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Capitalism and Democracy: The Problem of Coexistence

To some, the coexistence of the free market and politics of a democratic nature are inherently connected and cannot exist without one another. However, in recent years, the question has shifted into asking whether the two are compatible. It is also vital to understand that both capitalism and democracy have experienced changes in their definitions and appearance in the world. As such, this paper will refer to both historical and neoliberal capitalism, as well as what is experienced as modern democracy. Through the past few years, common tensions have continued to increase on a national scale, including growing debt, deep corruption, declining electoral turnouts, and increasing income inequalities. However, from the start of the century and the birth of neoliberal capitalism, there has also been noticeable market growth, improvement in technology, increased opportunity, and digital space as a new frontier for careers and business possibilities. These factors exhibit the ongoing and potential future relationship of capitalism and democracy worldwide. This paper will attempt to decipher whether the current coexistence of capitalism and democracy provides mutual benefits or enforces detremial mechanisms that strain the relationship between the two forces. The capitalism-democracy interaction will be analyzed through three perspectives, the knowledge-intensive economy, inequality, and digital capitalism.

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Knowledge-based or knowledge-intensive economies refer to capitalist systems in which the creation of goods and services are mainly driven by skilled workforces, rapid advancement in technology and science. This system determines that the specialized skills of a workforce are an additional attribute to their ability to produce labour within the market (Boyer, 2019). According to this definition, it is possible to say that multiple features of knowledge-based economics are visible in democratic and capitalist nations. However, this system illustrates the fact that a nation-state is the largest collector and reservoir of knowledge as they are able to control the most advanced information, equipment, education, and technology within a country. In theory, a democratic state would offer the system of skill-formation in a way that is mutually beneficial to those that strive to receive it, which suggests that democratic leadership is necessary for advanced capitalism that is based on skill and knowledge.

However, this also suggests that democratically elected governments or politicians are the ones responsible for the distribution of the knowledge and skill-formation systems, and these individuals are not completely free of business power or incentive for personal financial benefits (Marenco, 2020). In the current economy, it can be said that policy changes and decisions have been made for the benefit of advanced capitalism that supports the skill-based workforce, but these choices were often driven for political purposes by those striving to be elected or remain in power as opposed to pure democratic intention. In reality, the pipeline of advanced capitalism begins with voters wanting systems which are beneficial to them, and in which their employers and firms are successful, being followed by politicians installing such policies to continue to hold voter leverage. The system is beneficial, as employees have increased job opportunities while governments observe enhanced competitiveness and economic growth. Despite this, the knowledge-based economy, the one currently being seen in modern economics, only became prevalent due to its inherent profit to a democratic government but not because of it.

Capitalism’s ability to facilitate inequality has been a common proponent of the system since its inception, though the past few decades have illustrated the inability of democratic institutions to mitigate the immense rise in inequality. Capitalism can be viewed as two variants of itself to better understand the issue, the two variations being political and liberal meritocratic capitalism. Liberal meritocratic capitalism serves to distribute goods and services on the basis of talent or skill, by which it aims to reduce the transferring of disadvantages (Islam, 2018). As such, this form of capitalism is cohesive with democratic institutions but there are elements that inhibit such a positive relationship in the real world. First, capital income of the total product is increasing disproportionately relative to labor. Second, capital-rich people are frequently in possession of plentiful labor, which transfers that capital away from wage workers. Third, individuals with higher income and savings are more and more likely to marry people in similar economic brackets. Fourth, the correlation between parent income and child inheritance or financial transfer is high. On the other hand, political capitalism is formed with three components, an incredibly efficient bureaucratic system, no prevalence of the rule of law, and the autonomy of a selected state. This form of capitalism is especially prominent in China in which it is successful, but almost inherently undemocratic (Kuttner, 2018). Essentially, both systems have the ability to undermine the foundational aspects of democracy, human relations and trust, which has occurred in current markets.

Digitalization, the method through which digital advancements have infused completely new concepts into political, social, and economic experiences worldwide, has completely altered the landscape of capitalism and democracy. In its original conception, spaces on the internet were motivated to be democratic and free. Despite this, few of those notions are present in the current use of digital spaces, especially by corporate entities. Referred to as surveillance capitalism, a system that is able to transform investments by companies into profit began to dominate the digital space. The nature of surveillance capitalism is familiar to many, it implements the behavioral data provided by individuals and creates modification to content, user experience, and other factors of the digital space for the potential of profit (Trittin-Ulbrich et al., 2021). However, such a system has effects on behavior in general, as increased behavioral data extractions lead to better predictions, which motivates firms to increase the amount of time their users spend on their websites. Many may argue that the existence of such mechanisms is undermining the Western definition of democratic states. Examples of the influence such a system has can be observed through electoral behavior guided by digital advertisements, exposure, and platform power for certain individuals. The inherent level of democracy cannot be measured within the digital space, but the results of such mechanics reflect a non-democratic process.

The relationships between modern capitalism, a neoliberal variety, and current democratic politics are possible but hundred by interior and exterior limitations. Interior issues include generated tensions such as rising income inequality and the disspororiatante power of digital entities in behavioral influence. Exterior factors represent influences such as the ability to upkeep capitalism without democracy by certain states or the re-defined versions of capitalism, such as political capitalism, that undermine the original intent of the system. As such, there is no evidence that capitalism and democracy are inextricably linked, and their coexistence may often display substantial negative aspects within societies and economies. Despite this, adherence to the fundamental values of both democratic and capitalist ideologies could prove beneficial to most, if not all, parties involved.

Works Cited

Boyer, Robert. “Torben Iversen and David Soskice: Democracy and prosperity: reinventing capitalism through a turbulent century.” Journal of Economics, vol. 128, 2019, pp. 193-200. doi:10.1007/s00712-019-00675-7.

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Islam, Rabuil. “Wealth inequality, democracy and economic freedom.” Journal of Comparative Economics, vol. 46, no. 4, 2018, pp. 920-935. doi: 10.1016/j.jce.2018.01.002.

Kuttner, Robert. Can Democracy Survive Global Capitalism? W. W. Norton & Company, 2018.

Marenco, Matteo. “Capitalism and democracy in the twenty-first century: Does it still take two to tango?” Italian Political Science Review/Rivista Italiana Di Scienza Politica, vol. 1, 2021, pp.1-7. doi:10.1017/ipo.2021.23.

Trittin-Ulbrich, Hannah, Scherer, Andreas G., Munro, Iain, and Glen Whelan. “Exploring the dark and unexpected sides of digitalization: Toward a critical agenda.” Organization, vol. 28, no. 1, 2021. doi:10.1177/1350508420968184.

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