Capitalism and Democracy: a match made in hell?

Rory Hamilton's article for The Nationals' In Common newsletter

Last night the French government was toppled after a short three month stint under the leadership of conservative Michel Barnier, making way for yet more political turmoil. This follows less than a month after the collapse of the “traffic light” coalition in Germany. The European Union’s two powerhouse economies and the traditional providers of leadership for the European Bloc are both in a governmental crisis, both with shrinking economies, and both with an insurgent radical right threatening the sanctity of French and German democratic institutions and rights. It would also be remiss to neglect the return of an even more unhinged Trump presidency in 2025, and the gains made by Reform in the UK.

The question on the lips of many political commentators, therefore, is whether this is the end of liberal democracy in the West?

I think this is the wrong question to be asking, however. What is it that all these countries have in common? They are all capitalist economies, and they have all seen programmes of austerity in years since the 2008 financial crisis. Rather than asking whether liberal democracy works any more or whether it is coming to an end, we should instead question the compatibility of capitalism with democratic institutions and practices.

Back in 2006, Head of Compass (and friend of Common Weal) Neal Lawson said that Blairism had inverted social democracy, forcing people to work to the interests of the market, rather than the other way around. [1] Market leaders or “experts” were to set the economic agenda for growth which would trickle down to ordinary people – they, in the private sector, knew best because back in the 1970s governments and public sector managers had messed it up so bad that they couldn’t be trusted with the economy. Ten years later, Michael Gove infamously declared during the 2016 Brexit referendum that “I think the people of this country have had enough of experts,” a statement which captured the rejection of the established economic order that the vote for Brexit encapsulated.

I’m not sure that Gove quite meant market leaders, but, he accurately got at the feeling that the people who have for 40 years claimed they knew best had failed to deliver any positive benefits for people at the bottom of the social ladder who saw movement above them, but received very little themselves in the way of a leg up.

So when we come to wonder today why the traditional leaders of the Western economy seem to be in perpetual crisis and flirtation with the radical right, the answer sits right before us.

Now, I’m a socialist, but I can accept that there are people out there (perhaps even reading this column) who believe capitalism to be the best way to organise the economy: it produces technological innovation, advances society, and finds innovative ways to create opportunities for people, and it is – at least theoretically – fair, in that it rewards had work and creativity with success.

The fact that each of these traits play themselves out differently in reality is very much conditioned by the presence, or not, of appropriate checks and balances which enable democratic oversight and finds a way to balance between the interests of the collective (at whichever scale of society), and those of the individual which these traits seem to favour.

As such, the relationship between democracy and capitalism is an equilibrium (in the words of economist Wolfgang Streeck). [2] On the one hand, political intervention into free markets to extract collective benefit sustains this equilibrium and legitimises the government; while on the other hand, these socialised corrections undermines the confidence of those in possession of capital (return our experts) which in turn upsets this equilibrium.

What this consistent rejection of experts tells us is that people are tired of being made to work for someone else’s interests (Marx might say they were alienated, but without class consciousness), and they are asking why the confidence of these investors is so important when they are the ones constantly upsetting the equilibrium.

At the very least, the Keynesian post-war settlement demonstrated that capitalism and democracy are compatible, but only when the equilibrium of interests is maintained. What is clear today is that the odds are stacked heavily in favour of those which market power and that means we not only need to ditch this unbalanced capitalist system but also that we need new forms of democracy capable of dealing with these ever-changing and competing interests.

After René Magritte, “ceci n’est pas une démocratie.”