Political or Economic Democracy:

Which Comes First?

Dear Friends,

Does economic or political democracy come first, historically? Does one lead to the other? Or, do they arrive simultaneously? Actually, these are 'chicken-and-egg' questions.

Whereas political democracy refers to a government in which all citizens have equal opportunity to influence political policies, mainly through voting, economic democracy refers to a society in which all persons have equal rights to work, produce, invest, and buy and sell in a free market.

In both medieval Europe and less developed countries today, public offices are thought of as private possessions. They can be bought and sold, along with the privileges they enjoy, such as awarding contracts and granting license to do business. In France and England (for example) before the English civil war, buying and selling offices was considered normal, legal practice. In less developed countries today, many of these practices are common culture. They may be illegal, considered "corruption," but the law does not conform to culture. What we call "corruption" is often an integral part of political culture, to be changed only piece by piece and over long time periods. To change it suddenly would be like replacing a liver (or stomach, or intestines, etc.) with a foreign body that operates differently, and expecting the corpus to function normally. For example, in Mexico:

"Vicente Fox, Mexico's first opposition-leader president in seven decades, has dispatched a small army of auditors with an unprecedented mandate to root out the corruption of the past. But the crusade is having an unintended effect across Mexico. It's dumping sand in the gears of his government. Empowered to launch investigations of public servants without judicial oversight, the auditors are holding up public contracts and penalizing bureaucrats over technical errors. Thousands of low- and mid-level officials have been banned from public service for a year or more or fired outright — virtually all because of administrative mistakes that the auditors consider tantamount to corruption." (Wall Street Journal, 9/25/02).

Turn now to the more industrialized countries. "Democracy is not the voting system, nor who is in charge, but it lies instead in the hearts and minds of people. It permeates those hearts and minds, so that no one allows them to be usurped by force or in any other way" (TQE #56). We are far from "there" in the United States, but we and Western Europe are much closer now than were England and France in the seventeenth century. How did the change come about, while most less developed countries still resemble our ancestors of four centuries ago?

Political and economic change occurred when commoners began to see ways to improve their economic positions in defiance of lords. They began trading, from North Italy to England, and then they ventured overseas. Partly because they could not stop the commoners, and partly to participate in the gains of trade, lords and kings stood aside as serfs moved to towns, where they became free after residence of a year and a day. Free men (I say "men" advisedly, because they were dominant in those days) had privileges that serfs and slaves did not. This move toward freedom opened both political and economic doors. "Free cities" (like Frankfurt) were a political step; the rules of trade were economic.

Here are two examples of the inter-connection of political and economic democracy. The first I call the Philip II Syndrome. As king of Spain (1558-98), Philip taxed manufacturers and merchants so heavily that they could not accumulate much capital. From his marriage to the Queen of England and his sovereignty over the Netherlands, he should have known that economic democracy would make his country richer, but the wealth would belong to the merchants, not to him. Unwilling to cede wealth, and therefore power, to the producers, he kept his country in poverty, which became lasting, and from which it is only now emerging.

The other example is present-day China. In China, "the government picks favorite companies, and by doling out tax breaks, land deals and contracts, allows them to prosper. Those favored few repay the support with kickbacks, taxes, and loyalty to the party and the government" (Washington Post, 9/29/02). This condition will not last. Ultimately, the favored few or their less favored competitors will gain power relative to the government, and political oversight will diminish as economic democracy takes over.

Keeping promises is the kernel of economic democracy. Contracts require rules of enforcement. These were composed, in western Europe (including England), mostly by commoners. The king adopted them later. In those cases where the king did make the laws, medieval jurisprudence required that he himself live up to the laws he had made. Each manor had a court. In at least one case, the serfs sued the lord of the manor, and won.

Money, private property, and law courts were the principal institutions composed mainly by commoners. Though metallic money with the stamp of the king existed earlier, by the late Middle Ages goldsmiths (commoners) were collecting gold from those who did not want to be encumbered by it, and issuing tradable certificates instead. These — a new paper currency — could be redeemed for gold at any time by the original issuer, who had to be a person of trust. In this, and many other ways, trust became the foundation of economic transactions.

Courts of law were established by traders at trade fairs (e.g., Champaign, which stood half way between Italy and England). Judges were appointed by organizers of the fair, and the courts were known as "piepowder courts" (because you walked in pied-poudreux, with dust on your feet). Judges knew that if they were unjust to traders from different cities, those traders would go elsewhere. So impartial justice became the norm.

We are not sure of the origins of private property. Feudal property was not private, nor is the great majority of landed property in less developed countries today. Hernando de Soto has shown in The Mystery of Capital how peasants are held back in their economic adventures because they do not legally own the property on which they live.

Some have believed that land should be held by "all the people" because it is a gift of God. But "all the people" cannot cultivate a given piece or eat the crop. Some must do this and others not. Who? Some historians have argued that the concept of private property came about when those who fought over it realized it was cheaper to divide it than to fight. An economic or political decision? (Israel and Palestine have not yet discovered this truth, but they will). The concept of private property was adopted in Europe as feudalism broke down and the towns (later cities) developed registers of who owned what.

Trust lay at the heart of the growing institutions of economic and political democracy in western Europe and its political descendents. "In the long history of human morality there is no landmark more significant than the appearance of the man [person] who can be trusted to keep his promises. ... Although conscience and promise-keeping emerged in human history ... long before capitalism ... it was not until the eighteenth century, in Western Europe, England, and North America, that societies first appeared whose economic systems depended on the expectation that most people, most of the time, were sufficiently conscience-ridden (and certain of retribution) that they could be trusted to keep their promises." (Haskell in American Historical Review, vol. 2, pp. 551-3, 1985). This trust arose from the realization that if one cheated at trade, one's reputation was lost, and others would trade no more. So trade engenders trust.

This concept is now being tested in a case between Bechtel and the Government of Bolivia (GOB), who made an ill-advised contract — I think it should never have been signed — under which Bechtel would provide water to the city of Cochabamba at prices determined by the company. The people of Cochabamba rioted because these prices were too high, and the GOB rescinded to contract. Bechtel, having already made investments, is now suing the GOB for breach of contract. Should the court find in favor of the GOB because Bolivia is a poor country "exploited" by Bechtel, which has deep pockets? Or should the court find in favor of Bechtel, in order to sustain promise-keeping as a concept of economic democracy?

These are the kinds of questions arising today as the world continues its quest toward globalization. What do you think?

Sincerely your friend,

Jack

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Readers' Comments

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Mechanically, for the most part (Florida being a particularly blatant counter example) we have one adult citizen one vote. But in determining how these votes will be cast, we are much nearer to one dollar one vote. Despite (or perhaps because of) the First Amendment, not all citizens have an equal chance to influence policy and how voters will chose to vote. Size of political donations determines "access" and ability to influence policy decisions.

— Will Candler, Annapolis (MD) Friends Meeting.

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On the case of Bechtel vs. Government of Bolivia (GOB):

The GOB should get nothing but public censure and ridicule by having another entity act to overturn the contract, like the OAS or ICJ. Bechtel should just get nothing, to warn it and all other corporations that they should obtain genuine assent from the rightful owners of the asset they intend to purchase, before asserting the validity of such a contract. This outcome could prevent governments signing any other such deal — corporations would be too afraid that it would be overturned.

— Paul Connor, Toronto, Canada

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Surely Philip II never married the queen of England however much he so desired?

Private property came about when strong and often wealthy people took it for themselves by trickery or more often by force and then claimed that they owned it. Common land still exists in many countries. In Britain it can be leased for uses such as usually farming. There is no reason (except greed) why all land could not be "owned" by an individual only in the form of such leases.

— Roger Benham, Smithers, B.C., Canada.

Reply: (1) From Encyclopedia Britannica: "In 1554, Philip married Mary I of England and became joint sovereign of England until Mary's death, without issue, in 1558." (2) No one knows for certain how private property came about. The theory that I mentioned in TQE #57 is held by most historians. (3) Most land in the Third World is indeed owned by government, which "allows" the poor to occupy it. But they cannot sell it, mortgage it, or use it for business without permission of the monopoly-owner (government). Many economists believe the failure of the poor to own their own property is a principal reason for their poverty. See Hernando de Soto, The Mystery of Capital. — Jack