[Opinion] The Crisis of Democratic Capitalism

Martin Wolf, chief columnist of the Financial Times, recently published his book The Crisis of Democratic Capitalism. After an in-depth analysis of the relationship between capitalism and democracy, he warns of the crisis facing these two institutions that have supported modern society. Capitalism and democracy are interdependent; neither can exist without the other. However, Wolf is deeply concerned about the recent global signs of democratic backsliding.

He identifies the main cause as the expansion of economic inequality. Since the early 1980s, a prominent feature of the global economy has been the increase in inequality of wealth and income. Income inequality in OECD countries has reached its highest level in half a century. In advanced countries, long-term structural economic changes have severely impacted certain social groups, especially low-educated male workers in the United States. They have experienced “status anxiety.” This has weakened their loyalty to the existing political system. The 2008 financial crisis decisively shattered trust in the established system.

The problem lies in the rise of “rentier capitalism.” Due to a lack of competition, some companies have created quasi-monopolistic profits, or rents, allowing them to earn excessive gains. Employees of these companies receive disproportionately high salaries while disadvantaging other workers, customers, and suppliers. As a result, disparities in income and opportunity have widened, and the small group capturing these rents has used their influence to affect political and legal systems. Wolf also criticizes the financialization of the economy. He argues that excessive profits on Wall Street and corporate executives’ overemphasis on investors have exacerbated economic deterioration. This has led to high inequality, economic insecurity, low growth, and financial crises, weakening trust in elites in advanced societies and enabling populists to win elections.

The greater the inequality, anxiety, sense of abandonment, fear of uncontrollable change, and feelings of injustice, the more vulnerable democratic capitalism becomes. Wolf worries about the future of democracy. Ultimately, restoring the health of capitalism is essential for democracy to regain strength. Corruption, unfairness, and lies from leadership weaken the bonds among citizens, replacing patriotism with deep cynicism.

The threat lies within. Democracy survives when it provides opportunity, security, and dignity to the majority of citizens. As Aristotle said, the success of democracy depends on the existence of a large, independent, and contented middle class. Conversely, if only a successful, cynical, and greedy minority benefits, democracy will collapse. Wolf points out that innovation in capitalism and democracy depends on healthy citizens?not just as consumers, workers, entrepreneurs, savers, and investors, but as a broad layer with civic consciousness. For these citizens, democratic states must provide welfare, education, and security. Corporate leaders must understand their social responsibilities, and politics must consider the interests of all citizens, not just a few. Democracy thrives when members of society think and act as citizens. Wolf warns that without such measures, democracy will fail and freedom will disappear. Having observed global capitalism for a long time, his sense of crisis carries significant weight and should not be overlooked.

Kim Dong-gi, author of The Power of Geopolitics