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.

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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.

THE COST OF DOING BUSINESS

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.

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