The Judicial Reform program that many Israelis view as a direct attack on the country’s democracy has brought with it serious harm to the country’s economy: significantly weakened shekel; rising inflation; reduction in high-tech foreign investment; brain drain to overseas (e.g., digital techies and physicians). This shouldn’t be surprising – especially to PM Netanyahu, the country’s biggest cheerleader for capitalism – given the “bond” between democracy and capitalism these past 250 years.
It is no coincidence at all that democracy began to evolve in its modern form at exactly the same historical period when capitalism started to mature. Indeed, one can mark 1776 as the serendipitous date for that connection, with the publication of Adam Smith’s pioneering paean to capitalism The Wealth of Nations – the exact same year of America’s Declaration of Independence that started the U.S. on its slog towards independence and democracy.
What’s the connection or parallel between the capitalist economic system and the democratic political one? Several factors are at work. First: “involvement” i.e., in each system the general public has a voice and some power to act independently. Second: “feedback” i.e., the ability to adjust for mistakes. Third: “adaptation” i.e., the structure of the capitalist system – as the democratic system – can more easily be changed to meet the challenges of each new era. Let’s take each in turn.
INVOLVEMENT: Human beings are naturally motivated by self-interest (yes, most have some altruistic feelings as well, but these are secondary). Thus, a system that enables expression of a person’s self-interest will by more dynamic than others. The classic example: when Stalin collectivized Russia’s productive farms, agricultural output collapsed because the farmers had little motivation to work as hard as they used to. This very fundamental principle works equally in the world of politics: if the public has the ability to “input” – whether through periodic elections and/or other means (protests, lobbying etc.) – they will see the system as legitimate, leading to greater stability. And greater political stability is a basic precondition for a stable and flourishing economy; conversely, a flourishing economy also supports a stable political system (e.g., the serious famine in the mid-1780s led to the French Revolution).
FEEDBACK: When things don’t work well (or at all), those running the show need to hear about the flaws/problems in order to fix them. In complicated systems like modern political regimes and post-industrial economies, it is impossible for the leaders to know what is happening “below” without continual feedback from those doing the actual “grunt” work. In autocracies, the public is too scared to report such flaws; similarly, in top-down Socialist (or Feudal) economies, there is little “listening” to those in the field, as the ruling philosophy is “we [above] know best what’s good for you [below]”. The system then gradually weakens until “all of a sudden” it collapses. Capitalist and democratic systems have as many flaws as any other system, but they are open to hearing about systemic weaknesses (if only for reasons of political or economic self-interest!) and fixing those that threaten the system.
ADAPTATION: Such “fixing” is actually built into the system. In democracies that entails legislation or constitutional amending. In capitalist economies that entails stakeholders (share owners, customers, etc.) leaving “problematic” economic entities, whether a small store or a huge corporation. In order to survive politically or economically, those in charge have to find ways to change their ways or face “death” (voting them out of office; bankruptcy).
All of this brings us to what has been happening in Israel this year. Both sides – those pushing Judicial Reform, and those against – are expressing these three principles, each in their own way. The proponents see the rulings of the present judiciary as not taking into account large segments of Israeli society (“involvement”), this from complaints coming from their constituents (“feedback”) – leading the government to try and change the constitutional structure (“adaptation”). The use of these three elements are even clearer in the opponents’ behavior: huge protests (“involvement”) providing “feedback”, accompanied by an economic form of “adaptation” (selling shekels, “relocation” of professionals) that also serves as a capitalist form of feedback to what they perceive as a deeply flawed political move.
This interaction between the “economic” and the “political” is why I have “Siamese Twins” in the title. These two worlds not only influence each other but are profoundly and inextricably linked with each other. In general, we all understand how the political influences the economic: through legislation, regulation, and the like. Less obvious, but no less critical, is how the economic can deeply influence the political. With all due respect to the extraordinary outpouring of weekly protests, what has really stopped the government’s Judicial Reform program from advancing is the economic harm that has been caused (the military harm is certainly an equal factor) – and the even greater harm that would ensue (e.g., international rating agencies’ downgrading) if further legislation along the initial Judicial Reform lines was forthcoming.
Capitalism and Democracy not only work best together; in the long run, each can survive only by working with the other. That’s the bottom line – figuratively and literally!