Tuesday, 19 December 2006

Democracy vs. The Market

IF, and it's an important if, we assume that a good political system must have a mechanism by which the citizens can control the people in power, the two systems that are worth investigation are the market, and democracy.

The two methods that we see today in the West are democracy and the market. No doubt everyone is familiar with both of these methods, but I thought I'd give my take on them.


In a market system, the two main groups are the businesses and the consumers. The businesses offer products, and the consumers trade money for these products.

Who is in power here? Both parties need each other; the business needs money and the consumers want/need the products.

Here the structure of society is formed by the types of businesses in it. Public policy would essentially made up of the aggregate policies of every business; for example the amount of attention spent on being environmentally friendly would be determined by the amount of attention spent by the businesses.


In a democracy, the two main groups are the government and the citizenry. Here the government both demands taxes and offers the chance to vote, and the citizens offer nothing.

Who is in power here? Here participation in the system isn't totally voluntary, the only optional part is the control that the citizens have. So in essence, the government is in power no matter how many citizens voluntarily participate (ie vote).

Here the structure is determined by laws, passed by the politicians in power and enforced by agents of the State.


One advantage of the market is the voluntary aspect of it. Of course, you cannot completely opt out of the market, bar not consuming anything. Even then the actions of others will indirectly effect you, but to try to be a total individual is impossible. A democracy however adds a additional layer of involuntary systems into any society.

A second point of comparison is competition. Both systems have elements of competition; the market for money, democracy for votes.

Now democracies as we see them today, representative democracies, often have one election every three to four years where every citizen gets one vote. Another method is direct democracy, where the citizens vote on issues.

In the market, the choice is made via exchanging things of value, typically money.

One drawback of the democracy we see currently is the inefficiency of response. Compare the frequency of the majority of consumer decisions, buying bread for example, to the voting cycle. Obviously there are some items like cars or refrigerators that are often kept for more than four years.

Another is the lack of any real guarantee when casting a vote. Politicians often run on one set of policies, then act very different when in power. The citizenry is then powerless until the next election, often years away. The market is somewhat more dynamic; due both to the frequency of consumer decisions and the amplitude; many people buy bread often.

Another problem with the representative democracy method is the fact that there may not be a candidate running that supports the same things you do; you may have to compromise as you only have one vote. In a market system, money can be dolled out in a variety of amounts, relative to the amount the product or service is valued. It must be noted that in a direct democracy, this wouldn't be as much of a problem.

Another advantage of a market system is the multiplicity of businesses means you often have more choice than in a democracy, where typically two parties or candidates are far more popular than the third choice.

The market system can be seen as unfair due to the inequality of each individual. A billionaire has more influence over the power structure in place than a beggar. Another common idea is the chance of monopolies occurring.

A monopoly in itself isn't a bad thing; if one company is offering a near perfect product at a low price no one would complain. The bad effects of monopolies are when businesses use there size to cut back on competition from smaller companies.

The benefit of a democracy here is the chance for the government to enforce anti-monopoly laws to prevent them occurring. One must note two important points however, 1. a government is itself a monopoly on force and 2. businesses often use the power of governments, democracy or not, through channels like lobbying, to help sustain a monopoly.


Both systems have flaws, because both systems are run and maintained by humans. Which one is better or worse isn't really the point; a mixture is probably the best strategy.

The critical point that will determine the success or failure of either system is the vigilance of the consumer/citizenry. If you buy the poison bread or if you vote in Hitler the system will fail.

People create the society they deserve. In the end history shows it's not which system, but the people that run it.

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