The wrong prescription for liberal democracy’s ills

What Happened to Liberal Democracy? Remaking a Politics of Shared Prosperity, Daron Acemoglu, Profile Books, £25

With a congressional election looming in November, Sarah Longwell, an American political consultant who is a voice for Republican opponents of Donald Trump, recently offered some unwelcome advice. Those who hope to deprive the president of his congressional majority, she said, should stop caterwauling about Trump’s authoritarian inclinations. He may have imposed sweeping tariffs on imports, bombed Iran and torn down half the White House as if it were his personal property, all without seeking the consent of Congress, but voters are far more concerned about the price of petrol than about constitutional niceties. As Longwell put it in the New York Times, ‘Voters know democracy by its fruits, not its roots.’

That’s a comment worth pondering as the political class around the world tries to figure out what happened to moderation. Leaders who do not hide their disrespect for democratic institutions are in power from Turkey to India to Argentina, while parties towards the middle of the ideological spectrum seem mired in trouble almost everywhere. Two thirds of German voters support none of the three parties that have framed political debate in Germany for nearly 80 years, even as Israel is torn by a debate about whether its government is becoming authoritarian. An overwhelming majority of Americans believe that elected officials don’t care what they think. As Daron Acemoglu asserts: ‘What we are witnessing isn’t a failure just of democracy but of liberal democracy.’

Acemoglu, an economics professor at the Massachusetts Institute of Technology (MIT), is well known for his work on political economy. His 2012 book Why Nations Fail, written with economist James A. Robinson, then at Harvard University, became a best-seller, and he shared the 2024 Nobel Prize in Economics with Robinson and Simon Johnson, also of MIT, for their research on how social institutions affect prosperity. Acemoglu’s new book, What Happened to Liberal Democracy?, goes further, laying out the shortcomings of modern liberalism and offering ideas about how to avoid a slide into authoritarian rule. ‘Liberalism is worth saving and remaking,’ he insists.

Defining ‘liberalism’, alas, is a bit of a challenge. Acemoglu starts by identifying common threads in what he considers to be liberal thinking: the desirability of individual freedoms, constraints on political power, and equality before the law; faith in progress; and a belief that government should help the weak and vulnerable. ‘Any movement that departs from this bundle of core commitments… is not liberal,’ he asserts. He places fascism, authoritarianism, Marxism, communism and identity-based ideologies, all of which favour limits on personal freedoms, outside the liberal tent. Acemoglu labels himself an adherent of a left-leaning variant of liberalism, sympathetic to social democracy in Europe and the sort of big-government liberalism that was institutionalised in America during the Great Depression, and which dominated politics until the election of Ronald Reagan as president in 1980.

Liberalism’s current woes, he tells us, are partly due to its past success. At its birth in the 19th century, liberalism had clear goals: to diffuse political power and to ensure that prosperity be widely shared. Liberal democracy enjoyed broad support as democratic countries defeated Nazism and fascism, fought Communism, and inaugurated sweeping social welfare programmes. While there were feuds over social policy and personal freedom, these issues ‘paled in comparison to expanding the franchise or battling against Mussolini, Hitler, and Stalin’, Acemoglu writes. But over time, he says, a split opened between classical liberals whose beliefs emphasise individuals’ liberty from government control and progressive liberals who see government as the enforcer of freedoms – and who tend to embrace the view of the British economist and Liberal Party politician William Beveridge, often credited as the architect of the British welfare state, that liberty requires ‘freedom from economic servitude’. Both progressive and classical ideas about liberty fail to confront economic trade-offs, Acemoglu acknowledges. In consequence, he says, liberalism always faces opposition from those who lose out economically from liberal policies, such as openness to immigration as well as from those who culturally oppose practices permitted by liberal ideology, from gay marriage to mandatory education. In recent times, according to Acemoglu, that opposition has been strengthened by liberalism’s inability to deliver shared prosperity, as automation and globalisation have brought economic benefits to the highly educated while leaving many households behind.

This potted account shortchanges history. While liberalism as an ideology is commonly traced to the writings of English philosopher John Locke in the 17th century and the ‘Glorious Revolution’ in which the English Parliament ousted James II in 1688, it was only in the second quarter of the 19th century (at the earliest) that liberal democracy began to take shape. It had two fundamental goals: expanding suffrage and reducing obstacles to foreign trade. Its opponents were not workers and peasants, but landowners and industrialists who stood to lose wealth and power. Liberal ideas were applied inconsistently in various countries, often unpredictably.

The heyday of liberal democracy was brief; while a small number of countries, mainly in Europe, were functioning democracies at some point in the 1920s, almost all of them fell victim to authoritarian rule by the early 1930s. It was only around 1948, after the Second World War, that liberal democracy took firm root in a world exhausted by autocracy.

The attraction of postwar liberalism was based largely on its ability to deliver the goods. Incomes rose rapidly across western Europe, North America and Japan through the 1950s and 1960s thanks to strong productivity growth. Average families could afford erstwhile luxuries, such as indoor plumbing, private cars and electric washing machines. The year-by-year improvement in living standards was almost tangible: democratic governments were making life better.

Yet it didn’t take much to throw liberal democracy into question. The outbreak of war between Israel and its neighbours in October 1973 led Arab oil-producing countries to slash output and to cut off supplies to the United States and the Netherlands. Oil prices soared everywhere. Governments responded by instituting car-free Sundays in Europe and lowering speed limits in North America. A global recession followed.

Once it ended, in 1975, liberal democracies found themselves powerless to restore the economic growth that underpinned their legitimacy. Productivity growth slumped, and governments were unable to revive it. Incomes stagnated, with long-lasting consequences. A newfound scepticism about the ability of government to assure prosperity radically changed social attitudes and triggered a political shift to the right, bringing to power figures who championed free-market policies, such as Ronald Reagan in the United States, Margaret Thatcher in Great Britain and Helmut Kohl in Germany. With that change came a shift away from collective responsibility for social wellbeing; as state institutions were allowed to wither, individuals were asked to assume more of the cost and risks of their health care, their education, unemployment and old age. Trade unions were deliberately weakened. The tax burden was pushed off corporations and onto wage earners in the name of encouraging business investment. Families with significant financial assets fared well, while working-class families trod water.

Right-wing governments proved no more able than centrist or left-wing governments to reverse the slowdown in economic growth. The reason: the underlying cause, a steep drop in the rate of productivity improvement – the efficiency with which goods and services are produced across the economy – is not something public officials have tools to address. Voters in the wealthy economies, especially voters of modest means, became increasingly alienated from government because governments of all stripes were failing to help them improve their lives and their living standards.

Acemoglu blames big-government liberals for this sense of alienation, as if they were responsible for the loss of factory jobs due to automation or the import surges related to globalisation. ‘Liberalism changed as the college-educated segment of society became more dominant, and this made liberal democracies less likely to seek solutions to the postindustrial challenges that heavily afflicted the less educated’, he writes. ‘The postindustrial educated elite abandoned many of the key precepts of liberalism, including the commitment to self-government, community, and shared prosperity, which were critical for liberal democracy’s past success.’

Acemoglu, an educator himself, blames education for many of modern liberalism’s woes. He contends that the highly educated, who are ‘convinced of their own enlightenment’, have segregated themselves from the less educated or less affluent by their choices of partners and residences. Rather than empathising with the masses, this educated elite has acquired political and administrative power and used it to engage in ‘supply-driven social engineering’. These cosmopolitans, he writes, have sought ‘to apply science, technology, and their own enlightened, universal values’ to regulate speech, thought, education and whatever other activities they believe to be in need of regulation. They are thus violating liberal principles by infringing on the liberty of individuals as they impose their version of liberty on society. He sums up his view with an aphorism: ‘Social engineering begets social engineering.’

Against that background, Acemoglu calls for a ‘working-class liberalism’ that pays less attention to ‘thought policing’ and more to building community, using narratives that bring people together rather than polarising them. ‘Shared moral principles are more likely to emerge when people see themselves as having agency in choosing such principles and when they feel that they are part of both local communities and a broader shared identity,’ he asserts.

Acemoglu is far from alone in his critique. Many trees have fallen victim to ruminations about the shortcomings of liberal democracy. As befits a book by an economist, What Happened to Liberal Democracy? draws more heavily on the economics literature than most books of this genre, but its conclusions are far from unique.

Nor are they as widely applicable as the title suggests. Acemoglu’s examination of the shortcomings of liberal democracy is based almost entirely on anecdotes and data pertaining to the United States. He imputes American problems to the rest of the democratic world with distressingly little attention to detail. One example: Acemoglu correctly points out that the share of the economy’s output paid to workers in the form of wages has fallen steeply in the United States. However, parties with authoritarian roots have also challenged liberal democracy in countries where the wage share has not fallen, such as India, Serbia and Sweden. Workers’ narrower slice of the economic pie seems to have more to do with the policy choices of individual governments concerning taxes on capital and the role of labour unions than with whether the country is a liberal democracy – and making the income distribution more equitable would not necessarily address the anxieties that lead to greater public support for anti-liberal political forces.

Acemoglu’s assertion that ‘college-educated elites and activists’ are resorting to regulations as ‘an expedient solution to the difficulty of building a democratic coalition for passing legislation’ is particularly unconvincing. Regulations, which typically are issued by specialised administrative agencies, have the singular advantage that they can be adopted quickly in response to rapid technological change, whereas legislatures can take years to enact statutes and years more to amend them, leaving the law outdated. The worldwide controversy over whether artificial intelligence companies should have to pay writers and artists for the use of copyrighted materials to train models is a case in point: AI is developing far faster than copyright law. In any event, Acemoglu’s claim is remarkably tin-eared. After all, the current US president, who styles himself as an anti-elitist working for the common man, claims authority to do almost anything without bothering to build the coalitions required to win the approval of a Congress that his party controls, simply by signing executive orders or telling federal agencies to issue regulations.

What is the evidence that regulations imposed by the educated elite are harming the masses, as Acemoglu contends? He takes aim at ‘complex environmental regulations’, which he alleges were adopted by well-meaning liberals who couldn’t take the time to win broad support for subsidies for clean technology and taxes on carbon emissions. This is a dubious claim. Many liberal democracies have curtailed the burning of coal and oil by providing generous subsidies for solar arrays, wind turbines, battery-powered vehicles, and other technologies. Writing a law to tax emissions, which has long been economists’ favoured approach to mitigating climate change, has proven to be no less involved than writing the regulations Acemoglu disdains. The European Union’s emissions trading scheme, the best-known example of an emissions tax, exempts fishing boats, commercial printing plants, most but not all textile mills, and various other industries, a consequence of the political jockeying involved in imposing any sort of tax. To imagine emissions taxes could be a simpler alternative to environmental regulations if only the liberal elite understood their desirability is wishful thinking.

Similarly, Acemoglu alleges that liberals have imposed ‘more procedures and antidiscrimination regulations’ on companies ‘rather than dealing with root causes of economic disadvantage among minorities or social problems in poor neighborhoods’. Does he mean this broad claim to apply to all liberal democracies, which take diverse approaches both to restricting discrimination and to dealing with social problems? What countries have successfully tackled the ‘root causes’ that governments could address if those overeducated elitists didn’t stand in the way? The sole source Acemoglu provides to back his assertions about the anti-worker effect of regulations is a 2016 New York Times article that quotes Hillary Clinton, then a Democratic candidate for US president, referring to Trump supporters as ‘deplorables’. This is not serious analysis.

Some of Acemoglu’s policy recommendations have drawn attention. His call for governments to demand that artificial intelligence be worker friendly, empowering workers to perform more sophisticated tasks for higher wages rather than enriching investors by eliminating jobs, has received widespread applause. ‘Pro-worker AI has the capacity to boost productivity, rebuilding the link between productivity growth and good jobs that was so central to the industrial compact’, he writes, calling for ‘more emphasis on domain-specific applications aimed at providing greater capabilities and better information to workers and less emphasis on mimicking human cognition.’ How policymakers might implement such ambitions is not clear, but Acemoglu has put forth an ambitious goal.

A recommendation likely to prove more controversial is to fight wage inequality by reducing the very generous tax incentives for business investment in assets such as computers and machinery. Such incentives have become widespread as governments encourage firms, especially manufacturers, to become more competitive in international markets by erecting new factories and installing the latest equipment. In the United States, for example, the federal tax code allows many companies to deduct the entire cost of new equipment from their income in the year it is first used rather than deducting smaller amounts annually over the life of the equipment, a benefit that can dramatically lower the after-tax cost of the investment but also reduces the government’s tax take.

In wanting to scrap incentives for business investment, Acemoglu is at odds with many of his fellow economists. Departing from the economic consensus, he is a sharp critic of automation ‘because it severs the link between mass production and shared prosperity.’ The result, he says, ‘was nothing short of the disappearance of good jobs for workers without a college degree’. He would encourage employers to hire more workers rather than replacing them with equipment, and to pay higher wages as well. These ideas obviously resonate with trade unions, manual workers and some politicians, but the argument that installing fewer machines in the factory or the office will make the economy better off is a strange one for an economist to make. How any government would effectively implement his call for ‘heightening [the] social status of manual laborers’ is hard to imagine.

In the end, What Happened to Liberal Democracy? is a disappointment. Chastising liberals for overvaluing university degrees, undervaluing manual labour and failing to offer narratives that bring people together may be justified, but this sort of self-flagellation is unlikely to make the fruits of democracy more apparent to voters.