Capitalism and Democracy

From the very dawn of intelligent human interaction to the
present day, the concept of capitalism has dominated the
way we trade goods and acquire wealth. Except for the
necessity of a simple communist society in pre-modern
times, or the noble humanistic notion of a socialist
society, the free market has always been the most efficient
way to run the economy once the most basic needs of life
have been satisfied. Only during the last several hundred
years has the idea of a modern democracy been developed and
applied through the modern state. These two concepts are
thought by some to be interrelated, but contemporary
critics of the liberal form of democracy seek to separate
the two notions of capitalism and democracy. However, when
examining the evidence of the relation of the two, let us
not use the altered conceptions or versions of these terms,
but rather analyse them by their base meanings as we have
come to understand them. After this analysis of the terms
and a resulting stipulation of what their base meanings
are, critics may say that any further analysis of the
relationship between the two terms would be tainted by
their supposed definitions. The problem with this is that
without a common frame of reference between the two, no
comparison would be logically possible without considering
an infinite range of possible meanings. With this technical
matter aside, the analysis will continue with an
investigation into arguments both for and against the
separation of the two terms, and then an evaluation of the
true nature of capitalism&rsquos relationship with
democracy. Specifically the free market economy dictating
the actions of any democratic regime. After this task of
evaluation is complete, the argument will conclude with
illustrating how capitalism will actually lead to a more
liberal form of democracy.
 
The first step of this investigation is to make some
attempt to achieve a common frame of reference between the
two terms. Literally, democracy is the rule of the people.
Specifically, it is the organization in place to allow
people of a specified area, through organized elections, to
give their uncoerced opinion on who they want to represent
them in government, or what they want government to do for
them. The underlying presupposition is that government will
always obey the command of the majority of voters. There
are many limitations to democracy, such as the fact that
people can only vote YEA or NEA on a specific topic area,
thus producing a dichotomy of choices that may not
necessarily offer a solution to a problem. Also, people
must leave most decisions to the people they elect, since
they don&rsquot have enough time to continually vote.
However, the focus of this work is not to delve into this
area of controversy, but rather to take this understanding
of democracy as the stipulated definition for this work.
One critical distinction must be made regarding
Berger&rsquos understanding of the term, and that is that
the term democracy does not include all the civil and human
rights associated with liberal democracy.
 
Similarly, by capitalism, this work will not use any other
connotation of the term other than describing the free
market economy, where there is private ownership of
property, and the economic freedom to buy, sell, or trade
with whomsoever you chose. The critical element of the term
is that there is limited government in place to enforce
contracts and to provide a safe trading environment.
Another specific meaning given to capitalism is by
Friedman, who describes capitalism as economic cooperation,
where both parties are benefiting from the trade, provided
that the trade is voluntary and informed on both sides.
 
The next step in the investigation is to analyse some of
the arguments that capitalism is separate from democracy.
Dryzek argued that an individual&rsquos consumer
preferences were
 
properly expressed in the economy, while the same persons
political preferences were expressed in politics3. This
perspective indicates that the capitalist economy is a
separate entity form the democratic political system,
because these are two different institutions into which an
individual can state his or her preferences, depending on
whether they are economically or politically motivated. On
the other hand, history has given many examples of how a
person&rsquos economic preferences have been stated in the
political forum, such as voting for a politician that has
promised to reduce taxes or to establish free trade between
two states. That same person could only express those
preferences in the political forum, because they alone
would have no power to change the structure of the economy
such that it would seem advantageous to lower taxes or sign
a free trade agreement. On the same note, a person could
express their political beliefs in the economy, by no
longer selling their labour to the firm who employs them,
perhaps because they support a particular political party
of which the labourer is not fond. If that labourer
provided a service that the employer could not find
elsewhere, then the employer would fold, thus stating a
political belief in the economic sphere of influence. The
point illustrated here is that the two concepts of
democracy (politics) and capitalism (economy) are not as
independent of one another as Dryzek may argue in that
example.
 
As Schumpeter argues, the association of capitalism and
democracy is purely coincidental, and that there are no
necessary linkages between the two4. The support for this
position comes from his belief that democracy is possible
under both capitalism and socialism, but that a social
democracy would not be a liberal democracy5, but logic
dictates that this interpretation is incorrect on two
counts. The first being the fact that democracy (as we have
come to understand it) entails that the majority of the
people will get what they want, and if there is a choice to
be made between economic hardship through socialism, and
economic prosperity for the majority through capitalism,
then the majority will chose to have prosperity over
hardship, because it is common sense. This simple example
presupposes the historical reality of socialism being
economically inefficient and having a lower standard of
living than capitalism, as well as the voting public being
rational in that they will choose what offers them the most
material wealth as opposed to an arrangement that offers
them little material wealth. On the same note, Berger
argues that all democracies are capitalist, no democracies
are socialist, but many capitalist societies are not
democratic6.
 
These examples represent only a very small percentage of
the arguments that support the claim that the concepts of
capitalism and democracy are not related, but their
counterarguments do support the notion that capitalism and
democracy are intrinsically linked. To further the analysis
of why capitalism and democracy are linked, the following
examples will provide the proof of their immediate
relationship, as well as the ability of those examples to
stand up to an honest defence.
 
To begin this examination into the relationship between
capitalism and democracy, Friedman suggests that it is not
possible to decouple the two because history indicates that
capitalism is a necessary condition for freedom, but not a
sufficient condition in itself7. This begs the question of
how freedom can be related to democracy when Friedman
himself does not like to equate the two. His reasons for
not wanting to equate the two are not the concern of this
work, so for the purposes of this argument, I must use
logic to connect the two. Common sense itself dictates that
a rational individual would choose freedom over an absence
of freedom, so if a democracy is made up of a majority that
have the same notion of rationality, then the majority
would vote for a state of freedom, therefore
Friedman&rsquos use of the word freedom in this case might
reasonably be construed as democracy. To argue from the
other side, the word freedom could be linked to democracy
in that those who are free would have democracy as their
form of government, because to have total freedom would be
anarchy, which would include freedom to limit the freedom
of others, and the next logical step down is democracy,
which at least provides for a limitation on this level
freedom that could possibly restrict the freedom of others,
if the majority are rational and insist that the actions of
those who would limit freedom be restrained themselves. The
argument is dizzying at best, but the logic is necessary to
continue the explanation of how capitalism is necessary for
a democracy to work, but it is not the only element that is
needed. To prove the first part of this statement is
correct, namely the need for capitalism to be in place to
have a democratic system of government, one must look at
what capitalism provides to make a working democracy
possible. One of the things that capitalism provides to
make democracy possible is the affluence necessary maximize
free time, or more specifically, to allow people to
concentrate on other matters of interest after their basic
needs for survival have been met. This free time could be
used educating one&rsquos self, looking into political
problems, as well as becoming a member of a interest group
to pressure government. At the next level, it gives the
individual the capital necessary to give financial support
to the groups to which he or she belonged, so they could
collectively raise support through lobbying or the mass
media for their cause. On the third level, the behaviour of
providing financial support to those groups that represent
the individual&rsquos political beliefs, can be transferred
to the behaviour of providing money to groups that best
represent his or her economic interests, and that is where
the connection is made, and where democracy and capitalism
intertwine with each other.
 
The initial counter argument to this is that this
arrangement has lead to a mass society , whereby humankind
is experiencing a radical dehumanization of life, and that
humankind is losing out on the personal human contact that
help us treat each other better, not as objects to be
bought or sold8. The first primary counterargument would
state that because of this relationship, capitalism and
democracy are to be considered separate from each other
because the are studied in terms of one another in this
instance. However, the prevailing notion is that because
you must have capitalism to provide the affluence necessary
to devote time to democracy, they are essentially linked.
The second primary counterargument would illustrate the
fact that even if the economic system was poor, and even
with a failed form of capitalism, the people would still
vote, and there could still be democracy. But what kind of
democracy would that be, with people living hand to mouth
and not having the time to study long term solutions
instead of quick-fixes. So to have a working democracy one
must have free time, and to have free time one must have
some degree of affluence, and history has shown that
capitalist societies are more affluent than non-capitalist
societies, therefore one must have capitalism to have a
democracy that works. The second part of the initial
premise that capitalism is not the only detail needed to
have a democracy is obvious, because there must be a host
of other factors, but it not relevant to this work, because
it argues neither for nor against a direct connection
between capitalism and democracy.
 
There is another important piece of evidence regarding the
direct connection between capitalism and democracy in that
capitalism must have a government in place that will carry
out the function of enforcing contracts, securing private
property rights, and issuing and controlling the value of
currency9,10. This is the position that both Dryzek and
Friedman take on the issue. Some would argue that any type
of state could perform this administrative function, and
this is true up to a point. Fascist Italy, Spain, and
Germany were not politically democratic by the sense of the
term in use by this paper, but they all had private
enterprise, which is a form of capitalism11. What they did
not have was a institutionalized limitation on government
that only democracy could provide12. This limitation on
government is precisely what pure capitalism needs to be
effective. It relies on the government to perform these
administrative functions as illustrated above, but not to
involve itself any further. The reason being that if the
market is not allowed to run free, then by definition it is
not operating efficiently, and therefore not providing
maximum wealth to the majority of the population, and if
government were to go too far then the majority would
restrict its intervention. That relationship described
above is another example of how capitalism and democracy
are linked.
 
At this point the interconnectedness of capitalism and
democracy has been established and the counterarguments to
this refuted. What has yet to be explored is the real
nature of the relationship, which will first indicate the
pessimistic notion that democracy is controlled by
capitalism, and conclude by illustrating the optimistic
notion that capitalism will eventually lead to a better
democracy.
 
The best way to illustrate how capitalism can control
democracy is the simple premise that you must have capital
to finance a successful interest group in a democracy. The
need for this money and how it is obtained through
capitalism has been explored previously in this work. What
has not been explained is the next logical conclusion
stemming from the need to have capital to run a successful
interest group. That next step is that the interest group
that has the most capital has the best chance of
influencing the democracy, whether it be through the media,
or hiring an influential lobbyist, or some other means of
convincing others to vote for something that benefits
another party. This coincides with Social Darwinism in that
the interest group that is the most able to survive, or has
the greatest success, should get its way. This is no way to
run a democracy, because it detracts from the belief that
democracy is the rule of the people. This in turn leads us
away from the stipulated meaning of the term democracy at
the start of this work, in that the decision to vote should
be uncoerced and free. The crucial part of this concept is
that this relationship between capitalism and democracy
illustrated here represents a more realistic portrayal of
how the two concepts relate to each other. Supporting this
viewpoint is Berger, who believes that all democracy&rsquos
true purpose is to obscure the real power relations in
society, which are determined and dominated by the members
of the capitalist class13, who can mobilize support for
their initiatives through pooling of resources and the
corresponding use capital assets.
 
Democracy is also forced to obey the demands of the
capitalist market through international investment.
Capitalism forces democratic governments to seek out
foreign investment by providing inducement for that
investment, whether they are corporate tax breaks or
improved levels of local infrastructure. If the governments
choose not to comply with these market pressures, then this
will cause corresponding reduction in tax revenue, which
will in turn limit resources for government schemes. In
addition, this will limit employment, which will also limit
general levels of income, and therefore jeopardize the
popularity and legitimacy of a government14. Similarly,
democratic attempts to control trade and capital flows will
result in international relocation of production, which
will in turn force other nation-states to lower their
corporate tax rates15. This is an example of how capitalism
has a certain level of control over democracy. So now that
the task of arguing against the decoupling of capitalism
and democracy is complete, the remainder of this work will
concentrate on how capitalism relates to the liberal form
of democracy that exists today.
 
What exists in tandem with this negative outlook of
capitalism&rsquos relationship with democracy, is a
different angle of vison that sees capitalism leading to a
better type of democracy where political participation is
improved, and the features of the free market economy lead
to more human rights.
 
An example of how this is applied in reality is in
opposition to Berger&rsquos viewpoint that the best
guarantor of human rights is democracy16. When one looks at
the market economy, the cosmopolitan view seems to be one
of giant coronations that tyrannize the people of that
country in the pursuit of efficiency, with very little
attention paid to human rights, but that is not true. One
aspect of what these critics say is true, specifically the
fact that the corporations are all trying to maximize
returns on their investment. However, this will actually
raise the standard of living by eliminating the
inefficiency of the welfare state, and will give those who
are not working the incentive to work. For those who work
hard, the market rewards them with affluence. This managed
to free the US and the UK from their economic problems in a
movement known as the New Right. Also, if there is an area
of high unemployment, the corporation will see that
situation as a cheap labour pool and will set up operations
to exploit this. The down side is that these people have no
choice but to work for this company, the positive side is
that in working at their assigned task, they will have
acquired skills and experience they can use toward finding
a job elsewhere. Also, with democracy alone bearing the
responsibility of providing human rights, one must take
into account the tyranny of the majority. Where this line
of argument connects with human rights, is in the fact that
capitalist societies in history have a higher standard of
living than non-capitalist societies.
 
The capitalist economy also serves the interest of human
rights by protecting the individual&rsquos interests. The
buyer is protected from the seller, in that he or she has
the choice to go to other sellers, and the same protection
is offered to the seller because he or she can go to other
buyers. The same type of protection works for all economic
relationships, such as employee to employer, because of all
the other employers for whom the employee can work (ceteris
paribus). The market does this task impersonally without
the need for an all powerful state17. The market also
reduces the number of issues upon which the government must
decide, therefore freeing up energy to pursue human rights,
and not spend too much time and money trying to control the
economy.
 
The argument thus far has given a fair treatment of the
arguments both for and against the decoupling of capitalism
from democracy, as well as explored the true nature of the
relationship between the two concepts. Primarily the fact
that capitalism facilitates the control of the democratic
process, and that in the end, capitalism will lead to a
more liberal form of democracy. This argument has had to
evaluate evidence from both sides, as well as attempt to
build a common frame of reference in which the two concepts
could be evaluated, while minimizing the risk that any
authors argument would be taken out of context. After all
is said and done, what really matters is that these two
concepts have dominated the realm of political thought for
hundreds of years, and when understood in terms of each
other, have served to guide the actions of the most
powerful and influencing nation-states the world has ever
seen. Perhaps the best way to end this brief treatment of
capitalism and democracy is to cite Friedman&rsquos axiom
which reads; "economic freedom is an indispensable means
toward political freedom, and economic freedom is in itself
a component of freedom broadly understood, so it is an end
in itself".