What Democracy and Free Market Capitalism Have in Common

by Benjamin Studebaker

Many on the left love democracy but distrust capitalism. We often hear people argue that democracy is the antidote to the ills of capitalism–that we ought to increase the role of democracy in our political system, making political processes more direct and more consensus-driven. But I find that when we really think about the fundamental premises underlying these systems, they have some important things in common that we ought not to gloss over.

One of the key issues with capitalism is that it presumes that people will voluntarily make optimal economic choices. Many capitalists oppose progressive taxation and government welfare programs on the grounds that these programs are unnecessarily coercive. They believe that if we leave these tasks to the market, people will voluntarily allocate the funds necessary to deal with them adequately. Capitalist politicians like British Prime Minister David Cameron believe in a “big society“–to varying degrees, they think that those with excess funds can and will voluntarily donate money to those who are in need, making coercive government programs unnecessary. Similarly, US presidential contender Jeb Bush recently proposed replacing Medicare with a voucher system. Bush believes that the markets will take better care of people than the government can.

In practice, we have consistently found that this isn’t true. When we get rid of welfare programs, charities do not immediately step in to fill the gap. Consumers do not act in the long-term social interest. Instead, many people end up much worse off, and some end up on the street, having to do without. When we eliminate government programs and replace them with private sector voucher programs, expenses skyrocket. Because healthcare and education are necessary to a successful life, people will pay extremely large amounts of money to get these things. So when they are provided for by markets, the result is ever-increasing prices, with only the rich able to afford the highest quality services. Charities do not step in to fill the gaps. Instead people go broke paying medical expenses. They have to take out massive student loans that increase in size every year. Many just do without.

Faced with this reality, most capitalists have accepted to some degree one of the left’s fundamental premises–the markets will not take sufficiently good care of people without coercive government redistribution. Ordinary people will not voluntarily donate enough to charity. There are some important social goods that only the central government can adequately provide for. We have to have a progressive tax system and we have to have a welfare state. There are some essential services that the government must handle, like healthcare and education. Left to their own devices, consumers will often unintentionally make choices that will make themselves and others unnecessarily worse off.

Some libertarian capitalists deny this. They go so far as to argue that the results capitalism produces are optimal because they are the result of the capitalist process. Under capitalism, suppliers will only provide the goods and services that are demanded by consumers. If the economy takes $1 million in investment capital and uses it to make thousands of Beanie Babies instead of using it to feed hungry children, libertarian capitalists argue that this is for the best because consumers demanded Beanie Babies and not well-fed children. If consumers preferred well-fed children, they would donate their money to charity instead of using it to buy Beanie Babies, and there would consequently be no reason for suppliers to bother manufacturing Beanie Babies in the first place. This means that libertarian capitalism is frequently accompanied by moral subjectivism–libertarian capitalists believe that it is good to make whatever consumers desire simply because consumers desire it and for no other reason. The fact that the goods and services are desired makes them good. Nothing else comes into it.

If this view were implemented, it would have horrifying consequences. For that reason, very few serious politicians and parties hold this extreme view, though you can certainly find libertarians who do espouse it, particularly in the United States.

And yet, when we talk about democracy instead of capitalism, we find that people are much more persuaded by this argument. Think about it:

One of the key issues with democracy is that it presumes that people will voluntarily make optimal political choices. Many democrats oppose undemocratic institutions on the grounds that these institutions are unnecessarily coercive. They believe that if we leave these tasks to the deliberating public, people will vote for politicians and/or policies that will justly and efficiently allocate resources. Political theorists like Noam Chomsky believe in “direct democracy”–to varying degrees, they think that voters can and will make good political choices, making institutions run by experts or professionals unnecessary.

In practice, we have consistently found that this isn’t true. When we leave things up to voters, they frequently make short-sighted and ill-informed choices. Voters often support parties and policies that eliminate or privatize essential government services, refuse to take sufficient action to deal with climate change, start unnecessary wars, eliminate or fail to enforce important regulatory safeguards, and so on. Consequently, voters often unintentionally make themselves and those they care about unnecessarily worse off.

Faced with this reality, we do absolutely nothing to protect ourselves from our political system’s imperfections. Some deny these imperfections exist in the first place. Others go further. There are proponents of “deliberative democracy” who believe the results democracy produces are optimal because they are the result of democratic processes. Under full democracy, policies will only be enacted if they are desired by voters. If voters take billions in tax dollars and choose to give them to the rich through tax cuts rather than use them to feed hungry children or improve other public services, deliberative democrats argue that this is for the best because voters demand tax cuts for the rich and not well-fed children or good public services. If voters preferred well-fed children or good public services, they would vote for it instead of voting for tax cuts, and the tax cuts wouldn’t happen. This means that deliberative democracy is frequently accompanied by moral subjectivism–deliberative democrats believe that it is good to enact whatever policy voters desire simply because voters desire it and for no other reason. The fact that the policy is desired makes it good. Nothing else comes into it.

Democracy and capitalism have their uses, but to be effective they need to be soundly regulated and we need to recognize that there are areas of our social lives where they really are not well-equipped to deal with the problems we have. Many people–even those on the right–recognize that capitalism is not a universal solution. Especially outside the United States, the debate is not about whether capitalism needs to be restrained, but how much restraint is needed and the areas of economic life where restraint is most important. Arguably we still often make the wrong choices, regulating capitalism less than we should and applying it in places where it really is not ideal. But at least we are having this discussion. When it comes to democracy, we do not yet even have wide recognition that democracy has limitations in the first place. Many people believe we need more democracy in precisely the areas where we need less, that our democracy is not pure enough. They are little different from the libertarians who continue to insist that our healthcare or education systems would be so much better if we left them to the markets, arguing that past failures are due to our capitalism’s insufficient purity.

The criticisms leveled at this argument for limiting democracy are the very same as the criticisms we so often see libertarians level at the welfare state. Libertarians claim that the left has no faith in people, that leftism is a pessimistic and cynical ideology that holds that people don’t know what’s good for them. The trouble is that historical experience has shown us that this is true–left to its own devices, the market doesn’t always produce good outcomes for everyone. Consumers don’t necessarily know what’s good for them. Why do so many people think that consumers can sometimes act foolishly but that voters are infallible? Consumers are voters. If one can make mistakes, so can the other.