Democracy and Market System


In an earlier article entitled “Democracy: Its Foundations”, I pointed out that democracy only begins when a threshold of consciousness is reached where people see the benefit of give and take rather than using force to grab everything. Have you wondered where do people learn how to give and take? It is the market system where they come together to assess, argue, bargain and exchange. Wherever people exist, markets will naturally develop, unless being suppressed, for instance, by a communist regime. Still, a black market will develop in spite of suppression.

What is the most telltale sign of a democratic society? It lies in the sophistication of its markets. The more advanced its markets are, the more democracy the society has achieved, and vice versa. The two feed on each other, and grow together. To see the importance of this linkage, we look at two communist giants: China and the former Soviet Union.

In a communist society, long lines appear everywhere even for the purchase of bread, jeans, toys, and other ordinary items. The markets have been suppressed to the extent that they fail to balance supply and demand. This was the case in the former Soviet Union and its European satellites. Now things are different because communism has collapsed some two decades ago. However, little do the communists want to admit that market dysfunction causes severe misallocation of resources such as products, talents, and investments. The result is economic regression dragging down the communist regime. When the market system is in dysfunction, people lose incentives to work and to produce. They only wait for government handouts instead. In short, the collapse of communism is the consequence of gross mismanagement of the market system. But the market system is an anathema to communist doctrine in the first place. So the communist demise is inevitable.

The same fate could have befallen China had it not introduced market reforms as a priority. The Chinese government has managed to turn its communist system into a full-blown capitalist economy. Although this seems odd, they have found a way to accommodate this new policy under the slogan “Socialism with Chinese characteristics”. They relax business regulations; allow private enterprise; open up the economy to foreign investments; and improve the market infrastructure such as communications, energy supply, finance, education, and business laws. Simply put, the government regulates and nurtures the market system instead of suppressing it.

I’ve said earlier that democracy and market are closely linked together. Since China is developing into a full market economy, how much has it achieved on the road to full democracy? Let’s see what an ordinary Chinese citizen can do now. Equality between the sexes is achieved under the law. A Chinese citizen now has about the same economic freedom as a Westerner as far as consumption and investment is concerned. The few things still forbidden are in the political area: to vote, and to openly criticize or protest against the government. The communist regime still maintains tight controls in political matters, whereas most controls in the economic area have disappeared. This new economic freedom represents a far cry from the dark days before 1980. As I’ve pointed out, democracy is an ideal, and always work in progress. Every country has to be judged by how much it has achieved on the road to democracy.

What are the democratic prospects for China? In the market system, new things are constantly emerging because people demand more. This trend is spilling into other areas too, especially politics. Sooner or later the population will demand free speech, freedom of assembly, and voting representation. How long can the government continue to resist? In fact, the relative importance and power of the Chinese government is gradually reduced as the market system grows. The communist regime’s first test came as the Tiananmen protest of 1989, which they managed to suppress by force. However, the regime has paid a high price in the diminishing respects and credibility for the Communist Party and the People’s Liberation Army. That’s why the regime is so paranoid now about another large-scale protest. Since Tiananmen, the government forbids protests against everything for fear of losing control of the crowd. It’s an anomaly and a contradiction. How long can this last?

(March 2011)

 

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