With his latest book, In Defense of Liberal Democracy, Manuel Hinds examines a fractured United States and offers optimism and a framework for healing today’s divided America.
Through a combination of historical, political, and economic analysis, Hinds illustrates how rapid technological advances have led to the current crisis of divisiveness in America. Examining political and social polarization in the United States, Hinds, a former finance minister of El Salvador and a winner of the Manhattan Institute’s Hayek Prize, weighs the dangers of populism and shows how only liberal democracy can restore national stability—as it did during the Industrial Revolution and Great Depression.
Manuel Hinds, who is also the author of The Triumph of the Flexible Society, Money, Markets, and Sovereignty, and Playing Monopoly with the Devil, talked with The Millions about partisan politics, cultural divides, the rise of Donald Trump, the dangers facing the United States, and where we can go from here.
The Millions: Can you explain how technological advances have lead to our current political and cultural divisions? Was this a gradual process? Did it accelerate at a certain point?
Manuel Hinds: Profound technological advances, while opening the road for a better future in the long run, are terribly disruptive in the short term. They render obsolete the capital accumulated in physical assets; in human knowledge and skills; and, even more fundamentally, in the shape of the institutions linking the fabric of society.
These effects, however, are not symmetrical. Some people adjust to the new changes rapidly while others are left behind. Some people gain while some others lose. These asymmetries create divisions where they did not exist and reinforce old divisions that already existed, particularly in the case of a technological revolution that, like the one we are living through, privileges people with higher education. The current revolution, which goes in the direction of creating a knowledge economy, accentuates those differences. The asymmetrical disruptions delay overall adjustment and create resentments that evolve into divisiveness.
What we are seeing is a progressively open conflict between change and resistance to it. The resistance is embedded not just in the owners of the physical and human capital that is losing its value, but, more prominently, in the attitudes of all of us, who would like to obtain the benefits of the revolution but without the disruptions they are causing in the short term. This fundamental ambiguity is an additional source of divisiveness, this time inside all of us.
This process started almost imperceptibly in the 1980s as the income of the unskilled stagnated while that of well-educated people increased fast. Then it accelerated very rapidly as changes accumulated and people became aware of them. Now we are in the real fast portion of the curve, where lags are becoming shorter and more complex.
The solution to this problem is not stopping change. The current revolution is bringing about marvelous inventions that will improve our lives beyond belief. Instead, we must diminish the divisiveness it is eliciting, in two main ways: first, attenuating the asymmetry of its impact through investment in human capital and, second, reviving the spirit of compromise that has always characterized the country.
TM: You write in the book that our current era of partisan and cultural divisiveness isn’t so different from three past eras of instability. How are those historical periods similar and how are they different?
MH: They are similar because all of them have posed severe challenges to the country’s social order. They are different because the challenges have evolved from problems posed by nature or external enemies to problems presented by society to itself through the increasing complexity posed by the relationships between its members.
In this way, the first crisis found what today is the country as a set of 13 colonies, independent from each other, dependent from an external power, and left them converted into a single, democratic country based on the respect of individual rights.
The second crisis found this country deeply divided by an internal threat that Abraham Lincoln defined with his immortal words, “A house divided against itself cannot stand.” The country, which defined itself in terms of freedom and individual rights, was defiled by slavery. The crisis left the country united in the most basic of its foundations, freedom.
The third crisis found the country transforming itself from an agrarian to a powerfully industrial society. This new world was, however, subject to fluctuations that could leave millions of people unemployed for considerable periods and destitute at the end of their career, without the family attention that was usual in the agricultural society. A solid social security network was needed to isolate people from these inevitable fluctuations. This was the great creation of the New Deal. Creating it required a shift in mentality.
A similar change of mentality is needed in our times. The country must find a way to invest in its own citizens to ensure the maintenance of a strong economy in the new knowledge society that is emerging, and, to ensure the return of the cohesive freedom that has been the mark of the country, it must defuse the divisiveness that has been growing in the last several decades.
Regarding the first point, in the industrial revolution, added value depended on machines; social expenditures were seen as a complementary activity, undertaken not to improve production but to take care of fellow human beings. The idea was: let’s produce first and distribute later. But in the knowledge economy, you cannot produce without high levels of human capital. Only a healthy and educated labor force will produce high added value. So, in the new world the ordering of activities is the reverse. Investment in human capital is necessary, which could then be used to produce wealth.
The true wealth of the United States is its highly educated population. As a society, however, its networks of educated people have enormous voids. In those voids, the United States is wasting opportunities and creating pools of divisiveness and resentment. Overcoming this problem requires going back to the principles of social interest that are the basis of liberal democracy.
TM: The book asserts that liberal democracy is what is needed to heal our nation, as it has done in the past. How did this function past eras and how do you see it playing out in our current era.
MH: There are two fundamental ways of organizing the enormous diversity of a modern society to attain a sustainable social order: you can either subject it to a vertical command that would eliminate diversity, or you can create order out of diversity through democratic compromise. The first is tyranny, the second is liberal democracy.
Authoritarian regimes are attractive to many people because they think they are more direct and effective: they rely on a single will and a simple plan and are not distracted by the checks and balances of democracy. But our world is too complex, too contradictory and too uncertain for that. To adjust to a transformation as deep as the current technological revolution you need a free and creative society, capable of fixing its own mistakes, of changing day by day through millions of free, small individual decisions, not through rigid enormous political commands. Rather than one single tyrant, you need as many active adjusters as possible, laboring under a common, democratic framework. To have them, you need liberal democracy, and to have the latter, a culture of compromise.
For this reason, strongmen like Hitler, Mussolini, Lenin, Stalin, and Mao failed to lead their countries to harmonious adjustments to the industrial revolution. In their efforts to repress diversity they became destructive and genocidal. In contrast, all the liberal democracies created unity out of diversity and succeeded in their adjustment to the industrial revolution. The United States was created on this basis. This is the meaning of E Pluribus Unum, the motto that the Founding Fathers legated to the country. A revival of the culture of compromise would resolve the two problems we are facing today: it would heal divisiveness, and, through this, it would turn society more flexible as well.
The ability to compromise requires understanding that all people in a society are in the same boat, that to reach a compromise you need empathy to understand the needs and desires of the rest of the population, and that you need self-control to honor your side of the compromises. All these requirements can be summarized in one: the social interest that must complement private interest to form a harmonious society. In the recent past, the United States has forgotten the need for this combination, believing that a successful society is the realm of self-interest exclusively. But self-interests are naturally divisive. If society is abandoned, if no one cares for it, if people refuse to compromise, as it is happening today, society will die, as it is happening today. To revive it, a spirit of compromise must substitute for the uncompromising attitudes of today.
TM: The subtitle of the book is: What We Need to Do to Heal a Divided America. What do we, as citizens need to do? And what can everyday people do to change a situation that seems so entrenched and immutable?
MH: The United States became a great country because its population met all these requirements, which were put to the test in the three big crises I mentioned in a previous question: that which led to the creation of the country, that which kept it united while eliminating slavery, and that which turned it into a modern industrial society in the first four decades of the twentieth century. In all these cases Americans adapted their institutions to new requirements and did so while keeping in place liberal democracy. This required a difficult exercise of self-discipline to understand how to reform institutions while firmly keeping in place the principles established by the Founding Fathers. In all cases, this self-discipline has paid enormous dividends. Americans not only remained free and protected in their rights but also led the world into increased creativity and riches.
The work that should be done is mainly internal to each individual. It is there, in the values of the Americans, that the incoming battle to eliminate divisiveness while keeping in place freedom and individual rights will be fought.
TM: How does a figure like Donald Trump fit into all of this? Do you see him as an aberration or a symptom of a larger social/political/technological shift?
MH: He is a symptom of a larger social/political/technological shift, but not one of what would be coming if the United States adjusted harmoniously to the new revolution. Rather, he is a symptom of the angst of the confrontation between change and resistance to it, a product demanded by people who think that social order can only be restored through authoritarian vertical commands—a social order that is consistent not with what the future is offering us but instead to what restricted progress in other countries in the past and could restrict it in the United States if the commanding attitude prevailed.
Thus, he is a voice of the past in this crucial intersection of history: politically because he is for the arbitrary government of one person that the Founding Fathers rejected to establish a liberal democratic government almost 250 years ago, and economically because he wants to go back to the mercantilism that they discarded in those times—a system in which economic success is obtained not by producing more efficiently but by having good contacts with the government, which decides who will be protected and who will not. Characters like him appeared at the height of the industrial revolution, people like Huey Long and Father Coughlin, only to disappear as the country overcame its transformation and integrated industry within a free and efficient society.
The damage that he, and many others that will appear, can cause should not be underestimated. If any of them attains new power, they can turn the clock back and deviate the country from the path of freedom and progress it has walked since its creation.
TM: Looking at our current divisions, partisan politics, and brush with an authoritarian leader, do you see parallels between the United States of 2020/2021 and other nations during the 20th century? You write about Lenin’s Communist Russia and Hitler’s Nazi Germany. Are we headed down a similar path?
MH: We are far away from those destructive regimes. But we have to understand why. The distance is not in terms of circumstances. Many people would be scandalized by this assertion because we cannot compare what we see as chaos today with the true chaos that destroyed Tsarist Russia in 1917, or with the chaos that overtook Germany one year later, leading it to the brink of a Bolshevik regime, or with the chaos that preceded the escalation of Adolf Hitler to power 15 years later.
Yet, circumstances may change very rapidly during technological revolutions. Germany, for example, was seen as one of the most stable and powerful countries in the world in 1913, just five years away from its Bolshevik revolution. The same was true of 1929 Germany, which was divisive but stable, just before the Great Depression. Within the next three years Germans turned divisiveness into chaos and then tyranny. That is, even if our circumstances seem to be much calmer than in those times, they may worsen very rapidly. Any external factor, like a serious prolongation of the Covid-19 pandemic, or incontrollable violence in the United States, could lead to a sudden chaos.
Thus, the real security is given by the existing liberal democratic institutions, the reason why I said that we are far away from the destructiveness of those regimes. They would never allow disasters like those of communist Russia or Nazi Germany. But institutions have power only because people give it to them. People could give it to an authoritarian leader. Thus, the strength of the United States is within its individual citizens—their values and their courage. History will say if we are right in trusting that they still keep in place the values of the Founding Fathers.
TM: In the book, you write, “Today we are faced with our 1776 moment. Our challenge is to create the pillars that will structure social life during the twenty-first century without knowing what challenges this century will pose.” Can you talk about that parallel with 1776 and what we can learn from the founding of our country.
MH: In their 1776 moment, the Founding Fathers understood that their task was not just founding a nation but also giving it a social order that would sustain it through times they could not foresee and through crises they could not predict. Their raw material was a population full of contradictions and divisions, which were seriously considering going, each of them, their own way.
Their great achievement was discovering that the only way to manage a reality that is both contradictory and uncertain is to design a system that can correct its course, finding the right response by trial and error. This is precisely what liberal democracy does. The advantage of democracy is not that it produces the best policies from the start but that it has the ability to correct itself. British liberals, the Founding Fathers of the United States, and the shapers of the most developed societies did not produce a plan, or a program, or a theory to attain the results they eventually attained. To manage the contradictions, they created not one unified framework, but instead a superposition of frameworks that checked and balanced one another, and gave the nation, through their own example, values that would lead to compromise and respect of the rights of each other. They didn’t know what policy decisions would come from this system when confronted with problems, centuries later, they could not even envision. They only trusted that their construct, based on democracy and individual rights, would tend to produce the right solutions. The history of the country proved they had been right.
The Founding Fathers reached their 1776 moment because they were willing and able to rise over their short-term interests and compromise. This is what we need to do in this moment: rise to the occasion and compromise with one another to recreate the nation with renovated institutions and based on the same principles established by the Founding Fathers. This is what the generations of Washington, Lincoln and Roosevelt did when they renovated the institutions that give life to the country, based on the principles of democracy and individual rights. Now it is our turn.
TM: In the midst of a political crisis, we faced another crisis: a global pandemic. How did those two things play out together? Did they influence one another? In what ways?
MH: The pandemic is having many interactions with the processes that were already weakening the social order when it started. Initially, many people thought that it would mark the end of globalization because the global supply chains broke as people panicked and lockdowns multiplied all over the world. They thought that this showed the vulnerability of a globalized economy. Yet, with time, the economic collapse actually showed what could be expected from a world economy comprising countries isolated from each other. This changed the attitude toward one of embracing the new technologies rather than rejecting their most visible economic result, globalization. Thus, the pandemic accelerated the transformation to a more connected world.
Enterprises discovered that these technologies were useful not just to coordinate complex tasks on the other side of the planet but also within the same city. Many enterprises changed radically their business model as they learned to work more efficiently without being together physically, thus reducing, for example, their need for office space. These developments, in turn, have affected in a very asymmetric way different groups of the population, adding reasons of divisiveness.
At the same time, the pandemic showed that national and international coordination is needed to deal with global problems in a pragmatical rather than ideological way. The United States paid a high price for trying to avoid involving the federal government in the approach to the problem for what seemed to be ideological reasons. Contrarywise, the European Union is paying a high price in terms of vaccination supplies for trying to coordinate everything under a rigid central government. Other countries, like Israel, have obtained excellent results by combining government and private interventions in a pragmatic way.
TM: How hopeful are you about the future? And what would you tell readers who feel overwhelmed and powerless when faced with our current political and cultural divides?
MH: I am quite hopeful because Americans have done it before. The United States is one of the few countries in the world in which political power has flowed from the people to the government, from the local to the national, from the individual to society. Democracy was not given to its population, much less imposed on it. The people impressed it on the government.
Many people may think that the identity of the origin of this creative movement is immaterial, that what is important is that the link between the individual and all the levels of government was created. Yet, the direction of this movement is crucial. It shows where the creative power is located, and, comparing such power with the momentous creation, it shows how effective the grass roots and the individuals can be. This is why I ended the book saying that this is our 1776 moment.
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