Democracy in Retreat: Unearthing the Inherent Conflict with Capitalism

The Incompatibility of Capitalism and Democracy: A Growing Concern

In recent years, a series of crises has brought to the forefront the inherent incompatibility between capitalism and democracy. The global retreat of democracy has become increasingly difficult to ignore, with authoritarian regimes gaining strength in powerful nations such as China and Saudi Arabia. Even in established democracies, there has been a decline in adherence to liberal democratic principles, including the right to protest and judicial independence. Countries like Hungary and Turkey, once seen as progressing toward democracy, now find themselves caught in a state of “illiberal democracy.”

Experts estimate that approximately 72 percent of the world’s population lives under some form of authoritarian rule, while around 38 percent reside in countries that can be classified as “not free” according to Freedom House researchers. Scholars, like Larry Diamond, have labeled this troubling trend a “democratic recession.”

The erosion of democracy has left liberals perplexed, as it challenges their belief in the compatibility of capitalism and democracy. Initially, the fall of the Berlin Wall seemed to confirm that democracy and capitalism could coexist harmoniously. Capitalism was expected to spread, bringing with it the rights and freedoms enjoyed in developed nations. The rest of the world was predicted to embrace the Western model.

Liberal theorists and policymakers have put forward various explanations for the apparent contradiction between the proliferation of capitalism and the retreat of democracy. Right-wing proponents tend to attribute the problem to foreign “enemies of democracy,” often blaming figures like Xi Jinping and Vladimir Putin while overlooking others like Mohammed bin Salman or Viktor Orbán. Centrists, on the other hand, argue that blame lies with “extremists on both sides,” pointing fingers at democratic socialists like Bernie Sanders and Jeremy Corbyn, despite their limited political power. However, these arguments are fundamentally flawed. The decline in support for democracy cannot be solely attributed to voters being manipulated by enemy propaganda on social media platforms. Instead, it stems from the fact that democracy is not functioning as promised.

Initially, the combination of capitalism and democracy was expected to bring prosperity and progress to nations that adopted them. During the peak of globalization following the fall of the Berlin Wall, this narrative appeared plausible. However, the financial crisis shattered this collective illusion in the Global North. The generation that grew up during the 2008 crisis had to face the reality that they would likely experience a lower standard of living than their parents. Even before this crisis, the late 1990s Asian crisis exposed the risks of opening up markets to international capital, leading many developing nations to consider alternative approaches that combine elements of authoritarianism and market controls.

Moreover, democracy and capitalism were anticipated to foster more democracy. Checks and balances were meant to curb corruption, and an educated population was believed to select competent leaders. The idea was that these leaders would compete for votes by appealing to the “median voter,” promoting moderation in previously divided societies. However, corruption is on the rise, ideological divisions persist, and people continue to elect leaders who are widely seen as ill-suited for their roles. It has become evident that creating societies so divided that the ruling class struggles to understand the concerns of ordinary citizens was not a foolproof recipe for democracy after all.

Some commentators, including Martin Wolf, acknowledge that this simplistic view fails to capture the full story. Wolf expresses genuine concern for the future of democracy and accepts some responsibility for himself and his colleagues. He suggests that neoliberals, driven by their desire for the end of history, expanded free markets too rapidly without adequate measures to alleviate resulting social and economic tensions. This argument aligns with the concerns of progressive political theorist Karl Polanyi, who believed that capitalist free markets spread too quickly for societies to adapt. Individuals threatened by this rapid transformation often resisted the encroachment of the “market society” and sometimes lent their support to authoritarian leaders in response.

Progressive liberals, like Wolf, propose regulated capitalism as a potential solution to this problem. Many of these commentators advocate for a return to the social democratic consensus of the postwar era. However, indulging in nostalgic sentiments is no more productive than longing for a bygone era, as some Trump supporters do. The breakdown of the Keynesian consensus happened for a reason. When economic growth slowed, the underlying conflict between workers and employers, simmering beneath the surface, erupted into the political mainstream. Without the surplus profits gained from exploiting the rest of the world to pacify this conflict, the ruling class had no choice but to wage an all-out war against workers. Consequently, despite the evident need for measures to reduce inequality and address climate change within capitalist democracies, the progressive capitalist vision for the future faces limited prospects for implementation.

In light of these circumstances, it becomes clear that capitalism and democracy were never truly compatible from the outset.