Why business won’t save democracy

On the adaptability of business to any form of government

Many European companies have spoken out in defence of democracy following the American president’s speech in Davos. They cite economic reasons. But the economic argument will not suffice.

The adaptability of the economy

We all saw the American tech elite’s gestures of submission at the White House last autumn. We also remember that they and many other corporations have discontinued or reduced their diversity programmes; including European companies operating in the US. The same applies to climate targets.

There is always great moral outrage, but the public debate ignores the fact that diversity and climate were only on the economic agenda because they paid off. Now the circumstances have changed, the calculations have been redone and the strategy adjusted. That’s how it works in business.

And it has always worked this way: German industry had long opposed Hitler because it feared his customs policy. When he became Reich Chancellor in 1933, it changed its stance – and how: it donated 3 million Reichsmarks to his re-election campaign in March 1933. And immediately after the election, it organised the Adolf Hitler donation, which was intended for him personally.

The German Nazi regime was not an isolated case: in many (Western) dictatorships, the business community worked brilliantly with the government: South Korea, Spain, Greece, Chile – to name but a few. And even today, business maintains excellent relationships with many other dictatorships: German exports to Saudi Arabia have grown twice as fast as those to France, Italy, Great Britain or Spain over the past 20 years. Exports to China have grown almost six times as fast.

Companies follow economic logic. And economic logic is agnostic about human rights or environmental consequences as long as these are not translated into a framework for action by laws. The business of business is business.

Economists’ doubts about democracy

We assume that democracy and a prosperous economy belong together. However, this hypothesis still cannot be empirically proven with data. It has also only been widely held for about a generation. In 1989, Francis Fukuyama proclaimed the

‘end of history’ and outlined the state model of the future as a ‘liberal democracy […] with easy access to VCRs and stereos’. (Francis Fukuyama, 1989)

As recently as 1960, Milton Friedman and the economic mainstream disagreed. For Friedman, democracy was not a prerequisite for prosperity; rather, economic freedom was the necessary condition for political freedom. Without capitalism, there can be no democracy.

The founding fathers of economics were even more adamant in their belief that a democratic order was detrimental to economic development because it undermined the pursuit of prosperity: Adam Smith considered it the task of government to protect the property of the wealthy from the poor. And in the mid-19th century, French economist François Guizot declared that universal suffrage would lead to the poor expropriating the rich. Vilfredo Pareto was also convinced:

‘[Democracy] digs its own grave and destroys what it brought into being.’ (Vilfredo Pareto)

In the United States and parts of Europe, such voices are becoming louder again. There are fears of falling behind in the ‘system competition’ with China. We can’t afford Democracy no longer, it is said.

Another argument

Liberal society is about the protection of minorities, freedom of the press and the arts, freedom of religion, protection of privacy, control of state action by the people, preservation of human dignity – if all of this is measured against the question of whether it leads to greater prosperity, then we are surrendering liberalism to economic arguments. And then it is up for grabs as soon as it is no longer worthwhile.

A liberal society protects the individual from the state. That is the classic argument. It stems from a time when the state was represented by powerful monarchs. Translated into our times: a liberal society protects the individual from the arbitrariness of the powerful, even if they can organise a majority.

Or even more pronounced: Liberal society protects the weak. It protects those who are not worth standing up for; those who are of no use. It does so because doing so is liberal, not because it pays off.