Why did democracy become the preferred political regime only in the twentieth century?

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Luiz Carlos Bresser-Pereira

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Este trabalho busca formular uma explicação da transição consolidada para a democracia. A

democracia tornou-se a forma preferida de governo apenas no século vinte. O autor procura pelo fato

histórico novo que levou a essa mudança de preferência. Os pobres sempre lutaram pela democracia, mas

foi principalmente a mudança entre os ricos que levou a ela. A revolução capitalista foi a primeira

condição necessária para que a nova classe capitalista aceitasse a democracia, porque mudou o modo de

apropriação do excedente econômico da violência para o mercado; a segunda foi o desaparecimento do

medo por parte da nova classe capitalista da expropriação pelos pobres. Por outro lado, o autor argumenta

que embora a democracia possa emergir num país antes que estas condições tenham sido atingidas devido

à imitação ou à pressão externa, mas nesse caso o regime será instável. Em contraste, se o país faz a

transição depois de ter completado sua revolução capitalista sua democracia estará consolidada.

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This paper offers an explanation for consolidated transition to democracy. Democracy became the preferred form of government only in the twentieth century. The author looks for the new historical fact that led to this change of preference, and grounds it, successively, in the capitalist revolution and the gradual loss of fear of expropriation by the bourgeoisie. The poor always preferred democracy, but it was mainly the change of preferences among the rich that led to it. @The capitalist revolution fulfilled the conditions for the capitalist class to accept democracy, First because it changed the manner of appropriating the economic surplus from political power to market and second with the disappearance of the fear of expropriation by the poor. As consequence of either imitation or external pressure, democracy may emerge without these two conditions materialize, but the political regime will be unstable. In contrast, if the country makes the transition after completing the historical conditions for democracy, it will not fall back under authoritarian rule: democratic consolidation will be in place.

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Os artigos dos Textos para Discussão da Escola de Economia de São Paulo da Fundação Getulio Vargas são de inteira responsabilidade dos autores e não refletem necessariamente a opinião da

FGV-EESP. É permitida a reprodução total ou parcial dos artigos, desde que creditada a fonte.

Escola de Economia de São Paulo da Fundação Getulio Vargas FGV-EESP

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appropriation of economic surplus dependent rather from the market than from the control of the state; second, throughout the nineteenth century, the capitalist class fear of expropriation by the poor in the event of universal suffrage being established gradually wane out. After these two historical conditions were satisfied, democracy became a rational choice of the bourgeoisie as well as of the workers and the emerging professional middle class. In other words, the rise of capitalism and the liberal system opened the way for democracy to become, in the twentieth century, the equivalent to the ‘good state’: the form of government most consistent with political stability.

The method I use here is historical, in the tradition of sociology and classical institutional economics; I am interested in generalizing empirical experience, not being either normative or hypothetical-deductive. More specifically I use the ‘new historical fact method’, in which the researcher is supposed to look for the new events that changed the social reality being studied, under the assumption that one cannot explain social change, democratic transition and consolidation, with factors that did not change. Only a posteriori, after looking for the historical new facts that changed the object being studied, I search for the rational motivations behind, because the new conditions may have made rational a previously non-rational political behavior. The emergence of democracy is a historical fact, the understanding of which requires the combination of the search for new historical facts giving rise to new social and political patterns with the examination a posteriori of rational social mechanisms behind1. In this paper, I claim that the new historical fact behind the modern rise of democracy was the capitalist revolution and the corresponding change from a form of appropriating the economic surplus in which political power or the control of the state was essential to a market. After that, democracy did not become necessary, but it became possible. Yet, this was a necessary but not a sufficient condition for the

1 _{On the ‘historical-deductive method’, see Bresser-Pereira (2005). On social mechanisms, Elster (1998) and}

rise of democratic regimes. It would take a hundred years after the industrial revolution – the whole nineteenth liberal century – for the capitalist class stop fearing democracy, and, giving the mounting pressure coming from the middle class and the poor, cease to resist the demands for more democratic participation.

The theory that I sketch in this paper ties democracy with capitalist development. There is a long tradition of research and thought on this subject that begins with Lipset (1959) and Cutright (1963), uses an historical and structural approach, with clear ties with modernization theory, and applies a cross-national statistical method to the problem. The classic paper on development and democracy by Lipset (1958) shows that the more advanced an economy is, the more democratic it will tend to be. Lipset uses theories of modernization, and stresses the importance of education – which is indeed important, but not enough to explain why democracy became the preferred form of government only in the twentieth century. In fact, his seminal paper establishes a correlation, not a causal connection. A series of other studies confirmed Lipset’s original finding, but remain inconclusive in relation to the cause behind.

@Later, an alternative approach emphasizing the particularities of each country where the transition or the consolidation of democracy takes place, and attributing a major role to individuals and to splits in the authoritarian elites between ‘soft liners’ and ‘hard liners’.@2 As this paper is critical or a rational choice approach, that ignores history, it is also critical of the second alternative by the opposite reason: because it lacks generality stressing actors instead of social structures and institutions, and because it involves a voluntarist approach to democratic transitions. Both approaches derive from Dankwart A. Rustow’s 1970 paper on transitions, in which he rejects the assumption that the causes of democratization are also the causes of consolidation. In doing that he opens room for choice or agency but, either this kind of approach leads to absolutely abstract rational models like the ones in neoclassical economics, where choice turns maximization loose predictive power, or opts for case by case studies, and predictability ceases to exist. Instead, the paper offers new subsidies to the first tradition of thought, which is also part of comparative politics, but looks for structural determinants of social and political

action. It is akin to approaches by Lipset (1959) Moore (1967), Dahl (1971), and Rueschmeyer, Stephens and Stephens (1992: 8) that look for structural forces behind democratic transitions. The later stress more than I do the role of the poor in achieving democracy (the fact that they fight for it does not mean that they cause it), but make a neat and clarifying class analysis that is consistent with my argument:3

The working class was the most consistently pro-democracy force… The landed

upper-classes which were dependent on a large supply of cheap labor were the most

consistently anti-democratic force. The bourgeoisie we found to be generally

supportive of the installation of constitutional and representative regime, but opposed

extending political inclusion to the lower classes.

Yet, as the three last authors observe, “the causal forces that stand behind the relationship between development and democracy remain, in effect, in a black box” (1992: 29). In fact, capitalist development and democracy come together but there is not a clear explanation why. This paper views democracy as a recent historical phenomenon that has its roots in the nineteenth century but only really emerged in the twentieth century, and, based on the method of the new historical facts, offers a contribution toward opening this box. This paper offers a general argument for democratic transitions and principally for democratic consolidation. It argues that democratic transitions are based on the change from power to market on the appropriation of economic surplus, but acknowledges that countries often become democratic before the capitalist revolution is completed and before the fear of expropriation by the poor disappears. It argues additionally, however, that no country that fulfilled these two conditions and turned democratic will fall back under authoritarianism. Before this, a country may become democratic for imitation or for foreign pressure, but that will be an unstable democracy; after, countries may continue authoritarian for some time, but, once they become democratic, it will be highly unlikely that it will fall back into authoritarianism. The argument in this paper is that democratic societies where

3 _{I first outlined the model that I will present here in Bresser-Pereira (1978), but this was an applied book}

distribution depends on market forces rather than on state control and that count with a large middle class participating through the market in the appropriation of economic surplus will be consolidated democracies.

@@Falta detalhar uma sessão - In the first session of the paper, I argue that democracy only became the preferred political regime in the twentieth century; in the second, I go back to history and the capitalist revolution to show how market, instead of administrative coordination of the economy, changed the form of economic surplus appropriation and suspended the first veto that ruling classes posed to democracy; in the third, I discuss the process through which, throughout the nineteenth century, classical bourgeois liberalism gradually accepted universal suffrage as their fear from expropriation by the poor disappeared; finally, in the fifth session, I offer some arguments for the fact that democracy became the rational choice for almost all after these two vetoes were suspended.

1.1.1 The philosophers’s view

democracy and in special Roman republicanism, democracy once again came to the minds of people as a possibility. Yet, these will be rather liberal than democratic revolutions: they rather fought for the protection of civil rights and the rule of law, than for the affirmation of political rights, particularly of the universal suffrage.4 After the Greek democracy and the Roman republic, which offered opportunities for creative political thought, the idea of the good political regime reappears between the thirteen and the fifteenth centuries, first in northern Italy in the form of republican city-states. Politics – the art of governing through argument and compromise, and not just by the use of force – begins gradually to resurface. Politics reappeared in the Italian merchant city-states with the republican humanists and particularly with their major representative, Machiavelli. After centuries, in a particular region of the world the times were suitable for doing and thinking politics. Yet, with the rise of the modern national-states in the form of absolute monarchies, such opportunity for politics and political thought apparently faded out. Not so. The Reform changed Europe in political and cultural terms. On the other hand, given that the emerging nation-states were the outcome of a political alliance of the monarch with the emerging bourgeoisie, the members of this social class start to participate in setting up new institutions. Eventually, with the American and the French revolutions, not only the times of markets but also the times of politics and of political thought gained a new momentum.

With industrialization, the capitalist revolution was completed in England, and soon after, in France and the United States. The new market economy required a non-arbitrary political

4 _{Note that I use the words ‘liberal’ and ‘liberalism’ in its classical sense, as the ideology that, in the political}

realm, will affirm the rule of law and civil rights, and in the economic one, market coordination of the

economy. I do not use it in the colloquial American sense of progressive ideology, @@rather for than against

regime: a liberal state, respectful of property rights and contracts, in which the rule of law prevailed, not necessarily a democratic one. Political philosophers were still a long way from democracy; they lived in absolute monarchies, and, realistically, saw as alternative the liberal state. A new breed of political philosophers emerged: the enlightened or liberal philosophers. Liberalism is originally the ideology of the bourgeoisie, but it is more than that. Barrington Moore’s (1967) theory relating liberalism and democracy to the emergence of the ‘gentry’ – a numerous proprietary stratum below the aristocracy and above the rich peasants and the new bourgeoisie – is well known. Since the first great liberal, Locke, liberal thinkers were constitutional monarchists. Liberalism was not an alternative to monarchy, but a form of constitutionally limiting the powers of the monarch. With the American and the French revolutions, the liberal @current@ became dominant, and the word ‘democracy’, long forgotten, returned to public debate. Particularly in the French Revolution, there was a radical democratic project, which proved self-defeating in the hands of the Jacobins. Habermas (1988: 465), writing on the French Revolution and on the dialectic between liberalism and democracy, emphasizes that “democracy and human rights form the universalistic core of the constitutional state that emerged from the American and French Revolutions in different variants”. However, such a universalistic core would take a century to become reality. After the two revolutions, liberals often identified democracy with the worst excesses of the French Revolution. In light of their historical experience, liberal political philosophers – like for instance Benjamin Constant – remained hostile to democracy, which would entail instability and the disorder, thus demonstrating the inherent incapacity of the people to govern. Even Rousseau, who is usually associated with democracy, was not really in favor of modern, i.e., representative, democracy. Being a citizen of the republican city-state of Geneva, he believed only in direct democracy. In large empires, or even in nation-states, he had the same view as Montesquieu: government was much more complex and difficult, and there was no alternative to some kind of despotism. The basic criterion distinguishing liberal from liberal-democratic regimes – the inclusion of women and the poor as citizens – would not be accepted by Rousseau. As Dahl (1989: 123) remarks:

There (in the Social Contract) Rousseau occasionally appears to be asserting an

no such thing. Though, he lauds Geneva, even though its demos consisted of only a

small minority of the population. Children were, of course, excluded. But so were

women. What is more, a majority of adult males were also excluded from the

Genevan demos.

The liberals, who had been the dominant political philosophers since the eighteenth century, only favored democracy in the twentieth century. Before, they feared democracy: they worried that the people or the poor would expropriate the rich and cause disorder. They accepted the liberal politicians’ policy of granting voting rights to the people, but gradually, slowly. One reason for this, according to Bobbio (1991: 26), was the classical conflict between reason and democracy.

In the great tradition of the Western political thought, which began in Greece, the

assessment of democracy, viewed as one of the three ideal forms of government, has

been preponderantly negative. Assessment that is based on the verification that the

democratic government, more than the others, is dominated by passions. As can be

seen, exactly the opposite to reason.

In the second part of the nineteenth century, however, things began to change. For the market economy, a liberal political regime was not enough for making safe property rights and contracts. Democracy, which used to be a pejorative word, gradually underwent a transformation. In mid nineteenth century, John Stuart Mill, following indications already existing in the work of Jeremy Bentham, and the work of his own father, James Mill, was one of the first major philosophers to endorse democracy.5 According to Macpherson (1966: 1-2, 9) pressure from those who had no vote but were part of the market process became irresistible; on the other hand, writing in the mid-1960s, he noted that “democracy used to be a bad word… Then, within fifty

years, democracy became a good thing. Its full acceptance into the ranks of respectability was apparent by the time of the First World War.”

1.1.2 The end of the first veto and the first democracies

The close of the capitalist revolution by the industrial revolution was the new historical fact that made democracy viable and, eventually, desirable. This change from traditional to market economy represented a tectonic change in the history of civilization. The capitalist revolution is the economic, social, political and cultural changes that begins with the emergence of a bourgeois class and the commercial revolution and completes itself by the formation of each modern nation-state and the respective industrial revolution. It involves, at the economic level, the transition from the state appropriation of economic surplus to profits as a basic way of getting rich in a market coordinated economy. It turns profit into the economic motive, and capital accumulation and technical progress, the means to that end. At the institutional level, it implies the separation of the public from the private patrimony, or, in other words, the transition from the absolute and patrimonial state where rent seeking is part of the game to the liberal state where it ceases to be so and where individuals have their civil rights or their liberties assured. With the capitalist revolution, the new nation-states were able to develop three basic institutions: the modern state apparatus or a professional civil service, the constitutional system, and the large national markets. At the cultural level, it involves the transition from tradition and revelation as sources of knowledge to reason and scientific research. After the capitalist revolution, besides the working class and the bourgeoisie, a new and large professional middle class gradually emerged and became a central factor in stabilizing politics.

defeated, or they imposed heavy taxes on the colonies, and they appropriated land. As society changed from tribal to more complex forms, like city-states and empires, taxation became increasingly important. The military aristocracy, with the support of a patrimonial bureaucracy and a religious hierarchy, appropriated the economic surplus from merchants, while landowners collected rents from peasants. Religious legitimacy was always an essential part of the process, but the very existence of empires and dominant oligarchies depended on their capacity to retain political power and wage war. Religious legitimacy was always an essential part of the process, but the very existence of empires and dominant oligarchies depended on their capacity to retain political power. In the last form of pre-capitalist state organization, the patrimonial state, taxation was essential to finance a court aristocracy and a patrimonial bureaucracy. There was no separation between the public and the private patrimony: being economically rich depended on being politically dominant. The poor, identified since Aristotle as the sponsors of democracy, would often press for freedom, for some sort of democracy, but the dominant group resisted, resorting to all forms of violence to keep the state under their political control. Since markets had just a marginal existence, there is no other way to distribute wealth and income than through control of the state. Occasionally the people or the merchants could gain some power, and establish some form of republic, but the enormous interests involved in political power will soon corrupt and wipe out the new regime. The military aristocracy, with the support of a patrimonial bureaucracy and a religious hierarchy, appropriated the economic surplus from peasants and merchants. After the industrial revolution, this situation changed dramatically. Now, constitutional and market systems coordinate society. Now profits and later high salaries gain relevance in making people rich while rents and taxation loose. The state continues to play a role in the acquisition and distribution of income, but is no longer a condition for the existence of the economic elite. It is not simple to say if a country underwent its capitalist revolution or not, but besides wealth, a good measure is to know if rent seeking, the patrimonial capture of the state, still plays a major role or not in making people rich.

condition of its wealth. From this moment on, the rejection of authoritarian regimes gathered pace, the consensus against democracy disappeared. As Dunn (1979: 8) observes, the “dismal of the viability of democracy was a fair summary of an European intellectual consensus which reached back at least to the Principate of Augustus, it was a consensus which disappeared with surprising speed between 1776 and 1850 in Europe itself”. Thus, everything changed with this long duration historical process that was the capitalist revolution. As a market economy prevailed, the new dominant group no more needed the use of violence or control of the state to appropriate economic surplus. According to Celso Furtado (1976: 33):

Two forms of appropriating surplus seem to have existed since the beginning of the historical times. On one side is what we call the authoritarian form, which consists in extracting the surplus through coercion. On the other side we have the mercantile form, that is, the appropriation of surplus through exchange… The surplus utilized to appropriate another surplus is a capital, what entitles us to say that all socio-economic formations in which surplus are predominantly captured through exchange belongs to the genus capitalism.

In this moment, when argument and persuasion have the way over force, the times of politics begin. Now, people had the possibility of discussing and creating liberal and democratic institutions. The eighteenth century had already a hint of it when some thinkers contrasted the harshness of aristocracy with the softness of capitalism. Montesquieu, above all, underlined commerce’s ‘douceur’.6 Albert Hirschman (1977) commenting on this view observes that, while the warrior aristocrats were subject to great and sometimes heroic passions, the bourgeois was limited to more modest and moderate traits. Analyzing Shaftsbury, Hutcheson and Hume, he showes how these philosophers viewed economic activity as a ‘calm passion’. England was the first country to complete its industrial revolution; it is not by accident that it was also the first nation-state and the first liberal political regime in the world. In early nineteenth century, England was ready to liberalism, not to democracy. The first veto to democracy that ensued from the need for authoritarian appropriation of surplus had been reasonably eliminated, but the fear of expropriation by the poor remained strong. Civil rights could be assured, not political rights. As a matter of fact, a constitutional regime had already being conquered a century before, in the Glorious Revolution, but the nineteenth century would be time in which classical liberalism flourished and turned dominant.

1.1.3 The end of the second veto: the fear from expropriation

Throughout the nineteenth century democracy became, gradually, equivalent to the good state, as long as it proved to be the more stable form of government, and, more generally, the form of government that, despite class conflicts, best promoted the interests of all social classes. Since the liberal revolution, capitalists had feared that democracy would allow the workers to opt for socialism. Such fear weakened gradually as the workers did not demonstrate such purpose. Thus, at the beginning of the twentieth century we eventually have the first real democracies. As Dahl (1989: 234).asserts, “although some of the institutions of poliarchy appeared in a number of

6 _{According to Montesquieu (1748: 609) ‘où il y a du commerce, il y a de moeurs doux’ (’wherever there is}

English-speaking and European countries in the nineteenth century, in no country did the demos become inclusive until the twentieth century”.

It is time, now, to define democracy. It is the constitutional political regime in which citizens choose regularly who will govern through competitive free elections – from which participate all its adult members (universal suffrage) –, in which citizens are protected by the rule of law, freedom of association, speech and information, and in which minorities’ rights are assured. In other words, I understand as democratic a political regime that minimally satisfies Dahl’s criteria defining a poliarchy.7 In the twentieth century, democracy or poliarchy became finally dominant in the more economically advanced countries, after many countries adopted the last and more controversial element in the definition of democracy: universal suffrage. Table 1 presents the first countries to adopt the universal suffrage up to the 1940s. The first country was New Zealand, in 1893. The adoption of the universal right to vote did not mean that a country completed its transition to democracy, but in most advanced countries this was clearly the case. Such countries had long been constitutional or rule-of-law regimes. Freedom of thought and association and regular elections had also existed for some time. When the property less and the women were finally entitled to vote, the minimum conditions for democracy materialized. As Santos (1998) observes, the number of voters doubles, or more than doubles, in most countries in the year that universal suffrage is adopted. The fact that democracy is a twentieth century phenomenon is quite clear in this table. The problem is to know why only in this moment democracy became a viable political regime.

7

Dahl (1971; 1989: 233). Yet note that, although I believe that Dahl’s distinction between modern

democracy and poliarchy is useful in certain circumstances to distinguish an ideal form of government from reality,

and also from Greek democracy, in this paper I use ‘modern democracy’ or just ‘democracy’ and ‘poliarchy’ as

Table 1: The First Countries to Adopt Universal Suffrage (up to the 1940s)

Year’ Countries

1893 New Zealand

1902 Australia

1906 Finland

1913 Norway

1915 Denmark and Iceland

1918 Austria and Luxembourg

1919 Germany and the Netherlands

1920 United States

1921 Canada and Sweden

1923 Ireland and Uruguay

1928 United Kingdom

1929 Ecuador

1931 Sri Lanka

1932 Brazil

1934 Cuba

1937 Philippines

1942 Dominican Republic

1944 Jamaica

1945 Italy, Bulgaria, and Hungary

1946 France, Japan, Turkey, Poland, Albany,

Romany, Panama, and Malta

1948 Belgium, Israel, South Korea, and

Suriname

1949 Chile and Costa Rica

Source, Santos (1998).8@@@

The industrial revolution opened the way for the liberal, but not the democratic state. The control of the state remained naturally a central political objective for dominant groups for two reasons: it continued to play an important role in income distribution, and it continued to play a central role in assuring public order. During and immediately after the transition to the market economy, one of the roles of the state, besides assuring property rights and contracts, was to create conditions for further income accumulation in order to finance economic growth. The large new capitalist class, formed by a large middle class and a small upper class, will be a liberal class. Their members did not strived only for profits, but also for the guarantee of their hardly conquered civil rights. Their memory of the arbitrary rule that characterized absolutism was live and strong. With the liberal order, they had ceased to be subjects to become citizens endowed of rights.

Yet, just as it took time for the aristocracy to grant full citizenship to the bourgeoisie, so it would take time for the new business class to accept that workers had full right to vote. The new capitalist class was liberal but not democratic. Although the seeds of democracy were in the liberal state, classical liberals fought democracy principally in the first half of the nineteenth century. They did that in the name of freedom; the argument was that freedom and equality conflicted one with another, that equality of rights – which is a condition for democracy – would be intrinsically inconsistent with civic liberties. From the equality of rights, democracy would go

8 _{Santos, 1998, and the Laboratório de Estudos Experimentais, which compiled the data, used as sources}

Dieter Nohlen, ed. Encyclopedia Electoral Latinoamericana y del Caribe (San José da Costa Rica: Instituto

Interamericano de Derechos Humanos, 1993), Ian Gorvin, Elections since 1945: A World-Wide Reference

Compendium (London: Longman Group, 1989), and Erik-Jan Lane, David McKay and Kenneth Newton, Political

directly to the tyranny of the majority and the denial of freedom. As Lindblom underlines, the first modern political philosophers “are all liberals first and democrats, second, if at all… The Constitutional Founders were fervent liberals but no more than time democrats, some not democrats at all”. Lindblom (1977) also sees a close relation between poliarchy and capitalism, which he calls “the private enterprise market system”. Both would be “methods for popular control over ‘public’ decisions”, the former through the vote, and the latter through consumers’ individual preferences.

Democracy only really materialized in the early twentieth century because only then the second veto to it – the fear of expropriation of the rich by the poor – reasonably ended. After the completion of the capitalist revolution, democracy became a real possibility, but the new capitalist ruling class realized that its advent could involve workers winning elections and establishing a socialist regime. A second historical fact – the loss of such fear – was required. It took one century for this fear to disappear– a century in which, bit by bit, it became clear that the majority of workers would not support a socialist revolution. Workers integrated in large plants had become better organized and demanding, but not revolutionary: they demanded rather democracy than socialism. This would also contribute to the rise of democracy on the condition that the pressure was not excessive and threatening. It was what actually happened; by the end of the nineteenth century, the arguments against universal suffrage had lost their force as the bourgeoisie realized that their fear of expropriation by the workers was groundless.9 Gradually capitalists realized that the workers did not vote as a bloc, and that the majority of workers would not vote for their expropriation. They observed that democratic politics tended to divide political parties ideologically, but the differences among them would tend to be increasingly smaller as all had to converge to an ideological center that had to be won. In other words, they saw that a clear tendency to democratic elections involve change of policies but not of political @and much less@ economic regime.

9 _{In the United States, universal manhood suffrage had existed since the first part of the nineteenth century,}

The rise of two large middle classes – a bourgeois and a professional, @that one divided @ in public officers and business managers and staff – reinforced such realization and is a fourth new historical fact creating the conditions for the transition and, as we will see, for the consolidation of democracy. As industrialization advanced, a new professional middle class that already existed in the state apparatus appeared within the large new business enterprises. The two middle classes begin to represent an increasing share of the total population. Situated between the rich and the poor they were also a factor making the rich be less fearful of the poor and persuading then to accept universal suffrage. The removal of the second veto to democracy – the ending of the fear of expropriation – was materializing.

It is approximately at that time that the 1917 Communist Revolution haunts capitalism. Yet, it was not capable of stopping the movement toward democracy, probably because it did not really represent a realistic alternative of economic organization. After the 1930s depression, the response was higher taxation to the construction of the welfare state. Why did capital owners choose democracy despite that? Probably because social protection could be a form of keeping the profit rate at a satisfactory level, not a form of reducing it.

Thus, in the first democratic countries, four historical facts – the capitalist revolution changing the main form of surplus appropriation, the gradual fading out of the fear of expropriation, the rise of a large middle class, and the increased organization capacity of workers – contributed to the rise of democracy; four facts or just one since the capitalist revolution encompasses the others. The first two and partially the third historical new facts contributed to the removal of the vetoes to democracy, the fourth increased the demand for it without being threatening. If democracy was conquered, it was a conquest of the poor,10 but their fight was not revolutionary in changing the economic regime, just the political regime, and the change that took place among them (increased organization capacity) was less strategic to transitions than the change occurred at the elite level.

10 _{Therborn’s essay on this subject (1977) remains the basic reference. See also Huber, Rueschmeyer and}

The whole transition involved conflicts and compromises. Just as the first transition from the absolute state to the liberal one required the aristocracy to share power with the bourgeoisie, the second from the liberal to the liberal-democratic state necessarily brought the workers into the political process. For both transitions, the capitalist revolution was necessary but not a sufficient condition. The last thing that I want is to convey in this paper an economically determinist view of history. On the contrary, politics gained increasing autonomy throughout these two transitions. Defining political values and creating adequate institutions became two major factors in organizing social and economic life.

1.1.4 Rational motives, conditions and consolidation

In this historical process, the new rich capitalist viewed democracy critically as the old rich aristocratic, but differently they depended less on the state and valued more liberties; therefore, they were more understanding to it and gradually changed their views either because they were pressed to or because they were interested in. First, they realized that the poor did not really represent a threat to their rule because they did not have a real alternative to the capitalist system; second, that a democratic regime could be more stable, more effectively in assuring social order, than just a liberal state; and, third, that the profit rate was not really put in danger by democracy. In other words, contrarily to the old aristocracy, the new rich were not intrinsically opposed to democracy; they were intrinsically liberal and starting to realize that liberalism combined with democracy would adequately protect their interests regardless of the fact that also protected the poor and the middle classes.

made sure that the protection of minority and civil rights remained as core elements in each national constitution.

The second condition for the validity of the argument of this paper – that capitalist development keeps the profit rate on a satisfactory long run level – is, first, an empirical fact. Since the industrial revolution the profit rate did not fall as predicted by the classical economists but kept reasonably constant at a satisfactory level on the point of view of investing entrepreneurs. On the theoretical level, I have to refer to my own work on the profit rate and the classical model of growth and distribution (Bresser-Pereira, 1986, 2004). My argument was that the profit rate, not the wage rate, should be viewed as given in the long-term growth process, while wages increase at smaller, equal, or higher rate than productivity depending on the type of technical progress: capital using, neutral, or capital saving. Therefore, in this historical growth model, I inverted the distribution of income: profits, that in the classical model are the dependent variable, were viewed as the independent one, while wages, which classical economists viewed as constant, were understood as the residuum. Why the rate of profit is constant in the long term? It is essentially because a satisfactory profit rate – a profit rate that keeps entrepreneurs innovating and investing – is a condition for capitalist development. Thus, as modern societies did not find an alternative form of economic organization to capitalism,11 they had to assure to capitalists a satisfactory profit rate. In other words, the “countertendencies to the fall of the rate of profit” referred by Marx had to make their way: society developed and continues to develop technologies, institutions, and ideologies that assure the satisfactory level of the rate of profit. As wages and salaries increase at the same time that productivity rises, the profit rate is kept constant in the long run – what means that the game between the rich and the poor was not a win-loss but a win-win game, making democracy much less threatening than it was initially thought.

These two conditions reinforce one another. On one hand, workers had no rational motive to put their bets in the socialist revolution, on the other, as wages increase approximately at the same rate of productivity, they have good reason to keep participating in the economic system. The fact that the workers, eventually, had no better option was perceived not only by them but also by capitalists. And, as long as the latter understood this, they saw less and less reason to fear

11 _{For some time socialism was thought to be this alternative, but it soon changed into statism because}

democracy. On the contrary, they became increasingly confident in democracy, which could mean the guarantee of social rights besides civil and political rights. It could require wage increases, but this would not be a burden as long as they did not threaten the long-run profit rate. On the contrary, wage increases could sustain the profit rate to the extent that they maintained effective demand, as Keynes demonstrated. As it became rational for workers, not just as a class but individually, to support capitalism and to fight for democracy and for social rights, it also became rational for capitalists to support democracy, while resisting welfare initiatives. Workers increasingly understood the limits to their wage demands, while capitalists increasingly became persuaded that democracy could facilitate workers’ demands but, as a trade-off, provided a legitimate political system, more able than authoritarian rule to assure political stability. In addition, capitalists realized that democracy made the rule of law much more secure – and nothing is more important for business activity than a stable constitutional and legal environment. In this model, the rise of a large middle class entered as moderating factor reducing conflict between the rich and the poor. Yet, if we understand that their members are part of the expanded ruling class, be they bourgeois (rising in the nineteenth century) or professional middle class (rising in the twentieth century), we immediately realize that they have a major interest in democracy. Being large ruling class – much larger than the old aristocracy – the new ruling class formed by the rich and the upper middle class needed institutions permitting groups within it to share political power or to rotate in government. Under these circumstances, democracy was the obvious rational choice, collectively or for each one of their members. Democratic institutions create conditions for the resolution of their internal conflicts. Aristocratic groups, though plagued by internal and murderous struggles, were always small. They solved their conflicts personally. The emerging capitalist class, being large, had in democracy a better and more secure way of resolving their conflicts.

capitalists, and the middles classes signed informally a new social or political contract. The fight for justice, the condemnation of corruption and privilege, and the possibility of constructing more efficient and more just models of capitalism continue to be major political tasks, but democracy had become established as the universally preferred form of conducting such republican efforts.

Recently, Acemoglu and Robinson (2006) produced an ambitious and interesting work “on the economic origins of dictatorship and democracy”. How does it relate to the model just exposed? Only superficially, because both models opt for economic explanations; my model, however, is historical using rational arguments just a posteriori, while theirs is just a rational argument unable to explain historical events. Second, they explain democracy as a conquest of the poor or the citizens over the rich or the elite, while I explain it as a complex change in political attitudes in which the major change takes place among the rich, the capitalist class, not the poor. According to Acemoglu and Robinson (2006: XII) “since democracy will bring a shift of power in favor of citizens, why should the elite ever create such a set of institutions? We argue that this only occurs because the disenfranchised citizens can threaten the elite and force it to make concessions”. This is too simple and explains little. Why citizens increased their threaten capacity? Only historical reasoning can explain that. Second, why put all the burden of the explanation in the poor? Why not to consider as ??we??did the major change that happened among the rich – changes that made them gradually change? And why not take into consideration the changes that occurred among the poor? If economic reasoning is in place, why not to distinguish the loss of political power that effectively happened, from the conservation of economic power achieved by the stability in the long term of the profit rate?

when they realize that democracy became rational to them. Yet, again as he does not work with a historical-deductive but with a hypothetical-deductive method, he does not have an answer to this question. Alexander (2002: 66-67) practically admits the limits of his method when he questions himself: on what conditions will political actors make the forecast that expected payoffs from democracy are predictably higher than those from authoritarianism, and responds: “posing that question is as far as rational choices principles can take us”. Several factors reduce the right’s expected payoff from authoritarian projects, “but they can do so only on a basis actors perceive as temporary, and therefore they can induce provisional support for democracy. But they cannot influence expected payoffs in ways actors perceive as predictable and therefore cannot create commitment to democracy or democratic consolidation”. In this way, he acknowledges not having a general theory for democratic transition and consolidation. Since he started from the right assumptions and made an excellent question, if he had adopted a historical approach, he probably would be more conclusive. He would see that the four new historical facts, among which the encompassing one is the completion of the capitalist revolution, were key to the suspension of the two vetoes to democracy and to a predictably firm commitment of the rich to a demand that was rather from the poor: democracy.

help of four types of non-democratic regime whose characteristic would influence decisively the transition and consolidation paths. From that, they described the typical institutional, cultural, and economic framework existing just before transition in one of the four types on non-democratic regime – the authoritarian: “a robust civil society, a legal culture supportive of constitutionalism and the rule-of-law, a usable state bureaucracy that operates within professional norms, and a reasonably well-institutionalized economic society”. According to them, Spain, for example, presented such conditions in the early 1970s; Brazil, I would add, is another example 10 years later. The two authors do not refer to capitalist revolution, but no country that did not make its capitalist revolution will have such @countries@. On the other hand, a country coming out of another of the four types, ‘sultanism’, like Haity, may experience transition but these conditions will no be in place and democracy will be eminently unstable. Actually, besides income per capita, the characteristics that Linz and Stepan listed are a good way to evaluate if a country completed or not its capitalist revolution. Middle-income countries coming from statism, like Poland or Hungary, are exceptions to my argument on consolidation since they did not satisfy all requirements of capitalist revolution. This was so because their societies were object of strong artificial or planned intervention, but their level of income, education, technology and several aspects of their value system and their social structure were consistent with national societies mature to democracy.

1.1.5 The evidence

Dahl (1989) writes of three periods of poliarchy growth: 1776-1930, 1950-59, and the 1980s. Huntington (1991), probably inspired by this, identifies three waves of democratization. In each wave, countries that had become capitalist and liberal made their transition to democracy as predicted, while others just followed for imitation, pressure from the poor, or pressure from other countries. At the end of the twentieth century, besides most of the English-speaking and European countries, all Latin American and an increasing number of countries in the other continents were democratic. Democracy had become the dominant form of government. In the Asian countries, that are undergoing an extraordinary process of economic growth since the 1950s, bureaucratic and capitalist elites resist democracy, but in the last decade democratic transitions became a reality. The model presented in this paper aims to offer a general explanation to democratic transition and consolidation based on the assumption that the same theory should explain both phenomena, but I have to admit that it is more on firm grounds in the second than in the first issue. Historically, the requirement of a full change from state to market appropriation of economic surplus is a necessary and sufficient condition for democratic consolidation, not to democratic transition. No country experienced democratic consolidation before having reduced substantially the patrimonial aspects of its state, but the same cannot be said in relation to democratization. Many countries make their transitions to democracy while the capture of the state by private interests remains crucial to elites; the resulting democracy, however, will be unstable.

capitalist revolutions, they do not have either a fully developed entrepreneurial class or a large middle class, but are democratic as long as the basic requirements of the democratic regime are present. Why? Probably for a combination of three factors: the pressure from the people, the imitation of the elites, and last but not least, the pressures of Brazil, Argentina and United States that the country be democratic. Therefore, pressures from the poor, or from rich countries interested in more predictable economic relations, or institutional imitation are intervenient factors causing democracy. The democratic regimes in such conditions, however, will be eminently unstable regimes, prone to military coups.

On the other side, just the fact that a country completed its capitalist revolution does not automatically guarantee that it will be democratic. First, because being the transition to capitalism relatively gradual, it is not always clear if this transition is complete or not. Second, because there is always a lag between the moment that the authoritarian control of the state by the rich stopped being rewarding and the moment that they perceive that change. Particularly some aristocratic, religious, patrimonial old elites that survive in capitalism may be very resistant. In Latin America, Mexico took time to become fully democratic due to the resistance of the PRI: formal democratic rules were in place, but elections were not fair enough to indicate a democracy, as the Salinas election (1987) showed. It was only with the Fox election, in 1999, that the alternation of power finally occurred.

On the other hand, we may have cases in which all conditions for democracy are in place but, as the authoritarian regime continues to be extremely successful economically and is moderate politically, it survives. The most striking case today is Singapore, which is for long a fully capitalist and developed country, but the extremely competent ruler who governs the country for more than 50 years prevents that the transition takes place.

other variables, as, for instance, size : It is interesting to observe in Table 1 that New Zealand, Australia and Finland, rather than much higher industrialized countries, were the first countries with universal suffrage. The fact that they were small national-states, and at least two of them, new ones, is probably part of the explanation.

In relation to democratic consolidation, however, exceptional cases are few, if any. Probably the most extraordinary case of a democracy established in a country where the conditions to it were not clearly present is the one of India. Almost certainly, the role of enlightened leaders like Gandhi and Nehru played a major role. On the other hand, when the transition took place, there was already a large capitalist class in India. The fact that the country has a huge and poor population may hide the fact that it was also heterogeneous, allowing for the existence of a sizable capitalist class in the moment of the transition. I am not able to name other possible exceptions. If a country already counts with a large business class and a substantial middle class, most improbably it will fall back into authoritarian rule.

the transition to democracy, as predicted by the theory here proposed.12 All other countries with the exception of Italy, which fell back to Fascism in the 1920s, and Germany, to Nazism in the 1930s, follow the basic rule. If a country turns democratic but has not yet completed its capitalist revolution, its democracy will be an instable one; if it completed, democratic consolidation will be in place. Simple historical observation confirms this claim, but there is a major finding by Przeworski and associates (2000) which in my view is definitive. They conducted a major research project on democracy for the period 1950-1990, in which they demonstrate that “where they are established, democracies are much more likely to endure in more highly developed countries”. The central finding, however, was more specific: they concluded that in rich democracies (above US$6,000.00 per capita, per annum) the probability that the regime will relapse into dictatorship is practically zero. The authors affirm that their findings do not permit a causal connection to be established. Yet, if we accept as reasonable that non oil exporting countries, with per capita income of this size, already completed their capitalist revolution – what I believe to be a reasonable assumption, conservative in income per capita terms – it is demonstrated that completion of the modernization process implies democratic consolidation.

What to say about Italy and Germany? Although the completion of the capitalist revolution was recent, these countries were not in the grey area in which patrimonial capture of the state remains strong but profits and high salaries are already the dominant form of getting rich. Yet, being recent, and giving the strong competition that West European countries always revealed among themselves, they were backward countries in relation to Britain and France that were catching up. On the other hand, the previous 1917 Communist Revolution eventually proved a bureaucratic led form of industrializing and catching up, not really a form of building

12 _{See Bresser-Pereira, O Colapso de uma Aliança de Classes (1978). In this book and in some subsequent}

socialism. Why do not consider the authoritarianism involved in it the extreme case of state intervention to catch up that were also present in Italy and principally in Germany? Democracy arises from economic development, and market coordinated democracies usually grow at higher rates than authoritarian regimes, but history is full of examples of countries in which state intervention accompanied by authoritarian rule was effective in making the country achieve forced savings, successfully industrialize and catch up, beginning economic and political liberalization only in a second stage.

1.1.6 Conclusion

The model of democratic transition and consolidation presented here does not establish a definite causal connection. Yet it shows that once profits and salaries earned in the market become the dominant form of surplus appropriation in a society – the central indication that the capitalist revolution was completed – elites cease to veto definitively democracy. Subsequently, these capitalist elites experience gradually partial forms of democracy as voting rights start to be extended to the poor, who, on their turn, are increasing their demand for political participation. Eventually elites will realize by their own experience and of other countries that democracy attends more its interests of political stability and even of political participation since from these elites now participate a large middle class. Authoritarian regimes are arbitrary in relation to the liberties that the capitalist class so strongly values, and the limit power sharing to just a few – much less than the large numbers that form the capitalist middle class and, in a second moment, the professional middle class receiving salaries. Since they will not be interested in falling back to authoritarianism, the consolidation of democracy turns a fact.

1.1.7 References

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