Democracy in recession: an economic perspective
Updated: Apr 21, 2021
This is a guest article written by Hugh Lupson, a former History & Geography student at the University of Leeds
Joe Biden is now the President, but democracy remains at a low ebb.
Depending on your pain threshold, you may well be fed up with reading about Donald Trump. In which case, you were probably pleased to see him narrowly denied a second term by Joe Biden back in November. However, since the election, things in the US have taken a number of disturbing turns. Besides the insurrection at the Capitol, which by this point needs little elaborating upon, Trump has recently issued a series of presidential pardons to political allies, the perpetrators of a massacre in Iraq, and now Lil Wayne - also a Trump supporter – who was caught with a gold-plated, loaded handgun at Miami airport back in December 2019. Despite President Joe Biden's proclamation at his inauguration that 'democracy has prevailed', it could well be argued that Trump's behaviour since the election has gravely undermined the US' democratic institutions. For a country so intimately bound up with notions of democracy, which has spent the past 100 or so years projecting itself as the champion of democratic values around the world, the events of the past few months will be very difficult to shake off. In fact, it may be naïve to think that recent events, and indeed Trump's entire presidency, can be shaken off at all. Instead, a book written almost 100 years ago may provide some much-needed perspective on what we are witnessing.
In 1931 Herbert Butterfield published his influential text The Whig Interpretation of History. As Butterfield saw it, 'Whig history' was a seductive but inaccurate framing of past events as an inexorable march to modernity. What then would Butterfield, a critic of this linear view of history, think of Trump's thoroughly undemocratic behaviour; a brief hiccup in democracy's steady triumph (the Whiggish view), or perhaps a sign of a turning tide? Indeed, similarly anti-democratic forces can be detected in Latin America, large parts of Eastern Europe, and in India – the world's largest democracy. Moreover, whilst the Arab Spring has thus far failed to bring democracy to the Middle East, China - which is not a democracy - is fast moving into the ascendancy. Assuming then, as Butterfield did, that the Whig interpretation is wrong, and therefore human history is not simply a story of the inevitable victory of liberal democracy, could we be facing a long-term democratic recession and attendant threat to our rules-based market economy?
Democracy and the economy are not necessarily mutually dependent. Nonetheless, freedom of choice and action, freedom to innovate and to compete, and protection from corruption are upheld by the democratic system and its institutions. Fair and transparent appointments in central banks, legal bodies, and regulatory organs, for example, are fundamental to the proper functioning of the economy – at least in a Western democratic system. Though it is possible for economies to grow and prosper in the absence of democracy (look no further than China for an example) it needs to be asked whom that growth is serving. As a country becomes increasingly autocratic, the agenda-setting power moves into the hands of an ever-smaller cabal. Get yourself on the wrong side of that cabal, and you may find your fortunes dashed. For instance, Jack Ma's withdrawal from the public eye in October 2020 and the cancellation of Ant Group's IPO by Chinese regulators were widely speculated to have been related to his criticisms of China's regulators and banks. This is dangerous; in a system where a business, an idea, or an entrepreneur can be stifled at the drop of a hat, there is little room for creativity, let alone for those who wish to hold their Government and its running of the economy to account.
China is a stark example and by no means is it implied that the West is headed in quite the same direction. However, in the US and Britain, our leaders are becoming less accountable and less transparent in their actions, meanwhile acting increasingly in what seem to be their own interests and those of their friends. This risks undermining the proper functioning of our economic systems, specifically in the allocation of resources - the US energy industry being a poignant example. Trump's close connections with 'big oil' were no secret - in June 2020, Kelcy Warren, who's company won regulatory approval for the contentious Dakota Access Pipeline soon after Trump took office, raised $10million for Trump's re-election campaign through just one fundraiser. It's not hard to see why big oil valued Trump so highly; during his 4-year presidency he pulled out of the Paris Climate Agreement, rolled back energy regulations, described climate change as a 'hoax', and in the spring of 2020 stubbornly bailed out the ailing oil industry as part of his Coronavirus response. The oil bailout is the pièce de resistance here, pumping vast sums of public money into an enterprise from which many private investors are withdrawing. This is not an efficient allocation of resources. Instead, Trump's insistence on swimming against the tide in favour of the oil industry and its deep pockets wasted valuable time in the race to future proof the US economy.
Finally, as is often the case, we Britons can get carried away criticising our cousins across the pond and forget to look at ourselves. Boris Johnson has become much more critical of Trump as of late, and it is difficult to imagine him trying to overturn the results of the 2024 British election, but his Government is not without its critics. In its response to the Coronavirus pandemic the British Government has been accused of operating a 'chumocracy' – awarding contracts without the usual competitive tendering process to companies with Tory connections and appointing Tory politicians (or the wives of Tory politicians) to key roles in the overseeing of the response. These awards and appointments may turn out to have been in the country's best interests, but that does not mean that their manner is beyond question. This is of course a long way off autocracy, but it has been called cronyism, which is a step in the wrong direction, in this case ruling out the advantages of fair competition between service providers.
So, to return to Butterfield, democracy ought not to be taken for granted. Recent increases in counter democratic behaviour by those in power risk undermining the social contract and free economies' proper functioning. If we value these things, we must look after them, and the first step should be to hold our leaders to a higher account.