Democracy and Capitalism. Compatible systems?

Essay, 2014

7 Pages, Grade: 16


Nowadays it appears widely accepted that democracy can only function in accordance with capitalism, especially because there is no example of a democracy that “endured in a country with a predominantly nonmarket economy.”1 However, there are also various scholars criticizing the relationship between democracy and capitalism, pointing out, that this relation is defined by fundamental tensions, therefore democracy and capitalism cannot go hand in hand with each other. This paper wants to critically examine the connection between these two concepts and evaluate whether they are compatible or not, starting with basic definitions of the concepts of market economy and democracy, then continuing with the arguments of those who say that both conceptions in fact need each other in order to compare them then with the claims of the opposing site and finally draw a conclusion on their link.

In order to determine both concepts this paper will use Beetham's basic definitions. He explains a market economy “as an economy based upon the free exchange of commodities under conditions of competition, together with the minimum institutional framework necessary to make exchange possible over time - a predictable system of law guaranteeing property rights and the security of contract.”2 In contrast to that he specifies democracy “as a system of popular control over governmental decision-makers, based upon free expression and association, and free electoral choice under conditions of political equality.”3

Many of the scholars arguing that capitalism is in fact necessary for democracy begin from a historical point of view. So does for instance Schumpeter, saying that “historically, the modern democracy rose along with capitalism, and in casual connection with it”4. As Fiss identifies, both ideas also share the same intellectual origins, since they are “rooted in an assumption of human rationality and self-interest, and thus rely on individual freedom and autonomy as the means for achieving their ends.”5 The same notion is described by Friedman stating that he knows “of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity...History suggests...that capitalism is a necessary condition for political freedom”6 In order to explain this connection between economic and political freedoms he mentions the examples of the freedom of speech which requires different newspapers and media institutions competing with each other and the freedom of assembly that “presupposes multiple landlords willing to rent out meeting rooms”7

Also Beetham talks about the “apparently self-evident connection”8 between economic freedoms such as the freedoms of movement, exchange and property and political freedoms, namely the freedom of movement, expression and association. Economic freedoms are on top of that seen as a precondition for political freedoms because they help in separating the spheres of economics and politics and thus contribute to prevent a concentration of power.

Another argument that is often used to describe the relationship between capitalism and democracy is that of both systems being similar in the way that the people always have a choice in the decisions they make. On the one hand as a voter giving his support for one specific political party of the pool of many, and as a consumer choosing one product over another. So, in both concepts there is the expectation that the rewards of success will be dependent on the ability to attract popular support, for either customers to buy a particular product or voters being convinced by a political programme and therefore the individual is in both cases the sovereign. In other words, as Beetham puts it: “Democracy...empowers the voter, in exactly the same way as the market empowers the consumer, by making the expressed preferences of the individual and the ability to satisfy them the fundamental conditions for political as well as economic success.9 Different points remarking that democracy and capitalism are in fact inseparable concentrate on the notion that only a centralized planned economy is an alternative and therefore discredit this idea.

Beetham points out, that “the more extensive the state, the more difficult it is to subject it to public accountability or societal control”10, whereas the market-economy limits the opportunities of government action and so allows the separation of economic from political power or as Friedman puts it: “By removing the organization of economic activity from the control of political authority, the market...enables economic strength to be a check to political power rather than a reinforcement.”11 Furthermore with the concentration of all economic power in the hands of the state, it can easily “deny resources and even a livelihood to those campaigning against its policies”12 and so use its power to block any opposition. Sometimes liberals would argue even further and state that a centrally planned economy will necessarily have to abandon private ownership and then outlaw any other political parties demanding private property and therefore there could be no democracy in such an economic system. Additionally, a “bureaucratic monster that no one can control”13 would be built if the state would also be responsible for the economy.

This construct could also not compete with the market economy in the aspect of efficiency, as Dahl points out, saying that self-interest and the drive for profit maximization are more helpful than any other alternative in producing goods and services as efficiently as possible.

The opposing site, which you can in most cases associate with the socialist ideology, would argue that democracy can never exist alongside with capitalism. However, they do not deny the current system's existence, but they would argue that today's democracy can never be understood as real democracy because of the tension between it and capitalism. In their eyes the overthrow of the capitalist economic structure is necessary in order to establish a more advanced form of democratic government. Characteristically for this group of scholars would be Adorno's argument that today's democracy in Western societies is nothing but a “surface phenomenon”14

These scholars often start from the theoretical analysis of both concepts in order to point out to the tension between both ideas which is obvious in their eyes. So does for instance José Nun, explaining that capitalism “is based on the right to private property and starts from a basis of inequality, reproducing it on a large scale through competition; the second [democracy] gives pride of place to citizenship rights for all and makes freedom and equality its two cornerstones.”15 In his opinion both systems cannot work together because of the inevitable conflict that comes up between them as capitalism is the foundation of inequalities whereas democracy tries to abandon all inequalities. The same conclusion is reached by Lester Thurow who explains that “one believes in a completely equal distribution of political power, 'one man one vote', while the other believes that it is the duty of the economically fit to drive the unfit out of business and into extinction. 'Survival of the fittest' and inequalities in purchasing power are what capitalist efficiency is all about. Individual profit comes first and firms become efficient to be rich. To put in its starkest form, capitalism is perfectly compatible with slavery. Democracy is not.”16


1 Robert Dahl: On Democracy; Yale University Press: New Haven, 2000; p. 166

2 David Beetham: Democracy and Human Rights; Polity Press: Cambridge, 1999, p. 53

3 Ibid.

4 Joseph Schumpeter: Capitalism, Socialism & Democracy; 1994, Routledge; London; p.296

5 Owen M. Fiss: Capitalism and Democracy in Michigan Journal of International Law; Vol. 13, No.4 p.911

6 Milton Friedman: Capitalism and Freedom; The University of Chicago Press: Chicago, 1962; pp. 9-10

7 David Reisman: Democracy and Exchange;Edward Elgar Publishing: Cheltenham; 2005, p.99

8 David Beetham: Democracy and Human Rights; Polity Press: Cambridge, 1999, p.56

9 Ibid. p.59

10 Ibid. p.52 11 Ibid.

12 David Beetham: Liberal Democracy and the Limits of Democratization in Democracy: a reader edt. by Ricardo Blaug & John Schwarzmantel; Edinburgh University Press: Edinburgh; 2000 p.373

13 Ibid. p.374

14 Peter Wagner: The democratic crisis of capitalism: Reflections on political and economic modernity in Europe; LEQS Paper No.44/2011; p.7

15 José Nun: Democracy - Government of the People or Government for the Politicians; Rowman & Littlefield Publishers: Lanham; 2003 p.35

16 Paul Street: Capitalism and Democracy: “ Don't Mix Very Well ” : Reflections on Globalization published in Z Magazine, Feb. 2000; accessed via [26/02/2014 11:11] 4

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Democracy and Capitalism. Compatible systems?
University of Aberdeen
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Felix Wiebrecht (Author), 2014, Democracy and Capitalism. Compatible systems?, Munich, GRIN Verlag,


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