I. Introduction 

In the last decade we have witnessed one of the greatest economic crises  in the modern history, which provoked numerous disputes and proposals looking for the way how to better counteract its devastating consequences. Since 2007-2008, some of those have worked and some failed, but the underlying tune is clear: politics and economy are indivisibly connected. Namely, democracy as the primary political order and ideology of the contemporary world, and capitalism as our economic system are working side by side for over the past 100 years. Both of those constructions dominate our everyday life, but with only very little information on how well they fit together. They influenced and formed each other, but it is important to question the existing The relationship and divorce between democracy and capitalismsystems and the relationship between these ruling ideologies. Both democracy and capitalism experienced an unprecedented rise in the 20th century, especially as after the fall of the Soviet Union the both could spread freely across Europe and Asia. The set of liberal ideas has dominated and still dominates most of the world. Democracy and capitalism established themselves as our only option for economic and political governance. Usually, everywhere where capitalism had appeared democracy also existed, and gave the framework for capitalism to develop into new and more effective forms. They seem like a perfect fit and complement each other. Only recently has the talks arisen that this relationship seems to crackle, the further capitalism develops the more it seems to break up with our existing democracy. Therefore democracy can be seen as a catalyst for the development of modern capitalism until the 21st century. 

 

II. Political and Economic Freedom 

The relationship between democracy and capitalism is a unique one. For democracy to be able to support and serve capitalism, their relationship must first be examined. As Milton Friedman stated, “there is an intimate connection between economics and politics” and they both influence each other. This connection is especially visible between democracy and capitalism, which both share the same fundamental principles of free choice and individualism. The central feature of the both systems is the ability they provide to choose what one desires: a voter picks a party or policy, and a consumer picks a product or lifestyle he/she endorses. Both see power in private hands: in a democracy a person not only can vote for a party or policy but is also free to develop his/her own ideas and policies and be elected into office, similarly capitalism envisages an opportunity for each person to be an entrepreneur and start his/her own business or company to sell products. These opportunities are central to the both systems since they rely on freedom, economic and political. To achieve those freedoms “only certain combinations of political arrangements are possible”, because other arrangements, such as a society organized on socialist principles, does not allow for the same freedoms. In a planned state-directed economy the essential freedom is lacking, because of the lack of political possibilities and limited economic options. Individuality and choice are not the crucial values for these systems. Therefore, a free market is important for economic freedom, and  for a free and liberal society, economic freedom is as salient as political freedom. The significance of both freedoms can be visible from two examples from the post-World War II world: citizens of Great Britain were not allowed to travel to the US, because of exchange controls so that British currency is not spent abroad, which is a restriction of economic freedom. In the years after World War II, American citizens were not permitted to travel to Russia, because of the constant ideological and political conflicts, which is a limitation on political freedom. Both of this examples show how similar and important both of those freedoms are in reality. The theorist of neoliberalism, Friedmann argues: “The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom.” Competitive capitalism that through its influence enables political freedom, therefore also supports democracy. But also democracy through its same shared ideas of freedom and choice supported the development of a competitive capitalism and both of those constructs balance each other. Also, the connection between political and economic freedom is clearly visible after the World War II, when the economy and politics worked through extended international trade and economic reforms. The economic order of a country is in most cases a representation of its political order and ideology, and vice versa. 

 

III. Democracy serving Capitalism 

Before the development of modern capitalism in the late 19th and early 20th century, many workers lacked fundamental freedoms and opportunities in Europe and the U.S. after the industrial revolution. They had to work long hours, in dangerous environments and earned the bare minimum for survival. Free market, free trade or regulations for building a substantial and self-sustaining market did not exist. Moreover, essential liberal fundamentals like individualism, freedom or choice were only vague ideas at the time. The ruling parties mainly followed laissez-faire, and did take very little part in regulating or policing the economy, in contrast to modern democratic governments like those of the USA or European countries which take an active role in economic issues. Institutions which were created in democracies to regulating economy enacting policies which include the foundations for the free market like introducing laws to protect private property and investment, building infrastructure, controlling of the currency through central banks, and protecting the economy with the help of tariffs. These institutions spend public money to create positive effects in the market, for example the “Abwrackprämie”, a cash back project in Germany, where the state financially supports those buying a new environmentally friendly car. Money may also be spent to prevent or minimise negative developments, for example the programs after the 2007-2008 crisis and the Great Depression in 1929 with funding banks and introducing new social programs. Such actions support the system which created this crisis in the first place, because the fatal consequences like rising unemployment, closing of businesses or banks, etc. are being prevented by public spending made possible by a democratic government. Such spending can be seen as supportive for the market and therefore capitalism, because the continued spending on problems created by their side effects without trying to prevent them would be much more costly. And thanks to democratic development in Europe and the U.S. after World War II, new economic ties between the countries via the EU and other international Trade Deals grew, making it easier to trade globally and expand the markets for enterprises. This trend heavily supports the national and international development of capitalism via the new economic markets and scale. Without the effort of democratic government such a speedy progress would never have been possible. 

Another factor for the development of modern capitalism is the sufficient supply of capable workers to support the existing system. This role is again filled by the state which spends on education and produces educated and intelligent people, who in consequence tend to become workers in the capitalist system. This need for young, educated workers has recently become quite apparent in Germany where economy demanded a higher numbers of university graduates to match the pace of job creation. The German government acted on this need and introduced the Bologna Process. This process envisaged a fundamental change for the degrees and the form of studying, from a 5-year Diploma to a 3-year Bachelor and a 2-year Master. As a result, graduates with a Bachelor Degree could start working earlier. 

Through this deep concern for the economy by democratic governments the influence on its development goes further. In a globally connected economy, it is nearly impossible for a market, a big bank, or other large enterprises to collapse. National or international institutions, created by democratic governments, such as the IMF (International Monetary Fond) or the World Bank, would counteract the failing through their famous bailouts. In this manner, the governments is supposed to correct the failures of the markets. Without these bailouts, the consequences could have been catastrophical and devastating. This already shows that we have moved on from the neoliberal idea of a completely free und self-regulating market. The current economic system in Europe and the US follows this development, and has abandoned capitalism as the neoliberal movement demanded it, but tried to adapt a more sensible and acceptable form of it. 

This is visible in the reaction to capitalism`s inevitable inequality and the popular demand for fair and acceptable treatment. The state counteracts these side effects through a welfare system, more so in Europe than in the U.S. In this sense, democracy is serving capitalism, because of its support for the economic system as it secures workers and incentivizes them to take part in this system. People who cannot work are taken care of and those who can work, work harder and better because they know they will be taken care of and will not be left to their own. Democracy ameliorated capitalism so that it would fit better together through the implementation of welfare programs. Democratic regimes, in general, offer the framework for a free market, global trading, security, counteracting monopolies, support in case of crisis and many more. Therefore, a democratic state allows capitalism as a economic system to grow and flourish under good conditions with complete support. 

 

IV. “Capitalism has broken free of the shackles of democracy” 

In the 21st century the dynamics between democracy and capitalism has shifted. In an essay titled “End of History”, Francis Fukuyama, a political economist, was writing in 1992: “That is, the end point of mankind's ideological evolution and the universalization of western liberal democracy as the final form of human government,” contrary to the socialist form of government of the 20th century. In his essay he describes how liberal democracy and capitalism are the final form of government and further development in finding new political or economic system is no longer necessary. After the fall of the Soviet Union, the ideology of democracy and capitalism spread fast and vastly around the world. 25 years later, the ideal is breaking apart. Slavoj Zizek, a Slovenian philosopher and psycho-analyst, states that “Capitalism has broken free of the shackles of democracy.” This a consequence of the capitalism's flexibility  and ability to adapt to different circumstances, such as religions, cultures and forms of government. There is no need for democracy anymore, this development can be seen for example in China and Singapore. Non-democratic governments are now building and supporting free market systems through policies, which are not as restrictive as in a democratic system with their sophsiticated welfare cushions and protective mechanisms. Competing with these countries and markets is difficult for democracies, because democratic governments need to articulate and act upon the common good, and achieve growth and equity, but are overwhelmed by the globalized interconnected market. In this market the arising conflict is between the idea of equality in democracy and the essential inequality in capitalism. This gap cannot be filled by the welfare state anymore and new strong nation-state acts are needed, but in a globalized market it is nearly impossible to enact independent monetary and economic policies. As a reaction to this development and the limitations on the governments to act politically and economically, new groups emerged. In Germany the AfD is the center for people who are unsatisfied with the current politics, in the USA it is Donald Trump who benefits from the people's frustration to rally them behind him. A surprising event came out of this development in Europe and the USA was, that the United Kingdom in July 2016 decided to leave the European Union, with many arguing that they want to keep their national sovereignty. 

In our current situation, a clear line between capitalism and democracy is needed. Democracy is losing more and more influence and many decisions are now made by the markets, as a consequence of deregulation and missing legislation. For example the Glass-Steagall Act, which split banks into normal private banks and investment banks, was revoked in the 1990s to allow for competitive banks. This partially led to the financial crisis in 2007-2008. Moreover, the Bretton Woods Agreement which stabilized the world economy after World  War II via fixed exchange rates, was also revoked and created international financial problems. There is intense lobbying goign on, and the transparency of mechanisms used to guarantee competitive advantages on the global market is very dubious. Today, as economy is partly making up its own rules, it creeps further into politics. It was not necessary for the current U.S. president Donald Trump, a real estate mogul from New York, who worked many years as an entrepreneur, to show any prior experience in politics, since his economic successes justified his ability to govern. At this point, the idea of capitalism is not going towards loosening its relationship with democracy. Currently, economic development and success are seen as the motors of society, necessary for societal advancement. Thus, capitalism is currently the dominating idea. 

 

V. Conclusion 

Capitalism and democracy have both developed into large ideological constructs over the last century that fit together perfectly. Democracy, via its social and economic friendly policies have helped lift up capitalism. In this development the line between them is getting blurry, because capitalism is gaining more and more influence and control. Now we are confronted with different problems. There seems to be no difference in capitalism as an economic system and ideology. As many philosophers, political and economic analysts suggest, we are in the need of new forms of governance. The main issue with finding a new order is that there is no valid and promising new constructs to imitate. In human history, there have been only a handful of economic and political systems, many of which failed or were not fair to broad population. If there is no alternative to our current systems and ideologies, then there is a need to improve the current dynamics. The goal should be to restore an arrangement between capitalism and democracy which works better in the future, until a new model for economics and politics can be introduced. 

 

Bibliography: 

1. Glaser, Eliane. "Bring Back Ideology: Fukuyama's 'end Of history' 25 Years on." The  Guardian. 2014. Accessed July 03, 2016. https://www.theguardian.com/books/2014/mar/21/bring-back-ideology-fukuyama-end-history-25-years-on.

2. Friedman, Milton. Capitalism and Freedom Fortieth Anniversary Edition. Chicago: University of Chicago Press, 2002.

3. McChesney, Robert W. Digital Disconnect How Capitalism Is Turning the Internet against Democracy. New York, NY: New Press, 2013.

4. Reich, Robert B. "How Capitalism Is Killing Democracy." Foreign Policy How Capitalism Is Killing Democracy Comments. October 12, 2009. Accessed July 03, 2016. http://foreignpolicy.com/2009/10/12/how-capitalism-is-killing-democracy/.

5. Wagner, Peter. "The Democratic Crisis of Capitalism: Reflections on Political and Economic Modernity in Europe." December 2011. Accessed July 3, 2016. http://www.lse.ac.uk/europeanInstitute/LEQS Discussion Paper Series/LEQSPaper44.pdf.

6. Zizek, Slavoj. “Capitalism has broken free of the shackles of democracy.” Financial Times. February 1, 2015. Accessed July 03, 2016. http://www.ft.com/cms/s/0/088ee78e¬7597¬11e4-a1a9¬00144feabdc0.html.

 

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