Democracy and Corruption in a Capitalist Economy

Abstract

A capitalist society is characterized by extreme inequality and multiparty democracy. In a capitalist society, a small number of giant capitalists have in their command the major part of the country’s wealth and income. This chapter argues that the system of private funding of political parties enables the giant capitalists to form and run political parties to usurp state power. They need it to protect their enormous wealth from the masses. The political parties compete with one another for the favors of the giant capitalists and work feverishly to help them increase their command over the society’s income and wealth both legally and illegally. On the illegal side, political parties allow giant capitalists to evade taxes, invest their savings in foreign assets in tax havens, and defraud the banks, among others. We have shown in this chapter that these illegal favors or corrupt practices generate strong recessionary forces and slow down drastically the rate of growth of output and employment. In the wake of recessions and bank frauds, which lead to a sharp increase in the non-performing assets of banks and other financial institutes, the political parties pass laws or seek to pass laws such as Financial Regulation and Deposit Insurance Bill (FRDI Bill) in India that empowers the financial institutions to confiscate the savings of the people held with them to tide over the crisis. We have shown here that such a measure is likely to bring about a collapse of the financial institutions and the economy. Of the legal favors granted to the capitalists, we have considered two. Government and the central bank often specify lending norms of banks and other financial institutions in such a manner that they favor the giant capitalists at the expense of the small and medium producers. They also often confiscate land of the small and medium producers and give it away to the giant capitalists. To examine the implications of these legal favors, we have divided the economy into the organized sector and the unorganized sector. The former consists of large firms owned by the giant capitalists, while the latter consists of firms owned by small and medium producers. We have shown here that the legal favors mentioned here will in all probability lead to a cumulative expansion of the organized sector matched by a cumulative contraction of the unorganized sector. Both of these will bring about a sharp deterioration in the standard of living of the workers.