How Capitalism Is Killing Democracy

Free markets were supposed to lead to free societies. Instead, today's supercharged global economy is eroding the power of the people in democracies around the globe. Welcome to a world where the bottom line trumps the common good and government takes a back seat to big business.

It was supposed to be a match made in heaven. Capitalism and democracy, we've long been told, are the twin ideological pillars capable of bringing unprecedented prosperity and freedom to the world. In recent decades, the duo has shared a common ascent. By almost any measure, global capitalism is triumphant. Most nations around the world are today part of a single, integrated, and turbocharged global market. Democracy has enjoyed a similar renaissance. Three decades ago, a third of the world's nations held free elections; today, nearly two thirds do.

Conventional wisdom holds that where either capitalism or democracy flourishes, the other must soon follow. Yet today, their fortunes are beginning to diverge. Capitalism, long sold as the yin to democracy's yang, is thriving, while democracy is struggling to keep up. China, poised to become the world's third largest capitalist nation this year after the United States and Japan, has embraced market freedom, but not political freedom. Many economically successful nations -- from Russia to Mexico -- are democracies in name only. They are encumbered by the same problems that have hobbled American democracy in recent years, allowing corporations and elites buoyed by runaway economic success to undermine the government's capacity to respond to citizens' concerns.

Of course, democracy means much more than the process of free and fair elections. It is a system for accomplishing what can only be achieved by citizens joining together to further the common good. But though free markets have brought unprecedented prosperity to many, they have been accompanied by widening inequalities of income and wealth, heightened job insecurity, and environmental hazards such as global warming. Democracy is designed to allow citizens to address these very issues in constructive ways. And yet a sense of political powerlessness is on the rise among citizens in Europe, Japan, and the United States, even as consumers and investors feel more empowered. In short, no democratic nation is effectively coping with capitalism's negative side effects.

This fact is not, however, a failing of capitalism. As these two forces have spread around the world, we have blurred their responsibilities, to the detriment of our democratic duties. Capitalism's role is to increase the economic pie, nothing more. And while capitalism has become remarkably responsive to what people want as individual consumers, democracies have struggled to perform their own basic functions: to articulate and act upon the common good, and to help societies achieve both growth and equity. Democracy, at its best, enables citizens to debate collectively how the slices of the pie should be divided and to determine which rules apply to private goods and which to public goods. Today, those tasks are increasingly being left to the market. What is desperately needed is a clear delineation of the boundary between global capitalism and democracy -- between the economic game, on the one hand, and how its rules are set, on the other. If the purpose of capitalism is to allow corporations to play the market as aggressively as possible, the challenge for citizens is to stop these economic entities from being the authors of the rules by which we live.


Most people are of two minds: As consumers and investors, we want the bargains and high returns that the global economy provides. As citizens, we don't like many of the social consequences that flow from these transactions. We like to blame corporations for the ills that follow, but in truth we've made this compact with ourselves. After all, we know the roots of the great economic deals we're getting. They come from workers forced to settle for lower wages and benefits. They come from companies that shed their loyalties to communities and morph into global supply chains. They come from CEOs who take home exorbitant paychecks. And they come from industries that often wreak havoc on the environment.

Unfortunately, in the United States, the debate about economic change tends to occur between two extremist camps: those who want the market to rule unimpeded, and those who want to protect jobs and preserve communities as they are. Instead of finding ways to soften the blows of globalization, compensate the losers, or slow the pace of change, we go to battle. Consumers and investors nearly always win the day, but citizens lash out occasionally in symbolic fashion, by attempting to block a new trade agreement or protesting the sale of U.S. companies to foreign firms. It is a sign of the inner conflict Americans feel -- between the consumer in us and the citizen in us -- that the reactions are often so schizophrenic.

Such conflicting sentiments are hardly limited to the United States. The recent wave of corporate restructurings in Europe has shaken the continent's typical commitment to job security and social welfare. It's leaving Europeans at odds as to whether they prefer the private benefits of global capitalism in the face of increasing social costs at home and abroad. Take, for instance, the auto industry. In 2001, DaimlerChrysler faced mounting financial losses as European car buyers abandoned the company in favor of cheaper competitors. So, CEO Dieter Zetsche cut 26,000 jobs from his global workforce and closed six factories. Even profitable companies are feeling the pressure to become ever more efficient. In 2005, Deutsche Bank simultaneously announced an 87 percent increase in net profits and a plan to cut 6,400 jobs, nearly half of them in Germany and Britain. Twelve-hundred of the jobs were then moved to low-wage nations. Today, European consumers and investors are doing better than ever, but job insecurity and inequality are rising, even in social democracies that were established to counter the injustices of the market. In the face of such change, Europe's democracies have shown themselves to be so paralyzed that the only way citizens routinely express opposition is through massive boycotts and strikes.

In Japan, many companies have abandoned lifetime employment, cut workforces, and closed down unprofitable lines. Just months after Howard Stringer was named Sony's first non-Japanese CEO, he announced the company would trim 10,000 employees, about 7 percent of its workforce. Surely some Japanese consumers and investors benefit from such corporate downsizing: By 2006, the Japanese stock market had reached a 14-year high. But many Japanese workers have been left behind. A nation that once prided itself on being an "all middle-class society" is beginning to show sharp disparities in income and wealth. Between 1999 and 2005, the share of Japanese households without savings doubled, from 12 percent to 24 percent. And citizens there routinely express a sense of powerlessness. Like many free countries around the world, Japan is embracing global capitalism with a democracy too enfeebled to face the free market's many social penalties.

On the other end of the political spectrum sits China, which is surging toward capitalism without democracy at all. That's good news for people who invest in China, but the social consequences for the country's citizens are mounting. Income inequality has widened enormously. China's new business elites live in McMansions inside gated suburban communities and send their children to study overseas. At the same time, China's cities are bursting with peasants from the countryside who have sunk into urban poverty and unemployment. And those who are affected most have little political recourse to change the situation, beyond riots that are routinely put down by force.

But citizens living in democratic nations aren't similarly constrained. They have the ability to alter the rules of the game so that the cost to society need not be so great. And yet, we've increasingly left those responsibilities to the private sector -- to the companies themselves and their squadrons of lobbyists and public-relations experts -- pretending as if some inherent morality or corporate good citizenship will compel them to look out for the greater good. But they have no responsibility to address inequality or protect the environment on their own. We forget that they are simply duty bound to protect the bottom line.


Why has capitalism succeeded while democracy has steadily weakened? Democracy has become enfeebled largely because companies, in intensifying competition for global consumers and investors, have invested ever greater sums in lobbying, public relations, and even bribes and kickbacks, seeking laws that give them a competitive advantage over their rivals. The result is an arms race for political influence that is drowning out the voices of average citizens. In the United States, for example, the fights that preoccupy Congress, those that consume weeks or months of congressional staff time, are typically contests between competing companies or industries.

While corporations are increasingly writing their own rules, they are also being entrusted with a kind of social responsibility or morality. Politicians praise companies for acting "responsibly" or condemn them for not doing so. Yet the purpose of capitalism is to get great deals for consumers and investors. Corporate executives are not authorized by anyone -- least of all by their investors -- to balance profits against the public good. Nor do they have any expertise in making such moral calculations. Democracy is supposed to represent the public in drawing such lines. And the message that companies are moral beings with social responsibilities diverts public attention from the task of establishing such laws and rules in the first place.

It is much the same with what passes for corporate charity. Under today's intensely competitive form of global capitalism, companies donate money to good causes only to the extent the donation has public-relations value, thereby boosting the bottom line. But shareholders do not invest in firms expecting the money to be used for charitable purposes. They invest to earn high returns. Shareholders who wish to be charitable would, presumably, make donations to charities of their own choosing in amounts they decide for themselves. The larger danger is that these conspicuous displays of corporate beneficence hoodwink the public into believing corporations have charitable impulses that can be relied on in a pinch.

By pretending that the economic success corporations enjoy saddles them with particular social duties only serves to distract the public from democracy's responsibility to set the rules of the game and thereby protect the common good. The only way for the citizens in us to trump the consumers in us is through laws and rules that make our purchases and investments social choices as well as personal ones. A change in labor laws making it easier for employees to organize and negotiate better terms, for example, might increase the price of products and services. My inner consumer won’t like that very much, but the citizen in me might think it a fair price to pay. A small transfer tax on sales of stock, to slow the movement of capital ever so slightly, might give communities a bit more time to adapt to changing circumstances. The return on my retirement fund might go down by a small fraction, but the citizen in me thinks it worth the price. Extended unemployment insurance combined with wage insurance and job training could ease the pain for workers caught in the downdrafts of globalization.

Let us be clear: The purpose of democracy is to accomplish ends we cannot achieve as individuals. But democracy cannot fulfill this role when companies use politics to advance or maintain their competitive standing, or when they appear to take on social responsibilities that they have no real capacity or authority to fulfill. That leaves societies unable to address the tradeoffs between economic growth and social problems such as job insecurity, widening inequality, and climate change. As a result, consumer and investor interests almost invariably trump common concerns.

The vast majority of us are global consumers and, at least indirectly, global investors. In these roles we should strive for the best deals possible. That is how we participate in the global market economy. But those private benefits usually have social costs. And for those of us living in democracies, it is imperative to remember that we are also citizens who have it in our power to reduce these social costs, making the true price of the goods and services we purchase as low as possible. We can accomplish this larger feat only if we take our roles as citizens seriously. The first step, which is often the hardest, is to get our thinking straight.


Turkey's Guilty Conscience

One of the world's thorniest historical conflicts is on the verge of being solved. But long-term peace between Turkey and Armenia might be as hard to achieve as a lasting Middle East truce.

Pop quiz: Can you name one part of the world where the United States and the Russian Federation have been making common cause? Correct answer: in Turkey and Armenia, where the two powers have been collaborating of late.

And that's only one of the many remarkable twists to emerge from a diplomatic quest that, for sheer complexity and emotional explosiveness, is likely rivaled only by the search for peace in the Middle East. It has been a wild ride, and it's not over yet. Ankara and Yerevan are signing two historic agreements that could pave the way toward a major diplomatic rapprochement and an opening of the two countries' common 325-kilometer border, which has been closed for the past 16 years.

"I think we're seeing a series of high-water marks in a long process," says the International Crisis Group's Hugh Pope. "Considering where we've come from 10 years ago to where we are today, it's nothing short of amazing."

But there's still a long way to go. Like the Israelis and Palestinians, the Turks and Armenians share a lot of history, and that's not always a good thing. As in the Middle East, the Turks and the Armenians are separated by religion, harshly felt territorial disputes, and the poisonous legacy of killing on a scale so vast that it boggles the mind. Small wonder that the two peoples have spent most of the past 100 years locked in mutual antipathy.

The issue that looms over all else is 1915's "Great Calamity," when more than 1 million overwhelmingly Orthodox Christian Armenians met their deaths at the hands of mostly Muslim Ottoman Turks during the turmoil of World War I. Armenians, and most non-Turkish historians, say it was genocide. The Turks, for their part, have long denied that it ever happened -- perhaps because admitting the massacres would cast a stain on the birth of the present-day Republic of Turkey, which was established in the aftermath of the war. A controversial Turkish law that prohibits insults to "Turkishness" has sometimes been used as a basis for prosecuting those who would dare refer to the events of 1915 as genocide.

Understandably, many Armenians have insisted that a clear Turkish acknowledgment of the 1915 massacres precede any diplomatic opening between the two countries -- and that's precisely what hasn't happened. Instead the two governments have agreed to sidestep the issue by appointing an independent historical commission to discuss it. Armen Ayvazyan, director of the Ararat Center for Strategic Research in Yerevan, speaks for many Armenian nationalists when he denounces this move as "outrageous." Imagine, he says, that an unrepentant Nazi Germany had called for a "historical commission" to debate the Holocaust. Politically, the move has also enabled the Turks to argue that countries that have been considering parliamentary resolutions officially condemning Ottoman actions in 1915 as genocide -- read "the United States" -- should postpone doing so, at risk of derailing the current rapprochement.

And yet, as Pope insists, merely denouncing the current normalization process as a sellout to an unrepentant Turkey misses a key point. He notes that, since 2000, a growing number of Turkish intellectuals have been steadily challenging the traditional taboos, openly challenging the official version that downplays the 1915 massacres as a few random atrocities rather than a systematic state-orchestrated campaign of killing. (Among the dissenters: Nobel Prize-winning novelist Orhan Pamuk.) They've been organizing academic conferences and pushing for the publication of long-suppressed documents, such as the diaries of senior Ottoman official Talat Pasha, which clearly show his intimate involvement in the killings. Last December, a group of 200 Turks even organized a petition expressing a Turkish apology for 1915, and it's since been signed by some 30,000 people.

Given the history on both sides, one of the most surprising things about the normalization process is how much support it has managed to find. When Turkish President Abdullah Gül launched the present initiative by heading to a September 2008 soccer match in Yerevan, a poll in Turkey found that 69.6 percent approved, while some 62.8 percent thought Turkey should develop economic and political ties with Armenia. "The more they [Turks and Armenians] meet, the more they realize how similar they are," notes Diba Nigar Göksel of the European Stability Initiative, pointing out that there are already some 70,000 Armenian guest workers in Turkey. (At the same time she bemoans the lack of the myriad exchanges and contacts of the kind that have considerably enlivened relations between Turkey and Greece over the past two decades). Still, she notes, public opinion in Armenia itself predictably remains more complicated: Ask Armenians if they support opening the border, and they overwhelmingly approve; ask them if the border should be opened if Turkey doesn't acknowledge the 1915 genocide, and they overwhelmingly don't.

There's another complicating factor waiting in the wings: the status of the "frozen conflict" between Armenia and Azerbaijan. The Azeris are ethnic Turks and have been viewed with corresponding suspicion by the Armenians, even when both groups were living in their own titular republics back in the old Soviet Union. In 1988, fighting broke out when the majority Armenian inhabitants of the enclave of Nagorno-Karabakh inside Azerbaijan insisted on joining their brethren in Armenia proper.

The war ended in 1994 with Armenian forces in tight control of Nagorno-Karabakh and the two republics -- which became independent countries after the collapse of the Soviet Union -- locked in a state of mutual hostility that remains to this day. At first the Turkish push for normal relations with Armenia didn't make resolving the Azeri-Armenian logjam a precondition. But an outcry in Baku, as well as harsh criticism from the powerful nationalist opposition in the parliament in Ankara, forced the government of Turkish Prime Minister Recep Tayyip Erdo?an to put Nagorno-Karabakh back on the agenda -- despite apparent promises he'd made to the Armenians on that score. Lately Erdogan's government has reaffirmed that the rapprochement with Yerevan will go ahead regardless of progress on the Azeri-Armenian peace talks.

The stakes are enormous for both sides. The Turks closed their border with Armenia in 1993 as a rebuke for Armenia's seizure of Nagorno-Karabakh, and since then Armenia's only land link with the rest of the Caucasus has been through Georgia. Opening the border would give a huge boost to the Armenian economy. The Turks would benefit from vastly expanded geopolitical influence in the strategically sensitive Caucasus. Over the long term, say analysts, the Erdogan government would also be able to demonstrate much greater diplomatic credibility in its dealings with Greek Cypriots, and, beyond that, with the European Union (which maintains reservations about Turkey's human rights record and democratic bona fides). Ankara would also, potentially, be able to counter the chronic bad publicity it has received around the world for its persistent denial of the genocide -- no small thing given the enormous political traction of the Armenian diaspora in Europe and the United States.

Moscow and Washington apparently think they have something to gain, too -- even if they hold that belief "for very different reasons," Pope notes. Washington wants to see a reduction of conflict in the Caucasus that would enable energy from the region (and the neighboring countries of Central Asia) to find alternate routes to the West (a desire shared, if less assertively, by many in Brussels). Moscow, meanwhile, thinks that bringing its old ally Armenia and its new friend Turkey closer together will diminish the pull of "extraregional actors" (i.e., the Americans and the Europeans) in the Caucasus. And the fact that lifting the iron curtain between Turkey and Armenia will substantially reduce the geopolitical weight of Georgia, Moscow's declared enemy, probably contributes as well.

Yet the deal is still a long way from done. The protocols that will be presented by the two governments this month still have to be approved by the Turkish and Armenian parliaments. "The crucial point is ratification," says Sinan Ülgen of the Centre for Economics and Foreign Policy Studies in Istanbul. "This is going to be ratified if, and only if, Azerbaijan and Armenia can come to agreement on Karabakh." And that is far from a sure thing, given the long legacy of mistrust. Laurence Broers of the London-based nonprofit Conciliation Resources points out that there are precedents from Turkish and Armenian leaders who tried to build rapprochement without sufficient backing from their own peoples -- they failed. "So I am not very optimistic."

Let's see what happens next.

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