Why democracy?
Why do we need a democratic government to regulate our capitalist economy?
Economics and politics are inseparable. The early economists, including Adam Smith, were known as political economists. Governments create economies to meet specific kinds of needs of the governed—the people. Once created, governments must regulate economies to ensure they serve their intended purpose. Capitalist economies can be created and regulated by autocracies, oligarchies, or democracies—or created but not regulated. The form of government and the effectiveness of regulation determine who benefits from the economy and who bears the costs.
Some economists limit their references to capitalism to economies with private ownership of all means of production and unregulated or completely free markets. No such economies exist today, but the less regulation, the more market economies function like free-market capitalism. If a capitalist economy is left unregulated, it will inevitably trend toward the concentration of wealth among a few at the expense of the many. Those with greater inherent abilities to produce things of economic value will not only earn more, but the money they earn will also earn more money for them. Those unable to earn enough money working for the wealthy will borrow money and pay interest to the wealthy.
As the wealth of the already wealthy grows, their money eventually earns more than they earn by working, even more than they can spend. According to CNN, the money of the world’s 10 richest men made $64 billion for them in one day, the Wednesday following the 2024 elections. As their wealth passes from generation to generation, those born to wealth need not contribute anything to the economy to become even wealthier. In the U.S. today, and in much of the world, we see the inevitable characteristics of “under-regulated” capitalist economies.
Autocracies are forms of government that give one person absolute or unrestrained power to govern. Governments ruled by dictators and kings are autocracies. Saudi Arabia and Venezuela are examples of autocracies. Autocratic governments regulate their capitalist economies to generate income and wealth for the dictator or monarch and his or her family and friends. Autocrats use the powers of government to collect taxes from the masses to be allocated, spent, or invested by various means to increase wealth for the monarchy. Those who challenge or oppose the monarchy are threatened or punished economically as well as politically. The U.S. government today is at risk of being taken over by an autocracy.
Oligarchies are forms of government controlled by small groups of people. Oligarchies include plutocracies and aristocracies. Aristocracies were common in Europe through the 1700s but are rare today. The U.S. has had something similar to an aristocracy in recent years, with positions of political leadership dominated by those with degrees from an elite group of universities. If the small groups who control the government are very wealthy, it is called a plutocracy. Russia is an example of a plutocracy, although under Putin, it has been moving toward an autocracy.
Capitalist economies in oligarchies are regulated to generate income and create wealth for the small groups who control the government, much as economies serve the monarchs and dictators in autocracies. Such governments allow the oligarchs to incorporate and consolidate their economic enterprises and transform economically competitive markets into oligopolies and monopolies. Money made by money, meaning capital gains and speculation, is taxed at a lower rate than income earned by working. The governments allow the oligarchs to extract their nations’ natural resources and exploit their workers to facilitate the growth of their economic and political power. The U.S. economy has trended toward a corporatist form of oligarchy for the past 50+ years and, more recently, toward an oligarchy of multi-billionaires who control the monopolistic corporations that dominate virtually every sector of the economy.
Democracies are governments controlled by the people, generally through their elected representatives. Liberal democracies impose regulations on capitalist economies to restrain their extraction and exploitation of natural and human resources. Regulations are imposed on businesses and industries to protect workers’ health and safety and to allow them to bargain for fair wages and working conditions. Government regulations also protect society from environmental pollution and conserve natural resources for the benefit of future generations. Social democracies impose additional regulation on economies to ensure a more equal distribution of income and wealth.
In social democracies, the incomes of those who benefit the most economically from living, working, and investing in a democratic society are taxed at a higher rate than those who benefit least. Money earned by money, as interest or capital gains, is taxed at higher rates than money earned by people, not lower. Wealth is taxed as it accumulates and is taxed again as it passes from generation to generation. The right to accumulate wealth is protected but not incentivized, subsidized, or supported by the government. Those with more than enough money will always have incentives to make more money by investing it, regardless of how it is taxed.
The basic difference between economies in social democracies, such as those in Europe, and economies regulated by socialist governments, such as China, is that socialist governments maintain ownership or control of the means of production—businesses and industries. The U.S. government has never owned the coal mines, oil refineries, steel mills, automobile plants, microchip manufacturing plants, or any of the means of production that make up the U.S. economy. Contrary to the political propaganda, we have never had anything approaching a socialist or communist form of government.
Historically, the U.S. government has regulated its economy as a liberal democracy. There have been times, such as the Gilded Age of the late 1800s, when it has drifted more toward free-market capitalism and the associated concentration of income and wealth among the few at the expense of the many. At other times, the U.S. has drifted more toward a social democracy, such as the New Deal of the 1930s and the Great Society of the 1960s. During these times, there has been a more equal distribution of income and wealth.
However, the shift to a “neoliberal,” deregulated, global economy, begun by Ronald Reagan during in the 1980s and continued by Democrat and Republican administrations since, has allowed a corporate oligarchy to take control of the government as well as the economy. The growing dissatisfaction of U.S. voters with the failure of this oligarchic form of government to meet their economic needs led to the election of a potentially autocratic form of government that now threatens both our democracy and economy.
Why do we need a democracy to control our capitalist economy? A democracy has the ability and responsibility to ensure the economy functions to meet the needs of the people, meaning the basic needs of all the people, rather than create obscene levels of wealth for a few at the expense of the many. But a representative democracy works for the people only if the people elect representatives committed to making the economy work for the many rather than the few. We need democracy because politics and economics are inseparable. A failure of one inevitably leads to a failure of the other, and our democracy and economy are both currently at risk.
John Ikerd
https://en.wikipedia.org/wiki/List_of_forms_of_government
https://patrioticmillionaires.org/
https://www.cnn.com/2024/11/07/investing/billionaires-net-worth-trump-win/index.html
https://hbr.org/2020/03/do-democracy-and-capitalism-really-need-each-other
https://www.dissentmagazine.org/article/liberal-or-social-democrat/