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By Laura Amico, on March 11, 2020 (available online)

« Democracy and capitalism coexist in many variations around the world, each continuously reshaped by the conditions and the people forming them. Increasingly, people have deep concerns about both. In a recent global survey, Pew found that, among respondents in 27 countries, 51% are dissatisfied with how democracy is working. Further, Millennials and Gen Zs are increasingly disinterested in capitalism, with only half of them viewing it positively in the United States.

In “The Business Case for Saving Democracy,” Rebecca Henderson argues that the failure of each system is married to the other, and that to rebuild a strong free market we are going to have to strengthen democracy. But do other observers agree?

To learn more about the complex global relationships of democracy and capitalism — and why global opinion of the two appears to be waning — Harvard Business Review, with Henderson, reached out to top economists and political scientists who study democracy, and who are from, live, or work in countries that are struggling with it. We asked them these questions: Do democracy and capitalism need each other? Why or why not?

Here’s how they answered.

Isabelle Ferreras

Tenured fellow of the Belgian National Science Foundation, professor at the University of Louvain, and a senior research associate of the Labor and Worklife Program at Harvard Law School

Clearly not: Capitalism, as we can see across the globe, is compatible with all different kinds of political regimes: liberal democratic, communist, autocratic — and now illiberal democracies, too.

Democracy is a system of government based on the recognition that people are equal “in dignity and rights” and should therefore have equal political rights. This ideal can be applied to entities of any size.

Capitalism is also a system of government, but an unequal one. It grants political rights based on capital ownership. Its core institution is the firm, which is made up of two classes of investor: capital and labor. In capitalist firms, political rights to govern are held by capital investors only, through the legal vehicle of the corporation. The only citizens that matter in the extractive logic of the capitalist firm are those who own capital — in other words, shareholders. They exercise the power and reap the bulk of the financial returns, while labor investors (i.e., workers) are disenfranchised — and the planet’s resources exhausted.

Capitalism is not naturally meant to support the free market. The market is an exchange mechanism that is legally and culturally produced and secured by the state. Its superiority in coordinating supply and demand has been proved, but it is seldom acknowledged that the market economy is compatible with both democratic and capitalist governments at the firm level. Capitalism and democracy both need markets, not each other.

This confusion has created the illusion that democracy and capitalism go hand in hand, when, in fact, they contradict each other. Today’s political leaders (democratic or not) are scrambling to hide their powerlessness to reduce inequalities or save the planet in the face of transnational capitalist corporations. One result of this is crumbling democracies. We have a clear choice before us: either expand our democratic commitment to include corporations, through democratizing them internally (by including the representation of labor investors along the current representation of capital investors), or forfeit our democratic rights to those who own capital — a possibility looming on the horizon, particularly in the United States.

5-Part Series : Democracy Under Attack by Harvard Business Review »

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