In his work “Capitalism and Democracy,” Gabriel Almond explained that Schumpeter, an academic writing during World War II, “projected a future of declining capitalism, and rising socialism.”1 A look at recent events in America (including the nationalization of major industries and a general expansion of the welfare state) as well as the socialist bent of Europe will show that Schumpeter’s view was indeed quite prophetic. Almond explained that “in a democracy, the demand for publicly provided services seems to be insatiable.”2 Although capitalism is a more efficient and productive model than socialism, the political pressures inherent in a democratic system with universal suffrage inevitably will push nations towards the yoke of socialism.
Before we can do effective analysis, we must define what we mean by capitalism, communism, socialism, and democracy; these words all are loaded terms with different meanings and connotations to different people. Capitalism is defined by O’Neil as a “system of private property and free markets” where laissez-faire reigns supreme.3 This same text defines communism as the very opposite, “an ideology that seeks to create human quality by eliminating private property and market forces.”4 Socialism is defined as a system that prioritizes economic equality over individual freedom but still accepts a limited role for private ownership of property.5 For the purposes of this assignment, I use the definition of liberal democracy as a political system where universal suffrage, participation, and individual rights are guaranteed.
Almond quotes Schumpeter as saying, “”History clearly confirms… [that] … modern democracy rose along with capitalism, and in causal connection with it…modern democracy is a product of the capitalist process.”6 He refers to a book by Robert Dahl to back up the idea that democracy has only developed in societies where property can be privately owned. Almond also refers to Peter Berger when he says that “If a capitalist economy is subjected to increasing degrees of state control, a point will be reached at which democratic governance becomes impossible.”7 I would say that democracy is all about the freedom to make choices; allowing individuals to make economic choices (as in a fully capitalist system) prepares them to make political ones. China is a prime example. There greater economic freedom has cultivated a thirst for political freedom, even inside the Chinese Communist Party. In August 2008, Zhang Chunxian, then a provincial Communist Party Secretary, said that China’s reform efforts should focus on political reform instead of economic priorities.8
Capitalism does not always support fair and democratic institutions, however. There are examples of authoritarian capitalist regimes throughout the world, such as Germany and Japan during one point or another in their history.9 Almond points to the power of corporations as an example, saying that “modern capitalism with the dominance of the large corporation, produces a defective or an impaired form of democracy.”10 One need only look to the history of the so-called “banana republics” to see how corporations can undermine democratic institutions. Even Adam Smith, the father of modern capitalism, understood that businesses would seek monopolies and to corrupt public officials with bribes to maximize their profits; he saw a need for government regulation to ensure a competitive environment to maximize the productivity of the “invisible hand.”10 Regulations that keep businesses in fair competition also limit the negative influence that business can have on democratic institutions.
Almond explained that democratization has strengthened capitalism in the sense that by forcing through certain welfare programs and reforms, it has enabled capitalism to survive without resorting to substantial repression.11 By allowing capitalism to survive, it strikes “a pragmatic compromise…[that obtains] a measure of distributive justice, security, and social guidance of economic life without losing too much of the allocative efficiency and dynamism of private enterprise and market organization.”12
Ultimately, democracy subverts capitalism more than it strengthens it. Alexis de Tocqueville showed a clear understanding of this in his book Democracy in America, written in the early 19th century. He explained that in a country where universal suffrage allows the poor to dictate policy, expenditures will increase, because they “readily find means of regulating the taxes so that they are burdensome to the wealthy and profitable to the poor… the government of the democracy is the only one under which the power which lays on taxes escapes the payment of them.” 13 Recent events in the United States show this danger clearly. The Democratic Party that controls both Congress and the White House rely on the masses that pay little or no income tax for their power, and the vast increase in spending, Obama’s health care package and the nationalization of General Motors through the auto bailout show a perfect example of how the democratic process inevitably leads to socialism. The only way to prevent it is through reforms that make it impossible for those who contribute nothing in taxes to dictate policy by abolishing progressive taxation and thereby ensuring that all voters understand that every new expenditure has a direct cost for them. However, the political climate in America makes such reforms impossible. Thus we see that democracy is far better suited to a socialist than a capitalist system. The danger is that the welfare state’s “steady encroachment on the private sector has been slowly but surely converting our free government and market system into a collective monster, compromising both freedom and productivity in the outcome.”14
1. Gabriel A. Almond, “Capitalism and Democracy,” Political Science and Politics 24 (1991): 467.
2. Ibid, 472.
3. O’Neil, p 89
4. O’Neil, p. 198
5. O’Neil, p. 65
6. Gabriel A. Almond, “Capitalism and Democracy,” Political Science and Politics 24 (1991): 468.
7. Ibid, 469.
8. Thomas Lum and Hannah Fisher, “Human Rights in China: Trends and Policy Implications,” Congressional Research Service, www.fas.org/sgp/crs/row/RL34729.pdf (accessed September 24, 2010), 1, 16.
9. Gabriel A. Almond, “Capitalism and Democracy,” Political Science and Politics 24 (1991): 468.
10. Ibid, 470-471.
11. Ibid, 473.
12. Ibid, 473.
13. Alexis De Tocqueville, Democracy and America, translated by Henry Reeve, (Project Gutenberg, http://www.gutenberg.org, originally published 1840), Chapter 13.
14. Gabriel A. Almond, “Capitalism and Democracy,” Political Science and Politics 24 (1991):, 471