Question

in couple of paragaphs describe how democracy and capitalism are connected with each other? How does one help the other?

Answer 1

Answer :

Capitalism and democracy follow different logics: unequally distributed property rights on the one hand, equal civic and political rights on the other; profitoriented trade within capitalism in contrast to the search for the common good within democracy; debate, compromise and majority decision-making within democratic politics versus hierarchical decision-making by managers and capital owners. Capitalism is not democratic, democracy not capitalist. During the first postwar decades, tensions between the two were moderated through the socio-political embedding of capitalism by an interventionist tax and welfare state. Yet, the financialization of capitalism since the 1980s has broken the precarious capitalist-democratic compromise. Socioeconomic inequality has risen continuously and has transformed directly into political inequality. The lower third of developed societies has retreated silently from political participation; thus its preferences are less represented in parliament and government. Deregulated and globalized markets have seriously inhibited the ability of democratic governments to govern. If these challenges are not met with democratic and economic reforms, democracy may slowly transform into an oligarchy, formally legitimized by general elections. It is not the crisis of capitalism that challenges democracy, but its neoliberal triumph.

Compatibilities and incompatibilities :

The basic logics of capitalism and democracy are fundamentally different and lead to considerable tension between the two. Both have different claims to legitimacy: unequally distributed property rights on the one side, equal civic rights on the other.

Capitalism and democracy can easily conflict in two situations: If the distribution and use of property rights lead to an accumulation of wealth large enough to hinder politics through capitalist pressure, and if democratic decisions are taken to massively limit the use of property rights. Weighing the two against each other, it is generally the case that rights to property and use of capital should be limited and regulated by democratic governments if they threaten to overshadow or transform democratic decisions in the political sphere. Within the hierarchy of legitimacy, democratic rights can claim a normative superiority as long as they do not violate human rights and abolish property rights. On the other hand, it is also important to highlight certain affinities and congruencies between capitalism and democracy. Competition and electoral decisions play key roles in both contexts. In theory, capitalism and democracy share common enemies: the uncontrollable agglomeration of state or economic power, disorder, unpredictability and corruption. But there is a decisive difference: whereas certain forms of capitalism produce and function with an extreme concentration of wealth and capital, democracies cannot coexist with a similar constellation and concentration of power. Finally, capitalism and democracy can support each other. Capitalism struggles without a generally predictable state order, something most likely to be achieved in the long run through democratic means. It is similarly true that socially embedded capitalism is most likely to achieve sustainable growth, which in turn legitimizes and strengthens democratic institutions.

Analysis : democracy and capitalism :

Theoretical and empirical analysis detects clear and distinct tension between capitalism and democracy. It is apparent that capitalism can prosper under both democratic and authoritarian regimes but that so far, democracy has existed only with capitalism. Nevertheless, capitalism and democracy are guided by different principles that create tensions between the two. This is expressed primarily in the different relations to equality and inequality. The level of inequality that defines specific variants of capitalism and supposedly secures productivity and profits is hardly compatible with the democratic principle of equal rights and opportunities for political participation. Socioeconomic inequality challenges the core democratic principle of equality in participation, representation and governance.

However, “the” capitalism does not exist; instead we see different “varieties of capitalism”. This is equally true today as in the past. Different forms of capitalism show different degrees of compatibility with democracy. In (Western) Europe full democracy only truly took root after 1945, when universal suffrage was introduced in most countries.14 As democracy was fully established in Western Europe, Australia, Canada and New Zealand,15 a certain type of capitalism developed not uncoincidentally: a socially, embedded, and economically (often in a Keynesian form) stabilized and nationally regulated capitalism. However, the general tensions of socioeconomic inequality and the political principle of equality remained unresolved. Nevertheless, their effects were mitigated considerably by regulated labor markets, increased economic welfare, the welfare state, strong labor unions and the activism of classconscious social democratic or communist (e.g. Italy and France) workers’ or centerleft parties. Coexistence between (social) capitalism and (social) democracy never functioned better than during this period.

This coexistence has become gradually more difficult since the late 1970s. The OECD countries have moved closer to the Anglo-Saxon variant of capitalism: They were challenged by the neoliberal policies of deregulation and privatization pushed by Ronald Reagan and Margaret Thatcher. The IMF and the neoliberal concept of the European Single Market (ESM) forced their implementation (Scharpf 2012; Streeck 2013a, b): tax reforms in favor of companies, capital income, and the rich; labor markets and financial markets deregulated. Even the strongest welfare states of Northern and Western Europe were not able to shield themselves from the neoliberal winds of change. The financialization of capitalist accumulation advanced even in this context and today dominates the world of finance, labor and trade (Heires and Nölke 2013, p. 252, 2014). Table 1 below summarizes and highlights the democratic drift that resulted from the transition from Keynesian welfare capitalism (KWC) to deregulated financial capitalism (DFC). Considering this (very concise) depiction of the development of democracy during the two stages of capitalism since 1945, a deteriorating quality of democracy can be witnessed in four out of five partial regimes of embedded democracy. They are not only and not always directly caused by financial capitalism, but financial capitalism plays a relevant role.

A closer look, however, suggests two causal explanations:

1. Deregulated financial capitalism led to increasing socioeconomic inequalities. This had a negative effect on elections and political participation, two of the partial regimes of democracy (A, B). Socioeconomic exclusion and inequality largely transformed into political exclusion and inequality. Exclusion and inequality affected mainly the bottom third of the social classes.

2. The globalizing transformation of capitalism led to a transnationalization of markets and the partial supranationalization of important decisions on monetary and economic policy. These changes led to a significant loss of parliamentary powers in favor of the executive (partial regime D: horizontal checks on powers), central banks and the IMF. At the same time, the transnationalization of markets also diminished the effective power of national governments to govern (partial regime E: effective power to govern). This became visible especially during the financial crisis. The losses of the financial sector, forced by “systemic relevance”, and the fear of a negative domino effect, were “socialized” despite decades of previously reckless and politically supported (through deregulation) profitmaking. Financial capitalism is harmful for democracy, as it has cracked its social and political “embeddedness”. This does not mean that capitalism per se is incompatible with democracy. A sustainable coexistence of capitalism and democracy is achieved best through mutual embedding. The existence of the right to private property and functioning markets are vital restrictions on the centralization of political power in democratic regimes. Particularly in conjunction with industrialization, capitalism unleashes demands, protests and emancipatory movements that can, under favorable conditions, lead to democratization despite diverging capitalist intentions. The history of capitalism and democracy demonstrated this over large periods of the past century. Since the late 1970s, protest movements have focused more on cultural than economic issues. These new movements were crucial. However, as social and political protest no longer paid much attention to socioeconomic inequalities, these problems grew in the shadows. The brief, more virtual than real protest of the “Occupy Wall Street” movement cannot be compared with the negotiating power of strong trade unions or labor parties in the 1960s and 1970s.

The disembedding of capitalism is challenging democracy’s crucial principal of political equality. Representative democracy has not found effective antidotes against the disease of socioeconomic and political inequality. All countermeasures discussed in democratic theory—from referenda to deliberative assemblies, monitoring (Keane 2011), or counter-democracy (Rosanvallon 2008)—may save whales, help control government and improve certain spheres of local democracy, but have little relevance for reregulating markets, restoring social welfare and halting progressing inequality. The cultural turn of progressive democratic politics has forgotten the problem of economic redistribution and now stands empty-handed, without a cure for democracy’s most obvious disease: inequality. Is capitalism compatible with democracy? It depends. It depends on the type of capitalism and on the type of democracy. If one insists that democracy is more than the minimalist concept proposed by Joseph Schumpeter and takes the imperative of political equality and Hans Kelsen’s dogma of “autonomous norms” seriously, the present form of financialized “disembedded capitalism” poses considerable challenges to democracy. If these challenges are not met with democratic and economic reforms, democracy may slowly transform into an oligarchy, formally legitimized by general elections. It is not the crisis of capitalism that challenges democracy, but its neoliberal triumph.