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Decline of Democratic Control and Faith in Market Capitalism?

12:00 AM, Dec 17, 2011 • By IRWIN M. STELZER
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In both Europe and America there is a strong belief by politicians that regulation and taxation are needed to return power from the market to the political class. Merkel has declared, “We must re-establish the primacy of politics over the market,” a position that has widespread support in her country and, of course, in France, where free markets and the Anglo-Saxon law of the jungle are taken as synonyms. And Obama has staked his future on creating a social democratic state along European lines, with serious constraints on businesses, and taxes on the “millionaires and billionaires” until now treated with respect bordering on reverence by Americans who believed that their turn at riches would soon come.

Three things in addition to infatuation with the success of the Chinese regime explain the flagging support for market capitalism. The first is the cupidity of bankers, bailed out by the tax payers, aware that rising income inequality and falling social mobility are creating a groundswell of objections to market capitalism, but still relatively unrestrained in their bonus claims. The second is the falling or stagnant incomes of the middle class, causing them to question whether the capitalist system that has historically created more wealth for more people still works for them, and will work for their children.

Third is the failure to correct the newly apparent flaws in the capitalist system. Laws designed to reform corporate governance are attacked as failures by the right, which calls for their repeal, and as failures by the left, which calls for their toughening. Tax policies that bestow breaks on various industries are attacked by the left as favoring the rich, and benefit programs that provide a modicum of help to the unemployed are attacked by the right for reducing work incentives. The voices of the few extolling the virtues of market capitalism are lost in the din of complaints and criticism by both left and right.

Everyone expects the decline of democratic control and of faith in market capitalism to disappear after the November U.S. elections, or at least with the return of prosperity. That’s what some thought would happen to Franklin Roosevelt’s New Deal reforms of capitalism when peace and prosperity returned. They were wrong. 

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