Free-Market Capitalism and Democracy

Free-market capitalism matured as a concept alongside democracy₁; it bolsters democracy by allowing large numbers of the citizenry to mobilize economically and socially_2,3, and by creating a business class that can influence government and thus feed into the democratic system₂. The natural effect of open commercial global regions is to bring peace between countries (Montesquieu, 1748)₄. But unfettered capitalism can derail a country₅, creating more losers than winners, so democracies require welfare services and social programmes managed by the government, to protect people against capitalism's negative side. Mitigations must also be put in place to protect democracy itself against the spectre of government becoming purely focused on business interests₆. Donations to politicians and parties must be meticulously publicized and similar legal requirements must exist for politicians and political entities to reveal all business interests. In short, free-market capitalism can raise the quality of life and wealth of entire nations, but, it must be regulated if democracy and social justice is to be maintained.

1. Benefits
2. The Risks of Unfettered Capitalism
3. Multinational Corporations Versus Democracy: The Fight Between Commercialism and Nation States
4. Links

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1. Benefits

#capitalism #commercialism #communism #economics #politics

Free-market capitalism can bolster democracy by allowing large numbers of the citizenry to mobilize economically and socially₂. From its rise in the 18th century, capitalism has created an "independent class of businesspeople... who are now the dominant force in every advanced society"₇. Together, they have the power and motivation to influence government and provide an alternative powerbase against overbearing government₂, thus feeding into the democratic system. Capitalism can raise many people out of poverty and allow the financing of personal freedoms and collective empowerment.

Capitalism fosters production efficiency₃, tends to perform better than state-controlled enterprises in general, and in particular, is superior to communist systems. Democracies have also been attached to market-based systems of production because it "places minimal restraints on economic liberty, thus augmenting personal autonomy"₃.

The majority of the business class, and commercialist-minded governments, are naturally opposed to war. The social and institutional ties that are created between international bodies, especially regional trade groups and cultural impacts of trade, mean that countries that have deep trading bonds rarely go to war against each other. This complex effect of globalisation on modern states was first articulated by Montesquieu, and is granted to be a bonus of liberal democracy (which includes free-marked capitalism as a key facet) even by its critics₄.

But pure capitalism isn't the only facet required to ensure stability. Note the following positive description of capitalism by Schumpeter:

“There never was so much personal freedom of mind and body for all, never so much readiness to bear with and even to finance the mortal enemies of the leading class, never so much active sympathy with real and faked sufferings, never so much readiness to accept burdens, as there is in modern capitalist society; and whatever democracy there was, outside of peasant communities, developed historically in the wake of both modern and ancient capitalism.”

"Capitalism, Socialism, and Democracy" by Joseph A. Schumpeter (1942)₈

Unfortunately, this was followed by World War Two, which ushered in a disastrous economic period. This shows us that capitalist development, without political and international stability, is weak, and is best developed alongside strong pushes for international collaboration and international rule of law.

2. The Risks of Unfettered Capitalism

#capitalism #democracy #democracy_challenges #government #politics

Unregulated capitalism can undermine and destroy democracy. For example, large corporations have wilfully ignored climate science, suppressed health concerns regarding some of the worst carcinogens, embraced large scale labour abuses and tax evasion on huge scales, and have often acted irresponsibly - all in the name of making money. With money comes influence and power - so the risk comes is that if the business class becomes the sole focus of politicians, then the government is no longer caring for all social classes, and is therefore no longer democratic₆. Likewise, inequalities of wealth can lead to a widespread loss of autonomy and quality of life and create power disparities that can permanently suppress and disadvantage large portions of society. For these reasons, government needs to be well-funded and secure enough to resist the pressures that come from powerful organisations, and needs to be able to force such companies to comply with law.

A central theme of "Rethinking the Liberal Peace" by Shahrbanou Tadjbakhsh (2011)₉ is that rubber-stamping a free-market system on developing country or whilst reconstructing a damaged one, can do more harm than good if the local culture and governance is not prepared.

“Introducing a system based on competitiveness may exacerbate the sources of conflict and reinforce inequalities in wealth distribution. [...] Market liberalization can induce economic crisis, lack of control and authority, rising inequality and social dissatisfaction.”

Shahrbanou Tadjbakhsh (2011)₅

It is necessary to curtail human greed, in order to have a stable, peaceful and beneficial society. But some resist movements towards regulation, because the issues are complicated and hard to understand, and those with vested interests in keeping things unregulated have run long and slick media campaigns to convince the masses that corporate self-interest doesn't result in catastrophically skewed economics.

“Fans of unfettered free markets balk at the notion of governments interfering in the breakneck pursuit of profit at any (legal) cost. 'Classical liberals' are similarly perturbed by the idea that they should have to moderate their behaviour or pay taxes in order to help a section of the population to which they don't belong. The two combine to create a society in which money is all that matters, but in which 'freedom of choice' is used as a fig leaf to camouflage a callous commitment to an economic system which further enriches the already rich at the expense of the eternally poor. [...]

The newspapers owned by plutocrats with fingers in countless commercial pies line up to decry the 'nanny state'. If fast food joints are prevented from opening up within a 400 metre radius of a school, then it is an unconscionable assault on business and free choice.”

"How To Be Right... in a World Gone Wrong" by James O'Brien (2019)₁₀

3. Multinational Corporations Versus Democracy: The Fight Between Commercialism and Nation States

#commercialism #democracy #democracy_challenges #EU #government #multinationals #politics #tax_evasion #UK #UN

Modern large corporations can outmanoeuvre governments and therefore evade the law₁₁, leading to weaker governments_12,13. If one country tightens up quality control, industrial regulation or raises employee benefits, modern companies can easily move production abroad₁₄. Governments are under pressure to not improve legislation.₁₅. The heads of large companies have massive power over staff, employment, industry, national economies and the environment and yet are not elected nor publicly accountable for their actions (which are sometimes damaging to large numbers of people₁₆). Large multinationals excel at tax evasion, hiding $1 trillion in profits per year_13,17, causing true damage to democracies and developing countries alike₁₈. Supranational organisations like the UN and the EU provide a counterbalance. For example "the EU has taken on multinational giants like Microsoft, Samsung and Toshiba for unfair competition. The UK would not be able to do this alone"₁₉. By encouraging governments to work in tandem, and because they are staffed by those on the pay roll of elected governments, such international politics can bring democracies back into power_20,21.

“Nation-states, some argue, are too small to be able to influence global change, and too large to respond effectively to the pressures for increased flexibility and competitiveness, or as Giddens put it 'too small to solve the big problems, but also too large to solve the small ones'.”

"A Globalizing World? Culture, Economics, Politics" by David Held (2004)₂₂

We clearly need multinational governmental bodies to control multinational corporations. Not only will this bring capitalism back under the protective arms of democracy, but it will also solve the second problem identified by Held and Giddens: It will allow national governments to concentrate more on the small problems of national well-being.

For more, see:

• "Multinational Corporations Versus Democracy: The Fight Between Commercialism and Nation States" by Vexen Crabtree (2006).