Capitalism versus Democracy

WARSAW: Around the world, democracy is on the march. Totalitarian and authoritarian regimes have been swept away. Popular resentment against the remaining ones is growing. But it is too early to declare victory. For although capitalism is triumphant, we cannot speak of the triumph of democracy.

The connection between capitalism and democracy is far from automatic. Repressive regimes do not willingly abdicate power and are often abetted by business interests, both foreign and domestic, particularly in countries where resources such as oil and diamonds are at stake. Perhaps today's greatest threat to freedom comes from an unholy alliance between government and business, such as in Fujimori's Peru, Mugabe's Zimbabwe, Mahatir's Malaysia, and the oligarchs' Russia, where the appearances of democratic process are often observed but state powers are diverted to benefit private interests.

Capitalism creates wealth but cannot be relied upon to assure freedom, democracy and the rule of law. Business is motivated by profit; it is not designed to safeguard universal principles. Even the preservation of the market itself requires more than self-interest: market participants compete to win, and if they could, would eliminate competition. So freedom, democracy and the rule of law cannot be left to the care of market forces; we need institutional safeguards.

Traditionally, protecting the common interest was the task of the nation state. But state powers shrank as global capital markets expanded. Since capital can now avoid states that tax and regulate, governments cater to its demands. In many ways, this is beneficial. Free competition produces more wealth than state control; globalization prevents states from abusing their power and offers a degree of freedom that no state could provide.