Capitalism, Socialism, and Democracy: An Introduction

Diamond, Larry Jay. Plattner, Marc F., 1945Journal of Democracy, Volume 3, Number 3, July 1992, pp. 3-6 (Article)

Published by The Johns Hopkins University Press

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Capitalism, Socialism, and Democracy: An Introduction

Exactly 50 years ago, Joseph Schumpeter published Capitalism, Socialism and Democracy, his classic study of the relationship between political democracy and alternative economic systems. It is a book of magisterial scope and great insight that continues to be widely read and cited by social scientists today. Yet many of its central conclusions have been called sharply into question by the developments of recent years. It thus provides an ideal starting point for reflection about a question that is no less important or pressing today. Though an admirer of capitalism's achievements and not an advocate of socialism, Schumpeter sought to show that "a socialist form of society will inevitably emerge from an equally inevitable decomposition of capitalist society." While his own analysis was complex and highly original, Schumpeter noted that this conclusion was "rapidly becoming the general opinion, even among conservatives." He also argued that, in principle if not necessarily in practice, there is no incompatibility between socialism and political democracy. Half a century later, the general opinion on these matters appears to have undergone a wholesale transformation. Socialism as Schumpeter defined it--"an institutional pattern in which control over the means of production and over production itself is vested with a central authority" and "in which, as a matter of principle, the economic affairs of society belong to the public and not the private sphere" is clearly in ideological retreat and political disarray. The United States and other key countries in the West have been governed for the past decade by conservative, pro-private enterprise parties. The democratic socialist parties of Western Europe have rediscovered the virtues of markets and entrepreneurship. In the Third World, state-controlled economies have stagnated, and structural adjustment and privatization have become the order of the day. Finally, and most dramatically, communism has collapsed both in Eastern Europe and the former Soviet Union. Moreover, there seems to be widespread agreement---especially in the postcommunist countries--that democracy cannot succeed without the introduction of a market economy. Even before the demise of the Soviet Union, its communist rulers had acknowledged the failure of centralized planning and adopted the goal of moving toward a market economy. This about-face on the part of the Soviet leadership made possible the approval of some striking documents on economic matters by the Conference on Security and Cooperation in

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Europe (CSCE), whose membership embraced the Soviet Union and its former East European satellites as well as the countries of Western Europe, the United States, and Canada. These documents may perhaps be regarded as an official statement of the opinion that now generally prevails on the issues of the economy and democracy. On 11 April 1990, the Bonn Conference on Economic Cooperation in Europe affirmed that "democratic institutions and economic freedom foster economic and social progress"; that "the performance of marketbased economies relies primarily on the freedom of individual enterprise"; and that "economic freedom for the individual includes the right freely to own, buy, sell, and otherwise utilize property." In addition, "recognizing the relationship between political pluralism and market economies," the CSCE member states endorsed not only multiparty democracy, the rule of law, and respect for human rights, but also "free and competitive market economies where prices are based on supply and demand." Similarly, the "Charter of Paris for a New Europe," in which the leaders of the CSCE countries on 21 November 1990 officially proclaimed the end of the Cold War, affirmed not only the principles of democracy but the following propositions on the link between politics and economics: "The free will of the individual, exercised in democracy and protected by the rule of law, forms the necessary basis for successful economic and social development . . . . Freedom and political pluralism are necessary elements in our common objective of developing market economies toward sustainable economic growth, prosperity, social justice, expanding employment, and efficient use of economic resources." The developments and proclamations recounted above might be taken as evidence that capitalism has triumphed over socialism and that there is an essential connection between capitalism and democracy. But there are also grounds on which these conclusions might be challenged. The CSCE documents themselves, for example, speak of "social justice" as well as "economic freedom." Moreover, nowhere do they explicitly mention either capitalism or socialism. This, in turn, raises the question of whether these terms still retain any clear meaning today, and if so how they should be understood. Should Scandinavia's welfare states, for example, be regarded as capitalist, socialist, or something in between? Obviously, the way in which these terms are defined will profoundly affect how one views the degree of linkage or compatibility that exists between either capitalism or socialism and democracy. This special issue of the Journal of Democracy is designed to address the full range of questions involved in assessing the relationship between democracy and alternative economic systems. Thanks to a grant from The Pew Charitable Trusts, we were able to convene an international conference on "Capitalism, Socialism, and Democracy" on 3 April 1992 in Washington, D.C., and to commission six papers and six commentaries

Capitalism, Socialism, and Democracy

from some of the world's leading authorities on this subject. The essays that appear in this issue are revised and expanded versions of the presentations made at the conference. Each of the six principal authors was asked to contribute an essay setting forth his own view of the relationship between democracy and various economic systems. Each was sent a statement very similar to that which appears above, but also told that he should feel free to take issue with the way in which we had posed the problem. We encouraged the authors to refer to Schumpeter's original text if they found it pertinent, but did not insist that they do so. While allowing each of them full freedom to determine the focus of his own essay, we also asked that they address themselves to as many as possible of the following specific questions: 9 Does political democracy require economy? or depend upon a market

9 Does political democracy require private property? If so, how extensive must the sphere of private property be? 9 Does political democracy require limitations on the size of the state or on its role in the economy? If so, what is the nature of these limitations? 9 How would you define the relationship between democracy and capitalism (as you would define that term)? What specific aspects of capitalism are especially conducive or detrimental to democracy? 9 How would you define the relationship between democracy and socialism (as you would define that term)? What specific aspects of socialism are especially conducive or detrimental to democracy? 9 Is there a viable "third way" between (or apart from) capitalism and socialism, and if so what are its distinguishing characteristics? 9 Are the terms capitalism and socialism still appropriate and useful in discussing the economic requisites of democracy? 9 If you believe that democracy requires certain economic arrangements, is this an inherent necessity or might it be overcome with future economic and social progress? 9 If you believe that new kinds of economic systems will emerge in the future, to what extent are these likely to be conducive to or compatible with democracy?

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The order in which the essays are presented here reflects the structure of the conference, which was divided into three sessions, each featuring two principal paper givers and two commentators. The latter, who were asked to write briefer essays, were encouraged to put forward their own views as well as their comments on the longer papers presented at their respective sessions. In selecting the participants for this symposium, we sought to achieve wide diversity both in geographical and professional backgrounds and in political viewpoints. Our 12 authors hail from Asia, Africa, Eastern Europe, and South America, as well as Western Europe and the United States. Their academic disciplines include political science, economics, sociology, and philosophy, and several among them have also played important roles in the public affairs of their own countries. They occupy a wide range of positions on a political spectrum stretching from champions of capitalism to democratic socialists. This diversity is fully reflected in the very different approaches and viewpoints that inform these essays. Yet taken together, they offer a revealing picture of the state of contemporary thought regarding capitalism, socialism, and democracy. It is fair to say that virtually all the essays show the impact of what Francisco Weffort calls the political "earthquake" of the events of 1989-91. Even those authors who are most sympathetic to socialism endorse a role for the market and stress the value of an independent civil society. At the same time, they are highly critical of free-market enthusiasts (termed neoconservatives by Weffort and neoliberals by Adam Przeworski) who see unleashing the market as the key to solving all economic and political problems. Yet even the unabashedly procapitalist authors in this issue tend to acknowledge that the state, to a greater or lesser degree, has a role to play in the economy. All our contributors, then, seem to accept the notion of the mixed economy, though they differ greatly regarding the appropriate mixture between state and market. This may incline some readers to agree with Kyung-won Kim that "striking the right equilibrium has become an essentially technical exercise," but others may find that the degree of ideological passion evident in many of these essays belies that conclusion. One critical point on which there is a great deal both of passionate disagreement and intellectual uncertainty is the relationship between democracy and economic growth in developing countries. Though there may be a remarkably broad consensus on the goal of stable and prosperous democracy, there is clearly very little consensus on the means of achieving it.
- - T h e Editors