On Democracy in Economics and the Marketplace

Excerpted from John Restakis in ch. 1 of Humanizing the Economy:

“Polanyi’s thesis on the market and its relation to society has not been without its critics. His critique of market society and of capitalism also led to a rejection of the market itself as a means of realizing democratic ideals. In this I would argue, Polanyi failed to acknowledge the possibilities of his central premise – that “the economic system is, in effect, a mere function of social organization”. But an economic system does not derive solely from the state. Polanyi underestimates the generative power of civil society – the co-operative movement itself is evidence of this. And while the co-operative model parts company with capitalism, it remains firmly connected to the notion that the market can be made responsive to human needs – without the need for a planned socialist economy as Polanyi believed.

Democracy and the market are not antithetical. Democracy and the market society in which social principles are subordinated to economic ones, as in the neoliberal doctrine of the free market, is another matter entirely.

In our era, the horrors of the transition to market society are behind us. They have long receded from our consciousness. But they are painfully real to those millions who today are suffering through the same traumatic transition to market systems now underway in China, Asia, Latin America and eventually in every forgotten haven of the pre-industrial world.

Bitter, prolonged, often deadly struggles were waged over the social impacts of these ideas. The real question that confronted market economies over the last two centuries, and the bedrock issue over which the social and economic battles have ultimately been fought, is how to limit the catastrophic damage this free market model does to society. Which ultimately has come to mean how, and to what extent, to constrain the power of capital. In the end, the free market worldview boils down to this: the claims of capital to be sovereign and the exercise in the field of economics of that despotic power that was only recently ceded in the field of politics. The exercise of democracy that laissez faire capitalists now celebrate as good and holy in politics must be banned from economics. This is a rich terrain for irony. For while maintaining the principle of authoritarian control of markets and enterprises by capital in the economy, free market mythology also claims that free markets – and by extension capitalism – are the foundation of democracy.

The claim is ludicrous, incoherent and almost universally accepted. One reason is that there are certain analogies between democratic values such as equity and dignity and a particular view of markets. Unlike closed caste systems where a person’s status is determined at birth, markets can display features like openness, access of opportunity and freedom of action that are features of democratic systems. But markets do not, and cannot, guarantee equitable or dignified outcomes. The conflation of markets with democracy is a confusion at the most elementary level. It is the kind of mistake that could only be made – and this is being charitable – by the willfully ignorant. Capitalism is neither synonymous with the market nor is it the source of free and democratic societies. Anyone with even a passing knowledge of political history will know that democratic societies preceded capitalism and market societies by many centuries, commencing with the Greek city-states in the 4th century BC and continuing up through the rise of civic humanism and the Italian democratic republics in the 14th century. The identification of free markets with democracy has become another element in the prolonged self-delusion of Americans who believe that the United States is the founding home of democracy. And this is not restricted to the reflexive free marketeers some might wish to associate with a particular breed of Republicans. It is a pervasive conceit. On her first state visit to Europe as Secretary of State, Hillary Clinton, who no one could claim is either ill educated or stupid, was pleased to inform a stunned European Parliament that America’s democracy “… has been around a lot longer than European democracy.”

The relation of the free market to democracy is more accurately the annexation and distortion of the democratic idea by free market proponents as a cover for the distinctly undemocratic economic realities of capitalist systems. The rise and rule of administrative bureaucracy was one of the first, and most characteristic, features of a society based on the free market system. From the very beginning, the banner of utilitarianism had laissez faire emblazoned on one side and state control for the protection of property on the other. The patrician classes have always enlisted the power of government to advance their interests and the fight for democracy has always been the struggle to break this nexus. Despite free market rhetoric to the contrary, this co-dependence of state control with the market system is one source of the tension between democracy and capitalism. It is even more pronounced in state attempts to control the market with centralized command models, as was the case with Marxist brands of socialism.

The alleged affinity for democracy on the part of economic liberalism is belied both by the historical record and the everyday evidence presented by the conduct of its institutions. Nowhere is this more obvious than the suppression of democracy in the marketplace. The inequity of political power that allowed ruling elites to exploit the disadvantaged in pre democratic societies is the same issue at work today in the realm of economics. The freedom and equality that were achieved at such cost in politics through the democratic revolutions have been steadily eroded by the pervasive and growing influence of corporate economic power. In any society, authoritarian power in economics ultimately trumps democratic power in politics. Therefore, the absence of democracy in economics is a permanent threat to the survival of democracy in politics.

In truth, the human striving for equality and dignity that lay at the foundation of the democratic impulse was derailed in its extension to economics just when it was most needed, when the power of capital and the property owning classes was consolidated during the period of the Industrial Revolution. But there has never yet been a convincing answer to the question: “If democracy is good for politics, why is it not equally good for economics?” After all, the operations of the economy and the connection that people have with its institutions on a daily basis have a far more significant impact on the quality and conduct of their daily lives. We exercise our democratic right to vote for public officials once every three or four years. Yet we spend most of our waking hours in our workplaces, which are still run like dictatorships, day in and day out. And finally we might ask, “How is it that a free market is run along authoritarian systems of command and control and personified by tyrannical models of power in the individual firm?” It is a fundamental contradiction so elementary a child could see it, and one that free market mythology cannot resolve. If markets should be free, they must also be so in their constituent institutions.

Admittedly, the democratic principle has found a fragile foothold in our economies, mostly through trade unions and sometimes in democratically controlled enterprises in the form of co-operatives. But even this was the result of bloody battles waged over decades with the captains of industry and their willing aides in government. From the very beginning, the establishment of the free market system and the transition from pre-industrial to industrial society was accompanied by a brutal repression of democratic rights both at the political and the economic level. The claim now that free markets are the source and guardians of democratic societies would be laughable if history didn’t present such a dismal record showing exactly the opposite. The capitalist free market is not, and never has been, a friend to democracy. But the reverse is certainly true: it was free and democratic societies, and more particularly free cities, that generated the conditions for what we have come to call free markets.

A free market in the proper sense means essentially three things: a division of labour, the accumulation of wealth through economic development and the freedom of enterprise. As Stefano Zamagni has so eloquently described this, the division of labour allows everyone the possibility of work while allowing greater productivity through specialization. In practice, the division of labour obliges people to recognize their reciprocal ties. It underscores reciprocity as an economic value. It also enables those who are less gifted to contribute to the work of society, a fundamental component of self worth. Development requires the accumulation of wealth – not as a private end, but as a contingency against future misfortune and ultimately, as a responsibility for future generations. Freedom of enterprise, according to Zamagni, means “Those endowed with creativity, a good propensity for risk and the ability to coordinate the work of many others – the three essential qualities of the entrepreneur – must be left free to undertake initiatives without the need for prior authorization from a sovereign or underling, because the active and industrious life (“vita activa et negociosa”) is a value in itself, not just a means to other ends.”

Freedom of enterprise is here understood as the freedom to engage in a productive and useful life in an open economy – one not controlled by a sovereign power (or in our day, a monopoly power). It does not entail the notion that an entrepreneur, or a business, may do what they please regardless of the effects on others.”

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