We’re continuing our introductory political science series in this post, talking about democracy and capitalism. Like many other countries, my country – Canada – is both a democracy and a country with a capitalist economy. Democracy is a political system in which citizens elect the members of government who will represent their interests. Capitalism is an economic system in which people who own capital buy, make, and sell goods for a profit. The word “capital” refers to any tool of economic production: a hammer, a delivery truck, a factory, money, etc.
All countries have a political system and an economic system, but it is not necessary for a country to have both democracy and capitalism. For example, it is possible to have a democracy and socialism or to have authoritarianism and capitalism. Socialism, by the way, is an economic system in which most or all capital is publicly owned, especially in important industries like energy, agriculture, health care, etc.
In this post, we learn how democracy and capitalism exist together as a compromise. A compromise is when you have to give up something to get what you want. We’ll also learn why having both requires a compromise, and what kinds of political debates result from the compromise.
According to Adam Przeworski, the relationship between democracy and capitalism is a compromise:
- Workers, a majority of the population, consent to (or agree to) the ownership of capital by a minority of the population, and
- capital owners, a minority of the population, consent to the majority’s right to political representation, specifically the right to elect a government that will make laws about the ownership of capital.
Laws about the ownership of capital include labor, tax, and social welfare laws. For example, the law might require companies to pay workers a minimum wage; it might require people with more money to pay higher taxes; and it might require the government to distribute tax revenue to people who do not have jobs.
What would happen if either the majority or minority rejected this compromise? According to Karl Marx, famous for his critical analysis of capitalism, workers have an interest in taking ownership of capital. He believed that workers, the majority, would replace capitalism with socialism. In other words, he thought that workers would take control of politics and prohibit the ownership of private capital.
Of course, without compromise there is another possibility. If the owners of private capital used their money to control politics, they could limit or prohibit democracy. In that case, capitalism would continue, but there would be a new type of political system, perhaps authoritarianism. In an authoritarian system, people must strictly obey the government and have little to no personal freedoms.
Because workers and capital owners have competing interests, there are often political debates about the compromise between democracy and capitalism. On one hand, workers, labor unions, and people who do not have jobs argue that the government should limit capital ownership, especially by taxing capital and profits. At the same time, they argue that the government should make laws to protect workers’ rights and provide social welfare to people in need. On the other hand, capital owners argue that they have a right to own capital and make profits with few or no limits. They argue that labor, tax, and social welfare laws limit their profits. Their ability to increase their profits, they argue, helps everyone succeed economically.
Every country has a choice about what type of political and economic system it has. Many countries have chosen to have democracy and capitalism. Because both systems have majorities and minorities with competing interests, a compromise is necessary in order to have both. Workers consent to the economic rights of capital owners, and capital owners consent to the political rights of workers. If either group chose not to compromise, democracy and capitalism could not exist together. The compromise results in many debates about rights and competing interests, and those debates will likely continue in the future.