For the partisans of liberal democracy, these are trying times. The triumphalism of the years after the collapse of communism has given way to deep concern. The belief that history would move the world inexorably toward democracy has crashed against the reality of democratic erosion in the heart of Europe. The rise of nationalism and xenophobia has prompted analogies to the 1930s.
Although these worries have a basis in fact, there is reason to believe that they are overwrought. Democracies are resilient, not because they always make wise decisions, but because they have a unique capacity for self-correction. The errors that laid the basis for the current crisis have sparked a search for more adequate responses to the difficulties this crisis has unmasked. With better policies and public pressure for long-delayed actions, most democracies can emerge with renewed vitalities. The United States certainly can, or so I shall argue.
It is wise, however, to begin by acknowledging the depth of democracy’s current challenge. The postwar liberal democratic bargain rested on the premise that elected governments could manage market economies to deliver broadly shared prosperity. The bargain that held for the first three decades after World War II weakened during the next three as the standard formula for success—growth, private and public investment, innovation, an educated and trained work force—lost much of its efficacy. During the 1920s and 1930s, the failure of market economies and democratic political institutions boosted the credibility of totalitarian governance and central planning. Today, the Great Recession having eroded the “Washington consensus,” Chinese-style authoritarian state capitalism (sometimes jokingly called “market-Leninism”) is becoming a more credible option for developing countries.
But—to pile complexity on complexity—it has taken more than globalization, technological change, and widening inequality to undermine the postwar bargain. Another process has been at work as well: When market economies interact with democratic politics, public demands can slow growth in the name of other goods. For example, innovation is almost always disruptive, and people seek protection against the insecurity it creates. What begins as a safeguard against the downside of innovation can end up impeding innovation itself. Rigid rules requiring employers to retain workers they no longer need may discourage them from hiring at all, forcing new entrants into the labor force to bear the brunt of change. This is one reason why unemployment among young adults is so high in many European countries. Germany, which reformed its labor market early in the twenty-first century, stands out as an exception. Emmanuel Macron won the French presidency with a pledge to reform France’s labor laws, among the most restrictive in Europe.
Resistance to innovation is hardly confined to incumbent workers. Existing companies, even whole industries, fiercely resist innovative competitors who threaten to disrupt established business models, and they do not hesitate to use their relationships with regulators and elected officials to strangle innovation in its cradle.
Social insurance is another source of security in market economies. During the past century, liberal democracies have created programs to provide income supplements during periods of unemployment, ensure an income stream during retirement, and protect against the economic consequences of illness. But in aging societies, the funding required for these programs can come at the cost of public investments needed for long-term economic growth—that is, unless governments are willing to raise taxes or tolerate higher budget deficits.
Even when public spending is robust, high levels of private consumption are needed to maintain economic vitality. Few individuals resist this. And why should they? Consumption yields convenience and pleasure. This generates another tension: The desire for a comfortable life is one of the forces suppressing birthrates in developed market economies. And when population size stagnates, growth slows.
In the mostly rural societies of the eighteenth and early nineteenth centuries, children were net economic assets. While still very young, they could work the land alongside their parents, contributing to household income. Today, children are expensive, and few adolescents can make significant economic contributions to their families, even when they are legally able to work. In the space of two centuries, child rearing has changed from a private good to a public good: While it benefits society as a whole from a strictly economic standpoint, the parents bear most of the burden, the emotional rewards aside. Absent substantially increased public subsidies, fewer adults will choose to bear children, and those who do will bear fewer.
The challenge facing modern democracies is to establish a workable balance among past, present, and future. We must do our best to honor the promises we have made, whether to those who purchase public debt or those who rely on established programs for security in old age. We must provide enough buffers against economic shocks so that public discontent does not spill over into social disorder. But we must ensure that enough remains to make the investments and implement the innovations without which the future will be worse than the present. Doing this while strengthening the middle class and expanding opportunity for the working class will require the wealthy to bear more of the burden of funding social insurance programs.
Investing in the future is a tough sell in democratic politics. Leaders who promise short-term gains usually enjoy an advantage over those who urge deferred consumption in the name of future improvement. But at the end of this road lies Venezuela’s wrecked economy and bitterly divided society.
The preamble to the US Constitution declares that a fundamental purpose of the union is to secure the blessings of liberty for our posterity, not just ourselves. Edmund Burke famously defines society as a partnership “not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”1 It is hard to believe that policies reflecting this premise will be accepted unless democratic publics feel some connection to posterity. “In the long run we are all dead” is an understandable quip for a man who lived and died childless. But for society as a whole, it is a formula for slow-motion suicide.