The politics of scapegoating
Capitalism has created immense prosperity and accelerated the general quality of life for the human race across the globe; it has helped reduce worldwide poverty, bred innovation, and ushered in an age of unprecedented technological and medical progress. At the same time Capitalism has facilitated an extraordinary concentration of asset-owning elites, commodifying essential aspects of life. One thing becomes clear as fewer elites are hoarding more wealth: prosperity is not the same as fairness. As material insecurity grows across the working and middle classes, with particular focus on the UK and US, politicians have been quick to redirect economic frustration toward ethic scapegoats rather than challenge these wealth imbalances. History suggests that when inequality, insecurity, and identity politics are prevalent within a society, democratic norms weaken. The question is not whether we are in fascism, but whether we are creating the conditions in which it becomes politically viable.
In this discussion, we seek to caution about how our current political and economic landscape has resulted in an increase in bigoted rhetoric aimed at creating division and fear. We will first discuss how capitalism has evolved to allow for such effects, including those of Thatcherism and Reaganism. Then we will cover the distributional outcomes of these economic policies, followed by how this can create the groundwork for scapegoating. We will follow this up with a historical emphasis before highlighting any critiques and counterarguments you may have regarding this discussion. Finally, we will suggest some policy changes that could prevent this reality.
So let’s get stuck in…
The Historic Shifts of Capitalism
In the aftermath of WWII, economists and policymakers sought to implement reforms to prevent another catastrophe. Economists believed that the economic suffering the Germans experienced after WWI was the reason fascist rhetoric took hold within the population, and Western governments wanted to prevent this instability from happening again (Eichengreen, The European Economy Since 1945). John Maynard Keynes stressed that when consumers have money, it drives demand, keeps businesses running, and helps the economy stay healthy, and that the government should aid this (ref). This idea was thought to prevent large wealth discrepancies and keep the population largely satisfied. Keynesian economics began to gain popularity after WWII and laid the foundation for social democracies, a much fairer practise than the free-market capitalism that preceded the Great Depression. (Skidelsky, John Maynard Keynes)
By the 1970s, the Keynesian settlement faced severe strain. The oil shocks of 1973 and 1979 triggered sharp increases in energy prices, driving inflation upwards across Western economies. In the UK, inflation peaked at over 25% in 1975; in the US, it exceeded 13% by 1980 (Bank of England; Federal Reserve historical data). At the same time, unemployment rose, a phenomenon known as stagflation. Policymakers appeared unable to stabilise prices without triggering a recession (Blinder and Rudd, 2013). Against a backdrop of instability and intellectual uncertainty, a shift toward market liberalisation gained momentum.
Even though Keynesian economics improved financial stability for the average person, Western corporations found that inflation eroded their capital returns and disliked the wage rigidity and labour protection ensured by Keynesianism. The bourgeoisie saw an opportunity to reverse Keynes’ ideas with those of Friedrich Hayek, an Austrian economist who believed that social democracy and welfare states would morph into authoritarianism. Hayek, wanting to prevent this, warned that central planning risked authoritarianism. Ideas influenced later reforms, which stripped back labour protections and tax regulations, offering a closer picture of capitalism. These reforms assumed that free markets would allocate resources more efficiently than the state. Hayek’s ideas have come to be known as Neoliberalism, a notable economic shift which rebalanced power away from labour toward capital.
Neoliberalism was ushered in by the West under Reaganism in the US and Thatcherism in the UK. The Reagan administration enabled mass privatisations, major deregulations and anti-labour policies. Similar actions were undertaken by Thatcher, who privatised prisons, railways, transferred large portions of public housing to private ownership, declared war on unions and so on. The neoliberalism of the 1980s brought lower inflation and lower interest rates, but this was paid for with high unemployment. Cutbacks in social programs and infrastructure development diminished the quality of life for many (David Harvey, “ A Brief History of Neoliberalism).
Many of the key factors that cause economic insecurity within the working class today can be traced to Neoliberalism.
The Distributional outcomes of Neoliberalism
Inequality and Labour share
The Neoliberalist decades saw a fall in inflation and an expansion in capital mobility. Yet the distributional effects were uneven. In the United States, productivity continued to rise steadily from the late 1970s onward, but median wage growth lagged significantly behind, a divergence keenly documented by the Economic Policy Institute. Meanwhile, labour’s share of national income declined across many advanced economies (OECD; U.S. Bureau of Labor Statistics).
Wealth concentration intensified. Research by Piketty and Saez shows that the top 1% in the United States now hold a markedly larger share of wealth than in the mid-20th century. CEO-to-worker pay ratios in the US have risen above 300:1 (EPI). When we see compensation packages such as this dispatched so visibly from median wages, the gap is more than economic – it is psychological. In the UK, inequality after housing costs remains elevated (ONS).
It is essential to acknowledge that global capitalism has lifted hundreds of millions out of extreme poverty. Yet domestic political stability depends less on global averages and more on relative fairness within national communities. A British factory worker does not benchmark their security and wages against those of a Taiwanese factory worker; they compare it to their parents’ and neighbours’.
Housing as an Asset Class
Perhaps no sector illustrates this shift more clearly than housing. For many young adults, the “property ladder” has become a myth. A story told by generations that bought in before prices radically detached from wages. In the UK, median house price-to-earnings ratios have risen to roughly 7–8 times annual income (ONS). Homeownership among younger cohorts has declined significantly compared to the 1990s (Resolution Foundation). Buy-to-let expansion and institutional investment, driven by Thatcherism, have increasingly transformed housing from a social good into a financial asset.
Supply constraints and planning laws undoubtedly play a role. However, when housing is treated primarily as an investment vehicle, speculative demand amplifies scarcity. The result is a widening gap between asset owners and renters, reinforcing intergenerational inequality.
Karl Polanyi warned that treating land purely as a commodity could destabilise society (The Great Transformation). When shelter behaves like a financial derivative, democratic legitimacy strains.
Commodification of Essential Services
In the United States, healthcare spending accounts for roughly 17–18% of GDP — nearly double the OECD average (OECD Health Statistics). Approximately 100 million Americans carry medical debt (Kaiser Family Foundation). While markets can drive innovation, essential services often exhibit pricing dynamics more akin to monopolies than to competitive efficiency. Let’s make one thing clear: No democratic society should normalise bankruptcy as a side-effect of illness.
Markets allocate many goods effectively. But when goods fundamental to human dignity operate under purely profit-driven logics, tensions emerge between efficiency and equity.
Political Incentives and the rise of identity politics
This is where we have to be nuanced. Economic systems do not mechanically produce prejudice. However, sustained insecurity alters political incentives. Addressing structural inequality is complex and politically costly. Redirecting frustration toward cultural or ethnic scapegoats can yield faster electoral returns, but it is not the right thing to do.
Research on US regions exposed to trade shocks demonstrates increased support for populist candidates in areas experiencing manufacturing decline (Autor et al.). Similar correlations appear in UK regions affected by deindustrialisation and in European states facing economic stagnation.
The rise of social media has compounded these dynamics. Algorithms reward outrage and amplify emotionally charged content. In such environments, identity-based rhetoric spreads more rapidly than technocratic reform proposals.
The concern is not that capitalism directly causes bigotry. It is systems that generate visible insecurity without adequate institutional balance that lower the threshold for mobilising resentment.
But just remember something the next time you see targeted media on the news or social media: Anger travels faster than rationality. Try to let rationality win.
Democratic strain and Historical reflection
Democracies rarely collapse suddenly. They hollow out. As Levitsky and Ziblatt argue in How Democracies Die, erosion often occurs gradually through norm violations, delegitimisation of institutions, and the normalisation of exclusionary rhetoric. Hannah Arendt similarly observed that mass alienation can make societies vulnerable to authoritarian appeals (The Origins of Totalitarianism).
History suggests that when inequality, insecurity, and identity politics converge, democratic resilience weakens. The danger is not that we are currently in a fascist state. It is that certain preconditions historically associated with democratic backsliding are increasingly visible.
Counterarguments
It would be simplistic to attribute contemporary political volatility solely to capitalism. Several objections deserve serious consideration, and a fair reader may object.
First, inequality may reflect technological progress rather than injustice. Yet if inequality were purely meritocratic, labour’s share of income would not decline alongside rising productivity. Concentration increasingly reflects asset ownership and monopoly power (Philippon, The Great Reversal).
Second, cultural backlash may drive populism (Inglehart & Norris). Cultural change indeed shapes political behaviour. However, economic insecurity often intensifies perceived cultural threat (Guiso et al., 2017).
Third, capitalism has coexisted with stable democracies, particularly in Nordic countries. Precisely so. Those models illustrate that markets embedded within strong labour institutions and redistribution can maintain legitimacy, unlike the more untethered market capitalism we have in the US and UK.
The argument here is not that capitalism uniquely produces authoritarianism. It is that highly financialised and weakly regulated capitalism tends toward concentration. When concentration outpaces institutional adaptation, legitimacy erodes. Without corrective mechanisms, volatility and anger follows.
Is there a fix?
Markets are not inherently destabilising. But they are not self-correcting either. They require guardrails. Guardrails are not anti-capitalistic. They are pro-democracy.
Rebalancing labour power through sectoral bargaining and worker representation on boards, as seen in parts of continental Europe, could reduce inequality. Strengthened competition policy and anti-monopoly enforcement can curb excessive concentration (Philippon). Large-scale public housing investment and rent stabilisation tools could address housing insecurity. Universal healthcare models in the US context would reduce commodification of essential services.
Here I would like to share a thought I have been sharpening over the last week:
If labour has lost bargaining power, it must regain it.
If housing has been financialised, it must be de-financialised.
If political influence follows wealth, transparency must follow influence.
Perhaps it needs some work… as does our economics.
Conclusion
Capitalism has delivered extraordinary prosperity. It has lifted global living standards, accelerated innovation, and expanded opportunity on a scale previously unimaginable. But the historical shift toward market primacy has produced distributional consequences that cannot be ignored.
Labour’s share has declined. Asset ownership has concentrated. Housing has become speculation. Essential services have been commodified.
Economic insecurity does not automatically produce prejudice. Yet when insecurity becomes persistent and visible, political incentives change. Structural reform is difficult. Scapegoating is easy. In an era of algorithmic amplification and declining institutional trust, resentment spreads faster than redistribution.
If these dynamics continue, the political consequences will not remain rhetorical. Democracies rarely fall in dramatic moments. They hollow out. Trust erodes. Norms bend. Exclusion becomes normalised.
Markets that generate wealth without broadly shared security eventually lose their moral authority. And when legitimacy weakens, citizens begin to search for alternatives. History suggests those alternatives are not always liberal.
The kind of economy we choose to build will determine what kind of democracy survives it.
Thank you for reading.
References
Autor, D.H., Dorn, D. and Hanson, G.H., 2016. The China shock: Learning from labor-market adjustment to large changes in trade. Annual review of economics, 8(1), pp.205-240.
Bank of England Historical Inflation Data. https://www.bankofengland.co.uk/statistics/research-datasets
Blinder, A.S. and Rudd, J.B., 2013. The supply-shock explanation of the great stagflation revisited. In The Great Inflation: The Rebirth of Modern Central Banking (pp. 119-175). University of Chicago Press.
Eichengreen, B. (1996). Globalizing Capital.
Economic Policy Institute. Productivity–Pay Gap Reports. https://www.epi.org/blog/the-widening-productivity-pay-gap/
Federal Reserve Historical Data. https://www.federalreserve.gov/data.htm
Friedman, M. (1962). Capitalism and Freedom.
Guiso, L., Herrera, H., Morelli, M. and Sonno, T., 2024. Economic insecurity and the demand for populism in Europe. Economica, 91(362), pp.588-620.
Hayek, F. (1944). The Road to Serfdom.
Kaiser Family Foundation. Medical Debt Statistics. https://www.kff.org/health-costs/the-burden-of-medical-debt-in-the-united-states/
Levitsky, S., & Ziblatt, D. (2018). How Democracies Die.
OECD. Labour Share & Health Statistics. https://www.oecd.org/en/data/datasets/oecd-health-statistics.html
Office for National Statistics (ONS). Housing & Inequality Data. https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householdincomeinequalityfinancial/financialyearending2024
Philippon, T. (2019). The Great Reversal.
Piketty, T. (2014). Capital in the Twenty-First Century.
Polanyi, K. (1944). The Great Transformation.
Resolution Foundation Housing Reports. https://www.resolutionfoundation.org/our-work/housing/
Saez, E. and Zucman, G., 2020. Trends in US income and wealth inequality: Revising after the revisionists (No. w27921). National Bureau of Economic Research.
Skidelsky, R. (1992–2000). John Maynard Keynes.
World Bank. Global Poverty Data. https://data.worldbank.org/topic/11
