Democracy after Capitalism or Capitalism after Democracy?

Posted by: on Apr 4, 2012 | One Comment

Democracy after Capitalism or Capitalism after Democracy? Does the order really matter? This is a question I have always wondered about. Democracy and capitalism have always been thought in the same light. Irrespective of the order, the very coexistence of these concepts has been a vital cog in the wheel of development of the West. However, to consider their order irrelevant will be a bit of ignorance. Why do I think so? Read what’s next…


So, in case of Democracy and Capitalism, is there a favorable order? To explain my body of thought, I’ve explained an example each from the two possible scenarios.


CASE STUDY-1: Democracy after Capitalism


I’ll cite the example of the birth of capitalism in USA. Being a British colony prior to its independence, America was an obvious witness to feudalism. As many economists believe, feudalism was somewhat of a precursor to Capitalism in its rawest nascent form. Capitalism found its roots in the US as early as the late 1600s. All was well till the implementation of The Stamp Act in 1763, which forced Americans to pay hefty taxes on all legal and financial transactions. The growing influence of independent industrialists meant that the Act was to be met with stiff opposition. The Boston Tea Party followed in 1773 and three years later, in 1776, after the successful American Revolution, the United States of America was declared an independent democratic country with the unison of 13 states.


To surmise, the birth and growth of Capitalism led to the independence and, subsequently, democratization of America (as it was then called).


CASE STUDY – 2: Capitalism after Democracy


I can think of no better example than India to elaborate on. Being one of the richest economies in the Middle Ages, India was the cynosure of all colonial powers for the resources she provided. In fact, it isn’t a surprise that ours is a country that was under foreign rule for decades. More than 70 years since we were declared a sovereign, secular, democratic, republic nation, we are yet to establish a capitalist, free-market driven economy that is independent and not answerable to the government. What we have seen is Crony Capitalism that has hindered economic growth; the prime reason we are still stuck in the third world. Crony Capitalism refers to what we have seen in Indonesia, Thailand, Nepal, Egypt, Iraq and now in India. Government through its regulations, licenses and approval processes decides the winners and losers. In a free market, it is how well you serve your customers that form the basis of Capitalism. In India, it is how well you serve your political masters, which decides the fate of your business.


My point here is in stark contrast to the one in the previous case. We experienced Capitalism (not in its true forms) long after we had democracy.


Coming back to the initial question, how does it matter if Capitalism precedes Democracy or vice-versa? Well, it does. In the former case, it was the rise of capitalists that brought about the American Revolution. By the time America got independent (read turned democratic), the economy was already in fast forward mode, thanks in no small part to the capitalist nature of it.


India’s primary problem is that even though it was, and still is, a democratic country; the government interfered, and still does, with running the economy. I’d even say that ours is a rather Confused Economy; as has been evident in our growth since we have turned a Democracy. At the risk of sounding repetitive, I’d still reiterate that a free market is what our economy needs to run on its own feet again. Till then, its Democracy -1; Capitalism-0.


1 Comment

  1. Abhinav Sehgal
    April 20, 2012

    First of all i’d like you to know that i’m a big fan.I loved the Deal maker.
    What i could make from this article is that you being an ardent supporter of capitalism are in the favour of the first instance i.e democracy after capitalism.But don’t you think that if india is not a perfect capitalist economy then even US too isn’t and for that matter in this 21st century is in’t it almost imopssible to have a perfect capitalist economy?.We have come across so many instances where even the US faces the allegations of being a crony capitalism and that a few bankers holding the nerves of the
    businesses and politics.
    In my view political system doen’t matter much in the economics of the country.We have seen china a communist state ,currently on the path of capitalism and moving fast to overtake US to become the number one economy in terms of GDP.This clearly indicates democracy or any other political system has a little role to play in the economics of the country.


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