Liberal democracy is facing a crisis. But can it be fixed? Nobel laureate Daron Acemoglu joins the latest episode of Rotman’s Visiting Experts to break down how rising inequality, political polarization and declining trust have weakened democratic institutions, and how artificial intelligence could make matters worse. What will it take to build communities where prosperity is shared?
Liberal democracy is facing a crisis. But can it be fixed? Nobel laureate Daron Acemoglu joins the latest episode of Rotman’s Visiting Experts to break down how rising inequality, political polarization and declining trust have weakened democratic institutions, and how artificial intelligence could make matters worse. What will it take to build communities where prosperity is shared?
Show Notes:
00:00 – Meet Nobel laureate Daron Acemoglu
01:59 – What happened to liberal democracy?
03:53 – Three promises of liberal democracy
05:30 – How technology and globalization have increased inequality
08:46 – The growing divide between social and economic groups
10:00 – Explaining working-class liberalism
11:53 – Reasons for optimism in a divided world
13:02 – Rebuilding trust in leadership
15:28 – What have universities gotten wrong?
16:20 – How AI could threaten or strengthen democracy
17:58 – Why rebuilding democracy starts locally
18:24 – The role of business leaders
20:16 – What will it take to revitalize liberal democracy?
Brett Hendrie: For decades, liberal democracy made a compelling promise: economic progress could improve life for ordinary people. But what happens when people stop believing that promise? Over the past century, technology and globalization have given us enormous new opportunities, but they've also left many workers behind and widened economic divides, and now artificial intelligence could accelerate these changes even further. Our guest today, Daron Acemoglu, argues that this is not inevitable, but getting things right requires us to think differently about work, about technology, and even what prosperity looks like when it comes to putting good jobs, human ingenuity, and a greater sense of urgency back at the center, his new book, "What Happened to Liberal Democracy," asks the question directly, and maybe even more importantly, it also explores what it would take to revitalize it. Welcome to Visiting Experts, a Rotman School podcast for lifelong learners exploring transformative ideas about business and society with the influential scholars, thinkers, and leaders featured in our acclaimed speaker series. I'm your host Brett Hendry, and today we're excited to welcome Daron Acemoglu. Daron is a Nobel laureate in economics and an institute professor at MIT. He is one of the world's most influential and thought-provoking economists, whose work explores the forces shaping economic growth, inequality, technology, and political institutions, he is the co-author of numerous celebrated and best-selling books, including *Why Nations Fail* and *Power and Progress*. His latest book is an examination of what liberal democracy has given us where it has fallen short, and his argument for rebuilding a society centered on shared prosperity, meaningful work, and self-government. Daron, welcome back to Toronto, and we're thrilled to have you here at the Rotman School.
Daron Acemoğlu: Thank you, Brett. It's my pleasure to be here with you.
BH: So, your book's title, "What Happened to Liberal Democracy infers, of course, that something has been lost.
DA: Nothing good has happened to it. Nothing.
BH: I think for a lot of our listeners, they will know that we're in a period of disruption, that we've been in a period of disruption, but they may not be thinking about it in those terms. So, from your point of view, what is it that has been lost?
DA: The reason why the book is entitled "What Happened to Liberal Democracy" is exactly like you guessed: that it wants to communicate the idea that liberal democracy achieved many things, rose to meet the aspirations it set among people, and then that changed, and it's some sort of crisis today, and needs revitalization, as you were hinting at. And the brief answer is that liberal ideas were much better suited to achieve their pledges to people in an industrial age and a post-industrial society shaped by digital technologies, globalization, and increasingly service-based economy, has made it harder for liberal institutions, liberal democratic institutions, to achieve shared prosperity, which is one of liberalism's key promises, and it also changed societal dynamics in a way that altered the key coalitions that supported liberal democratic aspirations. These two changes together, which again are rooted in the rise of post-industrial society, I think explain the crisis of liberal democracy, and those are the steps that we have to recognize in order to build a better, more vitalized, and more aggressive liberal democracy to deal with the challenges of the future.
BH: So you use the word revitalized. So maybe we can do a little bit of history about what was vital in the first instance, and you talk in the book about the period after World War II and the changes and the institutions and the norms that we developed there. What was it that was so critical to that period in terms of laying the groundwork for some shared prosperity and the improvements that we had then?
DA: Liberal democracy makes implicitly or often explicitly three core promises to people. One is shared prosperity, as we already mentioned, meaning that there will be economic growth, and that progress will not leave some people, some groups behind. Second is public goods: the state, to some extent, working for the people, to deliver to them infrastructure, health, education, security, and obviously as encapsulated by the emphasis on democracy, voice, and some amount of self-government, that last one is really important in some sense, because. There has been over the years an argument that somehow liberalism is in fundamental conflict with democracy, and I completely reject that in the book. And I explain why you cannot have the liberal aspirations of people shaping their lives, having effective freedoms, become meaningful unless they shape to some extent the public affairs around them, local politics, how their community is organized, and some say in national affairs. Those promises turned out to be quite realistic, as we saw for much of the 20th century, where we saw economic growth that was rapid and broadly shared, public goods, public services improved tremendously. So those were really big achievements. But it was also accompanied by a sense that people could participate in politics and could shape their lives. All of these things changed with the post-industrial society. On the economic front, in a digitalized economy, we create much greater opportunities for the college educated than the non-college educated. There are even worse the potential for automation and offshoring of jobs to China or Mexico, for example, from North America, created the possibility that companies could expand, make much more profits, reach more consumers, but at the same time lay off their workers. So it was severing the link between business success and the workers' fortunes. And in fact, in the United States, we have seen a staggering increase in inequality. Not just the top 1%, which gets a lot of emphasis, not just the billionaires, but workers who have no college degree in the United States have seen their real incomes, real wages decline for most part of the three and a half decades from 1980 to around 2014-2015. But the political aspects of post-industrial society are also very different. Instead of those broad coalitions, the college-educated came to be very dominant in both the commanding heights of the economy: administration, universities, law. But even more so in centre-left parties such as Social Democrats, the Labor Party in the UK, were the bulwark of liberal democratic politics, and they received most of their votes from the working class, people working in blue-collar jobs or low-to-middle pay clerical jobs, and that group was both the main voters and among the main politicians for the central left parties. That's completely changed, starting in the late 1970s in the U.S. and somewhat later in other advanced economies, the college-educated came to dominate center-left, both as voters, and now center-left gets most of its votes from the college-educated, while the working class votes for the center-right or increasingly for the hard right, and also as activists and politicians. And this has happened while the college educators started to live very separate lives from the rest of society. Their neighborhoods become segregated. They started working in firms that are no longer melting pots. They befriend their brethren and sisters who are similarly educated. They intermarry within their group, and their social values have diverged. This has made it hard for the center-left to understand and deal with the plight of the less educated in terms of economic issues. But it has also opened new fronts in politics in the form of culture wars, where the college-educated were very impatient in seeing changes in cultural value that they saw as holding back society.
BH: One of the stories that I really appreciated in your book is you being in an airport and having a casual conversation at the airport bar with somebody who you normally wouldn't cross paths with, and I think that's emblematic of so many institutions, whether the universities or companies where there's just not as much cross pollination between people, so with that in mind, what do you see as being an antidote to that?
DA: We need greater mixing, and we need greater empathy between different viewpoints and different economic and social conditions. I don't know of any way that societies have achieved that in the past without having close contacts between different groups. It starts in neighborhoods and communities. It gets amplified in associations that are cross-cutting, but it also takes the form of other pathways for communication. Americans, for example, have reduced the amount of time they spend in their community. They spend with real-world friends. They have fewer friends, and they spend less time interacting with broad social networks. And that makes it much harder to create those pathways for.
BH: So your prescription for this is what you call working class liberalism, and I wanted to give you an opportunity to expand on that and help our audience understand how you see a system like that working, and how is it different from what we have today?
DA: My objective is to contribute to a debate, to a conversation about the center-left and liberal democratic institutions more broadly, led by the center-left, to develop a new governing philosophy, and my belief is that that cannot be achieved unless the working class is at the center of liberal democracy. On the economic front, the center left has remained broadly committed to creating a fairer society. So it's not like the center left has completely abandoned the sort of objective that social democrats or Roosevelt had, but they completely turned their back on what I think most working-class communities want, which is jobs that are well-paid, and that create careers and stability. Instead, the emphasis has been unions don't work, minimum wages don't work, trade protection is bad, government intervention is bad. All we should do is tax and redistribute. But our track record, as many different societies in history illustrate, is that it's not easy to create shared prosperity and a shared sense of belonging together and contributing to society just on the basis of redistribution. We really need jobs. So therefore, liberal democracy has to refocus much more on being committed to job creation, which is a challenge in the age of AI, especially if AI attempts to automate more and more jobs. So that's why part of the agenda, working class liberalism, as I formulated, is to steer AI in a more pro-worker direction.
BH: When I hear you paint that picture, it sounds very appealing, but also very challenging. And I think that so many of our incentive structures aren't aligned with those types of values and goals.
DA: While I am definitely not optimistic, and I agree with you, Brett, that this is a challenging path forward and no guarantee of achieving it. Two things that make me hopeful are that one, humans are infinitely adaptable, so we will, if given time and incentives and opportunities, we will adapt to the age of social media and AI with the right regulation, right governance structure. But more importantly, despite the divided, polarized nature of our society and politics today, there is so much more that unites the two ends of the spectrum, notions of fairness, notions of what is a shared moral understanding are actually quite common on the left and the right. It's just that under the influence of cultural politics, political entrepreneurs who acted as rabble rousers on both sides, and social media, we have forgotten those things.
BH: I really get the sense in your book that you mourn for people having lost trust in leadership, and that people don't have, or don't feel that they have agency over their decisions anymore.
DA: I think agency is very much related to my notion of self-government. You cannot have agency if all the choices I give you are individual. You play this video game or that video game. You get that fast food or this fast food. That's not real choice. I think real choice for the environment that people care about are about what happens in their community, in their neighborhood, in their nation. So that's where the agency comes in, and yes, indeed, we do need trust in leaders, but that is a very delicate point because actually many people who've turned against the establishment seek a leader they can trust, and they go for charisma and strength, but those are not the characteristics that I think I'm looking for. Of course, they are useful, but I'm looking for earned trust, meaning that it's leaders who actually develop their ideas in conjunction with local communities and their practice, and then create demonstration effects.
BH: And do you see earned trust as being what we should aim for instead of relying on claims of expertise.
DA: Yes, I was predominantly talking about people like Trump who've come with no experience and really no claim of having achieved anything that the public should trust them for, but getting that kind of trust because of the strength that's being conferred on them by the media or their charisma, etc. And I'm talking about more actual trust that people will earn by, for example, showing how they can govern a city or a municipality. Or other track records, but it needs to be supported by actual institutions functioning as well. Expertise, I think, is a very important part of trust. Expertise can sometimes repel people because it reduces the empathy that experts feel for those who have different opinions from them, and again, the best liberal democratic traditions would not denigrate people's ideas, even if I disagree with them.
BH: So, as you think about these changes that have taken place over the past 20 or 30 years, and you think about great institutions that you're affiliated with, like MIT, we're here at the University of Toronto, one of Canada's top schools. What do you reflect on that universities and the educational sector has done well, and what can we do better?
DA: First of all, we've become much more like the ivory tower. Second, our own practices have gone in the same social engineering direction of really declaring some opinions and some debates completely unacceptable, and hence alienated people who don't agree with the dominant views in universities. And then third, universities have also become extremely expensive, and also creating a resource gap between elite universities and the rest, which contributes to this divide as well.
BH: You mentioned AI before, and of course, it's a topic that's at the top of everyone's mind. And my sense from the book is that you see risk there, obviously, in terms of deepening divisions and potentially more inequality, but also a potential for us to get it right and for it to potentially lead to more shared prosperity. Is that a fair assessment? And if not, please correct it. But if so, how do we manage this fork in the road on where we are now?
DA: Well, I think it is absolutely central that we manage this fork in the road because AI going in the wrong direction would not only completely decimate whatever is left of our chances of shared prosperity, but would also threaten many other foundational bases of liberal democracy: open debate, decentralized decision making, and agency. So it is very important that we use AI, which is a very promising technology, but use it the right way. That's why I emphasize pro-worker AI as well as less centralized AI as pathways that we really have to pursue, and unfortunately, that's not going to happen by itself because the current AI industry has gone in a very different direction and very emphatically, both with ideologically committed leaders and a lot of resources, and that's where the government needs to come. I do argue broadly that we need less regulation because regulations have also stifled the potential for more widespread public services that many people want. But I also argue that we need much better and much more effective regulations of AI and social media.
BH: Do you see a pathway for us to achieve something like that on a on a global basis. I mean, global?
DA: No, not yet. We have to start at local level. That's where self government is most feasible. And then, if people start trusting their community institution, that trust and the legitimacy that they give to those institutions can be translated upwards to regional governments, to national governments, and then from national to global.
BH: So that puts a lot of weight on governments at different levels, and elected officials, and institutions. A lot of our listeners are in the private sector, and they manage teams or lead businesses. What would your call to action be to them in terms of the role that they can play in leading their businesses to improve our shared prosperity.
DA: We are citizens before business people or CEOs. As citizens, we have to be informed. We have to get involved, and we have to recognize both the crisis and the potential value of liberal democratic institutions. Second, business leaders, I think, have a lot of opportunities to use AI the right way. I think business leaders understanding and acting upon the idea that humans, their workers, are their most important resource, especially in an age when you need greater creativity, new goods and services, new adaptations, new organizations. You really need human ingenuity for that. Once that is recognized, business leaders should celebrate not cost cutting, but giving their workers better tools so that their creativity and skills can be realized. And that, I think, is the most potent way of achieving pro-worker AI.
BH: And so, do you see any examples of countries that you think are approaching this well?
DA: I think there is a lot of variation across countries. Canada and Switzerland are doing much better in terms of their democracy than the UK and the US, for example. German companies, before their current crisis, which is quite deep, were doing much better in dealing with robots because. Of the training of their employees and how they were reorganizing production around robots, so there are many many choices, and there are companies that recognize that they have to integrate AI in a much more deliberate and deliberative way into their production process.
BH: So you're outspoken on this topic. You've written this fantastic book. You're in the media making your case for working class liberalism, as you reflect on this work that you're doing, and as we wrap up here, unfortunately, what is it that you would like to see as an outcome from your advocacy for us to have this debate?
DA: I do not pretend that I have the solution to what liberal democracy is aspiring. ideas and governing philosophy should be, but I'm convinced that we have to diagnose the crisis correctly. That the crisis is real, and it is internal, and we have to formulate a better way for the future. And that really depends on liberalism's ideas and democratic ideas becoming powerful again.
BH: Well, that is a optimistic and aspirational note for us to end on, Daron. I really appreciate this conversation, and I said at the top that you're one of our most thought-provoking thinkers, and you have an amazing ability to bring together economics, politics, and technology, and make us ask some big picture questions. So thank you for being here today.
DA: Thank you, Brett. My pleasure.
BH: Our guest today has been Daron Acemoglu, and his new book is "What Happened to Liberal Democracy." This has been visiting experts exploring transformative ideas about business and society with the influential scholars, thinkers, and leaders featured in our acclaimed speaker series. To find out about upcoming speakers and events at Canada's leading business school, please visit rotman.utoronto.ca/events. This episode was produced by Meaghan MacSween, recorded by Dan Mazzotta, and edited by Damian Kearns. For more innovative thinking, head over to the Rotman Insights Hub and subscribe wherever you get your podcasts. Thanks for tuning in.