Patricia Cohen: Does capitalism lead to democracy, and how?

This essay and yesterday's discussions with a fellow blogger Onnik Krikoryan turned my mind back to wondering on the meaning and significance of democracy again. Hence I'm back on this blog again, and although I can't promise that it will be updated regularly, I will try to make sure to have more interesting discussions about democracy initiated here. For now - take a look at this essay, I am not publishing the full text, but whatever is included is quite interesting:

[International Herald Tribune | By Patricia Cohen |Wednesday, June 13, 2007] NEW YORK: When President George W. Bush declared last week that political liberty is the natural byproduct of economic openness, his counterparts in Beijing and Moscow were not the only ones to object. Even once ardent supporters have backed away from the century-old theory that democracy and capitalism, like Paris Hilton and paparazzi, need each other to survive.

In China, where astounding economic growth persists despite Communist Party rule, in Russia where President Vladimir Putin has squelched opponents, and in Venezuela where dissent is silenced, developments around the world have been tearing sizable holes in what has been a remarkably powerful idea, not only in intellectual circles, but also in Republican and Democratic administrations - that capitalism and
democracy are two sides of the same coin, trends that reinforce each other.

"People, including myself, still have reasons to think it will eventually happen," Francis Fukuyama, a political economist at Johns Hopkins School of Advanced International Studies, said of China's evolution to democracy. "But the time frame has to be a lot longer." At least in the next couple of decades, he said, it's likely that "the authoritarian system will keep going and get stronger."

After communism collapsed, Fukuyama, perhaps more than anyone else, was associated with the idea that capitalism and democracy are inextricably linked. In his famous essay, "The End of History," he declared that all nations would ultimately evolve into Western-style liberal democracies.

Yet in the more than 15 years since Fukuyama gave his prognosis, support for the underlying theory tottered back and forth. After the fall of communism in 1989, democratic capitalism seemed poised for a victory lap. "There was great hope in the early 1990s," said Michael Mandelbaum, the author of the forthcoming book "Democracy's Good Name: The Rise and Risks of the World's Most Popular Form of Government."

The belief was that rising incomes create a middle class who would then agitate for personal liberty and political power. The tipping point seemed to occur when per capita income reached somewhere between $6,000 and $8,000. True, there were exceptions like tiny Singapore and Malaysia with their rising stocks and authoritarian governments, but they were often dismissed as too small or transitional to really put a dent in the theory.

Yet as free market shock therapy closed down companies and government services and autocrats gained power in the Caucasus, Central Asia and Russia, the initial optimism about democracy's sure-footed march faltered.

Some scholars pointed out that the American experience, where democracy and capitalism arose at the same time, wasn't so much a model for the rest of the world, but an anomaly. "Capitalism came before democracy essentially everywhere except in this country where they started at the same time," said Bruce Scott, an economist at Harvard Business School who is finishing up a book titled "Capitalism, Democracy and Development." "In the rest of the world, it took 100, 200, 300 years before they got to where they could manage a democracy."

A big mistake, Scott said, was assuming that "all you had to have was a constitution and an election and you had a democracy; that was really stupid."

Joseph Stiglitz, a Nobel laureate now at Columbia University, agrees that one of the biggest changes since the early 1990s is how fuzzy the meaning of democracy is and how easy it is to manipulate elections.

As more fledgling democracies failed, various theories like "illiberal democracy" appeared to explain why. Some countries - Singapore, Peru and Russia, for example - go through a stage of robust economic growth but limited political liberties. Lee Kuan Yew, the former prime minister of Singapore, argued that cultural differences, what he labeled "Asian values," led to a different path of democratic
development.

Then, just after the Iraq war, "there was a mini-burst of optimism" that capitalism was leading to democracy after all, Mandelbaum said, with three popular uprisings in the Ukraine, Georgia and Kyrgyzstan and elections in Gaza, Lebanon and Egypt in 2005. The optimism quickly fizzled.

Now some scholars argue that a free market can actually undermine democracy. "Capitalism doesn't necessarily lead towards democracy at all," Scott said. "The one thing that you can say is that capitalism is going to relentlessly produce inequality of income, and eventually that is going to become incompatible with democracy."

More worrisome is that the widespread assumption that capitalism and democracy are closely linked can backfire, argues Lord Ralf Dahrendorf, a research professor at the Social Science Centre Berlin.

In a recent discussion on democracy and capitalism sponsored by the Hansard Society, a nonpartisan charity in London that promotes parliamentary democracy, he argues that when democracy fails to deliver the economic goods, people begin to doubt its value. "Few things seem more difficult and yet few things are more important for sustainable liberty than to separate capitalism and democracy in
people's minds," he writes.

Still, many economists and political scientists would argue that free markets and free people tend to complement each other, like gin and tonic. Capitalism can create a hospitable atmosphere for democracy and help it withstand turmoil, even it does not assure its existence. As Stiglitz said, "The movement from closed to open society is a very big change."

To compete economically, a nation has to be plugged into the global information network, which exposes their citizens to other political systems and cultures. And as Mandelbaum, argues, the "habits and values of market economy when transferred to political sphere make for a democracy."

"I'm rather confident over Russia's prospects over the next 20 or 30 years," he said. "I can imagine Russia growing into democracy peacefully because it has democratic institutions."

But China, he acknowledges is "the big enchilada, the big test." Even with a growing middle class, there are still a billion poor people. There will be increasing pressure for democracy, he said, but China's leaders may be able push back.

He added that he wouldn't be surprised though if China and even Russia come up with a version of the discredited "Asian values" idea, a "new type of authoritarian ideology that tries to justify" their systems.[...]