Are Democracy and Capitalism in Conflict? Economic History in Small Doses 2

By Girish Menon*

The answer is yes. Unlike what a lot of people believe capitalism and democracy clash at a fundamental level.

 Democracy runs on the principle of ‘one person one vote’. The market (a euphemism for capitalism) runs on the principle of one rupee one vote. Naturally, the former gives equal weight to each person regardless of the money s/he has. The latter gives greater weight to richer people. Therefore, democratic decisions usually subvert the logic of markets.

 Most 19^th century liberals opposed democracy because they thought it was not compatible with a free market. They argued that democracy would allow the poor majority to introduce policies that would exploit the rich minority, thus destroying the incentive for wealth creation.

 Influenced by such thinking, all of today’s rich democracies, historically, gave voting rights only to those who owned more than a certain amount of property or earned enough income to pay more than a certain amount of tax. The election result in British India, often quoted to justify the traumatic partition, was based on votes by a subsection of the population.

Communists, who reject the ‘one dollar one vote’, were not known for their conduct of free and fair elections either.

 On the other hand, money can be a great leveller. It can work as a powerful solvent of undesirable prejudices against people of particular races, social castes or occupational groups. The fact that the openly racist apartheid regime in South Africa gave the Japanese ‘honorary white’ status is a powerful testimony to the liberating power of the market.

 Unfortunately, leaving everything to the market will result in the rich being able to realize the most frivolous element of their desires, while the poor may not even be able to survive.

 Moreover, there are certain things that should simply not be bought and sold – even for the sake of having healthy markets. Judicial decisions, public offices, academic degrees are a few such examples.

 Democracy and markets clash at a fundamental level.  They need to be balanced. Free markets are not good at promoting economic development despite what their proponents argue.

* Adapted and simplified by the author from Ha Joon Chang's Bad Samaritans - The Guilty Secrets of Rich Nations & The Threat to Global Prosperity