Capitalism and Democracy “Don’t Mix Very Well”

Economic globalization enthusiasts like Bill Clinton, Madeline Albright,
Tony Blair, New York Times foreign policy columnist Thomas Friedman, and
the unelected officials of the World Trade Organization repeat a classic
Cold War mistake by claiming that globalization is advancing two sides
of the same historical coin: capitalism and democracy. One does not have
to be a Marxist or other variety of radical to acknowledge basic differences
and fundamental conflicts between these falsely conflated phenomena. Listen,
for example, to liberal economist Lester Thurow, who writes that “democracy
and capitalism have very different beliefs about the proper distribution
of power. One believes in a completely equal distribution of political
power, ‘one man [sic] one vote,’ while the other believes that it is the
duty of the economically fit to drive the unfit out of business and into
extinction. ‘Survival of the fittest’ and inequalities in purchasing power
are what capitalist efficiency is all about. Individual profit comes first
and firms become efficient to be rich. To put it in its starkest form,
capitalism is perfectly compatible with slavery. Democracy is not.”

In a similar vein, Chicago Tribune economics correspondent R.C. Longworth,
also no radical, writes that the “struggle of democracy and capitalism”
is “at the heart” of current “debate over the global economy. In theory,”
Longworth claims, “they are meant to go together, indeed to be inseparable.
But democracy’s priorities are equality before the law, the right of each
citizen to govern the decisions that govern his or her life, the creation
of a civilization based on fairness and equity. Capitalism’s priorities
are inequality of return, profit for the suppliers of capital, efficiency
of production and distribution, the bottom line.”

There is plenty to criticize from a radical perspective in Thurow’s and
Longworth’s more extensive formulations on the question. But Thurow and
Longworth are reasonably candid and essentially correct in ways that the
Clinton administration is not when it proclaims that every country in Latin
America “with the single exception” of Cuba has successfully negotiated
a “return to democracy.” Even the venerable right-wing think-tank Freedom
House refuses to designate numerous Latin American states (including Mexico,
Brazil, El Salvador, Guatemala, Haiti, Paraguay, Columbia, Peru, Ecuador,
and El Salvador) as “free” and democratic countries (it does give that
label to Chile, where many workers and intellectuals are still too terrified
to openly express their political sentiments) just because they are capitalist.


The great western conflation of democracy with capitalism originated with
the crisis of European feudalism and the great European and North American
bourgeois revolutions of the 17th to 19th centuries. It reached its officially
disseminated pinnacle with the Cold War, when U.S. propaganda proclaimed
an all-or-nothing global division and struggle between “free world” capitalism
headquartered in Washington, DC and expansionist “communist” totalitarianism
headquartered in Moscow. This Cold War doctrine provided ideological cover
for U.S. sponsorship of numerous pro-capitalist/pro- globalization dictatorships
throughout the world. It also disguised the real nature of leading First
World states. Beneath outwardly democratic political processes and generally
strong civil liberties, those states were fundamentally subject to the
command of centralized, hierarchical corporate power and great monied wealth—a
condition that persists well into the “post-Cold War era.”

This persistence is particularly clear within the supposed national homeland
(now as during the Cold War era) of “democratic values.” In telling the
Chicago Economic Club why “the international community” (the world’s leading
industrial states, that is) should not shy away from “intervening” in the
internal affairs of  (as in bombing) “rogue” states like Iraq and Serbia
last April, British Prime Minister Tony Blair argued that “when regimes
are based on minority rule, they lose their legitimacy.” Yet, while Blair
would never dream of describing his senior partner the United States as
a “minority”-ruled “regime,” American reformers express widespread popular
sentiment when they describe U.S. elections as de facto “wealth primaries.”
American candidates without vast financial resources or access to such
resources can generally forget about being taken seriously in money- and
media-driven campaigns. As most Americans see it, the democratic ideal
of “one person, one vote,” is negated by the harsh realities of “dollar
democracy” and the “golden rule” (“those who have the gold rule”). The
candidate-selection and policymaking processes belong primarily to the
top 10 percent of Americans that own 73.2 percent of American wealth.

This makes retreat from politics into a seemingly rational life choice
for ordinary citizens, as was acknowledged with exceptional candor last
July by mainstream media pundit William Pfaff. “As the United States approaches
the 2000 presidential race, in which more money will be spent than ever,”
Pfaff wrote in the Chicago Tribune, “the fact must be faced that America
has become a plutocracy, rather than a democracy. Money rules government.
Moreover, the transformation probably is irreversible.Activists and intellectuals
trying to spark resistance to these facts of American political life struggle
to get their message through a system in which less than 10 giant corporations
control more than 50 percent of the country’s electronic and print media.
No wonder, then, that U.S. reformers are thinking about appealing to the
United Nations for international inspection and verification of an “open
political process” in the 2000 U.S. elections.

A National Daily Referendum

As if all this were not sufficiently bad, there is something particularly
evil about U.S. “elites” use of the term “democratic” in connection with
an increasingly universalized and worldwide capitalism. Few if any aspects
of contemporary capitalism are less democratic than precisely its tendency
towards globalization. As Edward S. Herman notes, “the globalization of
recent decades was never a democratic choice by the peoples of the world—the
process has been business driven, by business strategies and tactics, for
business ends.” Tops on the list of the relevant “business ends” is the
weakening of popular sovereignty. Capital seeks through globalization to
evade, subvert, and preclude popular and governmental regulation and to
roll back labor power.

     This phenomenon is also explicitly acknowledged in the mainstream media
of the post-Cold War era, when the seeming absence of anticapitalist ideological
enemies seems to create new frankness on the part of the U.S. intelligentsia.
In early 1997 Chicago Tribune reporter William Neikirk, for example, calmly
reported the following comment from the chief economist at a leading global
securities firm: “there is a global pool of capital that floats around
from country to country every day. It amounts to a national daily referendum
on government policies. It will discipline even the biggest countries and
force them in a conservative direction.”

Neikirk’s Tribune colleague R.C. Longworth was equally candid the following
year: “An employer doesn’t have to move jobs to Asia to  persuade those
left behind to take pay cuts. The mere possibility that, in the global
age, he can do it is enough. ‘The possibility creates the reality,’ Norbert
Walter [the chief economist for the Deutsche Bank in Frankfurt, Germany]
said. In Stuttgart, Jurgen Muller, a manager at Daimler Benz, told me how
his workers swiftly accepted previously taboo changes after Daimler opened
more plants abroad, including one in Tuscaloosa, Alabama. ‘You wouldn’t
believe how useful the example of Tuscaloosa was in discussion with our
workers here,’ he said.”

According to British political scientist David Marquand, “the rhetoric
of globalization already resounds from every rooftop….Why deregulation?
To survive the pressures of global competition. Why low taxes and impoverished
public services? Because the globalization of financial markets rules out
tax increases. Why falling real wages and dwindling social protections?
Because our unskilled workers now have to compete with millions of hungry
Asians, happy to work for even less.”

There is an interesting debate among radical intellectuals on the extent
to which globalization poses an actual structural or particularly novel
threat to workers and democracy in the core states of the world capitalist
system. But no serious left analyst would question the notion that globalization
discourse is a potent weapon in the hands of the more elite segments of
the business class. Beyond the question of how accurately it reflects structural-economic
reality, the widespread, alternately celebratory and fatalistic chant of
globalization plays some of the same domestic ideological role that the
Cold War once performed. It provides an international rationale for the
persistence and furtherance of inequality and repression at home.

Why American CEOs Prefer Dictators

All of which provides excellent context for understanding some fascinating
new research on democracy, trade, investment, wage-determination, and U.S.
preferences in the world capitalist system of the “post-Cold War era.”
According to a recent study by the New Economy Information Service (NEIS)—a
labor-connected think tank that gauges the impact of globalization—American
corporate capital particularly likes to float into global territory controlled
by dictatorships. By cross-checking U.S. government and World Bank statistics
on world trade and investment with Freedom House’s comparative ranking
of world nation states as “free,” “partly free,” and “not free,” the NEIS
recently discovered that 72 percent of U.S. manufacturing investment in
“developing” (Third World) countries goes to “unfree” nations. At the same
time, U.S. imports from “unfree” states have risen from less than half
to nearly two-thirds of U.S. imports from the “developing” world since
the end of the Cold War, even while the number of Third World nations meeting
Freedom House’s criteria for “free” status has also grown. It should be
remembered, of course, that much of what passes for import trade with the
“developing” world is in fact the shifting of product assets from Third
World to U.S. branches of American-based multinational corporations.

In explaining the above apparent anomalies for U.S. and WTO doctrine on
supposedly “democratic” global capitalism, Longworth notes quite frankly
that “wages tend to be lower in dictatorships than in democracies, giving
businesses in dictatorships an advantage on selling exports abroad. The
investment question is more complex,” writes Longworth, “but the [NEIS]
report suggest[s] a combination of factors—lower wages, easier environmental
laws, bans on labor unions—that give dictatorships an edge.”

This analysis, which will hardly seem controversial to radicals, is strongly
supported by a recent study reported in matter-of-fact fashion by Business
According to Harvard trade economist Dani Rudrik, who also uses Freedom
House criteria for describing political regimes, democratic nations pay
workers considerably higher wages than do autocracies. For a given level
of manufacturing productivity, Rudrik’s research on 93 nations determined,
factory workers in “free” countries make 30 percent more than those in
“partly free” countries and 60 percent more than workers in “unfree” nations.
It is a capitalist myth, his work suggests, that wages are set simply and
purely by the global “free market”: governmental authoritarianism pays
out a significant profit dividend to local and international capital and
relative democracy pays out an equally significant wage dividend to workers
fortunate enough to live in states with comparatively minimal repression.

    Especially telling is Rudrik’s comparison between China and India, two
massive developing states with significantly contrasting political systems.
Relatively democratic India, he found, produced an annual average output
of $3,118 per manufacturing worker between 1990 and 1994. Indian factory
workers received an annual average wage of $1,192. With a similar annual
output of $2,885 per worker, by contrast, authoritarian China paid its
factory workers just $498 a year during the same period—a difference that
helps explain why China rather than India is a particularly cherished U.S.
zone for future and ongoing investment and “trade.”

More surprising than these findings is the candor with which Longworth
deepens his explanation by acknowledging synergy between the bottom line
considerations and authoritarian values of American multinational CEOs
and Third World fascism. Dictators, he writes, “tend to be strong leaders
who can provide quick decisions, deliver results and stamp out opposition.
These qualities can appeal to many business leaders, who themselves operate
in a non-democratic structure.”

 To buttress this exceptionally forthright analysis, Longworth provides
an excellent quote from Ron Leven, a currency expert at the international
investment firm J.P. Morgan, who made a revealing comment as Indonesia
was ridding itself of its U.S.-sponsored dictator Suharto last year. “Democracy
is a desirable form of government,” Leven proclaimed, “but it’s not necessarily
the most efficient form of government.” Or, as AFL-CIO policy functionary
Thomas Palley puts it: “profits and morality don’t mix very well.”  Exactly—and
no small part of why tens of thousands of workers, environmentalists, leftists,
and other concerned world citizens recently staged remarkable mass protests
at the Seattle meetings of the World Trade Organization, an autocratic
agency that has a strong record of favoring global capital’s unimpeded
freedom to exploit the profit premium of Third World fascism.     

    Efficiency is an interesting keyword loaded with conservative ideological
overtones in its common usage by U.S. business and intellectual “elites.”
The formal dictionary definition of the word is the attainment of more
output from the same or less input. But the actual doctrinal usage of this
term by the masters of American economy and propaganda is rather different.
For the particular type of efficiency that has always mattered most to
capitalists and their intelligentsia is quite specific: more profit from
less or the same investment input (what Marx famously represented as the
endless pursuit of Money—Commodity—Money Prime). This perspective is opposed
by radical democrats, who see democracy as a desirable and exalted “output”
or policy outcome in and of itself and not as simply one of different possible
means to the end of profit. In taking such a view, the latter embrace a
moral universe beyond the cold, authoritarian, and egotistical calculations
of capital. It was precisely that universe that was perhaps more than just
envisaged in the streets of Seattle in late November and early December
1999.                 Z

Paul Street’s articles and editorials have appeared in
Monthly Review,
Dissent, the Journal of Social History, Mid-America, Z Magazine, The Chicago
and the Capital City Times.