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Democratic capitalism

From Wikipedia, the free encyclopedia

Democratic capitalism (market democracy) is a political and economic system that combines capitalism and a strong welfare state curbing the excesses of individual freedom. It integrates resource allocation by marginal productivity (synonymous with free-market capitalism), with policies of resource allocation by social entitlement.[1] The policies which characterise the system are enacted by democratic governments.[1]

Democratic capitalism was implemented widely in the 20th century, particularly in Europe and the Western world after the Second World War. The coexistence of capitalism and democracy, particularly in Europe, was supported by the creation of the modern welfare state in the post-war period which enabled a relatively stable political atmosphere and widespread support for social democracy as opposed to Soviet communism.[2]

The implementation of democratic capitalism typically involves the enactment of policies expanding the welfare state and strengthening collective bargaining rights of employees and/or competition laws. These policies are enacted in a capitalist economy characterised by the right to private ownership of productive property.


Democratic capitalism is a type of political and economic system,[3] characterised by resource allocation according to both marginal productivity and social need, as determined by decisions reached through democratic politics.[1] It is marked by democratic elections, freedom, and rule of law, characteristics typically associated with democracy.[4] It retains a free-market economic system with an emphasis on private enterprise.[4]

Professor of Entrepreneurship Elias G. Carayannis and Arisitidis Kaloudis, Economics Professor at the Norwegian University of Science and Technology (NTNU), describe democratic capitalism as an economic system which combines robust competitiveness with sustainable entrepreneurship, with the aim of innovation and providing opportunities for economic prosperity to all citizens.[5]

Dr Edward Younkins, professor at Wheeling Jesuit University, described democratic capitalism as a “dynamic complex of economic, political, moral-cultural, ideological, and institutional forces”, which serves to maximize social welfare given a free market economy.[6] Youkins states that the system of individual liberty inherent within democratic capitalism supports the creation of voluntary associations, such as labour unions.[6]

Philosopher and writer Michael Novak characterised democratic capitalism as a blend of a free-market economy, a limited democratic government, and moral-cultural system with an emphasis on personal freedom.[7] Novak comments that capitalism is a necessary, but not a sufficient condition of democracy.[7]


Early to mid-20th century

Democratic capitalism was first implemented after the Second World War in the Western world, particularly in North America and Western Europe.[1] The development of democratic capitalism was influenced by several historical factors, including the rapid economic growth following World War One, the Great Depression, and the political and economic ramifications of World War Two.[8] The growing critique of free-market capitalism and the rise of the notion of social justice in political debate contributed to the adoption of democratic capitalist policies.[8]

Following the severe economic impacts of the war, working classes in the Western world were more inclined to accept capitalist markets in conjunction with political democracy, which enabled a level of social security and improved living standards.[1] In the postwar decades, democratic capitalist policies saw reduced levels of socioeconomic inequality.[8] This was synonymous with the expansion of welfare states, more highly regulated financial and labour markets, and increased political power of labour unions.[8] According to Political scientist Wolfgang Merkel, democracy and capitalism coexisted with more complementarity at this time than at any other point in history.[8]

Late 20th century

From the late 20th century, the tenets of democratic capitalism expanded beyond North America and Western Europe.[9]

South Africa

The South African Competition Act of 1998 prioritised the eradication of anticompetitive business practices and the free participation in the economy of all citizens, while maintaining a pro-free-market economy.[4]

Early 21st century


India enacted the Competition Act, 2002 to promote and sustain competition and protect the welfare of market participants, goals synonymous with democratic capitalism.[4]


The post-war implementation of democratic capitalism saw the expansion of welfare states and free collective bargaining rights of employees, alongside market policies designed to ensure full employment.[1]

The right to private ownership of productive property is a central tenet of democratic capitalism, and is recognized as a basic liberty of all democratic citizens, as in a regular free-market capitalist economy.[10] According to political philosopher John Tomasi, democratic capitalism addresses social entitlement and justice concerns through the preservation of citizens’ private property rights, allowing citizens to be “free, equal, and self-governing”.[10]

The robust competitiveness and sustainable entrepreneurship which define democratic capitalism are characterised by top-down policies and bottom-up initiatives implemented by democratic governments.[5] These policies are designed to incentivise public and private sector innovation.[5] Such policies include strong research and development funding, and policies which protect intellectual property rights.[5]

Competition law

A characteristic of democratic capitalist political economies is the democratic enactment of laws and regulations to support competition. Such laws include United States antitrust laws.[4] These laws regulate private sector activities, including the actions of capital asset owners and managers, to prevent outcomes which are socially undesirable according to the democratic majority.[4]

The implementation of competition law is intended to prevent anti-competitive behaviour that is harmful to the welfare of consumers, while maintaining a free market economy.[4] The implementation of antitrust laws was found to be a characteristic of democratic capitalism specifically, and not regular free-market capitalism.[4]

Conflicts between notions of resource allocation

According to economic sociologist Wolfgang Streeck, the capitalist markets and democratic policies that characterise democratic capitalism are inherently conflicting.[1] Streeck suggests that under democratic capitalism, governments tend to neglect policies of resource allocation by marginal productivity in favour of those of resource allocation by social entitlement, or vice versa.[1] In particular, he comments that the accelerating inflation of the 1970s in the Western world can be attributed to the rising trade-union wage pressure in labour markets and the political priority of full employment, both of which are synonymous with democratic capitalism.[1]

See also


  1. ^ a b c d e f g h i "Wolfgang Streeck, The Crises of Democratic Capitalism, NLR 71, September–October 2011". New Left Review. Retrieved 2020-05-20.
  2. ^ Muller, Jerry Z. (March 2013). "Capitalism and Inequality". Foreign Affairs.
  3. ^ Wilde, Keith; Schulte, R. G. (2001). "Democratic capitalism vs. binary economics". Journal of Behavioral and Experimental Economics. 30 (2): 99–118.
  4. ^ a b c d e f g h Parakkal, Raju; Bartz-Marvez, Sherry (2013-12-01). "Capitalism, Democratic Capitalism, and the Pursuit of Antitrust Laws". The Antitrust Bulletin. 58 (4): 693–729. doi:10.1177/0003603X1305800409. ISSN 0003-603X.
  5. ^ a b c d Carayannis, Elias G.; Kaloudis, Aris (2010-03-01). "A Time for Action and a Time to Lead: Democratic Capitalism and a New "New Deal" for the US and the World in the Twenty-first Century". Journal of the Knowledge Economy. 1 (1): 4–17. doi:10.1007/s13132-009-0002-y. ISSN 1868-7873.
  6. ^ a b "The Conceptual Foundations of Democratic Capitalism". Retrieved 2020-05-20.
  7. ^ a b "Democratic Capitalism". National Review. 2013-09-24. Retrieved 2020-05-20.
  8. ^ a b c d e Merkel, Wolfgang (2014). "Is capitalism compatible with democracy?". Comparative Governance and Politics. 8 (2): 109–128 – via Semantic Scholar.
  9. ^ Parakkal, Raju (2016-06-01). "Ordoliberalism in European Competition Policy: The Logic of Democratic Capitalism in Talbot's Essay". The Antitrust Bulletin. 61 (2): 290–292. doi:10.1177/0003603X16644119. ISSN 0003-603X.
  10. ^ a b Tomasi, John (2014-10-02). "Democratic Capitalism: A Reply to Critics". Critical Review. 26 (3–4): 439–471. doi:10.1080/08913811.2014.988417. ISSN 0891-3811.


This page was last edited on 24 May 2020, at 19:26
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