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Capitalism vs democracy: Europe’s hard problem

Modern Europe’s political structure is based on the supposition that capitalism and democracy can be compatible – so the most urgent challenge of our times is reconciling the two.

Will Europe’s past become its future? There is a simple way to answer this. At the start of the 20th century, the continent had fewer than half the number of states it has today and of these there was none truly independent that enjoyed universal suffrage. Only two of them – France and Switzerland – were republics, and the rest were ruled on some version of the hereditary principle. Forty per cent of the continent’s labour force worked on the land compared with roughly 5 per cent today. The state was a shadow of its present self – in Germany, public spending amounted to around 12 per cent of GNP compared with 40 per cent and more today, and at least half of this was spent on the military and not, as now, on health and pensions. Wheat was a more precious commodity than oil, and there were roughly 14 million horses and only 15,000 cars in Europe as a whole. Unless we believe the continent can revert to the agrarian, pre-democratic, monarchical model that prevailed before 1914, the past is gone forever.

But that is not what people usually mean when they imagine a returning past. The past in these cases represents something to be feared, something to ward off – the threat of an international system of states spiralling into war perhaps; or the threat of a resurgent fascism and authoritarianism.

This is not a productive approach. It invites false analogies and poor history. A better alternative might be to use the past to think with. It is striking that the single most urgent challenge facing Europeans today is the same conundrum that has faced them for the entire preceding century: how to reconcile capitalism and democracy. History cannot tell us how to do this but it can help us comprehend some of the inter-relationships between them.

Capitalism can exist without much freedom, as in China, and democracy can exist without capitalism, as was the case in ancient Greece. Some theorists have even argued the two are inherently opposed: the Marxist sociologist Nicos Poulantzas, for instance, saw the capitalist state as designed to ensure a permanent subordination of the majority by an elite. And yet, the political structure of contemporary Europe is based upon the supposition that they can and should be made compatible. This has turned out to be far from easy, and the confidence people displayed at the end of the Cold War that the future was a capitalist and democratic one has waned at a time when at least four far-right parties are in government in member states of the European Union.

For much of the 19th and 20th centuries, thinking critically about capitalism was easily done thanks to powerful traditions of thought, such as political Catholicism and socialism. Indeed, the rapprochement between these two after 1945 opened the way for the managed capitalism that emerged in the postwar era in western Europe. One of the reasons they came together was Soviet communism, a rival system whose very existence presented a challenge to devotees of the free market since it showed that an alternative was possible.

But while socialism and political Catholicism survive, in an attenuated form, the sense of capitalism as an ideological choice has vanished. Even before the collapse of the Soviet Union, communism had ceased to function as a plausible alternative – the survival of the Communist Party in China, overseeing a form of party-led capitalism, does not materially change this fact.

To think about capitalism today, then, in the absence of existent alternatives, requires thinking historically, since the form of capitalism that prevails in Europe – based on a particular set of rules and practices – is not only different from that existing a century ago, it is substantially different from that which prevailed 30 or 40 years back.

Few capitalists like to hear themselves referred to as such. The problem with the term democracy is the opposite: who in the 20th century was not a democrat?

Bolshevism described its goal as a higher form of democratic participation. Fascist and right-wing political theorists argued that plebiscitary dictatorship expressed the will of the people better than parliamentarism did. We have had social democracy and liberal democracy, neither of them at all self-evident in their meaning, and of course, after 1947, Soviet rule in eastern Europe was justified as a people’s democracy.

Today, what is generally meant by democracy is a form of polity that preserves individual liberties, representative, multiparty electoral systems and checks on executive power, as well as the existence of social welfare programmes – in short, the dominant polity in western Europe since 1945.

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When viewing Europe’s long 20th-century history, some features of the world before the First World War are immediately striking. This was largely a capitalist world. It was also a proto-democratising one in which the slow move to democracy within Europe coincided with new kinds of oppression outside it. Colonial empires administered from western Europe controlled much of the world’s resources outside the Americas, while land empires in eastern Europe stretching into Russia and the Middle East ruled everywhere except in those fragile national states in the Balkans.

Demographically, Europeans made up a larger proportion of the world’s population – about 25 per cent – than ever before or since. (Today it is less than 10 per cent and falling.) Europe was a net exporter of peoples, and there was almost no migration to the continent. Despite industrialisation, societies remained rural and agrarian, rooted in the rhythms and needs of land. States thought in terms of protecting or acquiring land, and their alliance systems were largely designed to compensate for or adjust claims to territory and borders.

Before 1914 war was a fact of life, whereas today Europe participates in an international system that, according to the UN Charter, outlaws the use of force except in defence (national armies have shrunk in size, and there have been no declarations of war within Europe for more than half a century).

Just as the political evolution of mid-20th-century Europe was shaped by its total wars and their social impact, so the political contours of contemporary Europe have been shaped by war’s absence.


Mass politics: Lenin speaks to workers at the Putilov factory, Petrograd in 1917, the year of the Russian Revolution. Credit: 

It was the First World War that put the problem of democracy squarely in front of Europe. Four years of war fought by millions of men radically altered the terms of the social contract. The effect on the map was also instantaneous. The three land-based empires – Ottoman, Romanov and Habsburg – disappeared; national states became the norm. Habits of deference and privilege were suddenly eroded: Russian princes, such as Dimitri Obolenski, became Parisian taxi-drivers. Between 1919 and 1922, national states with constitutional forms of government and strong legislatures emerged everywhere from the Baltic to the eastern Mediterranean.

At the same time, the victors at the Paris Peace Conference introduced international governance in the form of the League of Nations, not as an antidote to nationalism but as an expression of it (19th-century theorists of nationalism, such as Giuseppe Mazzini, had always argued that nationalists were the true internationalists, and the League was an experiment testing the truth of this proposition – just as the European Economic Community would be later). Mass suffrage, meaningful elections, alternating governments: this post-1918 form of democracy was formally impeccable.

The problem was with how it worked in practice. Not enough thought had been given to the formation of enduring governments, nor to the need for a reasonably powerful executive. The system was severely tested by the economic chaos of the interwar years and by the fact that it was shackled to two other creations of the postwar European order: the territorial settlement imposed at Versailles in 1919, and the return to the gold standard in the 1920s that represented the economic orthodoxy of the day. The point of returning to the gold standard system of fixed exchange rates was to restore monetary stability and prevent any repetition of the hyper-inflation that plagued much of central and eastern Europe in the early 1920s.

Bolshevism, whose triumph in Russia in 1917 left its mark on the bourgeois, showed that mass politics need not produce liberal outcomes. Yet while the existence of Soviet communism raised the stakes in European democracies, especially after the Wall Street Crash in 1929, what is striking is the near-universal incapacity of revolutionary socialism to take hold anywhere west of the Soviet borders before 1939. Communism was, in that sense, the great interwar failure in Europe.

A much greater challenge to the European parliamentary democracy established after Versailles was right-wing authoritarianism. By the mid-1920s there was a fully fledged debate in Europe about the so-called crisis of democracy, most frequently in relation to right-wing ascendency, starting with Admiral Horthy in Hungary and Mussolini in Italy. Historians and political scientists have spilled much ink trying to define fascism, to figure out which regimes were fascist, as opposed to authoritarianisms of a military or clerical cast. This seems beside the point: when Europeans waved goodbye to parliamentary democracy between the wars they were mostly heading right not left. Michal Kalecki, the great Polish economist, defined fascism as the way in which capitalism was made safe for the capitalist class by undermining workers’ bargaining power.

By 1940, the only democracies left in Europe were in the UK, Switzerland, Sweden, Ireland and Finland. This is worth pondering given the emergence of the far right across Europe today: whatever we may think about it as a symptom of crisis, and a warning of where things might lead, the right possesses deep roots in European soil. That does not mean it is destined for success, but it does mean that the tendency of the postwar decades to assume away the existence of any sort of fascism after Nazism was, we can now see, an error.

The right – anti-liberal, anti-intellectual, anti-leftist, in favour of strong executive power and besotted with the idea of ethnic purity for a society defined on racial lines – was between the wars Europe’s most powerful political creation.

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Given all this, the year 1945 represented an almost miraculous rebirth of democracy. It was also the moment for a serious rethink about the compatibility of democracy and capitalism. In eastern Europe, Soviet rule evolved via Popular Front-style, communist-led governments, which, by 1949, Soviet political scientists touted as a historically unprecedented form of people’s democracy. Resting on high levels of coercion combined with major industrialisation projects, their challenge was to reconcile Soviet security interests with expressions of east European nationalism.

Western Europe had an easier task: the region was far wealthier than the East; the challenge facing the planners far more modest. Satisfying American security concerns basically meant co-operating across borders, accepting technical advice and scarce dollar counterpart funds, and allowing a formerly capitalist system to grow rather than building a new industrial economy from scratch. Democracy returned through parliamentary politics, multiparty systems manifested a new degree of ideological convergence of right and left, and the language of freedom and human rights was extolled through organisations such as the Council of Europe.

At the same time, postwar west European democracy gained new legitimacy through a vastly expanded range of social and economic state provisions. The expansion of this welfare state system, often based on pre-war and wartime institutional experiences in both fascist and non-fascist regimes, became one of the principal legitimating instruments for the new political order after 1945. Higher taxes were willingly accepted as the price for democracy’s revival.

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What, then, was the importance of the European idea of inter-state co-operation during the so-called Trente Glorieuses?

The path to European integration was not a smooth one, and it was littered with false starts – the Marshall Plan’s Organisation for European Economic Cooperation, for instance, or the Hague Congress, or the European Defence Community that fizzled for a moment and then sank without trace. The integrative process began in earnest with the European Coal and Steel Community in 1951, and then with the Common Market. The Treaty of Rome, signed in 1957, promised “ever closer union”. What is forgotten, however, is just how far off union then seemed. The dollar shortage, wartime destruction and monetary chaos at the end of the Second World War meant that west European economies remained virtual autarkies (Italy’s exports were a mere 8 per cent of GNP in 1955; West Germany’s 14 per cent).

The critical point is that for much of the Trente Glorieuses the booming economies of the Common Market retained a considerable degree of autonomy in national economic decision-making. Most countries had ministries of national economic planning or public works. The Common Market thus started off as an aid to national capitalism, not a substitute for it, while demand for labour was significant enough to suck in economic migrants on an unprecedented scale from the former colonies and the Mediterranean littoral – a process that occurred without any discernible long-term rise in the extreme right.

The twin oil shocks of the 1970s, when oil supplies dropped and prices soared, and the end of full employment brought major changes to Europe and to this version of the integration process. European politicians and technocrats such as the French economist Michel Camdessus, who directed the IMF between 1987 and 2000, crafted new international norms that underpinned the highly open form of global financial capitalism and undermined autarky. The integration process then intensified with the creation of the European Union and, above all, with the introduction of the euro in 1999.

The British had always hoped that widening Europe would stop its deepening. They were wrong: both happened at the same time. By the first years of the new millennium, the EU was a far more powerful entity than the Common Market had ever been, and institutions such as the European Central Bank wielded extraordinary power. The balance between national economic autonomy and EU-level policy shifted decisively and for a time both centre left and centre right hoped it would benefit them. It was not to be. Once the love-in with globalised capitalism soured in the debt crisis of 2009-10, the European project was exposed politically. Defending the euro and forcing austerity on countries such as Greece meant that the EU could not avoid some of the responsibility for the economic and social turmoil that shook the continent. With the left on the defensive, it is now the right that has turned the language of democracy against the EU and profited at the ballot box.

Yet outside Britain, this call to defend national sovereignty has not led to withdrawals from the EU. On the contrary, most right-wing parties remain in favour of European co-operation in some form, judging their electorates unprepared for the alternative, and conscious of the fundamental transformation in Europe’s geopolitical position over the past decades.

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Today, the changing relationship between capitalism and democracy in Europe is linked to the continent’s altered position in the world. It is not merely that its demographic mass has shrunk (the combined populations of Europe and North America represented 30 per cent of the world’s population in 1900 and barely half that today), it is also that a continent that dominated world affairs in 1900 through its economic and military strength is incapable of doing so now.

In 1914 Britain and Germany were the world’s largest military and naval powers. Today no European power is in the top three. The UK spends $46bn on defence, less than 10 per cent of the US total, and its army is as small as at any time since the Napoleonic Wars. In 1914 the British, German and French empires were in the top five, so far as global rankings of GDP are concerned. Today, the European economies individually count for relatively little. Together, as part of the EU, however, they represent the second largest GDP in the world.

And what of its founding purpose: the desire to avoid war? For the very first time in its history, Europe is united – or very nearly – in a common political organisation. Would its disintegration mean an increased likelihood of war? Would it plunge us back into the bad old days of the past?

The average age of the men who signed the 1957 Treaty of Rome was late fifties: almost all of them had memories of two world wars. Konrad Adenauer, the eldest, had been mayor of Cologne in the First World War; Paul-Henri Spaak, the Belgian socialist prime minister and statesman, had been a prisoner of war at the hands of the Germans. Among the younger signatories, Walter Hallstein had been in the Wehrmacht, Joseph Luns had flirted with the Dutch Nazis, and Maurice Faure and Christian Pineau had been in the French Resistance. War was a reality to them; they had lived its consequences. They understood the need for peace.

Today’s generation of European leaders remember no wars at all, unless we include the conflicts that followed the disintegration of Yugoslavia in the 1990s. They, like their electorates, are in effect the beneficiaries of the work of their grandparents. And the world has changed. Global warming, economic competition from Asia and internal policing and security are more immediate concerns than war in Europe. There are no peace settlements to be revised – except perhaps on Russia’s western and southern flank – and for most Europeans, the argument that the Union is needed to prevent countries returning to their warlike past seems implausible.

In short, the key charge against today’s politicians is not that they are indifferent to the dangers of war. It is that they are complacent about the state of European democracy, and underestimate how the policy choices of the past 30 years and the austerity politics of the past decade have contributed to endangering it. When democracy was restored after 1945 it was with the still-vivid memory of what the alternative – fascism – had led to, and with the realisation that democracies had to concern themselves more with the stability of currencies. The first phase of European integration took place in a world in which a considerable degree of national economic autarky remained, and in which the avoidance of the mass unemployment of the interwar years was a national priority. The problem came with the tremendous changes that occurred from the 1980s, the unprecedented opening of national economies and the facilitating of global capital flows.

Openness is a neutral, or even positive, term. But vulnerability might be another way to think about it – a kind of constraint upon national sovereignty that was intensified by the process of European integration itself. The existence within Europe of a single market, a common currency, and a single central bank with the power to oversee compliance with common fiscal norms, represented a very different kind of environment for national economic decision-making to that of the 1950s.

Europe’s future will not be the same as its past. It won’t return to the world of the ancient regime, nor will democratic institutions face the same challenges that beset them after the First World War. But so long as European political allegiances and sentiments remain rooted in a sense of national belonging, achieving a unified political system through the EU will always be a delicate business. Globalisation is undermining social equality not enhancing it, and if the EU is to live up to its democratic promise it will require a more decisive turn away from monetary stability and budgetary orthodoxy towards a politics of social solidarity. The struggle to reconcile capitalism and democracy goes on. 

Mark Mazower is director of the Columbia Institute for Ideas and Imagination in Paris. His books include “Dark Continent: Europe’s Twentieth Century”. This essay is based on a lecture given at KU Leuven in May this year

This article appears in the 30 August 2019 issue of the New Statesman, The long shadow of Hitler