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The Clash of Capitalism and Democracy (Part 1 of 5)

It is easy to get caught up in the day-to-day events of East Asia, and lose sight of the bigger picture. Especially given the ongoing currency crisis, riots, elections, and other incidents of an attention-grabbing nature, we forget that the development of Asia, particularly the development of economic and political principles, is a process that takes decades. In this series, I would like to focus on the bigger picture, specifically addressing the past and future development of East Asia's market economies and democracies.

Capitalism and democracy seem to be goals of virtually the entire world right now, with a few notable exceptions such as Cuba, Iraq, and in East Asia, North Korea and Myanmar. It is understandable why nations strive for both capitalism and democracy. Capitalist notions have led to a higher standard of living for more people than any other economic system yet invented. Similarly, democracy has brought more freedom to enjoy that standard of living literally to billions of people.

Yet many in the West simply assume that capitalism and democracy go hand in hand; that they are mutually complimentary; that one leads to the other; and that one is impossible without the other. All of these assumptions are myths. In truth, capitalism and democracy can actually clash with each other in many areas. Mega-corporations push around smaller, developing democracies. Institutions such as the International Monetary Fund and the United Nations try to support capitalist and democratic ideals in nations that may not want the brand of ideology that the IMF and UN are selling. The desire to acquire cash, the underpinnings of a capitalist society, can lead to corruption, where governments and business break democratically decided laws to earn a profit. Finding the golden mean of capitalism and democracy is a challenge for the government of any nation, big or small, rich or poor.

This series will focus on the clash between capitalism and democracy, not with an aim to undermine either notion, but rather to explore the areas in which the two concepts clash in order to find concrete policy prescriptions that can better harmonize them. The ideas of this series should, theoretically, apply not only in East Asia, but in any given nation. However, as this is a column on East Asian Politics, I shall focus on the effects of these political theories in East Asian nations. (But as parts of the series will inevitably be purely theoretical, and not at all topical, I ask those numerous fans of my "East Asia, all East Asia, and nothing but Asia" writing to please bear with me.)

In this installment, I will present an overview of the series, and define what I mean by capitalism and democracy. Part 2 of the series will focus on the influence of large corporations which are sometimes more powerful than democracies in which they are investing. Part 3 will focus on the relation of global institutions to local governments, and look at how the economic and political ideals of institutions such as the IMF and the UN clash with local democracies. Part 4 will examine corruption and its deleterious effects on democracy, and Part 5 will analyze how nations can move from having only an effective democracy or economy to having both.

What exactly is democracy? How much say does the general public have in a democracy? Despite the fact that "democracy" is a buzzword, something politicians talk about to make people feel like they are contributing to their government, no nation has ever been a pure democracy, where all people contribute equally to government. This makes sense; a system where politicians and bureaucrats take a poll or hold a referendum every time they need to make a decision would be unwieldy at best. Representative democracies move slowly enough; a pure democracy would stand still. So, the world "settles" for the representative democracy model.

In a representative democracy, an elected official has two simultaneous roles to play. On one hand, he executes the will of the people, a "bottom-up" theory of representative democracy, with ideology originating at a grass roots level. To take an example from Japan, the passage of environmental protection legislation was spurred by public outcry after the corporate pollution of the 1970s, and public opinion prevailed over the previously profitable corporate interests.

On the other hand, an elected official uses his expertise to create policy that he believes to be necessary and appropriate; a "top-down" theory of representative democracy, with ideology originating from an elite government agency. An example, again from Japan, is the regulation of the Japanese oil industry during and after the oil shocks of 1973. This regulation was initiated by the Ministry of International Trade and Industry (MITI), and involved a combination of the Diet, big business, and the bureaucracy colluding to set prices before the shock hit the grass roots level with full force.

Professor John Campbell argues that modern democratic governance is based on the premise that democracy, a bottom-up theory of ideology, and bureaucracy, a top-down theory of ideology, can work together to form a representative democracy.** There are, naturally, differing models of representative democracy, and these models are usually distinguishable because of their differing approach to the balance of democracy and bureaucracy. On one end of the scale, Switzerland uses referenda to ask its populace about virtually everything. On the other end, South Korea and Taiwan, which only recently could be called democracies at all, still have a very strong bureaucracy, which makes most of the decisions about where the nation is going, and how it is to get there.

Capitalism is a similarly complicated concept, with a multiplicity of models. Many analysts refer to a distinctly Asian model of capitalism, defined in opposition to an "Anglo-American" model. The stereotype is that the Anglo-American model tends to be more open, more economically free, and more individualistic. The Asian model, on the other hand, is based on closed meetings, hidden corporate groupings, secret back-room cabals of business leaders, and a work force unit in the "salaryman," the gray man in a gray suit who subsumes his individual identity for the good of the collective. These models, as you have probably guessed, are at best overly simplistic.

However, there may be a kernel of truth to the idea that there are different models of capitalism. In the United States, a bank president and a government banking regulator go out of their way not to be seen together, for fear that people will think they are colluding in some way. Anti-monopoly law specifically forbids business rivals from discussing prices, because they might be in collusion to set prices. On the other hand, in Japan, a recent spate of scandals involving bank officials bribing regulators by taking them out to frequent dinners is indicative of a different mindset. Furthermore, these scandals were not just isolated examples of corruption. One Mongolian I recently interviewed said that in Mongolia, a nation attempting to build a market economy, government regulators and business officials think nothing of "hanging out" and discussing business.

Some think that this different mindset is a wholly different model of capitalism. Other more cynical folk simply believe that perhaps nations who think nothing of price fixing, collusion, and regulated monopolies simply have not yet learned the intricacies of the market economy. For nations making a transition to market economy, this may be partially true. Remember that East Asia's oldest capitalist-industrialist nation is Japan, which had "zaibatsu" (the corporate groupings of which three have survived to become today's keiretsu) in the late 1800s. Other than that, most of East Asia started from scratch after the destruction of the war. South Korea, Taiwan, Hong Kong, and Singapore have only been capitalists for a few decades, so they may still be learning. Then again, a few decades may be long enough to have developed their own style, which is not about to morph into an Anglo-American economic model any time soon.

In East Asia, we have a muddle of different models of democracy, different models of capitalism, and different combinations of the two. The influences of big business, international organizations, and corruption will naturally have different impacts on different models. A nation with a weak business sector but strong popular democracy, such as the Philippines, is less likely to be pushed around by its domestic companies. A nation with strong domestic companies, such as Japan, is less likely to be pushed around by foreign companies. A nation with high penalties for getting caught at corruption, such as Singapore, is less likely to have it. And a nation with a weak democracy but strong market economy, such as Indonesia, is more likely to have high-level corruption.

The next part of this series will discuss the influence of big business on a market economy and democracy, and look at how different capitalist-democracy models in East Asia are affected by the influences of non-democratic corporations.

** John C. Campbell, "Democracy and Bureaucracy in Japan." In Ishida, Takeshi and Ellis S. Krauss, eds. Democracy in Japan. Pittsburgh: University of Pittsburgh Press, 1989, p. 113.