Rigged Capitalism and the Rise of Pluto-populism: On Martin Wolf’s “The Crisis of Democratic Capitalism”

By Jonathan KirshnerMay 14, 2023

Rigged Capitalism and the Rise of Pluto-populism: On Martin Wolf’s “The Crisis of Democratic Capitalism”

The Crisis of Democratic Capitalism by Martin Wolf

“DEMOCRACY HAS DISAPPEARED in the past. It would be silly to assume it could not do so again.” Martin Wolf—the accomplished, levelheaded chief economics commentator at the Financial Times, and first-name-basis-friendly affiliate of the world’s leading finance ministers and central bankers—is not kidding around. His new book The Crisis of Democratic Capitalism—in many ways a natural follow-up to his outstanding The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis (2014), which remains one of the finest interrogations and interpretations of the Global Financial Crisis and its aftermath—is steeped in an uncommonly clear-eyed awareness about the fragility of civilization. “I have never taken peace, stability, or freedom for granted,” he states plainly in this book’s bracing preface, “and regard those who do as fools.”

The Crisis of Democratic Capitalism is an essential read for its articulation of the perilous crossroads at which the future of enlightened liberal civilization now stands. Wolf argues persuasively that, for all their visible flaws and imperfections, competitive market capitalism and liberal democracy are the best bad systems available for organizing human societies. And each requires the other to thrive—“[b]ut this marriage between those complementary opposites […] is always fragile.” Capitalism has been allowed to run amok, and it has elicited a backlash that threatens democracy.

It is hard not to be in agreement—even deeply moved agreement—with Wolf’s diagnoses. And the middle third of this book, “What Went Wrong,” should be required reading for anyone who might underestimate the present danger faced by even long-standing “consolidated democracies.” When it comes to solutions, unfortunately, The Crisis of Democratic Capitalism comes up short. Wolf, ever measured, is convincing in making the case for reform over revolution. Although it is tempting to think that deeply ingrained problems require tearing things down, revolutionary movements almost invariably spiral out of control, fall into the hands of ever more radical extremists, and devolve into bloodbaths. Yet it is disheartening that the sensible, reformist agenda of reasonable, practical measures that Wolf outlines already seems beyond the capacity of our politics.


Wolf’s central argument is that capitalism and democracy are inherently interdependent, yet also often in tension with one another—and managing the balance of that indispensable relationship is akin to walking a tightrope. In traditional autocracies, the economy has been captured by those that control the state, and that control is the basis of their power (which is why they are so reluctant to let go of the reins of authority). Liberal democracies today face the inverse problem: the capture of the state by those that control the economy. This is plutocracy, and aside from the injustice it visits on societies, it is also profoundly dangerous, because in democratic plutocracies (like the United States today), the simmering frustrations of mass polities will at some point lead to the voluntary election of an autocrat: “[I]nsecurity and fear are gateways to tyranny.” Decades of stagnant incomes, rising inequality, and the erosion of high-quality jobs for the middle class and the less-educated have allowed the relationship between capitalism and democracy to become dangerously unbalanced. The Crisis of Democratic Capitalism argues that the fault lies with the failure of public policy to tame the excesses of capitalism; it warns that those excesses will unleash the forces that destroy democracy.

Economic inequality, on the rise for 50 years, has soared to ever greater extremes in recent decades. As Wolf reports, from 1993 to 2015, the real income of the top 1 percent of the population in the United States nearly doubled; for everybody else, over those same years, aggregate real income grew by 14 percent. More pointedly, as the very rich got much, much richer from 2005 to 2014, 81 percent of US households had flat or falling real income—a weighty reminder that we continue to live in a world defined by the Global Financial Crisis and its aftermath. Returning to the terrain of The Shifts and the Shocks, Wolf observes that the Wall Street titans who caused the crisis “mostly walked off with large fortunes, while tens of millions of innocent people’s lives were ruined”—a catastrophe exacerbated by the swift, misguided application of austerity measures as soon as it became clear that a complete financial meltdown would be avoided.

The role of the Global Financial Crisis (and the dismal political management of its aftermath) in exacerbating trends in inequality—and, at least as important, further fueling perceptions that the system was corrupt and fundamentally unfair—ought not be underestimated. Nor should it necessarily surprise. Wolf shows that the 1931 international financial crisis served as a tipping point in public support for the Nazi party in Germany, which won 2.6 percent of the vote in 1928 and 37.3 percent in 1932, and he cites a fascinating new academic paper that underscores this chilling point. The 1931 crisis, a global upheaval that sent the world economy reeling, started in Austria and then spread to (pre-Nazi) Germany, leading to the collapse of that country’s second largest bank. This accelerated the Nazi movement, according to the study, as “localities affected by Danatbank’s failure voted significantly more for the Hitler movement.” In any event, with or without this sobering parallel, as Adam Tooze argued in Crashed: How a Decade of Financial Crises Changed the World (2018), the norm-shattering American presidential election campaign of 2016 can only be understood in the context of the widespread revulsion at the 2008 crisis and that which followed. The emergence of new, powerful, populist movements from both the left and the right (and the inconceivable nomination of an inexperienced, ignorant reality-TV celebrity to be the Grand Old Party’s standard-bearer), is directly attributable to those societally backbreaking events.

Moreover, the 2008 crisis was not an exogenous shock; it was an accident waiting to happen, encouraged—and indeed rendered virtually inevitable—by the (politically buttressed) financialization of the American economy. It is hard to overstate the consequences of the rise of finance—and its transformation from a crucial facilitator of economic activity to an end in itself (for some). The pernicious metastasization of finance throughout the economy contributed to an orgy of reckless speculation—seen, to take one example, in the explosive growth of the (purported) value of derivatives transactions from $72 billion in 1998 to $653 billion a decade later. As Wolf archly observes, “[l]ittle of this expansion of financial balance sheets went into financing fresh investment,” and he finds it “hard to disagree” with the assessment that much of this activity is “socially useless.” This echoes John Maynard Keynes, who long ago reminded readers that, in a capitalist society, “the proper social purpose” of finance is “to direct new investment” towards productive enterprises. But “when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

This is no small matter, as the financialization of the economy, especially after the 1990s, and the fortunes amassed from that process, were part and parcel of a larger shift towards “rigged capitalism”—the emergence of which The Crisis of Democratic Capitalism places at the heart of the matter. In a remarkable (and laudable) intellectual evolution, Wolf, who welcomed and celebrated the Thatcher revolution in Britain, and not so long ago penned the book Why Globalization Works (2004), now attributes the crisis of our time to “what Adam Smith warned us against—the tendency of the powerful to rig the economic and political systems against the rest of society.” Superseding a well-ordered market society, rigged capitalism—a toxic brew of developments and practices including financialization, winner-take-all markets, reduced competition, increased rent-seeking behavior (the use of concentrated economic power to extract monopoly profits), tax avoidance and evasion, and the erosion of ethical standards—has led to a widespread loss of confidence in the legitimacy of democracy.

The Shifts and the Shocks decried a system in which “well-connected insiders” are “shielded from loss but impose massive costs on everybody else.” Democratic Capitalism emphasizes that this problem transcends the financial sector. In a country with half a million people in jail for minor drug offenses, “the members of the Sackler family,” who “bear heavy responsibility for […] probably the worst drug-related scandal since the opium wars,” are “not going to prison, but are just losing some of their billions of dollars.” As Wolf incisively (and inarguably) observes, “[s]uch power without accountability is a monstrous privilege, redolent of feudalism more than of a contemporary liberal democracy.”

These pathologies run deep, and well below the headlines. The use of political power to undermine competition—which must thrive at the heart of any capitalist society—is an endemic attribute of rigged capitalism. (And it is why we pay higher prices for most things than a “free market” would levy.) Many if not most giant corporations are now monopolies or near-monopolies, a situation that, as any card-carrying professional economist of even the most conservative stripe would agree, generates inefficiencies, rent-seeking behavior, and outright exploitation. Many markets have become shielded, protections reinforced by access to the corridors of power, with wealth extracted from consumers (and workers) in consequence: consider the atrocity of unskilled workers in fast food restaurants being forced to sign “non-compete” clauses, an act of collusive wage suppression.

Rigged capitalism—which yields massive concentrations of wealth for a sliver of largely-above-the-law plutocrats, combined with stagnation and declining opportunities for the majority—leads to a basic political problem: “How, after all, does a political party dedicated to the material interests of the top 0.1 percent of the income distribution win and hold power in a universal suffrage democracy? The answer is pluto-populism.” This is where race, identity politics, and the culture wars come into play. The century-long political hammerlock held by the Democratic Party on the Old South was based on voter suppression and other devices that guaranteed, for working-class whites, greater economic opportunity, access to the legal system, and higher social status than Blacks, in exchange for their political support. Bob Dylan, at 22 years old, saw through this in his song “Only a Pawn in Their Game” (1964)—and nearly 60 years later, that game hasn’t changed much.

One notable difference is that the teams have switched jerseys. The Civil Rights Act of 1964 paved the way for a fundamental political realignment, following the race-based “Southern Strategy” pursued most aggressively by Republican presidential candidates Nixon and Reagan. Thus, by 2019, in the states of the old Confederacy, Republicans would hold nine of 13 governor’s mansions, claim 23 of a possible 26 senators, and control more than two-thirds of the available seats in the House. Wolf argues that pluto-populism involves “a specific elite political strategy,” the pillars of which are the instrumental inflaming of culture wars; aggressive, antidemocratic gerrymandering; and the elimination of restrictions on the role of money in politics. “Racial identity explains the success of the southern strategy in cementing plutocracy,” and abetted by a conservative Supreme Court, that once regional strategy has become nationalized.

Despite all this, rigged capitalism will nevertheless unleash forces not easily contained—and render liberal democracy unsustainable. As political scientist Rawi Abdelal has argued, “the social fact of unfairness is more important than the material fact of income and wealth distribution.” Endemic corruption, arbitrariness of justice, and fear for future prospects are poisonous to the body politic, undermining shared perceptions of the legitimacy of democratic society. In such settings, past and present, fear, despair, and frustration create the space for charismatic personalist authoritarians peddling promises of deliverance but who, once in power, consolidate their hold on the state by undermining the institutional constraints on their authority. And so, democracy dies from within.

What is bewildering about the American case is not that it has witnessed the rise of a leader who, as Wolf describes, “not only had no idea what a liberal democracy was but despised the idea,” and who was “instinctively authoritarian”—this, after all, is what pluto-populism conjures. What remains bizarre, however, is that, of all the possible choices, a hedonistic, ethically suspect, narcissistic grifter—who for decades was a signature beneficiary of rigged capitalism—would emerge as the people’s choice. Yet Donald Trump, like the gargantuan Stay-Puft Marshmallow Man from Ghostbusters, has been summoned by a collective subconscious rage to act as a malevolent score-settling agent of destruction.


The Crisis of Democratic Capitalism, although compelling in its elucidation of the challenges faced by enlightened liberal civilization, is nevertheless saddled with two limitations. The first limitation involves a blind spot with regard to its conceptual framework; the other, which is more dire, speaks to the prospects for its proposed solutions. Wolf, who takes as a given that the economic shocks of the 1970s delegitimized the practice of “postwar Keynesianism,” fails to recognize that Keynes’s original conceptions bore little relationship to those practices. More important, attendant with Keynesian revolution was the emergence of a distinct culture of capitalism—a “social market economy” characterized by norms to which The Crisis of Democratic Capitalism urges us to return. But the rise to predominance of anti-Keynesian academic theories in the 1980s—in particular, rational expectations theory and the efficient markets hypothesis, both ultimately wrong in theory and ruinous in practice—provided the intellectual succor for a radically contrasting philosophical vision.

Seen in this way, Wolf’s “rigged capitalism” is better understood as more than a set of individually pernicious pathologies; collectively these represent the emergence of a distinct culture of capitalism, a neo-Dickensian style of economic practice (with related values) that was once the stuff of caricature by capitalism’s most extreme critics. Thus, The Crisis of Democratic Capitalism rightly bemoans the emergence of “shareholder value” capitalism, which prioritizes, above all else, efforts to maximize the (short-term) price of a company’s stock—all other purposes (including what the firm actually does) be damned. It is a philosophy that “guarantees opportunistic behavior by powerful insiders.” Nor is it imposed upon us by irresistible market forces: “The evidence seems overwhelming that the huge rise in managerial rewards […] has had next to nothing to do with corporate performance.”

The problem, then, is not simply that contemporary capitalism is rigged. Rather, even without the stacking of the deck, the normative practice of capitalism has changed. Wolf notes the obscene rise in executive compensation, but the larger issue is that contemporary capitalism is no longer rewarding workers a “fair share”—even by its own minimalist definition of fairness. As US corporate executives were handed ever-fatter pay packets by their fellows, worker compensation flatlined. In the 1950s, a company’s CEO earned about 20 times the salary of its average employee; that multiple reached 100 in 1993, and approached 300 in 2019. During the 1970s, a divergence between worker pay and worker productivity emerged, and it has since widened into a yawning abyss.

Eugene Fama, the intellectual father of the efficient markets hypothesis, was asked if it was possible that some CEOs might be overcompensated. “If it’s a market wage, it’s a market wage,” he insisted. But it is not. Compensation, increasingly, is untethered from productivity, and instead has become the result of the ruthless extraction of what can be taken. All going concerns generate profits, which are apportioned to all participants in the enterprise. Who gets how much, however, is determined at least as much by cultural norms as by the laws of economics. Shareholder value capitalism embraces a bare-knuckled fight over how those rewards will be distributed, with outcomes determined by relative economic and political power.

In sum, the problem of a just society, and of restoring that vital, delicate balance between capitalism and democracy, will go beyond unrigging capitalism—though contemporary capitalism urgently, even desperately, needs to be unrigged. As Wolf argues persuasively, rigged capitalism has fueled populist backlashes that are being exploited by plutocratic political entrepreneurs, and which threaten the very survival of liberal democracy. And without economic and political reforms, “[t]he year 2024 might mark the end of American liberal democracy.”

But this is where The Crisis of Democratic Capitalism fails to inspire. It is not that Wolf’s proposed reforms—measured, reasonable, smart, constructive—don’t make sense. It is that they seem exceedingly unlikely to be adopted. Soberly sifting through 70 pages of what a “New” New Deal might look like yields mostly agreeable generalities (“Ending special privileges for the few”) and extremely sensible reforms (greater fairness in the tax code, thoughtful forms of public investment, independent commissions to end gerrymandering, reducing corporate influence in elections, etc.). But we have all been here before. In 1976, Jimmy Carter lambasted the US tax code as “a disgrace to the human race.” Things have only gotten worse. Similarly, Wolf notes that “[s]ome form of carbon tax is a no-brainer.” It surely is—indeed, even George W. Bush’s chief economic advisor Greg Mankiw has supported this notion for decades. Yet our political system seems incapable of achieving even the no-brainers, to say nothing of urgently needed reforms, which will be resisted ferociously by an entrenched and empowered plutocratic class.

The Crisis of Democratic Capitalism is a tour-de-force—but ultimately a despairing read, as its proposed solutions, invariably reasoned and measured, seem well beyond reach. And so, its final sentence, “If we fail, the light of political and personal freedom might once again disappear from the world,” reads less like a call to action and more like an epitaph.


Jonathan Kirshner is professor of political science at Boston College. He is author of numerous books, including American Power After the Financial CrisisHollywood’s Last Golden Age: Politics, Society, and the Seventies Film in AmericaAn Unwritten Future: Realism and Uncertainty in World Politics, and the novel Urban Flight.

LARB Contributor

Jonathan Kirshner is a professor of political science at Boston College. He is the author of numerous books, including An Unwritten Future: Realism and Uncertainty in World Politics (2022), American Power After the Financial Crisis (2014), Hollywood’s Last Golden Age: Politics, Society, and the Seventies Film in America (2012), and the novel Urban Flight (2015).


LARB Staff Recommendations

Did you know LARB is a reader-supported nonprofit?

LARB publishes daily without a paywall as part of our mission to make rigorous, incisive, and engaging writing on every aspect of literature, culture, and the arts freely accessible to the public. Help us continue this work with your tax-deductible donation today!