Capitalism versus democracy: The free market and the 2012 elections

A spectre is haunting American capitalism–the spectre of democracy and the 2012 elections.

As the 2012 campaign season unfolds what has become so fascinating is the degree to which it is becoming a referendum on capitalism both in the United States and across the world. Yet this is not an election where the most forceful criticism is coming from the socialist left demanding a revolution, but at least in the United States it is being driven from the right by the TEA Party and the likes of Newt Gingrich criticizing Mitt Romney and venture capitalism. All of this highlights the tension or unease there is in reconciling democracy and free markets, populism and capitalism.

Historically many argue that there is an interconnection between the rise of capitalism, religion, and democracy. Both emerged roughly at the same time in Europe during the sixteenth and seventeenth centuries. Scholars asserted that the concept of economic liberty and being free to act as the pejorative economic man in the market place reinforced and gave impetus to the individual liberty and the right to make choices in the political marketplace. Limited government protected both economic and political liberty.

Milton Friedman, in his classic Capitalism and Freedom emphasized this connection, seeing not only historical connections between free markets and individual freedom, but such a connection remained critical to the present. When the gates of communism came crashing down in the 1990s many argued that a prerequisite to building democracy in these former totalitarian states was first privatization of state enterprises and the establishment of market economies. To a large extent, the evolution of western capitalism and democracy have been inextricably connected. To many, it is no coincidence that the American Declaration of Independence and Adam Smith’s Wealth of Nations were both penned in the same year.

Yet capitalism and democracy or free markets and limited government are not always reinforcing but can be in tension. Chile under Allende was the epitome of free market capitalism and totalitarianism. Similarly China has perhaps the most successful capitalist system in the world right now under the direction of an oppressive state with limited political freedom. But in the United States, we supposedly have blended the right combination of capitalism and democracy. But in 2012, that blend is on the ballot this November.

Now of course one immediately thinks that the questioning is coming from the left. The Occupy Wall Street “We are the other 99%” is a serious critique of the growing mal-distributions of wealth in America since the 1970s that come to equal that of the early 20th century. Repeated reports document a country where the rich have vastly increased their incomes and share of the wealth at the expense of others. It is a country where social mobility and the belief of anyone can emerge from poverty and become rich is tempered by the reality that the US has the lowest social mobility of any major western country. We are a country torn by high degrees of economic and racial segregation in schools and neighborhoods. One would think this would be the referendum on capitalism slated for this November.

Or perhaps it is Obama-socialism, at least as described by those on the right that is what is driving the critique. One might think that Obama’s tepid embrace of Occupy Wall Street, his push for universal health care, his bailouts of banks and the auto industry, and his flaccid regulatory reforms would be the cause of placing capitalism on the ballot. But it is not. Instead it comes from the right.

Internationally, the European debt crisis that started in Greece and spread to Italy has been driven the critique not against capitalism but democracy. With clear political majorities in these countries rejecting the type of financial restructuring and cuts in government services demanded by the European Central Bank, the IMF, and the World Bank, Greece and Italy were forced to remove their leaders and replace them with technocrats more supportive of what the financial institutions wanted.

In the US, the most forceful criticism has come from the TEA and Republican Parties. The Tea Party is a populist group critical of what it perceives to be the creeping socialism of Obama and the Democrats. Michele Bachmann repeatedly excoriated Obama as a socialist. But she did the same in her attacks on fellow Republicans.

But now there is Romney. Romney is the Gordon Gecko of 2012. His work as a venture capitalist at Bain led to the take over and destruction of many companies and jobs and, fair enough, the creation of many other news jobs. But Gingrich and Perry have attacked him, making venture capitalism as dirty word as socialism. Their critiques about Romney destroying jobs, companies, and communities and creating new ones overseas or at wages far inferior to the old ones lost are devastating. Gingrich right now is offering the most powerful critique of capitalism there is. But so is Ron Paul in demanding return to the gold standard and in attacking the Federal Reserve. Both are playing on the anxiety of an electorate rightly worried that capitalism has abandoned them.

The Republican nomination process thus is surprisingly turning into a referendum on capitalism. Romney is the mainstream candidate who is the pro-business-cut-the-taxes type of candidate. He is opposed by Gingrich, Paul, and Perry, who are seeking to rally popular support against this type of capitalism. Never mind that they may be hypocrites or that their solutions are perhaps more capitalism and less democracy or government regulation of business and economic redistribution to solve the problems of capitalism.

These attacks on Romney scare too many Republicans as hitting too close to home and now the chickens are coming home to roost. Demands from many Republicans to knock off the on swipes at venture capitalism are illuminating the popular anxiety many have that perhaps free markets do not always serve the people, and capitalists themselves may not always be supportive of democracy.

David Schultz

David Schultz is a professor in the School of Business at Hamline University.