Democracy vs. Capitalism

By Mueller, John | The American Enterprise, March 2002 | Go to article overview

Democracy vs. Capitalism


Mueller, John, The American Enterprise


Democracy and free-market capitalism seem to suffer from image problems--opposite ones, as it happens. Capitalism is much better than its image; Democracy has turned out to be much worse.

Although capitalism is generally given credit, even by its detractors, for generating wealth and stimulating economic growth, it is commonly maligned for its seeming celebration of greed. But actually, capitalism tends to reward business behavior that is honest, fair, civil, and compassionate. And it inspires a form of risk-taking behavior that can often be characterized as heroic.

Meanwhile, democracy is often presented in an idealized manner: citizens participating on an equal basis in enlightened deliberations about the affairs of governance. By contrast, actual democracy is often found to be disappointingly wanting--notable chiefly for discord, inequality, apathy, hasty compromise, political and policy ignorance, and manipulative scrambling by "special interests."

These disconnections can have significant, and often detrimental, consequences. The mismatch of capitalism with its image can damage economic growth, particularly if people in business embrace the negative stereotype. The democracy mismatch can eventually result in cynicism about the democratic process--even to the point of inspiring a yearning to scrap the system entirely.

The negative perception of capitalism has been propagated not only by communists and socialists, but by the church, popular culture (including capitalist Hollywood), intellectuals, aristocrats, and often by capitalists themselves--particularly those who have lost out in the competitive process. Swindlers and moral monsters sometimes do become rich (in both capitalist and noncapitalist systems), but contrary to the popular notion, capitalism by its nature rewards many virtuous behaviors. It generally inspires industriousness, farsightedness, diligence, and prudence. Businesses have found that "Honesty is the best and most profitable policy," that "A happy employee is a productive employee," and that "The customer is always right." These are soundly practical guidelines, and part of a broader set of self-effacing moral principles that are, on average, wealth-enhancing.

This is not to say that capitalists necessarily and always behave virtuously. Many, indeed, have lied, cheated, acted shabbily, and let themselves be dominated by arrogance and ego. But such behavior is economically foolish.

Nor does the existence of the capitalist virtues mean that there is no room for government, or that capitalism can be entirely self-regulating. Societies may find it useful, usually for non-economic reasons, to use tax policy and regulation to redistribute wealth, to aid the unfortunate, to enhance business competition, to regulate for public health and safety, or to control undesirable side effects such as air pollution. Societies may also consider it desirable to ban or inconvenience the propagation of certain goods and services for which there is profitable demand--like drugs, pornography, prostitution, cigarettes, liquor, and gambling. And it should be emphasized that capitalists do not pursue virtue to the point of stupidity: Virtues do not require one to cut an unfavorable deal or trust a swindle.

But virtue is, on balance and all other things being equal, essentially smart business under capitalism: Nice guys, in fact, tend to finish first. Some scoundrels do become rich, even as some heavy smokers escape cancer. But just as not smoking is, in general, good for your health, virtuous business behavior is, in general, good for your bottom line.

Capitalism's image mismatch can hamper economic development--because without the unacknowledged capitalist virtues, countries remain mired in poverty. Fortunately, virtuous capitalist behavior does not need to be artificially imposed by outside authority where it is lacking, because it can arise from normal competitive pressures. …

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