Chrystia Freeland

2011 was a good year for protest and a bad year for government. 2012 will be a good year for both if our political leaders can figure out the connection.

Across the globe, this was a year when people took to the streets, often overthrowing their leaders in the process. That was true in the Arab world, in Russia, in India, in Western Europe, in the United States and even in China.

And everywhere, this year of mass defiance wrong-footed those who were supposed to be in the know. The experts had thought the Arabs were getting richer and were too scared of their autocrats, that the Russians were apathetic and quite liked their neo-czar, that the Indian middle class was politically disengaged, that West Europeans were too old for outrage, that Americans didn’t care about the class divide and that the Chinese comrades were too effective at suppressing dissent.

But everywhere, the conventional wisdom was turned upside down by people who turned out to be angrier than their elites had suspected, and better able to channel that dissatisfaction into mass protest and even revolution.

The first surprise was the strength and near universality of the public discontent. Like Tolstoy’s unhappy families, the motivations of protesters in each country were unique. But there was a common thread to the uprisings and a common reason why the elites were taken by surprise.

The unifying complaint is crony capitalism. That’s a broad term, to be sure, and its bloody Libyan manifestation bears little resemblance to complaints about the Troubled Asset Relief Program in the United States or allegations of corrupt auctions for telecommunications licenses in India. But the notion that the rules of the economic game are rigged to benefit the elites at the expense of the middle class has had remarkable resonance this year around the world and across the political spectrum. Could the failure of the experts to anticipate this anger be connected to the fact that the analysts are usually part of the 1 percent, or at least the 10 percent, at the top?

The second surprise was how easy it has become to transform mass dissatisfaction into mass protest. That was true both in chillingly repressive regimes and in ones where the hurdle to collective action had been thought to be public apathy.

The answer to this puzzle is obvious today — the communications revolution, ranging from satellite television to Twitter to camera phones, has made it easier than ever before to organize protests and to keep them going once they start.

What’s important to remember in hindsight is that one of the most provocative ideas of late 2010 — published just two months before a Tunisian fruit and vegetable vendor, Mohamed Bouazizi, posted his suicide note on his Facebook Wall, and three months before the Egyptian government blocked Twitter in an effort to muzzle its people — was Malcolm Gladwell’s characteristically iconoclastic assertion that, as the subhead to his October 2010 New Yorker essay put it, “the revolution will not be tweeted.”

At least in public, Gladwell is sticking to his guns, but not too many other people are. In one informed example, consider a recent public interview I conducted with Naguib Sawiris, the Egyptian telecommunications billionaire and liberal politician who backed the Tahrir Square demonstrations.

When I asked him about the Gladwell theory, Sawiris first wondered, “Is he here in the room? Do I have to be polite?” and then went on to explain his criticism: “He has no clue what this technology has done to my part of the world. Ninety percent of the success of this revolution is attributed to it.” The point isn’t to mock the brilliant Gladwell — it is to recall that as late as the autumn of 2010 the impact of the technology revolution on civil society, particularly outside the developed West, was still very much an open question.

So much for the success of the rebels. Inside the citadel of the state, by contrast, 2011 was a veritable annus horribilus. That was especially true for some pretty vile dictators. But even in democracies, government didn’t seem to work very well. Political paralysis was a routine complaint in the world’s richest democracy, and in its biggest democracy; it was the diagnosis in presidential systems and in parliamentary ones. Right-wing governing parties were accused of dysfunction — and so were governments on the left. Some central bankers were attacked for printing too much money; others were criticized for doing too little.

The success of the protesters and the dysfunction of government are the flip sides of one another. They are related in an obvious way — people take to the streets when they think their leaders are doing a poor job. But the widely perceived failure of the state around the world is connected to the effectiveness of the protests in deeper ways, too.

Let’s start with the technological tools that made protesting so much easier. They may have made governing tougher –informed and empowered individuals are probably harder to boss around than ignorant, isolated ones. More important, though, social activists have embraced the technology revolution more effectively than governments have. The revolution is being tweeted, but government isn’t. It’s time for the state to catch up — and hopefully not by emulating the Chinese comrades with their cybercensorship expertise.

As for crony capitalism, this slogan of the street is both a challenge for the state and an opportunity. For some regimes, of course, crony capitalism, with a side order of repression, is the only dish on the menu. For them, the trends of 2011 do not bode well.

But most of today’s troubled market democracies don’t need a revolution to sweep away their cronies. What they do need is a new version of capitalism, designed for the 21st century. That is what the world’s protesters, in their different ways, are all asking for. Here’s hoping that 2012 provides some politicians with some answers.

Who knew Swedish finance could be so sexy? The late, great Stieg Larsson’s best-selling The Girl with the Dragon Tattoo — the Hollywood version hit North American theaters this week — was the first to tap into a hitherto undiscovered global fascination with Nordic number crunching.

Following gingerly in his footsteps, I’d like to report on a fascinating discussion at the Securities and Exchange Commission in Washington this month, where the Scandinavian story was center stage.

The conference, where I moderated a panel, was organized by the European Corporate Governance Institute and Columbia Law School. The theme was the involvement of shareholders in the companies they own.

Americans like to think of themselves as the world’s archcapitalists, especially compared to Europeans, whose fondness for a social safety net often earns the label, applied on this side of the Atlantic as an insult, of ”socialist.” That’s why the message from many of the speakers at the SEC discussion, particularly the visitors from Europe, would come as a surprise on Main Street, USA.

The United States, they argued, has created a system of capitalism without capitalists, of private sector companies whose owners have abdicated responsibility for the companies that belong to them.

“In the U.S., you can more or less do whatever you want, without having the support of the owners,” Mats Andersson, the chief executive officer of the Fourth Swedish National Pension Fund and a speaker at the conference, told me in an interview afterwards. “Because of the composition of the boards in Sweden, the company’s big decisions all have to be based on a mandate or the support of the owners.”

”Who is actually responsible for executive remuneration in U.S. companies?” Andersson said. ”If I could decide on my own salary, I would certainly love that system.”

In Andersson’s view, greater shareholder involvement is good both because it is right and because it works. ”If you put your money at risk, you should have influence,” he said. ”Capitalism without owners doesn’t work.”

Andersson’s biggest worry about companies without engaged owners is that they fall victim to the tyranny of short-term stock-market expectations or the self-interest of their executives, rather than building for the future.

”We are long-term investors. The point is to increase our returns, so we need to be active and engaged,” Andersson told me. ”The next quarter is pretty much irrelevant. We are interested in building a good company that will perform long term.”

Andersson isn’t alone. Earlier this year, Dominic Barton, global managing director of McKinsey, the management consultancy, got the business world talking with an essay in the Harvard Business Review titled ‘‘Capitalism for the Long Term.”

Barton’s point was that the current sickness of global capitalism wasn’t some passing infection, caused by the financial crisis and susceptible to a natural cure. Instead, he argued, capitalism, especially in the West, needed a ”deep reform” that would shift it from ”quarterly capitalism” to ”long-term capitalism.” One of the culprits Barton identified was ”the ills stemming from dispersed and disengaged ownership.”

A Canadian who now lives in London, Barton has spent much of his career working in Asia — in fact, he was in India when I reached him on a fuzzy cellphone line this week. He told me that one of the most striking differences he has observed between the rising economies of Asia and of other emerging markets like Brazil compared to the United States is their owner-dominated long- term capitalism, versus the quarterly capitalism of the United States, with its widely held public companies.

”Thinking about where the company should be in 10 or 12 years, these are not the discussions held in many widely held companies,” Barton said.

The irony is that directly engaged owners are the men who made American capitalism great and who remain responsible for its most outstanding companies. In his 1890 masterwork, Principles of Economics, Alfred Marshall, the seminal English economist, bemoaned the feebleness of the staid British joint-stock company, compared to an America dominated by owner-entrepreneurs: ”The area of America is so large and its condition so changeful, that the slow and steady going management of a great joint-stock company on the English plan is at a disadvantage in competition with the vigorous and original scheming, the rapid and resolute force of a small group of wealthy capitalists, who are willing and able to apply their own resources in great undertakings.”

More than a century later, the American companies the world most admires — Google, Amazon, Apple, Facebook — are the creations of that same breed of rapid and resolute founding owners.

Things get more complicated when companies go public and the founder retires or moves up to St. Peter’s boardroom. Many European countries, including Sweden, get around that problem by keeping things in the family, with the founders’ descendants retaining a significant ownership stake and voice in the family firm.

That tradition doesn’t sit so well with Americans, whose country was, after all, created in part in rejection of the hereditary principle.

”Why do U.S. families retreat from corporate control? They don’t seem to be very dynastic,” Marco Becht, a professor, the executive director of the European Corporate Governance Institute and one of the organizers of the SEC. conference, mused to me when I called to discuss the issue. ”If people care so much about having owners who care about the company, maybe the U.S. and the U.K. have the wrong type of owners,” he said. ”The logical conclusion is if you want long-term owners who care, you have to bring back the families.”

This has been a bad year for dictators, starting with the Arab Spring and ending now with the Russian Winter. If you are one of the autocrats who survived the annus horribilis of 2011, here are three lessons, drawn from some smart Russians and Russia-watchers, of what the unexpected Slavic protests this month could mean.

The first is that authoritarian regimes don’t run on autopilot. To survive, particularly in the age of the Internet, jet travel and global capital flows, dictatorships need to be savvy and effective. We often attribute the success of democratic revolutions to their brave leaders or the spirit of the times, but, as Lucan Way, a professor of political science at the University of Toronto, argues, “authoritarian incompetence” can be an equally powerful driver.

That is certainly the case in Russia, where one reason United Russia, the party of power led by Vladimir V. Putin, did so poorly in elections this month is the simple fact that the regime made a lot of political mistakes.

“The ineffectiveness and stupid actions of the authorities have accelerated the process,” Grigory Chkhartishvili, the best-selling Moscow author who writes under the pen name Boris Akunin, explained in an e-mail. He recalled asking Yegor Gaidar, the late architect of Russian economic changes, “when does he expect society to awaken. Around 2015, he answered, if they, meaning Putin and his entourage, do not make too many mistakes. Well, they have made too many mistakes.”

Vladimir Gelman, a professor of political science at the European University in St. Petersburg, made a similar point this week. Gelman argued that the Kremlin’s wobble in December was an own-goal, or, as he put it, “a blow delivered with its own hands.”

The biggest mistake, in Gelman’s view, was “the attempt to mask Russian authoritarianism with a liberal facade.” That turns out to have been an error partly because “part of the political class and concerned members of civil society actually believed in the liberalization of the regime.”

But the bigger problem was that Russia’s authoritarian leaders became so infatuated with their political Potemkin village they neglected some of the coercive basics: focused as they were on the carrot, the authorities didn’t pay enough attention to the stick. Gelman contrasts this political season, when the government’s attitude before the election was “peaceful,” with the 2007-8 political cycle, when the opposition was repressed in advance and the state’s political machinery was fully engaged.

The standout example of authoritarian competence, by contrast, is China, whose rulers have continued to focus relentlessly on doing whatever it takes to stay in power. That determination was in evidence after the “color revolutions” in the former Soviet Union, which prompted a thoughtful and concerted effort to tighten government control, as did the uprisings in the Arab world this year.

The second lesson of the Russian protests is one that will be particularly worrying for China. It is that economic success does not guarantee political success. This equation is mystifying in Western democracies — where people tend to believe that “it’s the economy, stupid,” and usually they’re right.

That’s why the International Monetary Fund, which focused on Egypt’s healthy gross domestic product numbers, was wrong-footed by the protesters in Tahrir Square in Cairo. And it is why the demonstrations in Russia perplexed many foreign observers, who noted that many of their participants were well-heeled members of a middle class that prospered in the Putin era.

A partial explanation of this puzzle is that, as in Tunisia and Egypt, middle-class citizens in a dictatorship can be moved to protest by their souls, not just their pocketbooks. The refrain during the Arab Spring was that the protests were about dignity. As for Russia, Chkhartishvili put it another way: “This is not about bread, this is about cleanliness. It’s not political, it’s hygienic.”

Research by Carol Graham and Stefano Pettinato suggests another reason why a prospering society might still be a rebellious one. In work that initially focused on Russia and Peru, the two identified a group they described as “frustrated achievers,” people who had become both richer and less happy.

“Frustrated achievers are people who are just out of poverty or the lower middle class,” Graham, who is a senior fellow at the Brookings Institution, said. “They are people who have made relatively large gains, but they report being very frustrated.”

A source of that frustration, Graham said, was when “the gains around them are much bigger than their own, and bigger than they can ever achieve in their lifetime.” Post-Soviet Russia, with its oligarchs, crony capitalism and corruption, is a petri dish for frustrated achievers.

The third lesson of the Russian Winter is one it has in common with the Arab Spring. One consequence of the rise of social media is the emergence of what Way calls “leaderless protests.”

“In Russia, as in the Arab world, protests started largely spontaneously without the participation or instigation of the major opposition groupings,” Way said in an e-mail. “Instead, they were inspired by actors who came out of nowhere and lacked virtually any kind of organizational backing.”

But this new world is also hard to manage for the would-be revolutionaries. Twitter and Facebook may make it easy to get those frustrated achievers onto the streets. But the really hard work always starts the day after the revolution, and if you didn’t need to build a protest movement in the first place, you may soon lose power to the people who did.

All the doubting Thomases who wondered whether Occupy Wall Street would have lasting political impact got their answer this week in Osawatomie, Kansas. That’s where President Barack Obama traveled to deliver a speech that is being billed as the mission statement for his 2012 re-election campaign.

The president chose that town of fewer than 5,000 people, 50 miles, or 80 kilometers, southwest of Kansas City, for its historical resonance — it is where Theodore Roosevelt journeyed just over a century earlier to give his seminal “New Nationalism” address.

But Zuccotti Park in New York, the informal epicenter of the leaderless Occupy Wall Street movement, served as an equally important, albeit less explicit, inspiration. The movement’s accomplishment is to have legitimized discussion of rising income inequality in the United States — Obama described it as “the defining issue of our time.” That is a landmark declaration.

For one thing, in recent decades the participants in the national political discourse have been queasy about addressing issues of class and distribution directly. One of the intellectual victories of the Reagan Revolution was to make it feel practically un-American to talk about how the pie was divided. The culturally acceptable, win-win question to ask was how to make that pie grow.

Obama’s speech represents an important shift for another reason, too. As recently as this summer, when the headline battle was over the debt ceiling, the issue driving the political debate was government spending and how to cut it.

But today, thanks in great part to Occupy Wall Street (to which the president alluded directly just once), talking explicitly about the 1 percent and the 99 percent is not just O.K., it seems to be a way a man presiding over an economy with 8.6 percent unemployment thinks he can be re-elected.

The speech was written for the campaign trail, in direct and sometimes emotive language, but one of its most impressive qualities was its honesty and sophistication. The surge in income inequality, particularly between those at the very top and everyone else, is driven by a complicated and connected set of causes that are being fiercely dissected and debated in the growing academic literature.

On the left, the preferred culprit is political — the argument that the 1 percent have amassed their fortunes by capturing the political process and thereby securing lower taxes and more favorable, generally weaker, regulation.

Obama did not shy away from those factors, but his core explanation was politically less convenient and intellectually more persuasive. As the president sees it, the big drivers are the twin revolutions reshaping the world economy — globalization and new technology: “Over the last few decades, huge advances in technology have allowed businesses to do more with less, and made it easier for them to set up shop and hire workers anywhere in the world.”

He compared the creative destruction of today’s economic transformation with the Industrial Revolution. The “massive inequality and exploitation” of that transformation spurred Roosevelt to action, just as income inequality today should be at the top of the national agenda.

Framing the woes of the 99 percent as the consequence of a massive — and broadly positive — economic transformation was a brave political choice. Pinning it all on the banksters, as they were called by the left during the Great Depression, would make for more powerful rhetoric and delight the Democratic base. Moreover, the potential downside of alienating Wall Street is something this White House has done already.

But Obama’s speech understated two facts that follow from his chosen explanation, and unless the president is able to confront them, his administration’s response to the problem he so accurately defined will fall short.

The first is the grim economic reality that the hollowing out of the U.S. middle class will be very hard to reverse. One reason the bankster explanation is so appealing (unless, of course, you are one of them) is that it has a simple remedy — raise taxes and tighten regulation. But if you believe, as Obama does, that a larger and largely welcome economic transition is also at work, figuring out how to rescue its victims becomes a more daunting challenge.

To understand the scale of the problems the Western middle class faces, consider how it looked to a few Indian business leaders I recently spoke to in Mumbai.

“You know, historically, economic activities tend to migrate because people who don’t have it have a lot more urge to have it, they’re willing to work harder for less money, and that’s part of life, O.K.?” B.N. Kalyani, the chairman of Bharat Forge, India’s largest exporter of motor parts, told me. “You had your golden period, now, hopefully, we’ll have ours.”

S. Gopalakrishnan, the co-chairman of Infosys, the pioneering Indian outsourcing company, told me bluntly that the per capita consumption of the Western middle class would have to decline as the developed and developing worlds “meet somewhere in the middle.”

Even if you had the lion heart of a Roosevelt, that is not a political platform you would want to run on.

The second consequence of the president’s chosen explanation is political. As is his wont, Obama took great pains to unite rather than divide: “Those aren’t Democratic or Republican values; 1 percent values or 99 percent values. They’re American values, and we have to reclaim them.”

But it might not be quite that easy. As Obama explained, some people are benefiting greatly from the transformation of the world economy — he shared the jaw-dropping facts that the average annual income of the top one-hundredth of the 1 percent is $27 million, and that the typical C.E.O. makes 110 times more than his typical worker. The president wants to believe that “all will benefit” from the vision of America he articulated. But if the problem you are trying to fix is a winner-take-all society, it may take more than rousing rhetoric to persuade the winners to back your plan.

Branko Milanovic has some good news for the squeezed Western middle class — and also some bad news.

Good news first: the past 150 years have been an astonishing economic victory for the workers of the Western world. The bad news is that workers in the developing world have been left out, and their entry into the global economy will have complex and uneven consequences.

Milanovic’s first conclusion is contrarian, at least in its tone. After all, with unemployment in the United States at more than 9 percent and Europe struggling to muddle through its most serious economic crisis since World War II, Western workers are feeling anything but triumphant.

But one of the pleasures of Milanovic’s work is a point of view that is both wide and deep.

Milanovic, a World Bank economist who earned his doctorate in his native Yugoslavia, has an intuitively international frame of reference. Both qualities are in evidence in “Global Inequality: From Class to Location, From Proletarians to Migrants,” a working paper released this autumn by the World Bank Development Research Group.

Milanovic contends that the big economic story of the past 150 years is the triumph of the proletariat in the industrialized world. His starting point is 1848, when Europe was convulsed in revolution, industrialization was beginning to really bite, and Karl Marx and Friedrich Engels published the Communist Manifesto.

Their central assertion, Milanovic writes, was that capitalists (and their class allies, the landowners) exploited workers, and that the workers of the world were equally and similarly oppressed.

It turns out that Marx and Engels were pretty good economic reporters. Surveying the economic history literature, Milanovic finds that between 1800 and 1849, the wage of an unskilled laborer in India, one of the poorest countries at the time, was 30 percent that of an equivalent worker in England, one of the richest. Here is another data point: in the 1820s, real wages in the Netherlands were just 70 percent higher than those in the Yangtze Valley in China.

But Marx and Engels did not do as well as economic forecasters. They predicted that oppression of the proletariat would get worse, creating an international — and internationally exploited — working class.

Instead, Milanovic shows that over the subsequent century and a half, industrial capitalism hugely enriched the workers in the countries where it flourished — and widened the gap between them and workers in those parts of the world where it did not take hold.

One way to understand what has happened, Milanovic says, is to use a measure of global inequality developed by François Bourguignon and Christian Morrisson in a 2002 paper. They calculated the global Gini coefficient, a popular measure of inequality, to have been 53 in 1850, with roughly half due to location — or inequality between countries — and half due to class. By Milanovic’s calculation, the global Gini coefficient had risen to 65.4 by 2005. The striking change, though, is in its composition — 85 percent is due to location, and just 15 percent due to class.

Comparable wages in developed and developing countries are another way to illustrate the gap. Milanovic uses the 2009 global prices and earnings report compiled by UBS, the Swiss bank. This showed that the nominal after-tax wage for a building laborer in New York was $16.60 an hour, compared with 80 cents in Beijing, 60 cents in Nairobi and 50 cents in New Delhi, a gap that is orders of magnitude greater than the one in the 19th century.

Interestingly, at a time when unskilled workers are the ones we worry are getting the rawest deal, the difference in earnings between New York engineers and their developing world counterparts is much smaller: engineers earn $26.50 an hour in New York, $5.80 in Beijing, $4 in Nairobi and $2.90 in New Delhi.

Milanovic has two important takeaways from all of this. The first is that in the past century and a half, “the specter of Communism” in the Western world “was exorcised” because industrial capitalism did such a good job of enriching the erstwhile proletariat. His second conclusion is that the big cleavage in the world today is not between classes within countries, but between the rich West and the poor developing world. As a result, he predicts “huge migratory pressures because people can increase their incomes several-fold if they migrate.”

I wonder, though, if the disparity Milanovic documents is already creating a different shift in the global economy. Thanks to new communications and transportation technologies, and the opening up of the world economy, immigration is not the only way to match cheap workers from developing economies with better paid jobs in the developed world. Another way to do it is to move jobs to where workers live.

Economists are not the only ones who can read the UBS research — business people do, too. And some of them are concluding, as one hedge fund manager said at a recent dinner speech in New York, that “the low-skilled American worker is the most overpaid worker in the world.”

At a time when Western capitalism is huffing and wheezing, Milanovic’s paper is a vivid reminder of how much it has accomplished. But he also highlights the big new challenge — how to bring the rewards of capitalism to the workers of the developing world at a time when the standard of living of their Western counterparts has stalled.

London’s legal battle between Boris Berezovksy and Roman Abramovich is the best show in town. Who could resist a fight between two Russian oligarchs that includes open discussion of multi-million dollar bribes and a spat about whose lifestyle is more “exuberant?”

But for Russians the court case has been rivetting for more than its juicy revelations about lives of the rich and famous. That’s because it hinges on the original sin of the post-Soviet era — the loans-for-shares privatisation in which vast stakes in the country’s natural resources were sold to a small group of men at fire-sale prices in exchange for their political support of Boris Yeltsin in the 1996 election.

This was the windfall which created the oligarchs, and an enduring legacy of striking inequality — the 101 Russians on the 2011 Forbes billionaires list have a collective wealth equal to 29 percent of the country’s GDP. The gulf between the 1 percent and the 99 percent is center-stage in America today — but this country’s billionaires’ combined booty is equal to just 10 percent of the nation’s GDP.

Loans-for-shares has poisoned Russian politics, too. The glaring injustice of that sale discredited Russia’s liberal reformers and opened the Kremlin door for Vladimir Putin. Once he got there, public anger at loans-for-shares helped legitimize his crackdown on the independent media — which was owned by oligarchs — on oil tycoon Mikhail Khodorkovsky and eventually on civil society overall.

Putin’s apologists argued that he was simply re-asserting the rule of law in a country that risked being paralyzed by its corrupt and untameable oligarchs. But this fall, when he announced his intention to run in the presidential elections next March, Putin unambiguously revealed he has been engaged in a very different project — creating a neo-patrimonial regime with himself as the sole and perhaps life-long ruler.

Instead of a plutocracy, Russia has an autocracy — but one without even the religious and dynastic legitimacy of the Imperial family, or the ideological and institutional legitimacy of the CPSU. The best parallel is with the l’etat c’est moi strongmen who are being overthrown in the Middle East.

What is most chilling about Putinism is that Vladimir Vladimirovich has figured out something that has eluded previous Russian dictators — that soft authoritarianism can be more effective than the more brutal sort. Instead of sending dissidents to Siberia, Putin lets them move to London, New York or Silicon Valley.

History suggests that this sort of patrimonial regime can be surprising enduring, especially if the man at its heart has oil revenues with which to pay off his cronies and his hoi polloi. But they are not eternal — witness Mubarak, Ben Ali and Ghaddafi. Russians summoned the national will to throw off one dictatorship twenty years ago this month; I’m hopeful they will be able to do it again, and when they do I hope they will heed the lessons of their latest, flawed revolution.

This initially appeared on the BBC World Service’s “Business Daily” program.