Democratic Capitalism
The prospering of free societies depends on certain moral and cultural practices.

Statue of George Washington in the Capitol Rotunda.


EDITOR’S NOTE: The following article is adapted from Mr. Novak’s remarks at this year’s Forum 2000 conference in Prague, September 15–18. Forum 2000 was founded in 1997 by Czech President Václav Havel, Japanese philanthropist Yohei Sasakawa, and Nobel Peace Prize laureate Elie Wiesel to consider the challenges facing humanity in the 21st century. Its focus is on democracy, human rights, tolerance, and the formation of civil societies.

For all its faults and limitations, “democratic capitalism” has one very attractive feature: It embraces many different kinds of capitalism and many different kinds of democracy. It is obvious that France is not the United States (Tocqueville recognized that in 1835). Sweden is not Italy. The United Kingdom is not South Korea. Japan is not Singapore. And so on.

When I wrote The Spirit of Democratic Capitalism in 1982, there were many fewer political economies than there are today that could be described as democratic in their political part and capitalist in their economic part. Consider the “Asian Tigers” plus the Philippines and Bangladesh in Asia, several Latin American nations (led by Chile), several of the nations formerly under Soviet control in Eastern Europe, and the many others that have emerged since the early 1980s as capitalist, but not democratic.

Meanwhile, two principles help to define the meaning of “democratic capitalism.”

(1) The first is a principle formulated by the great sociologist Peter Berger in The Capitalist Revolution: Fifty Propositions about Prosperity, Equality, and Liberty (1986). Empirical observation clearly showed that capitalism is a necessary (but not sufficient) condition for the success of democracy. Berger recognized many examples of new capitalist economies that were beginning to raise up their poor, but that could not yet be called democracies. Chile under Pinochet was one such. The Philippines, Singapore, Spain, and several significant others on two or three different continents also became capitalist before becoming democratic. Nearly a dozen nations turned capitalist, especially India and China, to pull themselves out of the worst forms of poverty. But the polity of some of these was by no means democratic. The pattern seemed to be: Capitalism first, then after a time democracy.

(2) Further consideration yielded the following modifier: In the long run, democracy is a necessary condition for the success of capitalism. Two observations led to this modification. First, under dictatorships, economic decisions have often been reached without taking account of vital constituencies such as small businesses, sectors of manufacturing deeply affected by tariffs, and companies and technologies that depend on vital links to overseas partners. The economy from then on limped. Second, even successful capitalist nations such as Singapore have been plagued by problems of succession. There was no clear institutional path for securing legitimacy among the people, with its accompanying social stability. Among investors and future partners, institutional uncertainty often hurts nations badly.

Some observers have asked whether China’s political economy now serves as a better model for certain aspiring nations than democratic capitalism. As it is put, that question is an empirical one, to be settled by observable evidence.

As a matter of principle, however, the Chinese leadership is betting on the possibility of sustaining economic liberty without political liberties. It is currently willing to risk its future without the checks and balances built into a republican form of democracy. I judge that this project will not be successful. Once there are a sufficient number of successful entrepreneurs, they will see that in important respects they are smarter and larger in mental horizon than the party commissars. They will resent the errors made by apparatchiks. They will demand their own representation in national decisions — that is, representative government with its checks and balances. I may be wrong about this. Empirical experience will be decisive.

Yet, notwithstanding what happens in China, the sad fact is that almost everywhere in the world today, systems properly called capitalist and democratic are facing grave difficulties. Here the crucial principle to emphasize is that the concept of democratic capitalism is threefold. Democratic capitalism is a system of political economy constituted by three relatively independent systems: the free economy, the free polity (under limited government and the rule of law), and a free system of moral and cultural institutions. The third system includes scientific and artistic institutions, plus even more basic institutions such as families and churches. And it includes all the free associations and organizations of civil society. These are the very institutions that inculcate the public virtues necessary for an inventive and creative economy, and also for a virtuous, vigilant, properly checked, and limited polity.

In this respect, the history of the last hundred years seems to have been played out in three acts. The first act settled the question whether democracy or dictatorship better protects the human rights of individuals and peoples.


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