Capitalism and Democracy

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There is very little doubt that capitalism is a highly potent economic system for generating wealth and prosperity. In the last four decades of its implementation globally, there are numerous examples that support this claim. As Peter Berger writes, capitalism is a “horn of plenty that heaped…immense material wealth and an entrepreneurial class, on the countries in which it originated.” (Foulkes, 2006, p.22) This newly emerged entrepreneurial class shows little tolerance for government bureaucracy and regulation. At the same time it clamors for ever more material prosperity in the form of consumer goods, social progress in the form of quality education, etc. More importantly, it was argued, this entrepreneurial class would enforce democratic structures in the localities in which they operated. In other words, “by producing economic wealth and an entrepreneurial class, capitalism inevitably produces democracy. And since democracies don’t start wars or have expansionist proclivities–forget, for the moment, Theodore Roosevelt and imperialist Britain–capitalist-democratic development contributes to security and to world peace.” (Foulkes, 2006, p.22) There is evidence from recent political history to support this benign linkage of capitalism and democracy. For example,

“Entrepreneurial capitalism became more dominant in the America of Ronald Reagan than it had been before, and job growth

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and record-breaking prosperity followed. In Britain, Margaret Thatcher reversed almost four decades of socialism and changed her country from the sick man of Europe into one positioned for long-term, non-inflationary growth. Meanwhile, the Soviet economy was shown to be like the Wizard of Oz–an imposing facade, but impotent and powerless at its core. Put these events together and you have an unassailable proof that capitalism produces a level of economic welfare that a planned economy simply cannot emulate.” (Stelzer, 1994, p.32)

And, when we scan the performance of capitalist regimes in other parts of the world, the links between capitalism, prosperity and democracy becomes incontestable. After all, in recent times, capitalism in countries such as Chile, Taiwan and South Korea have resulted in both economic progress as well as democracy establishment. In the newly remodeled Russian political system too, we see the formation of glasnost (democratization) and perestroika (economic restructuring) marching hand in hand. (Friedman, 2007, p.46)

Nothing exemplifies the successes of capitalism than the recent developments in India and China. By participating in financial globalization, countries with abundance of cheap labour such as India and China are primed to assume leadership position in another 10-15 years. While Mao Zedong was the father of the Communist China, his successor Deng Xiaoping must be credited for the nation’s progress toward prosperity. It was under his leadership that the party ratified and implemented the ‘Four Modernizations’ program that would propel China onto the global stage, where it is fast approaching leadership position. This ambitious program of sweeping economic reforms opened China to the outside world in more than strictly economic sense. In the case of India, it’s huge pool of skilled workers, who have the added advantage of proficiency in English language, have been the engine of economic growth. The re-election of Manmohan Singh as the Prime Minister is also a positive development from an economic perspective, for it was he who initiated India as a participant in globalization in 1991. China, on the other hand, started participating in the process of globalization much before India did. As a result, its economy is more than twice that of India and is catching up fast with that of the United States and Japan.

Some of the South American countries such as Venezuela and Russia (rich in oil resources) and Brazil (rich in natural resources) also pose a threat to American domination of global economy. In fact, American media believes that the threat will come from BRIC countries (Brazil, Russia, India and China). The South East Asian countries’ GDP has also grown since their involvement in the neoliberal project. The emergence of counterbalancing economic power centers is healthy for geo-politics; and capitalism has contributed toward this trend.

Hence, it is quite convenient to conclude that capitalism and democracy are inseparable, and that they feed and bolster one another in creating a safe, secure and prosperous future for all those who embrace it. But the reality is not as rosy and simplistic as this assessment suggests. To illustrate this point further:

“The experiential evidence concerning this relationship is ambiguous–totalitarian China is in the midst of a boom, undemocratic Singapore prospers, while newly somewhat-democratic Russia is on the brink of economic collapse. So democracy is no guarantor of prosperity, nor its absence a guarantor of poverty. On the other hand, there are pathetically poor dictatorships, and immensely prosperous democracies. No linkage is evident.” (Stelzer, 1994, p.31)

In modern political rhetoric, the terms ‘democracy’ and ‘capitalism’ (especially the laissez-faire variety) are often touted as beneficial, benign and progressive. This is certainly true to an extent. But in order to understand how democracy and capitalism actually manifest in national and global real-politick, one has to study the subject with nuance. In the context, slogans like ‘promotion of democracy’, ‘making the world safer for democracy’, etc. will have to be read with a healthy dose of skepticism. For example, the way in which neoliberalism operates can actually undermine the functioning of democracy. Under the neoliberal system, there has been an increase in speculative capital flows, making developing countries vulnerable to currency devaluation, capital out-flight, etc. In this sense, neoliberalism can be said to have created a “virtual senate of investors and lenders, who conduct moment-by-moment referendums on government policies.” (Chomsky, 2010, p.29) If this ‘virtual senate’ senses that the policies of local government are not favorable, meaning that the policies reflect democratic mandates and aspirations as opposed to corporate interests, then they have the power to exercise ‘veto power’ by threat of capital flight, currency devaluation, etc. What illustrates this mechanism clearly is the case of Venezuela, where, upon Hugo Chavez’ election as president of the country, capital flight rose to a point where assets owned abroad by elite Venezuelans amounted to a fifth of the national GDP. In other words, when capital flows are liberalized, local governments face a dual constituency – the voters on the one hand and the virtual senate on the other. And it is not difficult to guess which constituency eventually wins the battle.

We can also observe paradoxes existing within established democracies, wherein, the more formalized the system the more corrupt and vacuous in substance it turns out to be. Argentinean political scientist, Atilio Boron, who has done extensive research on the subject notes that “the extension of formal democracy was accompanied by an increasing disillusionment about democracy and a lack of faith in democratic institutions”. (Boron, as quoted by Chomsky, 2010, p.28) In Latin America, for example, the latest wave of democratization has coincided with neoliberal economic reforms, which are both inherently in conflict. This pattern is seen in many other parts of the world, where seemingly opposing concepts of democracy and neoliberal capitalism have rise in unison. The resolution for this paradox becomes clear once we realize that the democracy so propped up by neoliberal capitalism is largely devoid of substance and function.

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