Making Modernity Work: The Reconciliation of Capitalism and Democracy

Gideon Rose. Foreign Affairs. Volume 91, Issue 1. January/February 2012.

We are living, so we are told, through an ideological crisis. The United States is trapped in political deadlock and dysfunction, Europe is broke and breaking, authoritarian China is on the rise. Protesters take to the streets across the advanced industrial democracies; the high and mighty meet in Davos to search for “new models” as sober commentators ponder who and what will shape the future.

In historical perspective, however, the true narrative of the era is actually the reverse-not ideological upheaval but stability. Today’s troubles are real enough, but they relate more to policies than to principles. The major battles about how to structure modern politics and economics were fought in the first half of the last century, and they ended with the emergence of the most successful system the world has ever seen.

Nine decades ago, in one of the first issues of this magazine, the political scientist Harold Laski noted that with “the mass of men” having come to political power, the challenge of modern demo – cratic government was providing enough “solid benefit” to ordinary citizens “to make its preservation a matter of urgency to themselves.” A generation and a half later, with the creation of the postwar order of mutually supporting liberal democracies with mixed economies, that challenge was being met, and as a result, more people in more places have lived longer, richer, freer lives than ever before. In ideological terms, at least, all the rest is commentary.

To commemorate Foreign Affairs’ 90th anniversary, we have thus decided to take readers on a magical history tour, tracing the evolution of the modern order as it played out in our pages. What follows is not a “greatest hits” collection of our most well-known or influential articles, nor is it a showcase for the most famous names to have appeared in the magazine. It is rather a package of 20 carefully culled selections from our archives, along with three new pieces, which collectively shed light on where the modern world has come from and where it is heading.

The Birth of the Modern

In the premodern era, political, economic, and social life was governed by a dense web of interlocking relationships inherited from the past and sanctified by religion. Limited personal freedom and material benefits existed alongside a mostly unquestioned social solidarity. Traditional local orders began to erode with the rise of capitalism in the eighteenth and nineteenth centuries, as the increasing prevalence and dominance of market relationships broke down existing hierarchies. The shift produced economic and social dynamism, an increase in material benefits and personal freedoms, and a decrease in communal feeling. As this process continued, the first modern political ideology, classical liberalism, emerged to celebrate and justify it.

Liberalism stressed the importance of the rule of law, limited government, and free commercial transactions. It highlighted the manifold rewards of moving to a world dominated by markets rather than traditional communities, a shift the economic historian Karl Polanyi would call “the great transformation.” But along with the gains came losses as well-of a sense of place, of social and psychological stability, of traditional bulwarks against life’s vicissitudes.

Left to itself, capitalism produced longterm aggregate benefits along with great volatility and inequality. This combination resulted in what Polanyi called a “double movement,” a progressive expansion of both market society and reactions against it. By the late nineteenth and early twentieth centuries, therefore, liberalism was being challenged by reactionary nationalism and cosmopolitan socialism, with both the right and the left promising, in their own ways, relief from the turmoil and angst of modern life.

The catastrophic destruction of the Great War and the economic nightmare of the Great Depression brought the contradictions of modernity to a head, seemingly revealing the bankruptcy of the liberal order and the need for some other, better path. As democratic republics dithered and stumbled during the 1920s and 1930s, fascist and communist regimes seized control of their own destinies and appeared to offer compelling alternative models of modern political, economic, and social organization.

Over time, however, the problems with all these approaches became clear. Having discarded liberalism’s insistence on personal and political freedom, both fascism and communism quickly descended into organized barbarism. The vision of the future they offered, as George Orwell noted, was “a boot stamping on a human face-forever.” Yet classical liberalism also proved unpalatable, since it contained no rationale for activist government and thus had no answer to an economic crisis that left vast swaths of society destitute and despairing.

Fascism flamed out in a second, even more destructive world war. Communism lost its appeal as its tyrannical nature revealed itself, then ultimately collapsed under its own weight as its nonmarket economic system could not generate sustained growth. And liberalism’s central principle of laissez faire was abandoned in the depths of the Depression.

What eventually emerged victorious from the wreckage was a hybrid system that combined political liberalism with a mixed economy. As the political scientist Sheri Berman has observed, “The postwar order represented something historically unusual: capitalism remained, but it was capitalism of a very different type from that which had existed before the war- one tempered and limited by the power of the democratic state and often made subservient to the goals of social stability and solidarity, rather than the other way around.” Berman calls the mixture “social democracy.” Other scholars use other terms: Jan-Werner Müller prefers “Christian Democracy,” John Ruggie suggests “embedded liberalism,” Karl Dietrich Bracher talks of “democratic liberalism.” Francis Fukuyama wrote of “the end of History”; Daniel Bell and Seymour Martin Lipset saw it as “the end of ideology.” All refer to essentially the same thing. As Bell put it in 1960:

Few serious minds believe any longer that one can set down “blueprints” and through “social engineering” bring about a new utopia of social harmony. At the same time, the older “counter-beliefs” have lost their intellectual force as well. Few “classic” liberals insist that the State should play no role in the economy, and few serious conservatives, at least in England and on the Continent, believe that the Welfare State is “the road to serfdom.” In the Western world, therefore, there is today a rough consensus among intellectuals on political issues: the acceptance of a Welfare State; the desirability of decentralized power; a system of mixed economy and of political pluralism.

Reflecting the hangover of the interwar ideological binge, the system stressed not transcendence but compromise. It offered neither salvation nor utopia, only a framework within which citizens could pursue their personal betterment. It has never been as satisfying as the religions, sacred or secular, it replaced. And it remains a work in progress, requiring tinkering and modification as conditions and attitudes change. Yet its success has been manifest- and reflecting that, its basic framework has remained remarkably intact.

The Once and Future Order

The central question of modernity has been how to reconcile capitalism and mass democracy, and since the postwar order came up with a good answer, it has managed to weather all subsequent challenges. The upheavals of the late 1960s seemed poised to disrupt it. But despite what activists at the time thought, they had little to offer in terms of politics or economics, and so their lasting impact was on social life instead. This had the ironic effect of stabilizing the system rather than overturning it, helping it live up to its full potential by bringing previously subordinated or disenfranchised groups inside the castle walls. The neoliberal revolutionaries of the 1980s also had little luck, never managing to turn the clock back all that far.

All potential alternatives in the developing world, meanwhile, have proved to be either dead ends or temporary detours from the beaten path. The much-ballyhooed “rise of the rest” has involved not the discrediting of the postwar order of Western political economy but its reinforcement: the countries that have risen have done so by embracing global capitalism while keeping some of its destabilizing attributes in check, and have liberalized their polities and societies along the way (and will founder unless they continue to do so).

Although the structure still stands, however, it has seen better days. Poor management of public spending and fiscal policy has resulted in unsustainable levels of debt across the advanced industrial world, even as mature economies have found it difficult to generate dynamic growth and full employment in an ever more globalized environment. Lax regulation and oversight allowed reckless and predatory financial practices to drive leading economies to the brink of collapse. Economic inequality has increased as social mobility has declined. And a loss of broad-based social solidarity on both sides of the Atlantic has eroded public support for the active remedies needed to address these and other problems.

Renovating the structure will be a slow and difficult project, the cost and duration of which remain unclear, as do the contractors involved. Still, at root, this is not an ideological issue. The question is not what to do but how to do it-how, under twenty-first-century conditions, to rise to the challenge Laski described, making the modern political economy provide enough solid benefit to the mass of men that they see its continuation as a matter of urgency to themselves.

The old and new articles that follow trace this story from the totalitarian challenge of the interwar years, through the crisis of liberalism and the emergence of the postwar order, to that order’s present difficulties and future prospects. Some of our authors are distinctly gloomy, and one need only glance at a newspaper to see why. But remembering the far greater obstacles that have been overcome in the past, optimism would seem the better long-term bet.