Yes, contemporary capitalism can be compatible with liberal democracy | William Arthur Galston

Changes in capitalism's structure have moved faster than the policies required to domesticate them, and liberal democratic governments are scrambling to catch up

Is contemporary capitalism compatible with liberal democracy? The glib answer, though not wrong, is that it had better be. There are no known examples of fully socialized economies with a liberal democratic regime. The more considered answer is that it can be, but only with the public policies that make it so.

The relationship between liberal democracy and capitalism changes over time, as do the policies needed to make them mutually supportive. Not for the first time, changes in the structure of capitalism have lately moved faster than the policies required to domesticate them. Liberal democratic governments are scrambling to catch up.

Completing secondary education and receiving at least some post-secondary training is now economically essential. To make this necessity a reality, public policy will have to do more-from pre-school to college--to break the link between family background and educational attainment.

Public policy should do more to resist growing regional disparities. Traditional regional subsidies are the equivalent of blood transfusions, keeping patients alive without restoring them to health. Instead, governments should ensure that all regions have the building blocks of economic growth-education, transportation, finance, information, and infrastructure.

In most advanced societies, economic concentration is increasing, limiting competition, innovation, and entrepreneurial opportunities. Europe has taken the lead in resisting these negative trends, and other market economies should follow suit. Consumer prices are no longer an adequate guide to anti-trust policies, if they ever were.

Wages for lower-skilled occupations in advanced economies will be limited by wages for these jobs in less-developed societies. Higher productivity helps, but not enough. Public policy must step in, with higher minimum wages, increased wage subsidies, and universal opportunities for workers to share in rising business productivity and profits.

The excesses of globalization must also be reined in. Capital mobility should be limited when it imposes intolerable costs on jobs, wages, and social stability in advanced economies. Trade rules should not give advantages to state-controlled economies at the expense of market economies.

William Arthur Galston holds the Ezra K Zilkha Chair in Governance Studies and senior fellow at the Brookings Institution