Democracy that bows down to the market is a false compromise

This article is part of the Democracy Futures series, a joint global initiative with the Sydney Democracy Network. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.

From a historical perspective, democracy has undeniably made progress in areas such as minority rights, gender equality and tolerance toward the other. But there have been setbacks.

Two of democracy’s most serious ills today are the emasculation of politics vis-à-vis markets (a self-inflicted wound) and the increasing exclusion of the lower strata from participation and substantial representation. Both deficiencies must be corrected. If not, we will soon be left with a post-democratic, empty shell.

Led and pressured by the US, modern democracies have removed most of the boundaries that used to restrain capitalism. Financial market deregulation means that, when it comes to crucial issues of monetary, budgetary and tax policy, the tone is set by powerful investors, banking crises and supposedly practical constraints, instead of by the democratic majority.

Changing approaches to capitalism in the West

After the 1970s' stagflation, the Keynesian paradigm of state responsibility for maintaining demand lost its magic. Monetarism, supply-side economics and fiscal conservatism swept the field, first in scholarly circles and then in politics.

Markets allegedly had to be liberated from the productivity-suppressing and distorting regulations of politics. Once that had been accomplished, creative destruction would open up new potential areas for innovation. Supply and demand would find a dynamic equilibrium on their own.

Entrepreneurs and citizens were to be freed from the unreasonable demands of high taxation. The new economic dynamism would even benefit the lower classes through the so-called trickle-down effect, so prosperity would eventually extend to the lowest strata of society.

Nearly all the (OECD) economies followed this script. Even social democratic governments got in on the act.

Protesters in Occupy Seattle in 2011 don’t seem to believe in the trickle-down effect.cactusbones/flickr

Economic denationalisation has abetted this process alarmingly. When financial and commodity markets become global, the nation-state loses its ability to influence them. The politics of national budget-setting, a key element in the effort to create a fair society, also loses some of its importance.

The European Union is driven by its commitment to competition law. For that reason, it has not turned out to be a bulwark against the depoliticisation of markets. Instead, it is something like their Trojan horse.

A two-thirds democracy

Over the last three decades, conventional political participation has continued to decline in developed democracies. This holds true for both voter participation and membership in parties and labour unions.

The peculiar dilemma for democracy in this context is to be found in the phenomenon of social selection. The bottom third of society has disengaged from politics.

The middle and upper classes stick with conventional politics or seek out new organisational forms. When they are young, they join NGOs; when older, they get involved in civil society or ecological causes. Or perhaps they will fight the upgrading of railroad stations.

We are heading for a two-thirds democracy in which the lower strata are underrepresented, while the middle and upper classes are overrepresented.

All this differs from the 1950s and 1960s insofar as the great collective organisations, such as labour unions and mass parties, have been eroded. These once served as crucial trustees and world-explainers for the social strata without much education.

Now people must rely on their own knowledge in deciding whether and how to become politically involved. Not surprisingly, those who are remote from the world of education also end up estranged from the world of politics.

Even forms of direct political involvement such as referenda, deliberative forums, citizens’ councils, participatory budgeting, or digital democracy have one thing in common: in theory they promise to enhance democracy, while in practice they exacerbate the problem of the two-thirds democracy. Social selection becomes even more rigorous, so the lower classes remain shut out.

This is especially true when it comes to the panacea paradoxically endorsed by the left: referenda. The examples of Switzerland and California have repeatedly shown that the results of these plebiscites usually end up preserving the vested economic interests of the well-off. They also frequently discriminate against minorities.

A false compromise

So, the institutions and organisations of representative democracy continue to bear the main burden of our political community. Political parties must become more open and differentiate themselves more sharply from one another. The left parties, which have been preoccupied with cultural issues since the 1970s, finally should refocus on the question of distribution.

Labour unions engaged less educated workers in political action by putting substantive issues on the table.rightsreaders/flickr, CC BY-SA

Our citizens have become apathetic, but they could be re-politicised if substantive issues were put on the table again. That would be the case if political conflicts revealed clear differences among the antagonists, if public debates were to question the privileges of the rich and super-rich, if democratic governments were for once to criticise the US, if the depoliticising notion of practical constraints were banished from public discourse, and if we could talk again about the nationalisation of banks.

The historic social democratic compromise among business associations, labour unions and the democratic state, reached under the direct threat of an existential crisis in the global economy, once made possible a productive relationship between a capitalist economy and social democracy.

Today it is a pale shadow of its former self. During the decades dominated by neoliberalism, the balance of power shifted against the democratic state and the labour unions.

The task ahead, then, is to give more power back to the democratic state. That cannot be done unless we regain some of the territory ceded to deregulated capital. Progressive forces have to admit to themselves that capitalism cannot be tamed by civil society, quotas for women in business and paid parental leave for men.

The democratic state is not everything. But without a strong democratic state our societies cannot be structured fairly. Our enthusiasm for civil society has led us to forget what its limits are.

The unfair distributive mechanisms of capitalist societies can be corrected only by relying on the state’s regulatory instruments. Besides, civil society is mainly an affair of the middle class. We need a less symbolic and more substantive politics.

Democracy’s problem is not the crisis but the triumph of capitalism. Democracy has become market-conforming. If one wants to risk greater democracy, one has to turn the tables and finally make markets conform more fully to democracy.

In the long run, deregulated markets destroy themselves and social cohesion. Social democracy should be more courageous and tackle the distribution issue more energetically before the latter gets out of hand and becomes an insoluble class issue.

Wolfgang Merkel does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.