By democratic capitalism I mean the socioeconomic system described vividly in Walter Russell Mead’s penetrating new book, God and Gold: Britain, America and the Making of the Modern World. It is the system pioneered in some of the Italian City States nearly five hundred years ago, picked up in the Low Countries thereafter, but adopted and developed with the greatest success by Great Britain and the United States over the last three hundred years. It has many attributes, but for the purposes of this article, let us define it as a society in which the economy is characterized by free markets, private ownership of property and means of production, and respect for the profit motive and the pricing mechanism, all operating under the rule of law guaranteed by a government that intervenes very little in the economic and social life of the people. The people are completely free to decide what to produce, what to charge, where to sell it, and to whom. Contracts are freely entered into and their legal sanctity is enforced by the government. Such an economy can exist only in a democratic society, that is, one in which the people are free to choose their political leaders and means of organization. The overarching structure could be a republic (like the US), a constitutional monarchy (like the UK), or a pure parliamentary democracy (like Estonia), but democracy is a sine qua non.
History has demonstrated beyond any conceivable doubt that democratic capitalism leads to mass prosperity. Without the stultifying hand of government weighing them down, the people are free to develop new products, open new markets, produce copious consumer goods, trade with their neighbors and with partners around the globe, and lift the overall standard of living far beyond any ever achieved in a planned or centrally controlled economy. This assertion is unchallengeable. The sorry history of societies organized under feudalism, mercantilism, socialism, communism, fascism, absolute monarchy, religious fundamentalism, oligarchy or any system other than democratic capitalism makes the assertion self-evident.
But there is a catch. Because democratic capitalism is characterized by free and open competition, it results in winners and losers. In a general sense, people prosper. Some individuals and groups prosper immensely. Others falter, usually due to their own poor performance, but sometimes just because of bad luck. A classic example of the latter is the individual who invests heavily in a product or technology immediately prior to it being superseded by a newer and better technology or product invented by a competitor. This process of creative destruction that typifies capitalism can convert winners into losers in a brutal and sudden fashion. Well, that kind of phenomenon is often offensive to our sensibilities: ‘It’s not fair. It’s inequitable. Why should some prosper at the expense of others? Shouldn’t we shield the weak from the predatory practices of the strong?’
Such sentiments are not without merit. People should take no joy in seeing their fellow man fail—at least compassionate people should not. And aren’t we all striving to be compassionate these days? Compassionate or not, people often experience guilt feelings when they succeed, but friends and relations do not. Egalitarianism is not a philosophy that is easily compatible with democratic capitalism, but history shows that it runs deep in us.
It seems to me that there are two approaches for dealing with this ‘flaw’ in democratic capitalism. The first approach accepts the superiority of the system, but seeks ways to ameliorate its potential ill effects without disrupting the fundamentals of the system and thereby curtailing the great benefits it yields.
The second approach, while paying lip service to the benefits of democratic capitalism, postulates that either: (a) it is in fact not the ideal system and that a substantial modification of it would be better and fairer; or (b) regardless of whether an improvement is possible, the price that capitalism exacts is just too high and should not be paid. In this approach, in either case, a just-minded and powerful referee must supervise the game, intervening where necessary to ensure more equitable outcomes than would result under unregulated laissez-faire rules.
To implement the first approach, the people develop civic associations, religious associations and other non-governmental organizations designed to aid the less fortunate in society for whom the competition has not gone well. Their focus is on those who played by the rules; but didn’t play very well, or on whom the ball took a funny bounce. Because of the overall prosperity of the nation, the percentage of the population in need of assistance is small. Therefore, the goal of designing and implementing palliatives to help the deserving without compromising the overall system becomes attainable. Such an approach characterized the US for more than two hundred years—until the onset of the Progressive Era in the early twentieth century.
At which point we slipped into the second approach—starting a long slide down a slippery slope ever since, arriving finally at a new destination, the ‘Modern Welfare State.’ In which we pay homage to the superiority of democratic capitalism but in practice we countenance the activities of an increasingly interventionist government on the playing field in an aggressive fashion.
The nature of our federal government; it’s enormous influence in the everyday lives of the people; the fact that the vast majority of the people approve of this role for the government—all of this would have been unfathomable to and anathema for the American people, certainly at the time of the founders, but even up to the end of the nineteenth century.
That the federal government would have some role in the people’s commerce and transportation is stipulated in the Constitution. But that it would have a primary role in the people’s health care, education, retirement, housing, and religious, social and business affairs would be astounding to our forbearers. There is absolutely no such role ascribed to the federal government in the Constitution or other founding documents. However, once we assigned it a paramount role in the machinery that drives our capitalistic economy, it is not surprising that we also accorded it a major role in many other aspects of our lives. We have been rewarded with: judicial rulings like Kelo v. New London, Univ. of Cal. Regents v. Bakke and Roe v. Wade that have no legal basis in Constitutional law; congressional actions like Sarbanes-Oxley or McCain-Feingold, which are incompatible with the role assigned to Congress by the Constitution; and an Executive with the ability to initiate warfare, which is in direct violation of the Constitution. All of these transgressions are tamely accepted by the American people. In its desire to ameliorate the sometimes harsh side of democratic capitalism, the people have ceded to the government—in the economic realm and elsewhere—a role never intended for it. We are so far down the road of the second approach that hardly anyone notices the vast distance we have traveled.
The last sentence summarizes one of my two fundamental assertions in this article. Namely, I do not believe that the American people are even pondering the question of which approach to take any longer. A centuryis a long time. Three (or more) generations have already lived under the rubric of the Modern Welfare State. Few are thinking about the drastic change it represents. Very few are contemplating the philosophical issue it poses. If we are, as our founders intended us to be, a nation whose socioeconomic system is grounded in democratic capitalism, how can that be reconciled with the fact that we have installed the Modern Welfare State, which violates the basic precepts of democratic capitalism?
Now for the second point: What about our political leaders? It is inconceivable to me that someone who stands for the highest political office in the land could be blithely ignorant of the fundamental changes in the nature of American society that I have described. It would be inexcusable for a presidential candidate not to have a deep understanding of the nearly 400 year history of American society, not to have thought philosophically about our Constitution and its role in our society, not to have pondered the nature of our current socioeconomic system and related it to the deep historical thread woven by the American people over its history. My second point is that based on the evidence I see, I have strong suspicion that the leaders of the Democratic Party, and in particular the three current major candidates for that Party’s Presidential nomination, fail these tests.
Ms. Clinton insists ‘it takes a village to raise a child,’ thereby paying ultimate homage to collectivism, violating the millennia old notion that the family is the basic unit of society, and clearly setting a role for a parental government far beyond what we have experienced to date. Mr. Edwards speaks nonsensically of two Americas, urging us toward class warfare and completely missing the well known point that in our capitalistic system the mobility between the poor and the rich is, and has always been, very robust. Either he is a demagogue or he is totally misguided. And finally, Mr. Obama, with his mindless mantra of ‘change’ without any indication of who will be changing what for whose benefit has no more gravitas than a toothpaste commercial. If one examines what little record he has, it would appear that the change he has in mind would take us much further down the slippery slope.
To conclude, what I see among the leadership of the Democratic Party is at best ignorance of the socioeconomic axioms that have guided our nation and at worst a rejection of them, accompanied by the political intention to further entrench the Modern Welfare State as the paradigm for the American socioeconomic system. It has been thus for a longtime. If I asked you to identify the last Democratic Presidential candidate who really believed in democratic capitalism, you might make a case for Kennedy, perhaps Truman. I’m not so sure. The correct answer might be Grover Cleveland.