New Challenges To Market Democracies

New Challenges To Market Democracies Intelligenthq

Over the past couple of decades it has become clear that a new epoch is emerging. After World War 2, a number of practical solutions were put in place to help both Europe and Japan bounce back. There is a sense the policies and institutions set in place to do this are now in decline. Society has also changed. In many developed countries, but particularly in Japan there are major concerns about the aging population. There has also been a global economic recession that led people to question how the market should operate. This has led market democracies to feel unsteady about what is in store for them.

William A. Galston (2014) of the Brookings Institution argues that :

“We have known since Aristotle that stable constitutional democracy rests on a large, self-confident middle class in an economic order not riven by extremes of wealth and poverty.”

Indeed social and economic policy has been set up to support this, he opines. He explains that after World War 2 this idea of liberal democracy where people progress and reap the rewards of their work pervaded for many years. However, it is explained that this is now changing.

Challengers to these market economies are seen by Galston to come from both outside and inside these economies. Outside market democracies, he argues, those in rising economies such as China, India, Russia and Brazil (the so-called BRIC nations) have created competition that leads to difficulties in more established economies to be able to sustain their own growth. From within the system the rules and “social guarantees” that have been put in place to protect people, such as those making it hard to sack workers have had the unfortunate effect of leading to difficulties for the younger people in these populations to find jobs. For example, Galston argues that among the young unemployment is more than 50% in Greece and Spain. This is a threat to the established order, because young people that do not have jobs, particularly those that are well educated, are known to be “a classic source of instability.” At the same time, even those that live in countries that have fared better, such as the USA, have found that their wages have only just kept up with inflation, leaving them worse off than before the recession. Things look bleak for the children of today.

Employment versus Education

Galston explains that the challenge of overseas competition has led to cheaper goods from elsewhere, produced using low cost workers. This led to US companies having to reduce costs, and so they looked for production overseas. They also invested in technology to increase efficiency. One of the consequences of the changes is that jobs that need mid-level skills and offer an equivalent middle of the road level of payment have become fewer and further between.  Erik Brynjolfsson, a scholar and economist that has studied the effects on technology in society alerts us for the fact that technological progress will definitely leave behind a lot of people, as it develops.  As he says:

“There’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to
offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.”

Maybe we can see the effects of these on the stagnating wages, meanwhile, those at the top found their salaries escalating much faster than the rate of inflation. These people have “unimaginable wealth” while the rest find it harder to keep their heads above water.

What has emerged from these changes is that a good education and training is no longer a sign that a person will necessarily have a rising standard of living. This means that the middle class that is so desperately needed to hold a market democracy together, may struggle to rebound. Galston points out that some of these issues can be resolved by tax, which is the same solution given by Thomas Piketty, a french scholar that published recently a major work of scholarship that investigates the reasons of inequality. For Galston, the tax code could be used to redress the balance between wage increases and productivity gains. Additionally, to deal with the problem of those accruing obscene amounts of wealth, tax could be used to curb this, or at least not to give these people even further preferential treatment than they already have.

The main argument of Galston´s article is that a combination of globalisation, technology and the extreme wealthy has done much to erode the very foundation of market democracies. It is clear to many that a new paradigm is needed to drive prosperity and progress for those that have been struggling, through taking steps to strengthen the middle class among others. We have a choice – to strive for widely shared prosperity or to carry on letting living standards decline in market democracies. It remains to be seen which path will be taken. Part of that path, will necessarily have to be a new way to “make business”.