Capitalism And Democracy Essay, Research Paper

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”.