Democracy and capitalism: Are they compatible in the long-run?
AbstractStarting from a discussion of Schumpeter's analysis of the relationships of capitalism, socialism and democracy, it is shown that, in a complex society, democracy is only compatible with a decentralized market economy with safe property rights. But in time democracy shows a tendency to weaken the capitalist system by more and more regulations and an ever-increasing share of government (including the social security system) in GDP. This tendency is a consequence of political competition because of the development of interest groups and the presence of rationally uninformed voters. It leads to a weakening of efficiency, investment, innovation and thus to lower growth rates of GDP. But in time forces opposing this development arise. First, because of the negative consequences of growing government the welfare and regulatory state is bound to move into a crisis in the long run. Thus innovative politicians have a chance to win the support of a majority of voters for reform projects, who perceive finally the ever-increasing burden of higher taxes and regulations and realize that these burdens are not worth the benefits bestowed on them. In doing so, they may face, however, the competition of ideologies. Second, there are other states with lower taxes and less unnecessary regulations which show higher growth rates of GDP, and gain thus relative advantages in international political and military competition since they can command greater resources with the passage of time. To maintain their relative international power position, reforms are thus considered as necessary by rulers. This may be helped by pressure resulting from comparisons of the standards of living done by their citizens.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Journal of Evolutionary Economics.
Volume (Year): 10 (2000)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/00191/index.htm
Find related papers by JEL classification:
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Potrafke, Niklas, 2009.
"Political cycles and economic performance in OECD countries: empirical evidence from 1951-2006,"
23751, University Library of Munich, Germany.
- Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
- François Facchini & Mickaël Melki, 2011.
"Optimal Government Size and Economic Growth in France (1871-2008): An explanation by the State and Market Failures,"
Documents de travail du Centre d'Economie de la Sorbonne
11077, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
- François Facchini & Mickaël Melki, 2011. "Optimal government size and economic growth in France (1871-2008) : An explanation by the State and market failures," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00654363, HAL.
- repec:hal:journl:halshs-00654363 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.