Balancing Act

Balancing Act

If two recent analyses of populism agree on one thing, it’s that democracy and capitalism have fallen out of balance. Less clear is how—or whether—the truce between them should be restored.

Trump supporters at a rally in Nashville, Tennessee, May 29, 2018 (Drew Angerer / Getty Images)

Can Democracy Survive Global Capitalism?
by Robert Kuttner
W. Norton & Company, 2018, 384 pp.

The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era
by Barry Eichengreen
Oxford University Press, 2018, 260 pp.


Panic about the crisis of democracy—Trump, Brexit, and the rise of authoritarian leaders in Turkey, Russia, and Eastern Europe—is everywhere. The study of populism has become a cottage industry. Illiberal democracy positions itself as the alternative to undemocratic liberalism. But what is it that is forcing that juxtaposition to a head at this current moment? The technocratic imperatives of complex modern societies stand in the way of the unmediated realization of the people’s will. Courts and central banks bind legislatures and presidents. In a complex, multipolar world, committing oneself to an international treaty, any treaty, means limiting popular sovereignty. But why is it that those limitations are articulated in the language of liberalism? In the end what is at stake here, at the heart of the liberal rights regime, is the system of accumulation based on private property. In other words, the problem—the original and primary wedge driven between democracy and liberalism—is capitalism.

Nevertheless, as Jedediah Purdy has pointed out in these pages, much of the current discussion around the crisis of democracy avoids this conclusion. It instead talks blandly of globalization. Or it proffers quick fixes for inequality and exclusion without examining the mechanisms that systematically generate both. So it is refreshing to find two analysts—Barry Eichengreen, a distinguished economic historian, and Robert Kuttner, a leading public intellectual of the American left—who do not flinch from the seriousness of the challenge.

Kuttner and Eichengreen have in common the influence of the heterodox economist and anthropologist Karl Polanyi. They both draw from him the idea that markets are not natural phenomena but historically constructed. They agree that making democracy and capitalism work together is a matter of taming markets. For both, the crises of the mid-twentieth century are a key reference point, as they were for Polanyi. Societies then were much less affluent than they are today. In the United States, in purchasing power parity terms, GDP per capita was roughly one-fifth what it is today. Class conflict was intense and the Great Depression seemed to pose an existential threat. In much of Europe, the result was dictatorship. But several democracies, notably New Deal America and in Scandinavia, creatively repurposed the state for interventionist management of the economy. In the aftermath of the Second World War, those experiments would be subsumed into a wider current of welfarism. For Kuttner and Eichengreen, that trans-war moment still stands as an example of a “healthy” balance between democracy and capitalism. It was a period in which organized labor was strong. The state and politicians were not afraid to levy taxes or restrict the movement of capital.

What is striking, however, is how broad the Polanyian church is. Eichengreen writes from the perspective of the enlightened centrist manager. He is an unapologetic market liberal. He believes in the basic logic of free trade. For him “populism” whether from the left or the right is the problem. He does not linger over definitions. He knows a “populist” when he sees one, be it Trump, Hitler, William Jennings Bryan or, perhaps, the German Social Democrats of the nineteenth century. In each case it is the response of elites to economic pressures that determines how serious the challenge from the margins becomes.

Kuttner, by contrast, is an advocate of a populism that is left-wing, bent on radical social reform but also, unapologetically national and, if necessary, protectionist. Indeed, a substantial part of his book is taken up with a polemic against free trade, familiar, for instance from the Harvard economist Dani Rodrik. Kuttner is skeptical of the benefits of NAFTA for anyone but American big business. There is little doubt that globalization has tilted the balance against labor. The question is how significant the effect has been, and whether it explains the huge surge in inequality that has characterized recent decades, particularly in the United States. For Kuttner, in any case, politics is both the problem, when it promotes uninhibited globalization, and the answer, when it is mobilized in defense of the popular interest.

This is not the only issue over which Eichengreen and Kuttner differ. No less fundamental is how they conceive of the relationship between politics and economics. What is striking in Eichengreen’s work is how his vision narrows when it comes to political economy. What Eichengreen analyzes are national distributional struggles framed by international economics. He takes us through the interest group battles one country at a time. Liberal Britain of the nineteenth century, Bismarck’s newly unified Germany, recently unified Italy, and the post-bellum United States are each treated as separate entities to be compared. The result is a history that highlights interesting differences. Liberals in Britain, Eichengreen argues, introduced social welfare to buy off opposition to free trade. By contrast, Bismarckian Germany used social insurance to contain a far more fundamental threat from the rising Social Democratic movement. Meanwhile, in the United States, national welfare systems struggled to escape the gridlock of states’ rights enshrined in the eighteenth-century constitution.

The result is illuminating up to a point. But, like much comparative analysis, it reinforces rather than questions national stereotypes. If you start by asking why Germany got the Bismarckian welfare state before Britain, you will tend to conclude that a “tradition of a strong state” shaped the German trajectory. The answer to your question is, in a sense, baked in. You will miss the fact that in other respects, for instance, with regard to central banking or public finance, Imperial Germany lacked powerful central institutions. It was in that respect far more like a “weak state,” like the nineteenth-century United States. Neither Wilhelmine Germany nor Gilded-Age America had a counterpart to the Bank of England, a national institution with global reach, which more than any others were responsible for setting the terms for the first age of globalization before 1914.

To analyze crises of democracy one case at a time is to miss the logic of the international power structure. It is not by accident that the current liberal panic accelerated with Trump’s victory. The derailment of American democracy will have far more serious implications than those that preceded it in Turkey and Hungary. Erdoğan, Orbán, and Putin all invoke nationalist sentiment by positioning themselves as embattled champions of national autonomy against an international system orchestrated by “the West.” In each case this is not, after all, an entirely unreasonable view of their circumstances. Not the least remarkable feature of Trump’s hallucinogenic politics is that he has managed to cultivate small-country resentments at the heart of world power.

To understand the current crisis, we need to grasp the couplet of democracy and capitalism at a national level but also the wider system within which they exist. This is what sets Kuttner’s analysis apart from Eichengreen’s. If you want a fast-paced historical survey of the tension between national democracy and global capitalism in Europe and the United States since the late nineteenth century, it is Kuttner you should read. Kuttner shows how cross-border flows of people, money, and goods, orchestrated from the centers of the global economy, first the United Kingdom and then the United States, structure the options available at the national level.

His analysis of the way in which transatlantic finance has operated since the 1960s to unhinge financial regulation on both sides of the Atlantic is particularly excellent. The so-called Eurodollar markets of the City of London provided American and global capital with an outlet from the exchange and capital controls of Bretton Woods. Unfettered financial engineering in London set the standard for deregulation in New York, with the same banks lobbying on both sides of the Atlantic. National efforts at regulation were undercut by a concerted competitive race to the bottom.

But Kuttner rightly insists, it is wrong to blame the evisceration of national regulation on international commerce alone. Ultimately, it is a matter of national political choice to allow or to limit those flows. And the country with the most decisive role in setting the terms is the United States. As Jedediah Purdy pointed out recently in Dissent, many discussions of democracy’s vicissitudes are American-centric. In Kuttner’s case, this is not out of bad intellectual habit, but because global capitalism in the twentieth century has been American-centric. What, though, is the implication of this insight?

When viewed in comparative terms, as Eichengreen proposes, the New Deal loses much of its drama. It was one of a repertoire of fixes for the Great Depression, an important one no doubt, but also one that was fundamentally limited. Eichengreen’s question is why American reform in the 1930s did not go further and how those limitations constrain policy options all the way down to the present, most importantly, over healthcare. In part, this has to do with structures of the United States’ political economy, the entrenched interests of big business, and the resistance of the conservative South. But for Eichengreen, the limits of the New Deal also reflect the limits of FDR’s ambition. He was at best a highly pragmatic centrist manager.

For Kuttner, the New Deal was far more than this. Precisely because Kuttner emphasizes the contingent element of political choice in history and refuses structural determination, he gives a heightened significance to the moments when the progressive stars align. The New Deal was such a moment. And precisely due to the uneven hierarchy of international power, this mattered not just for the United States but for the entire free world. FDR’s America became democracy’s savior in military, financial, and political terms.

But when Kuttner continues this train of thought into the present, his argument becomes harder to sustain. If we still live in a global capitalist system and that system’s center is still the United States, and if what is needed to rebalance capitalism and democracy is a left-wing populist movement, then it follows for Kuttner that the historic mission of the American left must be not only to redress the balance at home, but to lead the world back to the kind of place in which the Marshall Plan left it in the late 1940s. As he puts it, “if a decent balance of market, society, and democracy does regain ground, the shift will almost have to begin in the United States, as in the 1930s and 1940s, and then once again spread outward.”

In his powerful critique of current laments about the decline of American democracy in n+1 earlier this year, Aziz Rana identified as a shared backdrop the assumptions of a Cold War ideology that reified commitment both to the “genius of America’s domestic institutions” and “the indispensability of its global role.” What Kuttner gives us is the New Deal version of that narrative of national destiny.

Obviously, American politics does continue to matter beyond its borders. But, it is not clear that Kuttner appreciates quite how tarnished the American brand has become and quite how far removed we are from the moment of the “New Deal for the world.” Patriotic reformist populism may be a logical formula for the American left. But is anyone outside the United States ever going to thrill to that kind of rhetoric again? It is clearly true that no important global solutions are possible without the United States. But the idea that it has an exemplary role to play seems bizarrely anachronistic. To most of the world it seems that far from offering a model, the United States needs to tackle some of the elementary questions of social and political organization it has signally failed to address. After Trump, anti-Americanism is even more likely to fuel progressive politics in the rest of the world than before. A new person in the White House will not change that.

The backdrop to Kuttner’s misjudgement of the present conjuncture is not just his nostalgia for the New Deal. It is also shaped by the way in which his systematic effort to follow the flow of power outward from the United States leads him to a flat and undifferentiated account of recent developments. Kuttner is right to be skeptical about the narcissism of “Social Europe” and its pretensions to offer a more civilized “third way.” Neoliberalism transformed Europe too. And neoliberalism spread not merely as a set of ideas and ideologies. Above all it was impelled by the force of capital mobility, driven outwards from the Wall Street–City of London nexus. And there were dramatic episodes of surrender by European social democracy in the face of that threat, most famously the retreat of Mitterrand’s reforming socialist administration in France in 1983.

But to conclude from this that the consequences for the welfare state on both sides of the Atlantic were fundamentally the same is simply out of kilter with reality. The shock of neoliberalism was common. But with regard to welfare and fiscal redistribution, the result has been to leave the United States and the members of the EU in fundamentally different places.

In the 1940s the limited development of welfare states did not yet distinguish the United States radically from its European counterparts. This enabled the New Deal to appear as a progressive model. By the 1970s, European welfare states were far more generous and comprehensive than anything created in the United States. In the years that followed, the dismantling that took place in Europe was less radical. And since the 1990s, the Europeans have been far more creative in extending new types of welfare provision, notably with regard to active labor market policy, parental rights, and childcare. The results are the spectacular differences in inequality trends visible in data compiled by economists like Thomas Piketty, Emmanuel Saez, Tony Atkinson, and others. With regard to rights to parental leave, the United States ranks among the least developed countries, not only in the wealthy club of the OECD, but in the entire world. Its failure to provide health insurance to a large part of its population is unique. As measured by the basic metric of life expectancy, Tennessee now ranks alongside Gaza and Mississippi is on a par with Libya. Far from there being any prospect of progressive leadership on the part of the United States, deep obstacles stand in the way even of the more modest ambition to provide the people of this country with the welfare and security currently taken for granted in other wealthy nations.

Kuttner’s flat account of global neoliberalism downplays the main structural causes of this deep divide between Europe and the United States. Here Eichengreen’s comparative approach provides a simple, one-word answer: race. The fundamental divide within American society over the color line and the legacy of slavery has structured the entire development of the American state, erecting the principal obstacle to comprehensive welfarism from the late nineteenth century down to the present day. This is not to say that Europe does not have issues of race, ethnicity, and religion. As Kuttner boldly announces: “The United States has always done a better job than Europe of integrating migrant populations.” This is a commonplace observation about the twentieth century. As far as the more recent past is concerned, however, this is debatable. And with regard to the long-running development of the American welfare state, it is irrelevant. What matters is not immigration, but slavery. The single biggest obstacle to a comprehensive American welfare state is the racial order bequeathed by slavery and the failure of Reconstruction. No single factor is more potent than the enduring identification between poverty, the black population, and welfare. The civil rights movement might have been a moment of overcoming, but it was a failure as a program of social and economic uplift, and the response from white officials of both parties since the 1970s—namely, the criminalization and incarceration of black men on an epic scale—has been crushing. Anti-black racism is of course pervasive in Europe. But there is simply no analogue anywhere else in the democratic world for the United States’ uninhibited escalation of state violence against black people in recent decades.

Despite these limitations, amidst the current panic about democracy, Eichengreen’s and Kuttner’s focus on political economy is refreshing. They clearly demonstrate that if we are to think about the crisis of democracy in relation to the development of capitalism, we cannot confine ourselves to the national level. Both Eichengreen and Kuttner, each in their own way, offers a capacious, transatlantic perspective. But reading them side by side highlights how difficult it is to combine the differentiation of the comparative approach, favored by Eichengreen, with an understanding of systemic interconnection and power, pursued by Kuttner.

This is the basic challenge of analyzing the democratic crisis under capitalism: to move beyond the national level, to squarely recognize the significance of the international power structure, whilst at the same time recognizing its necessarily uneven effects. This is truly complex. But if our predicament is as serious as the many prophets of crisis insist it is, then that analytical task can no longer be avoided.


Adam Tooze is Kathryn and Shelby Cullom Davis Professor of History at Columbia University, where he also directs the European Institute. He is author of Crashed: How a Decade of Financial Crises Changed the World (Viking, 2018).


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