Democratic capitalism
Democratic capitalism, also referred to as market democracy, is a political and economic system that integrates resource allocation by marginal productivity (synonymous with free-market capitalism), with policies of resource allocation by social entitlement.[1] The policies which characterise the system are enacted by democratic governments.[1]
Democratic capitalism was implemented widely in the 20th century, particularly in Europe and the Western world after the Second World War. The coexistence of capitalism and democracy, particularly in Europe, was supported by the creation of the modern welfare state in the post-war period.[2] The implementation of democratic capitalism typically involves the enactment of policies expanding the welfare state, strengthening the collective bargaining rights of employees, or strengthening competition laws. These policies are enacted in a capitalist economy characterized by the right to private ownership of property.
Catholic social teaching offers support for a communitarian form of democratic capitalism with an emphasis on the preservation of human dignity.
Definition[edit]
Democratic capitalism is a type of political and economic system[3] characterised by resource allocation according to both marginal productivity and social need, as determined by decisions reached through democratic politics.[1] It is marked by democratic elections, freedom, and rule of law, characteristics typically associated with democracy.[4][5] It retains a free-market economic system with an emphasis on private enterprise.[4][5]
Professor of Entrepreneurship Elias G. Carayannis and Arisitidis Kaloudis, Economics Professor at the Norwegian University of Science and Technology (NTNU), describe democratic capitalism as an economic system which combines robust competitiveness with sustainable entrepreneurship, with the aim of innovation and providing opportunities for economic prosperity to all citizens.[6]
Dr. Edward Younkins, professor at Wheeling University, described democratic capitalism as a “dynamic complex of economic, political, moral-cultural, ideological, and institutional forces”, which serves to maximize social welfare within a free market economy.[7] Youkins states that the system of individual liberty inherent within democratic capitalism supports the creation of voluntary associations, such as labour unions.[7]
Philosopher and writer Michael Novak characterised democratic capitalism as a blend of a free-market economy, a limited democratic government, and moral-cultural system with an emphasis on personal freedom.[8] Novak comments that capitalism is a necessary, but not a sufficient condition of democracy.[8] He also proposes that the prominence of democratic capitalism in a society is strongly determined by the religious concepts which drive its customs, institutions, and leaders.[9]
History[edit]
Early to mid-20th century[edit]
The development of democratic capitalism was influenced by several historical factors, including the rapid economic growth following World War One, the Great Depression, and the political and economic ramifications of World War Two.[10][11] The growing critique of free-market capitalism and the rise of the notion of social justice in political debate contributed to the adoption of democratic capitalist policies.[10]
At the Bretton Woods Conference of 1944, officials from the United States and the United Kingdom and forty-two other nations committed to trade openness.[11] This commitment was made in conjunction with international guidelines which guaranteed autonomy for each country in responding to economic and social demands of its voters.[11] Officials requested international capital controls which would allow governments to regulate their economies while remaining committed to the goals of full employment and economic growth.[11] The adoption of the General Agreement on Tariffs and Trade supported free trade, while allowing national governments to retain veto power over trade policy.[11] Such developments saw the incorporation of democratic demands into policies based on capitalist economic logic.[11]
Democratic capitalism was first widely implemented after the Second World War in the Western world, particularly in North America and Western Europe.[1] Following the severe economic impacts of the war, working classes in the Western world were more inclined to accept capitalist markets in conjunction with political democracy, which enabled a level of social security and improved living standards.[1] In the post-war decades, democratic capitalist policies saw reduced levels of socioeconomic inequality.[10] This was synonymous with the expansion of welfare states, more highly regulated financial and labour markets, and increased political power of labour unions.[10] According to political scientist Wolfgang Merkel, democracy and capitalism coexisted with more complementarity at this time than at any other point in history.[10]
Policy makers in Europe and Asia adopted democratic capitalist policies in an attempt to satisfy the social needs of their voters and respond to the challenge of communism.[5] The policies implemented supported the public provision of medical care, improved public housing, aged care, and more accessible education.[5] Guarantees of full employment and the support of private research and innovation became priorities of policy makers.[5] Policy developments were based on the rising notion that free markets required some state intervention to maintain them, provide structure, and address social inequities caused by them.[5] Governments around the world regulated existing markets in an attempt to increase their equity and effectiveness.[5] In order to stabilise the business cycle, the role of government was reconceived by anticommunist leaders in Britain, France, Italy, Germany, Scandinavia, and Japan.[5] An emphasis was placed on supporting economic growth, promoting innovation, and enhancing living standards.[5] This saw the expansion of educational opportunities and public insurance of basic health and aged benefits.[5]
Conflicts between notions of resource allocation[edit]
According to economic sociologist Wolfgang Streeck, the capitalist markets and democratic policies that characterise democratic capitalism are inherently conflicting.[1] Streeck suggests that under democratic capitalism, governments tend to neglect policies of resource allocation by marginal productivity in favour of those of resource allocation by social entitlement, or vice versa.[1] In particular, he comments that the accelerating inflation of the 1970s in the Western world can be attributed to rising trade-union wage pressure in labour markets and the political priority of full employment, both of which are synonymous with democratic capitalism.[1]
In Catholic social teaching[edit]
Catholic texts offer support for a form of socially regulated democratic capitalism.[17] The papal encyclical Centesimus annus, written by Pope John Paul II, emphasizes a vision of a communitarian form of democratic capitalism.[17] The communitarian system of democratic capitalism described promotes respect for individual rights and basic workers’ rights, a virtuous community, and a limited role for the state and the market.[17] According to the encyclical, these characteristics should be combined with a conscious effort to promote institutions which develop character in individuals.[17] The encyclical stressed to decision makers the importance of the dignity of the person and a concern for the poor, while acknowledging the need to balance economic efficiency with social equity.[17] The US Bishops’ 1986 Pastoral Letter Economic Justice for All suggested that specific institutional arrangements be developed to support this form of democratic capitalism.[17] Arrangements proposed included structures of accountability designed to involve all stakeholders, such as employees, customers, local communities, and wider society, in the corporate decision making process, as opposed to stockholders only.[17] The letter offered acceptance for the market economy under the condition that the state intervene where necessary to preserve human dignity.[17]