Summer 2010

EDITOR-IN-CHIEF'S LETTER

Democracy devours itself

By GC Team  June 01, 2010 4:00 AM GMT

Democracy is the great talisman of this most meretricious of political eras. Presidents, pundits and philosophers hold it in common that there is no political problem insusceptible to resolution by the ballot box. Their world is divided between those countries that are about to be showered with the blessings of democracy, those rejoicing at the advent of democracy, and the established democracies whose sole remaining task is to deepen and extend their commitment to the faith. A book published 20 years ago famously argued that, with the fall of the Berlin Wall, history itself had ended in liberal democracy plus capitalism, and all that remained was for the non-democratic countries to catch up. History has since reasserted itself with sanguinary vengeance, but it has yet to disturb the reverie that democracy is nothing but a force for good. In the Western political mind, democracy, liberty and prosperity are now so closely intertwined that they appear as merely different aspects of a single phenomenon.

This conceit survives even the most elementary evidence to the contrary. The countries that have reduced poverty fastest of late - namely, China and Vietnam - have achieved it through absorption into the global economy, and not through democracy. Afghanistan and Iraq, where the Western powers have sought to impose democracy by force, are now bywords for mayhem, corruption and death. Even in those many developing countries where elections are held more than once, they usually serve only to unleash ethnic and religious tensions, or to legitimize a kleptocracy. Democracy has proved a dangerous remedy in much of the developing world, where it is more often the cause of instability, poverty and violence than a solution to these problems. Yet the economic and political consequences of democracy in the Atlantic world are scarcely less poisonous. The infantilizing imperative of the electoral cycle has retarded the rate of growth of the economy and wrecked the public finances, while fostering wars for democracy abroad, and pogroms against immigrants and bankers at home.

It is increasingly plain that, far from entrenching liberty and prosperity, democracy has become the principal enemy of both. That there were contradictions between democracy and liberty and capitalism was apparent from the outset. The wealth created by capitalism may have helped to enlarge the franchise, and entrench rights of property in law, but democracy also became the chief means of expressing opposition to the inequalities created by the market economy. Indeed, the chief claim to popularity of the totalitarian variants of democracy - fascism and communism - rested on their promise to resolve these contradictions. Once the link between property and the vote was broken, and the universal franchise introduced, democratically elected governments were bound to become the principal arbiters of the distribution of the fruits of capitalism. The African political party which campaigned on the promise of "free things" for its supporters captured the essence of modern democracy exactly. Any government based on the universal franchise is condemned always to trade liberty for equality, and progress for security. This is why modern democracy is such a great engine for the expropriation of liberty and property, not just by taxation, but through compulsory purchase, mandatory insurance, regulation, licensing, tariffs and quotas.Such measures accumulate, through a succession of victorious democratic coalitions. Their beneficiaries, capital as much as labor, become great interests within the state. Their willingness to trade money and votes for contracts and favors is both cause and effect of rising public expenditure. In every major democracy, public spending now accounts for somewhere between 35-55% of the national income. The misallocation of resources, and rising transaction costs occasioned by the burden of taxation and regulatory compliance, saps the dynamism of market economies. Vote-purchasing subsidies retard the switch from old industries to new and more profitable ones. Remedies for perceived market imperfections create new interest groups, enabling industries and institutions to persist long after they are rendered superfluous by new technology. The penetration of the privately owned and controlled economy by the democratic state disrupts the spontaneous order of the marketplace, by which the countless economic decisions of innumerable, self-interested individuals and firms coordinate the production, distribution and consumption of multitudinous goods and services. The sclerotic economies that result steadily lose their power to adapt, and struggle to grow, leading to a lower standard of living and persistent poverty and unemployment. In every major democracy, rates of economic growth per capita are lower now than they were even in the 1970s.When growth stops all together, as it has in the current recession, democracy becomes nothing but a zero-sum game in which the winning coalition gains at the expense of the losing coalition. Democracy is effectively devouring itself, for it is only the wealth generated by growing market economies that maintains social peace between taxpayers and tax-eaters. When economies stop growing, the uneasy bargain between those who produce and those who consume breaks down. This can be seen most vividly in Greece today. But much of the rest of Europe is now governed by equally predatory public sector coalitions of government employees, trade unionists and socialist politicians, which prey on their private sector counterparts to the point where substantial tax rebellions are in train already. Even before the current crises, and the accompanying increases in taxation, estimates of the size of the underground economy in Europe ran from 13-16% in the United Kingdom and Germany to 27-30% in Greece and Italy.

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