State of Democracy: The Case for a New Economic Order

Remarks as delivered.

Mark Malloch-Brown: Betty, Bob, thank you both very much, and thank you all for, on almost the last day of school, giving me time today. Just talking with Bob and some of his colleagues at lunch, I think COVID is never far removed from us. The tempest may now be behind us, and the world has reopened, but we really do come out of the sort of proverbial storm cellar with an eye on all the damage that's been wrecked and wreaked on the global landscape. 

It's a grim picture of roofs torn off, windows blown in, trees uprooted. Social divides have worsened. People's physical and mental health has suffered. Democracy has been weakened and state capacity diminished. And I see so clearly that many years of development progress have been reversed. 

According to World Bank studies, from the start of the pandemic till September of last year, around 80 million additional people were pushed back into extreme poverty. And I expect that the real number is considerably higher. But, in fact, the pandemic just spurred deeper changes that were, frankly, mounting long before 2020. 

Just if one recalls the namesake for this building, Thurgood Marshall, after whom this facility is, evidently, so aptly named, and his contribution to racial and social justice across America, what he had to say at the time of his appointment to the Supreme Court in 1967 echoes, in many ways, today. 

At home, protests on the streets, a new intensity to the struggle for civil rights at that time. And a looming election campaign marked by the specters of polarization and violence: Nixon versus Humphrey and all that happened in Chicago that year or the year later. 

And, globally, superpower tensions: maybe not so much now the Soviet Union, but Russia, and, much more particularly, China. Extraordinary, rapid technological change and the stirrings then, too, of a new economic order. On all fronts, actually (and I was a young guy at the time, a teenager), it did seem to be a moment when those of us watching American democracy from abroad wondered if it hung in the balance, because it seemed that the conditions of social consensus required for democracy were really at stake. 

Justice Marshall understood that profoundly. He argued, quote, “Democracy just cannot flourish amid fear. Liberty cannot bloom amid hate. Justice cannot take root amid rage.” The conditions for democracy, liberty, and justice are what I want to discuss with you today, and in particular the material conditions. 

Because we at Open Society Foundations are increasingly convinced that we are at another turning point of the economic and political order, a turning point where the relationship between a well-regulated market economy and a democratically accountable government is set to shift fundamentally for the third time in the past hundred years, a turning point that I'd like to encourage all of you to think about how you can play a role in shaping as you go out into the world. 

Let us start by scrutinizing an idea often accepted uncritically: that democracy and economic justice go hand-in-hand. Historic reality is a lot more complicated. I don't need to tell you all. Democracy is an old force, and it's come a long way from its modern 18th-century origins let alone its ancient roots in Athens. 

It's developed across and coexisted with many different economic and social orders. Across much of the West, the expansion of the franchise in the late 19th and early 20th centuries coincided, in fact, with a period of immense inequality. The industrialization of societies produced two shifts that were in tension. 

On the one hand, the accumulation of vast fortune thanks to what had been called the first era of globalization, in many cases to monopolies and trusts that stymied competition. Think of the palatial Gilded Age mansions of Baltimore, or New York City, or Newport, Rhode Island. 

On the other hand, even as these great fortunes were made, industrialization brought the spread of education, literacy, newspapers, and mass politics. These opened up civic life to parts of the population previously excluded from it: men (and, I'm afraid, men, at that time, of modest means), but then, virtually all women in time, too. 

And an item of local trivia sums up the two shifts and the tensions between them. In 1904, a typist named Elizabeth Magie, living just off Route 1 in Brentwood, devised what she called the Landlord's Game to help spread the theories of the progressive political economist Henry George amongst ordinary Americans. 

Today, her game has outlived poor Mr. George. It's known as Monopoly. The masses were starting to question the concentration of wealth in the hands of the richest. Initially, then, the expansion of the franchise was a palliative, a pressure valve preventing a head of steam that could drive an economic transformation. 

As a cynical politician put it in the 1913 French play The Green Jacket, “Democracy is the name we give people whenever we need them.” But in the long term, that formula was not going to be sustainable. The novelist F. Scott Fitzgerald himself, sometime a Marylander, captured the sense of a looming turning of the economic order in his novels. 

The Great Gatsby serves to expose the illusory nature of the American Dream in such an unequal economy. To quote, “Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but it's no matter. Tomorrow, we will run faster, stretch out our arms further.”

The uncatchable green light was an omen. The palliative effect could only last so long. The final demise, obviously, came with the Great Crash and the dawn of the New Deal, because inequality had reached unsustainable levels. Laissez-faire was swept away by Keynesian economics. 

Ambitious plans of public spending were adopted. The state and its services grew. Newly democratized societies had learned to use the levers of democracy to enact change not just here but in Europe, as well. Particularly, I know it very directly as a historian of the U.K. 

The state became a factor for redistribution and regulation, a provider of public services and a custodian of consensual labor relations. It amounted to a concerted attack on the inequality of the Gilded Age. Evidence of this shift is all around us here. 

Consider Greenbelt just off the road from here, a new suburb built under Franklin Roosevelt's Resettlement Administration to provide work for the jobless and affordable housing for those on modest incomes. This process would be deepened further by World War II, which reinforced the democratized capitalism of the New Deal. 

It demonstrated that awesome ability of the democratic state to meet common needs. And, in 1945 in Europe, most notably in the U.K., we saw the introduction of the welfare state: an education, a job, a home, health for soldiers coming home from the war and for their families. 

It blurred certain social divides, though by no means all, as the institutional racism encountered by Thurgood Marshall in post-war Maryland shows. The war also produces the Bretton Woods Institutions, an embedded liberalism providing a stabilizing international environment. 

If Western establishments were alarmed at the march of communism and anxious to show that democratic capitalism could deliver prosperity, the result was what economists call the Great Compression, an unprecedented narrowing of the gap between the richest and the rest that would last until the 1970s. 

Then, the demise of the Great Compression coincided with the rise of what the historian Gary Gerstle has called the neoliberal order. Gerstle defines this as a constellation of ideologies, policies, and constituencies prizing free trade and free movement, deregulation, and globalization. And, it might be added, along with it has come renewed inequality. 

So, this, too, was a democratic shift, yet many of the ideas had been seeded by an elite network of free market economists. And yet, in the U.S. and Britain, neoliberalism benefit also from a marriage of convenience with neo-Victorian moralism. 

But it also responded to genuine failings in a New Deal model that could be too top down, too paternalistic, and too optimistic about the capabilities of the state and, above all, too costly. Detroit seemed, briefly, a model for automakers and union leaders dividing the profits. 

But suddenly, America was driving Toyotas, not Fords. They were cheaper. As Gerstle writes, “Losing the capacity to exercise ideological hegemony signals that political order's decline.” I saw this myself in 1970s Britain as trade union militancy and economic sclerosis paved the way for the coming conservative revolution. 

Election Day in 1979 coincided with Press Day at The Economist, where I was working as a political correspondent. In those pre-digital and heavily unionized days, we had to prepare two lead articles: one for the event that Margaret Thatcher won, and one for the event that she lost. 

It fell to me as the junior political writer to write the second of these, so I dutifully turned in a piece explaining that Thatcher had been too divisive for the country that was not yet ready for her. Of course, she won. Democracy delivered for her, and my article was unceremoniously filed in the trash. 

The people had spoken. But Western voters were not the only ones who turned away from that New Deal order. So did many of their counterparts in developing countries that had often been bequeathed bloated and unsustainable public sectors by retreating colonial powers like Britain, something I had witnessed firsthand across Africa as I traveled there as a student in the '70s. 

Not for nothing was it later joked of my time running the United Nations Development Programme that Fabian socialists need not apply. Even I accepted that the market seemed to be king. And just as the end of World War II turbocharged the New Deal, so the end of the Cold War turbocharged the neoliberal order. 

Embedded liberalism gave way to the Washington consensus, the one-size-fits-all package of privatization and economic liberalization presented to developing countries in crisis in the 1980s and afterwards. The spread of democracy and free market globalization were all too easily mistaken for two sides of the same coin, a notion that anthropologists Peggy Levitt and Sally Merry have dubbed “the neoliberal package.” 

And just as the New Deal forged a consensus spanning the mainstream left and right, so the neoliberal order achieved the same feat. Think Tony Blair and Bill Clinton accepting the core economic principles of Thatcherism and Reaganism, just as, earlier, Eisenhower, a Republican president, had been one of the best New Dealers, building the interstate highway system. 

Now, however, that neoliberal order has also broken down. It has lost the capacity to exercise ideological hegemony. Some trace this to the global crisis of 2007-8, but it's been a more gradual process. From the start, many in the Global South abhorred the injustice of the Washington consensus that placed the burdens of economic adjustment on the shoulders of the poor. 

Like past economic orders, neoliberalism succumbed to its own internal contradictions. Voters accepted the harsh winds of creative destruction in return for broad-based prosperity. But, ultimately, that deal failed. The prosperity was not delivered. 

The winds have been harsh, though. Look at how Baltimore's share of manufacturing employment fell from about a third in 1970 to 7 percent in 2000 and yet lower today. And yet, that broad-based prosperity that was promised looks ever more elusive. In America, over the period 1993 to 2015, the top 1 percent captured 52 percent of the increase in real pre-tax incomes. 

And, as U.N. Secretary General António Guterres noted in 2020, more than 70 percent of the world's population is living with rising income and wealth inequality. Despite record lower interest rates, public investment in rich economies slumped over the decade leading to the pandemic. And, on average, two-thirds of households had flat or falling real incomes over the last decade. 

In many middle-income countries that enjoyed rapid growth in the 1990s and 2000s, such as Brazil or Turkey, Egypt, Kazakhstan, prosperity has subsequently stagnated, and the new middle class is sliding backwards. And now, following the pandemic, austerity is back. 

A recent study in the BMJ Global Health journal showed that by next year, public spending will be lower than the 2010s average for almost half of low- and middle-income countries. Meanwhile, U.S. corporations deliver seven times as much profit in small tax havens like Bermuda, the Caymans, and Luxembourg as they do in China, France, Germany, India, Italy, and Japan combined. 

As Secretary General Guterres puts it, “While we're all floating in the same sea, it's clear that some are in superyachts while others are clinging to the drifting debris.” These are the statistics of an economic order not on the up but rather one failing. 

They're manifestations of a vacuum caused by the decline of one such order without a new one waiting in the wings to replace it. And in that vacuum, all manner of populism and authoritarianism can thrive. In his recent book, The Economics of Belonging, the Financial Times columnist Martin Sandbu explains how economic polarization can translate into political turmoil. 

Being economically left behind creates psychological and physical stress. Some explain this as resulting from a need to compensate the missing personal control. Collective control by a homogenous group or a decisive leader with whom one identifies can provide this compensation. 

Many liberal internationalists on both sides of the Atlantic have spent the past few years scratching their heads over slogans like, “Make America Great Again,” and “Take back control,” but these have had remarkable resonance amongst voters. 

Really, the question they/we should be asking is, “Why did it take so long?” And beyond the rich economies, the vacuum has been filled by a yet more potent authoritarianism, that of the Putins and Xis, the Erdoğans and Bolsonaros. This is a world in which many states, especially in the Global South, saw through the Washington consensus, as I've said, long before Western leaders did so; a world in which the neoliberal order always vied with state capitalism in a contest that pitted Western donors against the people; a world in which the neoliberal package never made much sense, in which globalization and democracy had no natural mutual affinity. 

Former Treasury Secretary Larry Summers recently shared how a friend from the developing world told him, “Look, I like your values better than I like China's, but the truth is when we're engaged with the Chinese, we get an airport. When we're engaged with you guys, we get a lecture.”

The neoliberal order may have started out as a democratic phenomenon and in its heyday was closely associated with the march of democracy, but as it recedes, it leaves behind a world where democracy is on the back foot. Freedom House's latest annual report shows 2022 to have been the 17th consecutive year in which democracy deteriorated in more countries than it improved. 

Another prominent study published in 2020 by the Bennett Institute at Cambridge University and drawing on 3,500 country surveys over some 25 years found support for democracy to be at a low ebb. Their participants turned out to be disenchanted with the incumbents more than the system itself. 

It found millennials to be the most disillusioned generation in living memory. Meanwhile, multilateralism, democracy's sibling, is in equal dire straits. Built to address the last century's problems, international institutions are all too often outdated, ineffective, and captured. More than that, they've struggled to recognize and, thus, adapt to the realities of a changing material order. 

Samantha Power, the administrator of USAID, recently put it like this. “Among the biggest errors many democracies have made since the Cold War is to view individual dignity primarily through the lens of political freedom without being sufficiently attentive to the indignity of corruption, inequality, and a lack of economic opportunity.”

The cumulative effect of these failings is a world of polycrisis, a world of overlapping conflagrations which together are more than the sum of their parts. COVID-19 was one, exposing as it did the costs of rising inequality, ever more lasting and complex conflicts, and stalling global development. 

The IMF last year reported that some 60 percent of low-income countries and 25 percent of emerging markets are at or near debt distress. Today, we can see the polycrisis in the tragedy playing out in Sudan. You've seen news reports about the evacuation of Western nationals from Khartoum. 

But behind the headlines, there lies a deeper story of a failure of the multilateral system as well as the agony of the tens of millions of Sudanese left behind. It is the story of a desperately poor country hit by climate change that has seen locust infestations, crop failures, and almost a million people affected by flooding in 2020; a country that received over 70,000 refugees from its war-torn neighbor, Ethiopia, a third of them children; a country that's been heavily exposed to the surge in grain and fertilizer prices caused by Russia's invasion of Ukraine; and a country that has suffered especially from the collapse in international aid spending since the pandemic; and a country that has long struggled with ethnic, religious, and geographic divisions as well as urban-rural tensions and conflict between herder and farmer, now exacerbated by climate-induced land pressures. 

You do not need to know the fine details of the struggle between military factions in Sudan to understand that this is a country in a grip of a polycrisis. In some respects, the whole story has come full circle. We're back in a new Gatsbyesque golden age with unimaginable opulence coexisting with desperate material need, but not just between the big houses of Baltimore and its slums but across a world similarly divided into pockets of excess and massive areas of exacerbated inequality; an age once more marked by a tense, even antagonistic relationship between the prevailing economic order and democracy and in which the global order is a function less of multilateral institutions and laws but of the balance of power and of that rule of the jungle, might is right. 

The Anglo-Irish novelist Oliver Goldsmith wrote several countries ago, “Ill fares the land, to hastening ill a prey where wealth accumulates and men decay.” I expect a new post-neoliberal order is, however, inevitably dawning. But it's not enough to really sit back and wait for it to arrive. 

As Frederick Douglass once put it, “If there is no struggle, there is no progress. Those who profess to favor freedom and yet deprecate agitation are men who want crops without plowing the ground. They want rain without thunder and lightning. They want the ocean without the awful roar of its many waters.”

Today is a time when there must be agitation and debate. The new economic order must be shaped by the efforts of those such as yourselves. But it perhaps helps to think of this as a process in at least two stages. First, there's obviously a need for quick fixes to the human misery of the current polycrisis. If a ship is sinking, let's plug the holes and try and help it set a new course towards calmer waters. 

That demands a speed, a spontaneity, a pragmatism from the international community that has been in precious little evidence in recent years. All too often, it's fallen to small states rather than to big ones to show the requisite will. In 2020, it was tiny Liechtenstein that tabled a bid to overhaul the use of the veto by members of the U.N. Security Council. 

Adopted in April last year, the initiative obliges the General Assembly to meet within ten days of any member of the UNSC blocking an agreement. In 2022, it was Barbados, with the keen support of the Open Society Foundations and myself, that convened a high-level summit that spawned the Bridgetown Initiative, a radically ambitious plan to marshal the financing needed for the global green transition. 

But, ultimately, the political will for these changes is a matter of priorities. U.S. banks get rescued within three days, but Zambia is still struggling to get a debt agreement after two years. We cannot accept and live with those differences of priority indefinitely. 

But so much in a way, therefore, for plugging holes. It is limited, and politics makes it even less effectual than it might otherwise be. But what about the longer horizon, setting the ship on a right course, rebuilding democracy and, with it, multilateralism? 

If the neoliberal order has failed, we find ourselves in an interregnum. And certain contours of what comes next may be starting to make themselves known. From Joe Biden's Inflation Reduction Act to the European Union's more muscular approach to trade and industrial policies, both usher in a new kind of green industrial policy on both sides of the Atlantic. 

From the Green New Deal to the state-led development model predominant in low-income countries, already, we're seeing a new, post-neoliberal order centered less on absolute efficiency and more on a resilience. Harvard economist Dani Rodrik has tentatively dubbed this “the age of productivism.” 

Productivism differs from everything that came before, he argues. It differs from the Gilded Age as it considers democracy much more than a palliative for inequality. It differs from the New Deal as it relies less on redistribution, macroeconomic management, and technocratic expertise. 

And it differs from the neoliberal order because it's less naive about markets and big business, more focused on production and investment over finance, and emphasizes place and belonging in its sense of economy and society. Many have tried to identify and proclaim some new economic order over the past tumultuous years, but I think, of the models I've seen, Rodrik's is the most impressive. 

And many of his fellow travelers are ones who we're very pleased to support at Open Society: Mariana Mazzucato, whose 2013 book The Entrepreneurial State upended neoliberal orthodoxies by showing that, in many cases, especially those involving cutting-edge technologies, the state, not the market, was the risk-taker of last resort. 

Another might be Pavlina Tcherneva, whose 2020 book The Case for a Jobs Guarantee advocated a voluntary work opportunity paid for by the state at least to the level of a minimum wage for anyone who wants it. This, she argued, would be a floor under wages and employment levels in an age in which automation threatens to exert hugely disruptive downward pressure on both. 

As I've said, both are our grantees, as are many other of the emerging intellectuals and thought leaders of this new set of ideas which may shape the institutions of our future. And if one looks just beyond what's already visible to a world where the role of labor is once more put into greater prominence beside that of employers and governments; where the whole agenda of ESG is given the priority not across accounting regulation, remuneration, competition, and liability regimes, as well as in a company's priorities to its shareholders, then we start to see an emerging new potential social contract, as Minouche Shafik, the outgoing director of the LSE and incoming president of Columbia, has called it; one where we orient societal priorities towards longer-term investment in green infrastructure, state capacity, and human development. 

And I think COVID-19 brought home to us the importance of resilience in this model. And we're seeing the demands climate change is placing on states. New heat records were set day to day last month across Southeast Asia, where schools closed, power cuts, and workers told to stay home in Vietnam, Laos, Cambodia, and Southern China. 

Far worse is to come. We're confronted with a series of fundamental questions. Is bigger government here to stay? Will they be enabling or overbearing? And what international framework is required to sustain government of the future, to protect the rights of individuals, even as we lean forward into a more progressive, activist government than we've been used to in recent years? 

And in that context, the U.N. and other multilateral institutions must change perhaps even to survive. And I think the challenge is to what extent that can happen. I myself saw firsthand, and Bob was kind enough to refer to it earlier today to me, our efforts to promote the Millennium Development Goals, which, when he was just a Washington insider, long before he discovered God and Maryland, he was a bit skeptical about. 

But I think, as we move forward, we'll see a U.N. which is much more, if it is to survive, a coalition of not universal gatherings of states but those states who will deal-make to drive forward progress, whether it is on climate, the regulation of AI, the addressing of migration movements, et cetera. 

And it will both be more transactional in the sense of the coalition it will build but more of a campaigning organization that gets out from behind the sort of diplomatic walls of the East River in New York and is seen out on the streets and fields of society around the world in partnership with a much-empowered civil society, which, again, needs to find its own place in this emerging new order that I think is on its way. 

And if there's, on that last point, one watchword for this new framework of global governance, it must be “inclusivity.” Whether it's COP climate talks, the G20, the U.N., elsewhere, we're seeing this big push for what is shorthand called the Global South, for the countries, low- and middle-income countries of that region, to be given a voice that they have been excluded from so far. 

Because only with their inclusion are we like to find a multilateralism that has the roots and staying power for the new world that we are going into, a world where Africa will very quickly become the largest single population center and continent in the world, for example. 

And as this moves forward, the challenge for us at Open Societies is, “Is this new world one where collective rights trump individual rights, where the interest of the state to build that green transition, provide inclusive growth means that it's at the expense of human rights or in support of human rights?” 

And it's not at all clear where that battle lands, as it's not at all clear where the battle for democracy lands. Many of the countries which will be empowered by a new dispensation for the Global South are countries which are not led by democratic governments at present, where there is not a tradition of respect for human rights, be they political rights, or a woman's rights, or LGBTQI rights. 

So, this is a world of turbulent pressure which need to play out to ensure that, going forward, we have a world democratic and inclusive and not just a world of big government able to address big social and environmental problems but at the expense of rights not at their promotion. 

And, finally, a word about ourselves, OSF. I look at this emerging world in two ways. I look at it short-term. And I mentioned the Bridgetown Initiative, something we have given a lot of support to, which is an attempt to provide a series of measures which would contribute to much greater fiscal headroom to developing countries in the coming years, provide them with a measure of climate insurance against national disasters, begin to make progress on longer-term climate finance mechanisms. 

And I apply that as the lens of urgent capital, where we have a capacity to move, often, much more quickly than governments, much more decisively than governments, and to take risks that governments and private sector players might not take. 

But then, I think we have a second window, which is our patient capital. And I look at us being on a ten-year journey to build the institutions of that future political order, whether it is at the community, the national, or the global level. And I look at it as a democratic journey, that it's not our job as a foundation accountable only to our board and our founders, to design that new order. 

Our job is to fund those whose debates and clashes of ideas and whose often angry clashes of debates and ideas will allow that new set of institutions, social movements, and ideas to emerge that form the framework for a better-governed world in the future. But unless it comes from that democratic clash and competition of ideas, it won't, ultimately, survive. 

I began by quoting Thurgood Marshall, that, “Democracy just can't flourish amid fear, liberty cannot bloom amid hate, justice cannot take root amid rage.” That's the best-known part of what he said. But the full passage is longer. “America must get to work,” he continued. 

“In the chill climate in which we live, we must go against the prevailing wind. We must dissent from the indifference. We must dissent from the apathy. We must dissent from the fear, the hatred, and the mistrust.” And it is to that Thurgood Marshall call that I, in a sense, say to all of you, some of whom, I suspect, are graduating in just a few days' time from this institution, it's an extraordinary world out there. It's as exciting as it's ever been. It's as dangerous as it's ever been. But if ever there should be a class of students from a school like this ready to throw themselves into those challenges, it should be now. Thank you.