Posted on October 16, 2011 in
Articles 
The Article: The Crises Of Democratic Capitalism by Wolfgang Streek in the New Left Review.
The Text: The collapse of the American financial system that occurred in 2008 has since turned into an economic and political crisis of global dimensions. How should this world-shaking event be conceptualized? Mainstream economics has tended to conceive society as governed by a general tendency toward equilibrium, where crises and change are no more than temporary deviations from the steady state of a normally well-integrated system. A sociologist, however, is under no such compunction. Rather than construe our present affliction as a one-off disturbance to a fundamental condition of stability, I will consider the āGreat Recessionā and the subsequent near-collapse of public finances as a manifestation of a basic underlying tension in the political-economic configuration of advanced-capitalist societies; a tension which makes disequilibrium and instability the rule rather than the exception, and which has found expression in a historical succession of disturbances within the socio-economic order. More specifically, I will argue that the present crisis can only be fully understood in terms of the ongoing, inherently conflictual transformation of the social formation we call ādemocratic capitalismā.
Democratic capitalism was fully established only after the Second World War and then only in the āWesternā parts of the world, North America and Western Europe. There it functioned extraordinarily well for the next two decadesāso well, in fact, that this period of uninterrupted economic growth still dominates our ideas and expectations of what modern capitalism is, or could and should be. This is in spite of the fact that, in the light of the turbulence that followed, the quarter century immediately after the war should be recognizable as truly exceptional. Indeed I suggest that it is not the trente glorieuses but the series of crises which followed that represents the normal condition of democratic capitalismāa condition ruled by an endemic conflict between capitalist markets and democratic politics, which forcefully reasserted itself when high economic growth came to an end in the 1970s. In what follows I will first discuss the nature of that conflict and then turn to the sequence of political-economic disturbances that it produced, which both preceded and shaped the present global crisis.
I. MARKETS VERSUS VOTERS?
Suspicions that capitalism and democracy may not sit easily together are far from new. From the nineteenth century and well into the twentieth, the bourgeoisie and the political Right expressed fears that majority rule, inevitably implying the rule of the poor over the rich, would ultimately do away with private property and free markets. The rising working class and the political Left, for their part, warned that capitalists might ally themselves with the forces of reaction to abolish democracy, in order to protect themselves from being governed by a permanent majority dedicated to economic and social redistribution. I will not discuss the relative merits of the two positions, although history suggests that, at least in the industrialized world, the Left had more reason to fear the Right overthrowing democracy, in order to save capitalism, than the Right had to fear the Left abolishing capitalism for the sake of democracy. However that may be, in the years immediately after the Second World War there was a widely shared assumption that for capitalism to be compatible with democracy, it would have to be subjected to extensive political controlāfor example, nationalization of key firms and sectors, or workersā āco-determinationā, as in Germanyāin order to protect democracy itself from being restrained in the name of free markets. While Keynes and, to some extent, Kalecki and Polanyi carried the day, Hayek withdrew into temporary exile.
Since then, however, mainstream economics has become obsessed with the āirresponsibilityā of opportunistic politicians who cater to an economically uneducated electorate by interfering with otherwise efficient markets, in pursuit of objectivesāsuch as full employment and social justiceāthat truly free markets would in the long run deliver anyway, but must fail to deliver when distorted by politics. Economic crises, according to standard theories of āpublic choiceā, essentially stem from market-distorting political interventions for social objectives. In this view, the right kind of intervention sets markets free from political interference; the wrong, market-distorting kind derives from an excess of democracy; more precisely, from democracy being carried over by irresponsible politicians into the economy, where it has no business. Not many today would go as far as Hayek, who in his later years advocated abolishing democracy as we know it in defence of economic freedom and civil liberty. Still, the cantus firmus of current neo-institutionalist economic theory is thoroughly Hayekian. To work properly, capitalism requires a rule-bound economic policy, with protection of markets and property rights constitutionally enshrined against discretionary political interference; independent regulatory authorities; central banks, firmly protected from electoral pressures; and international institutions, such as the European Commission or the European Court of Justice, that do not have to worry about popular re-election. Such theories studiously avoid the crucial question of how to get there from here, however; very likely because they have no answer, or at least none that can be made public.
There are various ways to conceptualize the underlying causes of the friction between capitalism and democracy. For present purposes, I will characterize democratic capitalism as a political economy ruled by two conflicting principles, or regimes, of resource allocation: one operating according to marginal productivity, or what is revealed as merit by a āfree play of market forcesā, and the other based on social need or entitlement, as certified by the collective choices of democratic politics. Under democratic capitalism, governments are theoretically required to honour both principles simultaneously, although substantively the two almost never align. In practice they may for a time neglect one in favour of the other, until they are punished by the consequences: governments that fail to attend to democratic claims for protection and redistribution risk losing their majority, while those that disregard the claims for compensation from the owners of productive resources, as expressed in the language of marginal productivity, cause economic dysfunctions that will become increasingly unsustainable and thereby also undermine political support.
In the liberal utopia of standard economic theory, the tension in democratic capitalism between its two principles of allocation is overcome by turning the theory into what Marx would have called a material force. In this view, economics as āscientific knowledgeā teaches citizens and politicians that true justice is market justice, under which everybody is rewarded according to their contribution, rather than their needs redefined as rights. To the extent that economic theory became accepted as a social theory, it would ācome trueā in the sense of being performativeāthus revealing its essentially rhetorical nature as an instrument of social construction by persuasion. In the real world, however, it did not prove so easy to talk people out of their āirrationalā beliefs in social and political rights, as distinct from the law of the market and the right of property. To date, non-market notions of social justice have resisted efforts at economic rationalization, forceful as the latter may have become in the leaden age of advancing neoliberalism. People stubbornly refused to give up on the idea of a moral economy under which they have rights that take precedence over the outcomes of market exchanges. In fact where they have a chanceāas they inevitably do in a working democracyāthey tend in one way or another to insist on the primacy of the social over the economic; on social commitments and obligations being protected from market pressures for āflexibilityā; and on society honouring human expectations of a life outside the dictatorship of ever-fluctuating āmarket signalsā. This is arguably what Polanyi described as a ācounter-movementā against the commodification of labour in The Great Transformation.
Continue Reading
