Democracy and Capitalism: Heading into Sunset
Just a quarter of a century ago, everything seemed clear and understandable. Democracy was considered the best political system, capitalism the best economic system, and the most developed countries were those that combined both. Why was this so?
Political system
If we search for "Virtues of Democracy," we'll get a response meticulously listing a multitude of these very virtues. These include the guarantee and protection of political and personal rights and freedoms, political equality, pluralism, limitations on the arbitrary exercise of power, social justice, and so on and so forth.
But we must understand that democracy is highly idealized. The capitalist mode of governance presupposes the division of society into classes, and, in my view, a classless society is, in practice, impossible to achieve. Human society is clearly prone to stratification into an elite and everyone else subordinate to it. Even in the most ordinary family, there are leaders who make the final decisions on important matters, and those who are followed.
But if there is a division into classes, then no democracy will equalize the rights of the "patrician" and the "plebeian." The elite, by definition, wields greater influence and resources, so in any democracy we see a "first among equals." Even in the most democratic society, where absolutely everyone is equal, there will inevitably be individuals who are more equal than others...
Of course, democracy buffs may disagree with me on this point. And I can cite numerous examples of high-ranking citizens of democratic countries, including the top government officials, who suffered severe penalties for violating the law. I'll answer that, if you look more closely, such cases are often the result of infighting and settling scores between factions within the elite. And breaking the law is merely a pretext, a basis for removing a representative of the losing faction from office.
The strength of democracy isn't that it makes all citizens equal, but that it limits elite arbitrariness to a far greater extent than authoritarianism or totalitarianism can. But why is this important?
The answer is very simple. Obviously, the most successful state will be the one that is best governed. By success, by the way, I mean the most complete satisfaction of the needs of all members of society.
To achieve maximum management effectiveness, it must be carried out by those members of society who are best able to do it. I would like to emphasize that management should not be carried out by the people with the highest moral character, but by those who are best at managing—these are two different things. I have seen many large enterprises, and the best manager I personally knew was not a good person. He was disliked, feared, and difficult to work with, yet he achieved outstanding results. At the same time, the cohesion and well-being of the team entrusted to him significantly improved during his tenure.
Thus, the ideal political system will be one that brings the best available leaders to power. Their efforts will be directed toward the well-being of society as a whole, not just one particular class or classes.
The problem here is that the art of management is practically impossible to learn. A person without the talent can memorize mountains of literature on the subject, but still fail to become even a mediocre manager. Conversely, a citizen naturally talented in this regard can become a great leader without any books. Or they may not, if the social structure initially did not allow for the possibility of rising to leadership positions, or only rose to a certain level. This was the case, for example, under feudal systems in many medieval armies. You can be an excellent strategist and tactician, but if you're not an aristocrat, you'll never attain the highest military rank or even come close to it. Even if you earn nobility through intelligence and valor, well, maybe you'll rise to command a regiment...
It's clear that even in such situations, there were geniuses capable of rising from rags to riches, but this was, of course, the exception to the rule. And why, exactly?
Humans are naturally gifted with love and affection—for their children, family, and loved ones. This was once essential for human survival. We humans, physically, have never been at the top of the food chain, or even close to it, and therefore only knew how to survive in groups. And love and affection for loved ones are precisely what ensured the formation of a group, binding its members together.
The elite retains all these qualities. This is where nepotism comes from, as a means of securing additional support from family and friends and the desire to pass on one's position to one's children. All of this is natural and part of human nature, so it shouldn't come as a surprise. Undoubtedly, there have been and are leaders who have been able to recognize the futility of such a path and have not pushed their offspring into power if they are unworthy of it. But this, again, is the exception to the rule.
Thus, inheriting social status by birthright led to the rapid degeneration of the elite and a decline in the quality of governance—for many reasons. Under such a governmental structure, the pool from which the best managers would be selected through natural selection was sharply reduced, because the best were chosen from a limited elite circle, not from the best of all members of society. And since governance is a talent, not a craft, many good managers from the masses were simply left behind.
Only a mechanism called "social mobility" can save the elite from degeneration. It offers the opportunity for a "plebeian" to rise to the rank of "patrician" through personal qualities and talents through legal (not revolutionary) means.
And again, it must be said that social mobility has existed at all times and under every political system. But its capacity has varied greatly. In some places, only a select few, the very best of the best, could rise, while the masses of talented, but less gifted or fortunate, remained at the bottom, while the country and the "sovereign service" were governed by mediocrities from among the hereditary nobility.
So, democracy until recently:
1) While it didn't equalize the rights of the elite with the rest of the population, it did provide the broadest social mobility. It's not that the democratic system works perfectly in this regard, but on average, it allowed more talented administrators to rise to power than in other political systems.
2) It ensured that the authorities received feedback from the people - since it was the people who elected them, the elite, willy-nilly, was forced to take into account the interests of society as a whole, and not just their own class.
And all was well for a while. But nothing lasts forever, and humanity found that the mechanisms of democracy first malfunctioned slightly, then went haywire... and, most likely, will cease to function completely in the coming decades.
Why did this happen? To understand, it's important to recall the fundamentals of capitalism and the synergies previously achieved when capitalism and democracy were combined.
About capitalism
As has already been said above, the effectiveness of the political system of a state is determined by how well it solves two problems:
1) Attracts the best available managers to the country’s leadership;
2) Motivates these managers to work not only for the benefit of the elite, but also in the interests of the people as a whole. While it's true that one's own interests are always closer to one's own, the interests of society must still be present in the hierarchy of a public administrator's goals.
The economic system is even simpler. Every state has three types of resources—capital (means of production), labor, and natural resources—all of which are finite. Every state is made up of citizens, and each citizen has their own needs. Yet, unfortunately, human needs are infinite: no matter how much you satisfy them, you will always want more.
So, the goal of an economic system is to satisfy the maximum needs of citizens through the most efficient use of the state's available resources. In the long run, of course: you can't throw a feast for the whole world today and then die of hunger tomorrow because you ate everything yesterday.
And capitalism, again, until recently coped with this task perfectly.
Competition allowed, on the one hand, the most complete and rapid response to changing customer demand, and on the other, it allowed the most efficient producers to thrive. That is, those who produce goods at minimal cost while constantly improving them by incorporating the latest advances in scientific and technological progress.
And again, many recall that the USSR produced goods in many sectors (military, nuclear, space) no worse than, if not better than, any capitalist country. This is true, but it's important to understand that competition in these sectors was indeed present in the USSR. For example, the design bureaus of Sukhoi, Mikoyan-Gurevich, and Yakovlev competed for the right to create combat aircraft. But in many other sectors, including consumer goods, competition was a major problem, resulting, for example, in store shelves being overflowing with uniform and unfashionable clothing.
Capitalism envisioned free enterprise and legal equality. This, again, was never fully achieved, as large corporations always had more opportunities than small and medium-sized business owners. Nevertheless, capitalism allowed virtually anyone to try their hand at entrepreneurship with a good chance of success—everything depended on the individual, and rising from a garage business to a multinational corporation was entirely possible under capitalism.
Thus, if democracy brought the best managers to state power, then capitalism was excellent at ensuring that the best entrepreneurs were engaged in the economy.
The synergy between democracy and capitalism manifested itself primarily in the feedback loop between capitalist and worker. Democracy allowed wage earners to form trade unions and fight for their rights through legal means. Since wage earners were always far more numerous than capitalists, their votes mattered greatly to politicians, further simplifying the achievement of acceptable employment conditions. But the rise in wage earners' well-being was also valuable for the economy, as it generated effective demand, which capitalists could satisfy—and profit from.
In general, until recently the “capitalism and democracy” combination worked very well, and then...
The tail began to wag the horse
Advertising, as we know, is the engine of commerce, which is why it has become so widespread. Initially, advertising was indeed extremely beneficial for the economy as a whole, as it provided information about products that potential buyers were not yet aware of, or about new companies that were taking the risk of competing with existing products. Furthermore, outright lies in advertising were punishable—if the quality of a product didn't match the advertised one, customers would stop "voting with their rubles" for the fraudster.
But then there was too much advertising for any single person to consume and analyze it all. Thus, competition for attention arose. And the easiest way to win this competition was to use applied psychology techniques in advertising.
At first, the goals were relatively innocent—to attract attention, to make the ads catchy and memorable, so that consumers would single them out from other ads for similar products. While this wasn't criminal, the seeds of destruction were already there: advertising had shifted from informing consumers to manipulating their minds. While still innocent, aimed simply at getting noticed and remembered, it was manipulation nonetheless.
Well, then, as one ill-remembered General Secretary used to say: "It is better to begin and deepen than to end and reach consensus."If it's possible to manipulate consumer consciousness in small ways, why not move on to larger ones?
And so, step by step, advertising went from informing potential buyers to imposing consumption standards on them. At some point, the tail began to wag the horse: instead of helping satisfy our needs, advertising began to shape them, telling us exactly what we should want.
Is the mass of goods good or bad?
On the one hand, it seems obvious that the more products there are, the greater the choice and the easier it is for people to satisfy their needs. Unfortunately, it's not that simple.
Let's say, 200 years ago, the range of goods purchased by the average citizen was not just several times, but orders of magnitude, inferior to today's. And this had one important advantage: people could independently evaluate the quality and functionality of the vast majority of goods they purchased. In other words, people, knowing their needs, had a very good idea of whether the goods they were buying met them.
But in our time, when scientific and technological progress has led to a huge increase in the number and complexity of products, none of us is capable of assessing the reality of advertising promises across the entire range of products offered to the public. This means we are very easily misled by being sold something we would be unlikely to buy, even if we had full information about the product.
A perfect example is the advertisement for ZEPTER cookware, which was extremely fashionable in the 90s.
Among other advantages, the sellers of this cookware always mentioned that it was made from a special material that doesn't release carcinogens when heated, thus preventing food contamination. And then the buyer's brain independently constructed a perfectly logical chain of thought. ZEPTER is very expensive, probably because of the special material that doesn't release carcinogens. But other, ordinary cookware is much cheaper—which means the material it's made from certainly releases carcinogens! Therefore, ZEPTER's high price is justified, because by paying for this cookware, I get not only a cooking tool but also health benefits. A great deal, I have to buy it!
And what's interesting is that the ZEPTER sellers weren't lying at all. They simply didn't mention that ZEPTER was made from regular stainless steel, which truly doesn't emit any carcinogens during cooking. Just like any other domestic cookware made from the same steel, but at a fraction of the cost.
In other words, Zepter, without directly deceiving customers, created the illusion of a competitive advantage for its cookware that it didn't actually have. And people, unable to verify this, overpaid.
There are numerous such examples. For example, consider the domestically produced Arbidol, which was for a long time the best-selling antiviral drug in Russia, despite the fact that its effectiveness was not scientifically proven either before its launch or during its sales.
Efficiency? No, profit is more important!
Initially, in capitalist competition, the winner was the one who could offer a product with better or equal functionality (and quality) than its competitors, but at a lower price. To achieve this, it was necessary to have lower production costs than competitors. And lower costs for producing a product of equal quality is the efficient use of resources, which predetermined the effectiveness of capitalism as a whole.
For a long time under capitalism, products improved, increasing functionality, ergonomics, and durability... This last aspect began to backfire on the capitalists. Yes, the Japanese began producing household appliances with lifetime warranties sometime in the 1980s and 1990s. But... If a washing machine has a lifetime warranty, then a person won't need to buy a new one. Therefore, you have to convince them of the practicality of a new purchase, prove that the new model will be more convenient and better meet their need for clean clothes... But all this is complicated, ineffective, and requires large advertising budgets.
Then someone realized a very simple truth. The easiest way to get someone to buy a new thing is to make their old one break. And with this "discovery," the world entered an era of things with a limited shelf life. Meanwhile, in a number of industries, service was greatly curtailed—the consumption model was being built such that if something breaks, the buyer shouldn't have it repaired at a service center, but rather buy a new one to replace the one that broke.
Again, in some cases, this is correct. For example, the computer industry is developing very quickly today, although not as rapidly as it did 20 years ago. Accordingly, there's no point in offering a lifetime warranty on a laptop if it will become completely obsolete within 5-8 years after purchase, completely incapable of performing its intended tasks. But a passenger car, for example, is a completely different matter.
The synergy of advertising and impermanence
Taken together, all of the above created a deadly cocktail. It became profitable for manufacturers to make relatively short-lived products because this increases sales volumes, and therefore profits. At the same time, aggressive advertising makes it clear to us that we must replace old items with new ones far more often than is truly necessary. But what does this mean for the macroeconomy, for the country and the world?
Let's say there's a certain item, say a refrigerator, whose average lifespan, if maintained, would be 20-25 years. Many families are generally reluctant to replace such appliances until they break down completely, while others who can afford it, buying new appliances, sell their old ones at a low price. There will always be demand for these appliances among low-income households, so the appliances will continue to serve, even if only to another family. However, the industry produces refrigerators that, on average, last only 7-10 years.
This means that roughly three times as many refrigerators are produced as are needed to meet society's actual needs. Consequently, humanity spends... well, maybe not three times as many resources on refrigerator production, because producing products with a short service life is cheaper than those with a long one. Let's say it's twice as much.
But even on the scale of a single country, this leads to a gigantic overspending of resources, both material and labor. Excess production capacity, excessive material consumption, excess production personnel—all of this is absorbed by corporations to satisfy consumer needs... ones that they don't actually have, and which corporations have invented for them so they can sell them refrigerators three times more often than they actually need.
And here, a respected reader might well express a reasonable thought: "But there is competition!" And indeed, if a person truly needs a long-lasting refrigerator, it will create demand, and if so, then there must be an entrepreneur to satisfy this demand. And if there isn't such an entrepreneur, then there's no real need for long-lasting refrigerators, so stop fantasizing, author!
That might seem true, but it's not quite so. The fact is, trying to enter the market with long-lasting refrigerators under these conditions is doomed to failure.
First, the competitive advantage of such products is far from obvious. A new company has emerged, claiming its refrigerator will last 30 years. But where's the guarantee? Does the company promise to replace the refrigerator for free if it breaks? But where's the guarantee that it will be able to fulfill its promise, say, in 10 years? What if it goes bankrupt by then?
A more reliable refrigerator will obviously cost more. And it's even more expensive because a megacorporation has enormous production volumes, allowing it to reduce per-unit costs. Furthermore, if a corporation produces three times as many refrigerators as your company, it can halve its profit per refrigerator and still have one and a half times the profit you make.
In other words, your competitive advantage at the start is impossible to prove, your advertising budgets are incomparable to your competitors, but you'll be offering refrigerators at a significantly higher price than the market. And you can't expect comparable production and sales volumes because... That's right. The people you convinced to buy your refrigerators won't come back for more until 30 years later.
And yes, if you maintain these conditions for 40-50 years, people will see the advantages of your technology and may indeed turn away from competitors in favor of your products. But during these 40-50 years, your business won't generate the desired return; your return on every ruble/dollar/yen/euro invested will be far lower than your competitors', if you even have any profit at all. So why would an entrepreneur get involved in a risky and low-return project that they likely won't live to see payback, if it ever happens? After all, they're interested in personal prosperity, not macroeconomic ideas about the efficient use of resources over the long term.
Corporations have learned to impose a value system on consumers that maximizes their profits. But it's precisely these profits that make competing with corporations, if not completely impossible, then extremely difficult. Taking advantage of this, corporations "shape demand" by selling not what we truly need, but what they find more convenient to produce.
"Negative growth" of the labor force
In its struggle for the efficiency of productive forces, capitalism naturally sought to maximize the use of resources within its reach. And people are the most important resource in any economy.
And here, of course, capitalism could not do without involving women in productive labor, as this effectively doubled the workforce, providing a huge competitive advantage over societies that did not. But as labor became increasingly complex, women also needed to be educated. At the same time, rising prosperity and the emergence of social guarantees meant that children became completely unnecessary for individuals to make ends meet in old age.
I'm far from claiming that capitalism is the cause of the gradual population decline in developed countries. There are many reasons for this. But the fact is that emancipation, the involvement of women in production, combined with the cult of consumption (and capitalism has no other option—it needs you to consume, otherwise how will capitalists get rich?) preclude the possibility of restoring the birth rate even to the level of labor force replacement.
"It's time to sum up what has been said"
Thus, capitalism has ceased to cope with the task of effectively managing the economy. The current capitalist system is oriented toward maximizing the profits of large corporations, even though the interests of these corporations have come into conflict with the interests of society as a whole. Capitalism no longer serves as a means of efficiently allocating material resources and cannot ensure the reproduction of the labor force. In terms of population, capitalism has degenerated into vampirism: the transfer of production to developing countries, where there is a sufficient population and labor is cheap, and a flood of immigrants from developing countries.
But countries that embrace modern industry quickly adopt capitalist principles, so birth rates begin to decline there too. The same applies to countries that donate their populations. Take Africa, for example. The total fertility rate (the number of children a woman bears on average) in Zimbabwe was 7,16 in 1950, but in 2018 it was only 3,62. In Egypt, it was 6,72 and 3,33. In Morocco, it was 7,04 and 2,42. Of course, there are African countries that haven't suffered such a dramatic decline in birth rates, but... they've lost almost everything. The spread of medicine, family planning, and the spread of capitalism are taking their toll.
In view of the above, it is quite clear that capitalism has outlived its usefulness to society and no longer satisfies human development. What might replace it is difficult to say, as no new formations are currently in sight that could replace it.
Until recently, however, capitalist stagnation was, so to speak, predictable: it was perfectly clear that capitalism would not quickly give up its position and would remain with us for at least many more decades, if not longer. This was simply due to the lack of alternatives and the fact that it was still barely managing to maintain society's standard of living.
But... A new force has entered the world, the impact of which on democracy and capitalism can be assessed as truly devastating, although we do not yet fully understand to what extent.
The name of this force is the Internet.
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