Democratic Capitalism & 21st Century Economics

Democratic Capitalism is the way forward. Capitalism + empowered democracy is the key to restoring economic fairness throughout the world.

George Cooper

Recently, George Cooper, in his Money, Blood and Revolution (2014), and in his new Fixing Economics (2016), explained that the economic leveling tendency of the twentieth century was a result of the processes inherent in democracy itself. While capitalism is intent on increasing shareholder returns, other forces tend to reduce these returns. Obviously, competition between firms is a contributing factor in this process, but Cooper was able to show that democracy plays a major part.

Whereas capitalism can be expected to improve the wealth of those at the top of the economic pyramid, Cooper argued we should not ignore the fact that, in a democracy, the majority of the people actually have the power to elect those who favor their own cause. For Cooper, this has resulted in taxation being used to redistribute income, most notably seen in the impact of inheritance taxes in England. Other welfare measures meant that those at the bottom part of the pyramid shared in part of the economic prosperity of the nation. Even wage policy can help to share the wealth.

Therefore, on Cooper’s model, capitalism helps to improve the economic value of each person’s labour and effort, and democratic forces ensure that this increased value is spread more fairly between capital and labour.

Trade policies

The relatively fair income distribution of the 20th century has come under direct threat with the beginning of the new millennium. The gap between the rich and the poor has increased in all developed and undeveloped nations, whether they are democratic or not. The old mechanisms are no longer working, and there is little chance that this will change unless there is a change in our economic thinking.

The first thing to accept is that nations are in competition with each other. We do not live in a world which can be realistically governed as if national borders do not exist. They do, and most ordinary people (plus Theresa May, Donald Trump and the Australian Coalition) want them to continue. Most people value many of the unique aspects of their own national culture and situation. Most people would like the economic situation of their own nation to improve. They are prepared to co-operate in order to achieve that result, and look to their own national government to advance the economic welfare of their own nation. Democratic governments that ignore that imperative do not get re-elected.

The economies of western nations are out of balance, with currently unresolved structural imbalances, and difficult to resolve unemployment issues. While I would like to win the argument against the dominant economic theory, Ricardo’s Comparative Advantage, this is not presently possible. This theory has meant that “tariffs” has become a curse-word. Yet tariffs could be in first line of defences for any national government seeking to advance the economic interests of its own people, particularly when faced with chronic unemployment.

Nevertheless, in the UK, it is possible that tariffs will be introduced between the UK and the EU, once the UK has withdrawn from the EU. The outcome is likely to be that both the UK and the EU will be strengthened as a result, not weakened. This is because ensuring most people are employed in “fair-paying” work is more important that getting some goods 10% cheaper.

In the event of a full revival of the UK economy in its industrial heartlands, the response of economic commentators to this outcome will follow the same 7 stages of grief (disbelief, denial, bargaining, guilt, anger, depression, and acceptance/hope) with which they have responded to the British people’s decision to reject the EU, the fall in the pound, and the increased competitiveness of UK businesses (outside of London).

In the USA, if the Republican leaders’ proposal for a Cash Destination Tax (on imports) is endorsed by Donald Trump, radical changes will follow in the US economy, with now moribund industries being revived. ¬†(The consequences of a Cash Destination Tax on exports is unpredictable and likely to be catastrophic.) In any event, if the USA adopt a tax policy that favor US producers and the US economy revives as a result, the response of economic commentators to this outcome will also follow the 7 stages of grief. Do not expect any mia culpa to emerge, just a profound silence, and perhaps a change of subject, and a post-dated attribution of this improvement to the policies of the last 8 years (despite their actual failure).

If the USA goes down such a path, one can expect the rest of the world to follow. At this point, we will begin to see Western nations emerge from their current Free Trade induced malaise, and developing nations take full control of their own economic lives. Such an approach would result in developing nations adopt a rational and progressive policy of a higher and higher minimum wage, at least until it reaches 50% of the US minimum wage.

Democratic Capitalism

The economic model of Democratic Capitalism recognizes that capitalism is the engine for economic development. It will deliver economic benefits that neither socialism (of the Sanders and Corbyn type) nor communism (of the Venezuelan and Cuban type) is able to deliver. Yet the 21st century has shown that capitalism needs controls, exercised via democratic processes, to ensure that it serves everyone, not just those in control of capital.

It is time that we clearly recognized the two most important economic drivers in a modern economy, Democracy and Capitalism, and stopped toying with dysfunctional alternative models.