Our liberal democracy is now in danger

We need visionary leadership to end this economic malaise and defeat the populists

Nobody likes to think of themselves as money-mad or materialistic. But imagine a world without economic growth. Incomes fall. Investment dries up. Debts become harder to pay. Pension funds stagnate. Social mobility grinds to a halt. Families can no longer look forward to a better tomorrow. Public discourse becomes not about how to share the proceeds of a growing economy but how to divide the nation’s wealth. Populists on the far-right pick on minorities, while those on the hard-left pursue class warfare.

This is why sustained economic growth is the essential ingredient for liberal democracy. As the Prime Minister said last week, capitalism is the greatest engine of prosperity known to man. Without it, the whole basis upon which we organise our society is endangered.

This risk may seem distant, but consider the facts: we have just experienced almost a decade of lost growth. Looking at gross domestic product per head, it took our economy until the end of 2015 – eight years after the financial crisis began – to return to its pre-crash size. Today, our economy is growing, but more slowly than other G7 countries.

Statistics mean little, however, compared to people’s experiences. Britain has more people in work than ever, for example, but more than 15 per cent are self-employed, many of them not through choice but necessity, while wages are lower now than before the crash. It is a similar story across the democratic world: up to a third of Westerners have zero or negative wealth. Meanwhile, although the prices of cars, clothes and electronic goods have fallen, the cost of education, healthcare and housing in successful cities has skyrocketed. Yet these are what people need to prosper in the modern economy.

This explains a lot about the political mess we are in today. In Britain, people are giving Labour’s Jeremy Corbyn the benefit of the doubt. Voters flirted with Norbert Hofer in Austria, Marine Le Pen in France and Geert Wilders in the Netherlands. America elected Donald Trump.

It is not enough to “make the case” for our economic system without making sure it actually delivers prosperity for more people. Neither is it enough to hark back to socialism’s past failures. The challenges our generation faces are different, and if people are disillusioned today, they will blame the policies – and the leaders – of today.

We need leadership, and we need it fast, because the trends that should concern us are likely to get worse.

First, longer life expectancy means a growing portion of our national income will be spent on pensions, health and social care.

Second, almost half of existing jobs are vulnerable to robots. As the cost of labour increases compared to the cost of technology, middle-class spending power – the main driver of economic growth – will fall.

Third, competition for jobs will not ease as China’s middle class expands. A new wave of globalisation – reaching parts of Africa and Central Asia – risks squeezing Western workers further.

Fourth, as the labour market changes, more people will find themselves working in the gig economy, with fewer rights, lower wages and less security.

These changes can be offset to some degree by new opportunities. Many of them – such as life sciences, big data, battery storage, electric vehicles, and 3D printing – can be seized by Britain. But doing so will take strong corporate leadership and visionary statesmanship.

That feels a long way off right now. To see just how distant it is, consider another huge challenge: Britain’s monetary policy.

Quantitative easing (QE) was necessary medicine at the time of the crash. But many years on, and half a trillion pounds of newly created money later, with interest rates at almost zero, an asset bubble that risks another crash, the rich getting richer and the young in particular suffering the consequences, monetary policy must change.

Economically speaking, even the Bank of England concedes that super-low interest rates are stifling productivity growth. Politically speaking, QE is turning young people into socialists.

Nobody believes it is easy to come off the “heroin”, as the Treasury’s former permanent secretary calls it. But while the US Federal Reserve has a plan to end its QE programme, neither the Treasury nor the Bank of England has a plan to wean Britain off its addiction to cheap credit.

Unless our leaders rise to these great economic challenges, the pain people have lived through for almost a decade will only get worse. That is why some – like Edward Luce, in his brilliant book, The Retreat of Western Liberalism – go as far as saying that liberal democracy itself is endangered. It need not be, but if government does not rise to these challenges, if it does not deliver sustained growth that everybody can share in, I fear Luce might be right. It will take courage and strong leadership to make sure it does not happen. FOLLOW Nick Timothy on Twitter @Nickjtimothy; READ MORE at telegraph.co.uk/opinion