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Zeitschrift für Vergleichende Politikwissenschaft

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01-10-2014 | Essay

Is capitalism compatible with democracy?

Author: Prof. Dr. Wolfgang Merkel

Published in: Zeitschrift für Vergleichende Politikwissenschaft | Issue 2/2014

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Abstract

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 democracy; debate, compromise and majority decision-making within democratic politics versus hierarchical decision-making by managers and capital owners. Capitalism is not democratic, democracy not capitalist.

During the first postwar decades, tensions between the two were moderated through the socio-political embedding of capitalism by an interventionist tax and welfare state. Yet, 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 parliament and government. Deregulated and globalized 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 legitimized by general elections. It is not the crisis of capitalism that challenges democracy, but its neoliberal triumph.

next article Staatskapitalismus in NRW und Bayern: Der Aufstieg und Fall von WestLB und BayernLB

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The article is a modified version of a co-authored text by Jürgen Kocka and Wolfgang Merkel: “Kapitalismus und Demokratie” forthcoming in: Merkel, Wolfgang (ed.) “Ist die Krise der Demokratie eine Erfindung?” (Merkel 2014). I am very grateful to J. Kocka, however, all remaining weaknesses or shortcomings of this text are my own.

Hall and Soskice, however, only describe two varieties of capitalism that they see represented in the context of the OECD: liberal market economies und coordinated market economies. New hybrid types of Manchester-like state capitalism in China, gangster capitalism in Russia and Ukraine during the 1990s, and crony capitalism in South East Asia are not taken into consideration here, since they have emerged outside the context of the OECD.

The labels for this type of capitalism vary: “organized capitalism”, “coordinated capitalism”, “Keynesian welfare state” (KWS) or “Fordism”. We use the first two terms interchangeably and take KWS as a variety of “coordinated capitalism” that is particularly compatible with democracy.

Cp. more extensively: Merkel (2004).

The term financial capitalism resembles Rudolf Hilferding’s “Finance Capital” (Das Finanzkapital, Wien 1910) terminologically. Hilferding described the transformation of competitive liberal capitalism into monopolistic finance capital. However, whereas Hilferding’s “organized capitalism” must be understood as a fusion of industrial, mercantile and banking interest, today’s financial capitalism or “financialization” of capitalism emphasizes the dominance of finance capital over all other forms of capital.

Such cuts were only moderate in Scandinavia, Germany, Austria and France, but drastic within the context of Anglo-Saxon economies (USA, UK, NZ).

The welfare state and Keynesianism were, of course, developed to different degrees within the OECD countries (Esping-Andersen 1990; Hall and Soskice 2001).

It is thus even more surprising that neo-classical economics and neo-liberal political forces question this relationship. They see political equality fulfilled by the equal availability of political rights (cp. von Hayek 2003; the Free Democratic Party of Germany (FDP) and the liberal political parties in the Netherlands and Scandinavia respectively).

When asked whether their vote or political participation influence political decision-making, more than two-thirds of lower class citizens in Germany answer with the negative. When confronted with the same question, more than two-thirds of middle class citizens resoundingly respond with the affirmative, stating that their voice has an impact (Merkel and Petring 2012).

The exclusive character of US democracy becomes even more apparent if the 10–15 % of the lower class without citizenship are taken into account. A considerably smaller part (5 %) at the upper end of the income scale does not have citizenship (Bonica et al. 2013, p. 110).

The financial crisis and the bottom-to-top redistributive effects that have become visible within its context seem to have reached social democratic parties nonetheless. The minimum wage and the effects of deregulation on the financial and labor markets have, after two decades, slowly made their way back onto the front bench of programmatic party demands.

In non-Anglo-Saxon countries this shift did not happen by cutting back the welfare state, but was pushed through by a tax and income policy in favor of business and the better off.

The US government followed the capitalist rules of a free market more closely when it allowed many more banks to go bankrupt then did European governments.

US democracy is, of course, older than that. But even there universal suffrage for women was only introduced in 1920 (in Great Britain in 1928, in France in 1945). Until the mid-1960s six southern US states banned African Americans from voting for racist reasons. Only since that period can the “mother country” of democracy be seen as having fully implemented democratic values.

If one takes full suffrage of men and women as the crucial indicator for a complete democracy, then New Zealand (1900) was the first and Australia one of the first democracies, not the US or UK.

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Title: Is capitalism compatible with democracy?
Author: Prof. Dr. Wolfgang Merkel
Publication date: 01-10-2014
Publisher: Springer Fachmedien Wiesbaden
Published in: Zeitschrift für Vergleichende Politikwissenschaft / Issue 2/2014
Print ISSN: 1865-2646
Electronic ISSN: 1865-2654
DOI: https://doi.org/10.1007/s12286-014-0199-4

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