Doubts About Economic and Political Systems Are Worth Examining
Philip Kotler
I have always been interested in people who have a clear mind about their beliefs. Such a person might believe that Capitalism is the best economic system or that democracy is the best political system or that Christianity is the best religious system.
Now I am wondering whether such believers have an open mind or a closed mind. I am beginning to believe that these people have closed minds. They will tend to be dogmatic and not be open to doubts or contrary beliefs.
I then began to realize that I had a set of beliefs that I blindly accepted and never deeply examined.
I published Confronting Capitalism in 2015 with the assumption that Capitalism is the best economic system although I added that it needs many improvements.
In 2016, I published Democracy in Decline and I assumed that democracy is the best political system although it also needs many improvements.
Lately I have begun to have deeper doubts about these two systems and their performances. Capitalism and Democracy came into existence in the 1700s. They both merit deep rethinking.
Is Capitalism the Best Economic System?
In most countries, businesses are owned and operated by private individuals seeking to earn a profit. These businesses hire workers and assemble the equipment and resources they need. The legal system respects the contracts that are freely made between buyers and sellers. Each business owner decides how to use and distribute the profits.
Early capitalism performed as a nation of shopkeepers. Consumers bought their supplies from locally-owned shops. Consumers knew the shopkeepers.
Over time, many businesses have grown into huge oligopolies. General Electric became a leader in the aircraft engine business, the health care system, and the consumer appliances business. Each GE business carefully watched its competitors and often bought up their emerging competitors. Anti-trust was lax in regulating the growth of these companies. Some huge companies and banks were too big to break up and cut down in size. Furthermore, these companies managed to operate without unions. Labor wasn’t allowed to have a voice in company strategy or in working conditions.
The result is that capitalism provided workers with an eight-hour job and often low pay while profits provided high pay to the firm’s managers and investors. Workers get two weeks of paid vacation time a year. If the company encounters a recession, many workers are laid off. The working class has little hope for job and pays improvement. They are without power.to improve their conditions. Many workers are likely to be unmotivated and unhappy in their work lives and this may show up in poor company performance.
Big company capitalism is a system designed to grow the wealth of the owners and managerial class. The system creates multimillionaires and billionaires while many workers toil with inadequate pay and little hope of a better livelihood.
Is there a better system for Capitalism?
Can businesses be designed to generate more loyalty, involvement and enthusiasm for the working class? The answer is yes. How about designing more businesses in the form of Worker-owned or Consumer-owned Cooperatives?
Here are some well-known European cooperatives.
1. Mondragon Worker-owned Corporation (Spain). Employs 80,000 workers who are owners of the cooperative. Operates in industry, finance, retail and education. Includes a university and its own bank.
2. Coop Group (Switzerland). 95,000 workers with 2 million consumer owners. Operates retail chains, wholesale, production.
3. The Co-operative Group (UK). 60,000 workers. A consumer cooperative with some worker participation. Operates in retail, funerals, legal services, and insurance. Democratic governance and ethical supply chains.
4. Fagor Electrodomésticos (Spain) — part of Mondragon. Operates in appliances.
5. La Nef (France). Cooperative bank with customers as members. Transparent lending focused on social and environmental impact.
6. REWE Group (Germany). 380,000. Retail cooperative owned by independent retailers. Supermarkets.
These cooperatives show the following strengths:
- Resilience: Cooperatives are more resilient in economic crises, often due to long-term thinking and stakeholder commitment.
- Lower Turnover: Worker-owned firms tend to have lower employee turnover, increasing organizational knowledge and performance.
- Productivity: Many cooperatives report high productivity because workers have a direct stake in outcomes.
- Ethical Governance: Cooperative are more likely to uphold social and environmental goals due to democratic structure.
These cooperatives also face certain challenges:
- Capital Constraints: Raising capital can be harder due to limited access to equity markets.
- Slower Decision-Making: Consensus-oriented structures can sometimes slow strategic moves.
- Scale and Expansion: Scaling internationally can be more complex due to democratic governance and profit-sharing expectations.
Are cooperatives competent competitors?
- Competence varies by sector and management. Mondragon and REWE have shown that cooperatives can compete with or outperform private firms in manufacturing, retail, and finance.
- However, not all cooperatives succeed — Fagor’s collapse shows that market pressures and mismanagement affect cooperatives just as they do traditional firms.
· Their success often hinges not on the ownership model alone, but on good governance, innovation, and adaptability — just like any other business.
My conclusion is that cooperatives as a business model are likely to provide better work lives and performance than privately held for-profit firms. Admittedly coops may not perform well in industries and firms where there is high risk and volatility and where workers’ job security is low.
Is Democracy the Best Political System?
I always felt that democracy is the best political system. Policies should be determined by a voting public expressing their individual ideas of what they want from their government. Majority opinion should determine winning policies but minority interests and rights should be respected as well.
Democracy makes good sense as a political system in small communities. A small local community could invite all interested citizens to show up for voting on a set of important issues. Citizens know each other and are highly invested in their community.
However, today’s major cities consist of people who don’t know each other. Issues arise and proposed solutions can take the form of referendums. Comments come from different interested parties seeking to sway voter opinions. The political atmosphere is filled with an increasing amount of disinformation (e.g., lies) and misinformation (passing on uninformed opinion), To make things worse, only 50% of eligible voters turn out to vote.
Most countries have replaced a democratic voting system with a representative voting system. Members of the public don’t vote on each issue but vote on who they want to represent their overall interests. Democracy as been replaced with a Republic. Voters have to trust their elected representatives to carry out their interests. Here we face a number of challenges.
1. During the election of the public’s representatives, less than 50% of voters may vote. They are often mainly people with active and personal interests, not necessarily popular interests. Even if 100% of the eligible voters show up, many will have been overly brainwashed by the media they get their news from. Most voters are poorly informed about local events, let alone about domestic and international events. The average American may know nothing about where South Korea is located or how South Korea influences their lives. The ignorance of many American voters is extreme.
2. The elected representatives often don’t hear much from average voters after being elected. Representatives hear mostly from lobbyists who press for special interests. Representatives are also greatly influenced by important donors who helped them get elected. Representatives will do their best to refrain from voting against their best donors’ interests.
3. Representatives will represent so many people who they never met. They may call for public meetings or send out opinion surveys and get poor attendance or response. They may hear mostly from highly opinionated individuals or groups who don’t represent average opinion in the group they represent.
4. The main hope is that elected representatives will want to win in the next election. This leads representatives to deliver what they think the majority of voters want. The representative’s past voting record is the best way for voters to know what to expect from their representative.
Is there a better political system than relying on voting for representatives? We have to assume that representatives will vote along political party lines. We just saw how Republican members of Congress didn’t think for themselves and very few Republicans had the courage to vote against a very bad omnibus budget bill.
The political system that would best serve the public interest would need to include expert opinions to influence the voters. Consider the following cases:
· Should the Department of Health allow its appointed leader, Robert Kennedy, to discourage normal vaccinations or Covid shots based on his private opinion or should his department invite the opinion of medical experts on these issues and make decisions based on what the majority of experts agree is best for the country?
· Should the Defense Department allow its appointed leader, Pete Hegseth, to make military decisions or should experts in the Pentagon have major influence in military decision making utilizing their years of experience?
Where can expertise come from to influence decision making in a representative-run government? Expertise can come from former U.S. Presidents, long-term civil servants, well-respected journalists, and well-regarded associations of experts. Hopefully, each representative will admit how little they know about each issue and be ready to engage known unbiased experts for their opinion about what position will best advance the Common Good.
Conclusion
Most people want to live in a country that operates with Capitalism as the economic system and Democracy as the political system. The faults and the glaring misery of living under other systems, such as Dictatorship, Fascism, Communism, and Socialism are well-documented. At the same time, it would pay for more voters to recognize the imperfections of Capitalism and Democracy. In both books of mine, I point out the major deficiencies of Capitalism and Democracy as well as the best possible reforms.
Capitalism is a system that produces a few winners with fantastic wealth and many workers who rarely advance in their income and well-being. The Nordic countries of Sweden, Norway, Denmark, Finland and Iceland manage to give their citizens a better version of Capitalism that incorporates more wealth sharing, longer vacations, more maternal and old age benefits, and more business social responsibility. The Nordic countries provide evidence that better forms of Capitalism exist.
Democracy is a system that elects representatives who presumably will represent their voters’ interests but who in practice are guided by lobbyists and rich donors. The growth of party politics leads more representatives to stop thinking about what is good for their public than what is good for their political party. Democracy’s performance is improved to the extent that the public and their representatives allow experts (who are able to see the long-term consequences of decisions) to participate in the decision-making process.
