Air Date: January 11, 2000

Program 0002

Capitalism and Democracy

(This text has been professionally transcribed, However, for timely
distribution, it has not been edited or proofread against the tape.)

© 2000 by The Stanley Foundation

PROFESSOR JOHN MUELLER: The way I put it in the book is any dimwit can do democracy, as Americans should certainly know by now.

KEITH PORTER: This week on Common Ground, a discussion about the pros and cons of democracy and capitalism.

JOHN MUELLER: Capitalism rewards systematically—though not necessarily equally and in all cases—it rewards honesty, civility, fairness, a sense of compassion. Businesses that have done that have tended to prosper. And there’s also a strong tendency for countries that have a virtuous business environment also to be very rich. And ones that have a squabbling, deceitful business environment tend to be very poor.

KRISTIN MCHUGH: Common Ground is a program on world affairs and the people who shape events. It is produced by the Stanley Foundation. I’m Kristin McHugh.

PORTER: And I’m Keith Porter. John Mueller is a Professor of Political Science at the University of Rochester. His latest book argues capitalism and democracy are neither horrible nor perfect systems. Yet, together, these two concepts can provide a nation with almost everything it really needs. His book is titled, Capitalism, Democracy, and Ralph’s Pretty Good Grocery.

MUELLER: "Ralph’s Pretty Good Grocery" comes from a phrase that Garrison Keilor used in his Prairie Home Companion. It’s a fictitious grocery store in Lake Woebegone, Minnesota. The slogan of it is, "If you can’t find it at Ralph’s you can probably get along without it." And I’ve always thought that was pretty unexhilarating, but on the other hand, pretty reasonable, in many cases. And the argument I make with capitalism and democracy is you can’t get certain things with them, but they have substantial benefits, and what you have to basically do is learn to live without some of the things that can’t give you. Democracy can’t give you orderly deliberation; it can’t give you a sense of, sort of, finality—the fat lady never sings. Capitalism is very chaotic. There’s creative destruction. People go out of business. People get fired. But they, but the benefit of course, is an enormous amount of economic growth under the best circumstances. And both of them also substantially cannot deliver equality. That people are unequal in their impact, both under capitalism and under democracy. And to try to make everything come out equally basically would destroy those two systems. And in general it’s better to try to learn to get along without inequality—without equality—though things can be done to sort of smooth things out somewhat in both cases.

PORTER: You talk about the fact that capitalism has a reputation this is perhaps worse than deserved and democracy has a reputation than deserved. Tell us about that idea. What is it about capitalism that’s sort of, given it the bad reputation? And why do you think that that reputation is perhaps undeserved?

MUELLER: Some of it may be deserved in the long term. I think capitalists frequently acted in a bad way. The image of course is that the only way you can rich is to lie and cheat and you know, deceive people, treat them discourteously and so forth. And my argument is basically is that’s basically wrong. And capitalism tended to find that out. That essentially the phrase, "Honesty is the best policy," is also the most profitable, is true. That if you get a reputation among customers, among other deal-makers, that you’re honest and straightforward and fair, they’re more likely to come back. So you may not make as much money overnight, but in the long run you’ll be rich. If you treat your employees and your customers well they’ll work harder; they’ll come back, they’ll spend more money if they’re customers. They’ll you know, give you an extra inch; if, you know, come in on a Saturday; they’ll be more productive. The phrase, a common phrase is a productive, "a happy employee is a productive employee." So that essentially what happens is capitalism rewards systematically—though not necessarily equally and in all cases—it rewards honesty, civility, fairness, a sense of compassion. Those are good—basically, businesses that have done that have tended to prosper.

And there’s also a strong tendency for countries that have a virtuous business environment also to be very rich. And ones that have a squabbling, deceitful business environment tend to be very poor. So the Middle East bazaar kind of idea, where, there are, sort of, retail jungles where you can’t trust the person selling you the product, and then what happens is people simply don’t buy the product frequently.

PORTER: You use the phrase, "Nice guys finish first," in capitalism. And I think that, you know, if people really thought about it that they could think of good examples of businesses that have done well by doing well. You know, that they treat their customers well and so customers come back to them. And you use the example of even a used car salesman. You know, sort of have the worst sort of reputation, yet even the bad used care salesman can’t survive forever if he—no matter how big the population is, pretty soon he’s going to have a reputation. His deceit will sort of, get ahead of him, and he won’t do well.

MUELLER: Yeah, or at least he’ll do less well, anyway.

PORTER: He’ll do less well. But I guess I’m less convinced when it comes to workers. I guess I’m not sure what the mechanism is within capitalism that would make sure that someone who treats their workers well will inevitably, or will in the long-term, all other things being equal, come out ahead.

MUELLER: Well, there’s lots of—if you look at almost any management book, written by people in business—Peters and Waterman, for example—they’re constantly talking about "Treat your employees well." Treat them as human beings. And that will make your business more profitable. The, having a high morale among your workers is good for the bottom line. I mean it may, it’s also nice from a virtuous standpoint and so forth, but the thing is, that if someone really enjoys the work, really thinks "The boss really appreciates my work and he’s very responsive to everything I do and he cares about me as a human being," and he can be flexible on certain areas that, you know, when people have troubles at home and their family, and give them time. You know, all that kind of stuff. The daycare things, for children. All these kinds of things.

Which basically help the employees, make them happier, make them more content, there’s various advantages. One is they’ll work harder. Sometimes they’ll work for less money, because they’ll say, "Well, I don’t make all that much money but the boss really, you know, it’s a really great environment." Well, that’s money, that’s money in the bank. It means that you’re working for less money than you would otherwise because you’re being paid partly by the sense of civility and friendliness and warmth that you get from the management. Also, you’re less likely to quit. And you know, training an employee, even at McDonald’s, is not—you know, they’re good, there are better employees and there are worse employees. You can see that in the most simple kinds of tasks at McDonald’s. And so you’ve trained somebody and you’ve got a really crackerjack employee, and then, you know, the terrible people from Hewlett-Packard or somebody try to raid. And you’ve invested this money and effort in getting this employee to that point, and then they leave, that’s a loss.

If they say, "Well, you know, Hewlett-Packard is really a great place to work too, but my boss really, this is really where I want to be," then the training—you don’t have to retrain this person. They stay on. So the employee retention is likely to be better. And in some respects that’s a new discovery. If you go back to some of the business manuals such as they were in say, the eighteenth century, and even the nineteenth century, in the nineteenth century, too—the notion was that "Workers will only work if they’re on the verge of starvation." That if you treat them with respect they’ll just get lazy and they won’t work. Well, that’s, in the twentieth century, so that if you think that, then of course, you know, if that’s the way you treat your employees, from the bottom line standpoint.

But in the twentieth century, increasingly, people have found that that’s not the case. And I mean, in, I ran across a case in 1908 in which the, in Poland, the workers struck to be treated with respect by the management. The managers were always treating them sort of like children. And they struck. And one of their demands was "You have to treat us like grown-ups." Well, any sensible business management will say "Well, why do you have to strike, to do that?" They should do that. But the thing, the point is that the capitalists didn’t understand that. So in many respects these ideas of honesty, civility, treating your employees well, treating your customers well, smiling when the customers come in, being willing to give money back if people don’t like the product, even though obviously you’re lose in the short-run you’ll gain customer satisfaction in the long-run.

These are basically innovations. Like the factory system. Or something like that. That is, somebody had to come to those ideas. They’re not obvious. The most obvious thing is probably, if the employees—if a customer comes back, a good case is the situation. The customer comes back with a product and doesn’t like it, the natural thing, short-term obviously, is to say, "Well, too bad. You bought it. I got the money. And go away." And in the short-run obviously that’s beneficial. It takes an innovation to say, "Wait, wait, wait. That’s not good. Because I really, this person might come back again and again. He’ll tell friends, etc. And so therefore I should take the short-turn loss and I’ll probably, on average—not every case of course—make it up in the long-run. But that, you have to think about that. It’s not obvious. The most logical thing to do is say, "I got their money and too bad. You screwed up and I’ve won."

PORTER: In the "Nice Guys Finish First" idea, it doesn’t apply anything to the morality or the ethics of the product that you’re making, I guess, does it?


PORTER: So, nice drug dealers will finish first and nice slave traders will finish first?

MUELLER: Yes. In general. The disadvantage of capitalism—or not the disadvantage, but one of the major criticisms, is that it supplies its customers with whatever they happen to think they want. And if they can pay for it. And it does that extremely well. Able to supply them with things that society may not desire. So there are efforts to basically—obviously the slave trade had—virtually no slave trader apparently ever gave up slaves for economic reasons. They were given up because the laws changed. We also restrict prostitution, we restrict drugs, we restrict alcohol at times, sometimes we’ve restricted gambling, we’ve restricted pornography. So societies over history have tried to restrict that. And sometimes that’s worked, sometimes of course it’s had very bad effects overall.

But anyway, the point is that capitalism by itself is not interested in supplying moral products. It supplies things that people want. You’ll have capitalists obviously who simply don’t want, they just won’t do pornography, for example. They have a video store and they just don’t want to do it. And that’s, but that’s a different issue. That’s not, that’s not pure greed that’s driving them, that’s some other issue.

PORTER: Well, let’s move on to democracy, then.


PORTER: You talked about democracy as having a sort of, a bigger reputation than it deserves, a better reputation than it deserves, as sort of the fix-all to whatever problems seem to ail any society is democracy. But you say that in practice it’s, you know, democracy is okay but it ain’t that great.

MUELLER: What happens is the, my book is sort of a war upon various theorists and idealists. That the notion that democracy is, or should be something different than what it is, I think is very dubious. That what happens is, when democracy actually came into practice a couple of hundred years ago in large countries, what people tended to find was that the, that it didn’t really, it did a lot of good things, from a theoretical standpoint. It supplied, I think, made societies who were very responsive, productive, where people had, and really enjoyed the freedom that they had, as opposed to non-democracies. Where they could basically find their own way and so forth.

But what it didn’t do is come out the way people thought it would come out, many people, including people who wrote the Constitution. There’s a lot of shortsighted squabbling by self-interested pressure groups and parties and individuals. Most people, most of the time don’t participate. Most people get, and there’s not—and most people don’t really know much about what’s going on. And it seems to me that’s the way it is. That the idea that you can make people participate more is very dubious. That we now have two hundred years of history, and clearly democracy works despite the fact that people don’t know what’s going on. You know, people are just not normally policy wonks the way people, theorists, seem to think they should be.

And self-interested work by special interests, in my view, is the very essence of democracy. The whole point in many respects, of democracy, that people should be able to organize to pursue their interests. And some of these interests are clearly not good things for the society as a whole, some things are. But what democracy allows is anybody to do that. So you can have the sugar producers wanting to raise the price of sugar and you can have the Pepsi-Cola people trying to lower the price of sugar. And they get into the foray, and it’s a mess. It’s very inconclusive, it’s chaotic, it keeps changing, important things get reduced to bumper stickers. And my argument is basically, that’s the way it is.

And a disadvantage of constantly saying it should be something else is that people get very cynical. They think, somehow democracy should not have special interests in it. They think people should actually participate in great numbers. And they think that people should be very knowledgeable. And they see that doesn’t happen, and so therefore they become cynical about the form. And I think they’re cynical about something that cannot be made to fit their ideal, their impossible dream.

PORTER: You said that perhaps the—I’m paraphrasing you here, of course—perhaps the Founding Fathers had it wrong. That democracy does not require eternal vigilance or an informed citizenry.

MUELLER: Yeah, it can come much cheaper.

PORTER: It can come much cheaper! That really sort of strikes at the heart of some deep-down American beliefs, doesn’t it?

MUELLER: And I just say, "the beliefs are wrong." I mean, in fact, the, but what that means is, is that democracy is really a pretty simply idea. Democracy comes into effect when basically the government says, "You can say anything you want, you can do anything you want, but you just can’t use violence." And the people agree, "Okay, we’ll do that. We will not, we will be, we’ll organize to overthrow the government or the people running the country, but as long as we don’t use violence." And so it basically the freedom to complain. And people will not put you in jail because you don’t like what’s going on. They may not listen to you, they may not do anything that you want, but there’s no danger from the government of—and you may also be ridiculed, of course—there are consequences, potentially. But it’s only by other people exercising their own freedom to speak or freedom to not listen. And so consequently, it seems to me that that’s the, that democracy is, that’s sort of the central thrust of democracy, that people—it’s a very simple idea. It’s not complicated. You don’t have to have economic development. You don’t have to have people reading Thomas Jefferson from cover to cover. You don’t have to have people understand what it is. In my view, they don’t understand what it is, cause they keep thinking it should be something else. And that’s one of its great strengths. The way I put it in the book is any dimwit can do democracy, as Americans should certainly know by now.

MCHUGH: Coming up, the more from author and Professor John Mueller.

MUELLER: Democracy works well and so does capitalism, with real people. With real, flawed, self-interested, scrabbling, simple-minded, or at least uninterested, people. And that’s one of its strengths. I mean, it doesn’t require that the human race be perfected.

MCHUGH: Printed transcripts and audiocassettes of this program are available. Listen at the end of the broadcast for details. Common Ground is a service of the Stanley Foundation, a non-profit, non-partisan organization that conducts a wide a range of programs designed to provoke thought and encourage dialogue on world affairs.

MUELLER: Democracy works, despite the fact for 200 years people have never known what’s going on very much. And I don’t want to be patronizing about that. I think some people are—you know some of the theorists. I mean, why should people be interested in politics, particularly? You know, they’ve got their own—it’s not that there idiots. They’ve got other things. They’ve got to worry about their kids in school, they’re worried about their job, their marriages, whether their father is going to get sick—you know. All kinds of things. Who’s going to win the Super Bowl. That’s perfectly okay.

PORTER: Again, this is John Mueller. He’s the author of Capitalism, Democracy, and Ralph’s Pretty Good Grocery.

MUELLER: So it’s not that people don’t care about anything. It’s just that they happen to care about the things they want to care about. And democracy leaves them free to pursue those interests. And capitalist democracy is constantly inventing all kinds of very attractive alternatives to thinking about politics. And people should be free to follow those interests. And they do.

PORTER: Is it okay for people to just vote their self-interest?


PORTER: Is that the goal? I mean, is that…

MUELLER: Yes. Well, I mean, it’s okay. And it’s also what happens. They vote their self-interest. They, in some cases their self-interest may be sort of an image of the way society should go. They may think that civil rights are important and people—or the abortion thing, for example. Some people clearly think that abortion is a good thing and a bad thing and that’s an issue that may not affect them directly personally, but they, it’s a moral issue that’s very important to them on one side or the other. So it’s not purely self-interest in the sense of, like economic self-interest. Although that frequently is very important. And you know, if you think your Social Security check is going to be squashed by the next, the incoming President, then if you’re getting one of those or plan to get one of those, then you’re very interested and that’s perfectly reasonable.

PORTER: It’s okay to go in and vote based on that interest?

MUELLER: Yes. And it’s not only okay, but that’s the way it is.

PORTER: The way it is.

MUELLER: It seems to be hopeless to think that it will ever be anything different. I mean, people are people. Democracy works well and so does capitalism, with real people. With real, flawed, self-interested, scrabbling, simple-minded, or at least uninterested, people. And that’s one of its strengths. I mean, it doesn’t require that the human race be perfected.

PORTER: On that point about democracy requiring eternal vigilance, we may not be eternally vigilant and we may not all be vigilant, but there are vigilant groups out there. I mean, you mentioned the sugar people. You know, whether the sugar growers or the sugar buyers, but there’s people who are sort of vigilant about even more esoteric things, I guess. There’s the ACLU or the National Rifle Association—groups that are organized around specific points in the Bill of Rights even. So there are vigilant people out there. And they’re certainly important to the process, aren’t they?

MUELLER: Yes. It’s, you get a mix. And some people, of course, are extremely well-informed. But, you know, Lincoln’s—actually it’s not clear Lincoln ever said this—but Lincoln’s famous phrase, he said, "You can fool all the people some of the time and some of the people all the time, but you can’t fool all the people all the time," is really pretty profound. It’s somewhat cynical, that you can actually fool everybody, some of the time. And that you can fool, some people will never get it. But that out there you can’t do it consistently so people are left free to develop ideas and participate. Someone will show you up. The tyrant, the people will see that the emperor is not wearing clothes, and they’ll start talking about it. Some of them.

PORTER: I want to ask about one quote that I found was interesting, here. This is from Chapter One. It says, "It seems to me that an institution is likely to be fundamentally sound if it can function adequately when people are rarely, if ever, asked to rise above the ignorance and selfishness with which they have been so richly endowed by their Creator." It struck me that some of the greatest figures in history have been people who’ve asked us to rise above those very things. And in fact, I always thought that the purpose of civilization, really, was to sort of, sort of tamp down the worst parts of human behavior and elevate the better parts of human behavior. So is it really true? Should we be satisfied with a system that doesn’t ask us to rise above, sort of, the worst parts of human behavior?

MUELLER: Well, I’d look at the repu—I mean, I’m a big fan—I’m a big, despite my tone, it might be, that I’m a big fan of democracy. And if you look at what democracies have done through this scrabbling process, without asking people necessarily to rise above their selfishness and ignorance, is they’ve produced remarkably good societies. At least by my values. Obviously, if you’re a totalitarian or a racist or something they’re not so good. But from my, certainly from the standpoint of the average liberal—you know, the average American, average Western European, and so forth—these societies are really pretty good. Compared not to heaven, but compared to the alternative—dictatorships, totalitarian regimes, fascist regimes, communist regimes, whatever. And furthermore, democracy, despite the fact that people really don’t know a lot about what’s going on, somehow they constantly choose superior leaders. It’s not—if you look at the American presidents and the British prime ministers, Canadian prime ministers, whatever—you’ll find some losers and some duds in that list. But if you compare them to the average string of dictators, the average string of czars, or kings, it’s, they’re superior. They’re not all geniuses and sometimes the very best people don’t ever become president or whatever, certainly. But compared to the alternative it’s been pretty good.

PORTER: For a society like America, where we have both this capitalism and democracy and we’ve put them together to get Ralph’s Pretty Good Grocery Store motto, what does that tell us about our foreign policy? Which one wins in foreign policy matters? Capitalism or democracy? Let’s star there.

MUELLER: Capitalist democracies have been somewhat evangelical in the sense that they think they’re superior—and in my view they are—to other forms of both economic organization and also political organization. But they can also be isolationist. It’s not clear that they need to export themselves. What tends to happen, certainly with capitalist democracies—and if you’re talking about, say, the post-Cold War period, where there doesn’t seem to be a real threat to capitalist democracies as there did seem when there was a communist opponent—is that it’s pretty open. People talk about the "West versus the Rest" or the "North versus the South," but that’s not the way I read it at all. Capitalist democracies of the North have this club of other capitalist democracies, but it’s wide open.

So if Mexico starts to come along, they’ll say, "Well, come on in." You know. Argentina and Chile. Obviously, Taiwan. If you can get your act together and have something that someone wants to buy, or enough money that you can buy something that we’ve got—"Fine. We’ll get rich together. It’s not that we can get rich and you have to get poor. Quite the reverse. Maybe we can help you out. It’s to my advantage." I mean, it’s to the advantage of the United States that Mexico become rich. Because they can buy more of our stuff. And the reason the United States trades so much with Canada is because it’s another rich country. So rich countries tend to deal with other rich countries, probably because they’ve got more money. And poor countries don’t have much money. So therefore they’re not that interesting.

But if they stop being poor and if they start producing and they get their act together and you don’t have governments which basically steal the treasury, or ship it all to banks in Switzerland, then there’s—it’s not an exclusive group. Quite the reverse. That the United States gets rich if Mexico gets rich. If Latin America becomes very wealthy that’s great for Latin America. It’s also great for the United States. And Western Europe and other countries. One of the best things that’s ever happened to the United States is the enormous growth of Japan. I mean, it’s a huge trading partner. There’s disagreements, there’s competition, there’s, you know, screaming and hollering and so forth, but overall, I think it’s been very good for the Japanese, though of course they’ll have to decide that for themselves. But I think it’s been extremely good for the United States as well. Much better than having Japan be a poor, impoverished country.

PORTER: Tom Friedman, the foreign affairs columnist for the New York Times, often writes in his column that what countries need around the world to institute is rule of law and transparent financial operations. And that if they do that capitalists from around the world will invest money and things will happen there and the country will make money. Do you agree with that? That sort of, rule of law and transparency in financial dealings will go a long way toward helping any country enter that club of the North?

MUELLER: Yeah. But my take on it is a little bit different. I don’t think the rule of law comes from being imposed. The rule of law, I think, comes from the fact—in the case of economic issues—because people realize that following the law is a good thing. That being honest in other words, is a good thing. And then what happens is—let me—I can use an example of, my favorite example is the circus. In the nineteenth century circuses were literally fly-by-night enterprises. They would come into a town, they’d bilk the town, they’d short-change the customers, there were often fights, all the games would be fraudulent and so forth. And they’d even have, they’d have pick-pockets who were working on a commission and they’d also steal—while the people were at the circus or at the circus parade they’d have people they called "Monday Men," who went around stealing the wash from the line or burglarizing houses. Well, they made a lot of money short-term that way, but pretty soon people stopped going to circuses, for a very good reason.

P.T. Barnum and the Ringling Brothers created a new kind of circus. Which is an honest circus. They had people who basically—they hired private detectives to keep out pick-pockets. They were scrupulously honest. They provided games and tricks and so forth that were, that people actually wanted to see. When you paid 50 cents to see the show it may or may not have been "The Greatest Show on Earth," but it was close enough so that it was worth your 50 cents. And they prospered. They became rich. And then what happened was, that as the rich circuses became dominant then they found that these fly-by-night circuses were hurting the reputation of the business. So that these, the other circuses used to refer to Ringling Brothers and Barnum & Bailey as the Sunday School approach. You know, patronizing them. Or pejorative.

But essentially what happened is the honest businesses came to dominate the enterprise and so that had an interest to try to keep down the dishonest businesses. And I think that’s generally what happens. That things like the Better Business Bureau are designed people—which are very recent, just this century—are designed by people who want to keep business honest because if business has an honest reputation it’s good for business. And the honest businesses don’t like dishonest businesses.

So what tends to happen is the rule of law comes out of that. It’s very hard to administer laws when everybody is cheating. When there’s only 5 or 8 or 3 percent that cheat, then it’s quite easy. And furthermore the 97% that don’t cheat have an interest in helping you out. So that I think—and also, commercial law historically came after—it was basically formulated stuff that businesspeople had already put together. They’d had sort of an informal sense of commercial law going back quite a few centuries. And when it was actually formulated it was already at the point where businesses were fairly honest.

So what I think has to happen in many of these countries that aren’t developing, is that they have to understand that. And one of the best ways for people to understand that is if they get invaded by places—the McDonald’s, or K-Mart or something—that apply Western business practices. They will, the dishonest businesses then will either have to compete—say, "Well, they can smile at their customers, I can smile at my customers. I’m not gonna let those guys get away with that." Or they, or else they go out of business. Because everybody will go to K-Mart or McDonald’s. And so what I think is you need someone who innovates, but the important thing is that because honesty, fairness, civility, compassion, are good for business, it means that anybody that does that has a competitive advantage. Therefore they don’t—therefore they will get rich and the other companies, the competitors, will either discover that and imitate it, or they will go out of business. So in either case what you’ve got is an increasing, increasingly virtuous business environment. But it takes an innovator to discover that, to put it into practice, to follow it consistently, and that has taken, has taken an effort in the history of business.

PORTER: That is Professor John Mueller from the University of Rochester. His latest book is titled, Capitalism, Democracy, and Ralph’s Pretty Good Grocery. For Common Ground, I’m Keith Porter.

MCHUGH: And I’m Kristin McHugh. Cassettes and transcripts of this program are available. The transcripts are free. Cassettes cost $5.00. To place an order or to share your thoughts about the program, write to us at: The Stanley Foundation, 209 Iowa Avenue, Muscatine, Iowa 52761. Please refer to program No. 0002; that's program No. 0002. To order by credit card you can call us at 319·264·1500. That's 319·264·1500.

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