In a climate of rising extremism, democratic capitalism must be seen to serve the people. It remains our best hope for humanity and against tyranny.
In a nutshell
- Political extremism threatens democratic capitalism from both sides
- Capitalism needs the oxygen of popular support to flourish
- The West must stand up to the alternatives advanced by China and Russia
There is an old political joke made by a self-described leftist class warrior who disliked centrists, preferring his own position on the political extremes. His joke, at the expense of those preferring not to identify with either the far left or far right, was that “people who stand in the middle of roads get run over.”
It brought a quick-witted retort: “the gutters were to be found on either side of that road.” Be that as it may, it has become more difficult to make the case for democracy and capitalism in a climate today that is defined by extremism, and in which the middle ground is sinking away.
The demos in democracy
Extremism prospers on grievance and exclusion: when people become alienated and no longer believe that the political classes connect with them or their lives. It thrives when democracy is hijacked by the former fringes; when its preoccupations range from critical race theory to gender identity, rather than mainstream challenges; when voices that demur are canceled or relegated; when populism, amplified by frenetic social media activism, takes the place of respectful debate; and when the self-absorbed are willing to paralyze legislatures instead of seeking solutions or consensus.
Politics and economics must be seen to serve the people, not the other way around. At the very center of “democracy” – and, therefore, of democratic capitalism – is the word “demos.” The term denoted the common people, the ordinary citizens, of an ancient Greek state. It was and is again in our times, meant to be viewed as a political entity.
Cicero agreed with Aristotle that democracy, rather than dictatorship, was the best basis for government, but added that governance of the people must be enriched with a mixture of other elements. Perhaps this was to guard against what, in the 19th century, Alexis de Tocqueville would describe as “tyranny of the majority,” arguing that rationality could become a casualty if government “bases its claim to rule upon numbers, not upon rightness or excellence.”
Democracy is buttressed not simply by numbers but by a commitment to natural rights, constitutional government under a higher law, and separation of powers – and, at its best, by shared beliefs in human dignity. The things that make it strong are despised as weak by dictators and authoritarians, from Chinese President Xi Jinping to Russian President Vladimir Putin. They loathe democracy because it rejects the empowerment of one man to rule over the people. When it works, democracy utilizes capitalism and economics in the service of the demos. When it fails to do so, the body politic turns to political extremes.
As for the alternative: totalitarian systems dehumanize people, as brilliantly portrayed in the dystopian Oceania of George Orwell’s “1984.” Today, fiction has become reality in many parts of the world.
Responsibilities beyond profits
For capitalism to flourish, it needs the heady and stimulating oxygen that democracy provides. When capitalism respects the intrinsic dignity of simply being human, the demos is an exciting place to be: one where all can flourish. If the captains of industry who give shape to democratic capitalism fail to recognize that they have responsibilities beyond their profit margins, the market becomes another weapon in the hands of extreme political elements – especially communists.
In 1973, the Conservative British Prime Minister Edward Heath coined the phrase “the unacceptable face of capitalism” to describe the excesses being committed by the British firm Lonrho, which violated the trust expected of major companies. If democratic capitalism is to prosper, it must hold its face to the mirror and reject practices that uphold neither human dignity nor the common good.
Lamentably, for example, too many institutions and corporations ignore the origins of dirty money or the use of slave labor in a place like Xinjiang province in China. The same is true of the use of child labor in mining cobalt and lithium in the Democratic Republic of the Congo (DRC), for use in our phones and computers. Or of the lives of millions of children working in brick kilns in Pakistan or tea plantations in India.
I say this because I passionately believe in the market and its power to change lives. The economist Ludwig von Mises was right when he insisted that the free market has removed more people from absolute poverty than any other system devised by men. Command economies – so beloved of the former European socialist dictatorships as well as those in Asia, like North Korea – did not, and will never, end the glaring anomalies between rich and poor.
The challenge for democratic capitalism is how to temper the market’s excesses; how to deal with selfish illiberalism; and how it interacts with governments to tackle glaring inequalities.
For example, one estimate of the 2022 profits of the five largest integrated private oil and gas companies – Chevron, ExxonMobil, Shell, BP and TotalEnergies – puts their combined total of $195 billion at nearly 120 percent of the previous year’s, making for the industry’s highest-ever figures. Should they (or we) be surprised that families caught in a cost-of-living crisis – one precipitated by Vladimir Putin’s war – are outraged that corporations are now seeing disproportionate profits?
This issue is hardly straightforward; unlike Russian or Iranian competitors, these companies pay taxes and are generally transparent. But the optics are not good, playing into the hands of political extremists. The challenge is how to end the irresponsible obscenities of greed and avarice; how to promote moral and ethical capitalism; and how to cultivate more human values that promote social solidarity, using the market to champion fairness and justice.
As they step from the platform onto the London underground train, passengers are told over the Tannoy to “mind the gap.” In places where socioeconomic gaps have been getting bigger, this is advice that governments and captains of industry need to take to heart. The widening gap between the destitute and the very wealthy risks social cohesion, as well as offending basic principles of justice, fairness and decency.
In the 19th century, the English artist and polymath John Ruskin declared that “above all, a nation cannot last as a money-making mob.” There was an echo of this in the 1940s when men like the economist John Maynard Keynes, the social reformer William Beveridge and William Temple, the Archbishop of Canterbury, warned against the dangers of running an economy that ignored the poor or unthinkingly widened the gap.
Keynes once admonished London financiers: “I would like to warn the gentlemen of the City and High Finance that if they do not listen in time to the voice of reason their days may be numbered.”
“I speak to this great city as Jonah spoke to Nineveh,” he continued. “I prophesy that unless they embrace wisdom in good time, the system upon which they live will work so very ill that they will be overwhelmed by irresistible things which they will hate much more than the mild and limited remedies offered them now.
Beveridge famously identified the five “giant evils” that the government must conquer: “squalor, ignorance, want, idleness and disease.” Ignoring these ills would lead, he said, to social breakdown and personal misery.
The same is true today. E. F. Schumacher, the German-British statistician and economist, was the author of “Small is Beautiful,” a book tellingly subtitled “A Study of Economics As If People Mattered.” He insisted that “an attitude to life which seeks fulfillment in the single-minded pursuit of wealth – in short, materialism – does not fit into this world, because it contains within itself no limiting principle.”
Keynes, Beveridge and Schumacher all understood that irresponsible and unresponsive capitalism feeds the flames of extremism and threatens the stability of society. As residents of some of the world’s richest countries, we are the principal beneficiaries of capitalism. But if the model is to thrive and not be discredited, we must embrace capitalism with a conscience.
The widening gap between the destitute and the very wealthy risks social cohesion, as well as offending basic principles of justice, fairness and decency.
The mere generation of capital does not guarantee social justice. When combined with democracy, we have the means to tame it, channel it, harness it and use it for the common good. Democracy leads to questions about how resources are distributed and prioritized, about whether it is tolerable to live in sharp-elbowed societies where “the devil takes the hindmost.”
Ralf Dahrendorf, the German-British sociologist, philosopher and political scientist, once told me that we would risk social cohesion if we did not respond to the emergence of a new class of people: those who are workless, broken, lost to ambition or social improvement and with no stake in society. He called them “the underclass.”
The best hope for the underclass, those who have fallen through the gap, remains a free market economy: capitalism with a kindlier face. If capitalism accepts a greater responsibility to foster more just societies, it will help dampen any siren calls from the political extremes to pull down the liberal order. This would be a capitalism that is just and fair; a capitalism that equitably rewards merit and effort; a capitalism that strengthens democracy and resists dictatorship.
The 38th parallel
Where might we go if we reject capitalism and democracy?
I began puzzling over this essay while sitting at a table in a Korean restaurant in Seoul. Over some kimchi and green tea, I found myself discussing with a Korean academic the defining features of both democracy and capitalism, and the relationship between the two.
What better place to have that conversation (and enjoy that traditional Korean dish of salted and fermented vegetables) than a few miles from the 38th parallel – the popular name for latitude 38 degrees north that roughly separates North Korea from South Korea, both of which I have visited and written about.
The 38th parallel is the world’s ultimate fault line: standing between a vibrant and thriving democracy and a dynastic, communist dictatorship with a pathological hatred of both democracy and capitalism. The leaders in the North call it “Paradise,” while a United Nations Commission of Inquiry says its mass detention prison camps recall the Nazi regime, and that it is today “a state without parallel.”
North Korea’s brand of communism mixes Marxism with Kim Il-sung’s Juche ideology, a self-reliant isolationism, and has delivered a contraction in gross domestic product (GDP) almost every year for the past decade. In 2023, the country’s 25 million people enjoyed a per capita nominal GDP of $684, one of the lowest in the world.
Facts & figures
In a survey of 164 economies, North Korea came out as the riskiest. Meanwhile, Pyongyang devotes a quarter of its spending to the military, preferring nuclear pretensions to feeding, educating or providing healthcare for its people and infrastructure development for its future. Two million people died in the “Arduous March” famine during the 1990s, while a persistent failure to feed its own people has led to widespread malnutrition and stunted growth of its children.
Its currency, the North Korean won, is not traded. The regime’s difficulty in servicing debt or trading without risk says it all about a country that hates capitalism and incarcerates (or executes) anyone who dares extol the virtues of the market or democracy.
I was once told by a North Korean official that the “reason why we cannot permit private capital is that it will undermine the foundations of the state.” Of course, this hardly prevents the illegal use of the Chinese yuan or the emergence of black markets.
The democratic path
There is a certain irony that countries like North Korea, the DRC, Laos and Algeria insist on describing themselves as the “Democratic Republic of…” when they are anything but. North Korea goes further in calling itself a Democratic People’s Republic – like its only ally, the People’s Republic of China – even as its people have no say in electing their “Supreme Leader” or choosing between competing parties.
This takes us back to the Korean peninsula. To the south of the 38th parallel, there is another Korea that has no need for the word “Democratic” in its name. Democracy is in its DNA.
To be sure, the Republic of Korea (ROK) was born only with great sacrifice and loss of life. The oft-forgotten Korean War (1950-53) saw millions of fatalities, including one million South Koreans. About 40,000 Americans died in action, and 60,000 British troops fought (with some 1,000 dying). In the postwar South, a far-from-democratic military dictatorship came to power.
Closed societies do not want people to know that things can be different.
It would take more than 30 years before democracy began to emerge, a period marked by the imprisonment of, and assassination attempts on opposition leader (and later Nobel Laureate) Kim Dae-jung. Not only did he demonstrate that power could change between political parties; he was known as a “neoliberal revolutionist” for insisting on market economics and international accounting practices, transparency and recognized standards, bringing ROK’s economy into global alignment. His administration paid off International Monetary Fund loans, built up foreign exchange reserves, introduced labor reforms and refused to bail out companies who failed to adapt. He said that a democratic, capitalistic Korea “must realize by all means a society where people who live honestly succeed and those who do not, fail.”
Farsightedly, his administration laid the foundations for high-speed information and communications technologies, nurtured the IT space and saw start-up tech companies as the country’s future. In his 1998 inaugural address, President Kim said that his vision for ROK was to advance from “the ranks of industrial societies…into the ranks of the knowledge and information-based societies where intangible knowledge and information will be the driving power for economic development.”
He combined a passion for market economics with the democratic ideal that elected representatives of the demos are there “to serve” and called to a spiritual revolution: “By a spiritual revolution, I mean respect for each person and adherence to justice as the highest value…. We must share not only pain but rewards and joys. We must shed sweat together and reap fruit together. I will take the lead and devote my all to realizing such a spiritual revolution and righteous society.”
At lunch, my South Korean friend drew other contrasts between the two Koreas, and the two Kims who have defined their respective countries. Along with the ability to change leaders and parties is the celebration of human rights by one, and the denial of those rights by the other; the elimination of religion by one and its centrality to the life of the other; and a recognition that the rule of law shapes both democracy and capitalism, while a communist dictatorship despises both.
The ROK isn’t perfect. The imprisonment in 2018 of South Korean President Park Geun-hye for abuse of power and coercion is a gentle reminder of human venality. But paradoxically, it is also an affirmation of a system of governance with accountability. Unsurprisingly, Ms. Park’s court case was little reported in North Korea – where the UN has found the regime guilty of “crimes against humanity,” and whose leaders believe they are above the law and may behave as they please.
Closed societies do not want people to know that things can be different. On one visit to North Korea, I heard a young woman extolling the virtues of former Romanian leader Nicolai Ceausescu and his regime. “You know what happened to him?” I asked. “Is he not well?” she replied.
She burst into tears when I informed her that there had been a revolution and that he had been deposed and executed in 1989. At the time, North Korea watched in alarm as the former Soviet Union and its satellite states abandoned Marxism. In Poland, Czechoslovakia, East Germany, Hungary and elsewhere, they saw leaders fall and doors open to democracy and free market economies.
Read more from Lord David Alton
Russia never took the democratic path and has been unable to temper the corrupt oligarchs and elites who have created vast private wealth for a few. One of the first post-Soviet foreign investors in Russia was hedge fund manager Bill Browder. I have heard him tell accounts of corruption and lawlessness; how his tax advisor, Sergei Magnitsky, was allegedly murdered; and how he became Vladimir Putin’s enemy. He brilliantly records those stories in 2015’s “Red Notice” – a curtain raiser for anyone wanting to understand the regime that in February 2022 launched an illegal, existential war on its democratic neighbor in Ukraine, accompanied by monstrous war crimes and slaughter.
The heroism we have seen in Ukraine as President Volodymyr Zelenskiy and his people have resisted a tyranny hellbent on their destruction has given us a clear view of the barbarians at our gate. It has been a sobering manifestation of the consequences of the global rise of authoritarianism, and the threat they pose to democracy and international institutions.
There is so much to admire about Russian culture and Russian people, but their leader is not part of that. Mr. Putin’s imitators need to see that while he presides over a pariah state and his mercenaries commit war crimes, his regime can enjoy few of the benefits of democratic capitalism.
Thankfully, President Putin’s 5,000-word essay “On the Historical Unity of Russians and Ukrainians” is briefer than Hitler’s “Mein Kampf” and briefer still than Karl Marx’s “Das Kapital.” The Russian leader’s ideology, backed by unspeakable violence, relies on authoritarianism. It has become a model for other regimes around the world. Some are acolytes, like Belarus’ Alexander Lukashenko, but his brother-in-arms is China’s Xi Jinping.
Many liberal democracies were taken in by Mr. Putin, believing that his interest in private capital would pave the way for civil society and democracy. The Chinese Communist Party (CCP) has taken this deception to another level. Mr. Xi and the CCP regard Western leaders as “useful idiots” – a phrase sometimes attributed to Lenin – in their quest for global hegemony.
There was a moment in 1989, after the massacre in Tiananmen Square, when the world hoped the party might reform itself. A “golden era” led to the flow of capital and investment into China. Too quickly, the world decided to forget the atrocities committed by the CCP – with one estimate holding it responsible for the deaths of 50 million. Dutch historian Frank Dikotter, in “China after Mao,” unpacks the illusion, created by Beijing and swallowed by Western leaders, that economic reform would inexorably lead to pluralism and democracy. It was a trick worthy of Houdini. Anyone who doubts the nature of this ideology should read Julia Lovell’s spellbinding book, “Maoism: A Global History.”
It is all of a piece with what is happening today. As the current trial of 47 of Hong Kong’s pro-democracy legislators and advocates illustrates, there is no place in these redoubts of Marxism for dissent or diversity. Democratic capitalism knows it is no longer safe in a desiccated Hong Kong, as the flight of capital to Singapore from Hong Kong shows. Hong Kong was once one of Asia’s greatest and most open cities. It has now destroyed the democratic “one country, two systems” governance, a middle way that could have been a template for Taiwan’s besieged 23 million people.
Like their governments, consumers need to look beyond the price of the goods they are buying, remembering that if something is cheap, it is because someone else is paying.
Ukraine and Taiwan have kindled a new determination by democracies to belatedly stand together against authoritarian dictatorships. This was demonstrated this month by the introduction of a new bill in the U.S. Congress to close Hong Kong’s economic and trade offices in America in response to Beijing’s dismantling of the city’s democracy.
In 2019, I was part of the international team that monitored the last free elections in Hong Kong. There was a vast outpouring of fervor for democracy. A key figure was Jimmy Lai, the most prominent pro-democracy newspaper owner in Hong Kong. Today he festers in a CCP jail and is the subject of a political show trial. His treatment and the arrests and imprisonment of opposition voices recall the “knock on the door at the dead of night” by the Gestapo, the KGB, the Stasi and all the rest.
Have we so easily forgotten? As recently as November 2022, Germany’s Social Democratic Chancellor, Olaf Scholz – accompanied by 12 titans of German industry, including the CEOs of Volkswagen, Deutsche Bank, Siemens and BASF – were in Beijing expressing the hope that all would be “business as usual.”
I was particularly struck that Siemens was there. In the 1930s, chairman Carl Siemens detested Nazism and was passionate about democracy; but that did not stop his company from putting profit before principle. After 1940, they used some 80,000 forced laborers – including Jews, Roma, prisoners of war and concentration camp inmates – to maintain production levels. “The Hiding Place” recounts the story of Corrie Ten Boom, a Dutch watchmaker who was forced to work in the Siemens complex at the Ravensbruck concentration camp.
Siemens has since acknowledged and apologized for its role in those events. So how can it now turn a blind eye to the one million incarcerated Uighur Muslims in China’s Xinjiang province used as forced labor, subjected to genocide and the CCP’s surveillance state?
The House of Commons and officials like former British Prime Minister and Foreign Secretary Liz Truss have called China’s actions genocide. U.S. Secretary of State Anthony Blinken insists that “the forcing of men, women and children, trying to, in effect, reeducate them to be adherents to the ideology of the Chinese Communist Party, all that speaks to an effort to commit genocide.”
In the interests of capitalism, Mr. Scholz and his CEOs (plus their British counterparts, like the former Conservative Chancellor Philip Hammond) may be prepared to forget Tiananmen, the outrages in Tibet, forced organ harvesting, the destruction of democracy in Hong Kong, the daily intimidation of 23 million people in democratic Taiwan, and efforts to sanction and intimidate parliamentarians who call them out. But do they not think that genocide, the crime of all crimes, is cause to think twice before making further business deals and commitments? (I detailed the nature of the Xinjiang genocide in “State Responses to Crimes of Genocide,” 2022.)
In a democracy, individual consumers have enormous power. Like their governments, they need to be encouraged to look beyond the price of the goods they are buying, remembering that if something is cheap, it is because someone else is paying.
There is precedent for this. In the 19th century, millions of Britons refused to buy sugar from Caribbean plantations using slave labor. What if, today, Amazon and other retailers were required to label goods from China as “made in a state credibly accused of genocide and slave labor”? Consumers, in a powerful exercise of democratic capitalism, could then make informed choices about whether they want to use their spending power to prop up the dictatorship responsible for such cruelty.
The justification for abandoning the rule of law and democratic values is that it will gradually create a democratic environment. There is no evidence for this whatsoever. Believing that raw capitalism will deliver democracy is naive at best, and dangerous at worst: just look where economic entanglement with Mr. Putin’s Russia has led.
In China, events like the expulsion of American citizens working for major Western newspapers should have set alarm bells ringing – even if the abuse of human rights and the CCP’s breaking of international treaty obligations did not. British and United States intelligence chiefs have issued unprecedented public warnings that the CCP is “covertly applying pressure across the globe,” including through “covert theft,” “technology transfer” and “interference in our political systems.” Foreign ministers of the G7 and the European Union have spelled out their “grave concern” about Beijing’s “continued assault on political pluralism and fundamental freedoms.”
And yet the “useful idiots” have obligingly run up billions in trade deficits with China, compromised Western resilience and added to our dependency. They have allowed takeovers and ownership of strategic industries – including partnerships with universities and researchers, involved in projects such as hypersonic missiles – which compromise our defense and security.
It is madness, and it gives capitalism a bad name.
As my Korean friend and I finished our green tea and kimchi, we were perhaps no nearer to knowing where democracy and capitalism are headed in today’s increasingly extreme political climate. But we were both certain that democratic capitalism is still humankind’s best bet, and that each of us must redouble our efforts to defend the demos against the dictators.