Does capitalism need democracy? It's a question that's being asked by a number of people these days. Not that long ago, the idea of capitalism and democracy being inextricably tied together was unquestioned. The United States was the shining example of this marriage of ideas. With unprecedented economic growth and the advancement of civil liberties during the post-WWII era, the US stood in direct contrast to authoritarian regimes like the USSR and China. The formula went something like this: democracy+capitalism=freedom and prosperity; dictatorship+communism=oppression and poverty.
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Then came the rise of China as a global economic power through, of all things, the application of capitalistic principles to its market. People were left scratching their heads and wondering how this success was being achieved. Was China becoming more open to democratic ideas? Would its participation in the free market eventually lead to more freedom for its citizens and the eventual demise of the CCP (Communist Party of China)? Many observers hoped and believed it would.
After several decades though, optimism about that kind of transformation has faded. China has continued its oppressive practices, including jailing dissidents, limiting the personal freedom of its citizens, and systematically committing the genocide of the Uyghur minority. In fact, repression has grown under the leadership of Xi Jinping, all while China continues to practice capitalism. As you would expect, this seeming conundrum brings into question the long-accepted assumptions about certain economic and political systems being natural and exclusive partners.
There is currently disagreement as to whether capitalism and democracy are the soulmates we always thought they were. In a 2020 Harvard Business Review article, most of the contributing experts stated that capitalism could survive without democracy, at least for a time. Countries such as China, Russia, Turkey, and Hungary were cited as examples of places where oppression and capitalism appear to co-exist with apparent ease.
The economic paradigm that was once so black and white seems, at a cursory glance, to be painted in shades of gray now. If one looks a little closer though, a pattern begins to emerge that makes more sense. The autocratic and plutocratic governments that employ capitalism use it for the benefit of a few, as demonstrated by Vladimir Putin and the handful of Russian oligarchs at his side. Another term for this kind of arrangement is "crony capitalism."
Since crony capitalism is practiced in an autocracy, we should expect that in contrast, democracies employ capitalism to advance the greater good. This kind of capitalism is often called, not surprisingly, "democratic capitalism." Capitalism that operates in this manner could potentially be used as a test for how well democracy is working in any particular country at any particular time.
If we take the US as an example, we can see periods of time where both of these types of capitalism gained dominance. One could argue that the late 19th century saw the rise of crony capitalism with the emergence of the economic elite, such as Rockefeller, Carnegie, and Vanderbilt. These first American billionaires made their fortunes during a time when the government took a lassie faire approach to business and the average worker had little influence on policy.
As is usual when intolerable situations occur for too long, people fought back. Instead of armed revolution, though, the workers countered the billionaires with the strength of numbers in the form of unions and votes. Theodore Roosevelt busted the trusts, FDR reformed and regulated the banking system, and Dwight Eisenhower maintained policies that grew the middle class. Because of these and many other reforms, the average American thrived alongside corporations and the wealthy, and the US did not experience the upending of its government and institutions as did many other countries during that time.
Are we in the US still in this idealistic scenario? Sadly, it would seem that crony capitalism has raised its ugly head once again. Specific reasons exist for why we find ourselves where we are in 2023, such as the admission of unlimited dark money into political campaigns and the removal of certain economic guardrails that once existed to keep citizens safe.
When democratic (or partnership) economics is put in jeopardy by favoring the few, our entire democracy is put in jeopardy, because the citizenry can eventually lose faith in the system to provide them with basic necessities and comforts, as well as a better future for their children. Then, in the words of President Eisenhower, “A country in this situation is fraught with continual instability. It is ripe for revolution.”
The principles of partnership economics don't just provide a way to keep our economy strong and thriving in a way that benefits everyone. They also supply one of the greatest measures we can put in place to ensure the continuance of our democracy. Does capitalism need democracy? In the long run, yes, because a truly free market can only be maintained alongside other freedoms. Democracy also needs capitalism to thrive economically, but not just any kind of capitalism. To uphold the rights and freedoms of all, as democracy states is its goal, it needs a fair and ethical capitalism. It needs better capitalism.
What about you? Share your story, question, comment, idea, disagreement -- yes, we welcome disagreement for the sake of mutual benefit! -- with us at blog@PartnershipEconomics.com. We will give a thoughtful response.
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