility of the crisis rapidly destabilized further people's sense of the legitimacy of both our democracy and our market system and this these next two charts will illustrate this the um the crucial point of this chart is it shows the deviation of Jesus the relationship the relative change of GDP per head in the same economies the G7 class say seven plus uh Spain um since 2007 relative to what would have happened if the 1992-2007 trend had continued and to focus again on the UK GDP ahead in the UK to in 2021 these are Irma figures was more than 30 percent lower than it would have been if the pre-2007 trend had continued this by the way is the worst performance for GDP per head and household disposable incomes in the UK certainly since the early 20 1920s and probably since the 19th century it is not surprising one the governments can't find any revenue for the services that people expect and that lots of people are extremely dissatisfied with the state of politics and with the elites that are supposed to understand what they're doing and have delivered these outcomes now now what does this mean then for our system the relationship with democracy in today's world well there are two Alternatives out there and we need to think about what they might mean for us um branca milanovic in his analysis of this defined uh contrast between our sort of capitalism which he calls liberal which I call Democratic and he opposes that to what he calls political capitalism and I call authoritarian capitalism and there are basically two varieties here one of them which have very different implications for us authoritarian capitalism is the sort of uh autocratic capitalism I should say is the sort of thing that happens when a democratically elected politician this is mostly what happens now seizes power for himself and his kotary replaces the people running the in the core institutions of society with his own followers replaces the lawyers and the the judges and so forth with whom he has appointed with his own supporters and basically turns the state into a personal FIFA and this has been happening in many many countries the other Challenger is a completely different one it's basically the Chinese system the bureaucratic system the first Challenger is not particularly effective but it's it's the sort of Direction some of our countries risk going in the other Challenger is a Chinese system which despite its many obvious defects has succeeded in mobilizing resources to achieve growth on a scale not seen anywhere else and to become a superpower economically and in other dimensions within just predicates so liberal democracy if we think of that as the less Western system faces two massive dangers one that because of its loss of legitimacy we will elect people who will basically be prepared to hollow out the democratic system for their own personal ends and I think that is what Trump represents the other possibility is that we will fail so dramatically that we will lose legitimacy in much of the world and China will gain increasing power and influence in it and I say this whilst adding by the way incidentally not into coincidentally my book argues very strongly for maintaining cooperation with China so this then leads to my very last thing I want to say about the challenge of renewal which is the broad theme of the second half of the book I think the renewal of our democracy and capital and capitalism has to be animated by an overwhelming idea that of shared citizenship and so a commitment to achieving the best possible outcome for the welfare of our citizens if democracy is to work we cannot think of ourselves only as individuals as consumers workers business over owners and so forth we must think of ourselves as join in a democratic polity as Citizens and such citizenship has to have free overriding aspects loyalty to democratic political and legal institutions and the values of open debate and mutual tolerance that underpin them concern for the ability of fellow citizens to live before world life and that a desire to create an economy that allows citizens to flourish and we have failed in these respects and if we continue to fail our civilization in the form that we've known it may not survive I don't think we can do this by going back to the past we can't reconstruct the Society of 50 or 60 years ago and in most respects we shouldn't want to but yet think some things clearly remain the same human beings have to act collectively as well as individually and acting in this way within a democracy means acting and thinking as Citizens as the Greeks told us and if we do not do so democracy will fail thank you very much foreign thank you very much Martin so we'll I'll turn first to Diane Coyle who will give us a response uh and then to Jesse thank you thank you Martin for the the talk and the book um I'm going to focus on the capitalism part of what you talked about assuming that's the division of responsibilities between me and Jesse and um you gave us the the macri clinic picture about what's been going on I do micro thinking I think about the structure of markets and if you think about some of our most important industries in recent times we have a food industry that's highly processing Foods making us obese and Ill we've got a finance industry that takes money away from us rather than making it for us we've got a pharmaceutical industry that needs people to be ill and in one extreme case has actually been killing people we've got a tech industry that has delivered exactly what people said they did not want it to do which is substitutes for human creativity in art and music and so on so I'm exaggerating a bit but you get the point and in the US and the UK in particular um living standards for many people for many middling people as Martin described them have been going backwards in a sustained way not a recession but a multi-year period of downward Mobility for the first time since the dawn of the Industrial Revolution so what the late great will balmall used to call the free market Innovation machine just isn't working well and I don't know whether to describe it as broken or going rogue but it's not working for people and that's a that's a big problem we're also in the middle of two huge technological transitions to a different basis of energy in our societies away from fossil fuels and towards a completely different um form of of communication and interaction and all of the uh consequences of that that we've seen some of them directly political consequences and they're happening at the same time they're what economists refer to as general purpose Technologies and when you get that kind of disruption to use the cliched word um this fundamentally Alters the structure of the economy and Society how is value added how our resources used and who gets to keep the value that's created and that always means conflicts of interest and so periods of those kinds of disruption think about printing steam electricity they're associated with social turbulence and that's always been the case because of these this contestation over who is getting the value how is it being distributed now I've known Martin for quite a long time and I always used to think that he was insanely pessimistic and I was a sunny Optimist by comparison but actually I'm quite pessimistic now as well um ideas matter I agree about that and about the importance of the idea of citizenship and not thinking that we can run a whole society as if we're individualistic profit or income maximizers and that's important and there are signs that that kind of intellectual framework through which we've governed our societies particularly the US and UK for the past 40 years is changing so the ideas matter but any way that I can think of to fix the market economy in ways that create broad-based benefits for lots of people in ways that mean the amazing Innovations in AI that have happened over the past months bring benefits to everybody in society that they start all of the the ways I can think of start with political leadership that has a kind of strategic vision and we're in a country where you get a new strategy every year so how do we get from um the broken system that we have which is breaking Politics as well as the economy and capitalism um to something that's more beneficial to everybody in society and and restart that Innovation machine now there are signs in the U.S that uh Joe Biden President Biden has a strategic vision and an industrial policy and is implementing that but that's fragile I wouldn't describe American politics as in a healthy State at the moment the EU has gained fresh purpose from brexit and um is similarly inching its way towards a strategy but there's conflict on the continent of Europe so I don't know how well they're going to go and here in the UK um we're kind of left behind so I think that's probably a good segue foreign for the uh ultimate lse intellectual Hospital past which I will try to to deal with and thank you Martin I mean what a gripping brilliant book and how incredibly exciting it is to be talking about it uh with such a distinguished group and I mean such a distinguished institution um I mean I I I that's all I love uh a good Aristotle quote like the next man and a woman and um when I last translated it may then I gone it meant nothing too much not never too much and I don't think that actually there are sort of necessarily would have been hostile to something occasionally being too much but we know that when it comes to the status or the system or the institution Constitution or polity then then never too much is not just his recipe for a state it's also his recipe for human well-being at the individual level so let me give you another Aristotle quote which is Aristotle says that uh humans are the only species capable of deliberating about their own self-governance that is what distinguishes human beings that they are the only species capable of deliberating about their own self-governance and so this invitation not just in this book but more generally the challenge that Martin is posing to us all to think again about the conditions of our own self-governance is profoundly important and has the deepest possible philosophical and political roots now I would say that there is a risk I I think it falls to one mug in the room to be The Optimist and uh since the other positions have been occupied I'm going to take that position here and I'm not going to be absurdly optimistic because I think an awful lot of Martin's diagnosis is is spot on uh but I would flag a couple of things one is we're operating in a world in which um a human beings have become astonishingly sentimentalized in the way they think about each other and the main thing about the world their own history is their future their Nations and I I think there's a constant risk of seeing ideological change everywhere and and drawing from that often I think incorrectly the idea of false consciousness if only these little people hadn't been seduced by the ideological snake oil of the latest charlatans then we would be doing the right thing and of course there's so many cases in which that is true it's hard not to be quite persuaded about that but it's also possible to worry about whether the um the non the non-political the non-stake oil as it were or the or the latently snakeholders without realizing it uh Elites have done such a great job themselves and that's a question we might ask ourselves um and there's a there's a rather pregnant Moment In the book uh where uh Martin talks about this idea of um uh uh what you might call I think he calls it uh a democratic illiberators and I think that's a serious challenge Our Lives seem to be coming in strange ways less and less liberal in the cause of democracy and why should that be so let me just say a couple of things um if we are deliberating about the conditions or in self-conscious of our own well-being uh then we must heed seriously the argument that Martin makes that that liberal democracies rather than as it were printing themselves on their historical achievement in becoming free and capitalistic uh should perceive a latent ideological similarity in a common a commonality that might give them some scope for linking an international partnership in ways that have not yet been contemplated and and uh recognizing and perhaps a certain more self-conscious way than they have done I think that's true uh but it does also I think demand that we think more deeply still about the nature of the systems in which we're living and let me just give you a little example so uh take the concept of a political party now Larry Diamond a genius in many ways think about these things but his definition of oxy doesn't mentioned political parties political parties are completely foundational democracy so it's arguable that Britain was pre-democratic from the early 18th century um uh because you could change your government as a result of a change in public opinion and we didn't have political parties until the 1760s but after that you could change your government in response to public opinion to a group of politicians who had set out a a platform which you knew in some sense you were voting for now I think that is a profoundly Democratic move or pre-democratic Movement we should knowledge that we shouldn't get too hung up on the essential NOW essential aspects of universal suffrage in order to understand the latent Democratic Instinct behind that and and I think one of the reasons for why that's important is because political parties serve multiple goals if you look at countries that we we would broadly condemn the thing that is so obvious about them is not that they lack universal suffrage it doesn't they lack political parties the lack alternative government seem being and those political parties where they are in being are often not functioning very well so one of the things that Martin rightly diagnoses is what you might call adverse selection in political Elites you know why why aren't we getting the politicians we want um but we're only getting the ones we've voted for well that's possibly part of the reason um uh uh uh but also of course that in turn then uh links to a worry about the idea of a constitution so in America where they Revere the Constitution the events of the last few years have shown that Constitution is deeply problematic and fragile simply because you can have a contested presidential election in which the loser does not recognize the result and far from that being something which as it were a polity can shrug off it turns out that almost impossible uh to deal with that now uh that's an undisclosed and unimagined fragility in the U.S Constitution uh an instrument that is revered in that country and but can we care nothing about the British constitution British constitutions played a Blinder in the last few years in case you haven't noticed but one prime minister who um was getting a bit too big for his boots gets summarily executed last year and the um most uh uh the bloodiest possible political bloodbath and we had another one who tried to um show what they were worth and turned out to be um that was insufficient as well and the Constitution dealt with them so I think I'd like a little bit more focus on the functioning of parties out of constitutions the way we think about these issues and uh and the way they select um for Quality because those things can also be rightly interrogated and it is a paradox that we do not Revere our constitution do we pay notice to do we think we have an American Constitution where it's small in fact we have something radically different we have an evolved Constitution we love evolutionary science we worry about it in politics but it's served its purpose extraordinarily well as I might add a little bit more controversially perhaps in these contexts has the idea of first past the post and if you don't like first past the post ask yourself whether you really would like to see people with very far right or very far left opinions represented in Parliament with the airtime you get in a modern media age I personally don't think that's a very good idea I recognize that's a political view but I personally don't so if we're thinking in those terms let me just give you one um final challenge uh which goes back to this point about legitimacy which is at the core of Martin's argument of course we must have politicians of course we must have uh political people in political in positions of power wherever they may be um who recognize that what used to be referred to as the duties of of the power that They Carried with them that power was itself is Israeli once said a trust and therefore that they should have their persons their beings their history their past their previous achievements before they went into politics staply referring to and reflecting a conception of the public welfare of course that's absolutely right but let's put the thought a different way and ask ourselves the question uh Insight more controversial Spirit what happens when some entity or as it may happen to be the world's most successful economy the economy that has listed more people in history faster out of poverty than any other economy in history is a despotic capitalist one what happens when its challenge is not merely that it has achieved that and the legitimacy that goes with that but although it's a non-proselytizing economy I'm referring of course to China or polity it is nevertheless a polity which is uh uh posing for most profound ideological threats increasingly to the the Western order that Martin rightly celebrates but what is it doing it is it is uh it is denouncing the waste the short-termism the inequality the uh inexpert guidance of these Western democracies uh it is uh it is promoting conceptions of the history of these Western democracies which paint them as brutally imperialistic and Colonial uh powers that have left nothing but good nothing but bad in their in their wake it is redefining the idea of the public good in terms of a long-term focus on public economic well-being independent of what that public might actually believe or want at any particular moment all of which are aspects of deal legitimization so if I had a worry about the book we have here it is that Martin perfectly diagnoses the concern that is of delegitimization of the loss of popular consent and Authority but inadequately reflect on on the the severe challenge being posed by China and its acolytes bought sold traded and supported around the world because that I think is a very serious threat to our country as well thank you foreign to respond let me add my one question a kind of paradox that lies behind this we live in an era when we have more education and educated people than in the history of the world and particularly more educated people in the democracies that we want to defend um and yet that doesn't seem to have been of course we don't have a counter factual maybe things would be worse but there is an argument and and uh it surfaces in in a variety of forms not least in Ann case and Angus Eden's death of Despair one of the biggest fault lines in modern democracies between those with and without education it's not an economic fault line there's a whole series of attitudinal differences and other things that go along with being educated there's a lack of deference in an earlier era um I was the first in my family as many people in the room were to go to university we had parents who believe that the the educated elite were their batters and that they should um to some extent um show deference towards education it's now some of those upstarts have themselves got educated we don't believe that anymore and we actually rather resent the behavior of the educated Elites rather than deferring to them and I wonder where that plays you didn't talk about that but I wonder if that played at all in into your story anyway um uh but why didn't you just respond a little to what you've heard and then we'll open it up to that well my reaction basically is obviously I was far too optimistic the this book is my angle on what's been going on and I'm an economist of a certain kind so I focus in detail on things I know most about but I have added in I do don't talk about parties not a great length I talk quite a bit about tech and other uh and other forms of what I call raunchy capitalism broadly defined but I would agree that I cover so many subjects uh that inevitably much of them much of it is inadequate V and I'm is complete and the uh probably the thing that I focused on least in the economics was exactly what Diana talks about which is uh Diane sorry uh was uh um the [Music] um the future waves of difficulty to be confronted I look a lot about aging and uh and the associated change I'd have a lot on it immigration and how that the politics and economics of that but I uh I've tended to the view there are there's an existing catastrophic problem which is Big Tech and media and there is a coming catastrophic problem which is AI and I do discuss a bit the former but I think it's really hard and I mean the uh the particular difficulties we might want to nationalize these companies and make them public benefit companies but they're not ours to nationalize and the Americans will probably resist and we can't easily replace them either this is a very important point there are an awful lot of players in the world economy now that are not under our control and never will be because they're not ours and they're never going to be um this is really important if I do discuss that a a bit so I think Diana's added in some very important uh issues about our future um and the extent to which we can shape it I've really been stunned by the things that people who supported the brexit revolution thought they will be able to control as a result of it regret it seemed to me absolutely obvious that nothing important will be added to the things that we could control as a result of brexit and all the things that they wanted to do we could have done anyway so now to Jesse's point I think I haven't said enough about parties so I do say something about it uh about them they are Central to politics and but I don't I I tend to be on the other side of first pass the post position but I'm open to persuasion on that I have much more radical ideas that which will horrify and witness I think among this um probably my most radical idea in the book that we shouldn't have been influenced by the Greeks we should have a Part House of houses of Parliament which is chosen entirely by a lot and discuss it later and uh because there's a problem with representation I I think that um uh but I think the issues of how your polity is to be changed and the relative merits of different forms of constitutional structure is very very important and I do think and I discuss this at Great length the Americans have some very very deep big problems not only as a result of the in the way the Constitution is shaped in this way but in terms of the extraordinary range of Rights that have been ascribed in the recent decades to plutocrats for buying politics I mean that's really a very very big problem for any democracy but anyway they have convincingly added to the to the uh challenges I do agree with Jesse that in a very very encouraging that we can throw overboard politicians who should never have been there in the first place uh this is clear but it doesn't solve a really big problem I think is that we have a range of Economic and other challenges in this country now that no political force I now see seems willing and able to tackle at all and this is what I call the populist Paradox which is when politicians are selected on the basis of the plausible stories they tell to people when they've lost confidence in their Elites uh they tend this is a Latin American Cycle they 10 Ben to offer solutions that their work or they don't offer Solutions at all and the process is a cycle of disillusionment now the final question you asked is interesting I do discuss quite a lot this profound change in our society which is um associated with mass University education and which has created essentially seemed pretty obvious to me now a new class which has its own interests and very strong feeling that it has not been treated well enough the most interesting thing about its emergence and its role in our society now is it has clearly played a significant part in shifting members of the former working class to the right and that's a problem that really is a problem now we can discuss why that's happened I've discussed a bit in the book but it's I think an immensely important fact that the parties of the left are increasingly becoming not parties of the working class that used to be their base but parties of graduates um who I'm very happy with their position either for the number of discontented people in our society is exploding but they disagree radically on what they're angry about excellent thank you very much so what I'm going to do is let's throw open the floor I'm sure there'll be lots of questions and I'm going to take them in batches of three and I and I ask you to to be very brief in in posing questions so I'm going to go one from each segment so I'll start uh over there on the on the end of the row if you could take the mic up there and I'm going to take someone from the middle segment just looking to see maybe come down there and then um we'll go over there okay very good so far away and say keep it free okay here we go howdy Mr Wolf my name is Zach I'm American um uh what was it gonna say from Nebraska if you know where that is but um I was gonna say so I was thinking like before I came to LLC I was really involved in Republican politics you talk about your solution about global citizenship about participation in the global economy and I think to myself uh I did mean Global I meant National okay forgive me I heard Global but my idea what I was thinking to myself when I heard well I thought I heard at least was you know a lot of the solutions about understanding how we interact in a global political economy at least is that it doesn't solve very well with people from my part of America from people who 75 Diamond doesn't will vote for Trump vote for anybody with an R after their name what's your message to people from that persuasion who For Better or Worse are really concerned with the idea of a greater more interconnected global system okay next question let's keep them going so we can Max uh max out there was one stand the front here yeah thanks okay most people in the world have an unprecedented ability to access information uh connect with each other organize themselves and that seems good doesn't it okay and then we'll take one from down here and then we'll go straight back for another round um hi one of the most uh interesting ideas that Martin brought up in a book and discussion around it was the idea that uh interest payments should not on loan should not be tax deductible now that seems to me like a purely administrative idea that could be brought in by any government and yet it is about as probable as nationalizing the banks tomorrow so where can the impetus for new ideas even pragmatic ones like that which the labor party would run a mile from are to come from okay so we have what do you say to Republicans from Nebraska information Department interest payments on clothes so actually um thank you very much for the first question because um it shows how badly I was at explaining this I had a really controversial what I thought many people here would find a really controversial and offensive view which is democracy is about citizenship of a place that's what it means and therefore democracy is in some fundamental respect exclusive not inclusive it excludes non-citizens and I discussed this at Lane it doesn't mean that one has no responsibilities to the rest of the world and it certainly doesn't mean it makes sense to cuddle of all communication trade and all the rest of it the rest of the world but politics have to focus is a necessary condition for this to work on convincing the body politic that what politicians are doing will improve their welfare in relevant respects you can discuss what that means so that basic core idea that the politics of a Democratic Society are profoundly local it seems to be inescapable because we're not going to have Global sensitivity now that then creates a very profound questions which a number of people here will certainly immediate well then how do you relate to one another and I have a whole chapter on that and I'm not going to go into that but let me be very very clear my problem with Trump and the Republicans is I don't think they're going to do anything for the vast majority of the sentences you're talking about so I think there are cons they're a con but of course people disagree with that information revolutions um I think information revolutions are absolutely wonderful um if they're information and and the and of course there's a profound questions about what you can do to manage this but I am a little bit concerned about algorithmic systems which are designed to spread things not because they're true but because they will get the largest amount of response from the users um and they've worked out by now that nothing does that better than anger that's a problem it is a problem finally I have lots of technocratic Solutions of the type you mentioned I'm very very keen on land taxes as you know uh I think all tax Havens should be closed down tomorrow and all the taxes attributed to tax Havens should simply be not recognized the idea that the intellectual property of major companies is actually located the Cayman Islands is absurd all this could be changed overnight there's no difficulty about this the reason you should find out where some of the you know what's what's this wonderful story um when I'm told this so this may be untrue when the treasury got its building privatized and uh leased it back uh to itself the money he paid went to an offshore entity that paid no tax now that even almost that is kind of that's true almost perfect example of complete Insanity and my book has lots of them of that kind and we could stop all that nonsense to tomorrow um uh uh and we could change our planning laws and we could do lots and lots of other things so I'm I go go in for um productive uh productive productive what Carl pop up great the professor here called um uh um social um piecemeal social engineering I think around an awful lot of things like that we can do without getting a consent consent on doing everything that will transform our society into something else and the politics could just focus on that thing those things will get somewhere of course for reasons that already mentioned they are huge lobbies against any of these changes which is why we're stuck right so listen Sharon can you give us an online question please Okay so I have one from Ian Oakley citizen of the world since the 1980s income and wealth inequalities in Western democracies have grown hugely surely this is what has undermined Democratic legitimacy in recent years across the West very good now I've got to go um let me let me see uh let's go for one on on this side just pick one at Randomness your children thank you to what extent does this message resonate outside of the United States and Europe we're running the risk even if what Diane was suggesting new industrial policy protectionism we might end up in what the high representative of foreign policy in the EU said the peaceful garden surrounded by the jungle uh and that wouldn't be a solution for most of the world either way okay and we'll go to the question and I've got to go through there and then we'll go back to Martin um institution or an agent working the Democratic systems should act as a kind of an intermediary or something that can help us facilitate to move towards citizens and particularly interesting to hear even of course as we are represented by panelists from education from politics and from media financial times thank you okay inequality is a very complex idea and I only discuss some aspects of it um wealth income and I'm not even talking about gender and all the rest of it so however the the statistics so reasonably clear and this is an important point for me that the extent of the change of inequality varied quite considerable across countries and it varied both in terms of the changes in the pre-redistribution uh uh inequality and the changes in the post redistribution of inequality and one of the reasons I think this is important is it this showed that even though all these economies globalized in some ways they open up the results for their citizens very very considerably um and in particular uh the U.S clearly had the largest Rising inequality of the highest level on in any income I won't go to wealth but it's true there too um in the UK because of what happened to the AGS mostly is in sort of second rank so the inequality story is very subtle and it means that there's more political Choice than we think by the way it's because I don't believe and I do have a discussion that trade in particularly was a dominant force of the Rises of inequality I don't come in for out because that's my it's in favor of protection which I think is very problematic this links then to this fundamental issue that's raised is this all just about us and Europe well um for me very definitely not the um if the we can start I don't have a debate about the inflation reduction act what it means all the rest of it but I don't have any huge problem if uh industrial countries like the us or uh Europe accelerate the green transition um through the use of government money I mean that seems to me a perfectly reasonable thing to do in given an emergency but since the aim of making this transition is to deal with climate change worldwide and written a lot about this we're not going to achieve very much for ourselves if we don't ensure that the same thing happens everywhere I mean that so this is one of those cases where being a rational domestic citizens where I discuss these issues at very stage has to include being rationally globalist because the world is affecting us so the idea the sort of one form of looking at this issue is to say well we're concerned about our citizens so nothing that happens in the rest of the world matters and we're going to ignore it that obviously trolling is crazy and I think there's a lot of subtle issues there that we have to be discuss the final question well you raised this issue what does being a citizen mean in a modern democracy well there are a couple of interesting ideas here that one of them I talked about selecting house of parliament there's an interesting set of ideas about people's juries which have worked remarkably well in certain contexts the best example I could find was the use of a citizen's jury to address and ultimately resolve the abortion issue in Ireland it's a very important example bring your ordinary people to discuss things and I have been thinking that I'm not it's not in the book and it's incredibly dangerous well Swiss do these referenda really rather well and it's part of what makes them as Citizens with modern technology we could do quite a few things like that by but I've seen people like Jesse and right at the moment I'm increasingly suspicious think that maybe bypassing people like Jesse though not Jesse it wouldn't be a bad thing and we could consider um getting a pin using opinion um through um the internet and all the rest of it as a way of getting some real sense of what people want and care about um so maybe we should be more imaginative about the way new technologies can allow people to sense that part of the discussion of policy even though I am fully aware of the problems that that would also create but I think we should we do need to be a bit more represent more imaginative about these things than we have been and it's part of the agenda that I think we now have to address to revive our politics very good another online one Sharon sorry okay here's one from Duncan Reed who's an LSC visitor has Democratic capitalism undermined Itself by failing to distribute the rewards of capitalism fairly okay yes you know that's very simple that's obviously that's obvious well I mean I think it's not just the rewards of legitimate right but they can reasonably discuss uh how um uh wealth might be taxed but it's also the problem in my view and I've got a lot on that that some of the rewards are not legitimate which is I think even more problematic for the system uh in the sense that they are the results of what uh um Jesse's hero Adam Smith would regardless not entirely legitimate business behavior and business has to operate within surely one of his most profound ideas within the context of what is regarded as morally and legitimate and if you lose that and they're seen as thieves then you lose the system okay we have if you just go out and I'll shout when you get to the writing okay keep going keep going keep going keep going that row there if you pass along thank you um you mentioned low productivity and low income growth over the last 10 to 15 years have politicians failed us or just run out of ideas I missed the last bit of your question I have I have politicians failed us or just run out of ideas I want to address why do you do that now because I think um is both but it's also genuinely difficult so I'm not going to have a long discussion about why this has happened um but one of it's pretty obvious the sorts of things we want to do but the I do think uh things as we know things now I'm going to leave aside the AI revolution of what it might mean I don't know um but as things are now we have economies and I discussed that at Great length which really are not going to find it easy to replicate the sorts of productivity growth we had in the past um this will not be the case if it turns out on a massive scale the energy Revolution that my friend Nick Stern proposes is going to reduce energy costs dramatically and not persuaded yet that this is the case tell me I'm wrong and the uh but if that doesn't happen I think really exciting the productivity growth in our societies is going to be very difficult but they could have done much better and if they were going to do things better than they would have had to change a number of policies some of which would have been quite difficult to do so to take one example the UK has the lowest rate of investment in the western world basically right we're not going to grow faster if we don't invest more if we're going to invest more since we have a massive current account deficit already it's almost certain we're going to have to raise Savings in this society and to raise savings into society means we have to reduce somebody's consumption no government wants to contemplate the sorts of policies that will be required if we wanted to lower consumption to society by a significant amount three or four percent points of GDP which is 100 billion pounds so there are things you could do but they are hard can I add a sentence yeah I was gonna say I want to pass down the line and then I'll yeah I promise okay so I think this links to the previous question about why the fruits of capitalism are failing to deliver for people and they're failing to deliver productivity because they're Amazing Ideas and Innovations there was a paper published a few a little while ago um our new ideas getting harder to find and the answer is no they're not tall they're all over the place what's not happening they're not being commercialized and turned into products that serve Ordinary People well bring them benefits and pay people higher incomes and that's where the machine is failing it's nothing to do with the ideas Jesse I don't know if you have a final thought on anything you've heard uh well I mean there's so much of interest that it would be hard to to start and stop but let me just say a couple of quick things so so why don't you go back to your question about education so why is it that actually we've got educated as it were the decline has accelerated in Elites and um the growth of the restaurant um I I think the reason is we fundamentally misunderstand the concept of Reason okay we think of human beings as being rational animals who choose their ends uh using by Consulting there is I don't think that's true I think David Hume is right and Dan sperber uh more recently um reason is the slave of the passions and it's really it's function is really to explain why you were right all along um whatever the decision we took was and I think certainly quote that good well I'm very pleased to hear that I don't know um how wise you are but let me say so I apologize um the the uh uh so that's called the question of what a rational citizen is but I can tell you what a National citizen is it's not a corporation right so one of the great big parts of modernist book is where he talks about how corporations have become uh dissociated from the public good as a public welfare and this again I think Bears on some of the points that I was Raising and you know it's not just a matter of CEO pay which has gone up by dramatic multiples over the last 20 30 years it's also that the ancient idea which actually was unusual the original idea of a corporation is essentially a public entity with always an eye to the public purpose uh has been lost and uh that is a is a tragedy actually because it only doesn't just lead to bad outcomes it also leads to a progressive delegitimization of corporate Behavior as such but I don't think any sane person thinks that we're going to have a good story to tell about the recovery of democratic capitalism uh which doesn't involve a story about how we can get corporations to invest more sanely and more intelligently than they are doing at the moment and you know the other part of that story obviously is not just the way in which corporations have been enfranchised for political purposes in America but the way in which um the financialization of this economy in the UK and indeed afraid sad news of the American economy which traditionally had rather good balance between Main Street and Wall Street has accelerated so a lot of the story here is about that and that in turn feeds the rental uh the rent capturing rent extraction economy that Martin hinted earlier when he talked about Adam Smith excellent well I'm very happy to draw things to a close with apologies to those who can get in with their questions there are many of you and I apologize again um but my job to wrap things up is to thank Jesse Diane and particularly Martin go out and buy the book there will be an opportunity for you to do so please don't come to the front because Martin has to exit to go to his book signing table for those of you who are Keen you can have a signed copy but uh he he will have to exit quite speedily to get to that position so please don't come and block the results foreign

Channel: LSE

Views: 7,972

Keywords: LSE, London School of Economics and Political Science, London School of Economics, University, College, New Political Capitalism, Joe Zammit-Lucia, Michael Barzelay

Id: kcgIs8b8m0g

Length: 75min 36sec (4536 seconds)

Published: Wed Feb 08 2023