Capitalism Vs. Democracy Essay, Research Paper

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 andAcquire wealth. Except for the necessity of a simple communist society inPre-modern times, or the noble humanistic notion of a socialist society,The free market has always been the most efficient way to run the economyonce the most basic needs of life have been satisfied. Only during thelast several hundred years has the idea of a modern democracy beendeveloped and applied through the modern state. These two concepts arethought by some to be interrelated, but contemporary critics of theliberal form of democracy seek to separate the two notions of capitalismand democracy. However, when examining the evidence of the relation ofthe two, let us not use the altered conceptions or versions of theseterms, but rather analyze them by their base meanings as we have come tounderstand them. After this analysis of the terms and a resultingstipulation of what their base meanings are, critics may say that anyfurther analysis of the relationship between the two terms would betainted by their supposed definitions. The problem with this is thatwithout a common frame of reference between the two, no comparison wouldbe logically possible without considering an infinite range of possiblemeanings. With this technical matter aside, the analysis will continuewith an investigation into arguments both for and against the separationof the two terms, and then an evaluation of the true nature ofcapitalism relationship with democracy. Specifically the freemarket economy dictating the actions of any democratic regime. After thistask of evaluation is complete, the argument will conclude withillustrating how capitalism will actually lead to a more liberal form ofdemocracy. The first step of this investigation is to make some attempt to achieve a common frame of reference between the two terms. Literally, democracy isthe rule of the people. Specifically, it is the organization in place toallow people of a specified area, through organized elections, to givetheir uncoerced opinion on who they want to represent them in government,or what they want government to do for them. The underlyingpresupposition is that government will always obey the command of themajority of voters. There are many limitations to democracy, such as thefact that people can only vote YEA or NEA on a specific topic area, thusproducing a dichotomy of choices that may not necessarily offer asolution to a problem. Also, people must leave most decisions to thepeople they elect, since they have enough time to continuallyvote. However, the focus of this work is not to delve into this area ofcontroversy, but rather to take this understanding of democracy as thestipulated definition for this work. One critical distinction must bemade regarding Berger&rsquos understanding of the term, and that is thatthe term democracy does not include all the civil and human rightsassociated 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 isprivate ownership of property, and the economic freedom to buy, sell, or trade with whomsoever you chose. The critical element of the term is thatthere is limited government in place to enforce contracts and to providea safe trading environment. Another specific meaning given to capitalismis by Friedman, who describes capitalism as economic cooperation, whereboth parties are benefiting from the trade, provided that the trade isvoluntary and informed on both sides. The next step in the investigation is to analyse some of the argumentsthat capitalism is separate from democracy. Dryzek argued that anindividual&rsquos consumer preferences were properly expressed in the economy, while the same persons politicalpreferences were expressed in politics3. This perspective indicates thatthe capitalist economy is a separate entity form the democratic politicalsystem, because these are two different institutions into which anindividual can state his or her preferences, depending on whether theyare economically or politically motivated. On the other hand, history hasgiven many examples of how a person&rsquos economic preferences have beenstated in the political forum, such as voting for a politician that haspromised to reduce taxes or to establish free trade between two states.That same person could only express those preferences in the politicalforum, because they alone would have no power to change the structure ofthe economy such that it would seem advantageous to lower taxes or sign afree trade agreement. On the same note, a person could express theirpolitical beliefs in the economy, by no longer selling their labour tothe firm who employs them, perhaps because they support a particularpolitical party of which the labourer is not fond. If that labourerprovided a service that the employer could not find elsewhere, then theemployer would fold, thus stating a political belief in the economicsphere of influence. The point illustrated here is that the two conceptsof democracy (politics) and capitalism (economy) are not as independentof one another as Dryzek may argue in that example. As Schumpeter argues, the association of capitalism and democracy ispurely coincidental, and that there are no necessary linkages between thetwo4. The support for this position comes from his belief that democracyis possible under both capitalism and socialism, but that a socialdemocracy would not be a liberal democracy5, but logic dictates that thisinterpretation is incorrect on two counts. The first being the fact thatdemocracy (as we have come to understand it) entails that the majority ofthe people will get what they want, and if there is a choice to be madebetween economic hardship through socialism, and economic prosperity forthe majority through capitalism, then the majority will chose to haveprosperity over hardship, because it is common sense. This simple examplepresupposes the historical reality of socialism being economicallyinefficient and having a lower standard of living than capitalism, aswell as the voting public being rational in that they will choose whatoffers them the most material wealth as opposed to an arrangement thatoffers them little material wealth. On the same note, Berger argues thatall democracies are capitalist, no democracies are socialist, but manycapitalist societies are not democratic6. These examples represent only a very small percentage of the argumentsthat support the claim that the concepts of capitalism and democracy arenot related, but their counterarguments do support the notion thatcapitalism and democracy are intrinsically linked. To further theanalysis of why capitalism and democracy are linked, the followingexamples will provide the proof of their immediate relationship, as wellas the ability of those examples to stand up to an honest defence. To begin this examination into the relationship between capitalism anddemocracy, Friedman suggests that it is not possible to decouple the twobecause history indicates that capitalism is a necessary condition forfreedom, but not a sufficient condition in itself7. This begs thequestion of how freedom can be related to democracy when Friedman himselfdoes not like to equate the two. His reasons for not wanting to equatethe two are not the concern of this work, so for the purposes of thisargument, I must use logic to connect the two. Common sense itselfdictates that a rational individual would choose freedom over an absenceof freedom, so if a democracy is made up of a majority that have the samenotion of rationality, then the majority would vote for a state offreedom, therefore Friedman&rsquos use of the word freedom in this casemight reasonably be construed as democracy. To argue from the other side,the word freedom could be linked to democracy in that those who are freewould have democracy as their form of government, because to have totalfreedom would be anarchy, which would include freedom to limit thefreedom of others, and the next logical step down is democracy, which atleast provides for a limitation on this level freedom that could possiblyrestrict the freedom of others, if the majority are rational and insistthat the actions of those who would limit freedom be restrainedthemselves. The argument is dizzying at best, but the logic is necessaryto continue the explanation of how capitalism is necessary for ademocracy to work, but it is not the only element that is needed. Toprove the first part of this statement is correct, namely the need forcapitalism to be in place to have a democratic system of government, onemust look at what capitalism provides to make a working democracypossible. One of the things that capitalism provides to make democracypossible is the affluence necessary maximize free time, or morespecifically, to allow people to concentrate on other matters of interestafter their basic needs for survival have been met. This free time couldbe used educating one&rsquos self, looking into political problems, aswell as becoming a member of a interest group to pressure government. Atthe next level, it gives the individual the capital necessary to givefinancial support to the groups to which he or she belonged, so theycould collectively raise support through lobbying or the mass media fortheir cause. On the third level, the behaviour of providing financialsupport to those groups that represent the individual&rsquos political

beliefs, can be transferred to the behaviour of providing money to groupsthat best represent his or her economic interests, and that is where theconnection is made, and where democracy and capitalism intertwine witheach other. The initial counter argument to this is that this arrangement has lead toa mass society , whereby humankind is experiencing a radicaldehumanization of life, and that humankind is losing out on the personalhuman contact that help us treat each other better, not as objects to bebought or sold8. The first primary counterargument would state thatbecause of this relationship, capitalism and democracy are to beconsidered separate from each other because the are studied in terms ofone another in this instance. However, the prevailing notion is thatbecause you must have capitalism to provide the affluence necessary todevote time to democracy, they are essentially linked. The second primarycounterargument would illustrate the fact that even if the economicsystem was poor, and even with a failed form of capitalism, the peoplewould still vote, and there could still be democracy. But what kind ofdemocracy would that be, with people living hand to mouth and not havingthe time to study long term solutions instead of quick-fixes. So to havea working democracy one must have free time, and to have free time onemust have some degree of affluence, and history has shown that capitalistsocieties are more affluent than non-capitalist societies, therefore onemust have capitalism to have a democracy that works. The second part ofthe initial premise that capitalism is not the only detail needed to havea democracy is obvious, because there must be a host of other factors,but it not relevant to this work, because it argues neither for noragainst a direct connection between capitalism and democracy. There is another important piece of evidence regarding the directconnection between capitalism and democracy in that capitalism must havea government in place that will carry out the function of enforcingcontracts, securing private property rights, and issuing and controllingthe value of currency9,10. This is the position that both Dryzek andFriedman take on the issue. Some would argue that any type of state couldperform this administrative function, and this is true up to a point.Fascist Italy, Spain, and Germany were not politically democratic by thesense of the term in use by this paper, but they all had privateenterprise, which is a form of capitalism11. What they did not have was ainstitutionalized limitation on government that only democracy couldprovide12. This limitation on government is precisely what purecapitalism needs to be effective. It relies on the government to performthese administrative functions as illustrated above, but not to involveitself any further. The reason being that if the market is not allowed torun free, then by definition it is not operating efficiently, andtherefore not providing maximum wealth to the majority of the population,and if government were to go too far then the majority would restrict itsintervention. That relationship described above is another example of howcapitalism and democracy are linked. At this point the interconnectedness of capitalism and democracy has beenestablished and the counterarguments to this refuted. What has yet to beexplored is the real nature of the relationship, which will firstindicate the pessimistic notion that democracy is controlled bycapitalism, and conclude by illustrating the optimistic notion thatcapitalism will eventually lead to a better democracy. The best way to illustrate how capitalism can control democracy is thesimple premise that you must have capital to finance a successfulinterest group in a democracy. The need for this money and how it isobtained through capitalism has been explored previously in this work.What has not been explained is the next logical conclusion stemming fromthe need to have capital to run a successful interest group. That nextstep is that the interest group that has the most capital has the bestchance of influencing the democracy, whether it be through the media, orhiring an influential lobbyist, or some other means of convincing othersto vote for something that benefits another party. This coincides withSocial Darwinism in that the interest group that is the most able tosurvive, or has the greatest success, should get its way. This is no wayto run a democracy, because it detracts from the belief that democracy isthe rule of the people. This in turn leads us away from the stipulatedmeaning of the term democracy at the start of this work, in that thedecision to vote should be uncoerced and free. The crucial part of thisconcept is that this relationship between capitalism and democracyillustrated here represents a more realistic portrayal of how the twoconcepts relate to each other. Supporting this viewpoint is Berger, whobelieves that all democracy&rsquos true purpose is to obscure the realpower relations in society, which are determined and dominated by themembers of the capitalist class13, who can mobilize support for theirinitiatives through pooling of resources and the corresponding usecapital assets. Democracy is also forced to obey the demands of the capitalist marketthrough international investment. Capitalism forces democraticgovernments to seek out foreign investment by providing inducement forthat investment, whether they are corporate tax breaks or improved levelsof local infrastructure. If the governments choose not to comply withthese market pressures, then this will cause corresponding reduction intax revenue, which will in turn limit resources for government schemes.In addition, this will limit employment, which will also limit generallevels of income, and therefore jeopardize the popularity and legitimacyof a government14. Similarly, democratic attempts to control trade andcapital flows will result in international relocation of production,which will in turn force other nation-states to lower their corporate taxrates15. This is an example of how capitalism has a certain level ofcontrol over democracy. So now that the task of arguing against thedecoupling of capitalism and democracy is complete, the remainder of thiswork will concentrate on how capitalism relates to the liberal form ofdemocracy that exists today. What exists in tandem with this negative outlook of capitalism&rsquosrelationship with democracy, is a different angle of vison that seescapitalism leading to a better type of democracy where politicalparticipation is improved, and the features of the free market economylead to more human rights. An example of how this is applied in reality is in opposition toBerger&rsquos viewpoint that the best guarantor of human rights isdemocracy16. When one looks at the market economy, the cosmopolitan viewseems to be one of giant coronations that tyrannize the people of thatcountry in the pursuit of efficiency, with very little attention paid tohuman rights, but that is not true. One aspect of what these critics sayis true, specifically the fact that the corporations are all trying tomaximize returns on their investment. However, this will actually raisethe standard of living by eliminating the inefficiency of the welfarestate, and will give those who are not working the incentive to work. Forthose who work hard, the market rewards them with affluence. This managedto free the US and the UK from their economic problems in a movementknown 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 willset up operations to exploit this. The down side is that these peoplehave no choice but to work for this company, the positive side is that inworking at their assigned task, they will have acquired skills andexperience they can use toward finding a job elsewhere. Also, withdemocracy alone bearing the responsibility of providing human rights, onemust take into account the tyranny of the majority. Where this line ofargument connects with human rights, is in the fact that capitalistsocieties in history have a higher standard of living than non-capitalistsocieties. The capitalist economy also serves the interest of human rights byprotecting the individual&rsquos interests. The buyer is protected fromthe seller, in that he or she has the choice to go to other sellers, andthe same protection is offered to the seller because he or she can go toother buyers. The same type of protection works for all economicrelationships, such as employee to employer, because of all the otheremployers for whom the employee can work (ceteris paribus). The marketdoes this task impersonally without the need for an all powerful state17.The market also reduces the number of issues upon which the governmentmust decide, therefore freeing up energy to pursue human rights, and notspend too much time and money trying to control the economy. The argument thus far has given a fair treatment of the arguments bothfor and against the decoupling of capitalism from democracy, as well asexplored the true nature of the relationship between the two concepts.Primarily the fact that capitalism facilitates the control of thedemocratic process, and that in the end, capitalism will lead to a moreliberal form of democracy. This argument has had to evaluate evidencefrom both sides, as well as attempt to build a common frame of referencein which the two concepts could be evaluated, while minimizing the riskthat any authors argument would be taken out of context. After all issaid and done, what really matters is that these two concepts havedominated the realm of political thought for hundreds of years, and whenunderstood in terms of each other, have served to guide the actions ofthe most powerful and influencing nation-states the world has ever seen.Perhaps the best way to end this brief treatment of capitalism anddemocracy is to cite Friedman&rsquos axiom which reads; “economic freedomis an indispensable means toward political freedom, and economic freedomis in itself a component of freedom broadly understood, so it is an endin itself”.