If capitalism leads to inequality and inequality is inimical to democracy, how does it come about that capitalism appears to be a necessary condition of democracy?

Political influence, defined by Birch as “the exercise of direct or indirect influence over the personnel or decisions of governmental institutions or agencies”, can be exerted either by those with economic bargaining power in the form of control of some element of the market, or by those with the material wealth to purchase influence. An example of this is the domination and control of the Parliamentary Labour Party in the 1970s by rich trade unions. In the absence of capitalism, political influence is difficult or impossible to acquire.

There has never existed in the course of human history, a democratic nation-state whose economy has not been subject to the pressures and sovereignty of market-capitalism. Although capitalism has existed in some totalitarian states, such as South Korea and Taiwan, it has invariably given rise to democracy due to the freedom of economic expression and general increase in material wealth that it encourages. The granting of economic freedom through a market-driven, capitalist economy seems to be a catalyst for the desire for the increased political freedoms granted by a democratic political system. Likewise, the political equality granted by democracy is an incentive to seek a political advantage, and in a centrally planned economy, where the market is controlled solely by the government, it is impossible to acquire the capital with which to do so.

This is proof of the statement in the essay’s title, which claims that capitalism leads to inequality. That economic liberalism leads to inequality if left to its own ruthless devices, is disputed by few, but history has shown that the general amelioration it brings to society as a whole is undeniable:

“In the long run… workers and consumers are the main beneficiaries [of capitalism] – easier jobs, higher incomes, and so forth. That is the main performance of the system. The businessman can make a killing, but it’s a small killing compared to society’s killing. Henry Ford made a lot of money making cars at one time, but that was a small advantage to him compared to the benefit to millions of people who for the first time in their lives were emancipated from common public carriers and could live where they wanted, move at the hours they wanted, to the places they wanted. Ford collected a billion bucks, but that was peanuts compared to the benefits.” 

In the same way, it could be argued that democracy is a “benefit” of capitalism, and without it, society would be stuck at “A”, its isolated rural smallholding, detached and ignorant of the broader issues of citizenship and political participation. With the addition of capitalism would come the opportunity to explore economic freedom, become part of a politically active interest group in a dynamic pluralist system and make haste toward the more affluent “B”.

The argument for capitalism as a method for the general betterment of society and the creation of democracy is exemplified by 19th century Britain. One of the effects of industrialisation and urbanisation was the creation of the “civic community”, through which social networks and common interests were formed. Although early social conditions were poor, urbanisation gave rise to mass education, the establishment of groups with common interests and eventually a working class that was able to mobilise itself as a political force, through the Labour party. Their reward was political power in the form of political equality (universal suffrage being granted finally in 1918). In concert with the middle class that they were employed by, the working class proved that democracy in Britain largely owes its existence to capitalism, and would not survive without it. The system usurped by democracy was an oligarchy that had sown “the seeds of its own destruction” by promoting the developments of the capitalists in society such as modern manufacturing processes, which both brought members of the working class into contact with each other and created the riches of the middle class.

The theories of John Stuart Mill are of particular relevance here, since in his view, people are fundamentally “self-protecting” (of their individual rights), “self-dependent” and rely “on what they themselves can do, either separately or in concert, rather than on what others can do for them”.  In a centrally planned economy, society relies upon the latter, and so is not as productive as it could be. Consequently, it will also suffer in democratic terms from the general malaise that is encouraged by the elimination of self-dependence. The “contented” soul, says Mill, will have no inclination or incentive to engage in the processes of wealth accumulation or democracy if there is no prospect of ameliorating his condition. Thus capitalism is necessary to stimulate society into both economic productivity and political action and awareness.

The theory of self-dependence is also useful for the next stage of the argument, which aims to show that capitalism is at the heart of economic freedom and liberalism. As it was defined earlier, economic liberalism in the form of capitalism maximises the opportunities for individuals to engage with and obtain a share of the market, essentially to create wealth, for as an eminent proponent of capitalism said, “Pennies don’t fall from heaven – they have to be earned here on earth”. And so it is on the principles outlined by Mill that economic freedoms are exercised, individual material wealth is created and material benefits are inferred upon society at large. Linked to this is Mill’s wider theory regarding political participation, which argues that the health of a democracy and society as a whole is proportional to the intellectual wealth of the individual.

As society or particular strata of society become more affluent, they will naturally develop the desire to protect their wealth and rising status. The middle class will eventually be able to demand democracy if it does not already exist, because of its size, and because of the extent to which it controls the capital and labour of a society. The middle class’s ability to manipulate the economy of its country through control of prices and resources gives it political influence. Since this influence would have been gained by reaping healthy returns from a capitalist system (one with minimal state intervention – one in which market forces are the main influences on the direction of the “ship of state”), this group will seek to exercise their political influence to keep the system as it is. In this way, democracy and capitalism must coexist, for those with wealth and thus political influence demand the opportunity to exert and preserve the status quo. Without capitalism, there would be no such economic inequalities and consequently no demand for democracy, making the concept less useful as a political system.

All these are interest groups, concerned with maximising their share of political power within a democracy. If there were no capitalism (and associated inequalities), and since a state of political equality exists in a democracy, there would be no point in forming interest groups, because everyone has an equal share of the market (zero) and thus an equal capacity to increase their political influence (zero). In this way, eliminating capitalism from a democracy eliminates economic competition, which in turn leads to the demise of political competition.

This political competition gives rise to the conflict between capitalism and democracy, in the form of those who are able to exert political influence (capitalists with economic leverage – the exploiters) and those who campaign for increased political influence (the exploited). If the democratic preference of the latter is adhered to, which, if they are in the majority, it must be, then the state can exercise political power and introduce measures to curb the effects of capitalism and reduce the inequalities caused by it.  State intervention in economic affairs can take numerable forms, such as trade or currency protection, subsidies, fair trade legislation and the prevention of monopoly. This ensures that the whole of society benefits from the wealth generated by capitalism. Tansey identifies that in Allende’s Chile,

“The development of liberal democracy has been seen as a distinct menace to capitalism and resisted for that reason.”

The undoubted success of Chilean capitalism was obviously seen by its rulers as having been a direct result of the unadulterated purity and sovereignty of market forces. State intervention in the capitalist system to redress the imbalances created by market forces and the uneven accumulation of wealth, does indeed spoil and obstruct the advance of capitalist interests, but it also advances the general welfare of society, and represents the fair expression of the grievances and interests of the “demos”. Without democracy therefore, the rich would get richer and the poor would get poorer. Without capitalism, only the state would get richer.

In conclusion, it can be seen that although the two concepts are set in opposition in a critical area, it is through their coexistence that society as a whole becomes successful. If market forces were allowed to dominate politics, then the inequalities resulting from capitalism would flourish unabated, and the gaps between the strata of society - the exploiters and the exploited - would only widen. With political power in the hands of the many, the exploited are free to pursue the amelioration of their condition, the increase of their stake in society and their grasp of political influence. Without the opportunity to increase one’s share of the control of capital and labour (individually or in concert), there is little need for pluralist democracy, for if all citizens are economically equal, then they must consequently also be politically equal. With no interest groups, there is no competition for political influence, no politically aware middle class with status to preserve and only one option for the electorate – to use their political power to remove the authority behind their totalitarian economy.

The success of a society is dependent on the extent to which democracy is able to rectify the inequalities created by capitalism, and success arises from this conflict. Capitalism is a necessary condition of democracy because democracy is fuelled by the inequalities brought about by the free market. It could be said that inequality is in fact the profit motive of democracy.

2,448 words

Bibliography

Concepts and Theories of Modern Democracy, 2nd Edition

Anthony H. Birch, Routledge 2002

Politics: The Basics

Stephen D. Tansey, Routledge 1995

On Liberty and other essays

J.S. Mill, Oxford University Press 1998

On Democracy

Robert A. Dahl, Yale University Press 2000

Notes from lectures given by Anthony King at the University of Essex,

21/10/2002

5/11/2002

 

 

 

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