On Capitalism, Democracy and Welfare (Part I)

By Tevfik Murat Yildirim. Originally published on 2012/12/10

The topic of the final week of November’s radio show America Tonight was the balance in socio-political issues in the society. A guest was asked how the Democrats and Republicans fit together in the society and they subsequently responded to these questions in broad way, arguing that both disparate elements are needed in our society. In relation to America, the guest believes that we should not insist on the period of 1940s, a period in which social welfare principles were fully preserved in a society consisting of selfish and selfless people. He concluded with the idea that we need some people from right and left at the same time. The issue, at first glance, may seem fuzzy since the guest was given a limited time to answer these complex questions. Yet, he managed to focus the attention of the listener on a single point: balance in society.

Although this debate was intrinsic to American society, it fits European society just as well. Indeed, by analysing the choices of policies Europeans have made in the past, one would derive several outcomes when one delves further into the “balance” issue.

What shapes the current European policies are, of course, the motions roughly derived from socialism and capitalism. These motions are best indicated in the magnum opus of Joseph Schumpeter; Capitalism, Socialism and Democracy. Innovation is the essence of capitalism, making it sustainable in the economic sense. On the one hand, locating himself in the middle of these arguments as “a doctor free from bias”, Schumpeter argues that Capitalism is not sustainable in a broader sense, as its institutions will collapse in the end due to moral destruction. This is despite the fact that the system appears to be a mechanism that is totally capable of raising the standard life for the people. On the other hand, he argues that democracy and socialism fit together in practice. This view is in contrast with the discourse of socialism, however: although socialists view democracy and socialism as complementary, Schumpeter calls this argument “a bourgeoisie approach”, for its discourse contains revolutionary and authoritarian (such as proletarian dictatorship) attitudes. The main issue here is the balance in the society. Predicting the collapse of capitalism for its troublesome institutions, the Schumpeterian view surely advocates the idea that capitalism would have been sustainable if, and only if, a balance exists in the capitalistic activities.

Let me take this issue a step further. The above-mentioned balance is closely related to the way post-industrial democracies work in the contemporary world system. Herbert Kitschelt, a political science scholar, posits that post-industrial democracies had passed through a transition process -from agrarian to capitalist market economies- in the nineteenth century. In some countries, for instance, authoritarian regimes supported the industrialization process, whilst others followed mixed routes to reach industrialization. All these states either adopted a coordinated market-economy system or a liberal one, and both have shaped the current economic performances of post-industrial democracies, especially in Europe. When it comes to the European states, there are more overlapping areas between the balance issue and economic circumstances. For instance, the austerity plans have long been discussed by policy makers and political economists due to its contradiction with the traditionally protective European social policies. Two extreme opinions, one in favor of strict austerity plans and the other in favor of an increase in social expenditure, would hardly make consensus. Moreover, what triggered the current economic turmoil was the absence of a balance between post-industrial democracies and their economic policies. Therefore, the imbalances can be addressed not only in the aftermath of the European crisis, but also at the very beginning of it.

Although post-industrial democracies are very close to each other in the economic sense, they differ greatly in policy making. Indeed,  according to Kitschelt (2009)[1], Coordinated Market Economies (CME) score very high in job security and unemployment insurance, whilst Liberal Market Economies (LME) score low in both. CMEs  are also good at redistribution in comparison to LMEs. However, LMEs usually adopt some policies to overcome rigid labor markets in order to increase profitability, which raises the inequality and poverty at the same time. In that regard, we find it hard to compare these two capitalistic models in terms of their achievements. Yet, what I would like to underscore is a different matter: the absence of a balance in the policy making of post-industrial democracies has left great impact on their poverty and consumption levels. Kitschelt claims that continental European CMEs need to increase their investment levels in general education for better growth rates and technological innovation. Also some CMEs should decrease their private consumptions to allocate more resources to social expenditure. The most common features of LMEs are low numbers of public firms and high private consumption. Having increased inequality in the society, LMEs should now focus more on social policies to balance their ‘social deficits’. Lastly, LMEs and CMEs differ greatly in their balance of trade (exports minus imports). In this sense, it appears that Scandinavian and continental European societies are thrifty (tend to export more and import less), whilst Anglo-Saxon societies are spenders. These socio-economic formations have also left significant impacts on the democratization process, in which more democracy can be attributed to more equality in the society.

The balance issue can easily be extended by taking into consideration some other factors in the broad analysis. The existing literature has set an important illustration of how to define social changes according to both market systems and social policies. Imbalances lead to socio-economic problems wherever they occur and their impacts should not be underestimated.

[1] Kitschelt, H. (2009) “Post-Industrial democracies: Political Economy and Democratic Partisan Competition” SAGE Handbook of Comparative Politics, in ed Landman, T. and Robinson, N., Sage Publications Ltd

About the author: Tevfik Murat Yildim

Originally from Istanbul, Turkey, Tevfik Murat Yildim is living in Milan, Italy. He holds a Bachelor’s degree in Economics, with a focus on Political Economy. He participated in a student exchange programme with University of Bologna, and currently a graduate student at University of Milan. He also undertook some courses at University of Oxford, St.Anthony’s College. He has been writing for EST for almost a year, but also for NGOs, news agencies and journals. Lastly, he attended conferences in London and Izmir, published two reviews in Political Studies Review (all about Political Economy, Social Policy, Political Change, all of which are his primary concerns). He is planning to pursue a PhD in Political Science.