How Liberal Democracy Can Survive an Age of Spiraling Crises. Foreign Affairs. Published on December 18, 2025.
Intro:
The world is in the throes of a pervasive crisis:
- Widening economic inequalities.
- Breakdown in public trust.
- Liberal democracy under strain.
- Economic alienation.
- Threat of technological change.
About AI
Thesis:
- AI will contribute only 1% to US GDP growth over the coming decade (0.1% a year).
Facts:
- Replacing workers with machines and increasing productivity is not revolutionary.
- Technologies need to be integrated into organizations, which is not easy.
- The numbers came out to be quite modest. It's 1% or 10%, not 50%.
- AI is going to have fundamental impacts on our society in 10 to 20 years.
- A lot of the investment is driven by hype and racing.
- A winner-take-all perception to justify the big investments.
- AI as an unstoppable gale.
- AI is so different from the rest of technologies that we have little to learn from the past.
Historically, the adoption of new technologies, has been:
- Very slow.
- Unequal for winners and losers.
- The birth pains of any technology are going to be more than what you might first expect.
For instance, the first 80 or so years of the British Industrial Revolution:
- Waving machines were incredible.
- Real wages fell (the wages of weavers were reduced by two-thirds).
- Working hours lengthened.
- Working conditions became horrible.
- Life expectancy was of 29 years.
Drawing analogies from history:
- We shouldn't expect AI to spread that fast in the production process.
- It might create big winners and losers...
- ...unless democratic oversight and institutional adjustments.
- Caution about that we will all benefit from this technology.
Geopolitics of AI
Trump card against any regulation: US are locked into an existential race to AGI.
So many global problems:
- Climate change.
- Taxation and regulation of powerful multinational companies.
- Pandemics.
- Nuclear nonproliferation.
All of which require global cooperation. So the racing mentality is dangerous.
China's features:
- infrastructure spending
- digital infrastructure.
- education: engineers
- industrial policy is a double-edged sword.
- Top-down Chinese approach is very costly, it does not allow a competition of ideas.
We are destroying every valuable part of the US economic engine:
- US higher education system:
- Grants are being cut.
- Universities have been declared enemies of the administration.
- Immigration:
- Blocking foreign talent from coming in.
- Legal institutions:
- Courts now are not impartial.
- Special treatment.
- Innovation.
- Discouragment by biased courts, procurements, property rights...
- Weakening of US dollar currency.
- Weakening of institutions.
(0:00) The book of yours that is still the most well-known is Why Nations Fail, in which you and your (0:05) co-authors make a long argument, a long historical argument, for why countries succeed and why (0:12) countries don't on the basis of their institutions. (0:17) And you focus on how institutions help distribute power within a society and prevent its consolidation, (0:23) and you contrast those societies that are inclusive institutions with those that have (0:28) extractive ones, the extractive ones being ones that invariably lead to failure, inclusive ones being the ones (0:35) that have a higher chance of leading to success and stability. (0:39) Now, the example of China, especially after 1980, is often raised as an example of a potential sort of outlier in (0:48) your thesis.Now, you have suggested just now that, you know, you think that China will face certain (0:53) headwinds in the future, born out of its own system and its inefficiencies and so forth. (0:59) But suppose the Chinese model proves to be somewhat durable or more durable than you anticipate. (1:05) Would that present some kind of challenge to the thesis about institutions and their role? (1:10) Yes, absolutely.One hundred percent. (1:13) So just a second ago, in my somewhat long answer to your previous question about, you know, U.S. (1:19) economy, I essentially articulated an institutional view of the U.S. (1:24) success and the current failures to the U.S. (1:28) Now, if the United States were to fix its institutions and go back, you know, to where it was, say, in the 1970s or (1:36) 1980s, which were not perfect, U.S. (1:39) institutions always had imperfections, poverty, racial discrimination, much greater inequality because safety net type (1:48) arrangements are weaker. (1:49) But if we went to where we were and despite that, China surged ahead and became a more innovative economy than the United (1:57) States, that would be a challenge to the institutional thesis.(2:00) Because what we say in Why Nations Fail is that authoritarian regimes can grow for short periods of time, for decades (2:08) sometimes. But ultimately, for sustained growth driven by innovation, it is inclusive institutions that have an (2:16) advantage. And I've also articulated why I think the AI age is a little different because it's elevating this data and (2:26) engineering so much that's creating some additional tailwinds for China.(2:33) But I think the headwinds are still very major and the institutional structure, the hierarchical nature of how (2:39) entrepreneurship and science is done and the authoritarian way in which all institutional questions are resolved are (2:46) going to be big bottlenecks for China. (2:49) On Why Nations Fail, there have been many attempts to understand why the West ascended in the last 500 years or so and why others (2:58) did not do nearly as well. (3:00) There are cultural arguments that focus on ideas and political theories and values.(3:04) There are material ones. (3:06) You know, I'm thinking of Ken Pomerantz's The Great Divergence, which suggests that the reason that Europe grew more (3:13) powerful than China in particular was geographical, the location of and accessibility of key natural resources and the like. (3:21) What did these approaches miss to this central question that your approach to institutions manages more successfully? (3:31) Well, I would say we have to go in layers.(3:34) First of all, at the high level, there are four groups of approaches we can think about. (3:42) As you said, geographic, cultural, institutional and perhaps luck. (3:47) Perhaps it was all just a lucky break for one country versus another.(3:51) So I think geographic explanations don't stand a chance. (3:56) For the very simple reason that the countries that were the richest 500 years ago, especially among the former colonies, are today among the poorest. (4:08) Central America, Peru, North Africa, parts of Indian subcontinent.(4:15) So their geography hasn't changed. (4:17) It's their institutional arrangements that have changed, especially during the colonial era and in its aftermath. (4:23) Cultural explanations, I think, have some legs.(4:26) But culture by itself, just as views and values that differ, also doesn't seem to explain things because those values seem to change a lot. (4:36) During the time, it's their interactions with institutional arrangements, organizations that matter. (4:42) Now, explanations like Pomerantz, I think, are a combination of luck and institutions.(4:47) So he says, you know, Europe turned out to be lucky because they colonized the right places. (4:53) And then it's the colonial institutions or colonial exploitation. (4:57) So that's an institutional story.(4:59) But once you dig deeper into the institutions, I think it's not colonialism or the resource extraction, which is what Pomerantz emphasizes, but it's other side effects or more far-reaching effects of institutions. (5:14) You know, the United States did not pull ahead of Peru and Mexico because Peru and Mexico had their gold extracted. (5:19) That happened, but it did not set them that far back and did not put U.S. onto a very growth-oriented path in the 17th century.(5:30) The divergence between the U.S. and the rest or between Britain and Southern Europe, between parts of India that industrialized and parts didn't, it's all related to industrializations, new ideas, new technologies. (5:45) So you have to think of the institution's role in fostering this technological dynamism. (5:53) And that's where I think a lot of the explanation lies.(5:56) And you see that very clearly. (5:57) It's the Northeast of the United States. (5:59) It wasn't the antebellum South.(6:02) That's where you see the patents. (6:03) That's where you see the new entrepreneur. (6:04) That's where you see the new machines.(6:05) U.S. quickly takes over Britain as the industrial leader because it's introducing better technologies. (6:11) So it's that kind of thing which is at the heart of the explanation that Jim Robinson and I propose in Why Nations Fail and my research proposes. (6:20) And that's the one that I think is the right corner of the institutional argument that has the best possibility of explaining the data.(6:29) Then you can also talk about the scientific revolution. (6:32) Of course, that was an input. (6:33) And talk about the Industrial Revolution or the French Revolution.(6:35) There are many institutional and other changes that fed into the ensemble of inclusive institutions and technological progress that really propelled the U.S. and then before then the U.K. forward. (6:47) There's a critique of your thesis that goes something like this, that you and your co-author are sort of too schematic in separating inclusive and exclusive societies. (6:58) So that it's odd to, for example, consider the rise of inclusive institutions in Britain or in colonial Virginia separate from the extraction that's happening in the Caribbean, for example.(7:12) So that failing to see it as part of an integrated system makes that schema a little more wobbly. (7:20) I do not disagree with that criticism. (7:22) So we are being schematic in that way.(7:24) But that is for the sake of clarity and partly also because we do not believe that there is one law like integration of extractive and inclusive elements. (7:41) They are much more contingent. (7:43) So you could have some amount of exploitation of the indigenous population in some countries together with inclusive institutions.(7:57) You had inclusive institutions and slavery in the United States. (8:01) But was the Northeast's industry really fueled by slavery in the South? (8:09) Not so much, perhaps a few inputs. (8:12) British textile industry was the main beneficiary of the cotton that was cheaply grown with slave labor in the South.(8:21) In Switzerland, you had amazing participatory institutions, but at first it was associated with mercenary war making. (8:30) For a long time, it was associated with gender inequality. (8:33) Was that really important for the Swiss inclusivity? (8:39) I don't think so.(8:40) It was a bad side effect that persisted. (8:45) So that's the sense in which I think, right, when we separate the inclusive and the extractive, we're simplifying things. (8:51) But I don't think there is like a world system like unity between extraction and inclusivity.(8:57) There were some interesting theses by Marxist social scientists like Emanuel Wallerstein, Andre Gunder Frank. (9:03) I don't think any of them hit the spot. (9:05) They are interesting things to discuss and contemplate, but I don't think the evidence supports anything that's so integrated like a world system.(9:13) We'll be back after a short break. (9:18) What if you could explore places in the news like a reporter does? (9:22) I'm Nicholas Wood, a former journalist with the New York Times and BBC. (9:27) And 15 years ago, I created the travel company Political Tours, our small group trips led by top correspondents around the globe.(9:35) Taiwan, Turkey, NATO's front line with Russia. (9:39) Just some of the issues we're exploring next year. (9:41) We'd like you to come and join us.(9:43) To find out more, go to politicaltours.com, that's politicaltours.com. (9:52) Georgetown University Press presents Russian Military Thought by the renowned scholar Gudrun Persson. (9:58) This new book offers novel insights into Russian military thought and doctrine and strategy from the Crimean War to Russia's full scale invasion of Ukraine. (10:08) Persson dismantles the simplistic notion that Russian military thought is backward.(10:12) Through archival research based on Russian language sources, she draws on theoretical insights from history and political science. (10:19) Her nuanced, qualitative analysis will provide readers with a better understanding of the current Russian leadership's mindset and the constraints that shape Russia's future possibilities. (10:30) Russian Military Thought is available for purchase at press.georgetown.edu and other selected bookstores.(10:42) And now back to my conversation with Daron Acemoglu. (10:46) We've talked a lot about technology already, but one technology that we haven't discussed is the nation state. (10:53) And it spread in the 19th century and through the 20th century till it sort of took over the entire world.(10:59) And, you know, you see in the horrific war in Sudan, for example, today and many other conflicts, the legacy of the sort of troubled adoption of the nation state. (11:09) You know, when you're thinking about why countries fail, what role does the nation state and the difficulties of its adoption play? (11:19) Well, look, I mean, I think humans are tribal. (11:22) They identify with an in-group often.(11:25) It's not cast in stone. (11:27) It changes over time. (11:28) And I think education debate perspectives can change.(11:32) A nation state has been a very important part of the equation for the last 200 years. (11:38) But it's not like before the nation states, humans didn't kill each other. (11:42) I think the evidence from archaeologists is very clear that, you know, especially if you take the world wars out.(11:50) Humans used to kill each other at much greater rates than in the late 19th or 20th centuries. (11:58) So I don't think we can blame humans proclivity for killing each other on the nation state alone. (12:03) And I think the nation state has also got some achievements.(12:07) I think state institutions that provide services and protect laws and, you know, introduce protections for people. (12:15) I think that would have been quite a bit harder with village institutions. (12:19) But of course, the world wars cannot be understood without the nationalist fervor.(12:25) So hopefully we'll be able to smooth out the edges of the nation state moving forward. (12:32) And I think the best way of doing that is more global cooperation. (12:35) I am not advocating or I'm not an optimist for a world government and universalism.(12:42) And everybody forgets that they are, you know, ethnicity, religion, history and becomes part of a world government. (12:49) I don't think that's going to happen anytime soon. (12:51) But the challenges that the world faces are largely global.(12:56) AI, pandemics, climate change, demographic change, nuclear nonproliferation, multinationals. (13:04) So we have to have global governance at some level, but we can only get there via the nation state. (13:11) By the way, we can only have good nation state institutions if we start at the local level.(13:18) So I think the way that I see good politics developing in the future and one that limits polarization, (13:23) which has become a real scourge of our time, is start from local communities, often intersecting communities, (13:29) self-government at the local community that percolates up to the nation state. (13:35) And the nation states, especially once this polarization problem is contained, (13:42) start building more global institutions consistent with their population's wishes and interests. (13:49) We're going to get to the future very soon.(13:51) But first, the present just quickly, you know, we worked together on your last essay for Foreign Affairs on the crisis of democratic capitalism. (14:00) And as you wrote then, you see the current moment as one of pervasive crisis marked by repression, turbulence and the disintegration of democratic institutions. (14:12) What do you see as the sources of this disturbance? (14:16) Well, look, I think even if we did not have Trump, this would be a uniquely turbulent time.(14:26) Inequality has reached alarming levels. (14:29) AI is going to disrupt everything one way or another. (14:33) The world is aging as it has never done before.(14:36) Most continents will have their populations declining within 10 years. (14:40) Climate change will require huge adaptations in our urban design, in the way we produce energy, in the way that we produce food. (14:50) And there are huge macroeconomic risks.(14:53) Add to that China-US rivalry. (14:58) Russia is declining.
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power lashing around to its neighbors, plus Trump destroying U.S. institutions and global (0:07) cooperation, especially between Europe and the U.S., well, you know, I don't think you can imagine (0:14) an even more tumultuous time than this. So this is ripe for crisis. I think we're going to have (0:20) many crises.
It's not just one crisis. The question is, how do we navigate (0:26) these very turbulent waters? And I think two elements. We have to strengthen our institutions, (0:34) starting from, again, local communities to the nation states and then some global cooperation.
(0:39) And we have to use technology the right way. If we use steer technology to be helpful when we (0:45) are undergoing demographic change or make the energy sector less fossil fuel intensive and (0:51) our urban design is much more sustainable, if we can use technology to provide new goods and (0:56) services for an aging population, for a changing consumption pattern of the global community, (1:03) if we can use AI in a more pro-worker way so that it doesn't destroy jobs, but it (1:09) actually makes workers more productive, that's a very big part of the solution. (1:14) So this technology institutions nexus is critical for the next several decades.
(1:19) During the pandemic, one of the indicators of how well a country could fare in weathering the (1:25) pandemic was levels of trust in governments and institutions. You wrote in that essay for us (1:31) about the sort of disastrous collapse in trust. Why has that trust ebbed and are there ways to (1:38) rebuild it? This is actually, perhaps you'll have me back again because this is the topic of my (1:44) new forthcoming book in August entitled, What Happened to Liberal Democracy? (1:51) And I'll just parrot the message of that book in a very shortened form.
(1:56) Liberal democracy promised shared prosperity, high quality public services, and voice to people on (2:03) all sorts of things, starting again from local communities and all the way up to the nation (2:06) state. It delivered on those for many decades and it flourished when it delivered and it created (2:13) aspirations. And over the last four decades or so, it has failed.
Inequality has skyrocketed, (2:19) the quality of public service from education to infrastructure to health have been crumbling (2:23) across the industrialized world, especially in the United States, and people are feeling (2:27) increasingly that they don't have voice. It is imperative in this complex world that we use (2:35) expertise from experts on questions like vaccines, central banking, rockets, whatever. But (2:46) that doesn't justify in a democratic country, democratic society, that some sort of technocracy (2:53) emerges and suppresses people's views.
And that's exactly what we created also over the last four (2:57) decades. So these three bedrock promises of liberal democracy have all been faltering. And I (3:05) think that is why liberal democracy is in crisis.
That is why trust in institutions, trust in (3:10) journalism, trust in academia, all of them are lower, and trust in Congress, presidency, (3:15) and courts has collapsed. So the future, I think, unless we want something highly anti-liberal and (3:22) highly undemocratic, is to revive that promise of liberal democracy. (3:26) You're calling for working-class liberalism.
What is that? (3:31) So working-class liberalism, to me, is the only way out. By that, I mean a liberalism that still (3:38) remains faithful to individual liberty, but in a way that's consistent with working-class values, (3:46) which means that people's views, whatever they are, are not suppressed. So we stay away from (3:52) social engineering and too much top-down imposition of cultural values.
It prioritizes (3:56) jobs and shares prosperity. And it works with communities, because liberal democracy, (4:02) when it elevated local self-government, worked with communities. And it's very important, (4:07) because that's where politics starts.
That's where trust starts. That's where (4:10) social networks are key for the spread of new ideas and new practices. So a working-class (4:18) liberalism is a template for a more community-based and economically more egalitarian form of liberalism.
(4:29) Do you see in the recent successes of, say, left populists like Zoran Mamdani in New York, (4:35) any plausible iteration of your working-class liberalism? (4:39) Yes and no. So if I were to give a grade to Mamdani on three items that matter for me (4:48) and for working-class liberalism, he did well on one of them, and he fails on two. (4:54) He did very well in terms of campaigning, which I'm leaving out.
(4:59) He's very charismatic, so he gets full grades on that. Kudos. But leaving the charisma aside, (5:07) he did very well in focusing on bread-and-butter issues, and I think that's very, very important.
(5:13) But he made promises that are not realistic, that can only lead to further disappointment. (5:23) So he cannot deliver on the things that he talked about. He cannot, as a New York mayor, he cannot (5:29) raise billions of dollars of tax revenue and redistribute it.
He cannot make life affordable. (5:33) That's not under his control. And he cannot change some of the dynamics.
Rent control is (5:41) not going to be a solution to rents and house prices being expensive in New York. So there (5:46) are a lot of things that are promised there that are not going to be realistic. (5:50) The third bucket is that I think the failure of liberal democracy also coincides with a reordering (5:58) in political alignments in the industrialized world, across the industrialized world, (6:03) not just in the United States, where center-left, which used to be the party of the working class, (6:10) became the party of the educated elite.
You see that about who are the center-left politicians (6:16) and activists. They used to be trade unionists and blue-collar workers. Now you don't see any (6:20) of them.
Who votes for whom? The working classes, the blue-collar workers, less educated workers (6:26) used to vote for the center-left. They don't anymore. They vote for the center-right or the (6:31) populist right.
The educated, especially urban educated, vote for the center-left. And that's (6:38) not consistent with left liberalism prioritizing working classes. And Mamdani, for all of his flair, (6:46) is a product of that milieu.
So he's speaking to the educated elites of New York. His sensibilities (6:55) are about that. And I think that's not going to have an appeal to workers in communities around (7:06) the world.
And it's also not going to kickstart a working class liberalism that is really concerned (7:12) with shared prosperity and community in this broad sense. But it's a good start. Let's see (7:18) whether the Democratic Party can build on it.
You know, when we're thinking about the current (7:24) breakdowns and turmoil, we often look to the decades after World War II, in the West in (7:29) particular, as where you saw the rise of fairly stable democracies, welfare states, and the like, (7:36) as some kind of vanished idol. And I think there's something similar underlying the way in (7:41) which sort of small northern European countries are often invoked as exemplars today of relative (7:48) equality and good functioning. Do you see that period, those golden decades after World War II, (7:54) and indeed, even sort of modern Scandinavian states, as outliers or as potential models? (8:02) Well, I do see them as potential models, but with the idiosyncrasies that you have to take (8:07) into account.
First of all, indeed, these were the golden decades. There was shared prosperity, (8:12) huge improvements in public services. People really participated in politics, especially (8:16) local politics during those eras.
But it wasn't just confined to Scandinavia. I mean, Scandinavian (8:24) social democratic or workers' parties were a great exemplar of this. But the kind of left (8:28) liberalism that I'm describing as laying the institutional foundation for that period (8:32) is also the same as New Deal liberalism.
And the United States was as far from Scandinavian (8:39) countries as you can imagine in the 1930s. And FDR formed a coalition, very different in some ways, (8:48) than what you see in Norway or whatever. But it worked.
I mean, it changed the face of politics, (8:56) it's changed the economy, it's transformed the labor movement, it laid the foundation of much (9:01) more shared prosperity. So New Deal liberalism was in the United States. It brought together the unions, (9:07) the labor movement, the Dixiecrats, the southern conservative Democrats, left-leaning intellectuals, (9:13) all of them together.
So I don't see that as impossible. But obviously, some things were (9:19) easier in Scandinavia. By the way, they weren't that easy.
Sweden was hugely unequal. It was (9:25) non-democratic. It had much worse labor relations than the U.S. ever did, many more frequent and (9:30) militant strikes.
Those things changed. Today, we identify Sweden with this homogeneous (9:38) cooperative society. Well, that's something that emerged after the 1930s.
(9:43) So in that sense, I don't think we can say social democracy or left-leaning liberalism, (9:51) similar to the working class liberalism that I'm describing in some ways, is only possible in (9:55) homogeneous, happy, shiny societies. Sweden only became that in that process. And by the way, (10:02) today, Sweden has the most radical neo-Nazi party in power in Europe, no other.
You know, AFD, we (10:09) hear a lot about AFD or the Reform Party. Well, the Swedish Democrats are the ones that have (10:13) neo-Nazi roots that are very clear. Why? Well, because Sweden, from zero percent immigrant, (10:20) went to 15 percent immigrant in the course of about 10 years.
(10:24) And it did not deal with those problems. So again, it shows how difficult the cultural changes (10:31) that communities have to go through are when there is huge globalization or huge immigration (10:39) changes. So we have to take those into account as well.
So neither is it the case that Sweden (10:44) is well-placed to be the nexus of, you know, working class liberalism and the United States (10:51) will remain polarized and can never create it. I think possibilities exist everywhere and mistakes (10:56) are going to happen everywhere. Let's close with this.
The critique you often hear now from (11:01) those that consider themselves post-liberal and even indeed people who consider themselves liberal (11:06) of liberalism is that it failed by forsaking its focus on the common good for the sake of, (11:15) you know, what people have called radical individualism, so to speak. As a liberal, (11:20) which I sense you are, how would you suggest that societies can find that right balance between (11:26) a sort of collective sense of the common good while still respecting the desires, ambitions (11:33) of individuals? So the way that I describe what I'm proposing both as a justification for liberalism (11:42) and liberal democracy and the way forward in the book is to say it is in the liberal tent, (11:47) but it stretches it a little bit. And precisely because I think that radical individualism wasn't (11:54) always part of liberalism and doesn't need to be part of liberalism.
Individual rights are always (12:02) key and they have to be protected, but that can be combined with an understanding of the value of (12:09) community, both as something that defines people's norms and identities and a value of community as (12:15) a trusted group of other people with whom we share information, with whom you can reach compromise (12:22) more easily. And that's the pathway to respecting the common good. Again, I think it's much harder (12:28) to tell people you have your family and you have the universal common good for 8 billion people, (12:33) but it's much easier to start from the community's common good and then from there on build to a (12:38) broader society to perhaps the nation state and from the nation state to the global community.
(12:43) So I think that is the pathway that's feasible for the common good. And I think criticizing (12:51) radical individualism and the imposition of radical individualism shouldn't be (12:54) the confine of anti-liberals. So there are anti-liberals that have that sort of emphasis, (12:59) perhaps they fall into your post-liberal category as well, or they fall into the reactionary category.
(13:06) But to them, every aspect of the liberal agenda and the protection of individual freedoms was (13:10) wrong from the get-go. To me, that was the most inspiring part of liberalism, but that doesn't (13:17) mean that we should erase the common good or the community, and especially it doesn't mean that (13:22) we should abandon inspiring goals such as shared prosperity. (13:27) Thanks so much, Dara.
We will look forward to exploring many of these ideas in future pieces (13:32) and indeed to your forthcoming book, but thanks so much for your time. (13:36) This was fantastic. Thanks for giving me the platform and for these fantastic questions.
