CONTEXT OF MODERN GOVERNMENT

The concept of government is one of the most vital political institutions in our political life. Governments are generally understood as a formal administrative apparatus or an institutionalized process through which states exercise their sovereignty and maintain control over society. They perform a vast range of functions—managing the state, regulating public affairs, making and implementing public policies, enforcing laws, protecting the state and its citizens, and more—which are essential for a society to exist as a stable and sustainable political system.

However, there is significant diversity in the ways these governmental functions are carried out, largely determined by the circumstances and context in which they operate. For example, governments in countries like the United States, Canada, France, Japan, and Germany differ markedly from those in China, North Korea, Vietnam, India, Brazil, or South Africa. These differences are not only in their political, economic, and social outlooks but also in the practice and extent to which public affairs are shaped and directed. Similarly, the machineries or organizations responsible for carrying out governance vary greatly across these states.

CAPITALISM AND THE IDEA OF LIBERAL DEMOCRACY

Introduction

Liberal democracy and capitalism have emerged as the most successful political and economic systems, despite facing intermittent challenges. This passage explores the different dimensions of liberal democracy and capitalism and highlights the relationship between the two. Fundamentally, democracy emphasizes the common good, while capitalism prioritizes the personal good. Capitalism operates on the principle of unequal property rights, whereas democracy seeks to ensure equal civic and political rights. Democratic politics is based on consent and compromise, while capitalism relies on hierarchical decision-making. Wolfgang Merkel, a renowned scholar on democratization, aptly notes that “Capitalism is not democratic; democracy is not capitalist.“

Historical Moorings of Capitalism and Liberal Democracy

It is difficult to pinpoint the origins of capitalism, as the idea or attitude of capitalism may have existed in a primitive form since early human history. The evolutionary journey of humans shows that early man focused on satisfying basic needs, gradually learning to accumulate capital and understand the significance of enterprise and speculation to transform resources into wealth. However, capitalism as a system began to develop in the 16th century, with the industrial form emerging in 18th century England and subsequently spreading to other parts of Europe, North America, Australia, New Zealand, and South Africa. By the end of the 19th century, European colonial expansion enabled capitalism to dominate globally.

The rise of capitalism is associated with three main features: (1) the growth of the capitalist spirit—the desire for profit, (2) the accumulation of capital, and (3) the development of capitalist techniques. Max Weber argued that capitalism was a product of rationalization, reflecting the rational organization of productive enterprises. The emergence of the waged worker after the industrial revolution marked a crucial stage in its development. Historical analysis shows that capitalism did not arise from a few inventors or a special “enterprising spirit” of British capitalists, but from the systematic breakdown of feudalism and the establishment of a wage-labour system.

Karl Marx analyzed capitalism dialectically, seeing it as a product of contradictions within feudalism. He argued that capitalism replaced feudalism by transforming serfs into wage laborers, thereby consolidating the capitalist system. Marx predicted that advanced capitalism would eventually collapse due to its inherent contradictions, leading to a proletarian revolution. However, such a revolution only occurred in underdeveloped Russia, resulting in state capitalism. The collapse of the communist bloc later led Francis Fukuyama to declare, in The End of History and the Last Man, that liberal democracy and capitalism had triumphed. Subsequent globalization, supported by neoliberal economic policies, expanded capitalism worldwide, though the 2008 global financial crisis prompted renewed calls for redistributive policies to address growing inequalities.

Democracy today is celebrated as one of the most successful political systems, generally implying a form of government that is by the people, for the people, and of the people. Its historical roots trace back to ancient Greek city-states, where direct participation in assemblies was encouraged, though it excluded women, slaves, and foreigners. Non-Western examples, such as the Sabha and Samiti in Vedic literature, suggest that democratic practices existed outside the Western world as well.

Liberal democracy emerged as a product of modernity, evolving through struggles against royal absolutism and the transfer of powers from monarchs to Parliaments. Its development was further shaped by the American and French Revolutions, industrial capitalism, and contributions from thinkers like John Locke (inalienable rights), Bentham (representative politics), and J.S. Mill (women’s suffrage). Democracy progressed through the gradual enfranchisement of diverse social groups, public education, and electoral reforms. Decolonization and post-World War II demands for self-determination further expanded democracy globally.

The adjective “liberal” in liberal democracy highlights specific meanings regarding individual freedom, the role of the state, and the role of the market. It emphasizes greater individual rights and limited state interference, though interpretations vary. Liberal can mean either negative liberty (absence of constraints) or positive liberty (capacity to participate in governance). Consequently, different versions of democracy emerge:

• Socialist democracy prioritizes the working class and limits private ownership.

• Communitarian democracy emphasizes duties and obligations to society over individual liberties.

• Systems may also adopt environmental or feminist orientations, focusing on ecological concerns or gender equality.

What is Capitalism and Liberal Democracy?

The Macmillan Dictionary of Modern Economics defines capitalism as a political, social, and economic system in which property, including capital assets, is largely owned and controlled by private persons. Capitalism is essentially an economic system driven by individual enterprise to earn profits. It emphasizes private ownership, freedom of enterprise, contractual transactions, and economic competition. In this system, the allocation of resources is primarily determined by the price mechanism, and the extent of market competitiveness and government intervention distinguishes different forms of capitalism. In its extreme Laissez-Faire form, capitalism rejects governmental control entirely, though unchecked, it can become ruthless and exploitative.

Capitalism also functions as a system of indirect governance, where markets exist within institutional frameworks provided by political authorities. Scott (2006) conceptualizes capitalism as a three-level system: (1) the markets where competition occurs, (2) the institutional foundations including administrative and regulatory frameworks, and (3) the political authority that establishes and enforces rules. For effective development, capitalism requires both an invisible hand (pricing mechanism) and a visible hand (government regulation through legislature and bureaucracy).

Max Weber described capitalism as an attitude of rational profit-making, thriving on private ownership, rational production and distribution techniques, free markets, wage labor, and commercialized economy under rational legislation. In contrast, Karl Marx viewed capitalism as a historical stage marked by exploitation, class divide, and inequality, where the bourgeoisie (owners) exploit the proletariat (workers), and government acts as an executive agency of the capitalist class. Marx argued that capitalism, combined with liberal democracy, perpetuates exploitation until the working class unites to overthrow the system, establishing communism.

Capitalism can thus be understood as a spirit of enterprise, a mode of production, and a commercial system. Its proper functioning requires rule-bound economic policies, protection of markets and property rights, independent regulatory authorities, and central banks insulated from political pressures (Streeck, 2011). Yamamura and Streeck distinguish between liberal and non-liberal capitalism, reflecting the degree of social and political regulation and how national societies organize their economies.

Democracy is essentially a government by consent, relying on periodic, competitive, free, and fair elections. Citizen opinion is paramount, and consensus-building occurs at three levels (David Easton): (a) community-level consensus (basic), (b) regime-level consensus (procedural), and (c) policy-level consensus (policy). Sartori emphasizes that in democracy, no one has unlimited power; limited power and accountability are central. Individualism, popular sovereignty, and limited government are foundational to liberal democracy.

Democracy has both procedural and substantive aspects. Procedural democracy focuses on the constitutional framework, while substantive democracy emphasizes equitable distribution of growth and resources. Liberal democracies protect individual liberties through established procedures (Ware, 1992). Core values like liberty, equality, and fraternity reinforce procedural democracy and regulate markets to ensure resource redistribution. Liberal democracy combines:

• Liberal component – limits political power and safeguards freedoms.

• Democratic component – ensures people’s participation and representation through political institutions.

Political parties provide representation, either direct, indirect, or proportional, shaped by societal composition. Homogeneous societies tend to have two-party systems, while heterogeneous societies favor multi-party systems. Property rights and free markets are integral to liberal democracy. Marxist critiques argue that political equality is meaningless without economic equality, as capitalism inherently creates class divides. Socialist democracy seeks to overthrow capitalism rooted in liberal democracy.

Elite theorists, including Gaetano Mosca, Wilfredo Pareto, and Robert Michels, critique liberal democracy by arguing that real power is concentrated in the hands of a few elites, rather than exercised by the people at large.