Crisis of democratic capitalism
The novel coronavirus has changed the world in unimaginable ways. Weeks before the virulent virus went global in February 2020, no one imagined that our highly globalised world was so fragile. In its volume, ‘Destroying Democracy: Neoliberal capitalism and the rise of authoritarian politics’, Democratic Marxism (2021) argued that across the world, democracy is under threat from the wealth and power that is ever more concentrated in the hands of a few. But the rule of the few over the many rests on very shaky ground.
Thomas Piketty (2022), a noted economist, also thinks that the current system of ‘hyper-capitalism’ has no future. Socialism has failed. As a viable alternative to authoritarianism and Chinese-style communism, he has suggested taking away a large degree of control over corporations from their managers and shareholders and giving it to employees, and creating “a system of egalitarian funding for political campaigns, the media and think tanks.” According to him, all this would amount to “a profound transformation of the world economic system.” He names this programme as ‘participatory socialism’.
In a path-breaking article titled ‘Is capitalism compatible with democracy?’, Wolfgang Merkel (2014) argues that capitalism and democracy follow different logics — unequally distributed property rights on the one hand, equal civic and political rights on the other; profit-oriented trade within capitalism in contrast to the search for the common good within a democracy; debate, compromise and majority decision-making within democratic politics versus hierarchical decision-making by managers and capital owners.
According to the author, “capitalism is not democratic and democracy is not capitalist”. During the first post-war decades, tensions between the two were moderated through socio-political embedding of capitalism by an interventionist tax and welfare state. The financialization of capitalism since the 1980s has broken the precarious capitalist-democratic compromise. Socioeconomic inequality has risen continuously and has transformed directly into political inequality. The lower third of developed societies has retreated silently from political participation; thus, its preferences are less represented in the Parliament and the government. Deregulated and globalised markets have seriously inhibited the ability of democratic governments to govern. If these challenges are not met with democratic and economic reforms, democracy may slowly transform into an oligarchy, formally legitimised by general elections, the author warned us as early as 2014.
Merkel’s paper also reminds us that in the Western Europe, full democracy only took root after 1945, when universal suffrage was introduced in most countries. As democracy was fully established in the Western Europe, Australia, Canada, and New Zealand, a certain type of capitalism developed, not uncoincidentally — a socially embedded, economically stabilised, and nationally regulated capitalism. However, the general tensions between socioeconomic inequality and the political principle of equality remained unresolved. Nevertheless, their effects were mitigated considerably by regulated labour markets, increased economic welfare, strong labour unions and the activism of classconscious socio-democratic or communist workers or centre-left parties. The coexistence between (social) capitalism and (social) democracy never functioned better than during this period.
This coexistence has gradually become more difficult since the late 1970s. It was challenged by the neoliberal policies of deregulation and privatisation pushed by Ronald Reagan and Margaret Thatcher. The IMF and the neoliberal concept of the European Single Market (ESM) forced their implementation of tax reforms in favour of companies, capital income, and the rich; labour markets and financial markets were deregulated. Even the strongest welfare states of Northern and Western Europe were not able to shield themselves from the neoliberal winds of change.
Following the demise of Sovietstyle socialism after 1989 and the transformation of China’s economy, capitalism has become the predominant system around the world. Only a few isolated countries such as North Korea have been able to resist the success of capitalism through the use of brutal force. The market has become the main mechanism for economic coordination and maximisation of profits.
Merkel’s thesis observed that capitalism can prosper under both democratic and authoritarian regimes but that so far, democracy has existed only with capitalism. Nevertheless, capitalism and democracy are guided by different principles that create tensions between the two. Socioeconomic inequality challenges the core democratic principle of equality in participation, representation and governance. On the vital question of capitalism’s compatibility with democracy, the author concludes that it depends on the type of capitalism and on the type of democracy. If one insists that democracy is more than the minimalist concept, as proposed by Joseph Schumpeter, and takes the imperative of political equality, the present form of financialised “disembedded capitalism” poses considerable challenges to democracy.