Why Is There Tension Between Capitalism and Democracy Today - Essay Example

Why Is There Tension Between Capitalism and Democracy Today? Capitalism and democracy are fundamental elements of historical institutionalism and they are pertinent to issues happening across the world in the modern society. The fundamental principles distinctive to each concept are an important foundation for this discussion. The call has been one of blending the two principles to form a coherent master plan for effective governance. While many see this as a prolific solution to most of the issues affecting the modern society, the whole chemistry of melding the two schools of thought is not straightforward (Hertz, 2002). Often, the question of balance does arise. Perhaps it would help if one would start by unpacking the relationship that exists between these two concepts. According to Steinmo (2008), capitalism is a system of allocating prices based on effort. This implies that the allocation of a price tag is contingent on some valuations. In this case, the basis of the valuation is enterprise. Essentially, every meaningful effort produces results; therefore, productivity is the degree to which effort achieves an anticipated result. Consequently, the price associated with high productivity is higher than that of low productivity. However, in the context of economics of production, productivity is constrained by the availability of resources among other factors (Iversen, 2005). It is important to note that every economy operates within the realm of limited resources. Indeed, this is the rationale of choice and scale of preferences. A state of disposable resource endowment is the ideal situation. In this scenario, productivity would not be restrained by the scarcity of resources and other factors, and it would be justifiable to base price allocation on effort or productivity. This makes a case for the idealism of capitalism. The concept of capitalism underscores the principle of competition. The whole idea of attaching a price tag to a result serves many purposes. One of the primary roles of pricing is to recognise value or worth. According to Fogel (2007), the very core of capitalism is rewarding enterprise. This would mean that effort is directly related to result; which by the rule of transitivity is related to value (in this case measured by price). However, the contradiction in this nugget is that price does not always reflect effort. For example, a peasant who relies on labour alone to cultivate expends more effort in comparison with a large-scale farmer who employs mechanisation. However, the substance of the result may be the same. Suppose both farmers are growing kales, definitely the result of their work is homogenous to a large extent. Applying the principle of pricing as envisioned by capitalism, we would expect the result (in this case kales) to fetch the same price. However, this is not always the case. Instead, the peasant may receive a proportion of the price received by the large-scale farmer owing to certain factors. Capitalism, however, does not address these anomalies. The capitalism principle relies on the price allocated to the result of an effort to ‘reward’ the various elements in the economy. For example, labour is an important factor of production. Those who supply labour receive wages in return. The price tag allocated to a unit of labour forms the basis of awarding wages. Apart from the economic rewards, the price is used to award other tangible and intangible benefits such as recognition in the society (Amable, 2003). Research shows that reward is a major source of motivation in organisations and the society in general. According to the reinforcement theory of motivation, an activity which has a rewarding experience accompanying it is highly likely to be repeated in the subsequent period. With regard to capitalism, rewards become the real motivation for many activities. This concept ties with the principle of using price as the primary indicator of worth and together they produce the rationale of competition. Every entity in the society competes to attain a high value of worth so that they can be rewarded. The concept of capitalism has given undue prominence to pricing and the struggle to get noticed and picked for rewarding by the system is fated and the ramifications are potent. Capitalism encourages a culture of enterprise, with profiteering being the underlying motivation. Capitalism is often used to refer to enterprise culture. This is one of the arguments presented by the proponents of capitalism, as enterprise is the engine of most, if not all the economies (Amable, 2003). Most institutions advocate for liberalisation and deregulation of the system so as to create a free market for products created by entrepreneurship. And this is truly a move I the right direction. However, the fact that those who have the economic and political machinery in the system are primarily motivated by profits in their endeavours throws a spanner in the works. Elementary cost accounting defines profit as the amount in excess of production costs. Profit then becomes the primary measure of the performance of an enterprise. As a result, many enterprises are so keen on maximising profit that any means to an end is serviceable. This includes charging exorbitant prices with the aim of realising higher profit margins. This should not be a surprise considering the system is oriented in such a manner that any activity that lacks an element of profitability is not worth the effort. According to Hirst (2013), democracy is a regimen for systemising the association between the peoples’ representatives in governance and the people themselves. An important principle that comes out in the definition is that every (eligible) member of the society is involved in running the affairs of the state. The spirit of democracy is such that the populace has a voice in government decisions regarding the issues that affect them. According to Rabie (2013), the most common way of voicing opinions in a democracy is through a vote. The society elects leaders to articulate their positions on issues that matter to them. The society also exercises a vote in the form of a referendum on fundamental issues that impact on their welfare. On the other hand, the people have the sole power and privilege of effecting checks and balances on their representatives. Democracy is really an approach of the political system. According to Schumpeter (2013), the primary role of politics is resource allocation. Every society grapples with the problem of scarcity of resources. If the situation would be left unattended, the sustainability of the ecosystem (the interactions between man and his environment) would be in jeopardy. This is because uncontrolled exploitation of resources would bring conflict in the system. Politics comes in to solve the problem by establishing a credible framework that would ensure that every member of the society has the necessary supplies that would enable them to tap into their talents and abilities and exploit the opportunities around them. An inventive political system would produce a prosperous society whereby no person is left behind. In this regard, democracy becomes one way of managing the problem of limited resources (Iversen, 2006). Democracy gives people an opportunity to make decisions regarding the distribution of the resources available to them. According to Hope (2009), the wisdom in a democracy is that the people know the limitations that are hampering their prosperity. As such, they are in the best position to decipher solutions to their problems and thereby shape their destiny. Democracy in its quest to level the field for all the players adopts certain practices and values that are institutionalised to bring acceptability from the people. One of the government interventions is the formulation of policies. It is envisioned that the policies would eliminate barriers to the empowerment of the populace so that they can optimise their potential. Essentially the policies would provide equal opportunities for all members of a society to succeed in their respective vocations without endangering the sustainability of the ecosystem (Birch, 2007). The policies would increase the participation of the people in controlling the affairs that concern their welfare. Certainly, this is something good to write home about. However, the result has not always been what the people anticipated. While capitalism envisions creating purchasing power through a free market system where the forces of demand and supply sort of determine the destiny of the players, democracy seeks to create the purchasing power by influencing the interaction between the two forces (Audretsch and Thurik, 2001). A look at either side of the coin reveals major flaws. For example, allowing capitalism alone to determine the purchasing power of the people would disadvantage the players who are constrained by various factors, and this could make them worse off. On the other hand, democracy seeks to even out the differences so that every player can benefit from the resource endowment. According to Streek (2011), this may lead to the adoption of certain measures that counteract this objective. For example, deregulating the financial system and increasing wages would enhance the purchasing power of the people. However, this would affect enterprise negatively in the long run. Indeed, capitalism seeks to reward enterprise, hence the conflict. In conclusion, the relationship between capitalism and democracy is one of conflict. Although both systems are progressive in nature, harmonisation does not always achieve the expected outcome. Perhaps it is time each economy assumed a distinctive position instead of trying to balance between the two systems. References Amable, B., 2003. The diversity of modern capitalism. Oxford University Press on Demand. Audretsch, D.B. and Thurik, A.R., 2001. Capitalism and democracy in the 21st century: from the managed to the entrepreneurial economy. In Capitalism and democracy in the 21st century (pp. 23-40). Physica-Verlag HD. Bartlett, R. V., & Baber, W. F. (2005). Ethics and Environmental Policy in Democratic Governance John Rawls, Public Reason, and Normative Precommitment. Public Integrity, 7(3), 219–240. Birch, A.H., 2007. Concepts and theories of modern democracy. Routledge. Fogel, R.W., 2007. Capitalism and democracy in 2040: forecasts and speculations. Hertz, N., 2002. The silent takeover: Global capitalism and the death of democracy. Simon and Schuster. Hirst, P., 2013. Associative democracy: New forms of economic and social governance. John Wiley & Sons. Hope, W., 2009. Conflicting Temporalities State, nation, economy and democracy under global capitalism. Time & Society, 18(1), pp.62-85. Iversen, T., 2006. Capitalism and democracy. Iversen, T., 2005. Capitalism, democracy, and welfare. Cambridge University Press. Marable, M., 2015. How capitalism underdeveloped Black America: Problems in race, political economy, and society. Haymarket Books. Rabie, M., 2013. Capitalism and Democracy. In Saving Capitalism and Democracy (pp. 61-76). Palgrave Macmillan US. Schumpeter, J.A., 2013. Capitalism, socialism and democracy. Routledge. Steinmo, S., 2008. Historical institutionalism. Approaches and methodologies in the social sciences: A pluralist perspective, pp.118-138. Streeck, W., 2011. The crisis in context: Democratic capitalism and its contradictions. Read More