“The democratic crisis of capitalism: Reflections on political and economic modernity in Europe”: Review

July 15, 2013

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LEQS paper No. 44/ 2011, December 2011

Should there be a link between Capitalism and Democracy?

In the opening chapter Wagner asks why should there be a link between capitalism and democracy. He starts answering this question by looking at the history of both and points out that in the past democracy flourished under non-capitalist conditions. So there is no compelling reason for both to co-exist.

Peter Wagner goes on to argue that modernity is the widespread belief that political liberties are intrinsically linked with economic liberties. In his view neo-modernisation theoretists often start out from the conviction that there is no alternative either to market society (or capitalism) or to democracy. However, there is also disaffection with existing democracy due to a declining effective capacity for collective self-determination as the democratic nation-state loses regulatory power when economic and cultural forces cross its boundaries ever more frequently. So some people believe that the market economy best expresses modernity because it emphasizes the individual choices of the economic embodiments.

However, Wagner points out that market economy is not synonymous with capitalism and that the interpretation of autonomy as the freedom of the producer in a self regulating market assumes a prior separation between economy and politics which leaves politics with nothing to say about the relationship between states and market. This assumption has been and still is seriously challenged.

Both Capitalism and Modern Democracy have their roots in the thinking of the Enlightenment

In his second chapter Wagner then outlines some historical developments and offers conceptual reflections from determinism to structured contingency. The market economy emerges in England with the Industrial Revolution while modern democracy emerges in France with the French Revolution. Both have their roots in the thinking of the Enlightenment. These common roots have led to an assumption of “co-originality” between capitalism and democracy; that is, that these phenonema have co-emerged historically. However, this view is held in two contrasting versions, namely the conviction that there is a natural link between capitalism and democracy on the one hand and on the other that these two phenonema are naturally in tension with each other.

Wagner names Talcott Parson as the representative of the former view who sees modern society as functionally differentiated into the organisation of the markets on one side and politics and public administration on the other. The view that capitalism and democracy are naturally in tension with each other was held by Karl Marx and lately by the Frankfurt School of Theodor Adorno and Max Korckheimer. The latter two are of the view that “the capitalist economy formed the basic structure of Western societies whereas democracy was nothing but a surface phenonemon” (Adorno). In their view temporary co-existence is possible but in moments of crisis democracy would tend to be abandoned to safeguard the interests of capital. Wagner quotes Korkheimer as saying “who speaks about fascism cannot remain silent about capitalism”.

Inclusive Democracy developed after the First World War

In his third chapter Wagner reflects that for modern capitalism to emerge (first in Britain) three conditions seem to have been necessary. The first condition was the granting or extension of commercial freedom that enabled or facilitated the engagement in production or commerce by the employers and the sale of their labour power by the workers.The other conditions were the invention and diffusion of technology (steam engine, etc) and the evolution of a social situation that either required or incentivated people to sell their labour power.

However, as Wagner points out inclusive democracy based on the idea of popular sovereignty did not exist in any part of Europe at that time. Therefore capitalism flourished between 1800 and the end of the First World War under conditions of extremely restricted democracy. Wagner describes the period between 1800 and early 20th century as a period governed by regimes with low levels of participation but with strong aristocratic and oligarchic features that co-existed in Europe with liberal capitalism.

Only from 1919 onwards did fully inclusive democracies develop in a highly organised form with political mass parties, high political mobilisation, high electoral participation and mass unionization. Wagner calls this the “first wave of democratization”.

Between 1890 and 1930, the Second Industrial Revolution happened, focussed on electric and chemical engineering. During that period a combination of technical, organisational and economic changes transformed capitalism. In that period we can observe a “managerial revolution” with the separation of management from ownership, the emergence of “finance capital” , the recognition of unions and introduction of collective conventions, the scientific organisation of work (Taylorism) as well as the introduction of new wage regimes which gradually permitted workers to buy the products of their own work. (Henry Ford). The sum of these developments has been described as the creation of a new accumulation regime of a mass production, mass consumption economy. Max Weber describes this form of capitalism as the modern capitalism.

Democratic Crisis of Capitalism after 1970

Wagner then adds a review chapter in which he reflects on the democratic crisis of capitalism from about 1970 onwards. His first observation is that capitalism can exist without democracy. However, the long co-existence of capitalism and democracy in Europe after the Second World War has tended to make us forget the historical experience outlined above and has thus generated the idea that there is a necessary connection between the two phenonema. He gives two explanations for this. Firstly social theory and sociology were little concerned with democracy up to the early twentieth century. Only from 1919 on democracy becomes a key concern of social and political thought. Significantly though the thinking about democracy is very open and critical in that period as it is seen as a novel political form with a high risk potential. Only after the Second World War did the idea become widespread that there is no alternative to democracy.

Wagner’s second observation is that whenever capitalism exists without democracy it will be exposed to a critique of exploitation and injustice. This critique will most likely be expressed through calls for inclusive and egalitarian democracy.

The third observation is that when capitalism co-exists with inclusive democracy in societies with strong internal social bonds pressure on profitability can be high and lead to crisis.

Wagner then outlines two historical attempts to address this problem. In the first one the dominant class was afraid of a socialist revolution when inclusive democracy was first introduced. In the second attempt after the Second World War the re-establishment of “democratic political arrangements” occurred under different auspices explained by the experiences of the war that preceded it.

This meant that on the one hand democracy now became central to political thought thus effectively converting post Second World War political science into “the science of democracy”. On the other hand much political thinking concentrated on “limiting the political passions” suggesting for example that the organized political representation should effectively filter out the more conflictive components of the politcal debate so that they would not reach decision-making institutions.

The Rise of Neo-Liberal Global Capitalism after the late 60s

In his fourth observation Wagner suggests that the rise of what has become known as neo-liberal global capitalism in the 60′s and 70′s can largely be understood as the outcome of this democratic crisis of capitalism. A major social transformation occurred in the decade from the 60′s to the 70′s: student revolts of 1968, spontaneous and large scale working class actions, the end of the International Monetary System (Bretton Woods), the defeat of the US in Vietnam, the first oil crisis with the resulting recession, the introduction of neo-liberal and anti-union economic politics through Reagan and Thatcher and so forth. These developments led to the adoption of supply-side economic thinking into government policies.

This then led to the process of “economic globalisation” which meant a relative decoupling and thus an escape from democratic control of the nation-state. This is in turn accompanied by the emergence of a “media-driven aggregate-preference democracy” which stands in contrast to a widening of the understanding of democracy through deliberation and participation.

Liberal Society and Citizen Disaffection

Wagner sums up this development from the late 60′s till now in his fourth chapter “liberal society and citizen disaffection” since the way democratic citizenry is now connected to capitalist practises is no longer compatible with the welfare state.

Wagner suggests two remedies to overcome “this crisis-proneness of the current constellation of capitalism and democracy”. One would be (technocratic) re-regulation performed by political and business elites in intergovernmental ways as outlined by Majone 1996 and Scharpf 1999. However, this approach alone would probably be insufficient. Therefore he adds a second remedy which would also be preferable although highly difficult to achieve – namely the reconstitution of collective self-determination.

This could either happen through the revival of the nation-state or in new forms of a global commons model which could be either on a global level or on a smaller level as some form of self-defence community as widely seen in Latin America. The Global Commons approach would be based on a “Global Democracy”. However, there is extremely little historical experience of global deliberative practises “so that the ‘self’ that is supposed to determine collectively its rules barely exist.”

New Democratic Qualities needed for Compatibility with Capitalism

In his conclusion Wagner reflects on the “quality of the kind of democracy that is compatible with capitalism”. In his view such compatibility would require “high-intensity democracy [that is] inclusive and with high levels of deliberation and participation which would “stand in a principled tension with capitalism” and possibly with economic (European) modernity in general. Wagner reasons that “current European modernity operates with a tightly defined and rather closed concept of political membership in democracy whereas it simultaneously entertains a flexible open understanding of economic boundaries”. He lists as examples the protection of agricultural production while at the same time demanding free-trade for industrial production combined with admitting labour without granting political citizenship.

Wagner observes that if one looks at the history of the last two centurie,s “doubly inclusive modernity” – political and economic- was rather rare. One possible exception has been the Scandinavian countries in the 1950′s and 80′s. For him this reflects what he calls a “constitutive problem of modernity”, i.e. “the inability of the most elaborate versions of political modernity to develop an inclusive/ egalitarian” or just way of dealing with economic matters.

Finally he suggests we should look at Brazil and South Africa and study their inclusive and highly participative forms of democracy despite the struggles they still have finding an “economic arrangement that is consistent with political form, not least: that enhances economic inclusion and reduces social inequality”.

Information about Peter Wagner: He is currently an ICREA Research Professor at the University of Barcelona.
Other publications by Peter Wagner:
Modernity – Understanding the Present

Tags: capitalism, democracy, neoliberal ideology, participative democracy