🔺What is Democracy, Types of Democracies, Why All Governance Systems (8 Democracies, Monarchy, Authoritarianism, and No Governance) Require the Greatest Good for the Greatest Number (Utilitarian Principle), Democracy is Not Capitalism, & Democracy vs. Capitalism – Who Wins?

The definition of a democracy (noun) is: A system of government by the whole population or all of the eligible members of a state typically through elected representatives.

Despite the defintion and constant repitition of the phrase democracy, it is important to be distinct and to state what type of democracy is being advocated as there are 8 general types of democracy: 1. Direct, 2. Representative, 3. Presidential, 4. Parliamentary, 5. Authoritarian, 6. Participatory, 7. Islamic and 8. Social.

In many instances the few control the many, yet, regardless of the form of governance (8 Democracies, Monarchies, Authoritarianism, and No Governance), the many always control the few because all governance systems require the greatest good for the greatest number (Utilitarian Principle), otherwise the few will be overthrown.

That being said, it is important to distnguish between a Democracy and Capitalism. Democracy is a system of government while capitalism is an economic system and political ideology.

The definition of capitalism (noun) is: An economic system and political ideology in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.

Democracy and Capitalism are not the same. However, when the primary political ideology is Capitalism, then Democracy as a system of government is usurped by the political ideology of Capitalism. There is no longer a Democracy that practices Capitalism at this juncture, rather, it simply becomes Capitalism and Capitalism as a political ideology becomes the mainstay of the political system. Yet, this can be problematic based on the below excerpts from my recent analyses/essay:

🔺 “Caveat Emptor” Lacks Accountability and Serves No Purpose https://internationalcapitalmarkets.org/2019/10/17/%f0%9f%94%ba-caveat-emptor-lacks-accountability-and-serves-no-purpose/

“If left to its own devices, the private sector can act in such a way so as to only benefit itself at the expense of others creating A Tragedy of the Commons – examples abound. Moreover, it is in the inherent interest of the private sector to advocate for laws, policies, and regulations that benefit its own self interest if left unchecked as this invariably leads to greater profitability via gaming the system to its advantage via regulatory capture. However, such actions in the aggregate when viewed from a Fallacy of Composition perspective reveals this creates negative externalities and a deadweight loss on society that is absorbed by everyone collectively.”

“For starters, there is not any reason that Caveat Emptor should even exist in the marketplace. Why should a buyer beware of the products sold, rather, it should be Cave Operante or Producer Beware as it is the consumers who vote with their currency. The notion of Caveat Emptor immediately places the burden on the consumer of the product and/or service thereby reducing accountability of the producer. It would seem that the marketplace via its self regulating properties would immediately eliminate those companies that pose the greatest risks to consumers of the product/service, however, this is not necessarily true. For if this was true, then laws, policies, regulations and lawyers to protect consumers would not exist because companies that cause serious harm would immediately go out of business.”

Eventually, the regulatory capture can lead to information and political capture where corporations et. al. can spend money on political campaigns which further ensures their interests and prejudices while the political appointees are indebted to their donors’ money, views, and prejudices – including gerrymandering and voter suppression efforts. Or, because the private sector holds the power and information asymmetries, a revolving door between the public and private sector occurs which further ensures the private sector’s interests. To combat the strength of the private sector, the public sector may grow even larger leading to concerns of big government which plays directly into the private sectors hands because the areas of government they would advocate are too big and need to be reduced are those aspects that maintain the proper checks and balances to begin with.

Therefore, on a standalone basis, it seems to me Capitalism wins vs. Democracy, but Capitalism ultimately fails via increased inequality as well as regulatory, information, and political capture. Maybe then through Joseph Schumpeter’s creative destruction is one-of-the-eight forms of democracy restored.

Then again, regardless of form, any governance system requires the greatest good for the greatest number.

Published by Diamond1

I have an extensive background throughout the financial spectrum with high-level experience on the sell-side, high-net worth private banking, portfolio management, international finance, public pensions, VC, PE, and economics. I enjoy working and collaborating with people that I admire and trust.

"Fit Models to Problems, Not Problems to Models"

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