Why the Indian government needs to redefine the idea of reform
Democracy and capitalism are founded on different conceptions of fundamental rights—their coexistence cannot create a just society
When the Soviet Union collapsed in 1991, political scientist Francis Fukuyama prematurely declared the ‘end of history’. He believed that capitalism and democracy—the Washington Consensus—had finally prevailed over socialism and totalitarianism.
History has returned. Ideological conflict between democracy and capitalism has not ended. In fact the two ideologies are conflicting within the Western victors of the old Cold War. Civil society movements are speaking in the West on behalf of people left behind by the ‘free market’ of private enterprise. Other voices on ‘the Left’ demand a larger role for governments in providing public services and social security. And others speak for protection of the natural environment. Meanwhile the Right advocates for lower taxes, less regulation, and more freedom for capital to roam the world.
The fundamental conflict between the core principles of capitalism and democracy—i.e. between the rights of owners of capital on one hand, and the rights of all humans on the other—continues. It is a conflict between political conservatives and political progressives. Between conservatives, who want to retain their power to fix the rules of the game from which they have benefitted, and progressives who want to change the rules for the benefit of those left behind.
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Democracy and capitalism are founded on different conceptions of fundamental rights. Capitalism’s foundation is property rights. Democracy’s is human rights. Capitalist institutions run on the principle that whosoever owns something has the right to use it as he wishes, and also that whosoever owns more of a shared resource must have a greater say in how that resource is used. Therefore, whoever owns more shares in a corporation has a larger vote than those who own fewer shares. On the other hand, ownership of property does not matter while assigning voting rights in democratic institutions. Because, in democracy, every living person, whether she has a billion dollars of wealth, or no dollars at all, has an equal vote in the governance of the collective human enterprise.
The clash between capitalism and democracy is a clash of fundamental principles for good governance of societies. When appliances designed to run on AC power are plugged into sockets providing DC power, there will be blow-outs. Similarly, when institutions of governance designed to run on fundamentally different principles are plugged into each other, something will blow up.
Fundamental contradictions between the principles of capitalism and democracy are causing violent conflicts amongst nations and within nations. To create an equitable, sustainable, and more harmonious world in the 21st century, institutions of democracy and capitalism must evolve, from the shape in which they have been locked in with the so-called ‘Washington Consensus’.
Humanity must find new solutions to many societal, economic, and environmental challenges in a hurry. They are listed in the 17 Sustainable Development Goals all governments have signed up for. Institutions are vehicles designed by humans to realize their collective aspirations. Institutions of capitalism, as well as institutions of democracy, must be reformed to solve the existential crises of increasing inequalities and rapid climate change that are threatening all humanity.
Reforming Capitalism
[Lawyer and Deputy Chairman of the Tata Engineering and Locomotive Company (Telco)] Nani Palkhivala supported private enterprise for economic growth. He was also a great defender of the democratic rights of citizens. When Indira Gandhi declared an Emergency and suspended political freedoms, he withdrew from a case in which he was representing her. This caused consternation in the Tata companies. J.R.D. Tata was naturally concerned about the effect Palkhivala’s uprightness would have on Tata’s businesses. But he supported Palkihivala nevertheless.
Designs of new forms of capitalist institutions, such as the limited liability company invented in the 17th century enabled capitalism to expand. With the evolution of institutions for governing international finance and international trade in the twentieth century, capitalist corporations have been able to spread across national borders. Capitalist institutions have enabled global and national GPDs to increase and have lifted millions of people out of economic poverty.
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Economists promoting free markets gained more power within Anglo-Saxon governments from the 1970s onwards. Milton Friedman, who became famous for his dictum that ‘the business of business must be only business’, and Frederik Hayek, known for his thesis that more governance was ‘the road to serfdom’, persuaded Margaret Thatcher in the UK and Ronald Reagan in the US to push back against governments in their countries and to privatize public services. Reagan even said that Government is not the solution; rather, Government is the problem.
This turn of ideology gave big capital greater power. Democratic governments, as mentioned before, must represent the interests of all people, rich and poor equally. Though the richest people within any society will always be numerically less than the numbers of poorer people (it is a mathematical distribution as the Italian economist Vilfred Pareto had pointed out in the nineteenth century). However, the rich few will acquire greater power in the governance of societies than the poorer many whenever the principle of property rights dominates.
The shift in the balance between democracy and capitalism towards capitalism in the last thirty years is made vivid by the creation of international tribunals who adjudicate in disputes between foreign investors in countries and the governments of those countries. Governments of countries represent the interests of millions, even billions, of people in their countries. On the other side in the dispute are a few investors of capital. Global institutions have come to pander too much to financial investors, making it easier for them to enter and exit countries at will, while stopping human migrants searching for better opportunities across national borders.
The rules of globalization have made life much easier for capitalists than for workers. The word ‘reform’ has taken on a one-sided connotation: reforms seem to imply removal of constraints on investors and businesses. This was starkly revealed in India, and other countries too, during the Covid pandemic. The poor lost incomes and homes while stock markets broke records making investors even richer. The Indian government’s move at that time, to ‘reform’ labour laws to attract more foreign investments, making it easier for employers to fire workers and curbing unions too, made clear that large investors had more political power than common people.
Excerpted with permission from Speaking Tiger Books.
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