Capitalism and Democracy: A New Parting of the Ways

Thirty some years ago Samuel Bowles and Herbert Gintis asked a provocative question—have democracy and capitalism come to a parting of the ways? Bowles very question was contrary to the mindset of the times. Milton Friedman, whose work has set the agenda for two generations of mainstream economists, had argued that only free market capitalism could buttress democracy. Indeed, market capitalism was more basic than democracy, for it was the foundation of the latter. Markets are a form of dollar voting, with citizens free from interference to cast their dollar ballots. Friedman did recognize the existence of “social democratic” states, but argued that they were an unstable, transitional society. Either their economies would become more market oriented and thus sustain democracy or their economies would become more statist and evolve toward Soviet style societies.

These provocative reflections lead me to a further thought, that neither markets and corporations on the one hand and democratic practices and ideologies on the other exist in isolation. Each is implicated in and affects the other. Today, both are in need of reform. The Soviet Union has collapsed its economy has been privatized, yet it is hardly a proud democracy. And Europe’s social democracies, while hardly seen as the models they once were for the left, still provide a modicum of social justice and elicit levels of voter participation that the more “market- oriented” US could only dream about. On the other hand, the Bowles and Gintis query seems more pertinent than ever. They were concerned that the capitalist crisis of the seventies, the stagflation, the cultural conflict over race, gender, and war, would evoke something more and different than a reversion to some sort of free market capitalism. Yes, progressive taxes might be cut, minimum wages eliminated or reduced, unions eviscerated.

The proactive, regulatory state however, would not disappear but would rather redirect and reorient its activities. New York City’s mid seventies fiscal crisis was one model. Gerald Ford notoriously said no to the city’s request for aid, but the role of government did not end at that point. With the city on the verge of bankruptcy, the city government agreed to turn over major fiscal decisions to an unelected financial elite headed by Felix Rohatyn, who were charged with the task of determining matters that had once been the prerogative of the city government and the city voters, such as the pay of police and firefighters.

The capitalism that emerged from the seventies crisis is often called free market and is associated in the public mind with Ronald Reagan. Yet that capitalism is more aptly characterized in Dean Baker’s phrase, the conservative nanny state. High tech and global trade were supposed to drive our recovery from the seventies and these are often seen as quintessential products of and drivers of the free market. Yet domestic parent and trademark protection are forms of monopoly about which Adam Smith worried. The contention that they are necessary to stimulate research is dubious at best. Government could grant prices for new drug discoveries or pour more money into basic research. And if patents are absolutely necessary, they could be treated as natural monopolies, with profits strictly regulated. The current system, granting a drug maker 17 years of monopoly, increases incentives for manufacturers to exaggerate claims, withhold data. And it stimulates both domestic and foreign incentives to steal patents, thus in turn ratcheting up government surveillance and coercion to enforce the patents. Government does not shrink—it merely redirects its efforts toward sustenance of the profits of the favored few.

Government sustenance of corporate profits has grown in other ways as well. Military spending has long played a major role in generating a plethora of cost plus contracts where profits go well beyond the “normal profits” of economics 101 texts. And since Reagan, the scope for such spending has increased as both oil (long a favorite of US tax and leasing policies) and intellectual property have expanded their worldwide scope.

The role of government in protecting workers and consumers may have shrunk, but its place in sustaining the profitability of key corporate interests has grown. What implications has this had for democratic theory and practice? Since government action to sustain corporate profits, like bailing out the large investment banks (perhaps the largest beneficiary of post seventies “deregulation”) is unpopular, there is considerable incentive both to insulate the decision making process from public accountability and to conceal specific initiatives.
Under Bush, many of the largest military contractors not only benefited from no bid contracts, those contracts were themselves not open to public scrutiny. Much of the bank bailout has been handled by the undemocratic and secretive Federal Reserve and through Treasury interventions subject to only the loosest Congressional oversight. Skillful deployment of a rhetoric of doom, especially effective in times of stress and social change, has helped grease the skids for the secrecy and insulation of these processes.

Not being fools, the corporations that benefit from these processes know who butters their bread. They now flood the political process with money to influence elections. The corporate media, owned by some of the same interests, benefit from their own government gifts and from loose election regulations and become lobbyists in these causes. And a court system now thoroughly drenched with Reagan era appointees, willingly treats the corporation ( created by government laws and sustained often by public subsidy) as not merely a person but also just one more voter and indeed as a voter whose very identity need not be revealed.

Capitalism comes in many shapes and sizes. Capitalism need not undermine democracy, but our current incarnation, born of economic and social crises, poses a severe challenge to our values. Our democratic processes and our corporate governance are both in need of major reforms and reform of each is necessary to the other. If government can intervene in markets to enforce patents or save banks, can’t it intervene to prevent mass community unemployment? And if media, banking, oil, pharmaceutical, high tech, and military corporations merit extensive subsidies, shouldn’t voter’s participation in the political arena on an even footing be worthy of public subsidy as well?

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