THE CRISIS OF DEMOCRATIC CAPITALISM ABOUT THE COLLIDING CHALLENGES FACED BY DEMOCRACIES AND ECONOMIES.

THE FINANCIAL TIMES CHIEF ECONOMICS COMMENTATOR MARTIN WOLF ARGUES THAT MARRIAGE HITS THE ROCKS.

HE TELLS WALTER ISAACSON HOW AND WHY IT NEEDS TO BE PUT BACK TOGETHER.

>> THANKS FOR COMING ON.

>> GREAT PLEASURE.

>> YOU HAVE THE BOOK CALLED "THE CRISIS OF DEMOCRATIC CAPITALISM" AND TALK ABOUT A PUSH BACK ON CAPITALISM AND HOW IT'S NOT WORKING WITH SHARED PROSPERITY AND 40% OF YOUNG PEOPLE THESE DAYS ACTUALLY DON'T EVEN BELIEVE IN CAPITALISM.

CAN YOU GIVE ME A DEFENSE OF CAPITALISM TO SAY IT IS SOMETHING WE HAVE TO SAVE?

>> IT'S VERY CLEAR THAT CAPITALISM AS A SYSTEM, MARKETS, PROFITABLE MARKETS HAVE BEEN AND REMAINS THE MOST SUCCESSFUL AND DYNAMIC ECONOMIC SYSTEM.

IT'S NOT AN ACCIDENT AFTER ALL.

IT WAS AFTER CHINA MADE ITS MOVE TOWARDS A MARKET ECONOMY FOR SUCH A SHOCK THAT IT HAS BEEN SUCH A STUPENDOUS SUCCESS AND SEE THE SAME THING IN INDIA AFTER IT STARTED LIBERALIZING IN THE EARLY 90s AND OF COURSE, OUR SOCIETIES REMAIN THE RICHEST, THE MOST PROSPEROUS IN HUMAN HISTORY AND CONTINUE TO GENERATE EXTRAORDINARY INNOVATION.

SO THIS IS A REMARKABLE SYSTEM.

ALL ATTEMPTS TO DO WITHOUT SOME SORT OF MARKET ECONOMY TO REPLACE IT WITH COMPLETE SOCIALISM OF FAILED AND NOT JUST FAILED ECONOMICALLY, THEY ALSO FAILED POLITICALLY AND I ARGUE THE REASON FOR THAT IS OBVIOUS.

THE SOCIALIST REGIMES CONCENTRATE ALL RESOURCES IN THE STATE.

THEY REESTABLISH THE OLD RELATIONSHIP BETWEEN POWER AND WEALTH.

IF YOU CONTROL THE WEALTH AND POWER, ULTIMATELY, THAT MEANS NOT JUST THE ECONOMY IS STIFLED BECAUSE OF THE CENTRAL CONTROL, ALSO, POLITICS ARE STIFLED BECAUSE NO ONE CAN TRULY HAVE AN INDEPENDENT VOICE.

IF THE STATE OWNS AND CONTROLS EVERYTHING I WOULD ARGUE TO THE YOUNG PEOPLE THEY NEED CAPITALISM BUT THEY NEED A DEMOCRACY BUT A BETTER DEMOCRACY AND A LOT OF MY BOOK.

I'M TRYING TO OPEN A DEBATE THAT SAYS WE'RE NOT SATISFIED WITH WHAT WE HAVE, AGREE THERE ARE PROBLEMS BUT WHAT WE HAVE TO DO IS MAKE REFORMS QUITE RADICAL REFORMS AS HAPPENED IN THE MIDDLE OF THE 20th CENTURY TO MAKE CAPITALISM AND DEMOCRACY WORK BETTER TOGETHER AGAIN BUT WE MUST NOT SUFFER FROM THE DELUSION THAT WE CAN DISPENSE WITH EITHER OR BOTH AND LIVE IN BETTER SOCIETIES.

WE KNOW THAT ISN'T TRUE.

>> YOU'VE TALKED ABOUT HOW CHINA MOVED MORE TO A MARKET ECONOMY AND CAPITALISM IN A WAY AND YET, IT HAS NOT MOVED MORE TOWARDS DEMOCRACY AND THERE IS GREAT BACKSLIDING AGAINST DEMOCRACY THERE.

IS IT SUSTAINABLE?

>> THAT'S ONE OF THE BIGGEST QUESTIONS OF OUR AGE AND ONE OF THE BIGGEST ISSUES OF OUR TIME.

I'D RATHER QUESTION THAT.

I AM SKEPTICAL ABOUT THIS.

AND THERE IS A LOT OF EVIDENCE THE CHINESE ECONOMY IS DETERIORATING FOR A LONG TIME.

LOOK AT TRAIN GROWTH, IT'S DEBT PROBLEMS AND ALL THE REST OF IT AND IF YOU CONSIDER -- REMEMBER IT'S A VERY POOR COUNTRY MEASURED THAN ALL THE HIGH INCOME COUNTRIES THAT'S A QUARTER OF THE LIVING STANDARDS OF U.S. AND WILL IT CLOSE THAT GAP?

THAT'S BECOMING AT LEAST INCREASINGLY QUESTIONABLE AND THE ISSUE IS CAN MR. XI EXERCISE THE SORT OF TOP DOWN CONTROL HE HAS DONE AND AND POSE ALL THESE RESTRAINTS ON BUSINESS HE'S DONE WITHOUT CONSEQUENCES CERTAINLY MANY OF THE BUSINESS PEOPLE I MEET INCLUDING CHINESE BUSINESS PEOPLE ARE PRETTY FRIGHTENED OF WHAT HE'S DOING.

IT'S A REALLY BIG QUESTION.

I WOULD NEVER PREDICT THE POLITICAL FUTURE OF CHINA BUT SEEMS TO ME THE AUTOCRACY WILL LAST FOREVER.

I CAN REMEMBER WELL THAT IN 1918 NOBODY IMAGINED WITHIN 20 YEARS THE SOVIET UNION WOULD DISAPPEAR.

WE CAN'T ASSUME AUTOCRACY LIKE CHINA WILL WIN THE GREAT BATTLE BETWEEN FREEDOM, POLITICAL AND ECONOMIC AND AUTOCRACY AND OF COURSE, THAT'S CERTAINLY THE SIDE I WANT TO BE ON.

>> PRESIDENT BIDEN JUST GAVE HIS STATE OF THE UNION ADDRESS.

HE'S BEEN ABLE TO PASS THREE MAJOR BILLS FROM EVERYTHING FROM INFRASTRUCTURE TO ENVIRONMENT.

WHAT MARKS DO YOU GIVE HIM ON THE ECONOMY AND HOW DO YOU THINK THE U.S. ECONOMY IS GOING?

>> OBVIOUSLY A HUGE QUESTION.

I'M VERY -- FIRST OF ALL, THE HUGE FISCAL STIMULUS ABOUT THE BEGINNING OF THE TERM WAS EXCESSIVE.

IT WAS ONE OF THE REASONS WE GOT INTO THE INFLATION PROBLEM AND IT'S A SIGNIFICANT PROBLEM FOR WHICH WE HAVEN'T FULLY PAID THE PRICE.

THAT WAS A MISTAKE.

I THINK THE ATTEMPTS TO USE THE GOVERNMENT TO PROMOTE INFRASTRUCTURE INVESTMENT, TO PROMOTE THE GREEN TRANSFORMATION ARE GOOD AND DIRECTION IS GOOD AND IT'S WHAT GOVERNMENT SHOULD DO IN CONDITIONS LIKE THIS.

WITH ALL THE WAYS IT'S BEEN DONE THE BEST WITH ANOTHER SH I MEAN, I'M VERY SURPRISED IF SOME OF THE MONEY DIDN'T TURN OUT TO BE VERY MUCH WASTED, SOME OF THE NEW INDUSTRIES THAT ARE CREATED TURN OUT NOT TO WORK AND SO MUCH SKEPTICISM FOR THE GOVERNMENT TO DO ANYTHING AND HAVE A PRESIDENT ABLE TO PASS LEGISLATION THAT SHOWS THAT THERE ARE THINGS GOVERNMENTS CAN ACHIEVE AND PERFECTLY DONE, THAT'S VERY IMPORTANT.

VERY GOOD THING BECAUSE THE OPPOSITION I SOMEWHAT FEAR NOW REALLY RELIES HEAVY ON CRITICISM ABOUT GOVERNMENT.

THE GOVERNMENT CAN'T DO ANYTHING AND IF PEOPLE BELIEVE IN THAT, THEY CAN'T BELIEVE IN POLITICS.

>> TALK ABOUT YOUR FATHER AND YOUR FATHER ESCAPING IN 1937 BEFORE THE NAZIS COME TO POWER AND YOUR MOTHER'S FAMILY, A LOT OF THEM DID NOT ESCAPE.

TELL ME ABOUT YOUR LIFE'S STORY AND HOW THAT HELPED INFORM YOUR VIEWS ON DEMOCRACY AND CAPITALISM.

>> I HELD THE FAVOR OF BOTH MY FATHER AND LEFT VIENNA IN '37.

WIDER FAMILIES WERE LEFT BEHIND AND ESSENTIALLY ALL KILLED.

OF COURSE IS THAT THEY'RE AWARE UNTIL THE STORY OF PEOPLE LIKE THEM OF EXTREME FRAGILITY OF A CIVILIZED STATE AND COLLAPSE THAT IS POSSIBLE IN POLITICAL AND MORAL STANDARDS IF THINGS GET BAD ENOUGH AND PEOPLE ARE DESPERATE ENOUGH AND THE WRONG LEADERS COME ALONG.

I'M NOT COMPARING ANYONE, ANYONE AROUND WITH THE LEADERSHIP WE SAW IN GERMANY IN THE PERIOD.

OF COURSE I'M NOT BUT WE'RE SEEING A LOT OF COUNTRIES BEING LED FOR AUTHORITARIAN LEADERS WHO USE THE RAGE IN THE PUBLIC, THE ANGER IN THE PUBLIC AGAINST ELITES TO ACCOMPLISH AUTOCRAT TICK POWER OVER THE RULE OF LAW, DEPRIVE MINORITIES OF THEIR RIGHTS AND THIS HAPPENED IN EUROPE AND EMERGING COMPANIES AND POLITICIANS ROOTED IN THE OLD FASCISM REALLY IN VERY POWERFUL POSITIONS NOW IN EUROPE AND WED A ALL THE DIFFICULTIES ABOUT YOUR LAST PRESIDENTIAL ELECTION AND THE WIDE SPREAD MYTH, AS FAR AS YOU CAN SEE, THEY WERE STOLEN BY BIDEN.

THIS IS FEAR FOR ME.

THE FEAR IS NOT WE'RE GOING BACK TO FASCISM.

IT'S A VERY DIFFERENT TIME.

THE LIBERTIES AS A RESULT OF THE VICTORY IN THE SECOND WORLD WAR COULD BE REPLACED WITH BACKSLIDING OR ONE SCHOLAR CALLS A PROLONGED DEMOCRATIC RECESSION AND THAT'S WHAT WE'VE BEEN SEEING AND WE'VE BEEN SEEING IT EVEN IN CORE WESTERN COUNTRIES LIKE OF COURSE, EUROPE.

>> YOU TALK ABOUT THE THREATS OF DEMOCRACY PARTLY BEING CAUSED BY A POPULOUS BACKLASH THAT TEMPERATURES INTO RESENTMENTS ABOUT THE GLOBAL ELITES AND HOW THEY'VE CONTROLLED THE ECONOMY.

BUT TO SOME EXTENT, THERE IS SOME UNDERSTANDABLE RESENTMENT THERE.

TO WHAT EXTEND DO PEOPLE TRYING TO DEFEND DEMOCRACY TRYING TO DEFEND CAPITALISM NEED TO FIGURE OUT HO DO DEAL WITH THE RESENTMENT TOWARDS THE ELITES THAT CREATED A WINNER TAKE ALL ECONOMY?

W DO DEAL WITH THE RESENTMENT TOWARDS THE ELITES THAT CREATED A WINNER TAKE ALL ECONOMY?O DEAL WITH THE RESENTMENT TOWARDS THE ELITES THAT CREATED A WINNER TAKE ALL TO DEAL WITH THE RESENTMENT TOWARDS THE ELITES THAT CREATED A WINNER TAKE ALL ECONOMY?

>> I GO AT GREAT LENGTHS TO SEE HOW WE EMERGED, BUSINESS AND COMMERCIAL ELITE, FINANCIAL ELITE.

WE CREATE A RAUNCHY FORM OF CAP -- CAPITALISM.

>> WHEN YOU SAY RAUNCHY, YOU'RE TALKING ABOUT LIKE PEOPLE WITH CAPITAL CAN GET BY AND MAKE A LOT WITHOUT REALLY ADDING TO SOCIETY, RIGHT?

>> EXACTLY.

THEY USE THEIR POSITIONS, ECONOMIC POSITIONS TO EXTRACT INCOME WHICH IS WELL ABOVE WHEN THEY ACTUALLY HAVE CONTRIBUTED TO -- >> GIVE ME AN EXAMPLE OF THAT.

YOU'RE TALKING ABOUT BANKERS?

>> WELL, WELL, THE -- PERHAPS ONE OF THE BEST EXAMPLES, MANY YOU LOOK AT BIG TECH THEY'RE ALLOWED TO CREATE MONOPMONOPOLIES, PARTLY NATURAL BECAUSE THEY'RE ALLOWED TO BUY COMPETITORS, CUMULATIVE BUYING COMPETITORS ABSORBING THEM INTO A HUGE TENT.

NOW THERE ARE NATURAL MONOPOLIES IN MANY TECH INDUSTRIES AND ACTIVITIES SUCH FOR EXAMPLE -- >> WE'RE SEEING DISRUPTION AS WE SPEAK THIS WEEK SO ISN'T THAT WHAT CAPITALISM DOES?

>> WELL, ONE OF THE THINGS WE'LL SEE AND I THINK THE VERY IMPORTANT QUESTION IS WHETHER THE NATURAL COMPETITIVE PRICES OF CAPITALISM WERE ON THEIR OWN REVERSING THIS.

WE HAVEN'T SEEN THAT FOR A LONG TIME.

IT WOULD BE WONDERFUL IF IT DID.

ANOTHER MUCH MORE CONTROVERSIAL ISSUE IS CORPORATE GOVERNANCE.

IF YOU RAN CORPORATIONS FOR THE INTEREST OF SHAREHOLDERS BY THE MANAGEMENT THAT REPRESENTS THEM, THERE IS A BIG ARGUMENT WHETHER THE RETURNS TO THE COMPANY, THE REWARDS TO THE COMPANY ARE APPROPRIATELY SHARED BETWEEN SHAREHOLDERS AND MANAGEMENT AND CONTROL THE WHOLE BUSINESS.

ON ONE HAND, ALL THE PEOPLE THAT WORK IN THE BUSINESSES ON THE OTHER AND THAT EX PLACHBS THE FACT THIS IS TO SOME EXPLAINS THE STAGGERING INCREASES IN THE PAY OF TOP EXECUTIVES VIS-A-VIS THE REST OF THE PEOPLE WORKING IN THEIR COMPANY.

SO THAT'S ANOTHER EXAMPLE OF ESSENTIALLY EXTRACTIVE PROCESSES AND I THINK ANOTHER ONE AGAIN AND IF THAT'S THE MOST IMPORTANT IS USING THE MONEY, INDIVIDUAL BUT CORPORATE MONEY TO INFLUENCE THE POLITICAL SYSTEM TO GROUND EXTREMELY FAVORABLE TERMS OF TAXATION IN ALL SORTS OF WAYS.

I THINK WHEN PEOPLE THINK THE SYSTEM IS AGAINST ORDINARY PEOPLE AND IN FAVOR WITH WEALTH AND POWER, THAT'S CORRECT.

>> LET ME READ YOU A GREAT PASSAGE FROM YOUR BOOK.

THE ENEMY FROM TODAY IS NOT WITHOUT.

THE ENEMY IS FROM WITHIN.

DEMOCRACY WILL SURVIVE ONLY IF IT GIVES OPPORTUNITY, SECURITY AND DIGNITY TO THE GREAT MAJORITY OF THE PEOPLE AND GO ON TO SAY IF ELITES ARE ONLY IN IT FOR THEMSELVES, A DARK AGE OF AUTOTCRACY WILL RETURN.

IT SEEMS YOU'RE BLAMING SOME OF THE PROBLEMS WE HAVE NOT JUST ON THE POPULOUS REACTION BUT ELITES THEMSELVES.

>> A POPULOUS REACTION WE'VE SEEN FOR PEOPLE ON THE LEFT AND RIGHT WHO REALLY SAY WE'RE GOING TO GET RID OF PEOPLE THAT CREATE A SWAMP, SAY A NETWORK OF LOBBYIST POLITICIANS AND OF COURSE BURRO CATS IT'S LEGITIMATE FOR THEM TO COMPLAIN BECAUSE IF YOU LOOK AT THE PERFORMANCE OF THE ECONOMIES AND THE BENEFITS THAT MANY PEOPLE ACHIEVED FROM THE PROGRESS WE'VE MADE, IT HAS BEEN EXTREMELY UNEQUALLY SHARED AND NOT VERY WELL MANAGED SO I EMPHASIZED THE IMPACT OF THE FINANCIAL CRISIS.

ONE OF THE MANY FIGURES I HAVE IN MY BOOK THAT SHOW HOW HUGE THE LAWSUITS OF INCOME HAVE BEEN ACROSS OUR COUNTRIES SINCE THE FINANCIAL CRISIS AND THAT REALLY DOES INDICATE A PROFOUND FAILURE.

I THINK THAT THE SENSE THAT THE ELITE ARE REMOTE FROM US BE COMPLETELY DIFFERENT LIVES AND BASICALLY HOLD ALL THE POWER IN OUR SOCIETY, THEY BASICALLY DETERMINE HOW THINGS ARE DONE AND REGULATION IN TAXATION AND HOW MARKET COMPETITION WORKS THAT THEY BUY THE POLITICIANS.

THIS IS A PERFECTLY UNDERSTANDABLE VIEW AND SIGH THE BREXIT CAMPAIGN AND ORDINARY PEOPLE AND THAT'S LINKED OF COURSE WITH REALLY PROFOESHL -- PROFESSIONAL TO DO WITH THE FACT THE BIGGEST CHANGE OF THE LAST HALF CENTURY IS THE WAY THE ECONOMY MOVED AGAINST PEOPLE NOT PROPERLY EDUCATED IN FAVOR OF PEOPLE WHO ARE COLLEGE EDUCATED OR PARTICULARLY A SUBSTATE OF THE LATTER.

THIS CREATED A NEW CLASS DIVISION WHICH GENERATES HUGE ANGER AND VERY CLEARLY PART OF WHAT SOMEBODY THAT DONALD TRUMP SAYS.

>> MARTIN WOLF, THANK YOU FOR JOINING US.

>> GREAT PLEASURE.