“The Free-Market Democracy Scam” was originally published in our Fall 2021 Print Edition: Authoritarianism.
Our story starts in 2000, at the close of Bill Clinton’s second term in office. Clinton, a man who has been known to “see the world through rose-colored glasses,” saw a brighter, more democratic future for China.1 At the eleventh hour of his presidency, Clinton advocated the admission of China into the World Trade Organization (WTO), with the sincere belief that an open and free economy would lead to prosperity, and that prosperity would gradually force an increase in civil liberties.2 History has unfolded quite differently, yet Clinton was not wrong to see a connection between free markets and democracy.
Where he may have miscalculated is the way in which these phenomena relate- perhaps free markets destroy democracy rather than create it. Perhaps Clinton should have expected that the rise of China, the first genuine competitor to U.S. economic supremacy since WWII, would slowly diminish the relative economic power of the United States. The ensuing “race to the bottom” would force the U.S. to introduce economic reforms that would reduce standards of living in order for our economy to remain internationally competitive. Such reforms would have sociopolitical consequences including increasing Americans’ appetites for authoritarianism. When all was said and done, China’s free-market may have reduced Americans’ civil liberties rather than building up their own.
Free markets, Free Men?
Free markets and democracy exist not as compliments, but largely in opposition to each other. At their core, the motives that govern markets and democracy almost always directly contradict one another. Democracy seeks to find the best outcome for the majority, capitalism seeks to satisfy individual self-interest.3 Democracy relies on the principle that we are all equal, capitalism inherently produces inequality.4 Democracy can break down free markets through punitive redistribution and regulation. Free markets break down democratic systems through poverty and inequality.
Every “free market democracy” relies on the fragile balance between the interests of citizens and corporations, with the pendulum swinging back and forth depending on the era’s prevailing economic theory. In 1950s America, the more “democratic” Keynesian system of regulation and social welfare was popular. This was an era of strong unions and a robust middle class. By the 1970s, economists such a Milton Friedman interpreted the success of the 1950s and 60s to be due to democracy and capitalism reinforcing one another.5 A more “free market” focused ideology came into vogue. This period was characterized by deregulation, financialization, and an increasing frequency and severity of financial crises. Since the 1970s, this trend has only continued to intensify.
In modern-day America, we have levels of inequality that rival the pre-WWI era, stagnating wages, a breakdown in labor unions, and large-scale political discontent.6 However, our domestic economy tells only a fraction of the story. All other Western liberal democracies have, to some extent, suffered a similar fate. Globalization would have deteriorated regulatory and social welfare frameworks even if strong national policies had been maintained.
Globalization’s Caused Much More Than Discontent
Free-market globalization has contributed to a breakdown in democratic accountability and produced instead governments accountable to, and run by, corporations, banks, and international organizations.
International trade has insidiously contributed to the breakdown of democratic accountability, by forcing countries to undercut the needs and best interest of their own citizens, in favor of more competitive economic policies. Take for example the corporate tax rate: large corporations pay almost zero tax, however countries are often hesitant to raise their tax rate, as businesses may then choose to base themselves in another country with a lower corporate tax rate. This phenomenon is further applicable to labor rights, environmental protections, and many other components of the “ease of doing business.” Within this framework, there are more extensive rights granted to corporations than to people with respect to free movement and migration, the movement of capital, law enforcement, and more.
Countries grant these special rights and privileges to not only corporations but often to international organizations and banks as well. Such was demonstrated during the Euro crisis when all of the countries within the Eurozone were accountable to the European Union over their individual sovereign governments. This policy required the Germans to pay the debts of the Greeks, and the Greeks to undergo harsh austerity, despite that neither of these policies would have been democratically feasible in their respective countries.7 In addition, the very premise that the Northern European countries were bailing out “The Greeks” or “The Irish,” veils that everyday citizens were required to bail out international financial institutions, demonstrating nation’s loyalties to banks over citizens.8
In tandem with this, banks, corporations, and International Organizations have all contributed to the direct deterioration of democratic systems, particularly in the global south. Countries within the global south have less developed economies than countries in the global north. For the last several centuries “free markets” in the global north have been subsidized by the imposition of exploitative and extractive policies in their “colonies,” then former “colonies.” These policies have resulted in structures of economic and political dependence that encumber many countries in the global south from maintaining free and open democracies. As an illustration, let’s say there’s an election in Latin America, and Western banks may favor one candidate over the other. Voters essentially must choose to pick the banks’ candidate or choose to undergo a painful recession.9 Any “choice” is an illusion.
The Allure of Authoritarianism
As the global economy continues to erode democracy, many countries shift towards the authoritarian model. Authoritarianism’s growth in popularity in recent years could be due to its perceived superior ability to ensure economic growth. Authoritarian governments can execute the most favorable economic policies without winning elections, compromising with opposition parties, or contending with unfortunate voter decisions (such as Brexit.) In many ways, these authoritarian regimes have experienced unprecedented success. A 2009 IMF study shows that economic growth in capitalist authoritarian nations averaged 6.28% over the previous 15 years, whereas growth only averaged 2.62% in liberal democracies.10 In addition, there are individual case studies, such the China, boasting growth rates as high as 19.3%, which make authoritarianism appear as a guarantor of success.11
The growth of authoritarianism speaks to countries, and perhaps people, valuing economic prosperity over freedom. For those that have never known either this deal with the devil may be worth the price, yet what about those that already have both?
To the Republic, for which it stands…
People like authoritarianism; even in Western Democracies. Political theorist Robert Kuttner warns that support for right-wing extremists in Western Europe is even higher today than it was in the nineteen-thirties.12 According to a 2021 study from the Morning Consult, 26% of Americans are in favor of right-wing authoritarianism.13 The increase in authoritarian sentiment seems to be linked to the failures of free-market globalization, particularly the decline in voter power and the growth of inequality. According to economist Dani Rodrik, the issues that draw supporters to populism (authoritarianism more palatable precursor) are the same on both sides of the aisle: voters are “anti-globalization, anti-free trade, anti-immigration, and anti-Wall Street,” though it usually manifests in opposing ways.14 Rodrik explains that “When mainstream politicians are unable to generate meaningful responses to inequality, social exclusion and insecurity, populists of various ilk gain ground.”15 However, what’s interesting, and sad, is that this feeling of powerlessness leads people to cede even more power to strongmen. And there is a precedent for democracies developing in authoritarian regimes. Take for example ancient Rome, Hitler in Weimar Germany, Chavez in Venezuela, Papa Doc in Haiti, Mugabe in Zimbabwe, Erdogan in Turkey, and many more. As Socrates stated, “tyranny is probably established out of no other regime than democracy.”16
Potential Solutions
What can we do to save the world’s democratic capitalist system? There are more ways in which we can reimagine the relationship between our economic and political systems to produce more favorable outcomes.
On the international scale, The most desirable, and perhaps most unrealistic solution would be to establish democratically accountable global regulatory bodies to effectively create a fair and even playing field. We currently have organizations such as the World Trade Organization (WTO) and the International Court of Justice (ICJ) constructed to fulfill this role, that have in some respects fallen short and may be improved by democratic accountability and enhanced enforcement power. We additionally have national organizations such as the Securities and Exchanges Commission that are relatively effective and would be valuable to be expanded on a global scale.
However, in reality, compliance on a global scale would be near impossible to achieve. Worldwide solutions, in general, will be difficult to implement; it is possibly more productive to put forward domestic solutions.
If our problem is globalization, the natural reaction may be to tend towards isolation. Yet, complete isolation is not feasible in the modern world due to global issues including cyberattacks, pandemics, terrorism, and climate change. The closest examples we see to isolation are pariah states such as Iran and North Korea. However, the world, and the United States, may be ready for a period of American withdrawal. A 2019 poll shows that “a plurality of Americans want the country’s role in the world to shrink or end altogether.”17 An American retreat could allow for more resources to be directed to education, cybersecurity, and social welfare, all of which would likely aid our ailing democracy. On the other hand, a retraction is risky as it could damage alliances, leave a power vacuum, and allow us to fall behind other countries.
Perhaps we should instead abandon democracy altogether to save global capitalism. There are relatively more attractive forms of authoritarianism such as technocracy that may allow for a smooth transition. We have already experienced a huge growth in independent agencies unaccountable to the voter, such as the Environmental Protection Agency (EPA), the Federal Reserve, and the FDIC.18 This is potentially an interesting proposal in light of the many modern Americans who believe in ceding individual rights and freedoms for the collective good, for example removing the individual right to choose in terms of guns, abortions, or vaccines, for the sake of public health and safety. Should people give up the right to vote for the collective good? Should we all?
Endnotes:
1. Joel Roberts. “Bill Clinton: The Optimist.” CBS News, June 25, 2004, https://www.cbsnews.com/news/bill-clinton-the-optimist/.
2. Brian Stauffer. “When the World Opened the Gates of China.” Wall Street Journal, July 27, 2018, https://www.wsj.com/articles/when-the-world-opened-the-gates-of-china-1532701482.
3. Wolfgang Merkel. “Is capitalism compatible with democracy?” Harvard University, July 26, 2014, https://projects.iq.harvard.edu/files/mobilized_contention/files/merkel_-_is_capitalism_compatible_with_democracy.pdf.
4. ibid.
5. John Weeks. “Free Markets and the Decline of Democracy.” Open Democracy, July 18, 2018, https://www.opendemocracy.net/en/can-europe-make-it/free-markets-and-decline-of-democracy/.
6. Michael Hirsh. “Why Trump and Sanders Were Inevitable.” Politico, February 28, 2016, https://www.politico.com/magazine/story/2016/02/why-donald-trump-and-bernie-sanders-were-inevitable-213685/.
7. Joseph Stiglitz. The euro: how a common currency threatens the future of Europe. WW Norton & Company, Inc. 2016.
8. Wolfgang Streek. “The Crises of Democratic Capitalism.” New Left Review, September 2011, http://piketty.pse.ens.fr/files/StreeckNLR2011.pdf.
9. Joesph Stiglitz. “Decades of free market orthodoxy have taken a toll on democracy.” The Guardian, November 5, 2019, https://www.theguardian.com/business/2019/nov/05/decades-of-free-market-orthodoxy-have-taken-a-toll-on-democracy.
10. John Lee. “Western v. Authoritarian Capitalism.” The Diplomat, June 18, 2009, https://thediplomat.com/2009/06/western-vs-authoritarian-capitalism/.
11. “GDP growth (annual %)- China.” The World Bank, 2020, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN.
12. Caleb Crain. “Is Capitalism a Threat to Democracy?” The New Yorker, May 7, 2018, https://www.newyorker.com/magazine/2018/05/14/is-capitalism-a-threat-to-democracy.
13. Cameron Easley. “U.S. Conservatives Are Uniquely Inclined Toward Right-Wing Authoritarianism Compared to Western Peers.” Morning Consult, June 28, 2021, https://morningconsult.com/2021/06/28/global-right-wing-authoritarian-test/.
14. Michael Hirsh. “Why Trump and Sanders Were Inevitable.” Politico, February 28, 2016, https://www.politico.com/magazine/story/2016/02/why-donald-trump-and-bernie-sanders-were-inevitable-213685/.
15. ibid.
16. Andrew Sullivan. “Democracies end when they are too democratic.” New York Magazine, May 1, 2016, https://nymag.com/intelligencer/2016/04/america-tyranny-donald-trump.html.
17. Charles Kupchan. “Isolationism Is Not a Dirty Word.” The Atlantic, September 27, 2020, https://www.theatlantic.com/ideas/archive/2020/09/virtue-isolationism/616499/.
18. Yascha Mounk. “America is Not a Democracy.” The Atlantic, March 2018, https://www.theatlantic.com/magazine/archive/2018/03/america-is-not-a-democracy/550931/.
