Isn’t It Ironic? On “Democratic Capitalism”

Carl Schramm, head of the Ewing Marion Kauffman Foundation, has a piece in Forbes arguing philanthropy exists to advance and perfect democratic capitalism. In response, Albert Ruesga, head of the Greater New Orleans Foundation, laments that if this is why foundations exist, “could there possibly be a better reason for dismantling the private foundation as an institution?” Ooh, CEO throwdown!

Less flippantly, what’s going unexamined here, I think, is the term “democratic capitalism.” My guess is that Schramm sees that adjective, which goes unexplained, as significant. Capitalism within the context of a democratic system presumably is different than unmodified, raw capitalism. But here’s where I think the difference lies. My hunch is that Ruesga’s image of democracy and Schramm’s may be different in one significant way.

As I’ve written about, and I owe this insight to my mentor Jeff Weintraub, in one respect democracy and the “free” market are fundamentally at odds. The invisible hand of the market aggregates the individual pursuit of self-interest into social welfare (or so the story goes). But this aggregation is strangely delicate. Try intentionally to generate social welfare, and the aggregation falls apart. This is some of the thinking behind mistrust of government.

Do you see what’s going on here? To avoid suboptimal outcomes, you have to give up the ability to consciously pursue the collective good. So the free market is really unfree, in an important respect.

And democracy is actually, in one version I happen to like, about a community consciously defining and intentionally pursuing the collective good (what Tocqueville called “self-interest properly understood”). Which is the opposite of letting the free market operate through the individual pursuit of self-interest. So democracy and the market are in one respect fundamentally at odds.

This is if you define democracy as I just have. It’s sometimes called “participatory” democracy, and associated with Isaiah Berlin’s vision of “positive freedom” – the freedom to do X or Y.

But there’s another version of democracy – a “procedural” one, associated with Berlin’s other vision – “negative freedom,” or freedom from X or Y. This version of democracy is not about the outcomes but about the rules and fair play – freedom of expression, and free elections. There’s a lot to recommend this version! And its achievement and sustainment are to be celebrated.

But for many people, I assume Ruesga included, it’s not enough. “Democratic capitalism” based on procedural democracy and negative freedom is sadly perfectly compatible with high levels of inequality and unjust economic outcomes. In fact, it probably encourages them. But for a vision of the good based on positive freedom and participatory democracy – what you might call social justice – “democratic capitalism” would need to look pretty different than it currently does to make that phrase other than a cruel irony.

And whether philanthropy can contribute to that effort – or whether the most it can and should aspire to is supporting “democratic capitalism” as Schramm might have it – is the real question. One of two, you might say.


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One Response to “Isn’t It Ironic? On “Democratic Capitalism””

  1. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » Best of Both Worlds? Says:

    […] the same time, I’m sure that, against the tendency of the day to conflate the two, that democracy and the market are not […]

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