NDLI: Democracy and capitalism: Are they compatible in the long-run?

Content Provider	Springer Nature Link
Author	Bernholz, Peter
Copyright Year	2000
Abstract	Starting 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.
Starting Page	3
Ending Page	16
Page Count	14
File Format	PDF
ISSN	09369937
Journal	Journal of Evolutionary Economics
Volume Number	10
Issue Number	1-2
e-ISSN	14321386
Language	English
Publisher	Springer-Verlag
Publisher Date	2000-01-07
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics Business, Management and Accounting

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