THE ANNUAL GATHERING of central bankers, academics and policymakers at Jackson Hole in Wyoming, US, is known for deliberating nuts and bolts of monetary policymaking and cutting-edge macro-economics. Last year, the symposium discussed an unusual topic: the effect of market structure on economic performance. For economists this was a non-issue in the real world: only leftists made noise about it. Abnormalities like monopoly and monopsony had been banished to textbooks. Students were quickly taught these topics and herded to the calm waters of perfect competition. Yes, there was such a thing as oligopoly but then market regulators were there to sort it out.
Not anymore. In a world dominated by brilliantly successful large companies these aberrations are back. Increasingly, these firms seem to be the source of problems ranging from low wages, depressed investment to sclerotic economic growth. The world now appears to be dominated by companies that are unique sellers of a unique product (monopoly) and are also, in many cases, employers of people with skills that are expensive to acquire. In the West, at least, this is leading to a new kind of class division: those who have jobs in such companies and those who have to remain out as a permanent underclass.
It is, however, a mistake to consider this as an economic problem if Adrian Pabst, a British political theorist, is to be believed. In two recent books—The Demons of Liberal Democracy (Polity; 160 pages; Rs 4,678) and Liberal World Order and Its Critics: Civilisational States and Cultural Commonwealths (Routledge; 114 pages; Rs 4,738)—he parses the political roots of the contemporary crisis of liberal democracy. The level at which the crisis—no jobs, poor wages, precariousness—operates is economic but its levers are clearly political.
The story begins sometime in 1989-91 when the combination of free markets and liberal democracy was held to be ‘the only game in town’. It was supposed to be a solution to recover freedoms lost under socialism and also provide economic opportunities— especially in the Third World where the sway of socialist economic ideologies had stunted economic growth. Since then, the world has seen tremendous economic growth and the number of countries that moved away from authoritarian/ non-democratic forms of governance rose dramatically. But roughly since 2005, there has been a democratic recession of sorts, one that rose dramatically after the global financial crisis in 2008. Nationalism of a rabid kind, rising protectionism and, in many cases, democracies in retreat are now visible in many parts of the world.
This situation, Pabst notes, is not one of a temporary drift. He analyses the situation in terms of ‘three demons’ of liberal democracy: the tendency towards oligarchy—concentration of power in the hands of an unaccountable elite; demagogy— manipulating democratic debate and public opinion; and anarchy—social fragmentation.
Depending on one’s political perspective—liberal or conservative— one can single out one of the three demons as the initial condition for the downward spiral. One can cite demagogy by many contemporary leaders as the source of danger to democracy. But this is putting the cart before the horse: demagogy is not the enabling condition for the destruction of democracy but one of democratic deficit to begin with. The combination of a political system where a coalition of cultural and religious minorities rigged with some other part of the electorate is sufficient to govern a country, very often ignoring the majority, allowed space for demagogy in the first place.
Depending on one’s politics, one of the three demons of liberal democracy— the tendency towards oligarchy, demagogy and anarchy—can be blamed for the downward spiral
‘However, liberal democracy itself can be a catalyst for demagogy. First of all, there is the tension between substantive values and procedural standards. A key dilemma facing any democratic system is that it constantly needs to balance two competing demands: respecting majority will and commanding popular consent, on the one hand, and protecting individuals and minorities from oppression, on the other. To do so, democracies have historically tended to combine certain foundational values—such as liberty, equality and fraternity in France, or life liberty and the pursuit of happiness in the USA—with formal rules and procedures. The problem is that, when rival values clash (say individual freedom and equality for all), contemporary liberalism suggests that people can only ‘agree to disagree’ and settle for abstract, formal standards such as ground rules of fairness.’ This is an apt description of what liberalism prescribes.
Trouble is that this is rarely adhered to in the real world by liberals themselves. Just as in socialism a select group—say, the Soviet nomenklatura—controlled the levers of power, so do today’s liberals. What has changed is the mode of operation: instead of secret service and internal security troops, liberal democracies have powerful media tools to enforce ‘liberal order’.
The combination of ‘not listening’—basically a cast-in-stone standard of what is acceptable and what is not—and economic insecurity has bred political rebellions against liberal democracy from the banks of the Potomac to the edges of the Elbe.
These distempers now threaten the apex of the liberal order: the inter-state system. Since 2008, free trade has been giving way to protectionism, and economic nationalism is respectable again. The other issue is the nature of many of the states challenging the liberal order. The usual way to criticise these states—China and Russia, in particular—is to dub them illiberal. The reality is that both Eurasian giants are less nation- states and more civilisational states. Russia, for example, has never known ‘normal nationalism’: It jumped from empire to socialism and now to an unhappily acknowledged—or even a barely acknowledged—civilisational state. China, too, falls in the same class. It should surprise no one that their behaviour— especially China’s—defies many established norms. Its attempt to grab the South China Sea, including building artificial islands deep in international waters, is one glaring example.
In all this, and more, Pabst goes a long way in sketching the mechanisms of decline in the liberal order. He notes that because this is an interregnum, the conclusions are subject to change and evolution. There is now a veritable let’s-despair- for-democracy industry that is nothing more than political breast-beating. The two books by Pabst are interesting because they eschew this despair and cast a positive light on what is happening.
Two caveats are, however, in order. One, the anger against liberalism takes different hues in different parts of the world. In India, for example, the political reaction against elites in New Delhi is intense and so is their response, which is more in the nature of primal fear on part of a hunted animal than a reasoned response to events since 2010. In contrast, there is little anger against economic liberalism. Much of India’s prosperity since it ended its infatuation with socialism is due to capitalist enterprise. Two, civilisational states pose their own dangers. In contrast to the Westphalian order that took centuries to emerge and set in, the behaviour of states like China is unpredictable, which do not hesitate from using military means to achieve what they seek. As a result, countries on their periphery are often caught between submission and perpetual fear of conflagration with a far more powerful neighbour. This has produced its own disorder from Luhansk all the way to the Mischief Reef. Unlike liberal disorders, there is no remedy except armed response in this case. The liberal order, whatever its limitations, did have a repertoire of responses in such situations. With Crimea that collapsed, for the worse.