Opinion This moment of crisis

The second premise was that inequality would be justified in two ways. The performance of those to whom large gains would accrue would somehow merit it; and the system of inequality would produce gains for all. But the merit claims of those in finance who got the most by way of bonuses and salaries turned out to be a mirage: a product of the entirely self-fulfilling claims of elites. Rising poverty and stagnant middle class wages make the social gains from inequality more doubtful.

The third premise was the possibility of endless productivity transformations that would keep these advanced economies in leadership positions. But there is now a real worry that this downturn may be more structural than temporary.

The second aspect of the social contract has to do with democracy. Democracy does not just require robust formal institutions or participation. Democracy depends upon a deep system of social checks and balances,where different groups and social classes counter each other’s power,to produce a tense equipoise. This requires fragmentation of power not just in formal institutions,but also in society. It was once argued that the core of liberalism is the delicate art of separation. The one way in which power is fragmented intelligently in society is by sequestering the effects of power in one domain,over power in another. So,typically,you don’t want the interests of the wealthy to dominate the political spectrum,or distort law,or fully determine equality of opportunity in education. This sequestering has never been perfect. Limiting the power of wealth over areas other than the economy has always been a key challenge for liberal democracies. The big shock has been the recognition that these checks and balances had broken down.

In retrospect,what is remarkable about the last couple of decades is this. Wealth has always exercised disproportionate influence in democracies. But its ability to take over and reorient all countervailing institutions became unprecedented. Labour movements had long been decimated. A sense of local community solidarity was swept away in the unprecedented mobility of globalisation. Other countervailing forces fared no better. The corporatisation of media produced public discourse that blindsided citizens to reality. Social media has been a revenge of sort. But it is better at giving expression to anger than organising serious shared narratives. As professions moved from being guilds to market-driven services,they came to legitimise the same norms that reinforced the runaway power of the privileged. In short,institutions that should have been counterweights to economic inequality reinforced it. Democracy was supposed to fragment power,not concentrate it. States and markets were meant to counter each other,not exacerbate each other’s weaknesses.

But just as potential countervailing forces were being weakened,the noose began to be drawn around the public’s neck in other ways. In the US,institutions like the courts also appeared to lurch rightwards in areas they should have been more cautious. The court’s campaign finance judgments,for example,have made it all but inevitable that the power of money increases. Second,a lot of so-called democratic experimentation played right into the hands of small elites. Deeper forms of direct democracy,including referendums in California,arguably made the state less governable. The primary system,the signal achievement of US intra-party system,has worked in ways that empower extreme voices within parties. Campaign finance changes have made the system more perversely dependent upon the power of money. In short,institutional experimentalism did not produce the desired results. The beauty of the current crisis is not the triumph of a small elite; it is how it used the means of democratic empowerment to achieve its goals.

Third,there was the ideological shift. There is no denying that the current crisis was,in part,induced by a set of intellectual norms that got embedded across a vast range of institutions. Finally,there was the element of citizens’ complicity: a strange cabal of intellectuals,the political class and wealthy kept the illusion going that there were no hard choices to be made,whether on credit,consumption or taxes. When the day of reckoning came,citizens felt cheated.

Even after the crisis,the elites had an opportunity for self-correction. But they continued to pretend as if nothing had changed. The anger has come after ample opportunities for course correction. Second,the distribution of the costs of adjustment matters a great deal. And there is a justified sense that the privileged have paid very little of those costs. Third,there is still no credible narrative of hope. It is tempting to present this crisis as a small aberration,induced by lax regulation. But the gnawing feeling that for the West something fundamentally might be changing is hard to disguise. While the US has potentially more resilience,the underlying sensibility of decline will pave the way for a politics of fear more than hope.

The protests are inchoate because they could not have been embedded in any of the traditional institutional forms. They are struggling to imagine new institutional forms. Protests are good at one thing: restoring a sense of agency. But whether they can reckon with the deep historical forces shaping our times is an open question. The terms of the social contract have to be rewritten. Capitalism has to justify itself in terms of social gains,and democracy in terms of empowerment. But at the moment no one quite understands what all of this might mean.

The writer is president,Centre for Policy Research,Delhi,express@expressindia.com