Capitalism and the

Idea of Liberal
Democracy

UNIT 6 CAPITALISM AND THE IDEA OF

LIBERAL DEMOCRACY
Structure
6.0 Objectives
6.1 Introduction
6.2 Historical moorings of Capitalism and Liberal Democracy
6.3 What is Capitalism and Liberal Democracy?
6.4 Interrelationship between Liberal Democracy and Capitalism
6.5 Contestations, Debate around and Future of Capitalism and Liberal
Democracy
6.6 Let Us Sum Up
6.7 References
6.8 Answers to Check Your Progress Exercises

6.0 OBJECTIVES
Democracy and Capitalism have been the thriving ideas of modern times. This
unit aims to familiarise you with the idea of democracy, the idea of capitalism
and the inter-relationship between these two ideas. After going through this unit,
you should be able to:
 Explain the idea of liberal democracy and capitalism
 Explicate their changing nature and the interrelationship between these
two ideas
 Discuss the challenges these two ideas face in contemporary times

6.1 INTRODUCTION
Liberal democracy and capitalism have proved to be the most successful political
and economic systems despite intermittent challenges. This unit discusses


Dr. Sanhita Joshi, Assistant Professor, Dept of Civics & Politics, University of
Mumbai,Vidyanagari Campus, Mumbai.

87
Context of Modern different dimensions of liberal democracy and capitalism and encapsulates the
Government meaning both lend to each other. Fundamentally, democracy celebrates the
common good and capitalism rejoices the personal good. Capitalism follows the
logic of unequal property rights whereas democracy aims at giving equal civic
and political rights. Democratic politics is embedded in consent and compromise
and Capitalism is all about hierarchical decision making. Wolfgang Merkel, a
well-known authority on democratisation, has therefore said, Capitalism is not
democratic, democracy is not capitalist.

6.2 HISTORICAL MOORINGS OF CAPITALISM AND

LIBERAL DEMOCRACY
It is difficult to point to the first traces of capitalism since capitalism as an idea or
as an attitude must have always existed probably in its primitive avatar. The
evolutionary journey of man signifies that natural man was occupied with
satisfying his basic needs and gradually learnt to amass capital/resources and
understood the significance of the art of enterprise and speculation to transform
the capital into unapologetic wealth. However, the development of capitalism as
a system began in the 16th century. The industrial form of capitalism with which
we are familiar first developed in England in the 18th century and spread to other
parts of Europe, North America, Australia, New Zealand, and South Africa. By
the end of the 19th century, with the expansion of European colonial rule,
capitalism came to dominate the entire world.
It has been pointed out that rise of capitalism is associated with three main
features: (1) the growth of the capitalist spirit i.e., the desire for profits, (2) the
accumulation of capital, and (3) the development of capitalist techniques. Max
Weber believed that capitalism was the product of rationalisation and rationality
which was a significant characteristic of modernity. Capitalism was thus a
rational organisation of the productive enterprise. The concept of a waged worker
which emerged in the aftermath of the industrial revolution signalled a crucial
stage in the development of capitalism. A brief look at the history of the
economic and social conditions that pre-dated the industrial revolution shows that
capitalism did not arise from the efforts of a few inventors causing an industrial
revolution, nor because British capitalists had some special ‟enterprising spirit‟.
It arose from the systematic breakdown of feudalism as a social and economic
system and the imposition of a wage-labour system in its place. Karl Marx did a
historical and dialectic analysis of the evolution of the capitalist system and
considered it to be the product of contradictions found within the earlier
feudalistic order. He opined that capitalism was a stage in history which replaced
feudalism thus ending the control of the feudal lords over the serfs. The serfs
were absorbed as factory workers, that is, wage labourers in the new system of
mass production thus fully establishing the hold of the capitalist system. Marx
maintained that as capitalism reaches its advanced stage it will breakdown
because of its inherent contradictions and will be overthrown by a proletarian
revolution. However, such a working-class revolution only took place in
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underdeveloped Russia to establish what later came to be criticised as state Capitalism and the
Idea of Liberal
capitalism. When the communist bloc disintegrated and collapsed, Francis Democracy
Fukuyama, an American political theorist, declared in his, The End of History
and the Last Man, that mankind has reached the endpoint of ideological
evolution. The collapse of communism in Soviet Russia signalled the triumph of
liberal democracy and capitalism. In the subsequent years, aided by international
financial institutions that were infused with neoliberal ideas, liberal markets
pavedtheway for global capitalism. However, the recent global financial crisis of
2008 has regenerated momentum in favour of contained markets, pulling back
globalisation and promoting redistributive policies. Fukuyama chose to revisit his
proposition and called for redistributive programmes to address the huge
imbalances in income and wealth.
Democracy today is celebrated as one of the most successful political systems
that practically don‟t have any competition. Its rudimentary meaning implies a
form of government in which decision-making is by the people, for the people
and of the people. Nonetheless, there are myriad forms and types of democracy.
Generally, the historical roots of democracy are traced to the ancient Greek cities
of Athens and Sparta where direct participation of people in city assembly was
encouraged. At the same time, Greek democracy was problematically exclusivist
in design. It did not recognise women, metics (foreign residents) and slaves as
legitimate participants of the system. In recent years, the idea that democracy is
essentially a system which originated in the Western world is being contested as
references to the practice of Sabha and Samiti in Vedic literature where people
used to participate in the decision-making process, point to the existence of such
a system in the non-Western world too.
Liberal Democracy is particularly considered as a product and characteristic
feature of modernity. It came into existence as a result of civil war against royal
absolutism and paved the way for the transfer of powers from the Crown to the
Parliament. Since then, liberal democracy has expanded not only in physical
terms but also has matured in terms of meaning ascribed to it. The American and
French Revolutions coupled with the growth of industrial capitalism since the
late 18th century has deepened the roots of democracy. The French Declaration
of the Rights of Man (1789), and the American Declaration of Independence
(1776), the political ideas of John Locke who invoked the idea of inalienable
rights of man, Bentham‟s defence of representative politics, J S Mill‟s
championing of suffrage for women have greatly contributed to the development
of democracy particularly in a liberal sense. Democracy made considerable
progress not only as an idea but also as a political system with gradual
enfranchisement of the population belonging to different socio-economic strata,
public education, and electoral reforms. Decolonisation of the world and claims
for the right of self-determination by newly independent countries in the post-
World War II years also contributed to further democratisation of the world.
However, it must be noted that the adjective „liberal‟ before the word democracy
denotes a specific meaning and definition of individual freedom, the role of the
state and role of the market. The liberal understanding of democracy has been in 89
Context of Modern favour of greater individual rights and lesser interference of the state. The term
Government liberal may denote two diametrically opposing meanings, for instance, it can
simply mean the absence of restraints (negative liberty) or it can mean
individual's capability to engage in the process of governance and decision
making. Thus, there are different versions of democracy depending on the
meaning and definition adopted for the idea of liberty/personal freedom and role
of the state. For instance, liberal democracies which prioritise the interests of the
working class and exercise limits over individual/private ownership can be
considered as socialist democracy while the ones which give precedence to
duties, responsibilities and obligations towards society over the enjoyment of
individual liberties can be considered communitarian democracy. And, if a
political system chooses to prioritise environmental concerns or concerns related
to women/gender then such systems have environmental and feminist
orientations.

6.3 WHAT IS CAPITALISM AND LIBERAL

DEMOCRACY?
The Macmillan Dictionary of Modern Economics defines capitalism as a
political, social, and economic system in which property, including capital assets,
is owned and controlled for the most part by private persons. Capitalism is
necessarily an economic system which is driven by the individual enterprise to
earn profits. It demands greater space for private ownership, unencumbered
freedom, contractual transactions, and economic competition. In other words,
capitalism is a system in which the allocation of resources in a society is based on
the price mechanism. The extent to which the price mechanism is used, the
degree of competitiveness in markets, and the level of government intervention
distinguish exact forms of capitalism. In its extreme form, the Laissez Faire
(literally meaning leave us alone) model, capitalism despises any form of
governmental control and regulation. Such a free market system, if not controlled
and monitored, can be perverted into one of the most ruthless and unscrupulous
systems.
Capitalism is also a system of indirect governance for economic relationships,
where all markets exist within institutional frameworks that are provided by
political authorities, i.e. governments (Scott, 2006). From this perspective,
capitalism is a three-level system much like any organized sports. Markets
occupy the first level, where the competition takes place; the institutional
foundations (administrative and regulatory infrastructure) that underpin those
markets are the second, and the political authority that frames the rules of the
game and administers the system is the third. In other words, a capitalist system
to evolve in an effective developmental sense through time must have two hands
and not one: an invisible hand that is implicit in the pricing mechanism and a
visible hand that is explicitly managed by government through a legislature and a
bureaucracy.
According to Max Weber, capitalism is simply an attitude of earning profit
90 rationally and systematically. Therefore, this form of economic system thrives on
private ownership of resources, rational techniques of production and Capitalism and the
Idea of Liberal
distribution, free market, free labour force, commercialisation of economy and Democracy
rational legislation. On the other hand, Karl Marx sees capitalism as a
progressive historical stage that is bound to collapse under the weight of its
internal contradictions. For Marx, capitalism is a system of acute exploitation,
class divide, inequality, and oppression. Capitalism thrives on private property,
mass production of commodities under the factory system for profit and the
existence of a working class. This working class is forced to sell its labour power
in the market and eventually, this leads to polarisation between the haves (owners
of the means of production or bourgeoisie) and the have not‟s (the wage workers
or the proletariat). Marx maintained that government in a liberal democracy is the
executive agency of the capitalist class. This fusion of economic and political
power in the hands of the propertied class leads to exploitation of the have nots.
He believed, when the working class unites to fight back, both liberal democracy
and capitalism will be overthrown to establish a communist society. Thus,
according to Marx, Capitalism and Democracy are prime factors behind the
exploitation of the working class.
Capitalism can thus be defined as a spirit of enterprise, as a particular mode of
production and as a commercial system. For capitalism to work, it requires a rule-
bound economic policy; constitutionally enshrined protection of markets and
property rights from discretionary political interference; independent regulatory
authorities; central banks firmly protected from electoral pressures; and
international institutions. (Streeck, 2011). Yamamura and Streeck talk about two
types of capitalism; the non-liberal and liberal capitalism. They use these terms to
connote the extent of social and political regulation in particular economies and,
more fundamentally, „the ways in which national societies organize their
economies and indeed the extent to which they do so‟.
Democracy is basically a government by consent in which periodic, competitive,
free, and fair elections are mandatory. The election is the key institutional
process through which democracy functions. The opinion of the
citizens/governed is of paramount significance in a democratic system. The
process of consensus-building is at the heart of the liberal democratic process.
Such a consensus needs to be achieved at three levels according to David Easton:
(a) consensus at the community level (basic consensus); (b) consensus at the
regime level (procedural consensus), and (c) consensus at the policy level (policy
consensus) Sartori maintains, in democracy, no one enjoys unconditional and
unlimited power. Limited exercise of power and accountability are the key
elements of democracy. In other words, individualism, popular sovereignty and
limited government are the foundation of liberal democracy.
In order to explicate democracy further, it is necessary to understand the
procedural as well as substantive aspects of democracy. While the procedural
aspect focuses on the constitutional framework, the substantive aspect of
democracy reminds us to strive for the equitable distribution of fruits of growth
and development. The claim of the liberal democracies to be liberal democracies
rests on the claim that they have both well-established and accessible procedures 91
Context of Modern for protecting the liberties of individual citizens (Ware, 1992). The liberal
Government democratic trajectory also reveals that values such as liberty, equality and
fraternity are its building blocks. These values only make the procedural aspect
of democracy stronger and contribute to the regimented control over the markets
thereby ensuring efforts for equitable redistribution of resources. Liberal
democracy has two significant components within it- the liberal component
which talks about limits on political power and the democratic component which
deals with people‟s rule, participation and representative institutions. Liberalism
intends to free the people and democracy stands for 'empowering people'. It also
means safeguarding people from tyranny and arbitrariness. This is achieved
through ensuring political representation to people. Political parties are important
mediums to provide this representation to people in a democratic society. The
form of representation can be direct, indirect, proportional etc. Each society,
depending on the nature and composition of its population, will have different
types of party systems. For example, a more homogeneous society tends to have
two party-systems and a heterogeneous society tends to have a multi-party
system. Values such as liberty, equality and fraternity are considered as the core
values of a liberal democratic society. On the other hand, liberal democracy is
also inseparable from free market and property rights. The Marxist critique of
liberal democracy is therefore that political equality is farcical in the absence of
economic equality. The class divide which is an inherent feature of capitalism has
to be overcome by abolishing private property. Socialist democracy is essentially
aimed at overthrowing capitalism that gets strength from liberal democracy.
Liberal democracy is also criticised by the Elite theorists such as Gaetano Mosca,
Wilfredo Pareto and Robert Michel who point out that in any given society it the
few elites who tend to rule rather than the people at large.

Check Your Progress Exercise 1

Note: i) Use the space given below for your answer.
ii) See the end of the unit for tips for your answer.
1) What, according to Max Weber, are the conditions necessary for capitalism?
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2) Which one of the following is NOT a necessary condition for a liberal
democracy?
a) Individualism, b) Popular sovereignty, c) Laisse faire and d) Limited
government.

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 Capitalism and the
6.4 INTERRELATIONSHIP BETWEEN LIBERAL Idea of Liberal
DEMOCRACY AND CAPITALISM Democracy

The economy and polity are the main problem-solving mechanisms of human
society. They each have their distinctive means, and they each have their "goods"
or ends. They necessarily interact with each other and transform each other in the
process. (Almond, 1991).One question that muddles us is how capitalism and
democracy which are in many ways opposite ideas are complementing each other
across the world. The former produces stark inequalities and the later aims to
craft an egalitarian society through distribution of equal political rights. On one
hand, there is a system that pushes for the free hand of the market and on the
other is a system that longs for a redistributive welfare state. The rising inflation
since the 1970s, increasing private indebtedness, financial crisis has exposed the
struggle between growing demands for security (socially funded programmes by
government, redistribution of income and wealth through progressive taxation)
which is fundamentally incompatible with the market. A detailed probe into the
historical evolution of these two ideas and its practice reveals that they both have
managed to respond to their contradictory nature. The post-World War II welfare
state compromise tried to reduce the growing inequalities as a result of an
unregulated capitalist market. Later, the onset of the financial (the Bretton
Woods) crisis in the 1970s led to an expanding horizon of globalisation, neo-
liberal reforms since the 1980s. This created a dent in the idea of the welfare
state. While the state did not wither away, it did make enough space for the
globalisation of capitalism. What is interesting here is that the amount of and
nature of 'liberal' in democratic politics in a way determines the space and
structure of capitalism in a given system/society. For instance, governments that
fail to attend to democratic claims for protection and redistribution risk losing
their majority while governments that disregard the claims for compensation
from the owners of productive resources, as expressed in the language of
marginal productivity, cause economic dysfunctions and distortions that will be
increasingly unsustainable and will thereby also undermine political support.
(Streeck, 2011)
Marx believed that capitalism thrived because proletariat class is repressed and
kept misinformed. His notion of collapse of the capitalist system under the
weight of its inner contradictions no longer holds as capitalism has survived these
challenges by adapting and accommodating itself within the liberal democratic
setting. In fact, the capitalist class today consents to democracy and redistribution
for the cost of repression and the consequent threat of revolution may be higher.
There are various assumptions, theories, and approaches to look at the
interrelationship between capitalism and democracy. For example, greater
democratisation results in greater redistribution (Meltzer and Richard model
1981) since the median voter belong to the lower income group. However, they
do not provide much leverage on explaining the observed variance in
redistributive politics in different countries. The other main approach to the study
of capitalism and democracy focuses on the role of political power, especially the 93
Context of Modern organizational and political strength of labour. If capitalism is about class
Government conflict, then the organization and relative political strength of classes should
affect policies and economic outcomes. There are two variants of this approach.
The power resource theory focuses on the size and structure of the welfare state,
explaining it as a function of the historical strength of the political left, mediated
by alliances with the middle classes. The second variant is called the Neo
Corporatist theory which focuses on the organization of labour and its
relationship to the state - especially the degree of centralization of unions and
their incorporation into public decision-making processes. (Iversen, 2006)
Joseph Schumpeter opined that democracy was a part of civilization story of
capitalism thus making the point that democracy was historically supported by
capitalism. In Capitalism, Socialism, and Democracy (1942) he states flatly,
"History clearly confirms that modern democracy rose along with capitalism, and
in causal connection with it. Modern democracy is a product of the capitalist
process.” The evolution of capitalism and liberal democracy though remained
conflictual, it has found a strong ground especially since the end of World War II
and the birth of welfare state (which was inspired by Keynesian economics). In
the three decades following the adoption of the welfare state policies, the
Western world experienced phenomenal economic growth where liberal
democratic politics and the capitalist market grew simultaneously. There has
been always scepticism about the harmonious co-existence of liberal democracy
and capitalism. According to Barrington Moore, there have been three historical
routes to industrial modernization. The first was followed in Britain and France
where democratic capitalism rose to prominence by promoting bourgeoisie
mercantilism. Japan and Germany, adopted the second route with the help of
landed aristocracy producing a system of capitalism that was encased in feudal
authoritarian framework dominated by the military aristocracy. Russia chose to
be an authoritarian communist regime along with state controlled industrial
economy. Moore, therefore, concludes that capitalism has remained a constant
feature of emerging democracies in the nineteenth century. Robert Dahl too
maintained that "It is an historical fact that modern democratic institutions have
existed only in countries with predominantly privately owned, market-oriented
economies or capitalism if you prefer that name." Peter Berger in his book The
Capitalist Revolution (1986) discusses four propositions on the relations between
capitalism and democracy which primarily explain a positive nature of the
relationship between the two. On the other hand, there are those conflictual
relationship between the two. For instance, Friedrich von Hayek in his later years
advocated abolishing democracy in defence of economic freedom and civil
liberty. John Stuart Mill had taken a similar position and maintained that
capitalism subverts democracy. Therefore, he imagined a less competitive and
eventually a socialist society. Mill wanted to control the excesses of both the
market economy and the majoritarian polity, by the education of consumers and
producers, citizens, and politicians, in the interest of producing morally improved
free market and democratic orders. Thomas Jefferson did not object to significant
inequalities in wealth but he believed an economically independent citizenry was
94
essential for liberty and democracy. Marx similarly explains how access to free Capitalism and the
Idea of Liberal
land/resources serves as an impediment to capitalist dominance over and Democracy
exploitation of labour. In other words, when economic resources/power is equally
distributed and also controlled by the government it acts as a check on capitalism.
Gabriel Almond discusses at length various dimensions of the interaction
between democracy and capitalism. He identifies four broad types of inter-
relationships: 1) Capitalism supports democracy, 2) Capitalism subverts
democracy 3) Democracy subverts capitalism and 4) Democracy fosters
capitalism (Almond, 1991). It is important to recognise that democracy and
capitalism are both positively and negatively related, that they both support and
subvert each other.

Check Your Progress Exercise 2

Note: i) Use the space given below for your answer.
ii) See the end of the unit for tips for your answer.
1) Explain how democracy and capitalism interact with each other.
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6.5 CONTESTATIONS, DEBATE AROUND AND

FUTURE OF CAPITALISM AND LIBERAL
DEMOCRACY
The birth of liberal democracy in the shadow of modernity and growing
industrial capitalism in the nineteenth century later became a global phenomenon
and was taken as historically established and socially given. The key questions
that are asked today, retrospectively as well as prospectively, are a) Isa liberal
society (a society which guarantees civil, political, and economic freedoms,
expansion of the franchise, periodic elections) a pre-condition for the sustenance
and protection of capitalism? and b) Does this kind of liberal democratic
expansion cohere with capitalist interests, institutions, and property relations?
Alternatively, to put in the words of Elliot, would greater participation by the
working masses in democratic politics be the potential undoing of the market
capitalist system of economy? (1987).
The growth of liberal democracy and capitalism globally today is being revisited
and questioned for the world is trapped in unimaginable problems and issues. The
unprecedented technological and material progress is an outcome of the capitalist
system but it also has created an unimaginable gulf between the haves and have
nots, climate change, growing tensions among communities on account of
pressing economic conditions, rising terrorism, increasing unemployment and 95
Context of Modern most importantly growth of the self-interested and atomistic individual. In the
Government face of these contemporary challenges, Fukuyama‟s „End of History‟ thesis that
liberal democracy has won is now quaint. There has been rather an acceleration
of history. Robert D Kaplan‟s apocalyptic article The Coming Anarchy points out
that scarcity, crime, overpopulation, tribalism, and disease are rapidly destroying
the social fabric of our planet. The fundamental issue that lies at the heart of
human suffering today is exclusion and extreme inequalities. Isabel V. Sawhill in
her article Capitalism and the Future of Democracy makes a compelling opening
remark, "America is a mess. So are many other Western nations. Populism is on
the rise because our existing system of a market-based liberal democracy is
falling short of producing what citizens need and want." She discusses the
interrelated problem in the context of American society but her argument has
global relevance. For instance, some of the global problems are economic in
nature such as rising inequality, stagnant wages, lack of employment, lower
intergenerational mobility, disappointing levels of health and education, rising
levels of public and private debt, growing place-based disparities. Some other
problems are political in nature such as hyper-partisanship, influence-buying and
corruption at the highest levels, paralysis, and declining trust in government. And
finally, some issues are cultural such as resentment of migrants and growing
tensions over race/ethnic identities and gender. These problems cannot be
addressed in silos.
What has contributed to these impending issues globally is the mindset that
markets work and governments don‟t and that governments must create an
environment for markets to work. Most modern societies are made up of three
sectors: the state, the market, and civil society. Most political philosophies
contain an implicit bias toward one of these three sectors. While the Socialists tilt
toward the state, the Capitalists repose faith in free markets. A softer version of
capitalism, that we might call liberal democracy or the mixed-economy model,
accepts the importance of markets but recognizes the need for government to
correct market failures and address distributional questions. This type of a „mixed
economy‟ prevailed in the three decades following World War II in the U.S. and
has been championed by many world leaders (Sawhill, 2020). Harvard professor
Michael Sandel maintains that the US has drifted from a market economy to a
market society; it's fair to say that an American's experience of shared civic life
depends on how much money they have. Market economy and market societies
have transformed everything into saleable things. (See Michael Sandel's book
What Money Can’t Buy?) The triumphant march of liberal democratic capitalism
has significantly raised a breed of politicians (such as Bernie Sanders etc) across
the globe who today have called into question the practice and intensions of this
system. There seems to be a revived interest in socialism to fight and address
issues of unimaginable and growing inequalities across the world. Thomas
Picketty in his book Capital in the Twenty-first Century (2013) argues that rate of
capital return in developed countries is persistently greater than the rate of
economic growth and that this will cause wealth inequality to increase in the
future. To address this problem, Piketty proposes redistribution through a
96
progressive global tax on wealth. While the political feasibility of such proposals Capitalism and the
Idea of Liberal
is slim, the fact that they are even being discussed makes the point that we may Democracy
be near a tipping point in the battle between market capitalism as philosophy and
its alternatives.
The liberal democratic and capitalist world system need to revisit the proposition
that market functions best when they are complemented by government/political
system. The growing inequalities warrant urgent attention from the political
system to curtail the spread of the market. More than ever, economic power
seems today to have become political power while citizens appear to be almost
entirely stripped of their democratic defences and their capacity to impress on the
political economy interests and demands incommensurable with those of capital
owners. In fact, looking back at the democratic-capitalist crisis sequence since
the 1970s, one cannot but be afraid of the possibility of a new, however
temporary, settlement of the social conflict in advanced capitalism, this time
entirely in favour of the propertied classes that is now firmly entrenched in their
politically unconquerable institutional stronghold, the international financial
industry (Streeck, 2011). It will be too optimistic and farcical to believe that
liberal democracy creates space for people's voices to be heard. Martin Gilens
and Benjamin Page‟s empirical study suggests that economic elites and organized
business interests have a large influence while the average citizen has virtually no
impact. The median voter has a very little impact on legislative decisions in a
democratic system. This is a very castigatory critique of liberal democracy as it
fails to ensure individual liberty and the democratic space ultimately is hijacked
by private/business interest.
On the other hand, it is also necessary to mull over the fact that this very liberal
democratic space has allowed alternative politics to come to the forefront.
Around the world, we see a rise in mobilisation of masses against inequality,
racial/ethnic discrimination, gender-based oppression etc. This is a ray of hope
that democracy still can offer a thriving space for alternative politics as well
economics. Isabel earnestly discusses three possible alternatives to rescue the
world from liberal democracies being hijacked by market capitalism. They are
democratic socialism (government intervention in the economy), democratic
liberalism (mixed-economy), and social capitalism (renewal of social capital and
trust). These alternatives can offer effective solutions to an impending problem
that is at the root of all other interrelated problems, that is, inequality. In the
words of William Galston: “it is unarguable that beyond a certain point economic
inequality is a threat to liberal democracy” (2018, p135).

Check Your Progress Exercise 3

Note: i) Use the space given below for your answer.
ii) See the end of the unit for tips for your answer.
1) List some of the important problems and issues arising from capitalist
development in contemporary times.
97
Context of Modern
Government
6.6 LET US SUM UP
As we saw in this unit, the two thriving ideas of modern times, liberal democracy
and capitalism, have consolidated their position worldwide. Since the inception
of democracy in ancient Greece, the idea of people's participation in political
affairs has flourished with expanding meaning attached to the idea of rights of
people. The beginning of the industrial revolution in the eighteenth century
contributed to the growth of liberal democracy or it can be also said that both
complemented each other. The emergence of the welfare state in the post-War
years was a compromise between liberal democracy and contained capitalism.
However, the financial crisis since the 1970's has greatly contributed to a
paradigm shift in the economic sphere and the political sphere. The growing
influence of global financial capitalism eschewed the liberal democratic spirit
and has caused unimaginable inequalities. Therefore, a revisit of these ideas is
impending to prevent the transformation from a market economy to becoming a
market society. People, academics and activists have faith in the democratic spirit
that with the expansion of people's voice the capitalist tendencies can be put
under veritable check.

6.7 REFERENCES
Almond, G. A. (1991).‟Capitalism and Democracy‟. PS: Political Science and
Politics, 24(3), 467-474.
Dahl, R. A. (2008). Democracy and its Critics. Yale University Press.
Elliott, J. E., & Scott, J. V. (1987). Theories of Liberal Capitalist Democracy:
Alternative Perspectives. International Journal of Social Economics.
Galston, William. (2018). Anti-pluralism: The Populist Threat to Liberal
Democracy. New Haven, CT: Yale University Press.
Iversen, T. (2011).„Capitalism and Democracy‟. In Robert E. Goodin. The
Oxford Handbook of Political Science, London, Oxford University Press.
Merkel,W. (2014). Is Capitalism compatible with Democracy?. Zeitschrift für
vergleichende Politikwissenschaft, 8(2), 109-128.
Piketty, T. (2015). About Capital in the Twenty-First Century. American
Economic Review, 105(5), 48-53.
Sawhill, I. (2020). Capitalism and the Future of Democracy. In Melody C Barnes,
et al (Ed). Community Wealth Building and the Reconstruction of American
Democracy. Chelthenham, Edward Elgar Publishing.
Schmitter, P. C. (1995). Democracy's Future: More Liberal, Preliberal, or
Postliberal? Journal of Democracy, 6 (1), 15-22.
Scott, B. R. (2006). The Political Economy of Capitalism. Harvard Business
School Working Paper, No. 07-037.
Streeck, W. (2011). The Crisis in Context: Democratic Capitalism and its
Contradictions. Max-Planck-Institut für Gesellschaftsforschung Discussion
Paper, (11/15).

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Ware, A. (1992). Liberal Democracy: One Form or Many?.Political Studies, Capitalism and the
Idea of Liberal
40(1), 130-145. Democracy

6.8 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress Exercise 1
1) Conditions for capitalism to flourish are private ownership of resources,
rational techniques of production and distribution, free market, free labour force,
commercialisation of economy and rational legislation.
2) c

Check Your Progress Exercise 2

1) Your answer should include three aspects: i) liberal democracy a pre-condition
for capitalism, ii) impact of capitalist intent and institutions on liberal democracy,
and space for democratic spirit to make a dent in capitalist system.

Check Your Progress Exercise 3

1) Capitalism has led to unprecedented technological and material progress, but
is has also created an unimaginable gulf between the haves and have nots,
climate change, tensions among communities, terrorism, unemployment and
growth of the self-interested and atomistic individual.

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