Capitalism and Democracy In Symbiotic Conflict

April 19, 2013 § 1 Comment


In the following essay I will describe the conflict between capitalism and democracy; how that conflict has developed; how the conflict can either benefit or threaten both capitalism and democracy; and how recent changes in the uses and availability of political money affects that conflict.

The Conflict Between Capitalism and Democracy

I recently read two essays by Peter Radford.  He is the publisher of The Radford Free Press, worked as an analyst for banks over fifteen years and has degrees from the London School of Economics and Harvard Business School.  The essays first appeared in his own journal and then in the Real World Economic Review blog.  Here are links to the blog posts:

First Post

Second Post

I have cited the blog posts rather than  Radford’s journal because the second blog post responds to comments made in response to the first one.  Also, the comments to both posts are interesting and informative.

As stated, Radford is not an academic.  His descriptive references to capitalism are informed by his past employment by two large banks.   Here is his comparison of capitalism and democracy:

“It isn’t capitalism that created the American middle class. It was democracy. Which is a countervailing force pressing against capitalism. Democracy is the mechanism through which the likes of you and I prevent the pillage that unfettered capitalism encourages. And it is the method we use to make sure we get our fair share of the collective spoils.

So, you see, capitalism and democracy are locked in a fight against one another. They cannot abide each other.

The one concentrates wealth by encouraging greed, exploitation, monopoly, and conspiracy. The other distributes wealth by enforcing the tyranny of the majority, constraining liberty, establishing rules, and forcing apart those conspiracies.”

Notice there is no mention of the economic system described by Adam Smith, the one that achieves efficiency through competition and division of labor.  No.  Mr. Radford, the veteran practitioner of capitalism, understands how it actually works in twenty-first century America.  In fact, he observes that capitalists “despise competition” and seek every way possible to diminish or destroy it.  The adherents of democracy, eager to escape exploitation at the mercy of monopolies, impose anti-trust laws that are resisted by capitalists.

A Brief History of Freedom

Radford  offers an insightful discussion of the word “freedom”.   He uses history to explain how the word came to be used in two different ways by capitalists and the rest of us.  In Medieval Europe, property was owned by kings and the aristocracy, but kings controlled its use.   As wars required money and soldiers, the landowners were able to force kings to limit royal control over their land in exchange for armed soldiers and increased taxes.   As this process progressed, the concept of “freedom” was equated with the right to control the use of one’s property.

At this stage in history, freedom had nothing to do  with the wishes or welfare of common people, who were landless.  Finally, as the feudal era ended, towns were organized around commodity markets.   A new class of merchants, tradesmen and artisans  emerged.  The members of this new class acquired small tracts of land and became protective of their right to use their property.  This was the situation at the time of the American Revolution.

In America, free land was available on the frontier and those who became landowners saw the efforts of England to impose taxes and to limit their right to import and export commodities as encroachment on their freedom to own and use their property as they chose.   Again, the protection of those property rights had no relationship to those with no property.  When the Revolution was successful, the new American government did not provide for or guarantee any voting rights for the landless.  Our Constitution was designed to limit government’s authority, but it was adopted by the votes of landowners as fearful as Mitt Romney that their property rights would be threatened with taxation by those without land.

Industrialization produced a new class of workers, whose interests and rights were not land-based.  These factory workers and miners  conceived of freedom as the right to vote and to have some control over government’s right to impose taxes, to limit their right to travel, to marry, to raise their children, to organize and bargain with their industrial employers for a fair share of the results of their labor – rights that were not related to property ownership.

Finally, another very significant result of industrialization was the replacement of human landowners  with a new corporate aristocracy.  This  transformation has had a significant effect on the nature of the struggle between democracy and capitalism.  In feudal Europe and pre-industrial America, human landed aristocrats were subject to some moral strictures.   Although slavery became common, and was not affected by compassion or empathy, there were, at least, some religious forces that affected the way that landowners treated those dependent on them.  When they were replaced in the industrial age with corporations, those influences ended.   Corporate masters respond only to the drive to make profits and the only moderating influence they respond to is the threat of punishment if they disobey laws.  When that threat, which results from the force of democracy. disappears, they become oblivious to everything except “the bottom line”.

A Recent Example:  The Banks and Dispossessed Homeowners

In 2007 – 2008, Wall Street banks capsized financial markets by bundling vast numbers of residential mortages in derivative products, obtaining false ratings for the value of the derivatives, and selling  them to pension plans, government agencies and other investment groups all over the world.  When the truth about the value of those derivatives finally became known, the scheme collapsed and our current recession as well as some of the current economic problems in European countries resulted.

This caused  panic in Washington near the end of the second Bush administration.   The banks threatened to convert the mess they had created into a bottomless financial disaster and the government paidthe ransom demanded by the banks and their complicit “credit default swap” partners.  The perpetrators’ potential losses were covered one hundred cents on the dollar..    There was no mutuality to this deal.  The banks made no enforceable promises to use their lending capacity to alleviate the results of their wrongdoing.  No fines were paid.   The massive fraud was entirely unpunished.

A part of this episode consisted of local banks, eager to provide the fodder for the creation of the above-stated derivatives,   making thousands of loans without any attention to the ability of  the borrowers to repay them.  Contrary to the claims of the GOP, most of these bad loans were not the result of government policies encouraging banks to make residential housing available to middle class  borrowers.  Those policies may have contributed in some way to the problem, but no government policy encouraged or enabled Wall Street bankers to securitize the mortgages securing those loans into derivative products and then fraudulently market them.

When the recession began and layoffs occurred, many homeowners became unable to make payments on their loans.  At the same time, far from trying to moderate the harm from these problems, the banks began aggressively foreclosing on homeowners and severly damaging the housing market.  Widespread misconduct  characterized these foreclosures,  including forging signatures on loan documents, filing false court papers and erroneously foreclosing on mortgages even if the payments on the underlying loans were current

The victimized homeowners sought redress in class action litigation.  That litigation was recently settled.  The settlement required the banks to pay a small fraction of  the amount of the damage they caused.  The average payment to a homeowner who was thrown out of his or her home was $500.

Meanwhile, during the current recession, Wall Street bankers have enjoyed record profits and bonuses.   The  stock market has risen to unprecedented heights.  The pain has not been shared by those who caused it and, in testimony to a congressional committee, the Attorney General acknowledged that the “to big to fail” banks have proved also “too big to jail”.

This, in  part, explains my feeling that, from 1890 to 2013, during the industrial age and beyond. there has been, as Radford argues, a conflict betwween the capitalists and democracy and, so far as I  can see, the capitalists have won.

The Nature of Political Power

Because Democratic Party candidates have won four of the last six presidential elections, and because Barack Obama just won re-election, my pessimistic ranting may seem inappropriate, even ungrateful.   Of course I am relieved that Mitt Romney is not President.  But, in terms of the subject of this effort, the tension between capitalism and democracy, I am not sure that Obama and Clinton, the two winners in those four elections, represent a triumph of democracy.

Is Obama’s  rhetoric about the urgency of “solving” the “debt crisis” significantly different from the RNC talking points?  What is the explanation for his peculiar negotiating style:  Make an opening offer that concedes the opponents’ primary argument?   When he proposed the “sequester”, did he really believe that the GOP would never allow it to become law?  And, now that it has become law, is  there any reasonable basis for believing that some less damaging alternative will be embraced by the GOP?  If the  Senate filibuster could have been defanged  in January with a simple majority vote, why wasn’t it?  What did the GOP threaten in reprisal that would have been as damaging as the filibuster rules?

In a recent episode of “Up With Steve Kornaki”, I heard a panelist succinctly describe political reality:  “There are two kinds of political power:  money and constituent base.”  Well, so far, money has not been able to determine the outcome of presidential races.  But state legislative races seem to be very vulnerable.   The score card on voter suppression is not encouraging.  If you’re more than 200 miles from one of our oceans and 100 miles South of the Canadian border, you’re screwed if you are interested in expanding voting rights.  No, I haven’t actually checked to see if that’s true, but I’ll bet it’s not far off.

I think of political parties as mechanisms for requiring or, at least, demanding that political candidates adhere to a set of values and principles.  So, when candidates depend on political parties for money, I regard that as a helpful antidote to their temptation to sell out to the highest bidder in the political money scramble.   The Citizens United decision has undermined that potential effect.  Now, corporate America can establish superpacs dedicated to supporting or opposing any political candidate and anonymously contribute unlimited amounts of money to them.  The voters will have no  way to know what deals have been cut or what promises have been made.

Here’s a link to an April 10 NY Times article that describes how this new Supreme Court designed invitation to political bribery works.   Superpacs

It seems to me that our technology has enabled a relatively small number of giant American corporations to dominate global markets, including financial markets, and to control barely imaginable amounts of money, thus becoming, as stated earlier, too big to fail and too big to jail. These corporations, joined by a host of smaller ones,  have managed to manipulate our government during the past forty years in ways that allowed them, not only to become big enough to bully the forces of democracy, but also to revise the tax system in ways that have created a gross inequality of wealth.  Wages have stagnated while the wealth of a few Americans has skyrocketed.   In terms of wealth inequality, America ranks second in the world.  The GOP warns that we are in danger of becoming Greece.   In  fact, I think we may have already become Mexico, except we have no handy neighbor, except Canada, to which we can export our impoverished working class

So far as concerns the “constituent base” component of political power, the capitalist forces have solved that problem by guiding their state legislative departments to design constituencies that do not threaten their interests.   I have read that 80% of Congressional districts are so designed that general election outcomes are decided by margins of 10% or more.  [For a thorough and interesting analysis of this phenomenon, see this post in the Five Thirty-eight blog.]  “Throw the rascals out” is an empty threat in such districts.   The collapse of any effort to limit gun rights demonstrates that “profiles in courage” are in very short supply in the U.S. Senate.  Even when over 90% of Americans demand action and the President is roused to active participation, only fifty-four of the one hundred Senators were willing to offend a lobbyist association like the NRA, which itself had the “courage” to ignore the opinions of a majority of its own members, in order to kow-tow to a group of weapon manufacturers.

In addition to designing constituencies, capitalist forces have also managed to shape the electorate in many states by limiting the period of time for voting and by requiring that voters have picture ID”s.

These defeats for democracy are continuing and, given the new power that the Supreme Court has bestowed on those who control wealth in this country, I see no reason to believe that the trend toward autocracy will not continue.

To summarize, the capitalists have enough money to bribe or threaten most political candidates.  They also have learned how to herd those subservient agents to create ways to control and manipulate the electoral process so that democracy is, at best, a mild threat to capitalist interests.

A Self-indulgent Conclusion

I tend to see technological changes as being accompanied by institutional changes.  Professor Ayers at UT taught me that “accompanied by” is correct, not “caused by”.  In the past, I have thought of this relationship as a hopeful one.  I saw technology avoid the grim predictions of Malthus, the prediction that we were “running out of energy” giving way to nuclear discoveries and, currently, to the expansion of natural gas availability.  The diseases that were the scourge of medieval times have been vanquished by modern medicine.  It remains to be seen how the threat of climate change will fare, but the technological solutions are plainly available.

I thought that digital technology and the internet would be a liberating force, enabling ordinary people to organize themselves into  powerful coalitions, free of control by corporate media, and thus obtain a better bargain with their governments and the corp;orate giants that control so much of their lives.  I now have serious doubts about those hopes.  The communication marvels that now span our planet have  enabled some corporate giants to access, exploit and influence, for good or evil, global markets.  Twitter, Facebook and other popular digital meeting places, except for some instances in the Middle Easts’ recent upheavals, have proved to be mere distractions for ordinary people.  I see small evidence that they have strengthened democracy more than they have the interests of capitalists.

Radford’s description of the history that has led us to the present situation reminded me of a very old story.  Now, having given the matter more thought, I have concluded that the triumph of capitalism was not inevitable, as I once intended to illustrate with the story.  I just think  that, right now, the future looks bleak.   But, I like the story so  I’m going to  finish with it because I like to share things I like.

An Appoinment in Samarra

There is a very old story, told many times in many contexts.   Its earliest appearance, so far as I can find, was in the Babylonian Talmud Sukkah 53a, written about 1500 years ago.   Somerset Maugham and John O’Hara used it to launch stories.  Here is Maugham’s version:

“The speaker is Death

There was a merchant in Bagdad who sent his servant to market to buy provisions and in a little while the servant came back, white and trembling, and said, Master, just now when I was in the marketplace I was jostled by a woman in the crowd and when I turned I saw it was Death that jostled me.  She looked at me and made a threatening gesture,  now, lend me your horse, and I will ride away from this city and avoid my fate.  I will go to Samarra and there Death will not find me.  The merchant lent him his horse, and the servant mounted it, and he dug his spurs in its flanks and as fast as the horse could gallop he went.  Then the merchant went down to the marketplace and he saw me standing in the crowd and he came to me and said, Why did you make a threatening gesture to my servant when you saw him this morning?  That was not a threatening gesture, I said, it was only a start of surprise.  I was astonished to see him in Bagdad, for I had an appointment with him tonight in Samarra.”

In the Talmud, after recounting a similar tale, King Solomon said, “A man’s feet are responsible for him; they lead him to the place where he is wanted”, which I interpret to mean that flight from one’s destiny is futile.

§ One Response to Capitalism and Democracy In Symbiotic Conflict

  • Jim Kubiak says:

    Bob, I am nearly overwhelmed at the analysis of our problems and the succinct statements of the causes.

    I too despair that a solution can be found. That is what pains me the most.

    I thank you for what you have written here and for your diligence in putting these thoughts together.

    Thank you for your wisdom.


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