Capitalism and Democracy

I recently came across an article entitled “How Capitalism is Killing Democracy” by Robert Reich. The article is an adaptation from his book “Supercapitalism: The Transformation of Business, Democracy and Every Day Life”.

He argues that while capitalism and democracy seemingly went hand in hand for most of the 20th century, the link has been broken by the rise of an undemocratic, but capitalistic China and by growing income inequality.

I could not disagree more on almost every point!

  1. Capitalism leads to greater freedom.
  2. Capitalism is dependent on the respect of property rights, the dissemination of information and the rule of law. As such, capitalism has not only made China much richer in the past two decades but a lot more liberal than it has ever been. Foreigners and the press essentially have the right to move around. There are thousands of local newspapers who now criticize corruption, cover ups, etc.

  3. Capitalism leads to greater individual wealth which in turn leads to demands for democracy.
  4. Capitalism can exist without democracy as it has in China for the past two decades. It also coexisted with dictatorships for long periods of time in South Korea and Taiwan. As Maslow pointed out, political freedom is usually not at the top of people’s priorities when they are struggling to feed themselves. However, as people meet their basic requirements in health, lodging and food, they strive for higher level aspirations and start to worry about political freedom.

    Moreover, as a middle class emerges that has a lot to lose from arbitrary rulings and confiscations, it starts clamoring for representation. I suspect that over time, the ever growing middle class in China will demand greater political representation. Baby steps in that direction are already appearing with the welcoming of entrepreneurs and businessmen in the communist party.

    South Korea and Taiwan have shown how countries can transition relatively peacefully to democracy as they become wealthier. I hope that the same will happen in China in the coming decades, though I am aware of the risks of internal conflict given the diverse ethnic and linguistic differences in the country, not to mention the old guard’s desire to retain its power.

  5. Income inequality is not the issue: in country income inequality has increased, but global income inequality and quality of life inequality have greatly decreased. The real issue is equality of opportunity.
  6. In the last 15 years in-country income inequality has increased dramatically. However over the same period of time, global income inequality has sharply decreased as GDP per capita has grown faster in developing countries than the developed world. China alone has taken over 400 million people out of poverty. Yet China has gone from being one of the most equal countries in the world to one of the most unequal. However, few would argue against the benefits of its prosperity.

    Moreover, quality of life inequality, measured in terms of life expectancy, life satisfaction, height, leisure and consumption patterns, has narrowed dramatically as the gains of the lower classes have been far greater than those experienced by the population as a whole.

    The more relevant finding is that inequality is acceptable if there is social mobility. On that account many countries are failing. Around the world, including in the US, elites are entrenching themselves, public education systems are not serving the needs of the lower classes and opportunities for them to climb up the social ladder are disappearing. However, those are not innate flaws of capitalism but rather specific failings in the way public school systems are run and labor markets regulated which can be addressed with the proper policies.

Capitalism is not the enemy of democracy, quite the contrary, it is its emissary and will lead most undemocratic countries down the path of liberty and democracy.

  • Your second point–that capitalism leads to greater individual wealth, which in turn leads to demands for democracy–calls to mind the following statement by Bernard Lewis, a preeminent scholar on Islamic history.

    Lewis contends that democracies failed to flourish in the oil-rich regions of the mideast because oil-money allowed leaders in those regions to rule without collecting taxes or establishing support from the citizenry:

    “You know, there’s this old American dictum: no taxation without representation. What is sometimes overlooked is that the converse is also true: no representation without taxation. And with our revenues, they didn’t need taxes; therefore, they didn’t need assemblies to levy taxes. And they were made independent of public opinion in their own countries with this untold wealth accruing from oil revenues. This greatly strengthened the power of autocratic governments, far greater than it had ever been in the past. Now if traditional Islamic government is authoritarian, but it is not dictatorial or despotic, it is governed under certain rules and so on.

    In modern times, the power of the ruler has been vastly augmented by these huge revenues so that he doesn’t need public support or public approval of his taxes. It has also been increased by all kinds of modern devices for surveillance and repression so that any tin pot dictator today wields far greater powers than were ever wielded by Suleyman the Magnificent or Harun al-Rashid or any of the legendary rulers of the Islamic past.” – Bernard Lewis

  • If democrats are the trolls that try to wack capitalism with antique wooden clubs then Robert Reich is the malignant little dwarf in the fairy tale egging them on to do more destruction. His foolish tome is merely one more sale of crappy ideas. He goes for the American audience knowing that Americans are among the least likely to travel to another country to have an comparison about how other countries live.

    My favorite country happens to be Brazil. Want to buy a OLD Volkswagen bug? I mean like a 69? Ok. 4000 dollars please!! Many do not have cars there. Yet here in the USA a fusca ( volkswagen ) of the same variety costs you 500 max if you are foolish enough to make the purchase.

    Yet in both cases capitalism is working. In Brazil a fusca is a large step up from shanks mares. In the USA even the poor have a car in contrast with Brazil exactly because you can buy a used one for so little.

    As to the first poster talking about how oil revenue has decoupled the governments from the people I have a reply: Talk about wanting instant gratification!!!! The situations in the oil rich countries depending solely on oil revs are CLEARLY temporary and in addition a step up from not having oil revenue at all. Many of these countries had both feet in the 10th century only a short time ago. Or in other words….do you REALLY think a goof like Hugo Chavez maintains power without oil revenue? That stuff runs out you know!

    An old boss of mine used to talk about how you do the business of an engineering project. You get the client “pregnant” so they can not back out of the business marriage. Well Saudi Arabia is pregnant. There is no going back. When oil revs run out you’ll see a whole new day and one more step towards democracy. However if you are looking for instant gratification…go rent a porno.