Capitalism In A Modern Democracy

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In a capitalist system, private owners for profit control the country’s trade and industry rather than the state. It is an economic system that has been debated as long as it has been around—centuries. It existed on a microscale in Western culture for centuries, where modern capitalism can be traced to the Renaissance where agrarian capitalism and mercantilism emerged. One of the biggest questions that come with capitalism is: can a country survive a free market system? The short and long answers to this question is no, it cannot. There are many issues with capitalism, but three of biggest problems faced by countries part of the free-market system are: economic inequality where the divide between the rich and poor widen, monopolies created where the entire competition structure breaks down, and an infrastructural breakdown of the country as a result of the inequity of who is being taxed. Together, these problems create a cascade effect that hurt the majority of the population in a country that also adopts capitalism as a form of governmental policy making it a bad bet for people.

When capitalism goes unchecked on a large scale, an economic inequality develops between those who have money and those who do not until a small percentage of people have power. As Joseph E. Stiglitz points out in his book, The Great Divide, ‘The most effective tools for strengthening demand and improving equality are fiscal policies—tax and expenditure policies decided by Congress and the administration.’ In a representative democratic society, the government is supposed to function for all the people via a representative proxy that is voted in. What the people want is supposed to be reflected in how the government is run, and in return, society can benefit from what is protected and developed by the government—such as national forests, education, and roads. A capitalist economy can tip the scales in favor of just a few. This happens when ‘the return of capital is larger than economic growth causing a concentration of wealth that can destabilize democratic societies and undermine the ideals of social justice upon which they are built.’ (Piketty, 2014) The destabilization occurs because the people who inherit wealth from those benefiting from a capitalistic society increase their power and influence over governmental processes, which creates an oligarchical society rather than a democratic government where the few are making decisions for the many, and the concerns of a person with great wealth are different than a person with a modest income. As Robert Michels pointed out in his book Political Parties with the ‘Iron Law of Oligarchy’, those in power will use their influence to dictate changes they want to benefit them. A society where the few reap the benefits made by the many is an unstable economic structure that cannot survive in the long-term.

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Monopolies function much like an oligarchy where the competition is stifled and industry becomes complacent and less innovative. They do not have to worry about competitively pricing their merchandise, improving their services, or worry whether another company can supplant them because they can afford to buy out the competition. A small number of people hold the power over these monopolies, further concentrating the wealth among a small population of individuals. This increases their influence within the capitalist structure by using ‘their power to shape monopolies, incur favorable treatment by the government, and pay low taxes. The end result is not only morally wrong but also hurts the productivity in the economy.’ (Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future, 2012). As Piketty explains in Capital in the Twenty-First Century, ‘in a pure monopoly, there is a single seller rather than a single buyer,’ meaning the seller can increase their prices how they want. However, as a result, consumers might choose to buy fewer products. The choice not to purchase goods can lead to a reduction in manufacturing. High prices and low production are bad for the economy, especially for those not in positions of power. Less production means fewer jobs for the rest of the population.

When a capitalist economy is in freefall, unchecked by the government, the power of the wealthy class increases while the power of the working class decreases, creating a rigid class structure based on accumulated capital which causes a social divide that disrupts the infrastructure of the democratic society. In turn, the societal structure is more representative of an oligarchy (Piketty, 2014). When this oligarchy can exert influence over the government to change statutes and laws in their favor, they degrade the institution that helps society function overall. An example of wealth inequity changes would be the most recent tax laws, where a vast majority of the cuts favored those who already had inherited wealth or for large corporations are controlled by those with wealth. While it was argued these cuts would increase wages or invest in innovation that could create more jobs there were ‘record number stock buy-backs’ instead (The Editoiral Board, 2019). These buy-backs are a redistribution of wealth to the wealthy, not a stimulus to the economy. The tax cuts also meant the government lost revenue (The Editoiral Board, 2019) that could be distributed back to needed developmental infrastructure—such as roads, railways, government services the impoverished rely on, and most importantly, the schools. Without a good educational system, the long-term affect is that innovation and business suffers. The ‘Golden Age of Economic Growth’ (Piketty, 2014) occurred after:

‘A debt-fueled recession destroyed much wealth, particularly that owned by the wealthy. These events prompted governments to undertake steps towards redistributing income, especially in the post-World War II period. The fast, worldwide economic growth of that time began to reduce the importance of inherited wealth in the global economy.’

This was done by increasing the taxes on the wealthy, a social democratic policy that redistributed wealth to help pay for the infrastructure a society needs. Things like good schools where people were given the chance to learn, go to university, and then use that knowledge to create and innovate, thus stimulating the economy.

When government for the people is so closely tied to economic growth, a capitalist economy leads to a freefall and hardship for the majority of the population. This is because rather than benefiting the many, the realities of a capitalist structure results in the formation of an oligarchy which influences the decisions of the marketplace and therefore the rest of the population. History shows us that when the few rig the economy in their favor, an inequality develops that widens over time. The inherited wealth does not redistribute into the economy, instead it benefits the few, creating an inequity that cannot be sustained. A country cannot continue to thrive when the rest of the population struggles paycheck to paycheck and suffers from increased costs for their goods as a result of monopolies, and the infrastructure of the basic societal needs, like schools, break down because of a rigged tax structure. A true democracy relies on redistributed wealth that benefits the many, and a system where all voices are heard.

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