Economics Nobel Laureate calls for a 'working-class liberalism'
Economics Nobel laureate Daron Acemoglu has called for working-class liberalism.
In his talk at the London School of Economics on Wednesday, as part of LSE Festival: Visions for the Future, professor Acemoglu said that despite liberalism's enormous success, he's become convinced that the old version of liberalism is dead and needs remaking.
"I have become convinced over the last decade that liberalism's enormous successes are being overshadowed by some problems. So it does require remaking of some sorts," he said.
In the Great Hall of LSE's Marshal Building, packed to the brim, Acemoglu, the joint winner of of 2024 Sveriges Riksbank Prize in Economic Sciences and an MIT professor, said the ideas space was being won by those on the right.
"This may come as a shock to some of you, but my view is that right now, new ideas are coming not from the liberal side, but they're coming from the anti-liberal, the right.
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"If you look at ideas that are spreading and articulating new ways of organising society, which many ... find very unattractive, they are the ones that are getting traction."
He said the old version of liberalism was not enough.
"Liberalism failed to adjust to being the establishment," Acemoglu said.
The Nobel laureate sketched out his case for "Remaking Liberalism", which is also the working title of his forthcoming book, scheduled to be published in 2026.
Delving into the history and the development of the moral and political philosophy that underpins liberalism, he said it played a crucial role as a force of good, mostly delivered via a democratic state.
"Liberalism, broadly speaking, is respect for individual liberties and freedoms, efforts to create a rule of law, a level playing field, commitment to helping the disadvantaged via redistribution and other public investments.
"So sort of not classical liberalism, but a little bit more left leaning liberalism, which has been the dominant force in generating new ideas for much of the 20th century, is responsible for many of the achievements that we have witnessed over the last 150 years, perhaps longer."
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He said liberalism's success was rooted in three implicit promises.
First: shared prosperity, meaning that economic growth would take place and pretty much every group in society would get some share out of it. Getting voting rights was part of this agenda of creating shared prosperity, he said.
Second: public services or drains. "I think the mood is captured by the once poet laureate of Britain, John Beecham, who said our nation stands for democracy and proper drains; getting services to people which did not exist for the most part in the 19th century."
Shared prosperity and public services are the secret sauce of liberalism, Acemoglu said.
The third promise of liberalism was economic growth.
"Shared prosperity already bakes in economic growth. I think one of the most inspiring things about liberalism was that its belief in progress, not [the] inevitability [of it], but possibility of progress.
He said liberalism allowed for the building of democracy from the bottom up, it allowed people to exercise their freedoms, including economic freedoms within a market system with economic growth as the glue that kept the system intact.
But how did the political economy of this work out?
Acemoglu explained how the two elements of political economy, the economics and the politics, manifest to produce what he called "an industrial compact" in the decades following the second world war, leading to a rise in demand for labour and wages – creating a pathway for prosperity.
The industrial compact peaked with rapid economic growth, the spread of technology and the beginning of mass production.
However, cracks started to appear as the industrial compact gave way to post-industrial economics, especially with the introduction of digital technologies alongside globalisation and deregulation.
"Digital technologies did a couple of things at the same time. The first one is that by their nature, early digital technologies were very complementary to more skilled, educated workers.
"They started creating a wedge between what the economic opportunities were for the less educated and the more educated."
More importantly, however, digital technologies ushered in automation where firms could produce more with less labour which severed links of industrial compact, Acemoglu said.
This, in turn, saw inequality exploding and the less-educated, manual workforce not keeping up. The labour that was shed from manufacturing was less educated and the labour that was needed for new industries was highly educated. This divergence accentuated the fortunes of the educated and the uneducated, creating crisis for liberalism or liberal democracy, he said.
"But I think the big crisis came because post-industrial economics – in a classic political economy fashion – then was coupled with post-industrial politics ... where the highly educated group starts viewing itself as a distinct from the rest of society, and also cutting, severing its links with the rest of society."
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Acemoglu said that the highly educated [elite] are a big part of the story of failure of liberalism. Money and status followed, as did a different set of values, especially in countries like the US and the UK, with the elite marrying among their status group. This has led to less mixing of communities and more segregation, eventually leading to to the rise of a "cognitive elite" with disproportionate influence on policy making.
"Silicon Valley in the United States is one microcosm of the cognitive elite, they are much more pro-market. [They think] they're more entitled to redistribution. They think success is very much merit. And they have a number of other more right leaning ideas. Whereas if you ask people in the education sector or public administration, etc, they have very different values."
The cognitive elite upended the bottom-up approach of liberalism.
"That doesn't work with the nature of liberalism, because once you try from the top down to change the values of communities at the bottom, you are damaging the communities and you are destroying the basis of self-government, which is so important for liberalism and even more consequentially, perhaps you're going to create backlash.
"So I think that's the basis of the crisis of liberalism."
The Nobel laureate's proffered solution to the crisis was to create a working-class liberalism.
"We need to create what I would like to call a working class liberalism, a liberalism that actually gets buy-in from the working classes.
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"So not a liberalism that is so centred on the educated, but much more about communities and much more about self-government at the community level."
Acemoglu said that there are two elements that will make that feasible: "All of these communities want self-government. I think a lot of the discontent, a lot of the backlash is about the feeling of lacking self-government that should be part and parcel of any liberal project.
"Second, they want jobs. Shared prosperity cannot be achieved without anything other than jobs. So this has to be a liberalism that is much more tolerant to the diversity of communities, especially working class communities, different religions, different traditions, different prejudices, takes their cultural concerns seriously, but also prioritises economic growth, especially job creation."
Acemoglu said his next book will delve deeper into his case for "Remaking Liberalism".
Acemoglu won the economics Nobel in October last year alongside Simon Johnson and James A Robinson "for studies of how institutions are formed and affect prosperity."
He's also the best-selling joint-author of Why Nations Fail, published in 2012, and Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity.
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