From liberal to illiberal capitalism: a Keynesian/institutionalist approach. Economics as a moral science

ABSTRACT

I propose to demonstrate (a) why, intrinsically, collective choices cannot reflect the preferences of all the social groups, and (b) why such choices are necessarily determined by moral and ethical values. From such perspective, I will show how the development of various forms of illiberal capitalism endangers the foundations of democracies and their institutions. In a first part, I will define the main issues of the Social Choice Theories and I will highlight the main contradiction of the individualistic approach. In a second part, I will highlight the historical nature of any social regulation. In a third part, I will design a typology of the different types of regulation. In a fourth part, I will highlight the main characteristics of illiberal capitalism and I will show, from some concrete examples, why the fundamentals of democracy are threatened.

JEL Classification: A13; B15; D71

KEYWORDS:
Collective choice; institutions; democracy; social order

“I also want to emphasize that economics is a moral science. I have already mentioned that it deals with introspection and values. I could have added that it deals with motivations, expectations, psychological uncertainties […] “

J. M. Keynes, Letter to Harrod, July 16, 1938.

INTRODUCTION

I propose to demonstrate (a) why collective choices cannot reflect the preferences of all the social groups, and (b) why such choices cannot be exempted from moral and ethical values. From such perspective, I will show how democratic regimes and their institutions are currently threatened.

In a first part, I will define the main issues of the Social Choice theories, I will highlight the main contradictions of the modernity that characterize capitalism and I will demonstrate why Social Choices necessarily translate the moral and ethical values of collectivity. In a second part, from an institutional approach, I will highlight the historical nature of any social regulation. In a third part, I will define the global regulation by the relationships among the economic, the political, and the private spheres, and I will design a typology of the different types of regulation.In a fourth part, I will define the specificities of the illiberal capitalism regime and explain why, today, the democratic foundations of capitalist societies are threatened.

SOCIAL CHOICE: A THEORETICAL APPROACH

The social choice

Social Choice theories provide explanation regarding the divergences between private interests and social welfare, and thus underscore the fact that collective choices, by nature, embody the moral, social, and political values that characterize the collectivity analyzed.

The Condorcet’s paradox

This paradox (Condorcet, 1785) highlights the methodological gap between the individual level and the aggregate one: collective choice cannot reflect all individual choices. Let us assume a voting system in which three individuals must choose among three candidates, from an ordinal approach. The order relationships are as follows:

• Individual 1: A > B > C (1)

• Individual 2: B > C > A (2)

• Individual 3: C > A > B (3)

• (1) and (3) => A > B

• (1) and (2) => B > C

Transitivity implies that A > C. However, at the global level, in the system as a whole, C will be chosen, since C is preferred twice to A. The choice made at the aggregate level does not correspond to the simple sum of the individual choices; the non-transitivity of individual choices underscores the fact that collective choice cannot reflect individual choices.

An order exists at the aggregate level. This order has its own mechanisms that are not the simple manifestation of individual mechanisms. This gap between micro and macro levels highlights the limits of rationality exercised by the individual agent. The welfare economics elaborated from Pigou’s works highlights the need for public intervention when divergences between private and social costs appear.

Arrow’s impossibility theorem

Arrow (1951) studied this problem from the following example: let us suppose that three individuals (1, 2, and 3) establish an order relationship among four candidates (x, y, z, and w). Let us also assume that each of these individuals assigns, respectively, the weight 4 to the first choice, the weight 3 to the second, the weight 2 to the third, and the weight 1 to the fourth (in this case, the utility is cardinal).

Let us assume the choices are made as follows:

• – Individuals 1 and 2 established the following order relationship: x > y > z > w

• – Individual 3, the following relationship: z > w > x > y

• The total utility that comes from individuals (1) and (2) can be represented by the following relationship:

• x = 8 > y = 6 > z = 4 > w = 2

• The utility of the individual (3):

• z = 4 > w = 3 > x = 2 > y = 1

• At the global level, we have x > z: x corresponds to a total utility of 10 and z to 8

In a second time, let us assume that y is eliminated:

• (1) and (2): x = 8 > z = 6 > w = 4

• (3): z = 4 > w = 3 > x = 2

At the global level, x and z are equivalent in terms of total utility. The problem can be formulated as follows: collective choice depends directly on the options initially available. In this sense, it is up to the state to determine the range of possibilities¹.

Condorcet’ s paradox evidently demonstrates that it is not possible for collective choices to satisfy the diverse demands of the community. However, from the perspective developed in this paper, it can be argued that there are no other alternatives, i.e. there is no way to maximize a social welfare function; Pareto’s optimality cannot be verified.

On the other hand, Arrow’s impossibility theorem demonstrates that collective choices are predetermined by the range of possibilities that the state makes available to citizens; in this sense, the choice thus made translates the moral and ethical values of that collectivity.

As it will be demonstrated in the next section, the solution proposed by the Austrian school (as well as by Friedman) establishes a direct causality relationship between the competitive market and the political and individual freedom. However, it does not specify the modus operandi from which political and private freedoms are guaranteed.

In essence, collective choices are inherently required for the governance of society; however, these choices are often unable to meet the diverse demands of various social groups. Conversely, to be considered legitimate, these choices must align with the moral values inherent within the specific societal context; they cannot be regarded as ‘morally’neutral.

The modernity paradox

Modernity, as defined by Foucault (1966), constitutes the foundations of capitalist societies. Such paradox appears as follows: on the one hand, the individual, in its economic, political, and ideological dimensions, constitutes a fundamental component. Individual economic, political, and religious freedoms are attributes of the individual and must be preserved. The individual is endowed with a rationality that determines his different choices; in the more specific case of Neoclassical Economics, this rationality is substantive, which enables agents to maximize their microeconomic utility or profit functions. But, on the other hand, the existence of an order is incompatible with the full and unlimited exercise of (a) individual freedom and (b) substantive rationality.

Regarding individual freedom, it must be limited in such a way that the conditions of reproduction of the collectivity are ensured: Adam Smith (1776), for example, recognizes the necessity to maintain the “general conditions” that allow the reproduction of capitalist society, among others the legitimation and respect for private property, based on the establishment of legal and state structures. Economic freedom can only be effective once these general conditions are realized.

As far as individual economic rationality is concerned, its limits as regulation variables appear soon. The existence of externalities, whether negative or positive, is incompatible with the exercise of a substantive rationality. By nature, the existence of externalities implies that the individual agent, when making decisions, does not evaluate all the implications linked to those decisions. Rational calculation is the result “[…] of a rigorous evaluation of prospective costs and benefits […]” (Hirschman, 1986, p.8). This means that rational individual can evaluate, ex-ante, all linked effects of his choices. Concretely, this individual can only assess individual costs, but he does not know the social cost or social benefit. Consequently, his rationality is intrinsically bounded.

Coase (1960) showed that all economic activity consists of producing externalities that, for certain social groups, are negative; in the 16th century, Montaigne already formulated a similar conclusion: ‘The profit of one is the loss of the other’ (1588, p.89). The existence of an order translates into the fact that it sets limits regarding these negative externalities; such limits vary in space and time and are the product of some collective choices. There is no neutrality of these choices: any type of individual rationality is bounded, and the collective choices translate the moral and ethical values that characterize a specific order (Bova, 2021).

The following example, chosen by Bova (2021), highlights this characteristic: let us suppose that, in a prison, certain prisoners are sentenced to death; let us also assume that, driven by morbid and/or sadistic instincts, certain people would pay to kill these prisoners. From the point of view of a neutral, purely instrumental rationality, devoid of any moral value, the prison administration would have to adopt this solution: the utility of those who enjoy killing would increase without decreasing the utility of prisoners who, in any case, will die. Nevertheless, from a moral point of view, such collective decision is unacceptable and violates the inalienable rights of the individual, rights that constitute the foundations of modern democracies. In the concentration camps, the Nazi regime applied an instrumental rationality to its extermination activities, which reveals the values that this system wanted to impose on society.

Consequently, the regulation of the collectivity cannot be based solely on the individual rationalities of its members: the existence of a certain order is necessary to implement this regulation. Certain mechanisms will act to limit individual choices. Any human collectivity is thus characterized by a holistic dimension, that is, by the fact that it imposes limits on the exercise of individual rationalities.

HISTORICITY AND SOCIAL REGULATION: AN INSTITUTIONAL APPROACH

The nature and the role of institutions

The myth of a spontaneous order

In the social and economic sciences, two theses are put forward regarding the nature of the order. The first one posits that a spontaneous order allows for regulating collective behavior and making individual action compatible with the collective welfare. These mechanisms could be implemented through various means: (a) natural prodigality (the physiocratic school); (b) divine order, which allows for the reconciliation of individual interest and altruistic morality, as demonstrated by the invisible hand (Herscovici, 2023), or (c) the markets forces. This approach assumes that there exists a supra-individual order linked to God or nature and considers economic laws as natural laws.

These approaches posit the existence of a self-organizing social system that gives rise to a spontaneous order (Hodgson, 2006, p.13). Physiocracy and Smith’s analysis are connected to a natural order of divine essence; thus, the individual is conceived as universal, and their actions lack any historical or institutional dimension. In the primitive societies described by Smith and Ricardo, hunters and fishermen act as capitalists. Private property rights are considered to be natural rights, and the institutions of capitalism are universal. In the neoclassical constructions related to general equilibrium, the position of stable equilibrium is postulated, but the mechanisms that make it possible to return to this position of equilibrium from an initial disequilibrium are not specified (Arrow, 1986).

This spontaneous order can also be realized by the market: Hayek (1948), for example, affirms the existence of the spontaneous order implemented by competition to justify the social efficiency of the competitive market and to preserve individual freedoms.

The institutional order

Institutional economics, on the other hand, emphasizes the role of institutions as a determinant of individual rationality and as a mechanism for macro-social and economic regulation in different societies. Institutions are necessary to implement this coordination:

i) As all works related to political sociology or social choice theory emphasize, coordination and the survival of the collectivity itself impose limits on individual action.

This imposition is based on the political values of a given order: in a democratic order centered on the individual, the inalienable rights of the individual must be preserved. In holistic, i.e. autocratic or theocratic orders, the individual as such does not exist. A particular social group imposes its values on the whole community.

Institutions provide the historical framework from which a causal principle emerge, as well as the rules that are associated with this causality: The term rule is broadly understood as a socially transmitted and customary normative injunction, or immanent normative disposition, that in circumstances X do Y (Hodgson, 2006, p.3).

Institutions shape and determine the actions and rationality of agents by providing the social context in which individuals exercise their rationality. Substantive rationality is substituted by procedural rationality, as defined by Simon (1979). They make it possible to develop realizable expectations by reducing uncertainty; in this sense, they can be assimilated to the concept of convention, as defined by Keynes (1936).

Contrary to the standard neoclassical approach, in the institutionalist perspective, preferences are neither constant nor exogenous. The global coordination of society is not postulated ad-hoc; likewise, contrary to the hypotheses adopted by the Theory of Rational Expectations, there is no homogeneity in the behavior of agents, nor in the theoretical models used for them to elaborate their expectations:

[...] institutionalism points not to a spurious supra-individual objectivity, nor to the uniformity of individual agents, but to the concept of socio-economic order, arising upon a variety at the micro-level (Hodgson, 1998, p.7. Emphasis added).

Finally, Institutional Economics endogenizes the ways in which these preferences are formed. Institutions partly determine these preferences: the concrete actions of agents and their rationality are the product of such institutions.

Institutions as a social mediation

Institutions form the social space wherein conflicts and adversarial interests undergo mediation and negotiation; this corresponds to what the French School of Regulation defines as institutional forms: [...] every codification of one or more fundamental social relations (Boyer, 1987, p.48).

Orthodox economics analysis emphasizes factors that promote harmony and stability and denies the existence of antagonistic interests: the myth of the invisible hand, Pareto´s optimum and the first welfare theorem allow denying any antagonistic interests. The Walrasian theory of services producteurs and the theory of income distribution linked to the General Equilibrium further support this thesis.

It posits that all agents act in the same way; furthermore, hypotheses that deny the social plurality fail to adequately explain the functioning of concrete markets, especially speculative markets. As noted by Keynes (1936) and by Arrow (1986), the existence of markets contradicts the homogeneity postulate of agents.

In contrast, the old institutionalist approach deviates fundamentally from this reductionist method by eschewing the reduction of various mechanisms to their microeconomic foundations. On the contrary, it emphasizes the interdependence of micro and macro levels, acknowledges conflicting interests:

“Ironically, by assuming given individuals, the micro-foundations project in orthodox economics had typically to assume furthermore that each individual was identical in order to attempt to make the analysis tractable. In contrast, institutionalism points not to a spurious supra-individual objectivity, nor to the uniformity of individual agents, but to the concept of socio-economic agents, arising upon variety at the micro-level.” (Hodgson, 1998, p.7)

The legitimacy crise

Democratic institutions mediate among conflicting interests. Individuals can be subsumed in relation to social choices in two ways (Dumont, 1983, p.22):

(a) subordination, where the individual accepts and recognizes the imposed norms at the collective level as legitimate.

(b) Submission, on the other hand, is the method utilized by authoritarian regimes in which individuals are forced, often through various forms of violence, to accept and submit to collective decisions imposed by specific groups. This tactic is predominantly employed by groups such as Nazism or the Islamic State.

The current crisis is a crisis of legitimacy in the sense defined by Habermas:

(a) social relations and antagonistic interests appear directly as political and conflictual (Habermas 1978b, p.150).

(b) at the same time, the state is progressively losing its power of control in favor of certain minorities.

(c) the habitus, in the sense defined by Bourdieu (1977), or habits (Veblen, 1908), that legitimize the collective choices inherent in the democratic order are no longer characterized by the public use of reason, but by narratives that deny this reason: conspiratorial theses that have no scientific or historical basis, but mystical religious ideologies. The mechanisms of subordination based on a legitimacy an on the use of reason are gradually being replaced by mechanisms of submission based on physical and/or verbal violence.

Anthropological analysis (Girard, 1972) highlights the fact that any type of society produces a certain type of violence as well as social mechanisms capable of channeling in the sense of controlling, this violence. The challenge of democratic institutions by various extremist groups must be interpreted as an effort to contest state power and its monopoly on violence, according to the Weberian definition. The ultimate goal is to appropriate that violence by establishing an autocratic regime.

THE DIFFERENT CONFIGURATIONS OF CAPITALIST SOCIAL FORMATIONS

Some stylized facts

Capitalism, Individualism and Democracy

The birth and development of capitalism is characterized by the recognition of the individual and his fundamental rights (Foucault, 1966); while most societies were holistic, the capitalist system can be described as individualistic (Dumont, 1985).

These evolutions are both historical and epistemological: historical, because the recognition of the individual as a holder of specific rights appeared and took root with capitalism (Dumont, 1985). These developments are also epistemological because the concepts of scarcity and finitude appear (Foucault, 1966), and because the individual is conceived as an active actor in social and economic life, both in classical economics, based on labor, and in neoclassical economics, based on utility. Divine orders or those linked to nature are progressively substituted by an order in which the individual plays an active role: this is one of the characteristics of the episteme that corresponds to Foucault’ s definition of modernity (1966).

As Habermas (1978a) showed, the development of the public sphere corresponds perfectly to this movement; it is a social space in which, through the public use of reason, (a) the rights of the individual mark the limits of the discretionary power of the state, but also of the market, (b) the various political choices are legitimized or delegitimized. Thus, from the beginning, capitalism has been closely linked to democracy, starting with the recognition of the individual and his fundamental and specific rights.

However, current developments seem to contradict this assertion (USA, Brazil, Russia, China, Italy, Israel, etc.): individual and political freedoms are no longer a feature of a number of capitalist social formations: we are witnessing the emergence of various forms of authoritarian national capitalism (Hénin and Insel, 2021).

The Mont Pèlerin Society

Specifically, in the name of individual freedoms, some social groups question the collective choices made by public actors and the institutions whose aim is to put these choices into practice; during the Covid pandemic, various conspiracy movements adopted this strategy (Herscovici, 2021b).

These groups draw on libertarian themes which, from Tocqueville to Mises and Hayek, conceive democracy as the dictatorship of the majority at the expense of the various minorities. For the Austrian School, and more specifically for Hayek, the market is the social instance that makes it possible to realize this equilibrium between social regulation and democracy. In the first part of this paper, I highlighted the limitations of these theses, i.e. the necessity of a global regulation.

The inherent instability of democratic regimes

Economic, Political and Private Spheres

The concept of social order is essentially defined in terms of the relations among the political, private and economic spheres and their respective specificities. The order established corresponds to an emergent property² and is justified on the basis of a Hegelian conception. Unlike individual rationalities, only the rationality of the state, as a manifestation of the Objective Spirit, can regulate the whole social body. In this sense, there is “[...] a counter position of the collective interest to the individual interest, and a necessary subordination of the latter to the former” (Bobbio, 1985, p.24).

The existence of macrosocial mechanisms is in all cases the necessary and sufficient condition to ensure the sustainability of the collectivity. This necessarily implies a political dimension expressed in collective choices. On the other hand, this political dimension makes it possible to define the limits assigned to each of the other spheres, both in autocratic and democratic societies.

This typology is similar to Aron´s (1998) analysis in the following sense: it is necessary to distinguish among economic liberalism, political liberalism and the recognition of the inalienable rights of the individual (Aron, 1998, p.69). This distinction implies that economic liberalism, or more precisely the supremacy of the competitive market, can no longer be systematically associated with political liberalism and the rights of the individual.

Democracy is defined by equality before the law and respect for the private space in which individual choices are expressed. In addition to the fact that “liberalism and democracy [...] should not be confused” (Aron, 1998, p.138), it is possible to note that today, with the various forms of illiberal capitalism, economic liberalism is increasingly moving away from its democratic components; this scenario is evoked by Aron 1998, p.90).

A Typology

The holistic order

Autocratic regimes make the following choice: they give priority to the political order, and scarify systematically individual, political and possibly economic freedoms; the Islamic State corresponds exactly to this scenario.

The holistic order

The signs + and - indicate the degree of autonomy and diversity of the different spheres, and the arrows indicate the different relations of determination. Thus, the holistic order is characterized by the determining role of a little diversified political sphere and, consequently, by the restricted autonomy of the private and economic spheres.

The individual is no more than an element whose sole function is to regulate the overall collectivity and enjoys no autonomy whatsoever. The monolithic political sphere, generally linked to religion, determines the entire social edifice: the Middle Ages in the West or the Islamic State today.

In general, this structure corresponds to a low level of economic development. The condemnation of usury in the Middle Ages acted as a brake on economic development; the formation of economic oligarchies, closely linked to political power, also limited economic development. Weber´s analysis, on the other hand, explains how the Protestant ethic, contrarily, constituted an environment conducive to economic development.

The Democratic Order

Keynes´ vast, varied, and particularly rich writings contain a number of elements of moral and political sociology. Keynes proposed a new liberalism or market socialism, based on the following dimensions [...] individual freedom, which is a matter of morality, political freedom, and economic freedom. (Dostaler, 2005, p.178).

Individual freedom concerns what we would today call private space, the space in which individuals exercise their choices in matters of religion, belief, sexual orientation, etc.

Nowadays, with the growing importance of Big Data in all social activities, the deterioration of the private sphere is intensified by the lack of robust safeguards for personal data. This data economy is defined by a trade-off between competition and the protection of personal data (Abate et al., 2024). In the context of the Big Data strategy, these data are also utilized for political purposes (Herscovici, 2021a) In light of these considerations, it can be argued that the contemporary context is defined by an explicit conflict between political, in its democratic dimension, and economic power. The recent conflict between Elon Musk and the Supreme Court in Brazil serves to illustrate this phenomenon: in 2024, he threatened to break Brazilian court rulings and reactivate blocked user profiles.

Political freedom is another fundamental characteristic of democratic regimes; it can be defined, to a first approximation, by the autonomy of public space. Finally, economic freedom is defined by private ownership of the means of production and the free but controlled operation of the market.

The democratic order

The political sphere defines the limits of the economic and private spheres: in this sense, economics is inseparable from politics, which is why I think it is only right to define Economics as Political Economy.

i) The limits imposed on the economic sphere result from the collective choices made by the various public actors and change over time (Herscovici, 2023). Starting from the work of Pigou (1932), Musgrave (1959), and Samuelson (1954), public economics defines the limits imposed on the economic sphere when externalities appear: the aim is to define the limits of individual action to protect the collective welfare. Fordism and the welfare state correspond to this type of economic and social policy.

On the other hand, since the 1990s, the liberal wave has been characterized by the opposite choice: there is a geographical and social expansion of the economic sphere and market logics³, and a reduction of political power, in its pluralist dimension.

ii) Similarly, the limits of the private sphere are reflected in the range of choices available to citizen: the right to abortion and the decriminalization of soft drugs depend directly on the moral, ethical, and religious values that characterize a given society at a given time. Such range is the product of a political choice.

In a democratic system, the determination of collective choices is a particularly complex process: the goal is to achieve a viable balance among these three spheres.

THE SPECIFICITIES OF ILLIBERAL CAPITALISM

The fragile equilibrium of the democracies

The democratic equilibrium can be disturbed by the hypertrophy of both the political and/or the economic spheres. In the first case, a monolithic political and/or religious power is closely associated with the political sphere, corresponding to autocratic regimes.

The second case perfectly characterizes the various manifestations of this illiberal /authoritarian capitalism: the hypertrophy of the economic sphere, in line with the theses supported by the Mont Pèlerin Society, translates into a progressive loss of autonomy of the political and the private spheres.

The public sphere in which political activities take place is progressively vassalized by private economic interests and loses its autonomy; the concrete process of legitimization within this sphere depends more and more on the economic power of the actors who intervene in it, and less and less on the use of reason⁴, as claimed by Habermas (1978a).

As a result, the political sphere is undergoing profound changes: on the one hand, the political diversity that characterizes a democratic regime is drastically diminishing as legitimation processes change and become increasingly dependent on economic power. (This was already emphasized by Aron, 1998, p.90.) As a result of the close links between certain political elites and financial oligarchies, a relatively autocratic regime is gradually being established, along with the corruption mechanisms typical of this type of regime.

If market forces are the only basis for all social regulation, then this social regulation depends directly on the market capacity for self-regulation, which explains the current precariousness of these regulations (Polanyi, 1983) and the social ruptures that are appearing today: the development and political legitimization of neo-Nazi parties, conspiracy narratives, urban revolts, etc.

The means of control available to the public authorities are proving to be less and less efficient; this can be explained by the convergence between the private sphere and the public sphere, which has led to profound changes in both these spheres (Habermas, 1978b, p.157).

i) As a result of the opacity that characterizes the markets linked to social networks and digital platforms (Herscovici, 2021a), it is increasingly difficult to implement efficient control procedures over the actors involved in these markets.

The concept of opacity is explained by the information asymmetries that characterize these markets. Prices fail to provide the different agents with the information they need to make satisfactory choices and regulate these markets: these asymmetries can appear between supply and consumers (Akerlof, 1970), between the different consumer groups (Herscovici, 2019), or between the agent and the principal. On the other hand, the relationships between Big Data and consumers/users are particularly opaque: users are not aware of either the prices at which the data they have produced is sold, nor the data that has been actually sold (Herscovici, 2021a).

ii) This is also reflected in a decline in the legal and constitutional power of the state to control and limit the excesses of the executive: while in Brazil the supreme court have succeeded in eliminating or limiting the dictatorial impulses of the executive power, regarding Bolsonaro, the same cannot be said, for example, in Israel or Italy, and in USA today. The rule of law is gradually being replaced by “public opinion”, as expressed on social networks; Big Data generally intervenes on these networks in favor of far-right populist movements.

The economic structures of such markets are completely uncompetitive and can be compared to what Braudel (1985) defines as the capitalist superstructure: essentially monopolistic or oligopolistic markets, significant information asymmetries, international and speculative dimension that is not directly linked to the productive sector.

THE ILLIBERAL CAPITALISM

Illiberal capitalism

Contrary to the claims of Austrian theorists, it seems impossible to reconcile unbridled economic freedom with respect for the private sphere in which individuals exercise their choices, with the political diversity which, within the public sphere, constitutes one of the essential components of democracy.

Illiberal capitalism is the product of the convergence of interests between the political sphere and the economic sphere, in such a way that these two spheres merged to form political-financial oligarchies; concentration in the economic sphere is matched by concentration in the political sphere, which necessarily translates into a poorly diversified political sphere.

INSTITUTIONS, FORMAL AND REAL FREEDOMS, AND ECONOMIC DEVELOPMENT: SOME EXAMPLES

Formal and real liberties

Experiments carried out in Latin America in the late 1960s, based on Friedman’s theories, clearly show that economic freedom is incompatible with individual and political freedoms. The same is true of Nazi and Fascist regimes (Dostaler, 2005, p.177).

The policies implemented at that time failed to establish either formal freedoms, due to political repression, or real freedoms, due to the profound inequality in terms of income distribution: economic development was essentially exclusionary (Furtado, 1981), and until redemocratization in the late 1980s, it was not accompanied by respect for formal freedom.

Contrary to what Acemoglu and Robinson (2012) claim, the existence of inclusive political institutions is neither a necessary nor a sufficient condition for maintaining the conditions for lasting economic development today: the emergence of various forms of authoritarian capitalism and the growing fragility of democratic mechanisms tend to disprove this thesis, i.e. to limit the power of such institutions.

From the perspective developed in this paper, these inclusive political institutions would be characterized by the simultaneous realization of formal freedom and real freedom (Aron, 1985). Formal freedom is defined by the autonomy of public and private space: real freedom by the economic conditions of the different social groups. Formal freedom will only be effective once a given social group reaches a certain level of income. For example, all sociological studies point out that, depending on the socio-professional category, the modalities of access to culture, education, and health are profoundly different.

Recent evolutions clearly show that economic development is no longer systematically the product of democratic institutions. In China or Russia, for example, if real freedom is guaranteed, formal freedom is totally absent. On the other hand, in democratic capitalist systems, while formal freedom is guaranteed to a certain extent, real freedom is not always effective.

Finally, the intrinsic fragility of democratic regimes can be explained as follows:

(a) on the one hand, if the system is unable to implement real freedom, formal freedom is partial: it cannot be fully realized, and this situation provides favorable conditions for the development of various forms of populism, notably populism linked to the extreme right. This poses a threat to the preservation of formal freedom.

(b) on the other hand, the increasing convergences between the interests of certain monopolies or oligopolies and certain political groups (Elon Musk supporting Trump, for example, or sectors linked to agrobusiness supporting Bolsonaro) threaten the autonomy and diversity of the political sphere.

Institutions and economic development

The Brazilian case in the light of Acemoglu and Robinson’s approach

What role do institutions play in the development trajectories of different nations? According to Acemoglu and Robinson (2012), development is explained by the nature of institutions: inclusive institutions, by nature linked to democracy, are the main cause of development. For example, the industrial revolution in England is explained as follows:

“The government adopted a set of economic institutions that provided incentives for investment, trade, and innovation. It firmly enforced property rights, including patents which grant ownership rights over ideas, thus providing an important stimulus to innovation. It protected law and order. The application of English law to all citizens is unprecedented in history. Arbitrary taxation ceased and monopolies were almost completely abolished.” (Acemoglu and Robinson, 2012, p.117. Italics added)

Exclusive institutions, on the other hand, do not provide the right conditions to implement a development process:

“As these institutions create significant gains for the elite, there will be strong incentives for others to fight to replace the current elite. Infighting and instability are therefore inherent features of extractive institutions, and they not only create further inefficiencies, but also often reverse any political centralization, sometimes leading to the total breakdown of law and order and the descent into chaos [...]. “ (Acemoglu and Robinson, 2012, p.17)

According to this thesis, the main reason for the sustainability of economic development is the existence of inclusive institutions; these aim to promote free competition and thus avoid the concentration of the product in favor of the elites.

This analysis is in line with the works of North (2005); a historical vision conceived through the prism of neoclassical economics. The very definition of the concept of inclusive institutions includes hypotheses that are totally in line with neoclassical economics: fully defined and efficient private property rights conceived as a mechanism that explains and encourages innovation and promotes competitive market structures.

This conception of history is incompatible with that adopted by the “old” institutionalism; institutions are conceived as politically neutral and not as political mediations among antagonistic interests (Boyer, 1987). This conception is much closer to that adopted by North (2005, p.19).

Some analyses posit that income inequality can be attributed to deficiencies in the private property rights regime (Bergh, 2003). In other words, the poverty of certain nations or social groups can be attributed to the lack of an efficient private property rights regime. The solution, therefore, would be to modify this property rights regime (PRR) in order to make it efficient. In this case, the PRR is a neutral tool that serves as the determining factor. The deficient PRR system is the cause of poverty.

The methodological approach adopted in this paper allows for the development of an alternative explanation, based on the following elements:

(a) A PRR is not a neutral tool, as its legitimacy and efficacy are contingent upon a series of negotiations among disparate social groups with diverging interests.

(b) The legitimization of this process is dependent on the power of each group; the legitimizing power of a given group is dependent upon its political and/or economic power. Thus, the greater (or lesser) the economic power of a group, the greater (or lesser) the possibility of legitimizing the regime in question.

Those designated as poor are unable to legitimize a PRR that would be advantageous to them. If they were able to do so, they would not be poor. Indeed, a specific PRR represents an institutional form, as defined by the French School of Regulation, and not a neutral tool that provides uniform benefits to all citizens.

If the mainstream incorporated institutions into its analysis, contrary to the approach of “old” institutionalism, these institutions are conceived as neutral tools: neutral because they are devoid of any moral judgment, and also because they do not constitute a social space in which divergent interests coexist.

I define divergent interests on the basis of Ricardo’s or Marx’s approach: in this case, an increase (fall) in wages necessarily translates into a fall (increase) in profits. In neoclassical analyses, this type of antagonism does not exist: consumers and firms maximize their utility or profit, given certain constraints; on the other hand, the Pareto optimum highlights the absence of such antagonistic interests.

The Keynesian/institutionalist perspective

From a Keynesian/institutionalist approach, it possible to define a completely different perspective: the dichotomy between inclusive and exclusive institutions must be substituted by an analysis of the nature of investments. If these investments are related to sectors with a high elasticity of production, they will generate a development process, based on the multiplier effect. On the other hand, if they are related, for example, to speculative assets, the multiplier effect will be lower or even negative (Herscovici, 2019); the role of institutions is essentially to direct investments towards sectors that have a significant multiplier effect; here we find the conclusions formulated by the new developmentalist school (Bresser-Pereira, 2020).

More generally, development depends directly on the nature of the investments; as the markets linked to Big Data are particularly opaque, they provide the conditions for the emergence and development of various types of corruption. These practices constitute “leakage” and thus diminish the multiplier effect.

As I have shown in this article, the process of economic development no longer presupposes the perenniality of a democratic regime. On the contrary, the current structuring of markets based on the growing role of digital platforms translates into the imposition of dominant positions and, based on the opacity that characterizes these markets, anti-competitive practices. On the other hand, the implementation of private intellectual property regimes is, in most cases, counterproductive (Herscovici, 2012).

The institutional causality proposed by Acemoglu and Robinson (2012) does not match the concrete reality of markets dominated by Big Data. In the Big Data economy, the causality is reversed: the economic concentration typical of the Big Data markets corresponds to a decrease in diversity in the political sphere, which corresponds to exclusive institutions.

The comparison between Brazil and the United States also contradicts the thesis supported by Acemoglu and Robins: the “young” Brazilian democracy has already implemented more efficient safeguards, compared, for example, to American democracy: while both Trump and Bolsonaro have been accused of attempting a coup d´état, the Brazilian Supreme Court has made Bolsonaro ineligible, while Trump was elected. On the other hand, Musk’s room for maneuver seems much wider in the United States: in Brazil, after several legal battles, he had to comply with the decisions of the Supreme Court of Justice.

CONCLUDING REMARKS

Finally, it is necessary to question the role of digital platforms in relation to democracy: some scholars posit that these platforms are neutral, inclusive, and totally compatible with democratic structures (Varian, 2013). For others, digital platforms are exclusive, as they disseminate false information, distort, and manipulate reality, construct conspiracy narratives, and thus reduce the autonomy of the political sphere.

The development process specific to the post-Fordist period would thus be characterized by exclusive institutional structure, as it is unable to ensure the perennity of real and formal freedom: (a) an increasingly accentuated externalization and precarization of labor (uberization) and (b) the growing weight of dominant economic groups in the political sphere. To what extent is this type of development socially and politically sustainable?

We are once again faced with the paradox of modernity: the concept of the autonomy of the individual, in its economic and political dimension, was born with capitalism, in the context of an individualistic (Dumont, 1985) and democratic social order. However, recent developments clearly show that the market economy is less and less able to preserve the fundamental components of this democratic regime.

From this perspective, the question is: to what extent is the structure of Big Data markets compatible with the existence and continuity of inclusive institutions? Is the growing role of the data economy compatible with democratic regime and with the rule of law principle?

These recent developments are primarily explained by the legitimacy deficit that capitalist societies face. The aforementioned deficit has been caused by the convergence of the economic and public spheres, which has led to significant changes in both spheres (Habermas, 1978b, p.49). Conflicts arising from the antagonistic interests of different social groups are no longer negotiated within an institutional framework, but through increasing violence. Economic liberalism is no more inseparable from individual and political freedoms.

Liberal capitalism, in its original version, was characterized by the fact that the political sphere, relatively independent and diversified, was the main variable regulating the social totality (Grenier and Orléan, 2007). Today, the emergence of various forms of illiberal capitalism can be explained by the emergence and development of a political/financial sphere whose dynamics are essentially based on the converging interests of some components of the political sphere and the economic sphere.

It should also be pointed out that this new economic liberalism is particularly conservative, insofar as the political order it establishes is that which corresponds to the specific values of certain religious and/or political groups: restoration of the illegality of the right to abortion in the USA, criminalization of the use of soft drugs, semi-criminalization of non-heterosexual practices in Islamic countries, etc.

Ultimately, the problem can be defined as follows: the analyses linked to neoliberalism start from the principle that the market regulates society as a whole (Friedman, 1962), and thus allows for the emancipation of the consumers/citizens, guaranteeing their autonomy, i.e. their political and personal freedom. Epistemologically speaking, this hypothesis attributes to the market the capacity to generate these emergent properties, without specifying the concrete modalities from which these properties act concretely (Grenier and Orléan, 2007; Hayek, 1948; Herscovici, 2023): the market acts as a Deus ex machina and can thus be compared to a divine or natural order.

In this regard, Friedmanclaims that “The type of economic organization which directly assures economic freedom, namely competitive capitalism, is at the same time favorable to political freedom, because, by separating economic power from political power, it allows one to counterbalance the other” (Friedman, 1962, p.23). Here we find Foucault’s definition (1979) of ordoliberalism: on the one hand, the social efficiency and self-regulating character of the competitive market; on the other, the predominant role of this market in regulating the social order; and finally, the control that the market must exercise over the political sphere to preserve political and individual freedoms (Screpanti and Zamagni, 2005, p.498).

If the theoreticians of the Mont Pèlerin Society fear the dictatorship of the majority over minorities, the various forms of illiberal capitalism undoubtedly constitute a dictatorship that certain political and/or religious minorities exercise over the majority of the population, which, in my opinion, corresponds to a regression in terms of social welfare and individual and collective fulfillment.

Data Availability Statement

The dataset supporting the results of this study has been published within the article itself.

• 1
  For example, whether, or not, to recognize the right to abortion.
• 2
  By definition, an emergent property is a mechanism that only appears at the aggregate level.
• 3
  For example, the creation of a market where pollution rights are traded, the sale of data by big data and social networks, or the expansion of activities that can be subject to private property rights.
• 4
  As the example of the conspiracy theories shows.

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• Editor responsible for the evaluation process:
  Luiz Carlos Bresser-Pereira

Publication Dates

• Publication in this collection
  10 July 2026
• Date of issue
  2026

History

• Received
  25 Nov 2024
• Accepted
  18 Aug 2025