Democratic Capitalism at the Crossroads: Technological Change and the Future of Politics

Politics in democratic countries is today in a state of turmoil. Trust in national institutions has reached a historical low. In advanced industrial economies, slightly over one in three people express confidence in their governments. Only twenty percent of Americans think that politicians care about their opinions—a number sharply down from almost four in five in the late 1950s. In France, Germany, and the United Kingdom, the proportion is even lower, at around ten to fifteen percent. Such a wave of disaffection has, in turn, given way to growing disengagement from traditional party politics. In Western Europe, electoral abstention has doubled since the 1970s, mainly among the youngest cohorts. Among those electors who vote, close to one-quarter are casting their ballots for far-right and far-left parties. Populist and nationalist alliances now govern a handful of European countries. And, in a context of increasingly polarized politics, in 2016 close to half of American voters elected a president intent on challenging, if not overturning, the very liberal democratic order of global cooperation and open economies that the United States designed and built after World War Two.

Not coincidentally, those political trends follow a set of momentous economic transformations across the world. Since the 1980s, the invention of the personal computer and, more generally, of modern information and communication technologies—as well as the globalization of trade and the offshoring of production, which have been fostered by those technological advances—have reshaped both the workplace and the overall structure of the labor market, intensifying the demand for highly educated individuals in the advanced world and the employment of manufacturing workers in emerging economies while reducing the number of blue-collar and white-collar jobs in North America and Europe. Salaries have behaved likewise. Over the two decades preceding the last Great Recession of 2007, the (household) per capita income of the richest ten percent in advanced economies rose more than sixty percent in real terms (that is, once we take into account changes in prices). The urban and rural middle strata of China and Southeast Asia saw their income grow by almost eighty percent in the same period. By contrast, the income of the bottom half of the income distribution in countries like Germany, Japan, and the United States has remained flat for close to four decades.

There is nothing to indicate that those economic transformations or the political turbulence that accompanies them will stop in the near future. If anything, the pace of technological and employment change may accelerate in the next few decades. According to some recent estimates, almost half of all current jobs may end up being automatized in the next twenty to thirty years. Most of that substitution by computer algorithms and robots will first affect the least qualified individuals. But it may not be limited to them, hitting, at some point in time, relatively creative, nonroutine jobs that today still appear hard to robotize.

Unsurprisingly, the extent and consequences of automation have become the object of a heated debate in the academic and political arenas. Technological pessimists foresee a brave new world where, once artificial intelligence makes its final breakthrough into the so-called “singularity moment,” workers will become completely redundant or will draw, at most, a meager salary. Sitting at the top of a mass of unemployed and underemployed individuals, there will be a small creative class—a thin layer of inventors, top managers, and highly educated professionals—enjoying the benefits of automation and globalization. The system of democratic capitalism that has so far prevailed in the advanced world will crumble under the weight of so much economic inequality. Policy makers will not be able to reconcile free markets with representative elections and deliver both economic growth and a generous welfare state in the way they did during the better part of the twentieth century. The new technologies of information and communication invented in Silicon Valley will take us back to the contentious politics of nineteenth-century capitalism, finally vindicating Karl Marx, who, more than 150 years ago, predicted the eventual substitution of machines for workers, the immiserization of the masses, and the collapse of capitalism at the hands of a horde of angry men, armed with pitchforks and torches, marching down on the wealthy few—now huddled in their Manhattan and Bay Area mansions.

On the other side of the aisle, technological optimists concede that automation will disrupt the labor market and hurt the wages of the least educated, alienating them from politics and elections. Yet, they contend, those costs will be temporary—the transitory pangs associated with the birth of any new technological and social order. In due time, an overabundant economy will free the great majority or even all of us from both the bondages of work and ruthless interpersonal competition, and allow humankind to hunt in the morning, fish in the afternoon, and read poetry after dinner.

In this book, I take a different approach. The consequences of today’s technological changes, I will claim, are not set in stone. They will work their way into the economy through their direct (although, at this point, still uncertain) impact on the demand for different types of labor and on the cost and ownership of capital. Yet they will also depend on the institutional and political strategies we follow in response to those technological transformations. During the last two hundred years, in their quest for profits and wealth, the entrepreneurs and industrial captains of modern capitalism have always pushed for the rationalization and automation of production. That “process of industrial mutation”, to employ Schumpeter’s renowned words, “incessantly revolutionize[d] the economic structure from within, incessantly destroying the old one, incessantly creating a new one”—modifying the relationship between capital and labor, the patterns of employment, and the distribution of income over time (Schumpeter 1950, 83). In doing so, it periodically generated a (changing) number of critical political challenges that were then met with a particular set of policy responses.

The same logic applies to today’s technological innovations. Because they have already heightened economic inequality and may result in an even more extensive robotization of substantial numbers of (low- and semiskilled) jobs, they could put an end to the broad social consensus around democracy and capitalism that prevailed during most of the twentieth century—particularly in the advanced world. That does not necessarily mean, however, that they will—and that they will make us travel back in time to the nineteenth century, when the industrial capitalism invented in Manchester and its cotton factories turned out to be incompatible with the construction of fully democratic institutions. The reason is simple. The growing economic and political tensions we are witnessing today are happening in very affluent societies: their average per capita incomes are more than ten times higher than at the beginning of the first Industrial Revolution. So much wealth, jointly with the presence of stable democratic institutions and relatively well structured bureaucracies, should give us much more maneuvering room than any generations before us ever had to respond to the technological and economic challenges of today. Therefore, the task ahead of us is to think about how to harness those economic and institutional assets to the advantage of the many.

With that goal in mind, we should understand, first, how technology has shaped capitalism and, second, when and how the latter has coexisted, sometimes in a delicate, uneasy balance, with democracy. I explain this, necessarily in a sketchy manner, in this introduction by describing how modern capitalism has evolved in terms of its structure of production (i.e., the level of automation and the role of labor) and its relationship to politics—from the first Industrial Revolution born in Manchester through the twentieth-century capitalism invented in Detroit’s assembly plants up to the new information era that emerged in Silicon Valley. In the rest of the book, I develop that argument more extensively, mainly focusing on the nature of twentieth-century democratic capitalism and, above all, on the challenges and opportunities brought about by today’s technological revolution.