| John
Locke, the English philosopher of the second half of the
seventeenth century credited with being the father of the
classical liberal tradition, identified the pillars of the
modern society offering individual freedom as being 1) limited,
secular government, 2) the rule of law and 3) secure property
rights exercised freely in markets. The government did not
have a role in controlling prices and interest rates, since
these would be determined by free human interaction in markets.
Rather, he saw the main role of a government created by
free people as being, other than to protect life and liberty,
to protect private property ' so that people could trade
the results of their labours and thereby increase overall
prosperity. Locke was thus instrumental in linking democracy
and capitalism.
This
link was developed by the adoption of Locke's pillars by
the builders of Britain's post'Cromwell constitutional monarchy,
the French republicans (though they added the collectivist'socialist
notion of fraternity) and the American revolutionaries.
In recent times democracy and capitalism have become further
entwined in the West ' in fact, some would argue that democracy
saved capitalism by allowing it to become more inclusive
and thus to dissociate ownership of capital from exclusion
of the poor. Stock options granted to employees to encourage
participation in ownership and the use of mortgages as a
source of entrepreneurial funds are examples of incentives
democracy has provided capitalism to make it more humane
and more inclusive.
Political
leaders have used the democracy'property nexus to advance
various 
causes. In the early 1980s Margaret Thatcher seized upon the
term "property'owning democracy" to justify her cut'price
selloffs of national utilities. Robert Mugabe seized the land
of the wealthy white minority in Zimbabwe in the name of a
democratic redistribution of ownership. More recently George
W. Bush presented his vision of the "Ownership Society" as
the basis for his second term's far'reaching domestic agenda
covering reform of social security, health care and the tax
code. While encouraging self'reliance, individual choice and
responsibility (including encouraging poorer workers to invest
in equity and bond markets directly, giving them a bigger
stake in the success of capitalism), the Ownership Society
concept also importantly changes expectations about the role
of government. Under this concept, the government's job is
to create incentives for people to work harder, save more
and demand better value for money from (private) providers
of healthcare, education or social services. This is very
much a classical economist's sentiment on the minimalist role
of government.
The
extension of the liberalist notion of free markets beyond
the nation state is globalization, a concept desirable
in two important ways. Firstly, international trade is
beneficial to all parties taken together in the sense
that the winners could compensate the losers and there
would be a surplus left over (comparative advantage between
countries, Economics 101). Secondly, international production
and trade undertaken by private companies in a free market
is most efficient since private enterprise is better at
wealth creation than the state and controls over trade
are subject to state abuse of power. And indeed the evidence
suggests that globalization has been net beneficial to
the interests of many developing nations, mainly those
of Asia that were quick to encourage foreign investment
and have correspondingly seen national income and average
standards of living rise appreciably. However, globalization
falls short in many ways.
Firstly,
markets are designed to facilitate free exchange but not
to take care of collective needs (including environmental
and health protection) or ensure social justice (as evidenced
by the widening gap between the wealth of the rich and
poor both within and between states). Provision of such
public goods requires political process, but unfortunately
this is lacking. US claims that it is providing the world
with the public goods of nonproliferation of weapons of
mass destruction and the suppression of terrorism by means
of preventative wars are unsubstantiated as, since it
lacks the collective acquiescence of the global community,
really it continues to act to protect its interest as
a nation state rather than as global policeman. (This
is of course not a very good example of the non'provision
of economic public goods due to globalization but I couldn't
resist the dig).
 Global
institutions fall well short of Locke's vision for government
that facilitates free exchange. The UN lacks authority
because of its anachronistic over'representation of core
countries (though it original balance between capitalist
and socialist countries was well weighted), and more importantly
because it has not been able to transcend unilateral or
group interests. The UN's economic affiliates, including
the World Bank, have sought to provide capital to developing
countries but often this has been ineffectual due to lack
of supporting domestic institutions (including enforcement
of property rights). The World Trade Organisation's global
trade forums have similarly been undermined by bickering
between nations and, as many countries do not participate,
by lack of universality. That successful (in a workable
sense) free trade agreements have been mostly negotiated
on a bilateral basis underscores the unworkability of
current global institutions (and of course, even the workable
FTAs have been lopsided in favour of the most powerful
or diplomatically skilled party ' witness Australia's
recent agreement with the US). Even the internet, perhaps
the most powerful capitalist tool for its encouragement
of innovation and intensive exchange, is subject to property
theft on a grand scale. Intellectual property and consumers
are not yet protected by global standards, meaning entrepreneurs
(including musicians) and consumers are reliant on jurisdictional
protection by individual nations.
In
the absence of appropriate global institutions it is a
mistake to assume, however, that multinational corporations
and international financial markets have supplanted states
as global actors. They have not ' states retain their
sovereignty and wield legal and enforcement authority
that no individual or corporation can hope to possess
(though clearly the influence of corporations on states
is growing ' witness the enormous sums donated to US political
parties to win political favour). However, globalisation
has impacted on the capacity of states to provide public
goods for their own citizens by interfering with the taxation
of profits and incomes (the incorporation of major investment
companies in offshore tax havens is a prime example) at
the same time as customs duties have been reduced or eliminated.
Not only has the burden of taxation shifted from capital
(and employment) to consumption, but as a result, the
Western European welfare state established after WWII
is on the verge of painful reform, as acknowledged by
the new German President, Horst Koehler: "We have failed
above all else to adapt the welfare state to the requirements
of an aging society and changing employment patterns ...
What our country needs is a change in mentality, a new
balance between individual responsibility and collective
solidarity".
 The
German case is also symbolic of the unintended consequences
of government interference in price setting ' European
monetary union has stifled Germany to the benefit of smaller
European countries. Excessive control and/or inadequate
domestic institutions are also commonly cited for the
concentration in peripheral countries of the fallout from
the economic crises of the last twenty years.
That the economies of the US and UK (and perhaps also
Australia), leaders in minimalist government, have been
able to outpace growth of the Western welfare states in
recent decades (not to mention the failure of the Soviet
state, with its preoccupation with restricting individual
property ownership, and the heralded adoption of capitalism
by China), are cited by devotees as evidence of the supremacy
of the free democracy'liberal capitalism partnership.
But what does the rise of Islam say about the acceptance
of Muslims of the social dynamics of capitalism? And what
do the dwellers of the slum cities outside Mexico City,
Sao Paulo, Johannesburg and Dhaka say about the economic
prosperity of capitalism? The latter might well reply
that their location and status makes them "free" from
the regulation of the state.
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