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Essay/Term paper: Capitalism and democracy

Essay, term paper, research paper:  College Papers

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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

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

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".


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