Although not elected by the American people, the world’s wealthiest person, a South African businessman, is running the United States government with the blessing of its chief executive and without meaningful opposition from the legislature or definitive censure by the judiciary. What is going on? Has business trumped politics, and if so, doesn’t that raise an interesting question:
In pondering this, my research led me to an American billionaire; a German emeritus professor of political science at the Berlin Social Sciences Center; and a Dutch former member of the European Parliament, now a Fellow at the Stanford Cyber Policy Center, all of whom had quite a lot to say.
First, Peter Thiel, the billionaire.
Peter Thiel’s Wiki bio says he co-founded PayPal with Elon Musk; he was the initial outside investor in Mark Zuckerberg’s Facebook; and he co-founded Palantir, the big-data analytics behemoth that has contracts for defense, counter-terrorism, and intelligence throughout the U.S. government.
I read somewhere that Thiel once said, “Freedom and democracy are incompatible.” I found that statement counterintuitive, but I thought it would be relevant to my inquiry if, for Thiel, freedom and capitalism were somehow synonymous. So I Googled it, as one does, and found an essay Thiel wrote in 2009, called The Education of a Libertarian (emphasis in bold):
I remain committed to the faith of my
teenage years: to authentic human freedom as a precondition for the highest
good. I stand against confiscatory taxes, totalitarian collectives, and the
ideology of the inevitability of the death of every individual. For all these
reasons, I still call myself “libertarian.”
But I must confess that over the last
two decades, I have changed radically on the question of how to achieve these
goals. Most importantly, I no longer
believe that freedom and democracy are compatible.
There it was. But how was Thiel defining freedom and democracy, and why had he lost faith in democracy’s ability to deliver low taxes and protect the individual, and why would he ever think democracy could deliver immortality? I read further into his essay.
Thiel cites the 2008 financial crisis and resulting bank bailouts as a principal reason for his loss of faith in democracy and why a capitalist democracy became for him an oxymoron:
As one fast-forwards to 2009, the
prospects for a libertarian politics appear grim indeed. Exhibit A is a
financial crisis caused by too much debt and leverage, facilitated by a
government that insured against all sorts of moral hazards — and we know that the
response to this crisis involves way more debt and leverage, and way more
government. Those who have argued for free markets have been screaming into a
hurricane.
The 1920s were the last decade in
American history during which one could be genuinely optimistic about politics.
Since 1920, the vast increase in welfare beneficiaries and the extension of the
franchise to women — two constituencies that are notoriously tough for
libertarians — have rendered the notion of “capitalist democracy” into an oxymoron.
In the face of these realities, one
would despair if one limited one’s horizon to the world of politics. I do not
despair because I no longer believe that politics encompasses all possible
futures of our world. In our time, the great task for libertarians is to find
an escape from politics in all its forms — from the totalitarian and
fundamentalist catastrophes to the unthinking demos that guides so-called “social democracy.”
This is maddeningly sketchy, and extremely provocative. Thiel nowhere explicitly defines freedom, capitalism (he doesn’t even use the word), or democracy--whether capitalist or social. He leaves us to draw our own inferences as to his meaning. What I inferred from Thiel’s essay read as a whole is that: (1) “freedom” means not only the freedom of the individual, but also the freedom of capital; (2) “capitalism” means the free market; and (3) “democracy” means the totalitarian collective that seeks to impose social and economic constraints on the freedom of both the individual and the market.
If those inferences are correctly drawn, then in Thiel’s world freedom = capitalism, and if freedom and democracy are incompatible, then capitalism and democracy must also be incompatible. Therefore, his answer to my question, “Is capitalism compatible with democracy?” is emphatically, “No.”
This answer flows logically according to Thiel’s terms, but his terms are based on significant definitional limitations.
There are various types of capitalism and various types of democracy, yet Thiel limits his types to the singular, and illustrates them only with examples of the extremes of each. His capitalism is only the free market variety, uninhibited by “confiscatory taxes” and unregulated by the state. His democracy is only the social welfare state variety, representing a “totalitarian collective.” By so limiting his terms, he arrives at the conclusion that “capitalist democracy” is an oxymoron. Again, while this is a logical conclusion, it is not a necessary one. More on that below, but first, I can’t give Thiel’s contempt for welfare beneficiaries, women, the unthinking demos, and politics, or his desire to escape from all of them, a pass.
When Thiel uses the term “unthinking demos,” (from the Greek Demos, the ruling body of free citizens in ancient Greek city-states, the root of the word democracy), he is apparently referring to welfare beneficiaries and women who are economically or biologically (or both) unfit to participate in democratic society. It would seem that for Thiel, only men, and only men of property, that is to say, capitalists, are entitled to a political say, and by extension, the more property, the more say, all of which is so very 18th century America. The escape from “social democracy” Thiel yearns for is more of an escape back to the days of the Founders, when free men owned both capital and labor (in the case of the South), and only free men could vote. (As an aside, I wonder if this is where the originalists on the Supreme Court, who believe the U.S. Constitution should be interpreted in the context of 1797 America, want to take us.)
But where does Thiel want to escape? He describes three possible routes: cyberspace, outer space, and sea steading. It was the cyberspace escape hatch that got my attention. This route seems the most realistic, even prescient, and in fact, it’s already here as we will see below:
As an
entrepreneur and investor, I have focused my efforts on the Internet. In the
late 1990s, the founding vision of PayPal centered on the creation of a new
world currency, free from all government control and dilution — the end of
monetary sovereignty, as it were. In the 2000s, companies like Facebook create
the space for new modes of dissent and new ways to form communities not bounded
by historical nation-states. By starting a new Internet business, an
entrepreneur may create a new world. The hope of the Internet is that these new
worlds will impact and force change on the existing social and political order.
Thiel wants to use the Internet to force change on the political order; he comes right out and says it. Does that include using the Internet to spread misinformation and disinformation if necessary to achieve his goals? One wonders. Thiel wants to live in a brave new digital, globalized world born of a cyber technological revolution where one can live out one’s fantasies—and conduct one’s business—in a virtual currency, free from all governmental controls and without regard to national borders. This regime actually exists, and it has a name: neoliberal financialized capitalism. As will be seen below, it is absolutely incompatible with democracy, but it is perfectly aligned with an anti-democratic broligarchy.
Feeling very uncomfortable with where Thiel’s logic leads, based as it is on limited definitions of key terms, but recognizing that his essay was calculated to be more provocative than enlightening, I extended my Google search, which brought me to…
Wolfgang Merkel, the German political scientist.
Merkel’s Wiki bio states that he is one of the most respected representatives of comparative political science in the German-speaking world:
From 2004 until his retirement in 2020, he was director of the Department of
Democracy and Democratization at the Berlin Social Science Center and professor of comparative
political science and democracy research at
the Humboldt
University of Berlin. …He has had a significant influence on research into
democratization processes, system changes and system collapses.
In 2014, Merkel (no relation) wrote an essay, entitled, “Is capitalism compatible with democracy?”, available as a PDF under this link. The essay does not refer directly to Thiel although it takes up the same question, but where Thiel has answered unequivocally, “No,” Merkel’s more nuanced answer is, “It depends. It depends on the type of capitalism and on the type of democracy.”
Merkel’s essay is written for fellow academics and policy nerds; consequently, it is technical and quite dense. Having assumed his readers have a background in both political science and economics, he defines capitalism and democracy by historical example rather than conceptually, which can make for slow going. I cannot do his essay justice by attempting to summarize it, but I will highlight the parts that seemed most relevant to my search for an answer to the question of whether capitalism and democracy are compatible.
Of most interest to me, then, were Merkel’s definitions. In his essay, of all the various types of democracy that have existed over its history, Merkel focuses on the U.S.-Western European “middle-ground” model, which he terms “embedded democracy.” And of all the various types of capitalism that have existed over its 200-year history, I focused on the one most relevant to my question—capitalism’s current iteration, which Merkel terms “neoliberal financialized capitalism.”
Let’s take a look at those definitions; first, the middle-ground model of embedded democracy:
Embedded democracy consists of five partial
regimes: the regime of democratic elections (A), the regime of political
participation (B), the partial regime of civic rights (C), the institutional
protection of the separation of powers (horizontal accountability) (D)
and the guarantee that the effective use of power by democratically elected
representatives is assured de jure and de facto (E).
Next, Merkel’s definition of neoliberal financialized capitalism is best understood by looking at each of its component parts:
Neoliberal capitalism: Since the late 1970s,
“neoliberal” critique has gained traction,... It stressed market mechanisms,
the principle of capitalist self-regulation and the limits of state regulation…
and [it resulted in significant] socioeconomic inequalities….
Financial
capitalism
is the epitome of the kind of business that is not done through the production
and exchange of goods but rather with money, conducted by brokers, banks, stock
markets, investors and capital markets. It is not a new phenomenon. Following globalization,
financial and monetary deregulation, and partial deindustrialization in some
Western countries, the financial sector experienced a massive expansion,
particularly within England and the US…. Global capital flows increased
massively. A large portion of this did not serve as investment in production
but funded speculation instead. Large profits were created that were not
matched by any added value. The expectation of high profits – as well as the
willingness to accept high risks – increased. This part of the capitalist
economy was particularly deregulated and left to itself. It was equipped with new,
faster technology and increasingly complex instruments.
Neoliberal financialized capitalism seems to have much in common with the cyberspace escape Thiel desired in his 2009 essay: (1) an unregulated, denationalized free-market (2) using AI and the Internet to facilitate cross-border (3) trading in cryptocurrencies and other opaque, complex financial instruments.
Considering Merkel’s definitions of capitalism and democracy, I rephrased my question: “Is neoliberal financialized capitalism compatible with embedded democracy?”
The Abstract of Merkel’s essay sets out his answer as an emphatic, “No” (emphasis in bold):
Abstract Capitalism and democracy follow
different logics: unequally distributed property
rights on the one hand, equal civic and political rights on the other; profit-oriented trade within capitalism
in contrast to the search for the common good within
democracy; debate, compromise
and majority decision-making within democratic politics
versus hierarchical decision-making by managers and capital owners. Capitalism is
not democratic, democracy not capitalist.
During the
first postwar decades, tensions between the two were moderated through the socio-political
embedding of capitalism by an interventionist tax and welfare state.
Yet, the financialization of capitalism since the
1980s has broken the
precarious capitalist-democratic compromise. Socioeconomic inequality
has risen continuously
and has transformed directly into political inequality. The lower third of developed
societies has retreated silently from political participation; thus its preferences
are less represented in parliament and government. Deregulated and globalized
markets have seriously inhibited the ability of democratic governments to govern. If
these challenges are not met with democratic and economic reforms, democracy may
slowly transform into an oligarchy, formally legitimized by general elections. It is not the crisis of capitalism that challenges
democracy, but its neoliberal triumph.
But then Merkel says something else that is perhaps even more disconcerting:
Historical evidence also confirms that
no developed democracy could exist without capitalism. Vice versa is not the case. …[C]apitalism is
the challenger, the independent variable, while democracy functions as the
dependent variable.
What does that say about this moment? It says that democracy needs capitalism, but capitalism doesn’t need democracy. Capitalism can and does exist in other political systems—consider for example Russia, China, Singapore, or Vietnam. All of which is to say that, at this moment in history, if the capitalism is of the neoliberal financialized variety, and the democracy is of the embedded variety, then Thiel is right: capitalism is incompatible with democracy.
Moreover, Merkel’s 2014 warning that under such an economic regime, democracy can slowly transform into oligarchy has come true in 2025 America. It is no accident that a billionaire tech mogul is now in charge of the U.S. government. The economics has created the politics, not the other way around. The independent variable—democracy—is derivative collateral damage from the economic transformation.
Not only was Thiel’s negative answer to the question “Is capitalism compatible with democracy?” correct, using Merkel's definitions, but his cyberspace escape back to the future is here. Neoliberal financialized capitalism operates virtually, beyond national borders and regulation. It is a free market capitalism that has found its ultimate freedom in the cloud.
Look at the data, no pun intended. Finance, insurance, real estate, rental and leasing made up the largest portion of American GDP in 2023—20.7%. Those sectors don’t produce anything that adds value; they employ money to make more money = rent. The largest American companies, the so-called magnificent 7, are Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla. Their core business is technology, which is becoming “fintech” as they transition into financial services and create their own currencies. Apple, Amazon, Meta, and Alphabet are each working on proprietary payment services designed to offer cryptocurrency integration (see tech giants crypto).
This is a major shift away from what Merkel describes as the golden age of "social capitalism" and "social democracy" which, between the end of the Second World War and the 1980s, co-existed in an uneasy but generally harmonious tension. But this current iteration of capitalism, neoliberal financialized capitalism, is a democracy killer.
In the course of reading Thiel’s and Merkel’s essays I happened to watch a cable television interview on cyber security between Hari Sreenivasan and …
Marietje Schaake, the cyber policy expert.
Schaake’s Wiki bio says she is:
a Dutch politician who served as Member of the European Parliament (MEP) from the Netherlands between 2009 and 2019.
Schaake
has been named
international director of policy at Stanford's
Cyber Policy Center, as well as an International Policy Fellow at the
University’s Institute for Human-Centered Artificial Intelligence.
During her period in parliament,
Schaake took several initiatives to promote digital freedoms and to include
them in European Union foreign policy. …She supports an open
internet in discussions about internet governance and digital (human) rights.
Schaake wrote a book entitled, The Tech Coup, How to Save Democracy from Silicon Valley (2024), the subject of the interview I watched. It was the perfect complement to my reading on the compatibility of capitalism and democracy and the role the tech sector plays in the answer:
HARI SREENIVASAN: Marietje Schaake,
thanks so much for joining us. You have a book out recently, it's called "The
Tech Coup: How to Save Democracy from Silicon Valley." I think a lot of
people are thinking about this, if they saw the images from the inauguration,
where just flanking the president on one side were some of the richest human
beings on the planet, all from the tech sector. When you saw that what crossed
your mind?
MARIETJE
SCHAAKE: I was actually very disappointed that they would cozy up to the
political leadership by funding and by sitting on the front row while the
policies are so controversial and while there's a lot of illegitimate power now
in the hands of tech CEOs, like Elon Musk. And it feels very opportunistic of
all these CEOs to just join that crowd and have no regard for…separation of
powers, rule of law, lack of conflict of interest that…we're now clearly seeing
in what is unfolding since the inauguration.
SREENIVASAN:
You know, when you came up with the title for the book, people probably asked
you whether the word coup was over the top. Do you feel that it's justified
now?
SCHAAKE: Well, I actually felt it was justified already because the power grab
by tech companies at the expense of democracy often happens in less visible
ways than what we're seeing now. And in many ways, the synergy, the overlap
between the interests of the tech CEOs and the Trump administration is just the
next phase of this tech coup. It makes it more blatant, more cynical, more
radical, but it's an extension of the power grab that tech companies have been
doing in visible and invisible ways for a while now. And where we just see a
lack of countervailing powers, a lack of independent oversights, and I fear
that the U.S. is going exactly in the opposite direction of what we need,
against strengthening a democratic governance and providing a balance against
this outsized power of corporates in the tech sector.
SREENIVASAN: So, give me an example of how this is a threat to democracy,
right?....
SCHAAKE: Well,
you're absolutely right that the promise of the internet, the World Wide Web,
mobile technologies, social media was also one of democratization, that it
would lift up unheard voices, allow people to document and share human rights
abuses. But what has happened is that corporate interests, profit interests,
scaling interests, investor goals for shareholders have just prevailed, and
that democratic governments in the meantime have neglected, abdicated their
responsibility to make sure that governance decisions were designed to make
sure that democracy would be achieved through the use of technology.
Too much trust
was put in market forces. And now, we see that tech companies know so much
about us, develop products and services that really challenge the role of
states, think about critical infrastructure or offensive cyber capabilities,
intelligence capabilities that tech companies now have. And so, there's just
been an imbalance that has emerged where the companies are extremely powerful,
and they're not acting within a democratic mandate, within a democratic
oversight. In many ways, they're overtaking the role of governments.
SREENIVASAN: This seems, at least in America, to have happened under the watch
of multiple administrations, Democrat and Republican, right? I mean, what did
we not see coming? … And at what point could we have perhaps crafted a
different path?
SCHAAKE: Well, I think for a long time, there's been an over romanticization of
what Silicon Valley was, what it could mean. The narrative was very much about
disrupting powerful incumbents, about, you know, small companies challenging
the big actors, guys with their laptops in garages on flip flops. But these
companies scaled very quickly. They very quickly became the incumbents. And
they're not only selling a product, but they're also integrating ever more
data, ever more functions, ever more insights and dependencies in our lives,
the lives of our governments, of our citizens. In our national security, they
play a critical role.
And so, I think the romanticized narrative has just been believed for too long.
And there has not been a recognition of what a power grab by these companies
could mean. And indeed, it's been Democratic and Republican led governments
that have just allowed these companies to grow disproportionately and without
the sufficient guardrails that are needed to protect people.
SREENIVASAN:
You know, it's interesting when … you sort of saw amassed next to the president
there, you saw the scale of how huge these companies are. I mean, it seems like
there's maybe a half dozen or more super players that are integrated into what
they like to call the tech stack of the government.
SCHAAKE: Exactly. The dependencies are enormous. The wealth is enormous. And
the potential for abuse of power is enormous. Look at what Elon Musk is doing
through X now, through his personal wealth, supporting far-right parties in
Europe. He is basically going … without a mandate, … without … accountability, …
into government agencies, into the tech infrastructure and tweaking that all in
the name of efficiency. But outside of what is typically a rule of law-based
approach to giving people power but also making sure that they are subject to
oversight, that they are, for example, approved by Congress, which is not the
case. And so, …clearly…there's a conflict of interest. This is blurring the
lines. This does not fit in a democratically run state. But now that it's
happening in the U.S., I think people are just paralyzed and shocked at what is
happening. But that paralysis cannot last too long. There really needs to be an
anchoring back in the U.S. Constitution to make sure that this kind of access
and potential abuse of power, conflict of interest doesn't go on as we see it
happening today.
SREENIVASAN: … I wonder if you can help our audience understand the conflicts
of interest that exist with, say, Elon Musk, Mark Zuckerberg, Jeff Bezos, the
kind of the titans that we are seeing have greater access to the power of the
White House.
SCHAAKE: Many of them actually supply government, the government of the United
States, but also many governments around the world with critical services, like
cloud computing, as you mentioned, with software suites, with cybersecurity
protections. And so, there's a huge dependency there, but it also means that
these companies know a lot about our societies, about the government. And now,
apparently, Elon Musk is in the heart of the U.S. government with access to all
kinds of sensitive data. And so, I think that dependency through contracts,
through potential…use of the sensitive information that these companies have
access to creates a conflict of interest.
There are
regulatory bodies that Elon Musk is now making decisions about, …so-called
efficiency steps that actually have direct oversight over his companies. The
same with Mark Zuckerberg, who is now pushing Donald Trump to consider
competition fines as a trade barrier. These kinds of…whispers or actions that
are much more direct, …using the U.S. government as a lever for individual
business interest is, I think, as clear as it gets when it comes to a conflict
of interest.
SREENIVASAN: The president, for the record, has said, … last week that there's
no cause for concern about this conflict of interest with Elon Musk. If there
is one, then we won't let him get near it. What's the problem with perhaps
Donald Trump's understanding of that?
SCHAAKE: … I think the problem with it is that Elon Musk is gaining access to
highly sensitive government data and systems, making consequential decisions
about jobs, about budgets, about operations without a mandate that is typically
given to people with such access to these systems. And on top of that he's
basically operating with a parallel power structure. So, …[this parallel power
structure] doesn't …rescind authority over his companies, for example, [he] is
not subject to the same ethics or accountability rules that an official
government appointee would be through oversight of Congress, for example. But
it's also just very radical steps with real consequences for people around the
world.
SREENIVASAN:
Look, there's going to be people that listen to this conversation and say,
look, these CEOs are doing exactly what they should be doing to try to protect
their interests, their corporate interests, their shareholder interests. ...So,
doesn't it make sense for these individuals to cozy up to whoever's in power
and say, hey, listen, can we, as the United States, exert some leverage on
these old [European] allies of ours [who have imposed fines on us] to make sure
that we are not overly regulated in these other markets?
SCHAAKE: Well,
the fines that you mentioned are a lot for people like you and I, but they're
not that much for these billion-dollar companies. So, even though these are
impressive fines, they are just part of the cost of doing business for most
tech companies. And we have to ask ourselves whether that's sufficient. But [European]
antitrust, having rules about fairness in the economy, are based on century old
laws that also exist in the United States. This is not a typically European
phenomenon that goes after U.S. companies. In fact, E.U.-based companies may
also be subject to competition and antitrust cases and fines. ...
And so, I think, … the idea that too much power concentration doesn't only hurt
the economy and innovation, because they can stifle that, but also impacts
democracy, has impact on the right to privacy, for example, was something that
we shared across the Atlantic. It's just with the Trump administration that
these tech CEOs, like Mark Zuckerberg, for example, feel emboldened and say,
hey, competition sanctions should actually be considered a tariff. They should
be considered part of the trade war that is now expected to be unleashed by
Donald Trump, with all the negative consequences that that's going to have. And
so, indeed, the tech CEOs are very opportunistic, but that doesn't make their
claims justified in any way, shape, or form.
SREENIVASAN: You were on stage with Eric Schmidt, the former CEO of Google,
back in 2019, and something you said struck me.
SCHAAKE [in
video clip with Schmidt]: It's very clear that tech companies cannot stay on
the fence in taking a position in relation to values and rights. I personally
believe that a rules-based order serves the public interest, as well as
individual and collective rights and liberties that companies benefit from, but
that everybody has a role to play to also contribute to the common interest and
to strengthen the resilience of our democracies.
SREENIVASAN: That was 2019. Have we gotten closer, further away from what you
were interested in then?
SCHAAKE: Much further away, unfortunately. I mean, I think we've basically lost
the United States for the foreseeable future when it comes to legislation. We've
lost the companies when it comes to articulating respect for certain
fundamental values, like human rights and democratic rights, for example. And
so, I really think this is a time for those who don't want to be represented by
Elon Musk and the other CEOs who are sitting in the front row to speak out. I
think it is a time to really recalibrate around constitutional principles. It's
really around those very, very basics in the United States now that the
defenses have to be organized. ...
Schaake agrees with Merkel that the kind of capitalism practiced by the big tech giants is a clear and present danger to democracy.
In this excerpt from her interview at Stanford’s Institute for Human-Centered Artificial Intelligence, Schaake says she wants people to fight back against the threat:
HCIA. You invite all of us as democratic citizens to help shape an agenda that puts the survival of democratic principles ahead of short-term economic benefits. What would that look like for an ordinary citizen?
SCHAAKE: If people understand that the companies that offer all these entertaining, efficient, helpful digital tools are also engaged in power dynamics that affect capital and national and global politics, then they will also understand the need for independent oversight and countervailing powers, just as we have in almost every other aspect of our society.
And so I hope that people will bring their concerns to the political agenda and ask more from their leaders, especially in the U.S.
But what if they don’t, then what? Something has to give and I don’t think it will be an economy running, quite literally, on cyber technology. Capitalism is the independent variable and democracy is its dependent. Therefore, so long as this economic regime is in place, it will be democracy that is sacrificed on the altar of capitalism, because neoliberal financialized capitalism, especially the fintech sub-variety, is incompatible with democracy and will lead to broligarchy. For now, then, it's...
ALL HAIL MUSK!
Keep it real!
Marilyn
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