The left, the right, capitalism and democracy

Democracy is a set of political institutions that combine elections, the rule of law and civic freedoms. Capitalism is a set of economic institutions that combine markets, private ownership and firms where the owners of capital hire workers. These definitions, like all definitions in social sciences, may be disputed. I use the ones in the CORE Project’s e-textbook, The Economy (now in its second edition).

Democracy and capitalism do not always go together. There are, and there have been, capitalist autocracies and capitalist democracies. The main contradiction between capitalism and democracy is that the economic power in capitalism is in the hands of a minority, and this economic power may translate into political power. In a democracy, by definition, the executive and legislative powers are, at least formally, in the hands of a majority (who must respect minorities and the rule of law).

As a result of these tensions, the left is uncomfortable with capitalism and tries to reform it or replace it. In some extreme forms, the left has made the mistake of associating capitalism with democracy, speaking of a “bourgeoise democracy”. And atrocities have been committed in the name of the left over history.

But in general, the left and the center-left today are the most reliable defenders of democracy. The left is not by definition necessarily uneasy with the market as a mechanism of resource allocation, or with the existence of large private sector firms. But it is uneasy with the unfettered power of capitalists.

There is a left wing tradition of defending free international trade as a pacifist cause, and there are connections between progressive thinking and neoclassical economics. Kenneth Arrow, probably the most interesting of neoclassical economists, wrote an article making a “cautious case for socialism.” In pages 857-858 of Bowles and Halliday’s textbook on Microeconomics, they show that frictionless perfect planning and perfect markets can actually be represented by the same model.

But efficiency and equity are only separable under very unrealistic conditions, and in many realistic ones markets can worsen discriminations or segregation. Under appropriate institutions, markets have lifted whole countries out of poverty (China, but not Russia), but have done little to stop inequality, in fact they have increased it. Only when non-market (state or civil society) strong institutions can pre-distribute or re-distribute resources, markets are compatible with both efficiency and equity. That’s a possibility that should always be explored: an economic system with regulated markets (at the realistic scale, which is more and more global), efficient firms and constrained private property (call it reformed capitalism or cautious socialism) should be the perfect complement of democracy.

Today, the biggest threat to democracy comes from the support of some capitalists for political leaders that threaten the rule of law and civic freedoms (and also elections when they don’t deliver the result that they expect). It is not a mistery why many among the very rich (and many “both siders”) endorse Donald Trump or Marine Le Pen more or less openly, as well as in the past they endorsed Hitler. They give support to these likely authocrats because they give priority to their short run economic interests (lower taxes, less regulation), they don’t really care about democracy for any ethical reasons, and they underestimate the economic and social risks that themselves also face.