The Split Between Democracy and Capitalism-Focal Point: Latin America

This is the outline of a speech I gave for a current events seminar. It’s somewhat rough, but gets out the ideas. I’m sure this will provide plenty for discussion and argument.

Equal opportunity is the bedrock of freedom. This nation was established to preserve, protect, and ensure that opportunity. The United States (and the world) will need to make a very important decision over the next 30 years: whether to choose democracy or capitalism. One system protects equal opportunity while the other stifles it. These opposing approaches to political economy have been bed-partners for over 150 years, being bound more tightly during the 20th century as the world attempted to settled the question of totalitarianism (as the face of fascism and communism) vs. parlimentarianism (as the face of capitalism).

Latin America provides an interesting focal point to discuss this split. Over the next few minutes we will discuss 10 questions that lead us through the issues. In order to explain this decision, we must first define our terms.

1. What is the difference between capitalism and free enterprise?

  • Capitalism suffers from misuse and loose definition. Capitalism is commonly defined as “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.” (Merriam/Webster)
  • Unfortunately, in our current state of capitalism this free market doesn’t exist. What we experience is more closely associated with Marx’s definition of a “capitalist.” It was he who first used the term to describe the oppressive and face-grinding economic environment of aristocratic Europe that was buoyed up by legal protections.
  • In place of a free market exists a complicated web of laws and regulations that, as one prominent critique of U.S. foreign economic policy expresses, allow the corporate class to “use free-market rhetoric to justify imposing greater economic risk upon the lower classes, while being insulated from the rigours of the market by the political and economic and legal advantages that such wealth affords”. (Wikipedia/Chomsky) However, it must be recognized that capitalism is a much freer system, both economically and politically, than either communism or socialism.
  • Capitalism is the systems in which those with the capital make the rules. The rules are made to benefit themselves at the expense of new competition. This is accomplished through financially privileged and unequal access to political influence and power. The results is the following: a small business owner would have a difficult road competing against a large “box” store, not because of volume and pricing, but because of fewer obstacles (paperwork, fees, etc) the large “box store” would face because of laws and favors granted due to financial influence.
  • This environment results in exclusionary practices and limits to opportunity; and this is where our current state of capitalism breaks with democracy.
  • Free enterprise is the legal framework that allows all with the desire and the idea and the creativity to compete on a level playing field; free enterprise is therefore more democratic because it is based on equal opportunity before the law.
  • In contrast, capitalism is the legal framework that leads to aristocratic structures by providing advantage to those who have capital via protection and perpetuation of wealth.

2. What is democracy and why is it currently tightly associated with capitalism?

  • Democracy is another term with many loose definitions. Historically it denotes that the common people (demos) rule (kratia) in that the population of the society controls the government, and that the government is for, of and by the people. There are many brands of democracy but they are all distinguished from other forms of government by general population-based input into the political process.
  • Aristocracy, the rule by the best (generally determined by birth or status that almost always rule for life) and plutocracy, rule by the wealthy, are enemies of democracy.
  • Capitalism tends to create and then maintain these other social forms.
  • Historically, capitalism was bound to democracy by the American Revolution.
  • Much of the reasoning for war was a push-back against British mercantilistic policies imposed upon colonists accustomed to operating within an essentially free market.
  • With the advent of communism and socialism in the mid 19th century and their rise at the turn of that century, capitalism stood out as the “more free” of the economic systems and the alliance with democracy was forged.
  • This bond was fortified during WWI and WWII and the Cold War as the world battled between democracy and totalitarianism.

3. Why must capitalism and democracy split?

  • The increasingly manipulated legal system of capitalism, set up in order to preserve and protect privileged access to the market, causes the political process to concurrently become less and less democratic. This tends to aristocracy or oligarchy (rule by the few).
  • Thus, only those with legal and political influence are able to manipulate the system to their advantage. At some point (I think we’re getting close) the common man disengages from the political and civil conversation and the wealthy and powerful are the only ones involved in the functioning of government, making decisions based on protecting their wealth and power.
  • Even if the political structures don’t change form, the economic and legal systems create a de facto wealth-based aristocracy. The ability of the common people (demos) to influence the political situation diminishes into insignificance and thus capitalism changes the political structure.
  • The laws currently in place give capitalism a decided advantage in the choice between capitalism and democracy. Money purchases political influence and will continue to bring into play laws that perpetuate the capitalist system at the expense of free enterprise and democracy.
  • Remember that we are not talking about overnight change. This is a trend that has progressed for decades. Only now are we able to separate the two, and we need to decide soon until we reach a point of no return.
  • The United States is currently the self-proclaimed “bastion” of both capitalism and democracy. Internationally however, the U.S. government is associated (through sad experience) with rapacious capitalistic policies and hypocritical democratic interventions.

4. Why focus this discussion on Latin America?

  • Latin America has felt the brunt of U.S. capitalism/mercantilism and, as our trade partner, geographical neighbor, and democratic ally, has been treated condescendingly at best and imperialistically at worst.
  • U.S. protectionism, corporate and agriculture subsidies, and an “our way or the highway” attitude regarding regional economics have alienated Latin America and played a role in the stagnation of its local economies.
  • These economic policies have demonstrated a poor example of free market economics and democratic self-determinism. Because of this example Latin America is ripe for re-evaluating capitalism.
  • Democracy in Latin America is also at a decision point. A recent report from the United Nations Developmental Program found that between 45-55% of those surveyed (about 20,000 throughout Latin America) “stated their preference for authoritarian over democratic government.” These numbers have been disputed by Latin American political experts, but the sentiment is not questioned: there is a fair percentage who prefer autocratic control if it will provide security and a controlled economy.
  • However, the majority of individuals long for strong democracy and most elected officials respect the rule of law; even those leaders with socialistic tendencies recognize the importance of operating within appropriate framework set up by the voice of the people.
  • In some ways, democracy may be too powerful in Latin America. Mob rule surfaces intermittently (Bolivia has removed two presidents in the last 3 years via strikes and protests and Argentina went through five presidents in two weeks during its economic crisis in 2001-2002). This action of the people demonstrates two things 1) a strong belief in democracy and 2) poor constitutional forms that give the sentiment that only “mob”-ocracy gives them a voice.

5. Why hasn’t the free market worked in Latin America?

  • There are two main reasons: one is historical, the other political. One is in the books; the other we can change.
  • The historical reason is that when the Spanish and Portuguese colonies were settled, they were done so under powerful monarchical influence with the purpose of bringing back wealth to the nobility of the sponsoring countries. This set a precedent for powerful mercantilistic governmental intervention in markets. Even after battles for independence, the economic structure continued to protect the wealth of the powerful instead of encouraging liberty and free enterprise.
  • In contrast, the British colonies in North America were set up mainly via private ventures and progressed without central governmental intervention.
  • When in the 20th century market reforms were encouraged by the United States (many times with force or political threats), they were instituted from the top down and the existing legal structure produced very limited free market and very pronounced capitalism/mercantilism.
  • We now turn to the second main reason for failure of free markets in Latin America.
  • Larger, more powerful economies in the U.S. and Europe demand that Latin America play by free trade rules without being willing to do so themselves. The hypocrisy makes implementation of a free market in Latin America next to impossible.

6. What must happen to improve the free market situation?

  • In order for Latin America to change its perception of free markets and free enterprise, the United States must change its presentation of a liberal economy to the world by valuing freedom over wealth within its domestic legal policies and in its foreign economic and political policies.
  • If we expect other countries to implement free markets and interact with us in free enterprise, we must first eliminate the mercantilistic processes within our own system.
  • It is likely that a decided shift in U.S. policy away from mercantilistic capitalism and toward more open commerce and trade, demonstrating to Latin America a determination to engage fairly, would encourage opening of their own economies to growth and development.
  • Elimination of agriculture subsidies is critical, as is rollback of allowances that promote crony capitalism (like corporate subsides and bailouts).
  • Additionally, political lobby reform would promote a more equal playing field, prevent establishment of corporate government, and thereby encourage free enterprise and entrepreneurship in the U.S.
  • The entrepreneurial spirit within Latin America is high. There are small businesses in all sectors. If the U.S. is willing to institute the afore-mentioned reforms and Latin America sees the sincerity of intent, it is very possible these governments will follow suite and perhaps do it better.
  • As Latin America (and other regions of the world) see the U.S. getting serious about adopting true free enterprise through the institution of corporate and political reforms at home, they will be much more likely to institute similar policies instead of pointing out the hypocritical stance of our “do as I say, not as I do” market policies.

7. What is the state of democracy in Latin America?

  • Countries in Latin America have undergone revolutions, coups, and ousters in their political histories. There have been military dictatorships, western-style democracies, single-party dominations, and freely elected autocrats.
  • The military dictatorships of the 1970’s and early 80’s gave way to many freely elected governments in Latin America.
  • Economic policies of the late 80’s and early 90’s were often protectionist in response to U.S. and European protectionism causing economic stagnation. Privatization attempts of state utilities and businesses in many countries saw success in the countries with less corruption, but met failure in those with high levels of political cronyism.
  • Economies in general experienced a downturn in the late 90’s generally blamed on increasingly free market policies.
  • This has resulted in a populist backlash, economic crises in multiple countries, and frustration with free markets.
    1. Hugo Chavez (former military coup instigator) was elected in 1998 as president of Venezuela. He has close ties with Fidel Castro and anyone else the U.S. doesn’t like.
    2. Luis Ignacio “Lula” da Silva (a trade union leader with strong socialist leanings) was elected president of Brazil in 2002.
    3. After going through five presidents in two weeks in January 2002, Argentina settled on Nestor Kirchner, a left-of-center politician. He recently has aligned himself more tightly with Chavez
    4. Uruguay elected Tabare’ Vasquez president in late 2004, ending 20 years of conservative and centrist presidential victories.
    5. In 2005 Bolivians elected Evo Morales, a socialist and the first indigenous president of a South American county and former coca farmer. He claims Hugo Chavez as a friend and mentor. He recently nationalized the natural gas industry in Bolivia, much to the chagrin of Brazil and Uruguay and to the pleasure of Chavez. Whether this is an attempt to strengthen his bargaining position with foreign petroleum countries or a real intent to nationalize has yet to be seen.
    6. Also at the end of last year Chile elected Michelle Bachelet, its first woman president and a former radical leftist, jailed at one time by military dictator Augusto Pinochet.
    7. Only Mexico elected a right-center president in the last 5 years (Vicente Fox in 2001). However Andres Manuel Lopez Obrador, the leftist mayor of Mexico City, is the most likely successor to Fox in 2006 elections.
    8. Peru is anticipating a May run-off between two left-wing politicians for their presidency.
  • Although this trend is generally interpreted as worrisome from U.S. political and capitalism perspectives, there are some reassuring points.
  • These are freely elected officials, establishing democracy as the chosen form of government in most of Latin America.
  • The election of Evo Morales in Bolivia will go a long way in addressing one huge concern for democracy in the Andean countries (the problem of exclusion of the indigenous peoples).
  • Most of these left-of-center presidents have distanced themselves from the authoritarian rhetoric and hard-left economic policies of Chavez, instead embracing the cautious center-left reforms of Lula da Silva.

8. What must happen to improve the democratic situation?

  • The U.S. must respect the self-determination of the people of Latin America and support freely elected leaders (this hasn’t always been the case).
  • The U.S. must recognize that ultimately Latin America wants freedom and prosperity and if shown the proper forms will likely choose the methods it thinks gives the most people the best opportunities.
  • Unfortunately, the United States has influenced Latin American politics for its own political and economic ends and often via less-than-democratic means. There is profound distrust of U.S. government motives and methods throughout the region. Until foreign policy planners within the inner circle of national politics implement the principle of universality (“what applies to you applies to me”) the U.S. relation with Latin America will continue to worsen.
  • In order to influence national policy, we the people must value liberty and freedom above wealth protection and demand fair and free treatment of other nations.

9. Has Latin America already cast its vote: Democracy v. Capitalism?

I believe that Latin America has chosen democracy over capitalism. However, it hasn’t yet chosen free enterprise. Socialistic state controls are still prevalent and the populist movement bodes of possible future changes in that direction. Although Hugo Chavez speaks loudly and with inflammatory rhetoric in his anti-Americanism, his brand of totalitarianism seems to be isolated and if the U.S. will change its method of dealing with Latin America by treating the region on equal footing, Chavez’ influence will likely evaporate. The U.S. has been a poor example of both free enterprise and democracy for Latin America and only through profound changes in our approach can the U.S. influence the hearts and minds of the common people (demos) who truly hold the political power.

10. What will the U.S. choose: democracy or capitalism?

Our rampant commercialism, consumerism, and materialism indicate which way we are leaning. Our ethics and our legal system to which we sacrifice our morals demonstrate that we value capital and wealth (and especially protecting it) more than we value liberty. We demonstrate that we would rather have an aristocratic plutocracy govern us than to govern ourselves (if it means we can maintain our current level of luxury). Mercantilistic capitalism is winning in the U.S. and will continue to do so until appropriate corporate and tax reforms are undertaken and until financial influence of the political system is eliminated. Will we wait until our own government implements “Intolerable Acts” that protect its mercantilistic desires at the expense of the free market, or until our foreign economic and political policies become so unfair that our security is even more seriously compromised? Or will we pro-actively choose democracy, free enterprise, and liberty at home and abroad? We must call our current economic system what it is, mercantilistic capitalism, recognize how distant we are from liberty in our government and our economics, and move forward the overhaul that needs to occur.

2 Replies to “The Split Between Democracy and Capitalism-Focal Point: Latin America”

  1. Is capitalism really an enemy of democracy? Can’t there be a better implementation of capitalism? I guess that would then be called a pure free market, right?

    So what’s the alternative to capitalism (both semantically as well as implementation)?

  2. Capitalism (as Marx defined it and as it exists today) tends to aristocracy. See Dickens’ stories for classical examples of capitalism of that time. Money concentrates into the hands of fewer and fewer as the laws are enacted to favor that trend.

    The alternative to capitalism is free enterprise, an equal playing field, no advantage given to the wealthy. That is what corresponds to democracy. Laws which favor those with capital at the expense of opportunity for those who have the creativity and desire to make a go of it need to be eliminated. That is the implementation.

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