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The author is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, Locked in the Cabinet, and his most recent book, Supercapitalism. His "Marketplace" commentaries can be found on publicradio.com and iTunes. 

Free markets were supposed to lead to free societies. Instead, today’s supercharged global economy is eroding the power of the people in democracies around the globe. Welcome to a world where ... government takes a back seat to big business. ...

Conventional wisdom holds that where either capitalism or democracy flourishes, the other must soon follow. Yet today, their fortunes are beginning to diverge. Capitalism ... is thriving, while democracy is struggling to keep up. China ... has embraced market freedom, but not political freedom. Many economically successful nations-from Russia to Mexico-are democracies in name only. They are encumbered by the same problems that have hobbled American democracy in recent years, allowing corporations and elites ... to undermine the government’s capacity to respond to citizens’ concerns. ...

[T]hough free markets have brought unprecedented prosperity to many, they have been accompanied by widening inequalities..., heightened job insecurity, and environmental hazards such as global warming. Democracy is designed to allow citizens to address these very issues in constructive ways. And yet a sense of political powerlessness is on the rise among citizens in Europe, Japan, and the United States... In short, no democratic nation is effectively coping with capitalism’s negative side effects.

This fact is not, however, a failing of capitalism. ... Capitalism’s role is to increase the economic pie, nothing more. ... Democracy, at its best, enables citizens to debate collectively how the slices of the pie should be divided and to determine which rules apply to private goods and which to public goods. Today, those tasks are increasingly being left to the market. What is desperately needed is a clear delineation of the boundary between global capitalism and democracy-between the economic game, on the one hand, and how its rules are set, on the other. If the purpose of capitalism is to allow corporations to play the market as aggressively as possible, the challenge for citizens is to stop these economic entities from being the authors of the rules by which we live.

The Cost of Doing Business

Most people are of two minds: As consumers and investors, we want the bargains and high returns that the global economy provides. As citizens, we don’t like many of the social consequences that flow from these transactions. We like to blame corporations..., but in truth we’ve made this compact with ourselves. After all, we know the roots of the great economic deals we’re getting. They come from workers forced to settle for lower wages and benefits. They come from companies that shed their loyalties to communities and morph into global supply chains. ... And they come from industries that often wreak havoc on the environment. ...

Such conflicting sentiments are hardly limited to the United States. The recent wave of corporate restructurings in Europe has shaken the continent’s typical commitment to job security and social welfare. ... In Japan, many companies have abandoned lifetime employment, cut workforces, and closed down unprofitable lines. ... A nation that once prided itself on being an "all middle-class society" is beginning to show sharp disparities in income and wealth. ... Like many free countries around the world, Japan is embracing global capitalism with a democracy too enfeebled to face the free market’s many social penalties.

On the other end of the political spectrum sits China, which is surging toward capitalism without democracy at all. That’s good news for people who invest in China, but the social consequences for the country’s citizens are mounting. ... And those who are affected most have little political recourse to change the situation, beyond riots that are routinely put down by force.

But citizens living in democratic ... have the ability to alter the rules of the game so that the cost to society need not be so great. And yet, we’ve increasingly left those responsibilities to the private sector-to the companies themselves and their squadrons of lobbyists and public-relations experts-pretending as if some inherent morality or corporate good citizenship will compel them to look out for the greater good. ... We forget that they are simply duty bound to protect the bottom line.

The Rules of the Game

Why has capitalism succeeded while democracy has steadily weakened? Democracy has become enfeebled largely because companies, in intensifying competition for global consumers and investors, have invested ever greater sums in lobbying, public relations, and even bribes and kickbacks, seeking laws that give them a competitive advantage over their rivals. The result is an arms race for political influence that is drowning out the voices of average citizens. ... The only way for the citizens in us to trump the consumers in us is through laws and rules that make our purchases and investments social choices as well as personal ones. ...

Let us be clear: The purpose of democracy is to accomplish ends we cannot achieve as individuals. But democracy cannot fulfill this role when companies use politics to advance or maintain their competitive standing, or when they appear to take on social responsibilities that they have no real capacity or authority to fulfill. That leaves societies unable to address the tradeoffs between economic growth and social problems such as job insecurity, widening inequality, and climate change. As a result, consumer and investor interests almost invariably trump common concerns. ...

[F]or those of us living in democracies, it is imperative to remember that we are also citizens who have it in our power to reduce these social costs, making the true price of the goods and services we purchase as low as possible. We can accomplish this larger feat only if we take our roles as citizens seriously. The first step, which is often the hardest, is to get our thinking straight.