Knowledge-based capitalism and democracy: a virtuous circle?

Democracy and Prosperity theorizes a positive relationship between the current form of capitalism, which the authors call advanced, and democracy. The adjective advanced refers to knowledge-intensive capital and production. Iversen and Soskice's argument is predicated upon three tenets. First, governments are crucial in and for advanced capitalism. Contrary to what is often argued (see for instance, Streeck, Reference Streeck2009; Piketty, Reference Piketty2014), Iversen and Soskice maintain that globalization has reinforced democratic politics because the latter is fundamental to ensure that firms operate in a competitive environment where ‘rules of the game’ are clear and stable enough to avoid damaging beggar-thy-neighbour strategies. Second, democracies have incentives in regulating advanced capitalism because the electoral premium for parties that show outstanding economic competencies is particularly high. Third, advanced capital, which is highly dependent on knowledge, is geographically entrenched rather than selfishly running after low labour costs across borders. Skill formation systems, which are national creatures, are the primary reason why capital is relatively immobile.

According to Democracy and Prosperity, the interests of labour and capital do not collide in advanced capitalism. Rather, the skilled workforce of the knowledge-intensive sectors and the ‘aspirational voters’ who aim to become part of such a workforce are interested in furthering advanced capitalism and will cast their ballots accordingly. This is how labour and capital interests go hand in hand. But what about the lower-end of the skill spectrum, which has no evident reasons to support skill-intensive capitalism? Iversen and Soskice concede that advanced capitalism comes with a new skill-centred cleavage that offers a breeding ground for the emergence of populism. The latter, nonetheless, threatens neither advanced capital nor democracy. This has two explanations. First, ‘part of the populist reaction is in fact a call to be included in the wealth stream of the new economy’ (p. 218). Second, policies that are expressly against the knowledge economy are unlikely to achieve enduring electoral success simply because they are of no convenience to the middle classes.

What does Democracy and Prosperity tell us about the contemporary relationship between capitalism and democracy? First, Iversen and Soskice's book is compelling in re-stating the centrality of national skill-formation systems in knowledge-intensive capitalism (Hall and Soskice, Reference Hall and Soskice2001). As also Mazzucato (Reference Mazzucato2013) shows, despite the free markets mantra, the nation-state is a key reservoir of knowledge in today's economy. It would then be simply wrong to argue that advanced capital could retain its profitability without democratic institutions. However, a more problematic question pertains to the other side of the argument, which states that democratically elected governments have undertaken the ‘political construction’ of knowledge economies in response to electoral demands. Unquestionably, policy decisions have been decisive to the emergence and reinforcement of advanced capital. But to contend that they have been taken in the first place because of electoral demands means to mistakenly assume politicians to be free from any business power, which overlooks a vast strand of political science literature devoted to such a concept (Lindblom, Reference Lindblom1982; Vogel, Reference Vogel1987; Hacker and Pierson, Reference Hacker and Pierson2010; Culpepper, Reference Culpepper2011). Building on this scholarship, a reversed interpretation of the argument proves more convincing. That is: governments did not enact pro-knowledge-economy reforms because voters demanded them. Rather, voters wanted them – and governments adopted them – because knowledge-intensive companies increasingly became the privileged loci for value-added creation, which significantly increased their political leverage. For skilled-enough voters, this meant job opportunities. For governments, this resulted in enhanced competitiveness on the global stage. Thus, democratic politics did not ‘construct’ the knowledge economy because a consistent majority of voters pushed for it. Rather, advanced capital became so indispensable to national economies that governments found themselves forced to accommodate it to navigate the waters of globalization.

The conception of populism enshrined in Democracy and Prosperity speaks to the relationship between capitalism and democracy too. As mentioned above, Iversen and Soskice conceive of populism as no serious threat to the symbiosis between capitalism and democracy. While this may well be true, it does not say much about the strength of such a symbiosis. Instead, what is telling in this regard is the emergence of populism itself. The mere fact that ‘anti-system politics’ (Hopkin, Reference Hopkin2020) has grown to such an extent shows that while advanced capital was advancing, increasing parts of the electorate were being left behind and felt the need to re-asserting their citizenship rights. This suggests a truncated-symbiosis scenario where advanced capital primarily benefits the knowledge-intensive segment of the workforce at the expense of the others. No doubt, as Iversen and Soskice maintain, skill provision systems are effective tools for cushioning such harms. Yet only a minority of training systems are well-equipped to thrive in knowledge-intensive capitalism. In countries where skill formation is inadequate, then a substantial portion of voters will oppose the knowledge economy as a system that excludes them. ‘Aspirational voters’ matter as long as they can have reasonable expectations of upward mobility. If they cannot, they seek an alternative that promotes – at least in discourse – their interests. Hence, ‘anti-system politics’ (Hopkin, Reference Hopkin2020).

Equality among unequals: how is democracy compatible with rising income inequality?

‘Anti-system politics’ (Hopkin, Reference Hopkin2020) thrives on the existence of multiple malaises – what Streeck (Reference Streeck2016) calls ‘multi-morbidity’ – that severely undermine the capitalism−democracy symbiosis depicted in Democracy and Prosperity. Among them, growing income inequality between a small percentage of super-rich and the rest of the population has been at the forefront of heated discussions. While it comes as no surprise that capitalism generates inequality, the last four decades have shown the evident incapacity of democratic institutions to mitigate the rise of income inequality. Capitalism, alone engages with this discussion by concentrating on the implications of ‘the global victory of capitalism’ (p. 176) in terms of income inequality and class structure. It identifies two variants of capitalism that have come into being over the last four decades, i.e., ‘Liberal meritocratic capitalism’ and ‘Political capitalism’. The former, epitomized by the US, distributes goods and services by rewarding ‘talent’ (meritocratic) and, at the same time, seeking to reduce the intergenerational transmission of disadvantages (liberal). In principle, it is on good terms with democracy. Four inequality-fuelling elements, however, are likely to hinder such a fruitful relationship. First, the share of capital income (relative to labour) in the total product is on the rise. Second, capital-rich individuals are more and more frequently also labour-abundant, which means that they possess ‘slices of the cake’ that were previously eaten by wage workers who earned virtually no capital income. Third, better-off individuals increasingly marry each other. This relates to a fourth element, which is a high correlation of income between parents and children. Political capitalism, of which China is the most prominent instance, is characterized by the combination of (i) highly efficient bureaucratic machine (ii) absence of the rule of law (iii) marked autonomy of the State. The fact that a scant application of the rule of law undermines administrative efficiency makes political capitalism ‘always in precarious equilibrium’ (p. 95). Political capitalism presents high level of inequality as well – especially in terms of mounting share of capital income and its concentration in the hands of the rich. Contrary to Iversen and Soskice, Milanovic argues that globalization has rendered capital and labour – in both systems – fundamentally mobile. This has fuelled inequality, led to greater commodification and fostered atomization thereby undermining ‘the human relations and trust that are needed for the market economy to function smoothly’ (p. 192).

Capitalism, alone proves both incomplete and enlightening with regard to the relationship between capitalism and democracy. On the one hand, the author notes that the inequality-creating character of neoliberal capitalism puts pressure on democratic politics. Yet he does not elaborate on the concrete consequences of such problems for democratic institutions, which makes it hard to understand how inequality is actually threatening democracy. Furthermore, Milanovic puts forward policy measures – e.g., tax advantages for the middle class, increased investments in public schooling, solely publicly funded electoral campaigns – that might pave the way for a more egalitarian version liberal meritocratic capitalism. The question of how these policies, which would overtly challenge the status quo, can be adopted in the present scenario remains nonetheless obscure. This somewhat relegates Milanovic's proposals to interesting but prescriptive recommendations. On the other hand, the analysis of political capitalism spotlights a crucial element largely disregarded in the other books analysed here: to understand the present and future relationship between democracy and capitalism, it is (also) necessary to pay due attention to how non-democratic regimes connect with capitalism. China is the example par excellence. In a period of extraordinary economic growth and mounting geopolitical strength, China is likely and arguably willing to benefit from the weakening incontestability of the association between democracy and capitalism by proposing its own model as more effective than low-growth Western democracies. Take ‘The Belt and Road Initiative’, the China-sponsored investment initiative to develop a vast array of transport networks to foster regional integration and cross-border trade from East Asia to Africa and Europe (Chen et al., Reference Chen, Song and Yang2021); or the Chinese strategy in Africa entailing massive direct infrastructural investments (Ching-Kwan, Reference Ching-Kwan2017). Such actions have enhanced China's credibility as a global player and thus improved the legitimacy of political capitalism in the international arena.

Digital capitalism and democracy: an impossible coexistence?

Digitalization, intended as the increasing diffusion of digital technologies in our economic, political, and social experiences, is arguably the most far-reaching transformation our societies are undergoing. In The Age of Surveillance Capitalism, Zuboff traces the origins and consolidation of a new type of capitalist mode of production associated with the rise of digital tech giants such as Google and Facebook. What she terms ‘surveillance capitalism’ has its roots in the digital hyper-optimism that characterized the early 2000s and conceived of the World Wide Web as a dreamlike non-place where freedom would reach its purest form. According to Zuboff, however, initial democratizing expectations were soon replaced by an unprecedented form of capitalism, namely surveillance capitalism, that relies on surveillance to transform investments into profit. The neoliberal ethos, gradually become dominant since the mid-1970s, offered this new mode of production a functional ideational toolkit for its emergence and expansion. Surveillance capitalism, of which Google has been the master, comes with its own ‘laws of motion’, Zuboff notes. Behavioural surplus, namely the potential profit extractable from billions of users' behavioural data, is the backbone of the system. The ‘means of behavioural modification’, as Zuboff calls the digital infrastructure that allows for behavioural data extraction, function through increasing returns mechanisms, that is: the more data they consume the more accurate their predictions become, and the higher the profits they generate. The predictive capacity of digital giants is now so pervasive that people's choices have become themselves the result of data-driven predictions. Surveillance capitalists, then, do not simply predict human behaviour; because they command the ‘division of learning in society’, they in fact shape human behaviour by predicting it. This is a new form of power that Zuboff terms instrumentarianism.

Zuboff compellingly maintains that these developments are fundamentally undermining Western democracies. Challenges to democratic politics, however, are treated as given and largely left unspecified. For instance, how does instrumentarianism affect electoral behaviour and party competition? Such is a crucial question that Zuboff does not address. An interesting, if partial, answer to such queries comes from the concept of ‘platform power’ developed Culpepper and Thelen (Reference Culpepper and Thelen2020). ‘Unlike previous generations of large companies on which the broader economy came to depend, such as railways or utility companies, today's largest platforms enjoy a tight, even intimate, connection to their users’ (Culpepper and Thelen, Reference Culpepper and Thelen2020, p. 290). Platform power is the strength of such a connection. The latter begs the question of how the alliance between platforms and consumers feeds back into the democratic process when citizens – many of whom are also consumers – are called to cast their ballot on a measure that goes against platforms. The recent developments in the politics of gig economy regulation in California well illustrate these dynamics. In September 2019, the so-called AB5 legislation restricted the possibility for gig platforms to work with independent contractors. Under AB5, workers are classified as self-employed only if the platform is able to demonstrate, through a specific test, their autonomy. Otherwise, they are classified as employees. With the aim of sidestepping AB5, California Proposition 22 on ‘App-based drivers as contractors and Labour Policies Initiative’ (Prop. 22) was promoted and supported with more than $200 million by platforms Uber, Lyft, Doordash, and Instacart. Prop. 22 was an initiated state statuteFootnote ¹ proposing that AB5 legislation cannot be used to determine the job classification of platform workers. In November 2020, Californians were asked to either support Prop. 22 or oppose it. About 60% of voters approved Prop. 22, which marked an important victory for platforms. The ballot on Prop. 22 is a vivid example of platform power, that is of how platforms can mobilize substantial financial resources to trigger their alliance with consumers for political ends.