Political Order and Political Decay (72 page)

THE FUTURE OF DEMOCRACY

The existence of a broad middle class is neither a sufficient nor a necessary condition to bring about liberal democracy. But it is extremely helpful in sustaining it. Karl Marx's Communist utopia did not materialize in the developed world because his global proletariat turned into a global middle class. In the developing world, new middle classes have enhanced democracy in Indonesia, Turkey, and Brazil, and promise to upset the authoritarian order in China. But what happens to liberal democracy if the middle class reverses course and starts to shrink?

There is unfortunately a lot of evidence that this process may have begun to unfold in the developed world, where income inequality has increased massively since the 1980s. This is most notable in the United States, where the top 1 percent of families took home 9 percent of GDP in 1970 and 23.5 percent in 2007. The fact that so much of the economic growth in this period went to a relatively small number of people at the top of the distribution is the flip side of the phenomenon of the stagnation of middle-class incomes since the 1970s.
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In the United States and other countries, this stagnation was hidden from view by other factors. The same period saw the entry of large numbers of women into the workforce, increasing household income at the same time that many middle-class men found their paychecks getting smaller in real terms. In addition, politicians across the world saw cheap, subsidized credit as an acceptable substitute for outright income redistribution, leading to government-backed housing booms. The financial crisis of 2008–2009 was one consequence of this trend.
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There are a number of sources of this growing inequality, only some of which are subject to control through public policies. One villain most commonly cited is globalization—the fact that lower transportation and communications costs have effectively added hundreds of millions of low-skill workers to the global labor market, driving down wages for comparable skills in developed countries.

With rising labor costs in China and other emerging-market countries, a certain amount of manufacturing has started to return to the United States and other developed countries. But this has happened in part only because labor costs as a proportion of total manufacturing costs have gotten much smaller due to increases in automation. This means that renewed onshore production will not be likely to replace the huge numbers of middle-class jobs that were lost in the initial process of deindustrialization.

This points to the much more important long-term factor of technological advance, which in a sense is the underlying facilitator of globalization. There has been a constant substitution of technology for human labor over the decades, which in the nineteenth and early twentieth centuries brought huge benefits not just to elites but also to the broad mass of people in industrializing countries. The major technological innovations of this period created large numbers of jobs for low-skill workers in a succession of industries—coal and steel, chemicals, manufacturing, and construction. The Luddites, who opposed technological change, proved very wrong, insofar as new, higher-paying opportunities for work opened up to replace the ones they lost. Henry Ford's invention of the assembly line for producing automobiles in his Highland Park, Michigan, facility actually lowered the average skill levels required to build an automobile, breaking apart the complex operations of the earlier carriage craft industry into simple, repeatable steps that a person with a fifth-grade education could accomplish. This was the economic order that supported the rise of a broad middle class and the democratic politics that rested on it.

The more recent advances in information and communications technology have had very different social effects, however. Automation has eliminated a large number of low-skill assembly-line jobs, and with each passing year smart machines move up the skill ladder to take away more occupations formerly performed by middle-class workers.
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Indeed, it is impossible to separate technology from globalization: without high-speed broadband communications and falling transportation costs, it would not be possible to outsource customer support and back-office operations from the United States and Europe to India and the Philippines, or to produce iPhones in Shenzhen. The lower-skill jobs that are being destroyed in this process are being replaced, as in earlier periods, by newer, higher-paying ones. But the skill requirements, and the numbers of such jobs, are very different from Henry Ford's time.

There has always been inequality as a result of natural differences in talent and character. But today's technological world vastly magnifies those differences. In a nineteenth-century agrarian society, people with strong math skills didn't have many opportunities to capitalize on their talent. Today, they can become financial wizards, geneticists, or software engineers, and take home ever-larger proportions of national wealth.

In addition, modern technology has created what Robert Frank and Philip Cook call a “winner-take-all” society, in which a disproportionate and growing share of income is taken home by the very top members of any field, whether CEOs, doctors, academics, musicians, entertainers, or athletes. In the days when the markets for such skills and services were localized due to the high costs of communications and transportation, there were plenty of openings for people farther down the hierarchy because mass audiences did not have access to the best of the best. But today, anyone can attend a performance by the Metropolitan Opera or the Royal Ballet live on a high-definition screen, which many would watch in preference to a third- or fourth-tier local company.
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MALTHUS REVISITED

Thomas Malthus's
Essay on the Principle of Population
had the bad luck to be published in 1798, on the eve of the Industrial Revolution, just as a technological tsunami was gathering force. His prediction that human population growth would outstrip increases in productivity proved very wrong in the two centuries that followed, and human societies succeeded in enriching themselves on a per capita basis to a historically unprecedented degree. Malthusian economics has ever since been derided, along with the Luddites, as backward looking and ignorant of the nature of modern technology.
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However, Malthus did not specify the time period over which population growth would outstrip productivity. The developed world has been on a high-productivity trajectory for only a little over two hundred of the fifty thousand or so years that the human species has existed in its current form. We assume today that revolutionary new technologies equivalent to steam power and the internal combustion engine will continue to appear into the future. But the laws of physics do not guarantee such a result. It is entirely possible that the first 150 years of the Industrial Revolution captured what Tyler Cowen calls the “low-hanging fruit” of productivity advance, and that while future innovations will continue, the rate at which they improve human welfare will fall. Indeed, a number of laws of physics suggest that there might be hard limits on the carrying capacity of the planet to sustain growing populations at high standards of living.

Moreover, even if technological innovation continues to occur at a high rate, there is no guarantee that it will provide large numbers of jobs for middle-class people in the manner of the early-twentieth-century assembly line. The new employment and rewards go to the creators of the machines and those who figure out how to employ them, who are almost always better educated than those whose jobs are lost.

Indeed, many foreseeable future innovations will actually make the productivity situation worse because they are in the area of biomedicine. Many economists and politicians assume that any new technology that extends human life spans or cures disease is an unqualifiedly good thing. And it is true that the longer life spans that citizens of developed countries have come to enjoy have been of economic benefit. But many biomedical technologies have succeeded in extending life spans at the expense of quality of life and sharply increased dependency on caregivers. In all developed countries, the costs of end-of-life care have accelerated faster than the overall rate of economic growth, and they are on their way to becoming the single largest component of government spending. Death and generational turnover are classic cases of outcomes that are bad for individuals but good for society as a whole. There are many reasons to think that societies will be worse off in the aggregate if life spans are extended another ten or twenty years on average, beginning with the fact that generational turnover is critical to social change and adaptation, both of which will occur at a slower pace as average life expectancies increase.
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There is no way of predicting the nature of future technological change—either its overall rate, its effects on middle-class employment, or its other social consequences. However, if technological change fails to produce broadly shared economic benefits, or if its overall rate slows, modern societies risk being cast back into a Malthusian world that will have big implications for the viability of democracy. In a shared-growth world, the inevitable inequalities that accompany capitalism are politically tolerable because everyone is ultimately benefiting. In a Malthusian world, individuals are in a zero-sum relationship—one person's gain inevitably means another person's loss. Under these circumstances, predation becomes as viable a strategy for self-enrichment as investment in productive economic activities—the situation that human societies were in for most of their history prior to the Industrial Revolution.

ADJUSTMENT

In
The Great Transformation
, Karl Polanyi argued that there was a “double movement” in which capitalist economies continually produced disruptive change and societies struggled to adjust to that change. Governments frequently had to be involved in the adjustment process since private markets and individuals on their own could not always cope with the consequences of technological change.
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Public policy must therefore be factored into the fate of middle-class societies.

Across the developed world, there has been a range of responses to the challenges of globalization and technological change. At one end of the spectrum are the United States and Britain, where governments provided minimal adjustment help to communities facing deindustrialization beyond short-term unemployment insurance. Indeed, both public authorities and pundits in academia and journalism have often embraced the shift to a postindustrial world. Public policy supported deregulation and privatization at home and pushed for free trade and open investment abroad. Particularly in the United States, politicians intervened to weaken the power of trade unions and to otherwise increase the flexibility of labor markets. Individuals were advised to embrace disruptive change and were told that they would find better opportunities as knowledge workers doing creative and interesting things in the new economy.

France and Italy stood at the other end of this spectrum, seeking to protect middle-class jobs by imposing onerous rules on companies attempting to lay off workers. By not recognizing the need for adjustment in work rules and labor conditions, they stopped job loss in the short run while losing competitiveness to other countries in the long run. Like the United States, they tend to have highly adversarial management-labor relations, but while the owners of capital usually come out on top in the Anglo-Saxon world, labor has done much better protecting its privileges in Latin Europe.

The countries that came through the 2008–2009 crisis the most successfully were those like Germany and the Scandinavian nations that steered a middle course between the laissez-faire approach of the United States and Britain, and the rigid regulatory systems of France and Italy. Their corporatist labor-management systems have created sufficient trust that unions were willing to grant companies more flexibility in layoffs, in return for higher benefits and job retraining.

The future of democracy in developed countries will depend on their ability to deal with the problem of a disappearing middle class. In the wake of the financial crisis there has been a rise of new populist groups from the Tea Party in the United States to various anti-EU, anti-immigrant parties in Europe. What unites all of them is the belief that elites in their countries have betrayed them. And in many ways they are correct: the elites who set the intellectual and cultural climate in the developed world have been largely buffered from the effects of middle-class decline. There has been a vacuum in new approaches to the problem, approaches that don't involve simply returning to the welfare state solutions of the past.

The proper approach to the problem of middle-class decline is not necessarily the present German system or any other specific set of measures. The only real long-term solution would be an educational system that succeeded in pushing the vast majority of citizens into higher levels of education and skills. The ability to help citizens flexibly adjust to the changing conditions of work requires state and private institutions that are similarly flexible. Yet one of the characteristics of modern developed democracies is that they have accumulated many rigidities over time that make institutional adaptation increasingly difficult. In fact, all political systems—past and present—are liable to decay. The fact that a system once was a successful and stable liberal democracy does not mean that it will remain one in perpetuity.

It is to the problem of political decay that we will turn in the final part of this book.

 

PART FOUR

Political Decay

 

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POLITICAL DECAY

How the U.S. Forest Service's mission came to center on fighting wildfires; the failure of scientific management; how the Forest Service lost autonomy due to conflicting mandates; what political decay is, and its two sources