AI Insight
MIT economist Daron Acemoglu argues that democracy and economic prosperity are deeply interconnected, with the industrial age creating conditions for shared prosperity that strengthened democratic participation. He contends that rising income inequality and deindustrialization since 1980 in the United States have economically stranded the working class, leading to their alienation from democratic institutions. In his new book, Acemoglu advocates for rebuilding "working-class liberalism" that prioritizes shared prosperity, jobs, and public services to maintain broad democratic coalitions.
Why it matters
The analysis connects economic policy decisions about manufacturing and trade to the health of democratic institutions, suggesting that addressing inequality and working-class economic concerns is essential for preserving democracy. This framework offers policymakers a perspective on how economic restructuring may have political consequences beyond traditional economic metrics.
Understand the Science
In the 20th century, the United States built the world’s dominant manufacturing powerhouse. A thriving middle class grew, well into the 1970s. The U.S. was a beacon of democracy, defeating fascism in World War II and beating back communism and other forms of authoritarianism during the Cold War.
To MIT economist Daron Acemoglu, there is a deep intertwining among these things. Democracy, his work has shown, helps economies grow. As the industrial economy expanded, in Britain, the U.S., and other countries in the 19th and 20th centuries, so did democratic participation, as people tried to stake out new rights, or make real the rights ascribed to them.
“The industrial age created the tools for shared prosperity around which democracy organized,” says Acemoglu, a Nobel Prize-winning economist and Institute Professor at MIT.
Today, though, income inequality has grown markedly in the U.S., starting around 1980. The U.S. has deindustrialized to a significant extent, offshoring production and hurting shop-floor workers and their families. As Acemoglu sees it, this economic realignment has had deep civic consequences: A stranded working class has become more alienated from the institutions and ideas traditionally buttressing democracy.
And for those around the world supporting democracy, he says, “You really need to have the working classes in your coalition for it to make any sense.”
Acemoglu explores these topics in a new book, “What Happened to Liberal Democracy? Remaking a Politics of Shared Prosperity,” published by Penguin Random House. In it, he looks broadly at the benefits of democracy, the tensions it faces in everyday life, and democracy’s trajectory in recent decades.
Broadly, Acemoglu favors rebuilding “working-class liberalism,” essentially seeking the largest coalition that favors self-government and the rule of law. “Working-class liberalism has strong communal roots, eschews social engineering, and prioritizes shared prosperity, jobs, and public services,” Acemoglu writes in the book.
After all, Acemoglu believes, democracy is the one form of rule that promotes rights and liberties, and allows the flexibility and “experimentation” we need to address all the challenges a complicated world throws at us.
“Democracy is the only way we can make progress in society,” Acemoglu says. “Trying to impose top-down solutions to all our problems will ultimately not work.”
Along the narrow corridor
Acemoglu has long studied the relationship between economic growth, rights, and democracy. With economist Simon Johnson of MIT and political scientist James Robinson, now of the University of Chicago, Acemoglu published a landmark series of studies in the early 2000s demonstrating that economic growth is helped by the development of stable democratic institutions, including property rights. For that work, Acemoglu, Johnson, and Robinson later shared the 2024 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
Acemoglu’s 2012 bestseller “Why Nations Fail”— written before democracy’s current challenges seemed as acute — synthesized his research on these topics. His 2019 book “The Narrow Corridor,” co-authored with Robinson, casts democratic governments as essential to liberty because they protect people simultaneously from overreach by an authoritarian state, on the one hand, and from domination by other groups in society, on the other.
However, as Acemoglu has consistently emphasized, self-governance is an ongoing effort; this machine does not run on its own. Relatedly, in the new book, Acemoglu critiques some famous attempts to formulate governance as a neat “social contract,” including Jean-Jacques Rousseau’s conception of a “general will” in society.
Those ideas helped make the case for political rights, but actual governance in a pluralistic society will always be a messy process.
“You have to allow communities, and societies in aggregate, to build rules around shared values for anything to stick as institutions, norms, or aspirations,” Acemoglu says. “When you go down the social contractarian path, you sometimes fool yourself into thinking there are clear solutions to dilemmas that in reality don’t quite have such obvious ways of being resolved.”
For instance, Acemoglu notes, democracy itself “is built on tolerance and acceptance of plural perspectives, but how do you deal with people who are intolerant?” In the book, he largely regards interventions to stamp out seemingly intolerant thought as being unwise and politically counterproductive.
“You’re not going to have a clear-cut solution to all cases,” he says.
The economic realignment
Even with leaders backing a pragmatic, flexible approach to self-governance, democracy faces another challenge: supporting the material welfare of citizens. And here, “What Happened to Liberal Democracy?” takes an unflinching look at the postwar economy, finding fault lines that have shaken the political order.
The roughly three decades after World War II were fantastic for many workers in democracies, and certainly in the U.S., where middle-class incomes grew by 2.5 percent annually into the 1970s.
There were always going to be forces pushing back on this trend, and U.S. companies started offshoring and outsourcing production work to clamp down on wage growth. But one other technological and economic trend occurred just as the middle classes of the industrial economy were reaching new heights.
“Then computers happened,” writes Acemoglu in the book — referring to a complex set of economic and civic realignments involving technology-driven shifts in work.
Over time, computers started replacing significant numbers of clerical office workers, shop-floor industrial workers, and other types of employees who were earning middle-class wages without holding a college degree. In recent decades, middle-class incomes have only grown by about 0.5 percent annually.
To be sure, computers have produced plenty of benefits, and created many new forms of work. But as research shows, those jobs have tended to go mostly to college-educated employees, creating a significant split in society between well-educated, well-paid, white-collar workers, and less-educated, worse-paid workers in blue-collar and service jobs. That national share of income hauled in by the top 1 percent of earners has basically doubled in this time, from 10 percent to nearly 20 percent.
Crucially, in Acemoglu’s analysis, this material gap between more-educated and less-educated social cohorts has translated to U.S. politics, with political groupings reshuffling along educational lines, and cultural politics following suit. That’s the dynamic the U.S. faces now — even as one also accounts for the effects of social media and other polarizing features of contemporary society.
“We now live in a less-industrial world, and we also live in an age defined by social media, much greater levels of conflict, more polarization, and now AI, and all of that complicates things,” Acemoglu says.
Always a work in progress
This precise feature of contemporary society — deindustrialization fueling an earnings gap that has led to more political polarization — is what shapes Acemoglu’s prescription in response, the idea that “working-class liberalism” is needed to strengthen democracy.
There are many potential ingredients in this formula, from politicians determined to reach across class lines to workers regaining the impetus to organize in their workplaces.
“Trade union participation itself is a very important form of local governance that’s very difficult or unimaginable in an authoritarian society,” Acemoglu says, even while noting that he has not always agreed with the actions of particular unions in the past.
Still, Acemoglu adds, “I don’t think the economic aspect is the only one, in that you cannot just gain the trust of workers by ensuring there are wage gains. That is an important step but it is not sufficient.” Voters need asurances that politicians are thinking about them, at least share their concerns, and have a grounding in similar values. More candidates today need to seek a shared language about those things.
That’s not easy in a world characterized, in part, by global migrations, increasingly diverse national populations, and economic flux. But it is possible, Acemoglu thinks.
“There are deep dilemmas faced by liberal democracy that were sometimes going to come to boiling points, and this becomes more heightened when societies such as the U.S. and some European ones are simultaneously becoming more complex, more globalized, and more hetereogeneous,” Acemoglu says. On the other hand, he adds, “Multiracial tensions, I would say, were much worse for the U.S. in the 1950s and 1960s. We made democracy work then, in the face of much more difficult race problems, so why not today?”
None of this is a straightforward task, of course. “Forging working-class liberalism is a tall order in the best of times and much more challenging in today’s polarized environment,” Acemoglu writes in the new book. Still, he adds, even in frustrating moments, the stakes are too important for people to relent.
“Democracy is a success,” Acemoglu says. “It’s easy to fall into a trap of painting the democratic project as being doomed to failure, and I want to avoid that.” He adds: “It continues to be a work in progress.”