Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Failing Union Of Capitalism And Democracy Fuels Rise In Inequality

Wolfgang Merkel 3rd June 2014

Wolfgang Merkel

Wolfgang Merkel

Recent weeks have been all about elections and broken promises: from early April to mid-May, half-a-billion Indians went to the polls in what many described an astonishing display of democratic prowess. Later, millions of European citizens elected their representatives to the often-criticised and never much-loved European Union parliament.

Meanwhile, Australian prime minister Tony Abbott decided to break many of his 2013 election promises in his first budget. Many have rightly seen in that document an open assault on the economic welfare of low-income households, and more than a courteous nod to the rich. If the budget is approved, the divide between rich and poor in Australia will most likely increase.

Once more, voters will be left wondering: what is the point of elections if they cannot even solve the problem of socioeconomic inequality?

It would be easy to answer: the problem is that Abbott’s party is liberal. But the truth is unfortunately more problematic: inequality has become in the recent past the Achilles’ heel of democracy. A left-leaning party in government would unlikely make any difference.

Uneasy marriage of democracy and capitalism

Democracy and capitalism are two highly contested models. On paper, throughout the past two centuries, they have proven the most successful systems of economic and political order. Following the demise of Soviet-style socialism and the transformation of China’s economy, capitalism has become predominant across the world.

Democracy has followed a similar path. Compared to capitalism, however, its success is much less complete. Today, about 120 countries can be called “electoral democracies”, but only around 60 can be classified as functioning democracies based on rule of law.

More importantly, if on the one hand the popularity of democracy seems on the rise, on the other established democratic systems have entered a phase of chronic decline. Scholars increasingly speak of “post-democracies” (Colin Crouch) or “façade democracy” (Wolfgang Streeck). Most critics seem to agree that capitalism is to be blamed for this late development.

Break-up of the peaceful co-existence

During the past 40 years the relationship between democracy and capitalism has radically changed. What Karl Polanyi called socially “embedded capitalism” became “neoliberalism”, “deregulation”, “globalisation” and “financialisation”.

The increasing “denationalisation” of the economy and of political decision-making has progressively weakened the power of democratically elected parliaments in favour of governments and deregulated globalised markets.

MPs play second fiddle to powerful financial CEOs and more often than not to only scarcely legitimated and monitored supranational bodies such as the World Trade Organisation, the International Monetary Fund and the European Central Bank. This power shift accelerated the increase of socioeconomic inequalities within OECD countries.

The absent voters

Alongside this trend, established democracies have witnessed a steady worrying decline of electoral participation. In the US, on average, less than 50% of voters turn out on election day. Only countries with obligatory voting – such as Australia – have proven to be more resilient against this trend.

The problem, however, is not so much low turnout, but the social selectivity that it implies. The lower the turnout is, the higher the social exclusion. Evidences show that the voters at the lower economic end of the social spectrum are the ones deserting the polls.

In the US, people with a disposable annual household income of more than US$100,000 are more likely to vote than those with an income of US$15,000 or less. The proportions who vote are 80% versus 30%.

At a closer look, the American system shows strong resemblance to an electoral apartheid, where the lower half of society is excluded from political participation. The long-term consequences cannot be underestimated. The US might well represent the shape of things to come for other democracies around the world.

The ineffectiveness of elections

In an ideal democratic system, the antidote to inequality should be voting. It could be argued that members of low-income households should reasonably vote for political parties that fight for economic redistribution. Data tell us a different story: low-income households, much more so than those of middle and upper classes, tend to abstain from going to the polls altogether.

The platforms of social-democratic and other left-wing catch-all parties still claim to represent the interests of low-income classes. This is, however, more a public relations device to keep alive the parties’ anachronistic image as defenders of “social justice” than a real get-out-the-vote effort aimed at those chronically absent voters. On the other hand, conservative, liberal and right-wing parties do not have an interest in active top-down redistribution, for both ideological and electoral reasons.

When in office, however, left-wing parties face a paradoxical dilemma: to effectively support redistributive policies such as minimum wages, maintenance of the welfare state and taxation of higher incomes would likely harm their historical constituency, low-income households. Such policies would result in threats by investors to move capital and investments abroad.

That, in turn, would cost jobs in the national market and result in less economic growth, less public revenue, less social investment and, eventually, fewer votes.

The problem lies in the relationship between capitalism and democracy: the survival of governments depends on the confidence of their voters. But to maintain such confidence they also depend on the performance of their real economies and, increasingly, on the confidence of financial markets. It is hence less risky for rational centre-left parties to mobilise the middle class than the voters at the lower end of the economic scale.

From paper stones to paper tigers

The rationale of economic voting is only a partial explanation why elections fail to stem the increase of social inequality. Socioeconomic conflicts are cross-cutting the lines of cultural conflicts. The latter can be religious or ethnic in nature, but it can also be seen through the prism of the left-libertarian versus right-authoritarian political divide (Herbert P. Kitschelt).

Particularly the lower and lower middle classes (mainly men) are more receptive to authoritarian and ethnocentric policies. Many examples of this trend can be found in the increasingly successful electoral campaigns of the right-wing populist parties of Scandinavia, Austria, France and Switzerland, and more recently in the United Kingdom.

In these countries, a sizable part of the low-income electorate opts for authoritarian, xenophobic and neoliberal parties. The recent exploits of the UK Independence Party in the European elections is the latest evidence of this growing trend.

For most of the 20th century, the right to vote was the “paper stones” of the lower classes (Adam Przeworski). They were used to tame and socially entrench capitalism by electing left-wing (mostly reformist social democratic) parties to establish worker’s rights, a redistributive tax system and expand the welfare state. This long period of social expansion witnessed a top-down redistribution in most of the industrially advanced countries, especially after 1945.

This trend was turned around in the 1970s. The paper stones lost their effectiveness and transformed into what the Chinese would call “paper tigers”. Democratic elections have turned into powerless challengers of social inequality. The opposite has become the norm: in democratic countries, the rich become richer, while the poor are hopelessly stuck in a never-changing state of chronic poverty.

The Abbott government seems to follow this line quite religiously. Its first budget is another nail in the coffin.

Left takes a cultural turn

Another major issue has been the cultural turn within the Left. Since the late 1970s protest movements began to focus more on cultural than on economic issues.

The importance of trade unions steadily declined. In countries like France or Spain, once home of powerful unions, less than 10% of the workforce is unionised.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

New political NGOs emerged, from environmental organisations to Amnesty International or Transparency International. Their importance notwithstanding, these organisations’ main goals are far removed from economic redistribution. The core of their members and supporters comes from the middle and upper classes.

The days of representative democracy are numbered if we are unable to devise an effective antidote to socioeconomic and political inequality. Political tools such as referenda, deliberative assemblies and monitoring institutions may help save the whales and other endangered species; they may also be useful in limiting corruption and human rights violations. They have little relevance for the re-regulation of markets, for restoring social welfare and stopping the rise of inequality.

The cultural turn of progressive democratic politics has undoubtedly had many merits, but unfortunately one major drawback: we have sacrificed the problem of economic redistribution on the altar of capitalist progress. Now we find ourselves with no reliable cure for democracy’s most obvious disease: social, economic, and political inequality.

This article was originally published on The Conversation. Read the original article.

Wolfgang Merkel

Wolfgang Merkel is Professor of Comparative Political Science and Democracy Research at the Humboldt University Berlin, Associate of the Sydney Democracy Network, University of Sydney and Director of Research Unit Democracy: Structures, Performance, Challenges at Social Science Research Centre Berlin (WZB).

You are here: Home / Politics / Failing Union Of Capitalism And Democracy Fuels Rise In Inequality

Most Popular Posts

Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse
income inequality,inequality,Gini,1 per cent,elephant chart,elephant Global income inequality: time to revise the elephantBranko Milanovic
Orbán,Hungary,Russia,Putin,sanctions,European Union,EU,European Parliament,commission,funds,funding Time to confront Europe’s rogue state—HungaryStephen Pogány

Most Recent Posts

reality check,EU foreign policy,Russia Russia’s invasion of Ukraine—a reality check for the EUHeidi Mauer, Richard Whitman and Nicholas Wright
permanent EU investment fund,Recovery and Resilience Facility,public investment,RRF Towards a permanent EU investment fundPhilipp Heimberger and Andreas Lichtenberger
sustainability,SDGs,Finland Embedding sustainability in a government programmeJohanna Juselius
social dialogue,social partners Social dialogue must be at the heart of Europe’s futureClaes-Mikael Ståhl
Jacinda Ardern,women,leadership,New Zealand What it means when Jacinda Ardern calls timePeter Davis

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

The EU recovery strategy: a blueprint for a more Social Europe or a house of cards?

This new ETUI paper explores the European Union recovery strategy, with a focus on its potentially transformative aspects vis-à-vis European integration and its implications for the social dimension of the EU’s socio-economic governance. In particular, it reflects on whether the agreed measures provide sufficient safeguards against the spectre of austerity and whether these constitute steps away from treating social and labour policies as mere ‘variables’ of economic growth.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

The winter issue of the Progressive Post magazine from FEPS is out!

The sequence of recent catastrophes has thrust new words into our vocabulary—'polycrisis', for example, even 'permacrisis'. These challenges have multiple origins, reinforce each other and cannot be tackled individually. But could they also be opportunities for the EU?

This issue offers compelling analyses on the European health union, multilateralism and international co-operation, the state of the union, political alternatives to the narrative imposed by the right and much more!


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube