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Paul McCulley strikes an unlikely figure as he strides back and forth across the stage at the Set Theatre in the Irish midland town of Kilkenny.
It is the third day of Kilkenomics 2012, an innovative “economics festival” that brings together economists, financial market gurus and comedians, and McCulley is telling the enthralled audience about the “holy marriage of inconvenience between capitalism and democracy”.
They need each other, says McCulley, who can make a strong claim to knowing much about the needs of capitalism given that until recently this professor of economics and law was the managing director of US-based Pimco, which manages funds of about $1.8 trillion (R15.7 trillion). And coming from the US, he also has a claim to knowing something about democracy.
The tie that binds capitalism and democracy is the “rule of law”, explains McCulley. Capitalism, which is heavily reliant on enforceable contracts, needs the rule of law but on its own is not able to establish a rule of law that would be acceptable to all. “It [capitalism] could give you the best system money can buy,” says McCulley, but it would not have the sort of broad acceptance needed to guarantee enforcement. “For all their criticism of governments, capitalists know that they need democracy if they are to survive.”
Democracy needs capitalists because they are efficient at producing stuff. Unlike democracy, which is stymied by its obsession with being all-inclusive, capitalism gets things done.
And so the two have learnt to co-exist.
The USSR had neither democracy nor capitalism and so may have been doomed to failure from the start. And we seem constantly fascinated by the ability of China to continue growing its extremely capitalist system without the acceptance and rule of law provided by democracy.
The claim that it is “democracy with Chinese characteristics” will begin to look increasingly flawed if the goods being produced by China’s capitalism are not more effectively distributed.
It is not only in China that there are signs of tension between the demands associated with democracy – with or without Chinese characteristics – and the demands of capitalism. In every corner of the world there seems to be growing discontent and a sense that the relationship has become abusive.
In the US there is growing anger about the increasing gap between the 1 percent and the 99 percent. Across Europe, democracy has been threatened not just because of the destruction that has been wrecked by the capitalists but because there is a sense that the capitalists have escaped the consequences of that destruction.
“Capitalism has died and the mother-in-law [the creditors] has moved in with democracy,” suggested someone in the Kilkenomics audience.
In South Africa, the relationship was skewed from day one back in 1994. Capitalism had an enormous head start and like the weaker partner in an abusive relationship, democracy in the form of the ANC government failed to make the demands it could have got away with. After that initial failure, the ANC relinquished much of its authority to make demands on behalf of democracy. The results can be seen in the desperate rioting that is springing up across the country.
Across the globe, capitalism has become too dominant and democracy too weak for the relationship to continue. It is perhaps time to consider recalibrating the marriage before it ends in a messy and potentially lethal divorce. - Ann Crotty.