Sunday, August 12, 2012

Capitalism and Democracy: Can they Coexist?

Many people are out of work right now and struggling to make ends-meet. They may be questioning the fairness of an economic system that is presently increasing the income gap between the rich and the poor. For example, many in the United States took to the streets last summer in protest during the “Occupy” movement. I was alarmed at how many people seemed to be simplistically blaming capitalism for all of the global economic problems. I interpreted their message as being a democratic uprising to end capitalism and install a more egalitarian societal system. But I will explain to you why I think this reasoning is flawed.

In this essay I argue that Capitalism and Democracy are entirely compatible with each other. More precisely they are two very distinct concepts that complement each other very well. The two concepts shall be broken down into their constitutive conceptual elements so that we may compare and contrast them to see how I postulated my conclusion. You, the reader, will notice that although Capitalism and Democracy deal with different domains of society, they share many fundamental features. Where Capitalism deals with the creation and exchange of products and materials, Democracy deals with the creation and exchange of ideas and opinions. When you are finished reading, hopefully you will see that both concepts possess central tenets that rest on the idea of liberty, choice, and decentralization, and that they are indeed absolutely compatible with each other.

Democracy is a special form of societal governance because decisions are not made by a single individual or group. Democratic societies view their citizens as independent and autonomous entities with their own unique drives and goals. This is known as individualism. Citizens have free will and are knowledgeable enough to make choices that benefit them. As such, they view coercion and other such assaults on free will as something undesirable that should be avoided. Violence and the threat of harm is the most ancient form of human coercion, so democratic societies have laws set in place to discourage it among the population. These are generally known as Human Rights. Citizens are free to do as they so please as long as they are not interfering with other citizens’ Human Rights. Individuals are generally united in their common goal to achieve prosperity, happiness and good health, despite the fact that they each may have their own unique ideas about achieving it. As an extension of free will, all citizens must be involved in the matters of the state/society/group. This occurs through public discussions where every citizen is given the chance to have their ideas and opinions heard. In modern societies with large populations, citizens elect leaders to represent their interests during these public discussions. Through these exchanges of ideas and opinions, citizens discover new and innovative ways to cooperate with each other to achieve their goals. Ideally, group decisions must be made with group consensus, meaning that every single individual agrees to the decision. When consensus cannot be reached, decisions are made by the majority or through compromise. Individuals seek power not through violence or coercion, but rather, with political influence. What this means is that a person in a position of authority (i.e. the president, politicians) is dependent on the support he receives from other citizens. In this sense, power and influence is decentralized. If a Politician begins to do things that the citizens do not like, the citizens simply withdraw their support and the Politician can no longer influence public policy. This is usually done through the process of voting. A skillful politician finds the common ideas that unite the citizens and gains their trust by reflecting those ideas back on to the citizens.

Capitalism is a special economic system for very similar conceptual reasons as Democracy. Capitalism is the production, trading and proliferation of commodities to achieve profit and growth. Commodities are essentially modified and refined resources which have value, meaning they improve the quality of life of its owner. They are analogous to ideas in democracy.  Quality of life is an umbrella term for prosperity, happiness and good health, which as you may recall is one of the common goals among citizens of a democratic society. In fact, among the many Civil/Human Rights stated in democratic constitutions you will find something called the “Right to Private Property”. The Right to Private Property allows individuals to own commodities which are protected in ways that are similar to Human Rights, and can be considered as an extension of the individual. As such, an individual can accumulate commodities which serve to increase her quality of life. In this way we see that Capitalism benefits Democracy and vice versa.

The act of trading is when one party gives away a commodity in exchange for another commodity of equal value (may also be referred to as buying and selling). Value is usually measured in currency, a universal yardstick. The value of a commodity is determined on the free market through the homeostatic balance of supply, demand and competition. If the supply of the commodity increases, it is more accessible and thus becomes less valuable. Similarly if the demand increases, it is less accessible because more people want it and thus it becomes more valuable. As such, the scarcer the commodity is on the market, the more valuable it becomes. Businesses are entities whose main goal is to achieve profit and growth by selling commodities on the market. Profit is achieved by selling a commodity for a higher price than it cost to produce. Businesses cannot sell their commodities for too low a price otherwise they are not profitable and fail. They cannot sell for too high a price neither because buyers will simply buy from another business for cheaper. This is competition. As such, businesses must find a middle ground that is profitable yet cheap enough for buyers. This drives efficiency and innovation as businesses find ways to cut costs and increase profit margins. If you understand the concept of the free-market you also understand that these free-market forces are decentralized just like political power in a democracy is decentralized.

However, some folks may argue that Capitalism goes against democratic ideals of quality of life since it produces commodities that are harmful, like guns. Guns are a tool for causing violence and are against the principles of Human Rights because they are used for coercive purposes. I would respond that, although democratic ideals are against violence it does not change the fact that the world is a dangerous place where many people do not accept these principles. Guns improve the quality of life of their owners by enabling them to protect themselves, their families and their property from people who mean them harm.

Other critics may point out that Capitalism often uses exploitation to increase profits and growth. Exploitative techniques such as cheap labor are harmful to individuals because it is oppressive and creates profit at the individual’s expense. How can something which promotes exploitation be compatible with democracy? I respond that, even though capitalism may be exploitative, reckless and at times blind to human suffering, it creates choice. Through this choice it creates opportunity and growth in the long term. For example, a subsistence farmer in sub-Saharan Africa is given the choice to go work in a sweatshop. The working conditions in the sweatshop are terrible for her (judging from our comfortable Western standards). But are they really much worse than her conditions as a subsistence farmer where she experienced uncertainty, droughts and starvation? This textile factory, mechanistic and exploitative as it is, offers a choice.  A choice that can lead to something more, a choice that can lead to growth. She may still be starving while working long hours under terrible conditions, but at least her children are near an urban center where they may get some sort of education. Although she may never escape the miserable conditions within her lifetime, at least her children will have more choices than she had, and thus a better chance of escaping poverty than she did. And if you recall, choice and free will are the central tenets of democracy.

With this brief conceptual break-down we can see that Capitalism and Democracy share many of the same fundamental ideas. Democracy deals with the exchange of ideas and opinions, whereas Capitalism is concerned with the exchange of commodities. Both are based on a system of decentralization and individual liberty. This is strong evidence in support of my statement that: Yes, Capitalism is compatible with Democracy. I would even venture further to say that, like two soul mates, Capitalism and Democracy were made for each other. In fact, if we look back in history we can see that they were both thrust onto humanity at the same time. I believe that more conceptual, social, and economic research would confirm my statement. It makes me think that some of my fellow citizens exercising their democratic right to protest against Capitalism (of all things!), really do not understand Capitalism at all! In fact, if it were not for Capitalism, they probably would not be allowed to protest in the first place! Although I agree that the present economic system could use some substantive improvements, I whole-heartedly disagree that Capitalism is the problem! 

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