Democracy and Capitalism

Another key reason why capitalism may be good for democracy is that as an efficient economic system it has generally produced considerable growth.  This growth has brought relative stability, and affluence.  Dahl argues that greater affluence allows for the easier solution to social problems, and thus more stable governments.  Perhaps the most striking way in which capitalism benefits democracy in its tendency to create a mobile affluent middle class sectioned into groups of interest, that has the resources to influence politics, has developed business skills to assist them in political activity, desires education and importantly, driven by the need for ‘freedom’ of enterprise in a capitalist system, wishes to have greater freedom.  This pressure from a growing middle class tents to force states towards democracy.  Only time will tell if countries like China will be able to resist such pressure.

We may also consider that democratic countries create a good environment in which capitalism thrives.  John Mueller points to seven main reasons why practical democracy favors capitalism. Firstly he states that democratic accountability encourages capitalists; that the role of government is less likely to be arbitrary in the seizure of firms or land.  Secondly he argues that democratic countries have tended to maintain liberal values, supporting individualism, property rights and security.  Thirdly he maintains that, almost by its nature democracy is a more open system of government and so fosters a more open business environment which is arguably more beneficial.  Mueller also points out that, although capitalism creates interests group with different amounts of resources that political democracy is effective at managing these interests groups, creating a pluralists ‘balance of power’ considering minority rights, and small groups and avoiding single group domination..  Another trait of democracy that benefits capitalism might be its effectiveness of removing failed leaders and governments.  Although a leader or government can certain fail in a democratic system, they can also be unelected.  This creates a system in which capitalists can be sure that a failing leader will properly not stay in power for long and continue the damage. Mueller also points out that democracies, by giving people the power to vote, gives a degree of autonomy to its people and freedom that is of value to a capitalist system.

Dahl has set out criteria for an ideal democracy.  Perhaps unsurprisingly capitalist democracy seems to fall below the prescribed level.  Capitalism offers economic liberty, the rights to freedom of enterprise, property rights and private ownership of capital.  The resulting system also creates a great deal of growth, affluence, but on the negative side inequality.  The giving of property rights can also be seen as an infringement of liberty, potentially the rights to equal treatment can be restricted if the owner of property sees fit.  Democracy, it would seem sits almost on the other side of the spectrum.  It seems to require equality, with equal voting rights, access to politicians, political representation and resources.  Although it seems difficult to rationalize these differences, capitalism has facilitated a large, affluent, mobile, relatively autonomous middle class, who have been able to exert democratic pressure. Capitalism has also required the distribution of power to from the state to individuals, limiting to some extent centralized power and its control of information flows.  These features have been valuable for democracy, and arguable set the scene for democratic development.  Democracy would also appear to be a good supporter of a capitalist system.  It supports relatively autonomous individuals, in a stable system that allows for the effective management of both the positive and negative effects of capitalism.   

In an attempt to improve the democratic credentials of capitalism Dahl suggests that companies should be made more democratic, perhaps on a similar model to Semco, although it is not easy to see how this could be enforced without limiting the efficiency of the capitalist system itself.  Greater redistribution of wealth by the state, and investment in education may also augment the problems with uneven resources.  However, it seems inevitable that in a capitalist system there will be inequality, therefore in a capitalist political system there will be unequal representation. As there appear to be no tenable alternatives to capitalism, the often mutually supportive, although in many ways contradictory relations between capitalism and democracy look set to stay, and form what might be considered a practical democracy.