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The Conversation

  • Written by John Keane, Professor of Politics, University of Sydney

Let’s begin with a discomforting fact often forgotten in recent years: capitalism is not ‘naturally’ the best friend of democracy. Since the early years of the nineteenth century, especially during periods of economic stagnation and mass unemployment, the relationship between capitalism and democracy has actually been a source of great social unrest, state violence and public pressures for institutional reform. That’s why, at various moments during the past two centuries, the modern capitalist system has been charged by its critics with crushing the spirit and substance of representative self-government. Shortly after World War One, the American economist and sociologist Thorstein Veblen captured the point in a famous formulation. There are historical moments, he noted, when ‘democratic sovereignty’ is converted into ‘a cloak to cover the nakedness of a government that does business for the kept classes’.image Thorstein Veblen (1857-1929) by Edwin B Child 1934 Yale University Library Art Gallery

The current period of global recession and stagnation, centred in the Atlantic region, has helped revive new versions of this old formula. Thanks especially to the work of prominent European political economists, political analysts and historians, Wolfgang Streeck, Colin Crouch, Thomas Piketty and Jürgen Kocka among them, the subject of capitalism versus democracy is back. Market failures are having political effects; they are breathing new life into an old subject that demands fresh thinking and a new democratic politics that, so far, has not happened on any scale.


One shortcoming of the new European contributions is their general reluctance to engage details of the long history of links between democracy and markets. What can be learned from the deep past? Well, minimally, the famous remark by the historian Barrington Moore Jr, ‘no bourgeois, no democracy’, turns out to be less than plausible. The historical record suggests that things have been more complex, that viable democratic institutions, such as citizens assemblies, public juries, watchdog bodies, political parties and periodic elections, have in fact been contingently related to a wide repertoire of property forms.

The early Greek assembly democracies, for instance, enjoyed a functional but tense relationship with commodity production and exchange. Within these polities, the life of (male) citizens was widely seen as standing in opposition to the production of goods and services by women and slaves in the sphere of the oikos. Politics trumped economics; democracy rested upon slavery. By contrast, the modern forms of representative democracy that first sprang up in the Low Countries, at the end of the sixteenth century, were tightly bound to profit-driven commodity production and exchange. Modern capitalism and representative democracy were twins. The pair often quarrelled. ‘The further democratisation advanced’, the distinguished German historian Jürgen Kocka notes, ‘the more likely it was to find large parts of the bourgeoisie on the side of those who warned against, criticised or opposed further democratisation.’

image Pillars of Society, by Georg Grosz (1926)

At the outset, things seemed otherwise. Modern capitalism appeared to be supportive of parliamentary government. Capitalist dynamics helped gradually erode older forms of unequal dependency of the feudal, monarchic and patriarchal kind. The spread of commodity production and exchange triggered tensions between state power and property-owning and creditor citizens jealous of their liberties provided by civil society. Modern capitalism also laid the foundations for the radicalisation of civil society, in the shape of the birth of social democracy backed by powerful mass movements of workers protected by trade unions, political parties and governments committed to widening the franchise and building welfare state institutions.

This much is clear. Yet since early modern times, and especially after 1945, capitalist markets have been a mixed blessing for democracy in representative form. The dynamism, technical innovation and enhanced productivity of ‘free’ markets have been impressive. Equally notable have been their rapaciousness, unequal (class-structured) outcomes, reckless exploitation of nature and their vulnerability to bubbles, whose inevitable bursting generates wild downturns. These downturns typically breed populist manias, fear and misery in people’s lives, in the process destabilising democratic institutions, as happened on a global scale during the 1920s and 1930s, and is again happening today, with accelerating momentum.

image Capitalism, by Arthur Henry Young (1866 -1943)

How can we best summarise the relationship between capitalism and democracy today? Here’s an inexact but pithy formula: in these early years of the 21st century, monitory democracies can neither live with capitalist markets nor live without capitalist markets. The formula is designed to unsettle. It aims to provoke second thoughts and fresh thinking; along the way, it also helps to shed some light on the wildly divergent scholarly and political assessments of the future of capitalism and democracy.

Free Markets?

image Austrian liberal economist Friedrich von Hayek (1899-1992)

According to defenders of the ‘free market’, more than a few of whom are dogmatic market fundamentalists, political democracy is an unwanted parasite on the body of economic growth. Democracy whips up unrealistic public passions and fantasies. It distorts and paralyses the spirit and substance of rational calculations upon which markets functionally depend; understood as government based on majority rule, democracy is said to be profoundly at odds with free competition, individual liberty and the rule of law. What is therefore required is ‘democratic pessimism’ and (Friedrich von Hayek’s famous thesis) the restriction of majority-rule democracy in favour of ‘austerity’ (cutbacks and restructuring of state spending) and limited constitutional government (‘demarchy’ ) whose job is to protect and nurture ‘free markets’ protected by the rule of law.

Other scholars, political commentators, policy makers and politicians stake out the contrary view. They maintain that since markets are never ‘naturally’ free but always, in one way or another, the creature of laws and governing institutions, market failures and market ‘externalities’ require political correction. Well-designed political interventions that draw democratic strength from popular consent are needed to redistribute income and wealth, to repair environmental damage caused by markets and to breathe new life into the old ideals of equality, freedom and solidarity of citizens. image The Great Chartist Meeting, Kennington Common London, 1848 William Edward Kilburn (1818 - 1891)

Exactly what this general democratic formula means in practice has been hotly disputed since the earliest (19th-century Chartist and co-operative movement) public attacks on markets in the name of ‘the people’. The democratisation of markets has meant different things at different times to different groups of people. For some analysts, democracy requires the replacement of markets by the principles of Humanity (Giuseppe Mazzini), or by communist visions of ‘social individuality’ (Karl Marx) and post-market individualism (C.B. Macpherson). For the majority of card-carrying democrats of the past century, the democratisation of markets meant greater state intervention and control of markets. When confronted with the collapse of the Soviet model of socialism, some analysts tried to develop fruitful comparisons among contemporary Anglo-Saxon, Rhineland, Japanese, Indian, Chinese and other ‘varieties of capitalism’. Recognising that parliamentary democracy is constantly vulnerable to corporate ‘kidnapping’, these analysts champion updated versions of the social democratic vision of liberating (‘de-commodifying’) areas of life currently in the grip of unregulated markets. What is needed, they argue, is the restriction of markets: new government policies that ‘socialise’ the unjust effects of competition by ‘embedding’ markets within civil society institutions guaranteed by election victories, welfare mechanisms and legal regulation.


Whether such policies and regulations can succeed without straddling borders and through state efforts alone remains an open question. Yet the broad vision is bold, and clear: in defence of the democratic principle of equality, government instruments are needed to limit ‘predatory’ forms of capitalism. The priority is to protect people and their ecosystems, to nurture social citizenship rights through a politics of redistribution that includes the defence of public services, raising the minimum wage and enforcing new contract law arrangements that empower workers and consumer citizens.

Such proposals for a new politics of breaking the grip of capitalist markets on people’s lives are important, above all because they restore the old subject of worsening inequality to its rightful place in scholarly work on democracy. Pauperism mixed with plutocracy is today a feature of practically every democracy on our planet. Things are everywhere growing worse, not better. For all democrats and scholars sympathetic to democracy, disparities between rich and poor ought to be intellectually and politically scandalous. ‘Enough is enough’ should be the new democratic mantra.

Among the top priorities of researchers must be to remind citizens and their representatives that wide gaps between rich and poor, in the long run, have ruinous effects on civil society and the whole political order. Citizens in unequal societies, many researchers have shown, more likely end up sick, obese, unhappy, unsafe, or in jail. Such dysfunctions, in various ways, impact the lives of the rich. Even plutocrats feel the pinch; nobody is safe from the scourge of inequality. Inequality is perversely egalitarian.

Whether in South Africa, Greece, Brazil or the United States, market inequality endangers the spirit and institutions of monitory democracy in other ways. Concentrated wealth likes secrecy, surveillance and law and order. It outvotes ballots; and wealth tilts public policy in favour of the rich, towards short-sighted rewards or special treatment (deregulation, tax breaks) and away from the public goods (education, infrastructure) so essential to future economic growth. Finally, in normative terms, capitalist inequality plainly contradicts the democratic spirit of equality. Like salt to the sea, the principle of equality is the quintessence of the democratic ideal. That’s why, historically speaking, every form of democracy worth its salt has stood against the presumption that the wealthy are ‘naturally’ entitled to rule. When they don’t, and when the gap between rich and poor grows ever wider, they are asking for political trouble.

To be continued….

image Soweto township, Johannesburg, South Africa google.com

Authors: John Keane, Professor of Politics, University of Sydney

Read more http://theconversation.com/capitalism-and-democracy-part-one-62551

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