SOCIAL HARMONY AND DEMOCRACY.

viviamaug
Democracy and market economy are the undisputed models of development.
Nonetheless, establishing the necessary institutions remains a daunting task. Part of
the problem is that democracy and market dynamism are mutually reinforcing. In
advanced countries, elected governments make sure that incomes and opportunities
are redistributed to secure basic living standards for all. That, in turn, helps to spawn
further growth. Wherever this virtuous circle is not yet established, powerful interests
should be expected to try and block modernization. The judiciary is an important
institution to control other branches of government and to safeguard democratic
rights-unless it is itself entangled in vested interests. Great danger, however, arises
when atavistic identity politics foster a sense of cohesion within a specific group in
opposition to others. Irresponsible action of this sort can trigger violence and even
civil war. While even the last bastions of communism like China and Vietnam have
apparently embraced the capitalist principles of the market economy, the third
wave of democracy seems to be turning slowly into a tide of defective democracies
.Simultaneously, many countries have descended into anarchic conflict since 1989.
For the people of such failed states, life is "cruel and brief" (Hobbes) and they
almost long for the Leviathan state to establish social order. Is history creating
transition states and failing states at once? Is it just madness or is there method to
the madness?
One variable is probably less important than it seems: the end of the Cold War and
the superpowers' consequent waning of interest in geostrategic stability. Certainly,
a number of authoritarian regimes were weakened when the support they had
enjoyed was withdrawn. But some rebel movements (such as UNITA in Angola)
suffered the same fate. And the rich world only dropped very few regimes
altogether. Since September 11, 2001 at the latest, there has been a keen new
interest in potent states which have their societies " under control". That interest
typically goes along with pressure to make the transition to democracy and market
economy. This pressure is not only applied explicitly by rich donors, multilateral
institutions and international NGOs. It is also implicit in the example of success,
power and wealth they set. Today, democracy and market economy are the only
yardstick of development.The combination does seem unbeatable. A virtuous circle
ensures that affluence stabilises democracy in the short term and promotes it in
the long term. In turn, democracies lead to prosperity and an equitable
distribution of wealth .Legitimacy also seems guaranteed. After all, market
transactions are always fair because they are voluntary. Then again, initial
distribution patterns (particularly those of wealth) are normally not taken into
account. But, as power resides with the majority in a democracy, "unfair" market
results can be corrected. After all, democratic procedures-especially elections -
define what is legitimate. So what is stopping the triumphal march of this dream
couple?
Transition and redistribution
In spite of fulfilling formal criteria, most of the new democracies are "defective" .
And yet they are fairly stable. At the same time, there is a large number of
authoritarian regimes and a whole string of failed states. In most cases, these
failed states have no clear regime. Rivaling warlords and other decentralised
groups are in control of various regions and business sectors. In other cases, the
international community has set up a protectorate to stop matters from
deteriorating. A first explanation for the resilience of undemocratic structures lies
in the phenomenon which the high priests of the free market tend to overlook: the
unequal distribution of wealth and, consequently, incomes. As long as long-
privileged elites fear expropriation, real democratisation is unlikely. The more
immobile their assets (real estate, natural resources) and the more pronounced the
inequality, the more elites have to fear for. Where inequality is less evident and
assets fairly mobile, however, taxation is likely to be moderate (as, otherwise,
assets would move on). This kind of setting makes democratisation more likely,
because rich elites weigh up the costs of democratisation against those of
oppression. Today, the classic dictatorship, in which a small oligarchic elite
exploits and oppresses a massive class of the poor like Somoza's regime did in
Nicaragua, has become a fairly rare phenomenon. In most cases of rent-economies,
elites with authoritarian leanings (detailed discussion of the term in Dauderstadt,
2004) co-opt sections of the population in patronage networks. Through these,
they distribute some of their rental income-in return for political support and
services (for instance, in the security apparatus). Where these mechanisms fail,
the threat of terrorism looms .Anyone seeking to change such a regime faces not
just opposition from the oligarchy but also from its relatively large client groups.
Making things more difficult, these groups also hold a monopoly on qualifications
needed to govern a country. There is little chance of running a state without them-
and even less against their opposition.
Socio-cultural embedded ness
It is fairly obvious and understandable that interest, power and social structures
slow down the process of transition. But there are other, even deeper blockades.
The "free" market is not as simple a concept as the term suggests. For markets to
work, they need a comprehensive legal, institutional, social an even cultural
infrastructure. That is why such a colorful array of "capitalisms" has emerged
among democratic market economies.All economic systems have markets. Even
under Communism, markets served to supply consumers. However, one way or
another, markets are always socially and politically circumscribed. To a large
extent, the growth that makes up the (apparent?) prosperity of rich nations today
stems from the transformation of non-market interaction into trading relations:
from subsistence/self-sufficient farming to an economy where the three percent of
the population engaged in agriculture produces the food for all the rest; from the
cashless to the capitalised household (food conservation, washing, cooking,
cleaning, child-rearing). However, there are evidently cultural limits to
marketisation, boundaries beyond which massive resistance can be expected even
at the expense of economic growth. After all, not everything is deemed a
marketable commodity. Where are the cultural limits for selling drugs, for
example, or arms, human organs and sexual services? Another matter that is only
tolerated up to a point is the privatisation of what used to be collectively owned
property. During the transformation of the state-managed Communist economies,
privatisation was a source of considerable conflict. This was particularly so
whenever property was sold to foreigners, who were not trusted to make "socially
responsible" use of their acquisitions. And indeed, companies were often bought
and then closed down to eliminate unwanted competition. Even in mature market
economies, such moves attract censure. Recent corporate takeovers - for instance
Vodafone's hostile bid for control of Mannesmann-provide the evidence. A
considerable amount of the violent resistance seen in Iraq is linked to fears
triggered by the extremely liberal market economy decreed by the occupier and
the inherent privatisation risks.

Risks, confidence and social networks

All market transactions involve risks - and the distribution of risks is unequal
because information is never complete or perfectly balanced. Risks are particularly
great in asset markets, where claims and liabilities tend over long periods of time.
Capital markets, if poorly regulated and supervised, can turn a transition cc try
into a failed society. That happened in Albania in 1994, when fraudulent pyramid
investment schemes that offered crazy yields first escalated and then
collapsed. Richer societies are more resilient, although even in their case, stock
market bubbles can cost la sections of the population their savings. Nowadays
however, that does not cause societal chaos; the worst that seems to happen, so
far, is an upsurge of populism.
Reducing risks entails costs, especially information costs. These are higher in
societies without a common language. The number and volume of market
transactions would decrease dramatically, if one had to bear the full burden of
information costs in every single case Markets can only operate because market
players expect risks to remain within limits. Those expectations are based on trust
in personal networks, social norms or effective regulators. The less norms,
morality or culture support such trust, the more formal (normally government-
appointed) agencies are needed to monitor markts, punish wrong doing and in spire
confidence. The costs of such agencies add to the tax burden and place additional
strain on societal resources. That is probably one of the reasons why
heterogeneous societies (for instance in an ethnic-linguistic sense) normally
perform less well in terms of economy and governance. Where governance and
morals fail, trust is confined to personal networks, limiting transactions and thus
prosperity. Such personal networks even and especially exist in failed states.
Wherever formal systems are marked by shortcomings, personal contacts become
relevant. That is something which needs to be remembered by those running
peace-building missions, who tend to assume they are working with a societal
tabula rasa. Networks ("civil society") help( overcome supply bottlenecks in the
centrally planned economies of the Communist states. Even in capitalist welfare
states, the shadow economy is relentlessly growing. Where social norms and
positive law start to fall apart, the borderline between mutual self-help and mafia-
like structures becomes blurred. The status of private networks/civil society is
defined by what the state sanctions or holds to be wrong. The less society accepts
the existence and consequences of legally defined market rules, the greater the
threat of instability becomes. Regulations are flaunted and undermined by private
action ranging from shoplifting to bank robbery, from smuggling to drug trafficking,
from moonlighting to social security fraud. Personal satisfaction depends on more
than just levels of income. It also hinges on the sense of security afforded by social
networks built on trust and accepted social norms. Even in advanced nations, this
serves as the base of the formal relationship between the law and the market.
Where it diminishes, transaction costs and risks escalate - and people's sense of
social justice decreases as a result. Happiness does not simply grow in line with
average prosperity; it depends to a very great degree on relative distribution,
Where some get rich quick while others see their incomes stagnate or-in relative
terms at least-decrease, dissatisfaction increases. If networks guarantee access to
prosperity and to a secure, "decent" standard of living, the sense of identity
established by belonging to those networks becomes vital and politically virulent.
Ethnic and religious identities are instrumentalised for distributive interests.
Where political conflict lines are drawn along such fronts, great efforts are
required to keep the conflicts non-violent. Mounting populism and ethnic conflict -
not just in transition states - are also a response to changing patterns of
opportunities in life due to opaque and seemingly immutable global market
processes. However, as the example of India's caste system shows, unfair
conditions can also be legitimized and stabilized by culture and religion. That is
why inequality does not automatically produce conflict.Globalisation is broadening
horizons and opening eyes to fabulous promises of prosperity - with new attendant
risks. Distribution of wealth within societies is increasingly influenced by external
actors. For transition's losers, disappointment and anger are almost naturally
channelled along ethno-cultural lines. The break away from traditional stability
can lead not only to modernization but also to the chaos of new conflicts. Anyone
who wishes to avoid those conflicts is well advised to respect the cultural norms
and social networks on which the cohesion and stability of a transition society
depend. Successful transition is only found where modern structures are embedded
in societal identity.