Democratic capitalism, also referred to as market democracy, is a political and economic system that integrates resource allocation by marginal productivity (synonymous with free-market capitalism), with policies of resource allocation by social entitlement. The policies which characterise the system are enacted by democratic governments. The implementation of democratic capitalism typically involves the enactment of policies expanding the welfare state, strengthening the collective bargaining rights of employees, or strengthening competition laws. These policies are enacted in a capitalist economy characterized by the right to private ownership of property.
Catholic social teaching offers support for a communitarian form of democratic capitalism with an emphasis on the preservation of human dignity.
The different definitions
Democratic capitalism is a type of political and economic system characterised by resource allocation according to both marginal productivity and social need, as determined by decisions reached through democratic politics. It retains a free-market economic system with an emphasis on private enterprise.
Edward Younkins, professor at Wheeling University, described democratic capitalism as a “dynamic complex of economic, political, moral-cultural, ideological, and institutional forces”, which serves to maximize social welfare within a free market economy. Younkins states that the system of individual liberty inherent within democratic capitalism supports the creation of voluntary associations, such as labour unions. Novak comments that capitalism is a necessary, but not a sufficient condition of democracy.
History
Early to mid-20th century
The development of democratic capitalism was influenced by several historical factors, including the rapid economic growth following World War One, the Great Depression, and the political and economic ramifications of World War Two. The growing critique of free-market capitalism and the rise of the notion of social justice in political debate contributed to the adoption of democratic capitalist policies.
United States
After taking office as president in 1981, Ronald Reagan advocated for a reduced role of government in the economy, while responding to voters’ skepticism of liberal capitalism by maintaining strong public sector spending.
Former US President George W. Bush said in the past:"Democratic capitalism is the greatest system ever conceived." He intended to describe the threat to capitalism linked to democracy both in his country and in most of the world, in the context of the dramatic speech (September 2008) in which he raised the need to save it from the financial crisis of 2008 , which he posed in very serious terms.
Europe
From the mid-1980s, European leaders began endorsing neoliberal ideas, such as those associated with Reaganomics and Thatcherism, based on the notion of the interdependence of economic and social policy. Such policies include the establishment or expansion of a welfare state, as a method of mediating social class conflict and catering to the demands of workers. This includes institutions which facilitate bargaining between government bodies and business and labour organisations such as unions, and those which regulate the relationships between employees and management within private firms. According to political philosopher John Tomasi, democratic capitalism addresses social entitlement and justice concerns through the preservation of citizens’ private property rights, allowing citizens to be “free, equal, and self-governing”. Policies implemented are designed to incentivise public and private sector innovation. The papal encyclical Centesimus annus, written by Pope John Paul II, emphasizes a vision of a communitarian form of democratic capitalism.