As I reflect on the last four years of economic crisis and the current stalemate in Washington over the payroll tax, a couple points stand out about democracy and markets.
First, markets are important, but ideological free market capitalism is deeply flawed. The core reason is simple: assumptions.
There’s an old joke – a physicist, chemist, and economist are trapped on an island with a crate of canned goods but no can opener. “I think I can get these cans open,” says the physicist, arguing that coconuts dropped from the top of a tree would be powerful enough to rip the can open. “That’s too risky, the food could splatter all over,” says the chemist, noting that a few choice chemicals available might help weaken the metal and make it easier to open. “You guys are making this far too difficult,” laughed the economist.
“OK,” the other two said, “what’s your solution.”
“Easy,” said the economist, “first, assume a can opener….”
The most powerful assumptions in crude ‘ideological’ economic theory involve the distribution of information and the inability of people with resources to game the system, rigging it in their favor. In any capitalist system those assumptions fall apart. Some people know more, have access to better information and analysis, and can use their resources to reinforce their position. This means that class divisions are inevitable and aren’t based primarily on who works harder or shows more initiative. Ironically the more truly “free” the market is, the more such abuses can become standard, yielding a starkly bifurcated society lacking a true middle class.
Second, democracy has real flaws.
What keeps democracy viable is the activity of the elites. Elites have to be able to work behind the scenes to forge compromises based on their understanding of very complex issues, often issues far beyond the understanding of the average voter. If elites become trapped in ideological combat and lose the capacity to see that their main task is to work together to deal with real problems, democracy can fail. If the elite focus focus so much on politics over pragmatic problem solving, democracy can fail.
One reason Americans tend to overstate the value of democracy is that they are in denial of its need for elite guidance. Without elite cooperation and problem solving, poor decision making can harm a polity. Conversely, a non-democratic state can be run very well if the elite are focused on the good of society.
Perhaps the most dangerous problem a democracy can face is if its elites not only cannot compromise but if the economic elites trump the political elites. Remember, capitalism produces an elite economic class which can use its clout to reinforce its own position. When those elites are countered by a political elite who have a sense of what’s best for the state as a whole, the capacity of this economic elite to truly control things is limited. That’s good, because they operate out of self-interest and distrust even the notion of collective interest.
But when the economic elites eclipse the political elites, democracy becomes a handmaiden for what some have called “crony capitalism” or “government of the corporations, by the corporations and for the corporations.” In the US where elections have become exceedingly costly, the ability of the economic elite to manipulate and even control the political elite has become profound. Add to this ideological gridlock, and a downward spiral of dysfunctional government could threaten both prosperity and democratic stability.
That’s at the root of our current dilemmas, and while we may emotionally invest in Presidential and Congressional contests, when the system is sick, no one person can fix things. The President is doomed to become a part of the machine. Add to that the power-mania of Washington — what Lloyd Etheredge called “hard ball politics” — and the US is facing a political crisis of our own making.
Etheredge’s solution to ‘hard ball politics’ was a stronger press to report the truth of what’s happening, and a better informed and educated public. Back in the 1980s when his book Can Governments Learn (focusing on US foreign policy towards Latin America) appeared, that seemed a pipe dream. You can reform institutions, but you can’t make people smarter or the press more motivated.
It seems to me, though, he was on the right track. The information revolution gives us the internet and the capacity to get information from a variety of sources, thereby making a stronger “press” feasible. The public is using it to organize and learn more — it may not be obvious yet, but in talking to students I realize that on so many levels even “average” students are generally more informed about a variety of issues than was common even among very good students when I was in college.
Ultimately, unless our laws our changed limiting corporate influence on politics, or our political parties forego politics as marketing and start finding ways to both solve problems and focus on the general welfare and not corporate welfare, the only solution to our crisis comes from the people. We have relied on the elites to make democracy work for two centuries; now we have to actually start relying on the people — we have to save our democracy.