Capitalism and Democracy

By Hilton L. Root
The American Interest, Jan/Feb 2008

Edited by Andy Ross

Democracy's Good Name
The Rise and Risks of the World's Most Popular Form of Government
by Michael Mandelbaum

The Transformation of Business, Democracy, and Everyday Life
by Robert B. Reich

Michael Mandlebaum claims that democracy's good name comes from the successful fusion of two separate political traditions, one elevating individual freedom and the other popular sovereignty. He expounds two major causes for this transformation, one direct and one indirect. The indirect cause was the global success of the Anglo-American countries. The direct causes are economic liberty and the working of the free market. Mandelbaum is an optimist.

Robert Reich explains that democracy's glittering good name is today being tarnished by the same forces that Mandelbaum sees behind its remarkable rise. Global markets have created supercapitalism, and it is killing democracy. Even the places where democracy originated are not immune from its corroding effects of supercapitalism. The global free market is eroding individual liberty and effective popular sovereignty in the Anglo-American world itself. Huge business organizations are so powerful that they overwhelm the capacity of democratic institutions to constrain them.

Both China and Russia are exhibiting strong economic growth, largely through participation in the global economy, without building democratic institutions. In China, the Communist Party is welcoming wealthy business leaders into its ranks. And a compliant middle class is a cornerstone of a repressive, re-centralizing regime in Russia. The fact of growing middle classes in both China and Russia is not translating into sentiment for democratic reforms because citizens will forgo venues for expression and coordination in exchange for opportunities to consume.

In India, the developing world's other emerging powerhouse economy, measures of economic freedom fall well below middle-income country averages. Despite being a democracy, India is also less open to the world economy than China, which suggests that developing-world democratic institutions can be a barrier to full engagement in global economic opportunities.

Democracy throughout South Asia has been derailed by dynastic politics, where trust depends on personalities rather than institutions. Winning elections is based on patronage and upon the selective dissemination of resources as private goods to party loyalists. Political parties typically lack respect for parliamentary duties.

Where democracy has enabled a culture of impunity for those who can afford it, citizen cynicism often nurtures extremism. Mandelbaum acknowledges the danger of extremism in democracies, because radicals enjoy the protections of due process. But in South Asia extremism thrives because democracy has failed to provide the mass of citizens with basic endowments of health, sanitation, literacy and public security.

When Anglo-American type firms expand their operations overseas, Mandelbaum's theory would assume the values and habits of the governance standards required in their home markets are promoted in new markets overseas. However, the American investor seeking overseas partners in under-institutionalized markets is often best satisfied by well-connected partners, often firms owned by entrenched elites with insider connections to political officeholders.

Western corporate collusion in the entrenchment of small cliques of wealthy families creates enemies for global capitalism. This enmity helps to explain why many outside America view U.S. democracy activism as a form of guiltless imperialism. As they see it, such activism opens the door for the supercapitalist, come to despoil the hapless masses.

The expectation that market capitalism will create social foundations for the spread of democracy fails to anticipate the capture of weak democratic institutions in emerging states by wealthy minorities. Supercapitalism is carpet-bagging on a global scale.