Exacerbation of the contradiction between democracy and capitalism

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from Alicia Puyana

While the 2008 crisis called into question the fundamentals of economic theory over which the model of global growth had been sustained for the last three and a half decades, today we witness the crisis of liberal democracy and neo-liberal economics (Bauman, 2016), of the Social Democracy doctrine, the New Labor and waning The Third Way, as well as the fading out of the unrestricted support of globalization (Rodrik, 2017). Some foresee it as the end of the Pax Americana, or US hegemony established since the end of the Second World War and the world order that emerged thereafter (Roubini, 2017). For Trump, the costs of maintaining US imperialism are unacceptable; qualifying NATO as obsolete and its members as free riders and suggesting nuclear proliferation of Japan and Korea while keeping the USA “at the top of the pack” (Trump 2017) would be a sensible strategy, as it would reduce for the US the cost of defending these countries. In reality he is not an isolationist. He aims at controlling word order in his own terms: reinforcing the military power elements of the international security policy and weakening the elements of world peace, that inspired the II WW peace agreements and described in  F.D. Roosevelt 1944  State of  the Union Speech (Roosevelt, 1944), for whom security was not only preventing foreign aggressions but also avoiding any threats to  economic, social and moral security, because a basic element of world peace is  “a decent standard of living for all individual men and women and children in all Nations” (Roosevelt, 1944). Furthermore, for Roosevelt, peace depended on “…freedom from fear which is eternally linked with freedom from want” (Roosevelt, op cit.).  

Exacerbated globalization has made clear the contradiction between democracy, which proclaims equality among all human beings and a capitalism that sanctions inequality, that inequality in wealth which supposedly guarantees investment and an economic growth and would end poverty. If property is the basis of freedom, the concentration of wealth impedes equality in freedom and in its exercise. One characteristic of neoclassical economics’ models and the policies it backs is its lack of support and even disapproval of democracy (Radford, 2016). The same author adds that the principle of efficient allocation under conditions of scarcity leads to rejecting every attempt of redistribution of income and wealth downwards.  This rejection is consistent with Lucas (2004) for whom: “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion, the most poisonous, is to focus on questions of distribution”. All this led to the metamorphosis of economics, from a social science to a completely sanitized discipline that subordinates the state and society to the dictates of the market. In this way it came

“to reject all heresies, in any organized form, that is to say, anything that seems to threaten the sanctity of property, profits, appropriate tariff policy, or the balanced budget, or implied sympathy for unions, public property, or the poor” (Galbraith, 1974, p. 239).

Thus, adds the author,

“… converting economic theory into a non-political discipline – neoclassical theory destroyed, by the same process, its relation to the real world” (Galbraith, 1974, p. 240).

This distancing from the real world deprived economists and politicians from an understanding of the world and the will of the electorate.

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