Democracy’s Problem Is Not The Crisis But The Triumph Of Capitalism

NG/FH: In some sense the diagnosis of a »crisis of democracy« has been in the air for a long time. But in recent years the issue has become more urgent, to the point where people are asking whether even the core countries of the OECD still have »genuine« democracies. Those concerns culminate in the observation that, in principle, our countries may be incapable of reform when it comes to crucial matters of economic power, and that in the future they will be little more than pawns of economic power-wielders. What would be a valid criterion for judging democracy’s qualities and gauging the state of its crisis, and what is the proper response to the current situation?

Wolfgang Merkel: These diagnoses are not so easy. Very few of them are capable of clarifying the criterion they use when they refer to democracy. Is it normative, putatively »genuine« democracy? Is it a long-lost golden age of democracy? Both of those criteria would be mistaken. There is no »one« genuine democracy. Would it be direct or representative democracy? Would we like to have more consensus and inclusion, or are we willing to trust in the efficiency of simple majority voting? Do we prefer a centralized or a federal democracy? Do we want to go the Swiss route with its consensus rules, or do we prefer the »Westminster model« with its unalloyed majority rule?

The assumption that there once was a better age of democracy indicates historical amnesia. When was that supposed to have been? In the Sixties or early Seventies? Let’s ask women, ethnic minorities, and homosexuals in the USA, Germany, or anywhere else whether they see things in the same way. Democracies today face a host of problems, but on the whole they are by no means any worse than they were in whichever past you care to name.

NG/FH: So right now what are the most significant democracy-related problems that are facing our countries? Hasn’t deregulated, globalized capitalism in fact forced democracy back on the defensive across the board?

Merkel: I would agree without hesitation. Led and pressured by the United States, the democracies have removed most of the boundaries that used to restrain capitalism, and they have done so consciously and negligently. This is the case in both a spatial and substantive sense. By deregulating markets, especially the financial markets, democracy has emasculated itself. When it comes to crucial issues of monetary, budgetary, and tax policy, it is the powerful investors, banking crises, and supposedly practical constraints that are setting the tone, not democratic majorities. In point of fact, democracy has become more market-conforming. But if one wants to risk greater democracy, one has to turn the tables and finally make markets (again) conform more fully to democracy. Looking at the big picture, it is true that democracy has made progress in some areas such as minority rights, gender equality, and tolerance toward the »other«. But there have also been setbacks in the areas of democratic control over the economy and the creeping exclusion of the lower social strata.

NG/FH: In what ways have the European democracies changed over the past three decades in their approach to capitalism? And what are the true causes of these changes?

Merkel: In the wake of the stagflation of the Seventies during the previous century, the Keynesian paradigm of state responsibility for maintaining demand lost its magic. Monetarism, supply-side economics, and fiscal conservatism swept the field, first in scholarly circles and then in politics. Markets allegedly had to be liberated from the productivity-suppressing and distorting regulations of »politics.« Once that had been accomplished, creative destruction would open up new potential areas for innovation, while supply and demand would find a dynamic equilibrium on their own. That became the dominant opinion. Entrepreneurs and citizens were to be freed from the unreasonable demands of high taxation. Then the new economic dynamism would benefit even the lower classes through the so-called trickle-down effect, by virtue of which prosperity would eventually extend down to the lowest strata of society. Nearly all of the economies in the OECD world followed this script. Even social democratic governments got in the act.

NG/FH: Economies have become increasingly open to transnational institutions such as globalization and the EU. What roles did these different transnational levels play in defining this process? And what role did conscious political decision-making play, e.g., the orientation toward an ever-more-prominent neo-liberalism that characterizes our era?

Merkel: Economic denationalization has abetted this process alarmingly, especially in respect to democratic control over important economic parameters. When financial and commodity markets become global, the nation-state loses its ability to influence them. The politics of national budget-setting, a key element in the effort to create a fair society, also loses some of its importance. The EU of course is driven by its commitment to the Competition Law. For that reason it has not turned out to be a bulwark against the de-politicization of markets, but instead something like their Trojan Horse.

NG/FH: For some time we have been observing with growing concern a kind of downward spiral in our countries: declining democratic (voter) participation among the lower classes and those who are precariously employed, minimal inclusion of their interests in high-level politics, then further decline in participation rates among the »losers« in the political process. How, exactly, are these two factors correlated?

Merkel: The fact is that, over the last three decades, conventional political participation has continued to decline in the developed democracies. This holds true for both voter participation and membership in parties and labor unions. The peculiar dilemma for democracy in this context is to be found in the phenomenon of social selection. The bottom third of society has disengaged from politics. The middle and upper classes stick with conventional politics or perhaps they seek out new organizational forms. When they are young they join NGOs; when they are older they get involved in civil society or ecological causes, or maybe they fight the upgrading of railroad stations. We are heading for a »two-thirds democracy« in which the lower strata are underrepresented, while the middle and upper classes are overrepresented.

All this differs from the situation in the Fifties and Sixties insofar as there has been an erosion of the great collective organizations such as labor unions and mass parties that once served as crucial trustees and world-explainers for social strata without much education. In a situation like this, people must rely on their own knowledge in deciding whether and how to become politically involved. Thus, those who are remote from the world of education also end up estranged from the world of politics.

NG/FH: How can this downward spiral be stopped and reversed? Would new forms of participation help here – for example plebiscites, a reform of the mass parties, a larger role for the Internet? Or do we have to start from scratch?

Merkel: That is a huge problem. All of these nice old and new forms of direct political involvement such as referenda, deliberative forums, citizens’ councils, participatory budgeting, or digital democracy have one thing in common: In theory they promise to enhance democracy, while in practice they exacerbate the problem of the two-thirds democracy. Social selection becomes even more rigorous, and the lower classes remain shut out. This is true even – and especially – of the panacea paradoxically endorsed by the left: referenda. As the »referendum democracies« in Switzerland and California have repeatedly shown, the results of these plebiscites usually end up preserving the vested economic interests of the well-off and frequently discriminate against minorities. It is a relief to know that, even in Switzerland, only about 10% of all the laws are passed by »the people.«

The democratic innovations I mentioned certainly could be instituted as supplements to representative democracy if they were divested of their elitist or discriminatory effects. But careful thought would have to be given to demarcating their proper spheres of competence and subject matter for decision-making. Yet even if those things were done, organizational considerations dictate that such reforms would play a very modest role in generating necessary democratic decisions.

NG/FH: Well then, where do we start in the effort to reinvigorate democracy, assuming that we won’t just accept its dwindling significance as something decreed by fate?

Merkel: The institutions and organizations of representative democracy necessarily will continue to bear the main burden of our political community. That includes political parties as well, although they may never again regain the importance they had in their heyday, the twentieth century. They must become more open and differentiate themselves more sharply from one another. That is especially true of the mass parties. In our book, Demokratie und Krise: Zum schwierigen Verhältnis von Theorie und Empirie (Springer VS), we were able to show that few differences remain in the programs of the major parties of the OECD world, particularly when it comes to questions of finance and tax policies. The left parties, after having been preoccupied with cultural issues since the 1970s, finally should refocus on the question of distribution. Our citizens have become apathetic, but they could be re-politicized if substantive issues were put on the table again. That would be the case if political conflicts revealed clear differences among the antagonists, if the privileges of the rich and super-rich were questioned in public debates, if the United States were criticized for once by democratic governments, if the de-politicizing notion of »practical constraints« were banished from public discourse, and if we could talk again about the nationalization of banks.

NG/FH: The historic »social democratic compromise« among business associations, labor unions, and the democratic state, reached under the direct threat of an existential crisis in the global economy, once made possible a productive relationship between a capitalist economy and social democracy. But today it is a pale shadow of its former self. Could one imagine a re-establishment of this compromise in the present day – or, if need be, something different in place of it? Or can you think of other ways to revitalize democratic decision-making and imbed capitalism more firmly in its social and economic setting?

Merkel: Unfortunately, I am rather pessimistic about this. The »social democratic compromise« or »social-liberal corporatism« presupposes a rough balance of power among the three actors noted already. During the decades dominated by neo-liberalism, that balance of power shifted in a direction disadvantageous to the democratic state and the labor unions; hence, there is no longer a basis in power politics for the social democratic compromise. The task ahead, then, is to give more power back to the democratic state. That cannot be done unless we regain some of the territory that we have ceded to deregulated capital. Progressive forces have to admit to themselves that capitalism cannot be tamed by civil society, quotas for women among DAX [the German stock index, ed.] millionaires, and paid parental leave for men. The democratic state is not everything, but without a strong democratic state our societies cannot be structured fairly.

NG/FH: Do I detect a note of disdain for civil society here, even though many observers see it as their main hope?

Merkel: Not at all. But our enthusiasm for civil society has led us to forget what it can achieve and what its limits are. Meanwhile we have forgotten about the state or somehow concluded that it is out of date. But the unfair distributive mechanisms of capitalist societies can be corrected only by relying on the state’s regulatory instruments. Besides, civil society is mainly an affair of the middle class.

One more comment about quotas for women on DAX boards. I just can’t figure out why a female quota that enables 100 economically privileged women finally to earn incomes high enough to make them millionaires too should count as a progressive policy. Obviously the women on those boards, or at least their progressive defenders, are hoping for a trickle-down effect in genuine neoclassical fashion. One might question whether this is going to help women in the low-wage sector. On this score, the minimum wage policy would have greater relevance, even though it may be set at too low a level. The conclusion is that we need a less symbolic and more substantive politics.

NG/FH: Wolfgang Streeck has presented a diagnosis that has become rather influential recently. He argues that there is not much hope of restoring a better balance between capitalism and democracy, because the problems of both – capitalism in the financial markets and parliamentary democracy – originate in the same economic and social sources. Thus, he concludes, one cannot discern any promising starting-point for a campaign to restore the lost balance.

Merkel: I share many of the convictions in Wolfgang Streeck’s economic analysis. I also appreciate his leftist critique of the European Union, which has accelerated the deregulation of capitalism and is intrinsically more technocratic than democratic. We used to expatiate on late capitalism in the Seventies, but meanwhile capitalism has rejuvenated itself. Democracy’s problem is not the crisis but the triumph of capitalism. Still, democracy has not reached the end of its tether. Its most serious ills at the beginning of the twenty-first century are the emasculation of politics vis-à-vis markets (a self-inflicted wound) and the increasing exclusion of the lower strata from participation and substantial representation. Both deficiencies can and must be corrected; if they are not, a post-democratic, empty shell might be all that is left of democracy.

NG/FH: What strategy would you consider most promising as a way of making good on the claim that democracy should have primacy over the economy? And how might we effectively re-imbed or socially domesticate capitalism? Or, how would you describe a realistically attainable, morally defensible relationship between capitalism in the financial markets and parliamentary democracy, one that would work under today’s conditions in individual countries as well as the EU?

Merkel: First of all, let’s be clear about one thing: In the long run, deregulated markets destroy themselves and the social cohesion of our society. The spirit of the European Union cannot be defined primarily in terms of its Competition Law. Nation-states must refuse to cede competencies to the EU as long as the latter has not established democratic standards comparable to those of its member states. That is not anti-European; it is pro-democratic. Financial markets must be subject to stringent controls. It is pointless to wait in the hope that the United States or Great Britain might go along eventually. We have to see what can be done on a national level and, if need be, on the European level.

Last but not least, Germany must invest extensively in education, especially for young children from the lower classes. Such an investment would furnish particular legitimacy to additional taxation imposed on the rich and super-rich. Without a strong and just taxing authority, there is no way to create a fair society. Social democracy should be more courageous and tackle the distribution issue more energetically before the latter gets out of hand and becomes an insoluble class issue.

This interview was first published by the international edition of the Neue Gesellschaft/Frankfurter Hefte