Free market and democracy – a marriage in trouble?

The notion that  representative democracy and free market capitalism are two sides of the same coin was a long time coming in the history of the so-called developed world – the result of a long courtship if you want, that came to a “perfect” fusion especially after World War II. But now there are increasing signs that a 30-year itch, which started in the 1970s, has developed into a crisis of confidence and that the globe is about to experience a  messy divorce of the erstwhile trusting partners.

The great Western conflation of nationally based representative democracy with capitalism started with the crisis of European feudalism and the grand European and North American bourgeois revolutions between the 17^th and 19^th centuries. Its offspring spread to most corners of the world and reached a golden era during the days of the so-called Cold War with its division of the globe between the “free world” capitalism and “expansionist communist totalitarianism”.

The family of democracy and free market capitalism finally moved into the “house on the hill” in the global village after the collapse of the Soviet Union and the economic system of central planning communism in the 1980s. This event however overshadowed a deception that took place a decade or so earlier, that has now come back to haunt the once happy union of democracy and free market capitalism and is presently pushing it into deep crisis.

It happened in 1971 when the Bretton Woods dollar-exchange system collapsed because holder of the world’s currency of last resort, the American dollar, got itself involved in the Vietnam war. It was an era during which the world economy was destabilised by America’s inflationary monetary and budget policies employed to keep the expensive war-effort going.

And, then came the final act of deception; On August 15, 1971when the United States abandoned its monetary links with gold. Inflation soared worldwide as the major market economies searched for a new approach to the global monetary system.

In its wake there was a decisive break in the established governance of the political economy based on a balance of power between government-controlled regulation and the workings of the markets. The determination of ultimate value became the virtual sole domain of “the markets”.

Representative democracy became totally dominated by capitalism as practised in a free-market economy. With a fixed measure to determine values, such as  the independent measurability of wealth (a la the gold standard) out of the way, the balance of power underpinned by a so-called “mixed economy” (in which government played a crucial role as regulator) was largely disturbed.

Over the last four decades or more representative democracy also allowed itself to give in to the temptation of buying votes under the false belief that each generation could boost its standard of living by creating debt that a next generation will repay. The assumption was that the economy could sustain perpetual growth.

But, the chickens are finally coming home to roost as we discover increasingly that under the dual strain of ever mounting debt and depleting natural resources, the heaven on earth that we were promising ourselves has become unsustainable. The system’s problems are further exacerbated in the West or so-called developed world by factors like ageing populations and climate change – the convergence of which is making for a perfect storm.

The sovereign debt crisis raging in Europe and threatening in the US (especially if the problems in Europe are not settled soon) has brought the crisis strongly into focus over the last three years.

In a recent interview with Der Spiegel Oxford historian and author of contemporary history, Timothy Ash said of the way especially the financial markets have developed over recent decades: “This financial capitalism, which has been so falsely developed in the past 20 years, indeed poses an existential threat – not just for the European democracies, but for the entire West. Let’s not kid ourselves: We are talking about a major economic and financial crisis  for the West.”

So acute has the fear of the sustainability of the present Western model of a governance partnership between representative democracy and free-market capitalism become, that even among the most conventional of economists we suddenly see Karl Marx’s theories being dusted off again – although it is debatable if they can ever be rid  of all the baggage that Soviet-style communism has loaded on them. But the dire need to find alternative guiding principles is undoubted.

The magnitude of Europe’s sovereign debt crisis goes well beyond finance. It goes to the heart of the globe’s dominant governance system of representative democracy in partnership with free-market capitalism.

Yes, even classical Marxism is getting a re-look as the world seems to be poised for epoch-making fundamental change that is bound to see some serious turbulence over the next decade or two.

Four eurozone governments have already fallen by the wayside as a result of the financial crisis. In two instances, Greece and Italy, there has been an effective suspension of democratically elected representative governments and the installation of technocratic governments.

In Greece prime minister George Papandreou resigned after effectively being denied the democratic route of a referendum on EU-imposed financial policies. He was replaced by the vice-president of the European Central Bank Locas Papademos.

In Italy prime minister  Berlusconi had to make way for a coalition government of non-elected technocrats, lawyers, bankers and diplomats led by Mario Monti – a man with a degree from Yale University, an academic who has  served in various capacities as European commissioner and who was appointed lifelong senator in Italy only weeks before his elevation to the position of prime minister.

Some of the loyal members of ousted prime-minister Berlusconi’s party complained of a coup d’etat engineered by bankers and the European Union.

Under the headline The day European democracy died Janet Daley of The Telegraph recently wrote with reference to developments in Greece: “The plan to tackle the eurozone crisis will only render ordinary people more powerless. Democracy went down in a blaze of glory last week.”

After the installation of the technocrat government in Italy, Marcello Musto, professor of political theory at the York University of Canada, wrote in an article for Global Research: (http://www.globalresearch.ca/index.php?context=va&aid=27717 ) “The separation between economics and politics that differentiates capitalism from previous modes of production has reached its highest point. Economics not only dominates politics, setting its agenda and shaping its decisions, but lies outside its jurisdiction and democratic control – to the point where a change of government no longer changes the direction of economic and social policy.”

Musto wrote that  recent events in Greece and Italy are a striking illustration of these tendencies. Behind the facade of the term ‘technical government’ – or ‘government of all the talents,’ as it was known in Marx's day – we can make out a suspension of politics (no referendum, no elections) that supposedly hands over the whole field to economics. In an article of April 1853, “Achievements of the Ministry,” Marx wrote: “The best thing perhaps that can be said in favour of the Coalition ["technical"] Ministry is that it represents impotency in [political] power at a moment of transition.” Governments no longer discuss which economic orientation to take; economic orientations bring about the birth of governments.

Although it has now become an acute issue, trouble in the marriage between democracy and capitalism was spotted at least a decade ago. In an article for the International Endowment for Democracy, written in February 2000, Chicago Tribune economic correspondent R.C. Longworth is quoted as writing: “... the struggle of democracy and capitalism is at the heart of current debate over the global economy. In theory 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.”

Many commentators lament the fact that governments have surrendered to the dictates of the market place and its major players. Corporatocracy is a term quite often used nowadays by top respected commentators.

But  it would probably be wrong to just blame  all the problems  only on the partners in the so long dominating political/economy-marriage. Globalisation has brought huge pressures on the erstwhile happy union.

In the words of a recent article by Jose Ignacio for openDemocracy: ”Just as the mechanisms that made democracy function in city states were not adequate for governing nation states, representative democracies today are showing themselves incapable of managing, effectively and democratically, the system that is emerging ...”

It is also important to take note that it is not only a crisis for the West. In their Geopolitical Weekly of August 9 this year, strategic analysts Stratfor wrote: “The current economic crisis is best understood as a crisis of political economy. Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life. On a global scale, or at least for most of the world’s major economies, there is a crisis of political economy.”