Democratic Capitalism

I was not certain I should write a separate essay on "Democratic Capitalism" or simply include these thoughts in the piece on Compassionate Capitalism. After all, compassion and democracy are closely linked to one another. Democracy is the form of government a truly compassionate human being would most likely want to adopt, as it is the form of government which gives each the highest degree of liberty and the opportunity for self-realization.

We usually think of democracy as being a system fit for the government of nations but not suitable for business. In part, this is a recognition of the reality that there are owners, whose ownership is thought to entitle them to more consideration than the other constituencies involved in a business (employees, clients and the public.) Also, without thinking too much about the fact that these are challenges that states also face, we often speak of the necessity of making quick decisions, the need for expertise and so forth to justify the proposition that a company cannot be run as a democracy.

Interestingly, there is significant democracy in the traditional legal structure we use for business corporations: there are shareholders who can vote to elect a board, and the board, serving as a sort of legislature and judiciary simultaneously, has the power to fire the executive. However, as anyone in the business world knows, this usually provides the form of democracy without its substance, because shareholders are ignorant, powerless and easily manipulated, boards are complacent, and only the chief executive officer wields any real power.

There is another way, though, in which companies are of necessity more democratic than nations. Though employees and customers cannot vote by secret ballot on the conduct of the company's affairs, they can vote with their feet. While union members in extremely low demand jobs may have little freedom of movement (proving Belloc correct in his prediction that labor laws lead towards the "servile state"), workers in the high tech industry where I am an executive are highly compensated, much in demand, and will leave if not treated properly or if they lose faith in the company's prospects.

Before we salute a flag, we must know what it stands for. Corporate culture is everything, and a company does well to be straightforward with its employees, both in its way of communicating with them and in being willing to reveal philosophical, cultural and financial data about itself. If it does not do so, the employees will lose interest in the relationship. Doubtless, there are many companies--and even more numerous government agencies--where most of the employees have quit in place, and are drawing a paycheck while providing the minimum service in return to avoid getting fired. To build an entrepreneurial venture--a high tech venture destined to grow and reward all involved in it--you need commitment and hard work from your people. Treating them well is not only the right thing to do; it is also the pragmatic thing. But the desire to revive their good will demands a form of democracy unknown to governments; most Western democracies are not really concerned that their citizens will pick up and move somewhere else.

The need to retain your people mandates a form of humility which is very healthy for democracy. The most dangerous thing for a businessperson is to be angry or arrogant with the employees; on the other hand, it is a humbling thing indeed to realize people trust you, and to wonder at four o'clock in the morning if you will be able to justify their confidence. You wind up taking your employees heavily into account in the daily balance you take of your life: have you done the necessary? Is it working?

The relationship with customers, of course, is no different. If there is sufficient competition, you must take very good care of them indeed, or they will leave.

Businesses become undemocratic--as undemocratic as nations-- when employees, clients and the public are deprived of choice. As both Belloc and Hayek pointed out, choice vanishes when government gets involved with business, granting monopolies by franchise or otherwise harming competition. When employees are free to acquire skills and to seek new employment, competition is strong and there are a plethora of choices, business can be a very democratic environment.

The danger to democratic capitalism lies in the fact that while democracy is an end in itself, capitalism is usually seen as a means to an end: the greatest possible individual wealth. Democracy regarded as nothing more than a means to power would inevitably end in dictatorship. Capitalism regarded as nothing more than a means to great wealth inevitably ends in the economic equivalent of dictatorship, which is monopoly and a deprivation of choice. The best way to solve this problem is to eliminate the contradiction which permits democrats and capitalists to play by entirely separate rulebooks. Regarding capitalism the way we do democracy--as a fundamental human activity, aimed at the improvement both of the individual and of the community-- would be an excellent first step.