Capitalism and Democracy

American Political Economy
0 Political economy = interaction between the economy
and government
0 Chapter 2
0 Impact corporations have on politics
0 Chapter 3
0 History of American Political Economy
0 Government’s role in sustaining capitalism
0 Sometimes tense, sometimes smooth relationship between
political end economic power
Capitalism and Democracy
0 America’s democratic political system and capitalist
economic system
0 Capitalism = system in which capital (the capacity to
produce goods and services) is privately owned and
0 Business decisions driven by profits (achieving greatest
return on investments)
0 Markets = decentralized and “self-regulating”
0 Never wholly free or self-regulating
0 Requires rules, regulation by outside source,
Dilemma of Markets
0 Markets highly innovative, efficient, dynamic, productive
0 Byproducts of competition among firms to reduce costs,
prices, capture market share, increase profits
0 Can often conflict with public interest
0 Externalities = costs firms can effectively avoid paying
0 Example: mining industry (environmental degradation,
pollution, etc.)
0 Unless government obligates companies to internalize
socially harmful costs, community forced to pay
0 Well-crafted regulation can promote public interests
Dilemma of Markets, II
0 What is good for individual companies may not be good for the
0 Pharmaceutical companies whose priorities are shaped by what
is most profitable
0 Mortgage companies extracting revenues from strapped
homeowners during housing crisis
0 Capitalism requires constant expansion of commodity
production and consumption
0 Collides with realities that world has finite resources and
ecosystems are fragile
0 Capitalism is unstable and can cause significant social dislocation
(recessions, depressions, unemployment, inflation, etc.)
0 Capitalism tends to produce booms and busts (cycles)
0 Capitalism is an inherently undemocratic form of production
Dilemmas of Markets, III
0 Capitalism all these things
0 Externalities (socializing cost; privatizing gain)
0 Inherent contradiction possible between private interests and
community (public) interests
0 Expansion/growth and ecological crisis
0 Instability (recession, depression, unemployment, inflation)
0 Boom and busts (cycles)
0 Undemocratic
0 Capitalism uniquely qualified to promote efficiency and
0 Politics of power = conflicts about how to reconcile
capitalist production and democratic politics
Making Sense of Capitalism
0 Key difference in political economies is extent of government regulation of
markets and provision of social programs
U.S. = markets are more free and less regulated than most other democratic
capitalist countries
Produces greater economic inequalities and imposes harsh social costs
Emergence of corporations with massive amounts of capital and
concentrations of power
Capitalism a form of private government
0 A system that resembles public government
0 Its policies have fundamental impact on people’s lives and their communities
0 Government’s welfare heavily dependent on corporate prosperity
0 Held-hostage by business
0 One of first priorities = to promote business-friendly conditions
0 Corporations not all-powerful
0 Engaged in competition with domestic and foreign producers
0 Must contend with other groups with differing interests
The System of Corporate
0 Suppose a small group controlled vast economic resources and
political power
0 Several thousand Americans – unrepresentative, not
democratically chosen – dominated the economy
0 Determined whether to invest, where to invest, what to invest in, how
production is organized
0 Enormous political influence
0 Campaign contributions, lobbyists, lawyers, media
0 Can a government (political system) and society be described as
democratic if it tolerated, promoted the existence of a small
group with immense wealth along with a far larger group with
meager income?
0 Corporate capitalism = system in which a small group controls
U.S. economy and possesses immense political power
Whether to Invest
0 Investment decisions by industrial corporations and financial institutions
(banks, equity firms, etc.) determine level of goods and services produced
driven by profit motive
0 Citizens tend to identify personal welfare with welfare of business
0 What’s good for GM…
0 Widespread support for capitalism fueled by pro-business propaganda (schools,
businesses, political parties, media)
0 Rational basis: entire society depends on business firms to generate jobs and
At same time, readiness among workers and other citizens to challenge
many features of capitalist control
Americans tend to support capitalist values, such as individualism and
minimum state interference, mostly in the abstract
While at same time supporting specific government programs (e.g., assisting
the poor)
Non-elite Americans have shared powerful belief in community, collective
action, and government’s responsibility to remedy market defects
Where to Invest
0 Decisions made on basis of which location will
minimize production costs and maximize sales and
0 States and local governments compete by offering tax
incentives, loans, anti-union laws, and weak
environmental regulations
0 Shift of capital beyond U.S. borders (offshoring,
outsourcing, and foreign direct investment) important
elements of globalization
What to Invest In
0 Investment decisions determine kinds of goods
available in society
0 Based on what will be the most profitable
0 Not what would be the most beneficial or useful for
0 A good example are pharmaceutical companies
devoting resources to devising medications for
relatively harmless ailments in affluent countries
rather than investing in devising medication to treat
and prevent tropical diseases among low-income
groups in the south
How Production is Organized
0 Workplace rules are undemocratic
0 Private managers decide:
0 Who will be hired, fired, and promoted
0 What tasks employees will perform
0 What kinds of technology will be utilized
0 Management seeks to fully control process of production because
profits depend on how efficiently labor can be managed
0 Ongoing tension between workers who attempt to maximize their
autonomy and managers who attempt to exert greater control
0 Workers have achieved gains through
0 Labor unions and collective bargaining agreements
0 As citizens pressuring government to enact legislation mandating
improved labor standards (e.g., minimum wage laws, overtime, safety
regulations, etc.)
What Do You Think?
0 The Tense Relationship of Capitalism and Democracy (p.
0 At heart of American political economy is tension between
undemocratic organization of capitalism and democratic
procedures that regulate the elected branches of government.
Think of two examples of how undemocratic capitalism and
democratic politics conflict.
When such conflicts occur, how are they resolved?
Could this tension be resolved so that the spheres are
organized along the same lines?
Would such a pattern be preferable to the present pattern?
Why or why not?

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