Financialization and the global decline of liberal democracy: The mediating effects of rentier capitalism

The puzzle in the orthodox democracy development literature is this: After explaining the global expansion of liberal democracy since the 1900s, the literature fails to account for its precipitous decline over the past 15 years. What explains liberal democracy’s decline? In answering this question, I draw on neo-Marxist theories that highlight the contradiction between capitalism and democracy, arguing that financialization increases income and, by extension, the political power of the rentier class, thereby driving the global decline of liberal democracy. After controlling for confounding variables, mediation structural equation modeling of data for 191 countries from 2000 to 2017 shows that financialization increases the rentier class’s share of national income (the top 1 and 10 percentiles), and that financialization’s reductive effect on liberal democracy is fully mediated through this class. Moreover, sensitivity analysis using the Ant Colony Optimization Algorithm shows that this finding is insensitive to a confounding phantom variable.