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".
