Daron Acemoglu and the failure of democracies

The political crisis plaguing France is just one case among many others. Daron Acemoglu, who teaches economics at the Massachusetts Institute of Technology, has worked for years on how democracies and authoritarian regimes work. In a recent article published by Project Syndicate“If Democracy Isn’t Pro-Worker, It Will Die”, he applies his results to the rise of extremes all over the world. His diagnosis: the successive parties in government have not produced the promised results. Democracy was supposed to ensure shared prosperity: abundant jobs, a high level of economic stability, and high-quality public goods. Since the 1980s, this promise has been betrayed.

Economic growth has been weak, inequality persists or is increasing, and the 2008 financial crisis gave the impression that governments care more about banks than their voters. This diagnosis is not new but the detailed explanation provided by Acemoglu is worth listening to.

More and more citizens no longer trust democratic institutions. Often, according to him, it is because governments are passive in the face of ongoing developments, or fearful when it comes to implementing the necessary reforms. When they do it, like Macron with pensions, they are not capable of convincing citizens of the merits of their action. They give the impression of not understanding the deep needs felt by the population. In this context, the multiplication of threats, real or perceived, such as climate change, epidemics, mass immigration, robotization and AI, and the risks of war, open the way to a polarization of opinion public, nourished by the development of social networks which create ideological sounding boards.

Acemoglu cites immigration as a textbook case. The rise in immigration is profoundly disrupting the perceptions of a growing portion of the population, whether from an economic or cultural point of view. Politicians were slow to realize this, opening the way to power for formerly tiny extreme parties, such as in France, Italy, the Netherlands and Sweden.

Another part of Acemoglu’s work focused on comparing the economic performance of democracies and autocracies. Its results are clear: autocracies are generally ill-equipped to meet the needs of their populations and to ensure long-term economic growth. China is no exception. It is good to remember that at the start of the reforms put in place by Deng Xiaoping, it was a particularly poor country with a very backward economy, but whose population was relatively well educated. It was ideally situated to grow by liberalizing, integrating into the global economy, and adopting existing technologies. As the gap with advanced countries has narrowed, the benefit of this catch-up has been exhausted and the economic costs of autocratic rule have become more apparent. The Chinese economy is losing steam very early in the catching-up process, while China’s per capita income is still only a third of that of the United States. Japan and South Korea did much better.

Nothing condemns democracies to be permanently polarized and to remain under the threat of extreme political parties whose only attraction is the rejection of parties which, for decades, have been humming in the face of the changes that are occurring. Certainly, it is more difficult to change course in a democracy than under a regime where a single person makes important decisions. Acemoglu calls on democracies to stop relying on disconnected political staff and a bureaucracy that produces sophisticated technocrats locked in intangible certainties. The change he calls for consists of stopping producing policies whose goal, often unacknowledged, is to serve the desires of elites and businesses. In other words, it is about recognizing that citizens have good reasons to feel ignored, even despised. They may misdiagnose and allow themselves to be seduced by populists, because they have lost confidence. The real question is whether the elites will be able to get their act together in time, Acemoglu concludes. His analysis suggests some observations that seem relevant for France, but not only.

Extremists on both the left and the right denounce globalization. They ignore the extent to which globalization has reduced poverty in the world, they forget the extent to which it has allowed us to access cheap and diversified products and services. What many people perceive is different. They see business closures, the downgrading of many professions and the rapid obsolescence of their personal skills. Extremists play on these perceptions when they propose deglobalization, a simplistic solution destined to fail. The right answer is controlled globalization, which is not a source of inequalities.

The profits of multinational corporations and the obscene incomes of their executives may not be as great as they seem, but they are very visible and incomprehensible to ordinary people. Taxation is designed to put an end to these abuses without really harming globalization, but it is underused because the political power of those who benefit from these advantages is immense. However, progress is being made, such as the international agreement on corporate taxation, nearing adoption, which should serve to forge another agreement on the taxation of wealth, which is beginning to be discussed. It is also about compensating the losers of globalization, not by paying them unemployment benefits but by offering them substantial compensation to enable them to turn around without going through unemployment or downgrading. The revenue from new taxes should be used entirely to finance this compensation.

Immigration is another particularly sensitive subject. There is no point in invoking moral justifications to lecture those who suffer, or believe they are suffering, the consequences. We remember the outing of Michel Rocard who said: “we cannot accommodate all the misery in the world”. That this formula has been criticized by the elites who want to be humanists and for whom the debate is still not settled! The success of the far right has been decided.

The left in power in Denmark has implemented a policy that does not displease its extreme right. Treason ? This is an example that perfectly illustrates the elites’ incomprehension of citizens. Even if xenophobia is partly hidden behind realism, even if we can explain mass immigration by the demographic drop, and even if immigration creates more income than it costs, these justifications are not accepted by those who consider themselves, rightly or wrongly, to be victims. We can try to convince them that they are wrong, but if we fail, in a democracy we must recognize these anxieties and respond to them in a tangible way. The success of the far right is based, at least in part, on the impression that elites do not really take these anxieties seriously.

Behind all this, it is the question of inequalities that is emerging. For several decades, we have thought of this question in terms of income. The paradox is that France is one of the rare countries where income inequalities have been contained, or even reduced, but it is also in France that left and right extremists have become the majority. The issue of inequality is much broader. Among other things, it includes access to housing, the quality of education, social mobility, authority relations at work and… listening to those in power and public services.

The political crisis of democracies is not a questioning of the economic system as the far left claims, nor a plea for nationalism as the far right claims. It reflects at best a loss of reference points by those in power and, at worst, a domination of the particular interests of elites (politicians, businesses, technocracy, unions of all kinds). For democracy to regain the confidence of citizens, it must benefit the majority of the population and be more egalitarian in the broadest sense and, to do this, demonstrate that it understands fears as they are perceived, even if these perceptions are not confirmed by the subtle analyzes which inform the elites.