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Challenges to Exporting Democracy and "Free Market"
Capitalism:
When Reality Meets the Best of Intentions.
by
Guntram Werther Ph.D.
Presented to the Superstition Mountain
Republican Club, Gold Canyon, Arizona on 14 February 2004.
Preamble: It is my hope that you will discuss among yourselves the
several implications of what I present today. My hope is that this and other
presentations will lead to the creation of a Pinal County Public Affairs
Forum, wherein the important issues facing our country are regularly presented
on a factual basis and in a non-partisan fashion. Each presentation ought to
expose itself to the crucible of public inquiry and open debate which is the
necessary and proper foundation of democracy and decent living.
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We can agree, I hope, that "democracy" and "capitalism" are
desirable things, with many people wishing for the "free market"
variety of capitalism and democracy to take hold internationally. I will present
several broad
reasons why this is quite a challenge; and not of the kind normally supposed.
THE DEMOCRATIC NECESSITY:
Democracy has been called the worst of political systems, except for all the
others. Being rarely smooth and efficient in its functioning, democracy is
difficult to establish and even harder to maintain. It is often argued
that democracy is on the rise worldwide, and so it is, but it is also the case
that many countries are merely democratic in form rather than function.
It is likewise argued that Germany and Japan are examples of democratic
transformation, and so they are. It is however wise to remember that in Japan
one party, the Liberal Democratic Party, controlled the government for almost
all the post-war period and that it maintained close ties and control over the
economy; hardly a "free market" system there.
As for the German area, democratic institutions existed there for centuries
before its modern conversion, both in Hansa cities and within the Holy Roman
Empire of the German People, where the emperor was called the 'Great Elector';
being so designated by the nobility. The Weimar Republic was democratic, and
eventually produced Adolf Hitler, of whom it is wise to remember that he
received a plurality of the German vote. In fact, neither case offers much
support for the thesis of constructed and exported democracy or "free
market" economic systems. Germany is not now nor ever was a "free
market" system. I want to discuss why this is so here, there, and
everywhere.
Democracy has been defined in many ways. Here today I ask you to focus on the
FAITH and TRUST we bring to the forefront in every democratic exercise our
society undertakes. Democracy is the regular change of government through free
and fair elections, and involves the willingness of the losers to grant the
winners (their opponents and sometimes bitter enemies) de facto control of the
institutions of power over their lives. Democracy is a mature act of societal
faith and trust in each other. It demands that we be fair, and "color
within the lines." In practice, democracy means voluntarily giving control
of the military, intelligence services, police and courts, taxing authority, all
regulatory agencies, and more TO EVEN OUR DOMESTIC
ENEMIES; and they, in their turn, agreeing to return such control to us at a
later date.
Most societies cannot muster such faith and trust in each other. This is their
greatest obstacle, in my opinion, to becoming democratic, AND OUR GREATEST
OBSTACLE TO MAKING THEM SO. Democracy is not merely about institutions and
procedures. It is a conversion of the heart, a condition of the soul, and a
daily act of trust and faith in each other. Anything that shatters these,
shatters democracy regardless of the remaining forms.
THE 'FREE MARKET' CAPITALIST DREAM
Much of what I have said about democracy seems to me to also be true of modern
capitalism; particularly of the "free market" kind.
What is "capitalism" but "trust" and "faith"? We
say so on the currency "In God we Trust"; Indeed, and we also daily
show great trust in each other in our economic affairs, for what three year old
would surrender a toy for a dollar except on the trust that the dollar had
value, and also that another person would recognize and faithfully honor that
value?
Modern capitalism is not command, but the "invisible hand" of the
market. It is largely "free choice" limited by necessary law and
policy. Capitalism is not coercion, but contract; Not force, but law. This rule
of law and
contract is entirely necessary to capitalism, as F.A. Hayek and many others have
argued. The less the bureaucracy and its attending policy, the more necessary
likely is rule of law; plus, as I will argue, something more is needed.
"Free market" capitalism - Laissez Faire - is PARTICULARLY faith and
trust manifest in each other in our daily affairs, because it seeks to reduce to
the minimum the sphere of government action and control over our lives.
Capitalism of the "free market" variety therefore also, just as was
the case with democracy, demands considerable self-control; that we VOLUNTARILY
"color within the lines." This societal agreement on self-control
applies not only as to matters of law, but especially to matters of decency and
fairness in daily behavior. Because - as I believe - without government
coercion, what can possibly hold a society together but shared, agreed upon, and
acted upon faith in each other's basic fairness, decency, and mutual trust.
Adam Smith called this "SYMPATHY", AND HELD THAT THIS AND NOT
SELFISHNESS (IN THE NARROW SENSE) IS THE BASIS OF "FREE MARKET"
CAPITALISM. This shared sense of civic friendship as the necessary requirement
is presented by Adam Smith in his "Theory of Moral Sentiments" as the
bookend companion of his famous "Wealth of Nations."
Virtually every economics student and many citizens are familiar with the
arguments presented in "Wealth of Nations." Very few consider its
required adjunct "Theory of Moral Sentiments." The implications in
policy are stark, as I will shortly argue.
There is one additional major consideration to exporting "free market"
capitalism. IT IS TO KNOW THAT NOWHERE DOES "FREE MARKET" CAPITALISM
EXIST; certainly not in the USA. You would need to ignore a lot of reality to
conclude that the USA is a "free market" society. Let me suggest a
reason.
I believe we are not yet worthy of it; and so we necessarily build institutions
of control and coercion over our lives and affairs. Be honest - in the
contemporary USA about 40% of every dollar works its way through government
along the way with strings attached. When Mr. Greenspan speaks,
"markets" move. Why? Because government matters so much.
BECAUSE WE ARE NOT YET WORTHY, WE LIMIT FREEDOM. This is my point. Freedom, says
Nietzsche, is the prerogative of the brave. We want "security" (social
and otherwise) largely because we do not have sufficient faith and trust in
either ourselves or in our society in terms of civic friendship. WE LACK ADAM
SMITH'S "SYMPATHY". As Adam Smith also said, "Man is an anxious
animal."
Let me expand the case by saying that NOWHERE, NOT NOW AND NOT IN MODERN
HISTORY, HAS THERE BEEN A DEVELOPED "FREE-MARKET" SOCIETY. I do not
count the collapsed anarchy of some decayed societies in stress. All modern
states - a few disasters like North Korea excepted - are mixed
political-economic systems; some being more "free" than others. Today,
neither pure socialism nor pure capitalism exist. The USA is today an example of
this.
True, the USA toyed with "free markets" and the "sanctity of
property" from government intrusions at the founding, but the moment soon
passed. President Jefferson initiated the "tariff", the
Hamilton-Madison debate saw creation of the National Bank, and Chief Justice
Marshall claimed Federal control of interstate commerce. We have been mostly
growing government ever since; including - be honest - this administration.
CONSEQUENTLY, OUR FIRST PROBLEM IN TERMS OF OUR TOPIC TODAY IS THAT WE CANNOT
EXPORT WHAT WE DO NOT HAVE; "Free market" capitalism. WHAT WE ARE
REALLY TRYING TO EXPORT IS A REASONABLY CAPITALIST SYSTEM WITH ABOUT OUR LEVEL
AND STYLE OF BUREAUCRACY AND CONTROL ATTACHED. IN MY VIEW, THIS ATTEMPT WILL
LIKELY LEAD TO PROBLEMS.
Replacing a system with "free market capitalism" is one thing.
Replacing it with something compatible to OUR DECIDEDLY MIXED POLITICAL-ECONOMIC
SYSTEM IS A WHOLE OTHER PROJECT. Replacing one political-economic culture with
another is a real chore.
THE NATURE OF SOME CHALLENGES:
I feel that the goal of exporting democracy and "free market"
capitalism is worthy, honorable, and fine, but fear that reality - that
"is-ness" in life which we prefer to ignore - will not be the USA's
friend in either
endeavor. My heart is with you; my mind is not.
The real questions are 'Can democracy and 'free market' capitalism be
exported?', and if so, 'How can they be exported?' Some challenges to such an
endeavor are discussed below.
SOME ISSUES, CASES, AND THEIR LESSONS:
1) OF CAPITALISM AND INDIVIDUAL MORALITY: "He...neither intends to promote
the publick (sic) interest, nor knows how much he is promoting it...he intends
only his gain, and he is in this, as in many other cases, led by an invisible
hand to promote an end which was no part of his intention." (from Adam
Smith, "Wealth of Nations")
But, In Adam Smith's day, economics was a branch of philosophy. Therefore Smith
was MORE concerned with the MORAL question asked in his "Theory of Moral
Sentiments" than he was with this famous quotation from his later
"Wealth of Nations." Adam Smith was more proud of the former book, and
said that he wrote the latter to "pass the time"; the man was bored,
so he gave us about the best tract on economics in history.
In "Theory of Moral Sentiments", Smith's says that an "impartial
spectator" produces decisions based on "sympathy" because
essentially there, but for the grace of God, go you and I. Smith's larger
worldview intimately included man's search for moral approval and disapproval in
his actions. Sympathetic self-interest involves taking the larger view.
"Free market" decision making is not license to do whatever to
whomever. It requires a strong moral self-control. Else wise society blows up as
trust fades, civic friendship dies, and expectation of fair dealing evaporates.
Consider a merchant. Self-interest is, at one level, selling at the highest
price. But if you feel cheated, you never return and tell others of your ill
treatment. Self-interest in the enlightened view considers one's
broader advantage. What goes around, comes around. A wise merchant deals fairly.
This is the origin of my observation today that we are not yet worthy - morally
speaking - of "free market" capitalism. You cannot fairly read half an
argument, any more than you can erect a building on half its foundation. Modern
capitalism requires Adam Smith's sympathy, which is societal civic friendship,
faith, trust, law - ALL ARE MORAL POSITIONS. We have work to do here at home. As
I have said, one cannot export what one does not have.
Consider from this perspective the former Yugoslavia, Iraq, Afghanistan,
Colombia, and much of the less developed world and you see the true nature of
our task; both HERE and there.
2) CONSIDERATIONS REGARDING STATES, NOT MAN: "Justice being taken away,
then, what are kingdoms but great robberies? For are robberies themselves, but
little kingdoms. The band itself is made up of men; ruled by the authority of a
prince, it is knit together by the pact of confederacy; the booty divided by the
law agreed upon. If, by the admittance of abandoned men, this evil increases to
such a degree that it holds places, fixes
abodes, takes possession of cities, and subdues peoples, it assumes the more
plainly the name of kingdom, because the reality is now manifestly conferred on
it, not by the removal of covetousness, but by the addition of impunity."
(The opening paragraph of "De Civitate Dei" (The City of God) by St.
Augustine).
We see from St. Augustine that the internal requirement of a civil society
within a state ("civitas") is justice through the removal of impunity.
Indeed, St. Augustine builds his "city" on the assumption that
"the life of
man must be social" where the state "desires earthly peace for the
purpose of enjoying earthly goods." Translation; No internal societal
virtue, no earthly peace, and no enjoyment of earthly goods.
Consider now the task of exporting democracy and "free markets" into
places like Haiti, Pakistan, Paraguay, Mexico, to name but a few. We are not
good at removing impunity.
3) OF THE CROOKED TIMBER OF MANKIND, NO STRAIGHT THING WAS EVER MADE. ["Aus
so Krummen Holze, als woraus der Mensch gemacht ist, Kann nichts ganz Gerades
gezimmert werden."] Immanuel Kant, 1784. Often quoted by Sir Isaiah Berlin.
It means, that human affairs never go smoothly.
Change, and especially directed change, never goes smoothly. Exporting democracy
and "free markets" must necessarily involve removing existing elites,
societal arrangements, traditions, values, norms, and goals. I have elsewhere
discussed this, and why that is very difficult.
There is a broader consideration. Exporting any of the above in a manner
"friendly" to the USA is a whole other project. If people in the less
developed world could vote, they would mostly NOT be our friends. (See my
lecture on rising anti-Americanism). This consideration alone, unless one has a
plan for altering such a reality, screams caution.
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