In the past few decades, the liberal-democratic model of capitalism in almost all post-industrial states has become increasingly skewed toward entrenched wealth resulting in a growing disparity between rich and poor. Stuart Andrews reports. 

Liberal-Democratic governance is perhaps Western society’s greatest gift to human sociopolitical development. It is revolution without bloodshed, fought with words and won with votes. There is no other comparable form of self-governance. But this is not an attempt to incite democratic revolution throughout the non-democratic world.

Regrettably, yet understandably, democracy as a global initiative has become a tarnished brand. The rise of fundamentalism, the spectacular resurgence of an autocratic China and the abject failure of democratic movements in many less-developed countries have cast a shadow on the democratic model. More significantly, in the cradles of democracy to which many of the world’s disenfranchised look, we have political gridlock, with powerful vested interests undermining the institutional foundations of the great democratic societies of Europe, North America and Australasia.

Ironically, it is with arrogance and ignorance that we still try to foist our ideology on the non-Western world. It is a mistake to assume that democratic governance is the only viable solution, and it is misguided to force those ideals on other societies.

Democratic nations have earned democracy over millennia of social and cultural evolution. Our forebears have paid in blood for the rights and privileges we enjoy today. We may rightly take pride in our democratic history, but it is arrogant to assume that our way, the liberal-democratic way, is appropriate for all societies regardless of their cultural predisposition and socioeconomic level of development.

Yet throughout the 20th century we have been driven by a missionary zeal to convert the developing world to democracy, the consequences of which have left many non-Western cultures scarred, distressed and deeply fractured by bitter rivalries.

No matter the aspirations of a people, democracy is not a viable solution if the host culture’s social fabric cannot peaceably contain the forces of competing interests inherent in any complex social organisation. For a viable democracy to take root, the people must not only want it, but must have the underlying social cohesion and cultural discipline to accept internal difference and be capable of pragmatic and peaceful resolution of conflicting interests. That is the hallmark of a healthy democracy; consequently, democracy cannot be given or forcibly imposed. The seeds of democracy can be transplanted, but non-democratic societies must nurture and cultivate them. As successful democratic societies, the best that we can do is lead by example, protect our institutions and continually struggle to improve and evolve as the world changes.

Democracy manifests in different ways according to the nuances of host cultures. There is no single model of democracy that can be described as the best solution; it is an ideal or an aspiration, and those cultures that have achieved a modicum of democratic governance are only at the beginning of an evolutionary process that will and should adapt to match the changing needs and aspirations of its constituents.

But one thing all successful modern-day liberal-democratic societies have in common is their open commitment to free market capitalism. In fact, the liberal-democratic state’s application of capitalist endeavour has powered the stellar rise of Western nations since the start of the industrial revolution. The right to “Life, Liberty and the pursuit of Happiness” written into the U.S. Declaration of Independence is perhaps the most well-known and universally understood tenet of democratic governance. And that goes hand in glove with a core principle of capitalism, the right to reap the fruit of one’s labours.

But the democratic capitalist model is not a perfect system; in business, as in life, there are winners and losers. Despite this, liberal-democratic economies have been able to maintain a high degree of fairness both in the market and within broader society, ensuring a reasonably equitable sharing of the economic pie. That is, until recently. In the past few decades the liberal-democratic model of capitalism, in almost all post-industrial states, has become increasingly skewed toward entrenched wealth.

This is counter to the general trend of rising living standards and improving financial equality prevalent before this time. Today there is growing disparity between rich and poor, a declining middle class and an increasingly ingrained welfare class. Effective political leadership is compromised by partisan loyalties and voter discontent is at an all-time high. The reason for this is economic, or more precisely, it is the inability of our political leadership to adapt to a new economic reality.

Until the latter half of the 20th century, successful democracies had usually involved a pragmatic compromise between left- and right-wing ideologies. Where one doctrine heavily prevailed, social, economic and cultural friction ensued. Where there were cyclical but moderate shifts between the poles and a broad-based centrist element, social, economic and cultural progression was generally smooth. This struggle between left and right, moderated by centrists, seems to work well in high-growth economies, but not so well in their low-growth counterparts. In post-industrial liberal-democratic states, the pressure to increase growth in what are essentially low or negative growth conditions has only reinforced this political divide. This is endemic to almost all post-industrial nations, and is symptomatic of a growing disconnect between our political leadership and economic reality.

This disconnect fuels the increasingly bitter ideological divide between left and right.

Both sides are trying to broach new problems with old ideas. On the right we have the champions of the free market and individual enterprise. On the left we have those intent on creating an equal society in which we all get a share of the economic pie regardless of ability or contribution. Both of these ideologies hark back to a time when they could coexist.

Today’s post-industrial societies, which typically have far lower rates of economic growth, are finding it increasingly difficult to maintain equilibrium between the right and the left. When the “economic pie” ceases to grow or shrinks, the battle for control intensifies. The defining trait of post-industrial society is the hollowing of industry and the migration to service-based, consumption-driven economics, which exacerbates the problem as we transform from a production-based economy to one powered by consumption. This, in turn, leads to greater distortion. As we try to increase growth, we are left with consumption as the primary engine of growth, which in turn drives the nation-state into a spiralling debt cycle.

An unforeseen and completely unintended consequence of post-industrial society is a highly distorted labour market and a gradual but persistent widening of the gap between the rich and the poor. This labour market distortion is characterised by skills shortages in a wide range of trades and professions, yet we have rapidly increasing levels of the unemployed, the underemployed and the chronically and generationally unemployable.

The economists advise us to “upskill”, to increase productivity and to migrate to more lucrative service-based industries. But many people cannot gain more skills or move to these industries, and that is why we have gross skills shortages in a surplus labour market. Nor are there enough profitable or service-based jobs that can fill the gap left by a hollowed-out manufacturing sector. Of course, we still have plenty of consumers, so to maintain the illusion of growth we encourage consumers to spend more, even if it means blooming welfare costs and a deteriorating balance of trade.

This socioeconomic bind manifests itself in subtle yet deeply pervasive ways. We have a grossly distorted property market. Australia has one of the lowest population densities in the world, just three people per square kilometre. Even discounting the 70 per cent of the country that is desert, we have a population density of ten people per kilometre of inhabitable land. We are still one of the least populated nations on the planet, yet property prices are among the highest in the world. We have built a market based on expectation. We protect that expectation with regulations and incentive schemes that for the most part benefit existing property holders at the expense of the landless. The property market in Australia is not a free market. It is structured to protect and enhance wealth, a contrivance that benefits the haves at the expense of the have-nots. This has the effect of artificially stimulating high-growth economics in one segment of a slow- or negative-growth economy. The result is an accelerating flow of wealth from low- and middle-income tiers to the property-investor class.

Likewise, our labour market, equally contrived, does not reflect a free market where labour is bought and sold at its true value. With regulations to protect workers’ rights and ensure minimum standards, we have boxed ourselves into a market expectation not founded on reality. Today we have close to 30 per cent of the population supported to some degree by social welfare. Real unemployment is about 10 per cent and this is only forecast to increase. Yet we apparently have national skills shortages in every area from midwifery to motor mechanics - a clear indicator of chronic mismatch in supply and demand. There is a gross disconnect between market and political expectations and the reality of a post-industrial economy.

We have an ageing population, with more people in retirement than at any time in history. During the heyday of high economic growth, we made a pact with our people: work till you are 65 then retire and live off a government or employer-funded pension for the rest of your life. Declining mortality, declining fertility, increasing unemployment, and a population pyramid that looks more like a baobab tree is making this proposition increasingly untenable. Potential resolutions are fraught with political pitfalls. But rather than admit that we cannot keep this promise, or try to work out a viable solution that will not drive us to bankruptcy, we are committed to the myth that our current approach will produce a re-energised and high-growth economy in the future.

The question should not be “How do we grow the economy?” but rather “How do we evolve the economy?” We need an economy based on limited growth but with a drive for diversification guided by sustainable application of endeavour. Most importantly, we need an economy that stays within its means and does not borrow to finance consumption-driven growth. To understand this and implement painful yet necessary structural changes requires vision from our political leadership. The liberal-democratic model of government should lend itself to this kind of flexible adaptation. Instead we are focused on the past, desperate to restore our creaking economies to the heyday of rapid growth and industrial expansion.

The hurdle to finding visionary leadership in this new economy is party politics. There is probably no liberal-democratic state in the world today that has true representative democracy, representative in that constituents freely choose a member of their own community to represent their own local issues in a state or national arena. Instead we have proxy representation. We have choice, but it is limited to people pre-vetted and selected by political parties. There is a smattering of independent politicians, but the power of political parties ensures that their members get the best exposure and promotion. In most liberal-democratic economies there is a tendency for two or three political parties to monopolise representation, despite the fact that these entities represent declining factions of society. This is effectively a form of disenfranchisement for an increasingly disenchanted public; they retain the right to vote, but they are denied a plurality of choice.

Party politics is not intrinsically bad. Until recently, party politics had proven to be a reasonably efficient way to coalesce opinion and generate public support for goals and actions that benefit society as a whole. For the most part, political parties embody a set of ideals or principles that define them and the people they represent. In the heyday of economic growth, when these parties established their power base, they represented broad bases of society. The pragmatic compromises engineered between the left and right poles of the political spectrum enjoyed wide support. The post-industrial economy has created a more diverse plurality, with fewer and fewer people fitting a profile that neatly fits with either the left or the right. Yet our political systems have failed to accommodate this changing plurality. Conversely, as political parties’ broad appeal has declined, they have become increasingly conservative and ruthless in protecting their grasp on power.

Globally, there is a wide range of liberal-democratic states, and while culturally diverse, they mostly seem to have followed the same post-industrial devolution into a highly partisan left–right divide. In Australia the Labor Party is monopolised by organised labour, and is what we call the left wing. On the right we have the LNP (Liberal National Party), the champions of free enterprise.

Today neither of the major parties can truly claim to have the broad appeal they enjoyed in their prime, yet they retain a duopolistic grip on political power. Their opposition to each other has intensified, creating gridlock and policy stagnation. The only point of pragmatic cooperation is in their concerted efforts to exclude smaller parties and independents from gaining any kind of political traction.

Both parties are caught in a time warp, obsessed with a past model of high-growth economic development. Weakening the grip of the dominant political parties and creating a broader, more representative government is key to unleashing the potential inherent in our liberal-democratic style of government. Only once that has been achieved will we find the ideas, resolve and leadership necessary to take us to the next level of socioeconomic development.

Taken from “Facing the Apocalypse: Humanity’s Role in the New Millennium” by Stuart A. Andrews

Liberal-democratic stagnation: The rise of the polarised state