Center for Civic Education

Democracy and the New Millennium

Effects of the Economy on the Democratic Spirit

Robert A. Schadler
President, Educational Enrichments

A paper presented at
Democracy and the New Millennium
International Conference
Malibu, California
October 2000

I am pleased to be able to address so important a part of the secular democratic creed. The belief that democracy and the economy are closely and positively related is, I believe, perhaps only second to the idea that "Democracy is good if not godly."

I will take as my text for this homily two notable representatives of the democratic spirit, Mae West and George Meany. Fans of Hollywood, and attendees at a conference in Malibu, should remember Mae West. Certainly anyone who remembers her would never forget her -- at least not until well into senility. In many ways the predecessor if not mentor of Marilyn Monroe, she had an unusual ability to put insights of lasting worth very succinctly. The one I would like to elaborate on is a gem: "Too much of a good thing -- can be wonderful." George Meany, the long-time leader of the US labor union movement was even more direct and blunt when asked what labor wanted: His reply: "More." My final text is a favorite of several crusty skeptics of academia, including the late Frank Knight of the University of Chicago: "It's not so much what we don't know, but that we know so much that isn't so."

So, to summarize my paper: We assume the economy has positive effects of the democratic spirit. We know prosperity and democracy are, everywhere and always, a good thing. More, even to excess, of both of these is wonderful. And we are certain of all this even all of it may not be true. The broad trans-Atlantic democratic culture has generally rejected the notion of "redemption through suffering." While many of us may believe in "no pain, no gain" with respect to our exercise and dietary regime, it is not clear just who would be enthuastic for democratic governance if it meant significant and permanent foregoing of economic prosperity.

The topic before us is as broad-ranging as it is important. Whatever insights I can add or, more likely, repeat and restate, given the time available, can only be suggestive not comprehensive. So my intention is to provide a broad overview that might usefully be part of the broader topic of the entire week, "Democracy and the New Millennium." In honor of our guests from Europe, I will focus on a few snapshots from which we can think through more deeply on the effects of the economy on the democratic spirit.

By "economy" I will mean simply the ability of the society as whole to produce material goods and services. The "democratic spirit" is a more elusive term, but I will take it to mean the attitudes of respect and dignity necessary to make democratic institutions and procedures viable. And while I will occasionally make reference to an occasional American scholar, you will see that many of my authorities will have German as their first language.

The connection of the economy to democracy is a central tenet of the secular faith in democracy. Listen to noted historian John Lukacs, "During the nineteenth century in the United States the notion of democracy became synonymous with popular prosperity." (Outgrowing Democracy, p. 91)

Even while Karl Marx and communism are widely discredited and democratic capitalism appears the only system as we move toward the end of history, the belief remains unshakable that the political and the economic are joined at the hip and essentially inseparable. While I won't say that I'm bold enough to be a heretic to this dogma, I might claim to be an occasional skeptic, in large part because we so often claim what seem to be diametrically opposed linkages between the economic and the democratic. The phrases in American politics can be found regularly: "A chicken in every pot;" "What's good for GM is good for America;" "America's business is business;" "It's the economy, stupid."

Let us review this nexus along a range of circumstances, domestic and international, current and historical.

What is our common credo? First of all, we believe in a dual causality that must perplex a skeptic. That is, democracy facilitates economic progress. And, likewise, economic progress facilitates progress toward democratic governance. Most analysts of causality would see a problem here were it not for our deep and abiding faith in our creed. Must not one, either one, be prior to the other? Can A cause B at the same time B causes A? Aristotle would not be pleased.

The opposite or converse is also widely accepted and has, in the course of the twentieth century, often been of central concern: we are certain that undemocratic governments hamper economic progress. And we know that economic difficulties, such as depressions or even recessions, as well as economic disparities, undermine or preclude progress toward or even the very possibility of democratic governance.

Put differently, would the belief in democratic governance be widespread if it did not have positive or constructive economic results? And more personally would we - you and I - still believe in democracy if it led to impoverishment?

The solution to the problems of democracy, we are all too fond of saying, is more democracy. Let's look at several propositions that speak directly to the connection between economic performance and the democratic spirit.

Proposition One: Democracy requires a modicum of economic prosperity.

Most supporters of democracy are willing to concede that democracy and a vibrant democratic spirit requires, as a precondition, some level of economic prosperity above minimal subsistence. People who are scavenging for a few morsels to allow them to live to the next morning are unlikely if not unable to develop the necessary institutions and attitudes undergirding a democratic polity. There are those who see, however, the seeds of destruction in what is required to rise above a subsistence economy.

Specialization, comparative advantage, trade, the cash nexus are seen as sources of lack of autonomy, oppression, class warfare by the likes of Rousseau, the young Marx and Marcuse as well as some of the Southern agrarians and, I believe, German thinkers such as Friedrich Juenger (The Failure of Technology).

It is interesting to note that, of the democratic theorists least persuaded of this notion is one often dismissed as a quasi-Marxist defender of slavery, John C. Calhoun. In his Disquisition on Government he gives serious attention to the Iroquois as having a constitutional government worthy of considerable respect.

Proposition Two: Democracy requires a certain economic pluralism.

Somewhat more interesting is the notion developed by a former Marxist, Karl Wittfogel, in Oriental Despotism. In that classic he argued that some economic systems are so fundamentally centralized that some kind of authoritarian regime is virtually a foregone conclusion. His example was that of a hydraulic society where the water supply required a single, centralized infrastructure. James Burnham argues similarly in The Managerial Revolution:

...what distinguishes totalitarian dictatorship is the number of facets of life subject to the impact of the dictatorial rule. It is not merely political actions, in the narrower sense, that are involved; nearly every side of life, business and art and science and education and religion and recreation and morality are not merely influenced by but directly subjected to the totalitarian regime....Totalitarianism presupposed the development of modern technology, especially of rapid communication and transportation...In managerial society...politics and economics are directly interfused; the state does not recognize its capitalist limits; the economic arena is also the arena of the state. (Pp. 152-156)
Science fiction might well posit oxygen, food or even levels of technology that resulted in the same non-democratic governance. Perhaps some early Mel Gibson movies come to mind.

Proposition Three: Economic difficulty or failure crushes the democratic spirit.

What is striking about this proposition is the concern that economic difficulties would crush the democratic spirit. Frank Knight, a hard-headed conservative economist at the University of Chicago and Hubert Humphrey, the happy liberal politician, are but two examples of hundreds who feared that the depression would lead the United States to give up on democracy.

Listen to Frank Knight:

From the vantage point of the present, we can see that only a remarkable accidental and inherently temporary set of conditions made it (19th century civilization) possible, for a time, for such a "free" social system - private initiative in economic life and government through representative institutions - to seem to work, or seem to have the capacity of solving the problem of combining liberty with order. Democracy, such as it was, was possible only in so far as there were no vital political problems, no serious differences of opinion or conflicts of interest. Whenever a democratic nation confronted such a problem as a foreign war, democracy folded up as a matter of course; and any really serious internal problem, such as slavery in the United States, had also to be settled by fighting to the exhaustion of the weaker party. (Freedom and Reform)
With regard to Hubert Humphrey, I recall vividly reading a short news account during the 1968 presidential race. Humphrey was campaigning in Tennessee, where the New Deal had built the Tennessee Valley Authority, one of the many efforts to get people to work doing something constructive. The headline was straightforward: "Humphrey prefers TVA to Hitler." I remember the headline because it caused me to think that I did, after all, agree with Humphrey about some things. The speech Humphrey gave had as its theme that the New Deal (and the Democrats) had saved the United States from fascism or Naziism by such public works projects as the TVA. Had there not been an FDR and a New Deal, the Depression would have led to our going, more or less, in the same direction as had Germany and Italy.

Proposition Four: Economic prosperity undermines capitalism and threatens democracy.

The great Harvard economist, Joseph Schumpeter, is an advocate of this thesis:

The thesis I shall endeavor to establish is that the actual and prospective performance of the capitalist system is such as to negative the idea of its breaking down under the weight of economic failure, but that its very success undermines the social institutions which protect it, and "inevitably" creates conditions in which it will not be able to live and which strongly point to socialism as the heir apparent." (Capitalism, Socialism and Democracy, p. 61)
But one can also cite the Harvard liberal-socialist sociologist Daniel Bell in The Cultural Contradictions of Capitalism. The argument echoes somewhat Lenin's thesis on colonialism, but it is essentially that economic prosperity over time undermines the cultural foundations necessary for capitalism to continue. Whether democracy and the democratic spirit can still flourish under some form of state control of the economy then becomes the focus of the debate.

Proposition Five: Democracy undermines economic prosperity and threatens the democratic spirit.

Conceptually this argument goes as far back as Plato and Aristotle. If there are more poor than the rich and the majority rules than the poor will take wealth from the rich. Democracy and democratic openness also opens wide the possibility for corruption (not that other forms of government also have good potential for corruption). This is an argument now heard in Russia. Democratic procedures installed since the collapse of the Soviet Union have ushered in both foreign and domestic corruption. A rough measure of this attitude is the image of the United States, a proxy in the minds of many for the abstraction, "democracy." A USIA poll in 1989 showed a favorable attitude in Russia toward the United States of 74%. Today, after a decade of democracy and elections, the United States has a favorable rating of about half that, in the mid-thirties. For a compilation of how democratic reforms have failed, the recently released, Russia's Road to Corruption released by the U.S. House of Representatives is worth studying.

At a time when the Russian government was spending exorbitant amounts on the 14-month-old war in Chechnya and on extravagant election campaign promises, there were virtually no strings attached [to IMF loans], no effective legal commitments as to how the proceeds should be spent, and no effective monitoring and accounting controls to track where the billions were going. (Russia's Road to Corruption, p 104)

The result:

At the end of 1929, following America's disastrous stock market crash, unemployent in the United States reached 1.5 million, representing 1.2% of the total population. But the collapse of the Russian economy was far worse. Over 11.3 million Russians were jobless at the end of 1998 - 7.7% of the nation's total population....

The devastation of Russia's economy wreaked the kind of human misery that America experienced in the Great Depression. By 1932, the US gross national product had been cut by almost one-third. But within just six months of the 1998 crash, Russia's economy measured in dollars, had fallen by more than two-thirds. From $422 billion in 1997, Russia's gross domestic product fell to only $132 billion by the end of 1998. (Russia's Road to Corruption, p. 102)

The perception in Russia that things were better under communism, economically and maybe even politically, is strong and growing stronger.

There is also a home-grown view that has several variations. Democracy allows for economic freedom and economic freedom means some will be more successful than others. Those with economic wealth will then use that wealth to benefit themselves rather than invest it in more productive pursuits. They use their wealth to gain or maintain or increase their advantage. Laws, subsidies, preferential regulations and a host of favors undermine both the economy and the confidence in democracy.

Proposition Six: Economic inequality undermines democracy.

There are those in advanced democracies that argue that democracy can only be democracy if economic disparities are minimal. One citizen one vote cannot truly mean what it says if the rich remain dramatically more wealthy than the average citizen. Bill Gates, or the big corporations, whether Big Banks, Big Oil, Big Insurance, Big Railroads, Big Software, or whatever.

Apparently this argument is a permanent concern even if the data is dubious. Here is what Schumpeter, writing over half a century ago, said:

Until about forty years ago, many economists besides Marx believed that the capitalist process tended to change relative shares in the national total so that the obvious inference from our average might be invalidated by the rich growing richer and the poor growing poorer, at least relatively. But there is no such tendency. Whatever may be thought of the statistical measures devised for the purpose, this much is certain: that the structure of the pyramid of incomes, expressed in terms of money, has not greatly changed during the period covered by our material - which for England includes the whole of the nineteenth century - and that the relative share of wages plus salaries has also been substantially constant over time. There is, so long as we are discussing what the capitalist engine might do if left to itself, no reason to believe that the distribution of incomes or the dispersion about our average would in 1978 be significantly different from what it was in 1928. (Capitalism, Socialism and Democracy, pp. 65-66)

In fact, the US Census Bureau data for the period from precisely 1947 and 1979 show that family income over this thirty year period rose, across the economic spectrum by slightly more than two per cent annually. The bottom 20% in income by 2.5%; the top 20% by 2.1% and the middle three groups by 2.2%, 2.3% and 2.4% respectively. (The Atlantic Monthly, June 2000, p. 69)

Proposition Seven: Economic equality undermines democracy.

I think one can see this argument subtley made by that great prophet of democratic governance, Alexis de Tocqueville, and he begins his great work with the observation:

No novelty in the United States struck me more vividly during my stay there than the equality of conditions. It was easy to see the immense influence of this basic fact on the whole course of society. It gives a particular turn to public opinion and a particular twist to the laws, new maxims to those who govern and particular habits to the governed.
And he continues:

The breakup of fortunes has diminished the distance between rich and poor, but while bringing them closer, it seems to have provided them with new reasons for hating each other, so that with mutual fear and envy they rebuff each other's claims to power. Neither has any conception of rights, and for both force is the only argument in the present or guarantee for the future.

More recently, the rarely explored subject of envy has been impressively analyzed by Helmut Schoeck in a book of that name, Envy, developing this same theme. As the differences become insignificant in fact they loom overwhelmingly in psychological import.

The more nearly we are equal to the man with whom we compare ourselves, the greater is our envy....We envy those whose possessions or achievements are a reflection on our own. They are our neighbours and equals. It is they, above all, who make plain the nature of our failure. (p. 160)

Just a few, quick, idiosyncratic comments. How many of us would be that interested in changing lives with Bill Gates. We all have running water, electricity, phones, computers, cars and reasonaby good health. Most of us have better fitting clothes and better hair cuts. We certainly have more leisure. On balance, and certainly speaking for myself, I'm overweight and he doesn't seem to be. That is, I should eat less; perhaps he should eat more. Nationally, the New York Times reported a few days ago, that obesity was now one of this country's greatest health problems. And it effects those with low incomes as much or more than those with high incomes.

The face of poverty has changed even if our conceptions of its effect on democracy has not. My final aside, the Franciscans at this retreat would, I am sure, prefer to keep their vow of poverty than to change places either with any of us or with Bill Gates.

Let me end with yet another apparent contradiction this time regarding foreign policy and the effect of economics on the development of democracy. The United States pursues, on a bipartisan basis, both foreign aid, trade and economic sanctions. Both are assumed to be based on the sure knowledge that economic resources directly affect democratic governance.

Proposition Eight: Economic aid and trade enhance democratic governance.

With regard to aid and trade, it is assumed that providing economic assistance furthers democratic development. That is the rationale for USAID, the Peace Corps, the World Bank, NAFTA, etc. If every person in China drank one Pepsi a week, democracy would be sure to follow. Every move toward peace in the Middle East entails billions in economic assistance.

Proposition Nine: Ending trade and aid (i.e. economic sanctions and boycotts), further democracy.

With respect to sanctions, it is assumed that cutting off aid and prohibiting trade and investment, democratic development is furthered. Sanctions for Iraq, Libya and Cuba; trade, aid and investment for China and Russia. For nearly half a century, the United States poured every kind of aid into what was then Yugoslavia, hoping and expecting it would help in enhancing the democratic spirit. Today we have severe sanctions, yet if the recent election results in a change of government, sanctions will be lifted and aid will again resume. But were any of these more than efforts to seem effective and make ourselves feel better? Hard to say.

Given the above, what do we know - or what might I claim to know - about the economy and the democratic spirit? I'm inclined to say we know less than we think we know, or as Frank Knight was fond of saying, "It's not so much what we don't know but it's that we know so much that ain't so."

Any political system that is unable to generate sufficient material wealth will be deemed a failure by its members. Economic prosperity makes many fat and happy. To say that the economy and the democratic spirit are interrelated yet without a clear causal connection everywhere and always should not be terribly surprising. To offer some people friendship while punching others is not inherently contradictory. Likewise, some circumstances may suggest that an authoritarian regime may sufficiently develop the economy, the infrastructure, a middle class, etc., that then allows democracy to follow as a consequence. In other situations, they may develop in tandem, greater political freedom and economic freedom progressing together.

Yet, I don't see how those committed to democratic governance can simply say that economic prosperity means the government is successful, for the criteria for success encompasses more than the material, for the material is desired largely for its service to more noble ends. These noble ends include rule of law, restraint of power, dignity to each citizen, participation in the political process leading to some sense of the consent of the governed. The institutions that provide for these ends both cost resources and, in their own way, add inefficiencies in the economic system.

The most important question may well be before us. It was a concern of Edward Gibbon and the Founding Fathers. Does the wealth and comfort that prosperity brings undermine the strength of character and sense of citizenship that need to permeate the electorate as well as the leadership of an enduring democratic republic? The human spirit is wonderfully mysterious and surprising. Economic failure in Russia may usher in, if not a return to communism, than a turn away from democracy. Economic failure seems to have been a factor, even if not a sufficient reason, for cultured, educated, intelligent, enlightened Germany to follow Hitler. Economic failure in Serbia may cause a turn toward democracy. Economic success may cause China to move toward democracy. Economic success may have caused the ruin of the Roman republic and it may well imperil our own commitment to the hardy values and verities that our Founders felt were necessary for the survival of this republic.

Just what is our prologue today I can only speculate through a glass darkly.

Select Bibliography

Calhoun's Philosophy of Politics. Guy Story Brown, (Mercer University Press, Macon, Georgia, 2000).

Capitalism, Socialism and Democracy by Joseph A. Schumpeter, (Harper, New York, 1947).

Democracy in America by Alexis de Tocqueville, (Harper & Row, New York, 1967).

A Disquisition on Government by John C. Calhoun, (Bobbs-Merrill, Indianapolis, 1953).

The Disuniting of America by Arthur Schlesinger. (Norton, New York, 1990).

Egalitarian Envy by Gonzalo Fernandez de la Mora, (Paragon House, New York, 1987).

Envy, A Theory of Social Behavior by Helmut Schoeck, (Harcourt, Brace & World, New York, 1969).

The Failure of Technology by Friedrich Juenger, (Regnery, 1950)

Federalist Papers by James Madison, Alexander Hamilton and John Jay. Freedom and Reform by Frank H. Knight, (Harper and Brothers, New York, 1947).

Oriental Despotism by Karl Wittfogel, (Yale University, New Haven 1957).

The Managerial Revolution by James Burnham, (John Day, New York, 1941).

Outgrowing Democracy: A History of the United States in the Twentieth Century by John Lukacs, (Doubleday, New York, 1984).

Russia's Road to Corruption, by the Speaker's Advisory Group on Russia, Christopher Cox, Chairman (House of Representatives, Washington, DC, September 2000)

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