Capitalism, Democracy, and Ralph's Pretty Good Grocery.
John Mueller

Ended: May 27, 2018

On the other hand, democracy didn't come out looking the way many theorists and idealists imagined it could or should. It has been characterized by a great deal of unsightly and factionalized squabbling by self-interested, shortsighted people and groups, and its policy outcomes have often been the result of a notably unequal contest over who could most adroitly pressure and manipulate the system. Even more distressingly, the citizenry seems disinclined to display anything remotely resembling the deliberative qualities many theorists have been inclined to see as a central requirement for the system to work properly. Indeed, far from becoming the attentive, if unpolished, policy wonks hoped for in many of the theories and images, real people in real democracies often display an almost monumental lack of political interest and knowledge.
The other recourse is to stress dilemma. For example, one analysis first notes that, "in theory, a democracy requires knowledgeable citizens," and then goes on to observe that "for the last two hundred years the United States has survived as a stable democracy, despitecontinued evidence of an uninformed public." It labels this "the paradox of modern democracy."2
Perfect democracy, in my view, is an oxymoron, and the undisciplined, chaotic, and essentially unequal interplay of "special interests" is democracy's whole point.
The chapter also suggests that the overselling of equality can be profoundly harmful for democracy when that notion is extrapolated to the economic realm, because the only way economic equality can be fully achieved in a democracy is by destroying democracy itself.
It is impossible, or nearly so, to create a perfect written contract, and it would be wildly inefficient to require even an imperfect one for every transaction. It would be even more inefficient to have contracts regularly adjudicated in court. Therefore, in its general day-by-day dealings, business requires, and inspires, integrity, honesty trustworthiness, and reliability in order to achieve its vaunted efficiency and growth. As the Better Business Bureau puts it, "Honesty is the best policy. It's also the most profitable." That is, although it is certainly possible to make a quick profit by cheatingand lying, the best prospects for secure, long-term wealth derive from honest business practices.
Hence, it is to one's long-term economic advantage that the other party walk away from the deal feeling that the agreement has been fair even though this might mean cutting a deal that is somewhat less favorable or immediately profitable. Nothing riles people more than the feeling that they have been "taken." It was for this reason that, for example, John D. Rockefeller would not fight for the last dollar in forming mergers and always tried to conclude deals cordially; as he put it, he was not "so short-sighted as to antagonize" the very people he would later seek to have a close and profitable relation with. As Stigler observes, the main asset of the great merchandizing companies has been "their reputation for fair and careful dealing." Or as Barnum puts it succinctly, "Men who drive sharp bargains with their customers, acting as if they never expected to see them again, will not be mistaken. "1
McCormack cites the qualities of an executive who, he suggests, "has all the earmarks of a champion CEO," and as evidence cites the testimony of a fellow worker: "No matter who you are, when you're in the room with her, she acts as if you're the only person who matters. She makes you feel like her equal. She defers to you, cares about your opinions, gives you time to present your views. If there are other people present, even if you are a secretary or minor flunkie, she treats you like the chairman of the board." And capitalists who are pleasant to work with tend to find other deal-makers willing to cut special, favorable agreements. As McCormack admonishes, `Be nice to people.... All things being equal, courtesy can be most persuasive.
Rudeness was routine-notorious-in communist enterprises, and, more generally, it is commonly found in agencies (such as passport or driver's license offices) where two conditions prevail: supply is outstripped by demand, and the seller is unable to raise the price. Under these conditions customers become supplicants, and there is no economic disincentive to incivility, surliness, and arrogance. One Soviet citizen tells of being kept waiting by abutcher who was chatting with a friend. When she asked for meat, he turned grumpily to her and said, "Next, I suppose you'll want me to cram it in your mouth for you." Another points out the dilemma: "Where else can you go if they have what you want?"
Hence, the rise of the "golden handshake," a departure payment, very often not required by employment contracts or union agreements, that is generally accepted as wise business. As McCormack observes, "when people feel they have been fired `fairly'-treated with dignity, respect, and sensitivity in what, by definition, is a demeaning experience-they will be reluctant to bad-mouth their excompany. And they just may-as has happened to us onseveral occasions-become valued future business associates." Or, in Autry's words, "there's just one way to fire someone: with love and support and deep, deep regret." Applying a concept that is almost oxymoronic, he suggests that as far as possible firing an employee should be a "caring confrontation.
Behavior like that does not come about because capitalism mandates it, but because, on the contrary, people in business have sometimes allowed themselves to give in to instincts and proclivities that cloud their judgment and that are not a sound expression of sensible, self-effacing acquisitive behavior. And capitalism often punishes them for it.
The result of capitalistic competition is, on average, economic growth. And in the end the only way to prevent greater inequalities from emerging from this process is to hamper development itself.Thus, the surging disparities in world economic development that have taken place over the last two centuries (see figure 4.1 on p. 74) could only have been curtailed by keeping the developed world from developing. Since most people win in a growing economy, if capitalism generates more growth than other systems, it also creates more winners. But there are always plenty of losers as well, and this inevitable result can seem heartless and unfair.
In dealing with the fairness and equality issues, there is opportunity in the fact that capitalism tends to generate greater wealth than other economic arrangements. Once quite a bit of money is made in this way, some of it can be taxed away from the rich without undue pain, and these revenues can be used to redistribute income or to soften the blows that capitalism inevitably inflicts on some people-cushioning the pain of unemployment or bankruptcy, for example. Governmental redistribution policies havebeen generally accepted even by some of capitalism's most fervent advocates.
A final comment on capitalism and its image may be in order. When one examines the oft-neglected issue of risk, it appears that many capitalists effectively act as altruists-that is, they knowingly and systematically take a financial loss that, as it happens, betters the economic condition of their fellow human beings. And thecapitalist system is profoundly irrational because it importantly depends on such economically bizarre behavior.
"There is an enormous difference between starting a company and running one. Thinking up great ideas, which requires mainly intelligence and knowledge, is much easier than building an organization, which also requires measures of tenacity, discipline, and understanding. Part of the reason that nineteen out of twenty high-tech start-ups end in failure must be the difficulty of making this critical transition from a bunch of guys in a rented office to a larger bunch of guys in a rented office with customers to serve."
the explanation for economic development I am suggesting stresses only the development of a key innovation: the grasping of the idea that honesty, fairness, civility, and compassion furnish a competitive advantage. Economies prosper when that idea is seized and then imitated.
A more contemporary illustration of the development process may come from a recent innovation in the automobile industry, which is just about the only American retail business after the Wanamakerrevolution that still haggles with consumers. 211 It seems no coincidence that car salesmen consistently receive the lowest ratings for "honesty and ethical standards" in polls.21
As one respondent put it, "You don't read legalistic contract clauses at each other if you ever want to do business again. One doesn't run to lawyers if he wants to stay in business because one must behave decently." In this regard, "holding a customer to the letter of a contract is bad for `customer relations.' Suing a customer who is not bankrupt and might reorder again is poor strategy.
In the process, economists and like-minded idea entrepreneurs seem substantially to have managed to get across four highly consequential and enormously controversial ideas: the growth of economic well-being should be a dominant goal; wealth is best achieved through exchange rather than through conquest; international trade should be free; and economies do best when the government leaves them substantially free.
Moreover, there is very often a political dilemma in the fact that the people who will benefit in the long term from the economists' advice don't know who they are while those who will be disadvantaged in the short term know this only too well and are quick to scream.
It is the central contention of Richard Rosecrance's important book, The Rise of the Trading State, for example, that over the course of the last few centuries more and more countries have come to the conclusion that the path to wealth is through trade rather than through conquest, and he cites the striking and important examples of two recent converts: "Today West Germany andJapan use international trade to acquire the very raw materials and oil that they aimed to conquer by military force in the 1930s. They have prospered in peaceful consequence."
In many ways, the increasing acceptance of free trade is quite remarkable because political logic is notably on the side of protectionists and mercantilists. After all, domestic businesses (and labor organizations) have great clout in a country's politics while foreign businesses generally have little, and the locals should be able to use their advantageous position to keep foreign competition out.32 In addition, the businesses and workers who will be hurt by cheaper or better foreign products are likely to know who they are, while those who will gain from exports are less likely to be aware of their advantage since the benefits are likely to materialize only in the long term. Moreover, even if a firm does find a market abroad andthus has an incentive to lobby for free trade, the firm is often likely to discover soon that entrepreneurs in the nation to which is it exporting espy its success, set up local competition, and then pressure their government to close out the hapless innovative foreigner. Finally, free traders are up against the sentimental, intuitive appeal of autarky or self-sufficiency, concepts that go back at least to Aristotle and have been dominant for millennia.33
As economist Robert Heilbroner, not usually known as an ardent free-marketeer, noted only a few years ago: "There is today widespread agreement, including among most socialist economists, that whatever form advanced societies may take in the twenty-first century, a market system of some kind will constitute their principal means of coordination. That is a remarkable turnabout from the situation only a generation ago, when the majority of economists believed that the future of economic coordination lay in a diminution of the scope of the market, and an increase in some form of centralized planning."
Wages and prices should be allowed freely to find their own ranges and limits. It would be difficult to overestimate the economically pernicious effects of efforts to determine the `just wage" and the `just price" by nonmarketjudgments. Yet for millennia prices were substantially set by custom, government, or the church, and the progressive abandonment of this intuitively appealing and hence politically correct approach has been one of the major achievements of modern economics-it is quite possibly the economic equivalent of the germ theory.
But, as Yergin and Stanislaw put it, the idea would be to move the state away from being the "producer, controller, and intervenor" to being the "referee, setting the rules of the game to ensure, among other things, competition.
Of course, the gathering-indeed, gathered-consensus among economists does not mean there is no room for debate. There may be controversy, for example, over the desirable trade-offs between growth and the distribution of wealth, or over whether it is better to go for maximum growth or to sacrifice some development in order to reduce the amplitude of the boom-and-bust cycles around an upward path, or over how high a government's deficit can rise without stifling the economy, or over the degree to which a regulation will hurt more than it will help, or over what rate of inflation is most desirable.
Improvements in well-being are effectively unappreciated: the catastrophe quota. I have yet to run into an American over the age offorty-seven who regularly observes, "You know, if I had been born in the nineteenth century, I'd very probably be dead by now." Nobody really thinks in such terms, yet the statement is completely true-and,
The political process is also essentially devoted to bringing out the bad news. Incumbents may often like to stress the positive, but challengers can't-they must work very hard to ferret out things that are wrong and that, at the same time, concern a fair number of voters. If they are successful in this, it would be impolitic for the incumbents simply to dismiss the voters' concern. They must agree, or appear to agree, that the problem is genuine and then propose a solution that seems superior to the one proposed by the challenger. The process leads to nice anomalies: air quality in the United States has improved markedly over the last decades-yet most people think (and many people seem to want to think) that the opposite is true.70
The result of all this is that democracy, like life and capitalism, may often be notably unfair. Some people, because of their manipulative skills, social position, or sheer luck will do much better under the system than others. Unlike other systems, however, democracy gives to everyone the opportunity without regard to social status or ideological conviction to seek to manipulate the system in their favor. However, those who make little effort to do so may well be ignored, or maybe even persecuted, by it.
a liberal democracy is characterized not by "popular rule" but by various devices providing for "an intermittent, sometimes random, even perverse, popular veto" which "has at least the potential of preventing tyranny and rendering officials responsive." Riker agrees that this is "a minimal sort of democracy," but he contends that it "is the only kind of democracy actually attainable." If people remain free to use whatever common sense they choose to muster at the moment, and if they are free to generate competing ideas, there's a reasonable chance they'll get it more or less right ` ' eventually.
However, I do think thatlong experience with democracy suggests that it is hopeless to imagine that things can be changed a great deal. Inequality, disagreement, apathy, and ignorance seem to be normal, not abnormal, in a democracy, and to a considerable degree the beauty of the form is that it works despite these qualities-or, in some important respects, because of them.'
Rosenberg and Birdzell point out that "it was not until the nineteenth century that merchants developed enough confidence in governments to invest in large, immobile factories rather than in bills of exchange, ships, and moveable stocks of goods," an important phenomenon that accompanied the rise of democracy and may possibly have been partially caused by it.8
Fifth, democracy, as discussed in chapter 6, is better than other governmental forms at getting rid of failed leaders whereas authoritarian governments, including monarchies, very frequently are incapable of accomplishing this elemental task. For example, it is conceivable that in a democratic China a leader like Mao might have been able to put into place a fanciful economic policy like the Great Leap Forward, but it is inconceivable that he could have remained in office after the policy produced disastrous results including an induced famine in which some fifteen to thirty million perished.
Obviously, efforts to improve police work could help with this concern. But, as in the United States, the fear of crime is often essentially psychological-concern about crime burgeoned in 1994 even though crime had actually been going down at the time for more than ten years.I 3 Moreover, with a free capitalist press, crime, which sells papers everywhere, is more likely to be reported and dwelled upon-often in gruesome detail-and it is likely to be handled in the usual incompetent, anecdotal manner so common in America.14
Hence, although there probably ought to be some guiding minds at work for democracy and capitalism to be properly instituted and maintained, it does not appear necessary for people in general fully to appreciate them, or even to believe in them, for them to work.
When dishonest business practices are common, courts or regulatory systemswill be swamped. But when honesty is the norm, the courts and regulators will be capable (strongly encouraged by the many honest businesses) of enforcing the comparatively rare infractions, and consequently further encouraging economic growth. It seems likely, then, that effective institutions are more the result of virtuous norms than the cause of them.
When demand outstrips supply and the seller is unable to raise the price, customers become supplicants, and there is no economic disincentive to…
Free trade furnishes the economic advantages of conquest without the unpleasantness of invasion and the sticky…
Advances in economic well-being do not necessarily cause people to think they are happier. Rather, each improvement seems quickly to be taken in stride, and standards are continually raised to compensate.…
However, this curious phenomenon may have a kind of intellectually invigorating quality of its own, and the seemingly unquenchable quest for economic improvement may be…
Capitalism is, in an important respect, profoundly irrational. Speculators do worse on average than those who simply and almost randomly buy the market across the board. At the same time, capitalism requires that speculative investment money be generally transferred from had enterprises to good ones. Therefore, at base, capitalism depends on the self-lacerating thrill of the gamble, and many capitalists effectively act as altruists-that is, they…
Democracy is a form of government in which people are left (equally) free to become politically unequal. It is characterized not by political equality, active participation by the citizenry, and something resembling majority rule and consensus, but by political inequality and…
There are plenty of nonviolent methods for removing officeholders besides elections, and much of what goes on in a democracy comes from petition and pressure,…
Some people, because of their manipulative skills, social position, or sheer luck will do much better under the system than others. Unlike other systems, however, democracy gives to all the opportunity, without regard to social status or…
It is no easy task to persuade free people to agree with one's point of view. What is most difficult of all is to get…
Monarchy's amazing longevity over the millennia and in all corners of the globe was probably due chiefly to the fact that it simply had no effective competition as a form of government. Once formidable alternatives were fabricated-chiefly highly flawed democracy-monarchy faded out in rather short order, particularly in the developed world.
Promoters of democracy were lucky that they first test-marketed their product in Britain and America because, in the process, democracy came to be associated with countries which were held to be admirable-that is, which became fashion leaders or role models-for reasons that were often quite irrelevant to the institution itself.
Both democracy and capitalism rely more on the individual than on the collective; both question authority in one way or another and work best when it is restrained; both allow people the freedom to put an enterprise or a sitting government out of business if they become dissatisfied with its performance; both are notably, if often clumsily self-correcting; and both leave people substantially free for individual pursuits even though this generally leads to a considerable inequality of result and to a sort of (nonviolent) disorderliness that some find distasteful.
Capitalism and democracy are in important respects viscerally unequal and unfair at the systemic level, if not at the personal level, a condition that stems rather naturally and inevitably from the related facts that both institutions leave individuals free to pursue their interests and that some will simply do better at the pursuit than others.
Capitalism will emerge if people are left free to be acquisitive, and democracy can come about if people are left free to complain (and to organize complainants). Neither quality, it seems, is terribly difficult to inspire.
Democracy and capitalism are conceptually linked in that each has a kind of bland emptiness at the core, a quality that can be unpleasantly unsatisfying to people who aspire to grander goals and who have higher visions.The faulty popular perspectives that democracy ought somehow to be much better than experience has shown it to be, and that capitalism deep down is somehow really much worse than experience routinely shows it to be, do not seem to have greatly hampered the fundamental workings of either institution, at least in advanced capitalist democracies.Thus, democracy and capitalism are similar in that they can work pretty well even if people generally do not appreciate them very well, a paradoxical quality that may be one of their most important strengths.