Democracy and Capitalism: A Complex Relationship
Democracy refers to a system of governance by the rule of the people. Most countries have embraced this system of government whereby the citizens elect their representatives. On the other hand, capitalism refers to an economic system which is characterized by private ownership of the factors of production, whereby the owners operate them for profits. The owners determine the market economy and the investments. Scholars have given different opinions of the relationship between democracy and capitalism, where different views exist. This study will give in details, the relationship between the two, the theories that connect them and also the variation of the two depending on time and space.
The Relationship between Capitalist Development and Democracy
According to Iversen (2006, p.22), there is a natural connection between democracy and capitalism. This is because for democracy to exist, people must be enjoying universal civil and personal rights, among them being the right to own property. Democracy, therefore, supports the need for people to purchase and sell goods, services, and works freely, and receive payment for their labor. Democracy and capitalism share the opinion that people should be allowed to make their own choices. They view people, and citizens for that matter, as agents and not objects that should be subjected to power. Historically, the rise of capitalism went hand in hand with the pressure for democracy. This explains why most of the richest countries embraced democratic governance.
However, it is evident that there exist major differences between democracy and capitalism. For instance, the former is egalitarian while the latter is not regarding outcomes. Democracy views all people as equal and should be given the right to enjoy similar opportunities in life. Unlike during historical times, capitalism is finding it difficult to improvements in prosperity in today's world. The gap between the rich and the poor keep increasing, whereby inequality is the main cause of slow growth, (Anderson 2001, p.71).
It is worth noting that unlike democracy, today's capitalism is global. Most capitalists have exercised their activities through acquiring property in various countries. In fact, left to themselves, capitalists can keep exercising this trend in any jurisdiction. This has been fostered by the technological developments which have made opportunities to be global, and hence investments too.
Although most scholars confirm that democracy and capitalism go hand in hand, it is clear that the rise and persistence of democracy in developed countries cannot be termed as directly proportional to the growth of capitalism. It is clear that capitalism promotes democracy since it places differences in class structure, (Schumpete 2013, p. 423). This gives a distinction between the rich and the middle class as well as the poor, hence making it more difficult for the upper class to exclude the lower classes. However, the relationship between democracy and capitalism is not mechanical, but it depends on the interplay of the following: power relations between the country and the society, the power bestowed on the society, and the national structures of political and economic power.
The Most Important Theories Connecting the Two Phenomena
The contemporary economic theory makes it clear that a decentralized market economy can be described as the best market condition. This would mean that any form of market equilibrium can be attained. However, this is a difficult condition to reach although it is supported by democracy. For it to be achieved, there would be a need to take the economy through the fundamental theorem of warfare economics. This is a condition that cannot be attained since in a private property society that was created by capitalism cannot redistribute resources. However, capitalism can achieve egalitarian states through other methods such as through progressive income taxation. The fundamental theorem of warfare economies also fails due to the existence of other market failures that lead to externalities. These include conditions such as global warming and atmospheric pollution. Natural monopolies also lead to market failures, for instance, operations based on increased returns to plant size, (Dahrendorf 2006, p.21).
The free markets can help in fostering democracy, although they are inhibited by the presence of the privately owned property. The fact that most countries desire to achieve democratic political systems does not lead to the realization of their goal. The main key that such states can use to achieve democracy is by adopting the values, skills, and institutions that are needed to run a free market. However, this theory has not succeeded in the real market because capitalism has given individuals power and has shielded them from coercion. The presence of the private civil associations provides the public with the notion of another government, where the state government is ineffective.
Has the Relationship between Capitalism and Democracy Varied Greatly Throughout Time and Space?
Scholars have consistently confirmed that although democracy and capitalism gained roots in most countries during the historical times, their relationships varied with time, (Saul 2005, p.17). The increasing wealth inequality has led to the stagnation of the income of the majority of the countries, while those of the richest are still rising. However, this was not the condition of most nations during independence, when capitalism started, and the countries were working greatly towards becoming democratic. Capitalism has given the power to make decisions pertaining capital and markets to the few who have accumulated huge properties. This has reduced the impact of democracy on many nations. In the quest to investigate the different changes that capitalism and democracy have experienced over time, this study will use the case of America and Europe.
The history of capitalism in America can be traced from the agrarian societies which existed in the 18th century, (Ferguson 2001, p.35). Scholars have confirmed that after this, markets started producing a high degree of inequality since the rate of return on capital was greater than the income growth. This led to the rise of a situation whereby those who own capital under capitalism feels safe, a condition that does not exist in a democracy, which is the rule of the people. The capitalists started fearing the rule of the majorities since the 19th century who do not own huge properties and have been using political influences to silence them.
Unlike America, in the immediate postwar period, Europe experienced democracy and had succeeded in colonializing large parts of the world, (Shankman 2004, p.55). A communist regime existed in Europe due to its war with Germany, after which a democratic capitalist regime emerged. Europe believed that for democracy to exist, capitalists must be regulated. It was after the 19th century that the two countries adopted progressive taxation among other measures that were aimed at strongly regulating capitalists. Since then, the fictitious solutions to have been in existence until in 2008, whereby the problem on social inequality and the need to achieve a decent life for the citizens led to the adoption of strategies that finance capital for the minorities.
Conclusion
Although democracy and capitalism started during the same historical times, they are two different phenomena. However, the go pretty well together, especially among societies that have respect for individuals as well as moderation. It is impossible for the two to exist together purely. This is because capitalism gives power to the few who owns large amounts of capital, while democracy gives power to all, regardless of their social or financial background.
References
Anderson, J., 2001. Theorizing state borders:‘politics/economics’ and democracy in capitalism. Belfast, Centre for International Borders Research Working papers.
Dahrendorf, R., 2006. democracy and capitalism. London: Hansard Society.
Ferguson, N., 2001. The cash nexus: money and power in the modern world, 1700-2000 (p. 35). New York: Basic Books
Iversen, T., 2006. Democracy and capitalism. In The Oxford handbook of the welfare state.
Saul, J.S., 2005. The next liberation struggle: capitalism, socialism, and democracy in Southern Africa. Monthly Review Press.
Schumpeter, J.A., 2013. Capitalism, socialism and democracy. Routledge.
Shankman, A., 2004. Crucible of American democracy: the struggle to fuse egalitarianism " capitalism in Jeffersonian Pennsylvania. Univ Pr of Kansas.
Wood, E.M., 2007. Democracy against capitalism; Renewing historical materialism. Aakar Books.
