As is so often the case, the Economist asks the right questions but is clueless in its analysis. This is not, as some suppose, because it relies too much on neoclassical interpretive categories. The Economist’s cluelessness in this case arises from its faith in a relationship that until World War II was completely unknown: the supposed positive correlation of democracy and capitalism.
Prior to World War II any suggestion that this correlation was positive was dismissed in precisely the circles most committed to neoclassical economic categories: not only at LSE, but also at Cambridge, not only at Chicago, but also at Harvard and Berkeley. This was because economists prior to WWII recognized that the broadening of the political franchise without a simultaneous broadening of the social franchise was suicide to the republican values and institutions most of them had reason to value. Since few of them valued a broadening of the social franchise, they also dismissed broadening the political franchise.
It was the conceit of the Austrian School’s Friedrich von Hayek and von Mises sychophant Milton Friedman that democracy and capitalism somehow naturally suggested one another. What capitalism suggests is consumerism, voting through consumption, voting in order to consume. But consumers are the least well equipped to govern republics. Moreover, in the unregulated, privatized world dreamt by Friedman, those who occupy the lower three quarters of the income hierarchy are doomed to ever declining purchasing power, while those at the top are free to expand the range of their consumer preferences indefinitely.
Only massive public intervention, such as WWII, has proven effective expanding the social franchise. And, yet, so long as public resources are diverted to private production and consumption, they cannot help but reproduce conditions hostile to republican values and institutions.
The Economist editors fantasize a different story. Capitalism generates democracy. Greed, avarice, and corruption destroy democracy. In other words, personal morality is at fault. The message is that we need to promote good people and frustrate bad people. This may be a good message. But it has nothing to do with neoclassical economic theory. The Economist is at its worst when it attempts to find the moral of the story.
In capitalist, there is no moral to the story. William Stanley Jevons, the father of neoclassical economics, said as much way back in 1871. He was right. The Economist is not.