Capitalism V Democracy — Yanis Varoufakis

Yesterday, I saw the TED talk by Yanis Varoufakis (linked below) titled Capitalism will eat democracy: unless we speak up. It is quite a watch so I embed it here.

His suggestion is that we have to choose between a Matrix like dystopia v/s a Star Trek like utopia. The primary observation is that unbridled capitalism will ensure that the democracy works for the super rich but not for the poor. I agree with him as an assessment of the present state of affairs. But that does not cover the issue fully.

Capitalism can eat democracy but what about the reverse?

While it is true that democracy cannot eat up capitalism, politicians can. We have it happening right now — in India, China, Russia etc. These politicians become businessmen and plunder the country. This is no true politics but predatory politics can impair the la and order machinery to quickly discend into anarchy.

Crony capitalism v servile democracy v servile capitalism

Crony capitalism is a misnomer. A crony means friend — sort of an equal. But this is not a relationship between equals.

The government officers and politicians are eager to serve the capitalist. When chairman or office bearers of NRA speak they listen — not both sides listen but enough people on both sides listen. If Zuckerberg or Paige or Dimon or Buffet were to say something both parties will listen. I read somewhere that 80% of 2013 US presidential election funding was made by 150 odd individuals. Please tell me their views carry the same weight as mine. This is servile democracy. Yanis Varoufakis talked about Larry Summers (in other talk in Austin) telling him that if he becomes an insider then he will be given magical things. That is servile democracy not crony capitalism. This is a rich man trying to train a dog with dog biscuits.

There is other side to this too. In India businessmen are servile and politicians are the lord-masters. Things have changed — but not too much. It is easy to scuttle a truly new challenger to established business houses. If you take the paper spending on infrastructure — India can have better infrastructure than the very best countries in Europe — may be twice over. This is servile capitalism. There are whole networks that have come up around these politicians to create extortionist “business models”.

Where will the fight between capitalism and democracy lead us is anybody’s guess! But one thing is clear.

Capitalism and Democracy as competing systems

Capitalism and democracy are said to be collaborating or complementing systems. But we should start thinking of capitalism (more specifically markets) and democracy (specifically government) as both competing and complementing systems together. They both allow the masses to exercise their opinions. Markets allows the individual to exercise it through buying i.e. through markets, democracy allows him to exercise it by voting in a government.

Now buying is something we do almost every day. Thus, we this part of the system is more evolved, sensitive. This system is also keenly improving itself to make sure the customer preferences are communicated to the top — it is thus more efficient than the political system. But let us remember they can be inefficient too.

The political system works like a broken market system. Here the opinion or choice of majority is forced on everyone. Imagine if markets worked like democracy — everyone may be forced to wear XXL size blue man shirt (coz majority favours it).

By now you must think that they operate in different spheres and so it is not a problem. But it is! Notice that the burden on government to make itself more palatable to all of its citizens not just the majority is quite high. It is higher than the burden on market to service all types of demand. That is because there is an alternative when market fails to understand the opinion of minority — some niche player can fill it. In case of government — there is no niche player alternative. Therefore, Government must be held accountable more than the capitalist. And it must uphold the rule of lawso as to ensure capitalism is working smoothly.

Just think — marxism is actually a response to servile politics impairing the demands of working class (the proletariat) by the capitalist (bourgeoisie) who were friends of politicians/rulers. Then the Soviet collapse was actually a response to the politicians exploiting the political system to their economic advantage. In some way reverse of the first wave.

So the point is…

First we must acknowledge the cat and mouse game that will be played between capitalism and democracy will always exist. We cannot eliminate it. We need to manage it. So we need a mechanism to ensure the bargaining power between capitalism and democracy is maintained. Without such a mechanism we may end up in some trap or the other.

The ideas expressed in this post first appeared in my book Subverting Capitalism and Democracy. Buy my books “Subverting Capitalism & Democracy” and “Understanding Firms”.

Originally published at .