Democratic Capitalism
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Democratic capitalism, also referred to as market democracy, is a
political Politics () is the set of activities that are associated with decision-making, making decisions in social group, groups, or other forms of power (social and political), power relations among individuals, such as the distribution of Social sta ...
and
economic system An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within an economy. It includes the combination of the various institutions, agencies, entities, decision-making proces ...
that integrates
resource allocation In economics, resource allocation is the assignment of available resources to various uses. In the context of an entire economy, resources can be allocated by various means, such as markets, or planning. In project management, resource allocatio ...
by marginal productivity (synonymous with free-market capitalism), with policies of resource allocation by social entitlement. The policies which characterise the system are enacted by democratic governments. Democratic capitalism was implemented widely in the 20th century, particularly in
Europe Europe is a continent located entirely in the Northern Hemisphere and mostly in the Eastern Hemisphere. It is bordered by the Arctic Ocean to the north, the Atlantic Ocean to the west, the Mediterranean Sea to the south, and Asia to the east ...
and the
Western world The Western world, also known as the West, primarily refers to various nations and state (polity), states in Western Europe, Northern America, and Australasia; with some debate as to whether those in Eastern Europe and Latin America also const ...
after the
Second World War World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...
. The coexistence of capitalism and democracy, particularly in Europe, was supported by the creation of the modern
welfare state A welfare state is a form of government in which the State (polity), state (or a well-established network of social institutions) protects and promotes the economic and social well-being of its citizens, based upon the principles of equal oppor ...
in the post-war period.Muller, Jerry Z. (March 2013).
Capitalism and Inequality
. ''Foreign Affairs''.
The implementation of democratic capitalism typically involves the enactment of policies expanding the welfare state, strengthening the
collective bargaining Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and labour rights, rights for ...
rights of employees, or strengthening
competition law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
s. These policies are enacted in a capitalist economy characterized by the right to private ownership of
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, re ...
.
Catholic social teaching Catholic social teaching (CST) is an area of Catholic doctrine which is concerned with human dignity and the common good in society. It addresses oppression, the role of the state, subsidiarity, social organization, social justice, and w ...
offers support for a communitarian form of democratic capitalism with an emphasis on the preservation of human
dignity Dignity is a human's contentment attained by satisfying physiological needs and a need in development. The content of contemporary dignity is derived in the new natural law theory as a distinct human good. As an extension of the Enlightenment- ...
.


Definition

Democratic capitalism is a type of political and economic system characterised by resource allocation according to both marginal productivity and social need, as determined by decisions reached through democratic politics. It is marked by democratic elections,
freedom Freedom is the power or right to speak, act, and change as one wants without hindrance or restraint. Freedom is often associated with liberty and autonomy in the sense of "giving oneself one's own laws". In one definition, something is "free" i ...
, and
rule of law The essence of the rule of law is that all people and institutions within a Body politic, political body are subject to the same laws. This concept is sometimes stated simply as "no one is above the law" or "all are equal before the law". Acco ...
, characteristics typically associated with democracy. It retains a free-market economic system with an emphasis on
private enterprise A privately held company (or simply a private company) is a company whose Stock, shares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets. Instead, the Private equi ...
. Professor of Entrepreneurship Elias G. Carayannis and Arisitidis Kaloudis, Economics Professor at the Norwegian University of Science and Technology (NTNU), describe democratic capitalism as an economic system which combines robust competitiveness with sustainable entrepreneurship, with the aim of
innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...
and providing opportunities for economic prosperity to all citizens. Edward Younkins, professor at Wheeling University, described democratic capitalism as a “dynamic complex of economic, political, moral-cultural, ideological, and institutional forces”, which serves to maximize social welfare within a free market economy. Younkins states that the system of individual liberty inherent within democratic capitalism supports the creation of voluntary associations, such as labour unions. Philosopher and writer Michael Novak characterised democratic capitalism as a blend of a free-market economy, a limited democratic government, and moral-cultural system with an emphasis on personal freedom. Novak comments that capitalism is a necessary, but not a sufficient condition of democracy. He also proposes that the prominence of democratic capitalism in a society is strongly determined by the religious concepts which drive its customs, institutions, and leaders.


History


Early to mid-20th century

The development of democratic capitalism was influenced by several historical factors, including the rapid
economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...
following World War One, the
Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
, and the political and economic ramifications of World War Two. The growing critique of free-market capitalism and the rise of the notion of social justice in political debate contributed to the adoption of democratic capitalist policies. At the Bretton Woods Conference of 1944, officials from the United States and the United Kingdom and forty-two other nations committed to trade openness. This commitment was made in conjunction with international guidelines which guaranteed autonomy for each country in responding to economic and social demands of its voters. Officials requested international capital controls which would allow governments to regulate their economies while remaining committed to the goals of full employment and economic growth. The adoption of the General Agreement on Tariffs and Trade supported free trade, while allowing national governments to retain veto power over trade policy. Such developments saw the incorporation of democratic demands into policies based on capitalist economic logic. Democratic capitalism was first widely implemented after the Second World War in the Western world, particularly in
North America North America is a continent in the Northern Hemisphere, Northern and Western Hemisphere, Western hemispheres. North America is bordered to the north by the Arctic Ocean, to the east by the Atlantic Ocean, to the southeast by South Ameri ...
and
Western Europe Western Europe is the western region of Europe. The region's extent varies depending on context. The concept of "the West" appeared in Europe in juxtaposition to "the East" and originally applied to the Western half of the ancient Mediterranean ...
. Following the severe economic impacts of the war, working classes in the Western world were more inclined to accept capitalist markets in conjunction with political democracy, which enabled a level of social security and improved
living standards Standard of living is the level of income, comforts and services available to an individual, community or society. A contributing factor to an individual's quality of life, standard of living is generally concerned with objective metrics outside ...
. In the post-war decades, democratic capitalist policies saw reduced levels of socioeconomic inequality. This was synonymous with the expansion of welfare states, more highly regulated
financial Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
and labour markets, and increased political power of labour unions. According to political scientist Wolfgang Merkel, democracy and capitalism coexisted with more complementarity at this time than at any other point in history. Policy makers in Europe and
Asia Asia ( , ) is the largest continent in the world by both land area and population. It covers an area of more than 44 million square kilometres, about 30% of Earth's total land area and 8% of Earth's total surface area. The continent, which ...
adopted democratic capitalist policies in an attempt to satisfy the social needs of their voters and respond to the challenge of
communism Communism () is a political sociology, sociopolitical, political philosophy, philosophical, and economic ideology, economic ideology within the history of socialism, socialist movement, whose goal is the creation of a communist society, a ...
. The policies implemented supported the public provision of medical care, improved
public housing Public housing, also known as social housing, refers to Subsidized housing, subsidized or affordable housing provided in buildings that are usually owned and managed by local government, central government, nonprofit organizations or a ...
, aged care, and more accessible education. Guarantees of full employment and the support of private research and innovation became priorities of policy makers. Policy developments were based on the rising notion that free markets required some state intervention to maintain them, provide structure, and address social inequities caused by them. Governments around the world regulated existing markets in an attempt to increase their equity and effectiveness. In order to stabilise the business cycle, the role of government was reconceived by anticommunist leaders in Britain, France, Italy, Germany, Scandinavia, and Japan. An emphasis was placed on supporting economic growth, promoting innovation, and enhancing living standards. This saw the expansion of educational opportunities and public
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
of basic health and aged benefits.


United States

As automated production expanded in the United States, demand for semi skilled workers increased. Combined with the expansion of
secondary education Secondary education is the education level following primary education and preceding tertiary education. Level 2 or ''lower secondary education'' (less commonly ''junior secondary education'') is considered the second and final phase of basic e ...
, this saw the development of a large working class. The resulting strong economic growth and improved income equality allowed for greater social peace and universal suffrage. Capitalism was viewed as a means of producing the wealth which maintained political freedom, while a democratic government ensured accountable political institutions and an educated labour force with its basic rights fulfilled.


Europe

In the postwar period, free market economic systems with political systems of democracy and welfare states were established in France and Germany. This occurred under the leadership of the Popular Republican Movement in France and the Christian Democratic Union in Germany.


Late 20th century

Following the oil shocks of the 1970s and the productivity slowdown in the United States in the 1980s, politicians and voters maintained strong support for democratic capitalist policies and free markets. Globalisation and free trade were promoted as a means of boosting economic growth, and this saw the formation of the North American Free Trade Agreement and the
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
. Labour market and competition regulations were eased in existing free-market economies, particularly in
Anglo-America Anglo-America most often refers to a region in the Americas in which English is the main language and British culture and the British Empire have had significant historical, ethnic, linguistic, and cultural impact."Anglo-America", vol. 1, Mic ...
. Rapid technological innovation and globalisation brought widespread international economic change. Publicly funded democratic capitalist policies were designed and implemented to compensate individuals negatively affected by major, structural economic change. Implemented beginning in the early years of the
Cold War The Cold War was a period of global Geopolitics, geopolitical rivalry between the United States (US) and the Soviet Union (USSR) and their respective allies, the capitalist Western Bloc and communist Eastern Bloc, which lasted from 1947 unt ...
, such policies included unemployment benefits, universal or partially
universal healthcare Universal health care (also called universal health coverage, universal coverage, or universal care) is a health care system in which all residents of a particular country or region are assured right to health, access to health care. It is genera ...
, and aged pensions. Post-1970s, the number of public sector jobs available expanded. Ageing populations in Europe, Japan and North America saw large increases in public spending on
pension A pension (; ) is a fund into which amounts are paid regularly during an individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be either a " defined benefit plan", wh ...
s and healthcare. In the 1980s,
Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; , OCDE) is an international organization, intergovernmental organization with 38 member countries, founded in 1961 to stimulate economic progress and international trade, wor ...
economies began reducing
corporate tax A corporate tax, also called corporation tax or company tax or corporate income tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but ...
ation, though personal
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
es and public spending on
social security Welfare spending is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifically to social insurance ...
programs generally remained stable. Large-scale innovation in production technology throughout the 20th century had widespread economic benefits in many capitalist economies. These benefits contributed to the conciliation of democratic politics and free markets and the widespread acceptance of democratic capitalist policies by voters. From the late 20th century, the tenets of democratic capitalism expanded more broadly beyond North America and Western Europe.


United States

After taking office as president in 1981,
Ronald Reagan Ronald Wilson Reagan (February 6, 1911 – June 5, 2004) was an American politician and actor who served as the 40th president of the United States from 1981 to 1989. He was a member of the Republican Party (United States), Republican Party a ...
advocated for a reduced role of government in the economy, while responding to voters’ skepticism of liberal capitalism by maintaining strong
public sector The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, pu ...
spending. Many voters doubted the ability of free market capitalism to provide consistent peace, security and opportunity, and sought improved living standards, aged care, and educational opportunities for youth. The Reagan administration maintained previous levels of government expenditure on
Social Security Welfare spending is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifically to social insurance ...
and Medicare as a proportion of
gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...
(GDP). Total government expenditure levels as a percentage of GDP also remained stable under the Reagan administration.


Europe

From the mid-1980s, European leaders began endorsing
neoliberal Neoliberalism is a political and economic ideology that advocates for free-market capitalism, which became dominant in policy-making from the late 20th century onward. The term has multiple, competing definitions, and is most often used pej ...
ideas, such as those associated with Reaganomics and
Thatcherism Thatcherism is a form of British conservative ideology named after Conservative Party (UK), Conservative Party leader Margaret Thatcher that relates to not just her political platform and particular policies but also her personal character a ...
, based on the notion of the interdependence of economic and social policy. In this context, European competition law policy developed as a method of curbing the excesses of capitalism, while aligning the economy of the European Union with the existing democratic ideals of European society. This saw the advancement of democratic capitalism throughout the European region.


South Africa

The South African Competition Act of 1998 prioritised the eradication of anticompetitive business practices and the free participation in the economy of all citizens, while maintaining a pro-free-market economy.


Early 21st century


India

India enacted the Competition Act, 2002 to promote and sustain competition and protect the welfare of market participants, goals synonymous with democratic capitalism.


Implementation

The post-war implementation of democratic capitalism saw the expansion of welfare states and the free collective bargaining rights of employees, alongside market policies designed to ensure full employment. Under democratic capitalism, an autonomous democratic state enacts of policies which in effect create a compromise between upper and lower classes, while remaining compatible with free-market capitalism. Such policies include the establishment or expansion of a welfare state, as a method of mediating social class conflict and catering to the demands of workers. The system is characterised by the establishment of cooperative economic institutions. This includes institutions which facilitate bargaining between government bodies and business and labour organisations such as unions, and those which regulate the relationships between employees and management within private firms. The development of institutions to promote cooperation among public and private economic entities acknowledges the benefits of market competition, while attempting to address the social problems of unrestrained capitalism.
Economic security Economic security or financial security is the condition of having stable income or other resources to support a standard of living now and in the foreseeable future. It includes: * probable continued solvency * predictability of the future cash ...
concerns of citizens are addressed through redistributive policies. Such policies include income transfers, such as welfare payment programs and pensions, to support the financial needs of the elderly and the poor. Other policies which promote economic security include
social insurance Social insurance is a form of Social protection, social welfare that provides insurance against economic risks. The insurance may be provided publicly or through the subsidizing of private insurance. In contrast to other forms of Welfare spend ...
, and the fiscal financing of education and job training programs to stimulate employment. The right to private ownership of productive property is a central tenet of democratic capitalism, and is recognized as a basic liberty of all democratic citizens, as in a regular free-market capitalist economy. According to political philosopher John Tomasi, democratic capitalism addresses social entitlement and justice concerns through the preservation of citizens’ private
property rights The right to property, or the right to own property (cf. ownership), is often classified as a human right for natural persons regarding their Possession (law), possessions. A general recognition of a right to private property is found more rarely ...
, allowing citizens to be “free, equal, and self-governing”. The robust competitiveness and sustainable entrepreneurship which define democratic capitalism are characterised by top-down policies and bottom-up initiatives implemented by democratic governments. Top-down policies are planned and implemented by formal leaders in an organisation, while bottom-up policies involve gradual change initiated and sustained by lower-level members of organisations. Policies implemented are designed to incentivise public and private sector innovation. Examples include strong
research and development Research and development (R&D or R+D), known in some countries as OKB, experiment and design, is the set of innovative activities undertaken by corporations or governments in developing new services or products. R&D constitutes the first stage ...
funding, and policies which protect
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...
rights.


Competition law

A characteristic of democratic capitalist economies is the democratic enactment of laws and
regulation Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...
s to support competition. Such laws include United States antitrust laws. Competition laws are designed to regulate
private sector The private sector is the part of the economy which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government. Employment The private sector employs most of the workfo ...
activities, including the actions of capital asset owners and managers, in order to prevent outcomes which are socially undesirable according to the democratic majority. The implementation of competition law is intended to prevent anti-competitive behaviour that is harmful to the welfare of consumers, while maintaining a free market economy. The implementation of antitrust laws was found to be a characteristic of democratic capitalism specifically, and not regular free-market capitalism.


Conflicts between notions of resource allocation

According to economic sociologist Wolfgang Streeck, the capitalist markets and democratic policies that characterise democratic capitalism are inherently conflicting. Streeck suggests that under democratic capitalism, governments tend to neglect policies of resource allocation by marginal productivity in favour of those of resource allocation by social entitlement, or vice versa. In particular, he comments that the accelerating
inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
of the 1970s in the Western world can be attributed to rising trade-union wage pressure in labour markets and the political priority of full employment, both of which are synonymous with democratic capitalism.


In Catholic social teaching

Catholic texts offer support for a form of socially regulated democratic capitalism. The papal encyclical '' Centesimus annus'', written by
Pope John Paul II Pope John Paul II (born Karol Józef Wojtyła; 18 May 19202 April 2005) was head of the Catholic Church and sovereign of the Vatican City State from 16 October 1978 until Death and funeral of Pope John Paul II, his death in 2005. In his you ...
, emphasizes a vision of a communitarian form of democratic capitalism. The communitarian system of democratic capitalism described promotes respect for individual rights and basic workers’ rights, a virtuous community, and a limited role for the state and the market. According to the encyclical, these characteristics should be combined with a conscious effort to promote institutions which develop character in individuals. The encyclical stressed to decision makers the importance of the dignity of the person and a concern for the poor, while acknowledging the need to balance economic efficiency with social equity. The US Bishops’ 1986 Pastoral Letter Economic Justice for All suggested that specific institutional arrangements be developed to support this form of democratic capitalism. Arrangements proposed included structures of accountability designed to involve all stakeholders, such as employees, customers, local communities, and wider society, in the corporate decision making process, as opposed to stockholders only. The letter offered acceptance for the market economy under the condition that the state intervene where necessary to preserve human dignity.


See also

* Democratic communism *
Democratic socialism Democratic socialism is a left-wing economic ideology, economic and political philosophy that supports political democracy and some form of a socially owned economy, with a particular emphasis on economic democracy, workplace democracy, and wor ...
* Georgism * Libertarian paternalism *
Mixed economy A mixed economy is an economic system that includes both elements associated with capitalism, such as private businesses, and with socialism, such as nationalized government services. More specifically, a mixed economy may be variously de ...
* Neoclassical liberalism * Post-war consensus * Regulatory capitalism *
Social democracy Social democracy is a Social philosophy, social, Economic ideology, economic, and political philosophy within socialism that supports Democracy, political and economic democracy and a gradualist, reformist, and democratic approach toward achi ...
* Social market economy * State capitalism * Welfare capitalism


References

{{DEFAULTSORT:Democratic Capitalism Capitalism Democracy Economic ideologies Economic liberalism Economic systems Ideologies of capitalism Types of democracy