Joseph Schumpeter – Capitalism, Socialism and Democracy

Schumpeter never intended to offer a landmark definition of democracy. It was an accident of fortune. In the preface to the first edition he admits, “The problem of democracy forced its way into the place it now occupies in this volume because it proved impossible to state my views on the relation between the socialist order of society and the democratic method of government without a rather extensive analysis of the latter.” Indeed, he found himself challenging the foundations which underpin what he described as the Classical Theory of Democracy. But like his ideas about capitalism and socialism, his ideas about democracy have been challenged by an evolution in the political order. Nonetheless, it is impossible to have a firm grasp on theories of democracy without the study of what has become known as the Schumpeterian theory of democracy.

Schumpeter deserves credit for redefining democracy as a form of government rather than an ideal of governance. The Classical Theory was largely based on ideas derived from Rousseau’s Social Contract, yet they were shaped and molded over two hundred years of political thought to expand beyond the nebulous “general will” to establish elections as the expression as the will of the people. Schumpeter removes the ideals and reclassifies democracy simply as “that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote.” Huntington simplified the definition to “the selection of leaders through competitive elections by the people they govern.”

Participation has become a fundamental aspect of democracy. But Schumpeter diverges from this approach because he allows the commonwealth to define “the people.” The consequences are simply incompatible with the popular notion of democracy today. He allows for “disqualifications on grounds of economic status, religion and sex” which others may not “consider compatible with democracy.” He goes so far as to apologize for the racism which was America’s great challenge to democratization as he explains that “a race-conscious nation may associate fitness with racial considerations.” Ultimately, the composition of the electorate is inconsequential to Schumpeter. A political system can limit its electorate to a small minority and still claim a democratic form of government. Indeed, it is unclear how small the electorate can become before Schumpeter might consider its reclassification into oligarchy, aristocracy or some other form of government. Schumpeter seems to have defined the earliest forms of democratization where less than a single percent of the population had a right to vote as comparable to the fully realized liberal democracies which emerged after World War II.

Over the past thirty years his ideas have faced significant challenges as governments introduced elections which were only nominally competitive. Fareed Zakaria recognized this transition in his article “The Rise of Illiberal Democracy” but it was the seminal work of Levitsky and Way which gave a name to competitive authoritarianism. Their research effectively destroyed the foundations of the Schumpeterian definition of democracy. The mere presence of competitive elections was no longer an indication of democratic governance. Even a competitive election may establish rules which become neither free nor fair for the political opposition. Indeed, it is the emphasis on competition within elections which has ultimately undermined the electoral process in so many countries. Incumbents are encouraged to enact laws and procedures aimed to favor their own political faction. Over time the rules which undermine democracy can become the norms of elections. And the political process may descend from a competitive form of authoritarianism into a less subtle form referred to as hegemonic authoritarianism.

The book Capitalism, Socialism and Democracy is primarily about the sustainability or rather the inevitability of the socialism. He saw the ultimate success of capitalism as the cause of its own destruction. There is a parallel between his idea of the creative destruction of companies and a different sort of creative destruction of the economic order. According to Schumpeter, capitalist economies encouraged the development of monopolies which became vulnerable as new technologies emerged to threaten their economic model. In the same manner, he envisioned the success of the capitalistic system to bring about its own destruction through its natural dominance over the economic system. The bureaucratization of business was a part of the natural evolution. It eased the transition toward its incorporation as a public bureaucracy under the auspices of a democratic government. He was unable to distinguish between the professional class of managers in business and the professional bureaucrats which managed the government. Ultimately, his economic predictions were quite wrong.

But I bring up his concept of creative destruction because it is never completely applied to democracy. No this is not completely true. He just simply does not care. He acknowledges “whenever these principles are called in question and issues arise that rend a nation into two hostile camps, democracy works at a disadvantage. And it may cease to work at all as soon as interests and ideals are involved on which people refuse to compromise.” He recognized how a growth in polarization allows the competitive nature of elections to undermine democracy. But he simply acknowledges the necessity of authoritarianism. But he holds out a false hope that “the democratic principle of competitive leadership is merely suspended.” Of course, these suspensions may last decades or generations. His own example of the Roman dictatorship culminated in an imperial era which lasted over four hundred years.

It is impossible to develop mature ideas about democracy without a firm grasp of Schumpeter’s sense of democracy. Huntington was right when he described it as a step forward in the theoretical understanding of democracy. Yet it leaves many aspects of democracy incomplete and is challenged with its own inconsistencies. But every scholar of democratic ideas needs to take enough time to recognize its contributions to the study of democracy and offer a logical response. In many ways, Schumpeter’s notion of democracy has become the perspective of the general public. Horizontal forms of accountability like the courts and the professional bureaucracy have come under attack when they challenge the behavior or decisions of elected officials. It is easy to perceive them as obstacles to a democratic form of government. But their role is meant to intensify the democratic experience through its commitment to the rule of law. The Schumpeter description of democracy overlooks this complex interplay between different institutions. In the end, Schumpeter approaches political institutions as an economist rather than a sociologist. This perspective limits his ability to recognize critical aspects necessary for democratic governance.

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