Peter McFeely

Before attempting to evaluate the compatibility, or lack thereof, of capitalism and democracy, one must first understand the meaning of the two key concepts.

For the purposes of this exercise ‘democracy’, a term with which we are all familiar, is best encapsulated by Lipset’s definition; “a political system which supplies regular constitutional opportunities for changing the governing officials.”

The definition of ‘capitalism’ is more problematic, though it has been explained as the modern market economy founded on the principle of private property. Such property is used to produce “goods for the market, for sale at exchange ratios determined by impersonal market forces.”

There are two manners in which the congruency of capitalism and democracy can be evaluated; the possibility of equal autonomy within the economic sphere and the authenticity of political equality in state governance.

Central to the former is the notion of economic liberty, or the right to private property. In 19th Century America, and elsewhere, an agrarian society with shared resources ensured that equality was maintained and this right was directly linked to political liberty.

However the development of a modern industrial society, the nature of which is to generate various inequalities, has called into question the right to private property. Private ownership consists of a set of complex rights to act in various ways, differentiates between the powers of the ‘owner’ and the ‘non-owner’ and, indeed, sometimes of the power of the ‘owner’ against the ‘non-owner’. Ownership therefore provides the right to exclude others from use, benefit and disposal of property, which is directly translatable as power, both in consequential and differential terms.

Crucial, of course, though is the ownership of productive property. Clearly it is only a small percentage of property which is productive and ownership thereof will subsequently produce inequalities. Indeed these inequalities tend to be radical, with the majority owning no productive property, while a select few possess vast amounts.

Such a scenario invariably produces a market for labour and, although the service of the worker may be viewed as being hired, the ‘non-owner’ essentially becomes an extension of the ‘owner’s’ property. The emergence of this system hinders the ability of the worker to participate in the governance of economic enterprise, as the ‘owner’ may exercise the right to treat his property in whichever manner he sees fit. As the worker is not offered the opportunity to change the governing officials the system is clearly undemocratic.

It has, however, been argued that, irrespective of organisation on a management level, economic liberty is best characterised by the principles of market economy. Firstly, transactions are free, in the sense that they are not coerced, as would be the case in a command economy, meaning, more importantly, a positive voluntary character is ensured. In other words all participating parties must be benefiting from the transaction and are partaking in it out of their own free will. The ability to do so illustrates that individuals retain the capacity to govern their own affairs and, thus, a key feature of democracy is present in capitalist economics.

This idea is, nonetheless, dismissed by a number of political scientists. It has been conversely postulated that, as ‘non-owners’ can not produce for themselves, they have no option but to enter the transaction, meaning it is not free. As the market universalises competition for resources the asset rich will continue to dominate the asset poor. As an eventual outcome this should not be overly surprising, for it has been suggested that exploitation of the poor and ringfencing of resources are traits at the very heart of capitalism.

Indeed, it has also been argued that not only are capitalism and democracy incompatible in terms of the governance of economic enterprise, but also that the former is in fact the cause of undemocratic attitudes.

After transition to democracy, it is argued, equality is established between former masters and servants, yet prejudices remain. The master’s authority becomes harsher, previous patronising kindness disappears and a no longer likely behaviour of permanent sub-ordinance is desired. It is in this situation that the obedience of the servant is lost and must, therefore, be imposed.

Post-transition either the master-servant relationship, that is capitalism, must be ended, allowing equality of men to prevail, or master authority must be continued in preference to democratic governance. Essentially this equates to the establishment of whether the moral right of self government, or that of private ownership, is fundamentally more important. Dahl argues in favour of the prior, noting that to exercise political liberty resources are required, thus protected access to resources, that is property, must be supplied. He does not, though, discount the notion of private ownership in itself but, rather, the unlimited acquisition of economic enterprise. Economic liberty, he notes, is an essential part of democracy, but this is an entitlement only to a minimum amount, not an indefinitely large supply.

As an alternative Dahl propagates the introduction of self-governing enterprises wherein all members possess equal autonomy and carry out democratic decision making processes in line with his criteria. However, it has since been observed that such a system could not guarantee equality of assets between separate economic enterprises, and therefore could still not guarantee equality between citizens. To do so the system would have to be tempered by a central regulator, although it is highly questionable as to whether or not this is possible in a system of self-governance.

As the above outlines, capitalism and democracy are not compatible in the governance of economic enterprise, in the sense that equal autonomy and responsibility within the organisation is not feasibly employable.

Irrespective of the inevitable inequalities that would be produced by Dahl’s system of self-governance, between enterprises, an organisation in which all decisions were to be made democratically would surely lose its impetus and efficiency. Also, regardless of all citizens being offered an equal opportunity to exercise their democratic liberties there will always be those who are more able than others and will subsequently excel. It is under their leadership that economic enterprise should be advanced and it is understandable that they should wish to be more generously compensated, for their efforts, than the average worker.

This would be in a non-too-dissimilar manner to that in which political leaders are paid a salary and have more control over the shaping of the political agenda than an average member of the public, although they claim to be in possession of the same political liberties.

Whether or not our political system is truly democratic is not an issue which I have adequate space to discuss within the confines of this article. In any case I disagree with the supposition that capitalist economic enterprise invariably results in the exploitation of the asset poor by the asset rich. Rather, I would be an advocate of the ‘trickle down’ theory, whereby, all members of society benefit, in different measures, from a prosperous and advancing economy.

The question as to the nature of the impact of capitalism on democracy in terms of authenticity of political equality in state governance appears to be more open to debate.

Lipset offered the general thesis that “the more well-to-do a nation the greater chances that it will sustain democracy.” He identified four inter-related factors, wealth, industrialisation, urbanisation and education, by which economic development could be measured and, through extensive analysis, observed that the rates of development were consistently highest in democratic countries.

Economic development, he argued, served to appease the working class by providing better wages, economic security and an exposure to middle class values. In turn this would transform the social system from an elongated pyramid, with small elite and large working class, to a middle class heavy diamond. As the wage of the working class rises, vulgar tendencies within the upper class to ignore and deny them political rights would disappear. The workers would therefore be much less likely to revolt and, henceforth, democracy would be more stable.

His argument has been widely supported, not least by Bollen and Jackman, who concluded that the “level of economic development appears to be the dominant explanatory variable in determining political democracy.” It has also been suggested that the inherent deficiencies of autarky prove the necessity for capitalism in a democratic society. The former is based on import substitution and its long term tendencies are economic stagnation, due to the transferral of resources from the international competitive export sector to an internal, over-priced and low quality market, which survives only through government protection.

Hence the government is likely to lose its legitimacy, though not its power, and autarky will therefore tend to produce authoritarian regimes, although the exception does occur in small oil-rich nations where a huge surplus exists. Market economies, on the other hand, must compete internationally so will be unlikely to stagnate, while economic enterprise is more likely to be autonomous vis-à-vis the state. While the existence of a market economy guarantees neither sustained economic growth, nor political liberty, it does produce an arena in which it is more probable.

Diamond hypothesized that economic development does not directly affect the chances of democracy, rather that its contribution “is substantially mediated through improvements in the physical quality of life.” He claimed that, unlike wealth, the physical quality of life could not be unevenly distributed and was therefore a more accurate indicator of democratic chances within economic development.

Importantly he noted that economic development facilitated democracy so far in that it favourably altered intervening variables, such as political culture, class structure, civil society and state-society relations, while also indicating that economic development is not a pre-requisite for democracy and the latter could be achieved in low development countries.

The establishment of a causal relationship or dependency between capitalism and democracy, though, is not the point of this article; rather it is the evaluation of potential compatibility, of which there appears to be clear evidence.

Lipset also observed that non-governmental organisations emerged far more rapidly in wealthier countries and argued that, despite their revolutionary potential, they were beneficial to democracy. He argued that this potential prevented the government from producing minority favouring policies or monopolising resources, thus ensuring the proper implementation of democratic decision making processes.

Hyland, however, disagrees with such conjecture. Rather, he argues, the economic disparity between different interest groups substantially affects their relevant abilities to influence the decision making process. Firstly he notes the unintentionally disproportionate influence asset rich groups may bear, by virtue of being better informed and more inclined to contribute time and money to political parties.

More importantly though, he cites the deliberate interference in the decision making process by lobby groups and the undoubted importance of economic clout. Those interest groups with greater assets are likely to have a greater influence on the process and therefore, it is argued, equal autonomy in state governance can not be achieved unless equal economic distribution is first implemented. To support his argument Hyland highlights the long-term corruption of supposedly democratic governments in Italy and Japan, exposed in the 1990’s.

However, it is questionable as to whether the practice of lobbying would be removed simply by producing economic equality. It is plausible to suggest that economic disparity is an obvious and easy way to gain an advantage in the decision making process and, were it not to exist, that political actors would readily find some substitute. While said substitute may not be as effective as economic persuasion it would still play an important role in the prevention of equal autonomy.

Although at the highest level certain undemocratic procedures may take place, on a broader scale, central democratic concepts, such as the political liberty to participate in institutions, the private liberty to live as one pleases and the equality in political and birth rights, do still exist.

That no actor would seek to gain an unfair advantage in the decision making process, be it economic or otherwise, is both a moral and democratic ideal, not readily realisable. The question therefore arises as to not whether democracy is compatible with capitalism, but as to whether it is compatible with modern humanity at all.

As has clearly been shown the issue of capitalist compatibility with democracy is a much debated one. It would appear evident that self-governance of an economic enterprise is not possible, both in terms of internal inefficiency and inability to regulate disparity between enterprises. The issue of the right to control ones property is highly contentious and, I believe, is more important, in this scenario, than establishing equal autonomy.

Such a practice does not automatically lead to exploitation, as some may suggest, and direct leadership is, in my opinion, more likely to result in positive benefits for all.

On the issue of political equality in state governance, I believe that capitalist enterprise does not bear a direct negative impact on democratic procedures. Although disparities do occur, and can be related to unequal asset distribution, I do not believe they would be eradicated by a self-regulating economy.

Without fully discounting any of the theoretical work observed, I would simply point to the extensive empirical evidence of capitalist economic enterprise and liberal democracy, as we understand it, co-existing as proof of their compatibility.

While theoretically and ideally some may not construe this political model as true democracy it is, in reality, the best example which the modern world has achieved thereof, and, equally, democracy is the most accurate description for the society in which we exist.

I would therefore conclude that capitalism and democracy are neither wholly incompatible, nor wholly compatible; while democratic structures may not exist within a framework of capitalist economic enterprise, capitalist market economies can successfully exist in a democratic society as a whole.

BIBLIOGRAPHY

Dahl, Robert A., A Preface to Economic Democracy, California, 1985.
Diamond, Larry, Economic Development and Democracy Reconsidered, in Diamond, Larry & Marks, Gary, (eds) Reexamining Democracy, London, 1992.
Hyland, James L., Democratic Theory: The Philosophical Foundations, Manchester, 1995.
Lipset, Seymour Martin, Some Social Requisites of Democracy: Economic Development and Political Legitimacy, in The American Political Science Review, March 1959.
Pirenne, Henri, Stages in The Social History of Capitalism, in Class, Status and Power: Social Stratification in Comparative Perspective, Bendix, Richard & Lipset, Seymour, Martin (eds), London, 1967.
Rueschemeyer, Dietrich, Stephens, Evelyne Huber & Stephens, John D., Capitalist Development and Democracy, Cambridge, 1992.
Tocqueville, Alexis de, How Democracy Affects the Relations of Masters and Servants, in Class, Status and Power: Social Stratification in Comparative Perspective, Bendix, Richard & Lipset, Seymour, Martin (eds), London, 1967.
Waisman, Carlos H. Capitalism, The Market, and Democracy, in Diamond, Larry & Marks, Gary, (eds) Reexamining Democracy, London, 1992.