![WISDOM CRUX [ISSN 2456-6233]](https://www.wisdomcrux.lawtimesjournal.in/wp-content/uploads/2020/12/WISDOM-CRUX-ISSN-2456-6233.png)
[Volume 2, Issue 5] – May, 2017
Author – Ms. Sana Khan, B.A.LL.B, Amity Law School, G.G.S.I.P. University
Capitalism and democracy used to share a common sense of bond with both going up together hand in hand. If one used to go ahead, the other could easily cope up thereupon. Capitalism on one hand deals with private ownership of the production facilities of the country whereas democracy is not just conducting of free and fair elections, its roots are spread further than it. In today’s time capitalism has taken up the pace leaving democracy far behind with very little hopes of coming along again. Most important part of knowing the link of the both is to start by understanding the meanings of the same accompanied by their aspects and their approach towards the nation and towards the citizens of the nation. The capitalism’s role was to increase the economic count of the country and it was and is performing its role very well but it have led to grave impact on democracy. In broader sense capitalism has started killing democracy. How capitalism has started killing democracy in India as well as in other countries is under due consideration from which a rational and a logical conclusion has been analysed that would educate every prudent person easily. A ray of examples alongside has further helped in understanding the concept and insights of how capitalism has started acting upon democracy.
To understand why capitalism is killing democracy we first need to understand what capitalism means. A proper definition of capitalism is that, is an economic system and an ideology based on private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labour, voluntary exchange, a price system, and competitive markets((https://en.wikipedia.org/wiki/Capitalism)).For a better understanding of capitalism, we can start with the Pyramid of Capitalism((https://en.wikipedia.org/wiki/Pyramid_of_Capitalist_System)) and can further go into Marxism (A system of economic, social, and political philosophy based on ideas that view social change in terms of economic factors. A central tenet is that the means of production is the economic base that influences or determines the political life((http://www.businessdictionary.com/definition/Marxism.html)).)
Basically, pyramid of capitalism shows social hierarchy, with wealthy people at top and poverty-stricken people at the bottom. Crowned with the money bag which represents Capitalism, the top layer is occupied by the King and state leaders. Clergy [Clergy are some of the main and important formal leaders within certain religions((https://en.wikipedia.org/wiki/Clergy))], occupies the second layer following the military or police and bourgeois, who enjoys the pleasure. And lastly, the working class at the bottom layer, who suffers the most.
Money is at the top since it governs everyone and everything. The working class belonging to the lowest strata are dependent on God. They believe God will liberate them, and in the name of that, taking advantage of it. Clergy comes into the picture and take advantage of the working class.
History of mankind has been divided into six stages((Per Karl Marx – A Prussian born philosopher)). The first stage that is, Primitive Communism. In this stage, everyone is engaged in obtaining food and everyone would share in what was produced by hunting and gathering. There was no concept of private property and common ownership of property existed. Also, there existed no surplus production. When there is surplus, there will be profit. And since, the concept of surplus was missing, there was no concept of profit making.
Second stage that is, the slavery [the state or condition of being a slave; a civil relationship whereby one person has absolute power over another and controls his life, liberty, and fortune((https://www.collinsdictionary.com/dictionary/english/slavery))], established two classes namely, master and slaves. Masters were considered to be the ‘haves’ and slaves were the ‘haves not’. Which gave rise to another development that is the third stage known as Feudalism.Feudalism was a combination of legal and military customs in medieval Europe that flourished between the 9th and 15th centuries. Broadly defined, it was a way of structuring society around relationships derived from the holding of land in exchange for service or labour((https://en.wikipedia.org/wiki/Feudalism)). Then we have the Age of Capitalism. The Industrial Revolution((https://en.wikipedia.org/wiki/Industrial_Revolution)) (The Industrial Revolution was the transition to new manufacturing processes in the period from about 1760 to sometime between 1820 and 1840), brought modernisation of labour. Earlier manual labour was used. And later machines came into force. The haves could afford these machines whereas haves not could not afford it. The owner was referred to as the Bourgeoisie, who would not operate the machines themselves and therefore the working class comes into the picture who were known as the Proletariat.
So there will be a possibility of conflict between the Haves and the Haves not, in which the haves will always defend private property. Eventually, the Proletariat will revolt. Capitalist will always make an attempt to defend the private property and deprive Proletariat from the rights. Marx gave theories too supporting his argument such as the theory of alienation and theory of surplus value.
According to Theory of Alienation((https://en.wikipedia.org/wiki/Marx%27s_theory_of_alienation)), the working class has the raw material which is then made into goods which is sold by the capitalist and therefore the profit is earned by the capitalist and the working class is alienated from the profits.
Lastly, the Age of Socialism comes.Socialism is a range of economic and social systems characterised by social ownership and democratic control of the means of production; as well as the political ideologies, theories, and movements that aim to establish them.((https://en.wikipedia.org/wiki/Socialism))
When the Proletariat sees what they are deprived of then eventually a revolt will take place. They want to revolt against the system and change it. If they are successful a paradigm will be established which will be called the Age of Socialism.
When they will succeed, the Proletariat will establish dictatorship. In this stage, everything will be taken by the Proletariat by force, whether big or small. No democracy will be there. And in order to remove capitalism, dictatorship of the Proletariat will be established. This dictatorship of the proletariat will pave way to the socialist society.
A link between democracy and capitalism needs to be studied. According to some authors, democracy effects the economic development and vis-e-versa. The more democratic political rights are there, the more economic rights will strengthen, which is important for the economic development. And by economic rights, we mean the right to work, the right to the free choice of employment and to just and favourable conditions of work; the right to form and join trade unions: the right to strike; the right to social security; and the right to own property.((Per Friedman – An economist))
According to some scholars, economic development results in democracy but democracy tends to slow down economic development. The Kingdom of Norway ranks number one on the United Nation’s Human Development Index((http://hdr.undp.org/sites/default/files/rankings.pdf)), this country has extremely high education standards and a very low poverty and unemployment rate, with a life expectancy of 80.2 years. Norway is a huge donator to the United Nations. It has the largest reserves of petroleum, natural gas, minerals, lumber, seafood, freshwater, and hydro-power in the world and is a major exporter of oil. Lastly, the most important information for us right now is that this country is a parliamentary constitutional monarchy.
However, it is not necessary that only democracy retards the economic development. Even the non-democratic country can be seen economically backward, it’s just the democratic country is more vulnerable to bad economic conditions.
Free market and capitalism are two different things according to Sartori. There are some capitalist countries without free market institutions and there are some countries which have free markets but still they are not capitalists. Therefore, there are non-democratic countries with effective capitalistic economy that do not prove wrong the positive action that the free market exert on the democratisation process. The poor situation of free market could endanger the democratisation process.
Free market is a system in which the prices for goods and services are determined by the consumers, in which the laws and forces of supply and demand are free from any intervention by a government. The term demand means the market pressure that compels people to buy the product.
It’s a conventional erudition that when either of the two that is – capitalism and democracy flourishes, the other should accompany it alongside. But in today’s time the capitalism is very speedily spreading its roots but democracy is failing to keep up with it. China the third largest capitalist country after USA and Japan has hugged market freedom with utmost tightness but is yet to touch political freedom. Countries from Mexico to Russia who are considered economically developed are democracies only at its outset.
Democracy is not just merely conducting free and fair elections, it is a system under which collective goods are achieved after working all together. Under democracy, the citizens of the country are obliged to solve their problem in various different way yet in the countries like USA, China, Japan a lack of power is seen in political dimension but the consumers and the investors of the respective countries feel more empowered. From this, it can be said that no democratic country is finding itself capable enough to fight the negative impacts of capitalism away.
The economists believe that if the exploitative conditions of capitalism is on high then there can be no free market and no exchanges can be seen in the market.
It has been argued and debated that there can be no possibility of free markets if there is seen private ownership((Per Jaroslav Vanek- An economist and professor of Cornell university)) (the fact of being owned by a private individual or organization, rather than by the state or a public bodyhttps://www.collinsdictionary.com/dictionary/english/private-ownership). Rather private ownership lead to income differences and further these private owners further they use their power to mould market in their favour as monopoly or market power and also they use their wealth to have a control over the governmental policies that would benefit their own business interests giving no regards to the impact that it would have on others.
The meaning of democracy has now became completely anti thesis of what its meaning was understood in the earlier times. The rule now is not according to the will of the majority of the population but according to the market. Here the market is comprised of the local rich and powerful businessman along with rich foreigners and global banks.
The question here arises that why USA feels the need of imposing “free market” on the countries which are in there struggling stage despite knowing that “free market” has not been successful for the people of America. It was this free market only which led to Great Depression of the 1930s (was a severe worldwide economic depression that took place during the 1930s. The timing of the Great Depression varied across nations; in most countries it started in 1929 and lasted until the late 1930s. It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how far the world’s economy can decline((https://en.wikipedia.org/wiki/Great_Depression)).), which was the grave economic depression, and to the Great Recession of 2008((https://en.wikipedia.org/wiki/Great_Recession)) (Was a period of general economic decline observed in world markets during the late 2000s and early 2010s. The scale and timing of the recession varied from country to country. In terms of overall impact, the International Monetary Fund concluded that it was the worst global recession since World War II.), which was the sharpest economic decline after the Great Depression, impact of which can be still seen.
There were mistakes and poor start during those decades but the playing with uncontrolled “free market” led to fatal results. Despite all this US government is behind welcoming this on the already impacted countries in spite knowing that the majority of people of those countries are preferring equitable and fair societies.
The harsh impact of implication of “free market” (The free market is a summary description of all voluntary exchanges that take place in a given economic environment. Free markets are characterized by a spontaneous and decentralized order of arrangements through which individuals make economic decisions. Based on its political and legal rules, a country’s free market economy may range between very large or entirely black market.((http://www.investopedia.com/terms/f/freemarket.asp)), there is a fear that the policies that led to economic inequalities with democracy will defame democracy drastically.
A profound relation between capitalism and democracy is on high nowadays. The endurance of marriage between capitalism and democracy is on test and their potential together needs to be checked.
Those which were once considered as two pillars of the country are now set apart from each other. Democracy is not just conducting free and fair elections, it further spread its roots towards providing equal good to everyone. Capitalism is a free market that gave country’s trade and production in the hands of individuals so as to ensure growth and prosperity of economy but capitalism is not now serving its purpose.
We need to know that to why capitalism has developed in its approach and why democracy has been left behind. Big companies spend a lot in public relations, lobbying (Lobbying is the act of attempting to influence the actions, policies, or decisions of officials in their daily life, most often legislators or members of regulatory agencies((https://en.wikipedia.org/wiki/Lobbying)) and even bribing to tilt laws in their favour due to increasing competition globally as well as domestically.
Government lays pressure on the companies to fulfil their social obligation towards the people of the society and praises them if they are successful in doing the same but also condemns if they are failed in doing the same. There is no specific law that would decide the balance of companies between profit making and to the extent of social obligations and it’s the role of democracy to ensure the same for the collective good of the people of the society but citizens of the society are diverged from setting up of this law because of the fulfilment of the social obligation by the companies. The impact of this is that the companies do well for the society only till the extent of amount of public relations not beyond that and this effects the democracy of the country.
The role of democracy is to achieve what we as an individual cannot achieve but democracy is not able to achieve this target as the business owner tend to have a command over the governmental policies through their wealth which makes it impossible for democracy to perform their function.
The motive behind free markets were to lead to free societies. But to its contrary the global economy is degrading the power of the people in various democracies around the world. Welcome to a place where our government has taken a back seat to big businesses of the country.But this doesn’t mean that capitalism is falling. Capitalism is performing it role very well by increasing the economic status of the country and democracy enables the citizens of the country to decide collectively as to how this increased economic status be divided and the rules which are to be applied to private goods and public goods. If the role the capitalism is to allow corporations and companies to play the free market aggressively then the challenge before the citizens of the country is to put a stop ahead of these big companies from being the controller of the rules by which we live.
The purpose of capitalism to my mind, is the allocation of resources with the intent of making a profit. Public corporations have a duty to stockholders (a person who owns shares in a company and therefore gets part of the company’s profits and the right to vote on how the company is controlled((http://dictionary.cambridge.org/dictionary/english/stockholder)) to make a profit, no doubt. Private corporations have the same duty, but the profit is for its individual owners. The problem arises when the profit objectives clashes, as it does now, with the interests of the means employed (staff) to operate a business.
It is obviously in a company’s interest to operate at the lowest possible cost, thereby maximizing its profit. However, if that means that jobs are dislocated abroad, how does that serve the local market in terms of providing the disposable income needed by consumer, who also work for corporations? It certainly doesn’t, it clashes with that fundamental economic necessity. Does that mean that capitalism is at odds with itself? In a sense, yes. Too much dislocation of work abroad to serve corporate objectives of addressing its local market with the cheapest possible costs, thereby maximizing its return-on-investment, establishes a conflict. A market is constituted by two components, supply and demand. The corporations are suppliers, but the demand is provided by consumers. Where do consumers obtain the wherewithal to consume if not from their work, which they exchange for a salary? There is no singular answer, therefore, to the question of “Where is a corporation’s larger duty? To serve its own interests by maximizing profit or to serve the interests of the economy by providing decent salaries?”
There’s a balance that must be sought, somewhere in between. But, just as you cannot legislate love, neither can a nation legislate corporate ethics. Ethics are a set of moral values that inculcated by a society upon its individuals.
If a society inculcates, for instance, only the values of self-interest … then there is not much one should expect of a corporation other than to maximize its profits and serve the bounded interests of its stockholders — who, of course, are also the very people compensated to run corporations. Business ethics are like the air we breathe. We take it for granted that the air is clean. But, when it becomes polluted, it is our health that is at stake. When business ethics become stained by an excessive motive to maximize profits, then that purpose only serves one side of the supply/demand equation. The economy must therefore inevitably suffer the consequences.
Editor – Vedanta Yadav [B.A.LL.B (Hons)]