Menu Close

Failing union of capitalism and democracy fuels rise in inequality

Higher-income Americans are much more likely to vote than the poor, which reduces political parties’ incentive to tackle inequality. EPA/Michael Reynolds

Recent weeks have been all about elections and broken promises: from early April to mid-May, half-a-billion Indians went to the polls in what many described an astonishing display of democratic prowess. Later, millions of European citizens elected their representatives to the often-criticised and never much-loved European Union parliament.

Meanwhile, Australian prime minister Tony Abbott decided to break many of his 2013 election promises in his first budget. Many have rightly seen in that document an open assault on the economic welfare of low-income households, and more than a courteous nod to the rich. If the budget is approved, the divide between rich and poor in Australia will most likely increase.

Once more, voters will be left wondering: what is the point of elections if they cannot even solve the problem of socioeconomic inequality?

It would be easy to answer: the problem is that Abbott’s party is Liberal. But the truth is unfortunately more problematic: inequality has become in the recent past the Achilles’ heel of democracy. A left-leaning party in government would unlikely make any difference.

Uneasy marriage of democracy and capitalism

Democracy and capitalism are two highly contested models. On paper, throughout the past two centuries, they have proven the most successful systems of economic and political order. Following the demise of Soviet-style socialism and the transformation of China’s economy, capitalism has become predominant across the world.

Democracy has followed a similar path. Compared to capitalism, however, its success is much less complete. Today, about 120 countries can be called “electoral democracies”, but only around 60 can be classified as functioning democracies based on rule of law.

More importantly, if on the one hand the popularity of democracy seems on the rise, on the other established democratic systems have entered a phase of chronic decline. Scholars increasingly speak of “post-democracies” (Colin Crouch) or “façade democracy” (Wolfgang Streeck). Most critics seem to agree that capitalism is to be blamed for this late development.

Break-up of the peaceful co-existence

During the past 40 years the relationship between democracy and capitalism has radically changed. What Karl Polanyi called socially “embedded capitalism” became “neoliberalism”, “deregulation”, “globalisation” and “financialisation”.

The increasing “denationalisation” of the economy and of political decision-making has progressively weakened the power of democratic elected parliaments in favour of governments and deregulated globalised markets.

MPs play second fiddle to powerful financial CEOs and more often than not to only scarcely legitimated and monitored supranational bodies such as the World Trade Organisation, the International Monetary Fund and the European Central Bank. This power shift accelerated the increase of socioeconomic inequalities within OECD countries.

The absent voters

Alongside this trend, established democracies have witnessed a steady worrying decline of electoral participation. In the US, on average, less than 50% of voters turn out on election day. Only countries with obligatory voting – such as Australia – have proven to be more resilient against this trend.

The problem, however, is not so much low turnout, but the social selectivity that it implies. The lower the turnout is, the higher the social exclusion. Evidences show that the voters at the lower economic end of the social spectrum are the ones deserting the polls.

In the US, people with a disposable annual household income of more than US$100,000 are more likely to vote than those with an income of US$15,000 or less. The proportions who vote are 80% versus 30%.

At a closer look, the American system shows strong resemblance to an electoral apartheid, where the lower half of society is excluded from political participation. The long-term consequences cannot be underestimated. The US might well represent the shape of things to come for other democracies around the world.

The ineffectiveness of elections

In an ideal democratic system, the antidote to inequality should be voting. It could be argued that members of low-income households should reasonably vote for political parties that fight for economic redistribution. Data tell us a different story: low-income households, much more so than those of middle and upper classes, tend to abstain from going to the polls altogether.

The platforms of social-democratic and other left-wing catch-all parties still claim to represent the interests of low-income classes. This is, however, more a public relations device to keep alive the parties’ anachronistic image as defenders of “social justice” than a real get-out-the-vote effort aimed at those chronically absent voters. On the other hand, conservative, liberal and right-wing parties do not have an interest in active top-down redistribution, for both ideological and electoral reasons.

When in office, however, left-wing parties face a paradoxical dilemma: to effectively support redistributive policies such as minimum wages, maintenance of the welfare state and taxation of higher incomes would likely harm their historical constituency, low-income households. Such policies would result in threats by investors to move capital and investments abroad.

That, in turn, would cost jobs in the national market and result in less economic growth, less public revenue, less social investment and, eventually, fewer votes.

The problem lies in the relationship between capitalism and democracy: the survival of governments depend on the confidence of their voters. But to maintain such confidence they also depend on the performance of their real economies and, increasingly, on the confidence of financial markets. It is hence less risky for rational centre-left parties to mobilise the middle class than the voters at the lower end of the economic scale.

From paper stones to paper tigers

The rationale of economic voting is only a partial explanation why elections fail to stem the increase of social inequality. Socioeconomic conflicts are cross-cutting the lines of cultural conflicts. The latter can be religious or ethnic in nature, but it can also be seen through the prism of the left-libertarian versus right-authoritarian political divide (Herbert P. Kitschelt).

Particularly the lower and lower middle classes (mainly men) are more receptive to authoritarian and ethnocentric policies. Many examples of this trend can be found in the increasingly successful electoral campaigns of the right-wing populist parties of Scandinavia, Austria, France and Switzerland, and more recently in the United Kingdom.

In these countries, a sizable part of the low-income electorate opts for authoritarian, xenophobic and neoliberal parties. The recent exploits of the UK Independence Party in the European elections is the latest evidence of this growing trend.

Across Europe, low-income voters have turned to xenophobic and authoritarian right-wing parties such as Marine Le Pen’s National Front in France. EPA

For most of the 20th century, the right to vote was the “paper stones” of the lower classes (Adam Przeworski). They were used to tame and socially entrench capitalism by electing left-wing (mostly reformist social democratic) parties to establish worker’s rights, a redistributive tax system and expand the welfare state. This long period of social expansion witnessed a top-down redistribution in most of the industrially advanced countries, especially after 1945.

This trend was turned around in the 1970s. The paper stones lost their effectiveness and transformed into what the Chinese would call “paper tigers”. Democratic elections have turned into powerless challengers of social inequality. The opposite has become the norm: in democratic countries, the rich become richer, while the poor are hopelessly stuck in a never-changing state of chronic poverty.

The Abbott government seems to follow this line quite religiously. Its first budget is another nail in the coffin.

Left takes a cultural turn

Another major issue has been the cultural turn within the Left. Since the late 1970s protest movements began to focus more on cultural than on economic issues.

The importance of trade unions steadily declined. In countries like France or Spain, once home of powerful unions, less than 10% of the workforce is unionised.

New political NGOs emerged, from environmental organisations to Amnesty International or Transparency International. Their importance notwithstanding, these organisations’ main goals are far removed from economic redistribution. The core of their members and supporters comes from the middle and upper classes.

The days of representative democracy are numbered if we are unable to devise an effective antidote to socioeconomic and political inequality. Political tools such as referenda, deliberative assemblies and monitoring institutions may help save the whales and other endangered species; they may also be useful in limiting corruption and human rights violations. They have little relevance for the re-regulation of markets, for restoring social welfare and stopping the rise of inequality.

The cultural turn of progressive democratic politics has undoubtedly had many merits, but unfortunately one major drawback: we have sacrificed the problem of economic redistribution on the altar of capitalist progress. Now we find ourselves with no reliable cure for democracy’s most obvious disease: social, economic, and political inequality.

An earlier version of this text was presented during the first Conversation on Democracy lecture series organised by the Sydney Democracy Network at the University of Sydney.

Want to write?

Write an article and join a growing community of more than 184,200 academics and researchers from 4,969 institutions.

Register now