An Evolutionary Interpretation of Schumpeter’s Theory of Democracy
Massimo Egidi
Please cite the paper as:
Massimo Egidi, (2024), An Evolutionary Interpretation of Schumpeter's Theory of Democracy, World Economics Association (WEA) Conferences, No. 1 2024, Capitalism, Socialism and Democracy 80 years later, Looking at capitalism today in light of its past and possible future
Abstract
Schumpeter’s theory of the democracy as “that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote” has influenced several generations of political scientists and has had an extraordinary impact on Anglo-American political science for many decades.
The most important critique attributes to Schumpeter the analytical limitation of defining democracy as a “method” or an “institutional arrangement”, ignoring the fact that historically democracy has always been an ideology, a system of beliefs, practices and values capable of motivating political action, as clearly emerges from the definitions of the “classics” such as Rousseau in his “Social Contract”.
But it is also true that historically the democracies have been important failures, leading to anarchy or dictatorship, and therefore in a definition of democracy it is essential to take into account the possible imperfections of the internal mechanisms; consequently, in addition to the Schumpeterian definition , I suggest that democracy is an institutional arrangement for transforming social conflict into a regulated peaceful competition.
While the classics assume that economic conflict is resolved by the workings of the “invisible hand” in markets under conditions of perfect competition, this assumption is no longer valid in the field of public choice and politics: in real markets, with widespread externalities and contractual incompleteness, and even more so in the context of politics, there is no “perfect” mechanism analogous to the invisible hand, which, by aligning conflicting interests, allows individuals to overlook the interactions between their interests and those of others, and therefore does not require a govern. In the social and political realm, individuals interfere with and possibly harm each other, and the resulting conflict must be managed to avoid a chaotic state.
Hume had already posed the problem:
“Political writers have established it as a maxim, that, in contriving any system of government, and fixing the several checks and controls of the constitution, every man ought to be supposed a knave, and to have no other end, in all his actions, than private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, co-operate to public good. Without this, say they, we shall in vain boast of the advantages of any constitution, and shall find, in the end, that we have no security for our liberties or possessions, except the good-will of our rulers; “(Hume 1994 (1742), vol. I, p. 24)
Thus, the visible hand of politics does not have the thaumaturgical capacities of the invisible hand of the market, even if its task is similar, namely to regulate social conflict. Even if we assume for a moment that political competition functions correctly and fairly, it does not lead to a social order that could be defined as optimal from any point of view, as happens instead in the case of economic competition.
In this context, the Schumpeterian approach to democracy can be better reinterpreted, i.e., accepting that democracy is an institutional regime that can work well, but also very badly, and accordingly acknowledging that it is above all important to identify the elements of possible failure.
The key point is therefore that the democratic institutional mechanisms may be working in a “bad” way in sense that it is possible the systematic violation of the autonomous formation of political opinions, such as freedom of thought and freedom of speech. Even when these rights appear to be formally respected, they can be covertly violated when political manipulation, polarization, or ideologization and lead citizens to make biased decisions.
It is easy to recognize that the impact of advertising is particularly significant – as all of us experience in our daily lives – as the recipient of the persuasive message offers a cognitively low-level reaction, displaying a predominance of emotional processes over rational ones.
This idea emerges clearly from Schumpeter’s picture of political decision making:
‘The only point that matters here is that, Human Nature in Politics being what is, [leaders] are able to fashion and, within very wide limits, even to create the will of the people. What we are confronted with in the analysis is not a genuine but a manufactured will. And often this artefact is all that in reality corresponds to the volonté générale of the classical doctrine. So far as this is so, the will of the people is the product and not the motive power of the political process. The ways in which issues and the popular will on any issue are being manufactured is exactly analogous to the ways of commercial advertising. We find the same attempts to contact the subconscious. We find the same technique of creating favorable and unfavorable associations which are the more effective the less rational they are. We find the same evasions and reticences and the same trick of producing opinion by reiterated assertion that is successful precisely to the extent to which it avoids rational argument and the danger of awakening the critical faculties of the people. “ Schumpeter (2003), 263
Schumpeter (and Max Weber before him) emphasizes the negative effects of persuasion when it takes place in a hidden way, without allowing rational control by citizens, but also offers remedies for the most negative effects of hidden persuasion and advertising. He suggests that the main remedy is the intelligent and critical use of the internal mechanisms of democracy. This means that mutual rivalry is essential to induce political leaders to offer credible programs to voters, using many different forms of persuasion. But persuasion is an ambiguous element that can lead to either good or bad functioning of the process of political debate.
The ability to deal with social and economic conflicts and to propose credible solutions is precisely the essential role of politics. The decline of this role, accompanied by the emergence of new political leaders who capture growing social discontent with short-term populist promises, has characterized some democracies in recent decades. This is a consequence of the “bad” functioning of the process of competition between parties, which can occur when parties lose the capacity to propose long-term visions and projects, or there is a decline in strong identitarian values, or for the emergence of other elements such as scandals that dramatically reduce their credibility. The lack of strong identitarian values and universalist perspectives makes a short-term political offer less risky than a long-term political strategy.
At the same time, the decline of classical ideologies makes any political commitment to long- term perspectives hardly credible to the electorate. This leads to an adverse selection process in which populist programs have a better chance of success than long-term policy programs. As a result, the role of the Weberian leader as political entrepreneur is severely weakened and a new figure of the populist leader can easily prevail. The competition for votes becomes unfair
(since it is not based on the parties’ record of policy reforms), while at the same time the process of polarization reduces the chances of resolving conflicts within democratic institutions. The result is a process of democratic backsliding that can ultimately lead to an illiberal democracy, an authoritarian form of government, or social disorder.
Despite the preliminary and incomplete nature of this sketch, it is clear that the Schumpeterian approach to democracy, by focusing the analysis on the functioning of democratic institutions rather than on the universal principles of democracy, makes it possible to analyze and realistically describe the evolution of different forms of government and their underlying internal mechanisms.
References
Hume D. (1994) “Of the independency of parliament”, in Political Essays , pp. 24 – 27 Cambridge University Press, First publication year: 1742
Schumpeter JA (2003) Capitalism Socialism and Democracy. London : Routledge edition published in the Taylor & Francis e-Library (first published 1944)
First of all, let me express my appreciation for your very interesting paper. The focus is extremely important today. I think we are witnessing a deep crisis of the democratic systems. In particular, the paper has triggered my reflexion about what makes citizens forward-looking. The “competition for votes” and the “Tragedy of the Commons” might explain the failures of democracy, as described in the paper, but they are – in some way – top-down approaches. What happens if we overturn the approach of analysis to be bottom-up? The recent democracy crisis made me think (as I write in my paper “When words matter”…) that democracy is also the output of a country’s historical and cultural path. In addition, Dewey (1916 p. 99), an institutionalist, stated that: … an undesirable society, in other words, is one, which internally and externally sets up barriers to free intercourse and communication of experience. A society which makes provision for participation in its good of all its members on equal terms and which secures flexible readjustment of its institutions through interaction of the different forms of associated life is in so far democratic. Such a society must have a type of education, which gives individuals a personal interest in social relationships and control, and the habits of mind, which secure social changes without introducing disorder.
The ideology of “monetary profit” supported by everybody (not only the political power) has shift our attention from what makes a citizen forward-looking, that is “knowledge”, the kind of knowledge described by Dewey or Amarthia Sen. Analysing the evolution of education and research system all over the world (transformed progressively over time according to the “monetary profit” ideology), we might have some more insights to understand the today democracy crisis.
My hope is built on the new generations’ interest in the environmental issues. It could be a starting point to overturn the ideology of monetary profit that has pervaded the cultural framework of the last two centuries.
I agree with your ideas and in particular with the Dewey approach that you quote; It seems to me that what you say has many points in common with the idea of ” Equity Systems” that Jean-Paul Fitoussi (borrowing and modifying it from an idea of Dan Usher, https://www.cairn.info/revue-de-l-ofce-2002-5-page-7.htm) uses to explain why democracy does not degenerate, since without “Equity Systems” in the parliamentary vote of selfish and rational subjects the dictatorship of the majority would prevail, which would lead to radical swings in possible majorities and in the long term to the dissolution of democracy. The issue here is that being selfish and short-sighted leads to a worsening if not the possible dissolution of democratic structures, a situation not so far from what is happening in the US today
It is a very centered contribution on the real problems at the stake in realising a real democratic and participatory system.
Education, also involving the study of psychological aspects and conflicts of collective life, is the key aspect for realising such progress. In this light, it can be interesting to recall some aspects of Dewey’s analysis of these issues, which are very topical in our time. As he notes,
“Our presidential elections are upon the whole determined by fear. Hundreds of thousands of citizens who vote independently or for democratic candidates at local election or in off-year congressional elections regularly vote the Republican ticket every four years…[in this respect]….because of vague but influential dread lest a monkey-wrench be thrown into the economic and financial machine….[all this]…testifies to the import of crowd psychology of suggestion and credulity in American life…[and, for these reasons]….We live politically from hand to mouth.”, [Dewey, “Capitalistic or Public Socialism” in Individualism, Old and New, (1929) 1999: 51-52, 53, 56].
How, then, citizens can become more independent in their assessments, and in this way realize a democracy not only formal but substantial? To that purpose, for Dewey, the state and the major political and economic actors should promote organised debates really involving citizens in order to devise policies based, not on alluring but ungrounded slogans, but on the intelligent application of scientific methodology (meant in a humanistic conception and then including also social sciences). This aspect is central, of course, and it has been in our time in part realized also through the diffusion of the internet based “social networks”. However, despite this progress, not much has changed from Dewey’s time in the ways to address socio-economic issues. Even today, in many case political elections are won not by a scientific analysis of the problems, but by a pervasive propaganda ─ most often based on wild nationalism and xenophobia ─ aimed at arousing sentiments of fear and anger towards the weaker groups; and of parallel belief that every limitation of the power of the stronger groups would end up in the bankrupt of the system. It is easy to see how ungrounded this belief is in economic terms: as a matter of fact, it is the working class that is essential for keeping the economy going, rather than the reverse. But, this being the case, what psychological factors sustain that fear? A psychoanalytic explanation would underscore the role of the early stages of child development and in particular the often ambivalent relations toward its caretakers. For instance, also as a result of an experience of anxiety and deprivation, the child identifies itself with their caretakers and their protecting and nourishing power. But, at the same time, it can be envious of such power and may develop greedy and aggressive fantasies of stripping the caretakers of their nourishing power. As a result, a feeling of guilt emerges, with the corresponding formation of the superego. This early conflict, when transposed at social level, makes it difficult for persons to react to wide and unjustified economic disparities. In fact, if they identify themselves with a tycoon, this is likely to cover a partly unconscious envy and aggressiveness. In this situation, any proposal to reduce such economic power, by reactivating such greedy fantasies, tends to be hampered by feelings of fear and guilt. Hence, overcoming these distressing feelings is advantageous not only for the single persons but also for realizing a more equitable and rewarding society.
Very interesting observations. I believe that the problem of autonomy of thought and political evaluation is fundamental; But it is far from being solvable through social networks, where phenomena of aggregation are formed between people who share the same idea – sometimes a crazy idea such as the hypothesis that the Earth is flat – and remain stable in error due to “confirmation bias”. The problem is that we cannot expect the citizen to be omniscient and for this reason public institutions – such as newspapers – should allow the citizen to be able to evaluate and decide freely by pre-organizing ideas and information. But at the same time those same institutions can distort ideas and information: this is a dualism from which we cannot easily escape, because it is part of the political struggle.
The only effective way for allowing the citizen to evaluate rationally is the existence of a wide plurality of newspapers and political ideas in competition with each other: therefore the solution must be institutional, because, although it is essential that individuals develop a very high capacity for critical thinking, not everyone is able to do so to the same extent.