How to build a better democracy – have less of it

Watch the whole of Merryn's interview with Dambisa here.

Dambisa Moyo reckons democracy is no longer working for us. The global economy is in trouble.It needs to deal with a range of nasty long-term threats: demographic shifts, worsening income inequality (in the US at least), resource scarcity, the risk that new technologies will create a jobless underclass, and the biggest of the lot very slow economic growth. The world's largest, most strategically vital emerging nations are growing at 3% a year. If you want to "double per capita incomes from one generation to the next and consign poverty to history", that's not enough, says Moyo. You need 7%.

There's a similar problem in developed nations. Growth has all but stalled in Japan and Europe. In the US, "the continued erosion of infrastructure and education dampens prospects for long-term growth". Living standards aren't rising, people are angry, and the idea that liberal democratic capitalism is the best system available to any of us looking for better lives is under threat (if liberal democracy doesn't work, what about authoritarianism, state capitalism, or illiberal democracies?). If we want to hang on to the systems of the past, says Moyo, politicians have to "deliver".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The problems of low growth and short-termism

It's hard to argue with much of this (although you could also see the rise of "populism" as a sign that democracy is in pretty good shape!). But what of the view that growth isn't necessary? That a replacement for it can be to reduce inequality via the redistribution of existing wealth and income? Can that work? No, says Moyo. It's a popular idea in Europe, but a static pie which must be taxed and redistributed can only mean a "lack of investment, a lack of innovation, etc". There is also "a more structural problem... you can't have a society where two to three generations of people are living essentially on a welfare programme. A lot of the disaffection we've seen in terms of populism emanates from some of that unhappiness around feeling that you're in a society, but you're not really participating." Inequality of income can also be "dislocating in terms of political rights". In the US in particular "money has tipped into the political frame" those with money have more influence on policy.

But democracy has worked well for us in the past why is it going wrong now? Our politicians are too "myopic", says Moyo. They often aren't up to the job (our standards are low) and, in most democracies, there is a mismatch between the time frame of our economic challenges and that of politicians: it takes 15 years to fix an education or infrastructure system, but political terms are more like four. That makes short-termism rational: politicians "court and cater to today's voters because they want to win elections".

Take globalisation. The US as a whole has done brilliantly from it. But what has the government done with its fruits? They did not invest in retooling or re-skilling middle America. Instead, they went to war. "The cost of that decision is now being felt." Look, too, at the tax cuts in the US classic short-termism. The congressional budget office has been "banging on the table about how in the next 30 years we will have a crisis in both debts and deficits in the United States". But as 30 years is too far out for most voters to care about, it is too far out for politicians, too: "winning political office means you have to dangle trinkets to the voters" regardless of the long-term effects. The debt wouldn't matter if we had growth we could "outgrow it". But we haven't. So we can't.

How to fix the system

So, I say, how do we fix this? By addressing the two "fundamental problems with liberal democracy". The first is the myopia. The second is one of legitimacy. Today's election results are "laced with scepticism". On Brexit, for example, UK Remainers are (still!) convinced that Leave voters didn't know what they were voting for which makes the result feel invalid to them. In the US, constant threats of impeachment are "eating away at the legitimacy of that vote". Democracy can't work if voters don't believe in it.

So Moyo has ten proposals. She is not expecting any country to adopt them wholesale: it is about improvement, not sudden change. Six proposals aim to make politicians better; four aim to make voters better (we are responsible for the lousy politicians). All have precedent somewhere in the world (not in the same place). Not all will find approval with MoneyWeek readers for the simple reason that if you were to sum up Moyo's ideas about how to save democracy, you would find that part of the answer is to have less of it (or at least what Moyo calls a "massive overhaul" of what we think it is) .

Longer terms and better politicians

We start with modern politicians. "We deserve better," says Moyo. Look at the UK in the 1960s. MPs were older (60-ish) while "the make-up of the parliamentarians really reflected the economy. They had farmers, they had teachers, they had lawyers, they had doctors. So, when they talked about major public policy issues, there was a real understanding." Today the average MP is more like 38-40 and has "not a lot of experience outside politics". But it could be fixed perhaps just by parties working to recruit candidates with relevant experience, or "more aggressively", she says in the proposals (all laid out in the book), by establishing "formal eligibility requirements for office-holding that mandate a minimum number of years of work outside of pure political experience".

The myopia problem could then be dealt with by extending political terms. There are elections in the US every two years. That's "just not healthy". Mexico has a six-year term. In Brazil, it's eight to nine years. That's better: you can get stuff done before worrying about the next election. You can add an even longer-term bent to democracy by binding the next government to commitments not to review legislation for set periods. Not forever, says Moyo, but for say, ten years. That would focus minds on the long-term, prevent sudden reversals (think President Trump and the Trans-Pacific Partnership), and cut down on today's "time inconsistency" as perhaps would a long-term financial bonus system for leaders.

Moyo is also keen on governments binding themselves to the rules of external agencies: the EU, she says, makes the "national government accountable to a larger (international body) than just their domestic voters". Regular readers will know I am unlikely to be convinced on this (I suspect that much of our political unrest comes down to voters' concerns that their governments are already too beholden to other powers). Still, you get the idea we have to find a way of making politicians think longer term.

Voters need to pull their socks up, too

However, Moyo isn't just cross with politicians. She's pretty cross with the rest of us, too. The world's voters are disengaged and undereducated, she says. Voter participation has collapsed. It is now about 50% in the US from 60%-plus in the 1960s. For those on low incomes, that falls to 30% or so "very far from one man, one vote". The answer could be compulsory voting (as seen in Australia, Belgium and Singapore). But making everyone vote is no good if they haven't a clue what's going on: "we want a situation where voters have much more of an understanding" about policy. Think having to pass a "government-mandated civics test" to get the franchise, or weighted voting to "boost the influence of the best-informed segment of the electorate". I said you might not approve.

So what happens when we have these new politicians in place with their experience, long-termism and backing from educated voters? What should they do? Build and educate, says Moyo. Infrastructure is an obvious one. The American Civil Engineers Society grades US infrastructure every three years the last mark was D+. "This is not the backbone of a modern economic country." So is education. In the UK there are about a million NEETs (Not in Education, Employment or Training). These people do "not have the skills to participate in a modern economy. They're being left behind."

I wonder what she reckons the odds are of any of her recommendations being picked up? I'm not sure the UK is in the mood for weighted voting, or limits around what kind of person should be able to stand for parliament. Moyo is more optimistic. Democratic systems evolve (don't forget that it's still less than 100 years since women under 30 got the vote in the UK) and views move on. Reform is possible and urgent. If we don't get it, there will be one of two results. The first could see "public policy hamstrung by populism" and even more short-termist than ever. The second would see "more plutocracies a handful of people who are influencing public policy because of their wealth". In the US, about 158 families were responsible for half the political contributions made in the 2016 presidential election". Both would represent huge political failure.

See the full interview here

Who is Dambisa Moyo?

Dambisa Moyo, 49, is an international economist and author. After graduating in 1993 from American University in Washington with a chemistry degree and an MBA, she began her career at the World Bank. She then attained a PhD in economics from Oxford and a master's degree from Harvard, before joining Goldman Sachs as a research economist in 2001.

In 2009, her first book, Dead Aid, a polemic on the impoverishing impact of the foreign-aid industry on Africa, became a New York Times bestseller, as did her follow-ups, How the West Was Lost, and Winner Take All. Her latest book, Edge of Chaos (Little, Brown), was published this year and tackles the issues raised in this interview in depth.