Since 1989, due to historical developments and the works of theorists such as Francis Fukuyama, authoritative sources have claimed that the combination of a “free market economy” and “liberal democracy built on equal rights” results in the most developed form of human society. Taking into consideration that development is driven by contradictions, the above premise is true if it is accepted that no contradictions exist within or between a free market economy and liberal democracy. If, however, such contradictions do exist, the potential development of human society cannot be said to ultimately conclude with capitalism. Therefore, democratic capitalism may be the most developed and final form of capitalism, but not that of human society in general.
This essay aims to clarify the meanings of free market and democracy, and their relationship. Based on the general and specific definitions of democracy, it distinguishes between the concepts of de jure and de facto equality, and analyses the impact of the most important working mechanism of a market economy – competition – on manifold inequalities. It discusses the real inequalities manifested in income and the ownership of the means of production, and also the inequalities within capital, and between capital and wage labour. By reflecting upon these inequalities, the study looks at how free market forces work towards the erosion of democracy and constrain the practical utilization of democratic institutions.
Summary of the study
Democracy is an instrument of domination, an attribute of class societies. The subject of this domination is to ensure disposition of the means of production for the ownership class of society.
The legal order of liberal capitalism ensures the private ownership of the means of production and control over the surplus created by operating them, and thereby also ensures the accumulation of capital ownership. In this system, the quantitative and qualitative development of production is driven by earning a return on capital. Reducing labour costs is an indispensable condition to the latter. Although, in the global cycle of accumulation of capital, the wage share may increase in a certain location at a certain time, the requirements of the reproduction of capital will sooner or later enforce a correction resulting in the decrease of wage share everywhere. This causes income inequalities to grow, which discredits democratic institutions for people with lower incomes and also hinders their use of democratic institutions.
Competition establishes and strengthens the hierarchy between accumulated capital as well. Smaller, weaker capital requires the government’s assistance to increase its competitiveness, and to reduce unit labour costs. Without advanced technology, this can be achieved by reducing the unit price of labour (labour cost/hour worked). This takes place particularly clearly during the time of crises, when governments have to introduce austerity measures to support even the strong capital in strong economies. Such cases also undermine people’s trust in democratic institutions and hinder their operation.
Due to its nature, capitalist reproduction creates and strengthens hierarchies. The accumulation of capital by smaller companies is hindered by the quasi-monopoly of large companies. The working class is also differentiated, divided into well-paid and badly paid groups. The marginalisation of the lowest income groups and the risk of marginalisation of groups in the middle classes increase the desire for a “change” and “order” in a large part of society. Disadvantaged groups in the hierarchy can consist of the smaller, typically “national” capital, the masses of those living off wages, salaries and social benefits. The government acting in the interests of the national capital and limiting democratic institutions in order to help the change of elite may seem to be – and can be interpreted as they are – on the same side of the battlefield as the disadvantaged against the “global capital” and its “neoliberal order”. This situation favours the introduction of autocratic regimes. In order to strengthen its social basis, the emerging national capital and its “anti-liberal” government can effectively use nationalistic rhetoric and some gestures to the upper and upper middle classes. This situation feeds the neglect of those falling behind, the enrichment of the upper strata and social polarisation in general.
Due to their logic, free market mechanisms pose a threat to democracy. Precedent can be found in frequently applied dictatorial methods during a “catch-up” period, for example, South Korea in the 1960s and 1970s under Park Chung-hee, who based its policy on national capital or Chile in the 1970s and 1980s under Augusto Pinochet, who relied on foreign capital investments. These may be tamed to become more democratic at a higher stage of development, but this cannot change the dictatorial manner of disposing of the generated surplus, the reduction of the wage share. Politics, the political form of ruling dominance, aligns with the ownership structure of society that provides the economic form of generating surplus.
In the light of our arguments, we can state that Fukuyama would have been more exact in saying that the combination of free market and liberal democracy is the most developed form of capitalism and as such, it is the end of capitalism.
*The author of this study is a senior research fellow at the Centre for Economic and Regional Studies of the Hungarian Academy of Sciences Institute of World Economics as well as Chairperson of the Scientific Council of ATTAC Hungary.
This study is available (downloadable in full) here: http://vki.hu/news/news_883.html