The Colosseum goes hand in hand with Rome. And political freedom (democracy) goes hand in hand with economic freedom (free market). Right? Or can the free market ultimately undermine democracy? Think about the Roman Empire. It may conjure up all kinds of images, but it was not a democracy. Whereas in the centuries before, you had the Roman Republic. That did have some kind of democracy and economic freedom. But that combination obviously gave way.
After World War II, the world was orderly. Some countries lacked political and economic freedom and remained poor. Think of the Eastern Bloc. The West - economically and politically free - became rich. The story is simple. A democratic rule of law increases trust in government and enhances the business climate. Without repression, it is a lot more comfortable to exchange ideas and dare to invest sooner.
Conversely, a thriving economy can strengthen democracy. Think of an emerging middle class demanding participation and counterbalancing the power of elites. For the growing group with something to lose, the importance of impartial justice increases. A strong economy also enables investment in education - which in turn benefits both economy and democracy. The only way is up ... isn’t it?
Well, for the Romans it wasn’t. Even today we can ask whether the market always strengthens democracy. Or whether it works the other way.
Take the revenue model of some big social media companies that drives uproar. The more emotions, the more clicks, the more ad revenue. Objective news tends to be boring, so you don’t earn a living from that. Uproar equals attention equals cash. But the byproducts are polarization, social distrust and envy. That undermines democracy. It’s hard to compromise with another person for whom you have no understanding.
Besides, with indignation as fuel, discussions are often not about what matters. Was it really such a tragedy for the British that Brussels was interfering with the curvature of bananas and when something could be called chocolate? Rupert Murdoch’s magazines sometimes have decisive influence on elections: think of that ultimately narrow majority for Brexit. In this example, the market generates sensation - bread and games, the Romans would say - but not a stronger economy. Indeed, the Brexit did not become a unanimous economic success.”
Another problem with markets is that while they bring prosperity, it is often skewed. Now, to me, it is not necessarily morally reprehensible if someone gets rich through brilliant ideas and hard work. That’s just how capitalism works. And a healthy democracy reduces differences. But it is problematic when a few people gain a lot of influence and political power through all that money - through their companies or indirectly through philanthropic institutions. We cannot vote out Mark Zuckerberg, Rupert Murdoch or Elon Musk, even though the latter, for example, can influence - and has influenced - the course of the war in Ukraine by turning the Internet on or off with his company Starlink.
In short, political and economic freedom can be mutually supportive. But markets certainly don’t automatically enhance democracy. Market outcomes tend to be efficient, but not necessarily equitable or evenly distributed - and thus sometimes downright perverse.
What can we do? At least realize that democracy is not a given and that economic freedom does not always marry happily with political freedom. A little vigilance helps. I’d say: think about the Roman Empire a little more…
Charles Kalshoven is macroeconomist and expert strategist at APG