POL 802TOPIC : MODERN ECONOMY OF EUROPE AND THE ROLE OF CAPITALISM AND DEMOCRACY
The need for the revision of the existing varieties of democracy has been raised again in many academic quarters by the advent of capitalist democracy in many part of Europe especially the East-Central part of the continent. There have been the liberal and capitalist democracies in the continent and the deliverables have been different from the practitioners of other variants of democracy.
In many countries of Europe, there is a negative domestic reaction to the inequality, real income stagnation and corporate malfeasance created by the forces of democratic capitalism which have been reinforced by the post-cold war uncertainties. Capitalist democracy has been largely called bourgeoisie democracy due to the roles that have been played by the handlers of economic forces in ensuring and maintaining democracy. Marxists have stated that for there to be true justice in any society, there must first be market justice as the economic power go hand-in-hand with political power. There is a strong interconnectedness between democracy and capitalism and both are synchronous. In this essay, the gradual development of capitalism and its connection with democracy as well as the theoretical explanations and seeming contradictions will be effectively discussed.
Democracy and Capitalism in Europe
Since the eastern central part of Europe was admitted into the European Union and the collapse of communism in Europe there has been a rise of the question of the varieties of capitalist democracy that exists. There is a sharp difference between democracy and communism and many of the communist societies have been questioning and investigating the diversity that exists in democracy in a worldwide perspective. Capitalism explains an economic arrangement where in a state or a political entity the capacity to work and the means of production in the state in owned by private individuals with little control from the government of the state (Przeworski, 1991) in democracy however, there are elected people who make political decisions and these people are elected in an election that is free, free and periodic and there is freedom of expression and access to public information, human rights protection and inclusive citizenship (Dahl, 1998).
Socialist authoritarian regimes in the past have been credited with important reforms and development in some parts of Europe and this regimes have left important legacies in their states but till date, journalists, international organisations and academics continue to accept most parts of Europe as capitalist democracies, however in East-Central Europe particularly, there has been consolidation of capitalist democracies that external bodies and domestic policy formulators and academics in the region do not consider an alternative to this system but there is a little doubt if this system will continue in this part for a longer time as Hall and Soskice (2001) noted that there is the coordinated or liberal market while Goldthorpe (1984) discusses corporatism and pluralism as variants of capitalism.
There is a rising suspicion that democracy and capitalism may not go together and this suspicion has been for a long time. Since the nineteenth century and spreading into a larger part of the 20th century, there has been the fear of majority rule in hearts of the political rights and the bourgeoisie since this was considered the domination of the rich by the poor and this will lead to the discarding of free market and private property (Samuelson, 2010). The political left and the working class were also rising in number in Europe and the Americas at the period and they were equally afraid of the capitalist forming allies between themselves to abolish the forces of democracy and the reaction of the working class (Streeck, 2009).
In the years after the Second World War, there was the assumption that in order to be compatibility between democracy and capitalism there must be subjection of the duo to a general political control so that this will control democracy from free market restraint (Crouch, 2009). Lipset hold that democracy is advanced by its functional fit with an industrial economy that has become more advanced. There is a division of labour between economists and political scientists when it comes to discussing capitalism and democracy since new institutional economics which is otherwise called varieties of capitalism is the novel approach of discussing capitalism (Hall and Soskice, 2001). As there are variants of capitalism, so are there variants of democracy and there is a close relationship and empirical affiliation between economic and political institutions although there is no full understanding of the association. The approach of varieties of capitalism is based on the assumption that firms and other economic agents in the state are designed to benefit and make the best use of their productive assets so as to achieve the highest possible gains (Hall and Soskice, 2001). The argument of the varieties of capitalism presents a different explanation for the welfare state than as put forward by the power resources theory. According to Mares (2003) there is much for insurance system to benefit in a country where industries and companies are more opened to risk and the sharing of risk between the parties pushes for employment. The relationship between political and economic institution is the least explored aspect in the varieties of capitalism.
The relationship between the state and the market is the main difference between the various types of capitalism. There are basically three variants of capitalism which have succeeded over time. These variants of capitalism are the market-liberal, neoliberal and organised-embedded capitalism (Merkel, 2014). The market-liberal capitalism was dominant in North America and Europe and was coined from the market principles that were prevailing between different companies in the region especially in the nineteenth century. The interference of the state in the market and the labour market generally was minimal (Berend and Schubert, 2007).
This was also the state where the welfare state was in its embryonic stage and expenditure and taxes were relatively low. The embedded and organised capitalism was characterised by the development of new technological innovations which made capitalism to develop internal needs for its regulation so as to prevent the system form self-destruction (Merkel, 2014). However, due to the lack of regulation of the internal forces of capitalism at this period, there was the development of social tension and this led to more organised form of capitalism since this led big corporation to begin to look for way incorporate the competition and ways of identifying common interest. Labour laws, increasing legislations, nationalisation and selective subsidies began to witness the interference of the state but it also expanded the social policy and created a welfare state. This was already in place in countries like Germany in the 1880s (Lash and Urry, 1987). In the 20th century, a new form of capitalism – the organised capitalism ensued and this made capitalism to take an entirely new shape (Lehmann et al 2014). The neoliberal capitalism emerged in the 1970s due to the criticism that greeted the Keynesian welfare state capitalism. The neoliberal capitalism stressed the capitalist self-regulation and the market mechanism and the state regulation mechanism (Harvey, 2007). Moulded by deregulation, partial deconstruction and privatisation, a new form of capitalism emerged which ensured the formulation of a welfare state and there was the advancement of globalisation leading to internal financial capitalism which is considered exceptionally important and this led to the increase in social inequalities across socio-economic strata (Rosanvallon, 2012).
Theoretical explanation for the capitalism and democracy
The optimality theory and the necessity theory state that there is interconnectedness between democracy and capitalism. The theory maintain that capitalism and democracy support one another since the two support the separation of polity and economy leading to the development of political and civil rights as well as individual freedom which is being reinforced by this separation (Robinson, 2012). Therefore the theory advances that democratic capitalism is the most stable form of capitalism.
The theory of inequality on the other hand put forward the argument that the essential features of capitalism, bias and constraints the democratic working of capitalism. This theory proposes that the winners, those who have more economic opportunities are also more prone to have more political powers. Since capitalism encourages economic inequalities, this economic inequality therefore yields political inequality (Wallerstein 1988).
Beetham (1993) made the disability theory more popular when he pointed out that capitalism may be undermined by democracy since those who consider that they have lost in the economic arrangement may use their political rights to vote which is given by democracy to limit the capitalist economic institutions which is market coordination and private property which are the major sources of economic inequality (Dahl, 1993). The two theories state that there should be instability between democracy and capitalism since there is a tension between both. There is a need for a conclusion by the theories which emphasise the structural compatibility of democracy and capitalism that democratic capitalism is both a sustainable and stable system. The theories which advances the fact that tension exists between democracy and capitalism have contributory effects to the understanding of the deterioration of democracy and capitalism since there is a tendency that these tension is likely to lead to regression and weaken democratic capitalism (Acemoglu and Robinson, 2012).
Looking at the theories, one begins to wonder the rightness of the theories but an analytical discourse of this theories points to the fact that the contradiction between them is illogical since the theories that advances the positive connection between democracy and capitalism which is based on the issue of liberty while the theories that discusses the negative connections between democracy and capitalism focuses on the issue of inequality and equality political and economic liberties are at the mainstream of political and economic inequalities both democracy and capitalism are the reinforcement of each other. This implies that the exclusion of the tension that leads to instability between democracy and capitalism is not resting on the stability of democratic capitalism but on its internalisation. An important consequence of the argument on the variants and the connectedness between capitalism and democracy is that the development and stability of democratic capitalism depends on the role that is being played by those who are considered the winners of capitalism which are the bourgeoisie. In conclusion of this argument, it is acceptable that the long controversy between democracy and capitalism can be brought to a halt since this theories suffices that democracy and capitalism sustain one another and the most stable form can be considered democratic capitalism (Enyedi, 2016).
The contradictions between democracy and capitalism
There has been a constant criticism by economists for those they have considered as irresponsible and opportunistic politicians in a capitalist economy since these class are regarded as economy and political influential and who use this influence to distort the free market which without their intervention would have delivered social justice but this is distorted for economic reasons by the political class in pretence of having the interest of the uneducated electorates to deliver their personal objectives (Buchanan and Tullock, 1962). It is therefore stated that the best form of intervention by the political class is to free the market from political interference which wrongly distort the market as a symptom of the excesses of democratic liberty to some selected few – the politicians who use the manipulation of the economic forces in the society to advance their personal objective which is coloured in the deceptive garment of social justice. For the capitalist to be effective, they require an economic policy that is rule bound which also constitutionally protects property rights and the market against regulatory authorities that are independent, political interference, electoral pressure, the central banks and the international institutions. The causes of the underlying friction between capitalism and democracy is rather conceived in different ways one is by looking at capitalist democracy as apolitical economy which is largely dominated two regimes, conflicting principles or resource allocation that are conflicting. While one is based on the entitlements of social needs as certified by the collective choice of democratic politics; the other is largely dependent on merit by a market forces free play which is also called marginal productivity. Although there is no alignment between capitalism and democracy under democratic capitalism as the government is in theory required to simultaneously honour the two forces. In reality, the attitude and provable collectives in the society points to the fact that the government has abandoned one in favour of the other and they always never realise this until the social and market forces have failed (Thompson, 1971).
However, any government that fails to cater for the democratic claims by the people for redistribution of resources and protection of their rights risks losing the majority which is the pedestal upon which democracy stand also, a government which disregards the claims by the owners of productive forces in the society for compensation will cause economic dysfunction which in the long run will make the economy become largely unstable and undermine the political support that was available to the ruling class (Scott, 1976). This implies largely that in a capitalist democracy either in Europe or in any other part of the world, the majority and the capitalists cannot be undermined and this is the argument which seemed to have made liberal capitalist democracy an acceptable form of government and market arrangement globally.
It can be averred from the foregoing that there is a strong linkage between capitalism and democracy. Capitalism has been transformed by welfarist capitalism and the major parts of the means of production have been largely socialised but the later did not transform into socialism but rather democratic capitalism. The tension that develops in the democratic capitalist society as espoused by the liberal utopia of standard economic theory is between the two principles of allocation which is largely overcome by changing the theory into what Marx calls the material force.
It is therefore held by Marx that the best form of justice in the society is market justice under which people in the society gain the reward of labour based on their contributions rather than having their needs explained as rights. This notion has brought economic theory to social theoretical explanations. From the foregoing, the implication that can be assumed is that although liberal capitalist democracy seems to appear as the best form of political and economic arrangement as it tends towards equilibrium but it really does not. It was after the Second World War that contradictions began to witness some changes and settlements due to the inflation that was witnessed in the later part of the 1960s in virtually all parts of the world as the decline in economic growth made the sustenance of economic-political peace formula between labour and capital more difficult which led to the end of the domestic strife that emerged as a result of the WW2 (Schäuble, 2010).
Acemoglu, D and Robinson J. A, Why Nations Fail: The Origins of Power, Prosperity and Poverty (New York: Crown Publishers, 2012).
Beetham, D, ‘Four Theorems about the Market and Democracy’ (1993) 22 European Journal of Political Research 2 pp.187-201.
Buchanan, James and Tullock, Gordon The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor, 1962)
Crouch, Colin, ‘Privatised Keynesianism: An Unacknowledged Policy Regime’ (2009) 11 British Journal of Politics and International Relations 3 p.382–399.
Dahl, R A, ‘Why All Democratic Countries Have Mixed Economies’. In: Chapman, J. W. – Shapiro, I. (eds): Democratic Community: NOMOS XXXV (New York: New York University Press, 1993).
Dahl, R, On Democracy (London: Yale University Press, 1998)
Enyedi, Z, ‘Populist Polarization and Party System Institutionalization. The Role of Party Politics in De-Democratization’ 63 Problems of Post-Communism 4 pp.210-220.
Goldthorpe, J, Order and Conflict in Contemporary Capitalism (Oxford: Clarendon, 1984)
Hall, P. A., and Soskice, D. 2001 An introduction to varieties of capitalism. Ch. 1 in Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, ed. P. A. Hall and D. Soskice. Oxford: Oxford University Press.
Hall, P.A. and Soskice, D, Varieties of Capitalism: the Institutional Foundations of Comparative Advantage (Oxford, Oxford University Press, 2001)
Lash, Scott and John Urry, The end of organized capitalism. (Madison The University of Wisconsin Press, 1987)
Lehmann, Pola Sven Regel and Sara Schlote, ‘Ungleichheit in der politischen Repräsentation? Ist die Unterschicht schlechter repräsentiert?’ In Ist die Krise der Demokratie eine Erfindung? Zum schwierigen Verhältnis von Theorie und Empirie, (Wolfgang Merkel Wiesbaden: Springer eds, 2014).
Lipset, Seymour Martin, Some social requisites of democracy: economic development and political legitimacy, American Political Science Review (Baltimore: Johns Hopkins University Press, 1980)
Mares, I, The Politics of Social Risk: Business and Welfare State Development (Cambridge: Cambridge University Press, 2003)
Merkel, Wolfgang, Is capitalism compatible with democracy? (Springer Fachmedien Wiesbaden, 2014)
Przeworski, A and Wallerstein M, ‘Structural Dependence of the State on Capital’ 82The American Political Science Review 1 (1988) p.11-29.
Przeworski, A, Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America (Cambridge: Cambridge University Press, 1991)
Rosanvallon, Pierre, Counter-democracy. Politics in an age of distrust (Cambridge: Cambridge University Press, 2008)
Samuelson, Robert J., The Great Inflation and Its Aftermath: The Past and Future of American Influence (New York: Random House, 2010)
Schäuble, Wolfgang, ‘We need new forms of international governance, global governance and European governance.’ Financial Times, 5 December (2010)
Scott, James The Moral Economy of the Peasant: Rebellion and Subsistence in Southeast Asia, (Connecticut: New Haven 1976)
Streeck, Wolfgang, Re-Forming Capitalism: Institutional Change in the German Political Economy (Oxford: Oxford University Press, 2009)
Thompson, Edward, ‘The Moral Economy of the English Crowd in the Eighteenth Century’, 50 Past & Present, 1 (1971)