Chrystia Freeland

When the financial crisis threatened to topple the global economy, my Russian friends took great delight in calling me from Moscow and sharing the bittersweet response that was making the rounds of a city that always laughs loudest when things go wrong: Everything Marx told us about communism was false, the gag went, but everything he told us about capitalism was true.

In 2008, it was easy to see their point. The lopsided recovery hasn’t brought much comfort, either. Across Western Europe and North America, corporate profits and stock prices have rebounded, but the middle class is more squeezed than ever.

Even so, my Muscovite pals were wrong. Marx didn’t just get communism wrong – he was also profoundly mistaken about capitalism, which turns out to be the best prosperity-creating system humanity has come up with so far.

But that doesn’t mean it doesn’t need to evolve. The high-tech, globalized capitalism of the 21st century is very different from the postwar version of capitalism that performed so magnificently for the middle classes of the Western world.

That’s why a lot of people, including many hard-driving capitalists, are trying to figure out how to retool the institutions of capitalism for our time.

If you are worried about the Western middle class – and we all should be – you may have started to have some doubts about the virtues of flexible labor markets. In theory, flexible labor markets should make our economies more productive, and all of us richer, by making it easier for people to do the work the economy needs and to stop doing the work it doesn’t.

In practice, though, some economists who once championed flexible labor markets without reservation, like Daron Acemoglu of the Massachusetts Institute of Technology, have begun to have second thoughts. Acemoglu doesn’t doubt the positive economic effects of flexible labor markets, but he has begun to be concerned about their political and distributional consequences. They might help the economy grow overall, but they may also be contributing to the hollowing out of the middle class by weakening its political bargaining power.

That’s why a recent paper by Joao Paulo Pessoa and John Van Reenen, both of the Center for Economic Performance at the London School of Economics, makes such fascinating reading. Van Reenen and Pessoa set out to unravel the two big mysteries about Britain’s economic performance over the past five years. The backdrop to both is the devastation that Britain, with its oversize banking sector, suffered in the wake of the 2008 financial crisis.

Here’s one sign the global elite is starting to get worried that capitalism isn’t working for the Western middle class. At the TED Global gathering in Scotland’s elegant capital city this week, much of the spotlight was on what’s going wrong with the 21st-century economy.

That matters because the TED conferences are one of the obligatory stops on the itinerary of any self-regarding plutocrat, and in the past that constituency has often preferred its vision of the economic future served sunny-side up. (TED stands for technology, entertainment and design, and is a not-for-profit global conference organization.)

The gloom started with former Prime Minister George Papandreou of Greece. In a remarkably candid and introspective talk, Papandreou offered a mea culpa for his own mistakes and those of the European political elite. He admitted that hardship had been imposed on people who were “in the main, not to blame for the crisis” and accused the European establishment of uncritically, and at great cost, clinging to “the orthodoxy of austerity.”

This book review originally appeared in Democracy: A Journal of Ideas, and is reprinted with permission.

As the twenty-first-century American middle class gets squeezed, with little relief in sight, liberals are wistfully remembering something about the postwar era that they had energetically forgotten. That age of suburban conformity and institutionalized sexism and racism was also a time when big business believed in government and worried about the common good, and was willing to pay for both.

Reminding us of that era, and documenting the engagement between the corporate class and the state during the 1940s, ’50s, and ’60s, is the most valuable contribution of The Fracturing of the American Corporate Elite by Mark Mizruchi. The University of Michigan business school professor, who has written three previous books about the practices and culture of the American corporation, offers a compelling history of how the American corporate elite reconciled itself to the New Deal, and then, in the aftermath of World War II, signed on to a vision of America in which government played a muscular and essential role in steering the economy and underwriting the well-being of the middle class.

The past week has been a lesson in the perils and the apparent inevitability of overreach. The most eye-catching example has been in Turkey, where what began as a few people protesting a planned shopping mall has burst into a mass revolt against the governing of Prime Minister Recep Tayyip Erdogan.

A second case, in Russia, has been on a much smaller scale but in some ways is even more menacing: Sergei Guriev, one of the country’s most respected economists and university leaders, has left the country, fearing arrest if he stayed.

What is striking about both episodes is how costly they are proving to be for the dominating leaders who have provoked them, and how easily it seems they might have been avoided.

The past week has underscored one more way in which the lives of the super-rich are diverging from the lives of everyone else: The middle class is becoming a matriarchy, while the plutocracy remains firmly patriarchal.

The sexist mores of the super-rich were exposed by one of that tribe’s most prominent philanthropists, the hedge fund billionaire Paul Tudor Jones. At an April symposium at the University of Virginia, Jones said that women didn’t trade as successfully as men because becoming a mother is a “killer” to professional focus. “You will never see as many great women investors or traders as men – period, end of story,” he said.

“As soon as that baby’s lips touched that girl’s bosom, forget it,” Jones said, describing the grim career impact of motherhood on two women who had worked with him in the late 1970s.

We are living in the age of the technocrats. In business, Big Data, and the Big Brains who can parse it, rule. In government, the technocrats are on top, too. From Washington to Frankfurt to Rome, technocrats have stepped in where politicians feared to tread, rescuing economies, or at least propping them up, in the process.

Technocrats are in vogue within the intelligentsia, too. It is well nigh impossible to pick up a book about any social or political issue nowadays (including, I hasten to admit, my own) without coming across some data-heavy social science research. And the familiar pleas for common sense and a centrist approach, free from the taint of ideology, usually boil down to a call to put the technocrats in charge.

Technocrats have a lot to recommend them. We do, after all, live in the age of Big Data, and ignoring it or not being able to use it is a sure path to either bankruptcy or humiliation – witness the data jock extraordinaire Nate Silver and his legendary smackdowns of columnists who rely on anecdote and intuition.

One of the most urgent questions in economics today is the connection between inequality and growth. That is because one of the big economic facts of our time is the surge in income disparity, particularly between those at the very top and everyone else. The other big fact is the recession set off by the financial crisis and the consequent imperative to jump-start economic growth. Figuring out the relationship between these two tent-pole issues is therefore a good way for economists to spend their time.

There are two main and contradictory ideas about how that relationship might work. One is that inequality is the price of robust economic growth. If the private sector is thriving, the most successful capitalists will be getting very rich. Creating a system that allows – indeed, encourages – the best and the brightest to pull away from everyone else is how you shift your economy into its highest gear.

There is, however, another theory, and it has been winning adherents in the aftermath of the financial crisis. In this view, rising inequality is not a symptom of a fast-growing economy or an incentive that will help create one. Instead, too much income inequality crushes economic growth.

If you doubt that we live in a winner-take-all economy and that education is the trump card, consider the vast amounts the affluent spend to teach their offspring. We see it anecdotally in the soaring fees for private schools, private lessons and private tutors, many of them targeted at the pre-school set. And recent academic research has confirmed what many of us overhear at the school gates or read on mommy blogs.

This power spending on the children of the economic elite is usually — and rightly — cited as further evidence of the dangers of rising income inequality. Whatever your views about income inequality among the parents, inherited privilege is inimical to the promise of equal opportunity, which is central to the social compact in Western democracies.

But it may be that the less lavishly educated children lower down the income distribution aren’t the only losers. Being groomed for the winner-take-all economy starting in nursery school turns out to exact a toll on the children at the top, too.

In recent months, people and their politicians around the world have been astonished to learn that big companies and billionaires will go to extraordinary lengths to pay lower taxes.

Thanks to the work of the International Consortium of Investigative Journalists, based in Washington, we have discovered that some of the most prominent public figures in the world have banked their fortunes in international tax havens, beyond the scrutiny of their national treasuries.

Meanwhile, Tom Bergin, my Reuters colleague, has become the scourge of the top U.S. multinationals by revealing their low effective tax rate in Britain. Mr. Bergin has found that between 1998 and 2012, Starbucks paid less than 9 million pounds, or about $14 million, in British taxes while registering sales of more than 3 billion pounds. According to statutory filings, Google made $18 billion in revenue in Britain from 2006 to 2011, and paid just $16 million in taxes.