Is Capitalism Undemocratic?

Like most aspects of life, the true nature of Capitalism and its impact on humanity can only be understood as continuously shifting shades of reality. Karl Marx famously stated that Democracy is undemocratic and he developed a philosophical framework to empower workers to improve their working conditions, which he believed could only improve if Capitalism was more democratic. Was Marx correct?

What Are “Rights”? To understand the relationship between Democracy and Capitalism, we should ask a deceptively simple question: From where do “rights” come? Of course, that leads to many other questions like: Do rights come from a divine creator? Do they come from an implied social contract among members of a society? Or is the concept of a “right” an illusion that rapidly disintegrates when conflicting interests with other humans emerge? Unless one believes that humans are endowed by a divine creator with clearly defined, inalienable rights, then fundamentally, rights cannot be anything more than contextually dependent, mutually agreed upon allowances given from one person to another with the explicit consent of those who control the resources that are implied in the conveyance of any given right.

What Rights Do We Deserve? To enjoy or exercise a “right” requires an exchange of value, which itself requires an expenditure of resources required to produce that value. If we as a society agree that every American has a right to free healthcare, free education, free water, or free things of any kind, that means we are agreeing to a situation in which value is unilaterally shifted from one position within our economy to another without a reciprocal exchange of value in return. Is that right or just?

Who Pays for Our Rights? Nothing of value can be granted without an equal or greater expenditure of value. Thus, to have a “right” to something of value means somebody had to expend time, energy, and resources to produce that thing of value before it could be delivered to the rights holder. Thus, rights cost something; and whenever there is a cost for a thing, there is a negotiation over the allocation of finite resources and who should bear the cost of that thing. This is why political systems like Democracy emerged: to give groups of people the negotiating frameworks to determine who gets and receives valuable things and who pays for those things.

Do Workers Have Rights? Now that we have very briefly traced the philosophical relationship between rights and the need for a structured negotiating framework like Democracy to govern the exchange of rights and value throughout a society, we can analyze Marx’s basic claim that Capitalism is undemocratic. His claim implies that the allocation of finite resources within a private company is subject to the rights of the proletariat, but as we’ve discussed already, such a right cannot exist unless it comes from a divine creator or some social contract. Do workers have fundamental rights apart from the general principle that humans should treat each other fairly and respectfully? No, they do not.

Fairness and Respect Do Not Depend on Rights. Workers cannot depend on an inviolable reservoir of rights. However, as a society we can and should agree to treat one another fairly and respectfully because that is the fastest path to peace and social harmony, which serves the interests of society by providing individuals with a safe environment during their pursuit of happiness. This is the foundation of Social Contract Theory, but it does not lead to a fundamental obligation on the owners of capital to give any particular rights to the people who use their capital in the production of goods and services.

The Value Exchange Process Does Not Depend on Rights. The only logically and philosophically consistent response to Marx’s central claim about the undemocratic nature of Capitalism is to say that nobody deserves anything at any time until and unless they prove that they can deliver enough value to somebody who has some other kind of value they wish to obtain. Unless somebody else is willing to enter into an exchange of value, the only means of obtaining value from some person or organization is through cooperation or brute force. If the cooperative path is taken, then the next task is to persuade the owners of capital to use a negotiating framework that resembles Democracy in its general characteristics, which is why labor unions emerged. But if we take the path of brute force, the value creation process within society rapidly breaks down and everybody loses.

How Do We Achieve Justice Without Rights? The core feature of Democracy—representation—cannot logically or philosophically be imposed by labor upon an organization of private citizens without destroying the very essence of Democracy itself. Thus, the final question is: How can individuals achieve justice if Democracy is not available in a private corporation? Justice, however defined, can only ever be achieved when two or more people feel they are better off cooperating than fighting or separating. There is only voluntary cooperation or brute force; rights do not exist except in the desires and dreams of the human mind.

Crony Capitalism is the Culprit, Not a Deficiency of Rights. Even the most functional Democracy can lead to various forms of injustice, which led Winston Churchill to say, “Democracy is the worst form of government, except for all the others.” The best outcome that a democratic society can hope for is to elect political leaders in national government who are sufficiently immune to the temptation to transform capitalist economies into crony capitalist piggybanks for their most favored special interest groups. When political leaders in national governments lead by example with integrity and fairness, it’s much harder for the private governments inside corporations to treat their workers badly.

Culture at the Top Determines How Workers Are Treated. As in every organization, culture is defined at the top. When national level politicians at the top of a political system become models of fair and ethical governance, corporate boardrooms will be compelled to follow their example for many reasons. Functionally, this occurs when non-biased government policymakers apply industry regulations fairly and evenly to create a level playing field among an industry’s competitors. In that political and regulatory environment, “winning” in business can only be achieved by playing the game fairly, which reduces the temptation and the opportunities for corporations to abuse their market power and their workers.

Is Capitalism Undemocratic? There is no representational form of governance that can legitimately compel an owner of capital to relinquish control of that capital without a mutually agreeable negotiation and exchange of value. Anything less than that amounts to degrees of coercion and brute force. We could say that pure Democracy is hostile to pure Capitalism, but we don’t live in a world of rigid absolutes. Neither pure Democracy nor pure Capitalism exists. In reality, humans continuously negotiate to satisfy their needs, bending the will of others, bending to the will of others, until their needs are substantially fulfilled. Each negotiation represents an atomic building block of a community of transactions, which itself is a molecular building block of entire economies of transactions.

Capitalism is Organic. This chain of transactions amounts to an integrated value creation and distribution system that is neither democratic nor plutocratic. It is organic, emergent, in constant flux, and defiant of fixed definition, but it is all held together by the cultural glue that defines each nation. Democracy and Capitalism are simply crude labels that attempt to capture the essence of systematic processes that expand far beyond the definition of any single word or phrase.

We Are the Economy and the Economy is Us. If an economy is dysfunctional, it is because that economy’s society is dysfunctional in specific ways that enable economic policymakers to make bad economic decisions without being accountable for their performance. That’s why culture and leadership are so important, but without a population with sufficient knowledge and awareness of the causes of the problem, conditions will only deteriorate. For these and many other reasons, a large percentage of the U.S. and global population will continue suffering from bad political leadership and bad economic policies for many years to come.

From Socioeconomic Analysis to Happiness. It can be depressing to analyze the origins of our personal values, societal norms, and human nature because an honest analysis usually takes us to conclusions that are uncomfortable. This is especially true for those who have lived their lives consciously or unconsciously believing in principles that may not have any logically or philosophically defensible basis in reality. However, this is not an exhortation to become a heartless, self-absorbed hedonist seeking pleasure without regard for the needs of others. To the contrary, I’ve observed that sustainable happiness is usually a natural reaction to engaging in activities that contribute to humanity in some meaningful way.

The Value of Compassion. Conscious contribution to the needs of others requires compassion. Without some level of compassion, true understanding of the needs of others is impossible. And without understanding the needs of others, it is virtually impossible to build products or services that others are willing to buy. This is a foundational principle in the growth of any company or economy. Whether this biological contribution-to-happiness response is an evolutionary species-preservation mechanism or a spiritual endowment from a divine creator, feeling a sense of contribution to the world outside our own heads is a prerequisite for happiness. Thus, every businessperson, politician, and citizen has rational reasons to develop their ability to empathize and feel compassion for others if they want to contribute meaningful value to society and build successful organizations.

About Ferris Eanfar

Ferris Eanfar has over 20 years of experience in technical, financial, media, and government intelligence environments. He has written dozens of articles and several books in the field of International Political Economy, including Broken Capitalism: This Is How We Fix It, which provides unique insight into what is wrong with the global economy and how to fix it. To learn more about Ferris, please visit the About Ferris page.

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