Social and Economic Democracy:
The Role of Markets in Changing Our Assumptions on Governance
Politics is everything in the development of government and governance?
We have perpetuated the fundamental role of political actors with PEA, political economic analysis. But what if we look again at the fundamentals of democracy and look at the role and remit of markets in how we go forward in linking together. Now, following on from post Covid-19 pandemic leading into cost-of-living crises caused by various supply chain challenges, the intersections between democracy, markets, and governance are being reconsidered.
Traditionally, politics and governance have been dominated by elite actors, where political economy analysis, PEA, plays a key role in shaping thinking and decision-making on aid and development. The approach of linking governance and development predominantly through political actors overlooks the potential of markets when considered as democratic entities in their own right.
As we talk of the singularity (coming together of different specialisms where cross-fertilisation races evolve forward, breaking specialist silos and linearity of thinking) in the hard sciences, the social sciences can develop approaches where we look and engage in a more holistic approach based on what are the priorities of people? Noting recent research[1] in project priorities where education, agriculture/rural development, governance reform and work to facilitate jobs, address poverty and the economic considerations were consistently high in lesser and middle income countries, then surely there are ways to shift development approaches to reflect the power of people? Generating a livelihood fitting to inclusive local economic development can be fundamental in climate adaptation, changing how democratisation drives political engagement. To reimagine markets as democratic institutions empowering people directly rather than operating under the constraints of political elites.
How might such democratic markets function? Noting the continued need for rules, regulations and policy regarding all aspects of people’s well-being. Highlighting the need for longer-term visioning for commitments to global agendas and the need for leadership where political power will continue to undermine democratisation, then inclusive dialogue involving confident people in how these approaches could reform our understanding of governance in a way to align social and economic democracy with market development has to be a critical ingredient in changing the pace and direction linking global agendas with local empowerment addressing wider wellbeing for people.
A Democratic Market
A democratic market? A definition:- market system structured to ensure widespread participation, equity, and agency among its participants. Agency being the power to influence decisions made for the functioning of the market. The capability to build cooperation and aggregate margins for the people involved in making the market function for people. Placing durability and longer-term returns above profit and external actor efficiency, the democratic markets emphasise inclusivity and empowerment. In a democratic market, participants, traders, customers, the authorities ensuring standards, not only have access to resources and opportunities but also possess decision-making power regarding how these resources are allocated and used. This form of market stands in contrast to systems where economic decisions are driven by political actors or powerful corporations with limited input from people who may regularly only be data points in broader extractive practices.
A democratic market requires policies and frameworks underpinning fair access to resources, open, inclusive decision-making processes, and mechanisms protecting individual and community interests. It incorporates democratic principles such as participation, accountability, equality based on inclusion and accessible knowledge to translate these values into the economic sphere. The approach shifts power from a concentrated elite to a broader, more diverse range of market participants, including local businesses, workers, consumers, aggregators and cooperatives.
How a Democratic Market Could Function
In a democratic market, citizens become the central actors in economic governance. This could manifest in several ways, including:
- Cooperatives and Community Ownership: Cooperative businesses provide a practical example of democratic markets in action with ownship and control by their members sharing decision-making and profits. Perhaps rather than profits we say returns on investment where resources are talked of in wider terms as people bring their knowledge, time and energy as well as finances. This model prioritises the needs and values of members over maximising profit, fostering an equitable and community-centred understanding of markets.
- Participatory Budgeting and Stakeholder Governance: In democratic markets, decisions about investments and resource allocation can be made through participatory budgeting processes. Taking the rhetoric of gender-sensitive budgeting to the realities of open book accounting with continued work to support understanding of principles and practice in budgeting and accounting. Establishing how community members have a direct say in economic decisions noting there will be areas of complexity requiring specialists. This approach has been applied successfully in participative, networked democracy in urban settings — for example, Porto Alegre in Brazil where residents have a say in how local budgets are spent.
- Worker Representation and Empowerment: Democratic markets would prioritise worker representation within companies, ensuring employees have a say in business operations. There are examples of worker councils and representation on corporate boards; the German exemplars regularly quoted provide approaches to commitment in more formal settings[2]. In circumstances where informality is the norm, the positive values in cooperative development are key; how to expand markets through collaborative work, the principles of clustering, building import substitution alongside value constellations for localisation and
- Ethical Investment and Open Book Markets: A democratic market fosters ethical investments built on open book accounting where people can access information about how and where their money is invested/being spent. Socially responsible investing, SRI, and environmental, social, and governance, ESG, criteria are steps toward this ideal, enabling people to reinforce social principles and practice in their economic participation.
By fostering such structures, democratic markets will support the delivery of tangible benefits from the decentralisation of government. Government in the majority of LICS and MICS will not generate the revenue streams for service provision and delivery.
Nor should this be an objective.
By placing democratic into market functionality the equation can ask further on:- localisation, import substitution, adaptation and noting the capability to be resilient to short-term, localised, crisis where proper preparation and management can reinforce good governance and community reciprocity. Market functionality is critical for community adaptation based on changed thinking about how resilience manifests itself. Resilience, where there is reliance on external actors for every facet of humanitarian response, perpetuates undemocratic technocracies based on the international community offering systematic solutions without addressing the necessary adaptation required for local governance to be positively reinforced. The priority has to be reinforcing people’s equity stakes in reciprocity over corporate perpetuation. Markets thus become mechanisms through which people actively shape the economic landscape rather than passive recipients of aid and development policies determined by political elites and external actors.
The Climate Question: Role of Democratic Markets in Climate Adaptation
The imperative of climate change demands innovative solutions; democratic markets can enhance climate adaptation strategies by mobilising engagement and local expertise through asset-based community development, ABCD, approaches. When communities have a say in economic decisions, can see and sense how factors beyond their control are impacting their own livelihoods and well-being, they are more likely to prioritise adapted sustainable practices and invest in their own time and energy as well as finances in climate smart practices.
1. Community-owned renewable energy projects, such as wind farms or solar cooperatives, allowing local communities to own energy production directly. These projects reduce dependency on fossil fuels and provide an economic incentive for sustainability. Local ownership and control create local jobs and build a mutuality — from tenuous supply chains to value constellations aligning economic and environmental objectives with greater local control and engagement. Reinforcing social engagement and placing the public-private partnership in its proper order.
2. Structuring carbon offset, carbon trading and climate mitigation measures remains challenging. Local accountability, even accountability to states, remains inchoate. Over the last 10–15 years we have witnessed the nature markets work in seeing a need and developing a product to satisfy the customer and investors. The manner carbon trading has developed exemplifies this with little, or in some cases, no involvement of those who have a moral, if not legal, ownership of natural resources being used in trading far removed from their realities. Marketers, elites with the connivance of unaccountable politicians, have captured a significant part of the resources in these markets. With standards and performance measurement in the formative stages, the carbon markets have the hallmarks of South Sea Bubbles, where talk made trade, but the checks and balances did not support the sales hype.
Critical will be the democratisation of carbon trading with people’s heritage and the accountable public exchequer reinforced to avoid wanton exploitation without addressing the fundamental mitigation elements required for the Anthropocene age to continue. The role of decentralised and supportive government will be key in bringing a local engagement on policy, the institutionalisation to offer sustainability and anchor true democratic engagement where the returns in the market go to the owners and custodians of natural resources. This is the basis for democratic economics forestalling further political claims or profiteering as people with cultural and legitimate ownership of lands are disenfranchised.
3. Democratic markets will support food security by using new technology to take forward sustainable agriculture practices. Empowering local farmers with investment in food production making the most of circular economies, reducing dependency on factors beyond the market’s control, upcycling and recycling within the value constellation. Supporting complementarity inside the value constellation and fitting to cooperative and aggregator development — collaboration to enlarge inclusive production and added value over local competition, undermining the resilience of the markets. Democracy is mutuality and reciprocal support.
4. By involving people and making planning and budgeting processes for infrastructure projects localised as far as possible, democratic markets can prioritise investments strengthening them against climate-related disasters. Community-driven decisions on housing, flood defences, and resource management can be tailored to local needs and conditions, making adaptation efforts more effective and sustainable. Where disasters cover more than one market, the collaborative nature can be built on — mutual support reinforcing how government is essential to manage infrastructure development as per work in local economic development where, wherever possible, subsidiarity supports mutuality. The key ingredient is the involvement of people, drawing on intrinsic knowledge and inherent wisdom to ally this with critical technical input, a forward-thinking and acting market-focused approach. Appreciating everyone’s aptitudes and placing this in the market noting all people need a return on their investment — democracy in practice
Reimagining Governance: From Political Actors to Market Empowerment
The concept of democratic markets challenges conventional approaches to governance, which often rely heavily on political actors and analysts. Traditionally, PEA has prioritised the information of those in power even when looking at market-oriented perspectives, viewing economic markets as entities responding to, rather than driving, governance. Thinking economic democracy, developing democratic markets could reshape governance from the ground up, redistributing power to citizens and reducing dependency on centralised (political) actors. Markets are the reality for people where everything comes with a price in terms of basic services and the basis of life itself in the form of food and water. Building an approach on these realities fosters a bottom-up governance structure where the market becomes an active agent of democracy and social progress.
1. By redistributing decision-making power to the market level, governments can reduce the concentration of authority within elite political circles. Working in the realities of markets is a sustainable way forward — practical engagement away from the romanticised grassroots engagement of numerous external actors. Localised governance structures can empower people to have a direct influence over economic and environmental policies as they feel tangible returns from investing energy and finances.
2. Democratic markets require accountability and an openness to all market participants as active stakeholders. Despite the drive for open markets, the present setting is regularly driven by decisions, often opaque, cementing the key powers and negating influences challenging oligopolies or market inertia favouring present power brokers. Democratic markets operate with open governance, enabling people to hold decision-makers accountable and ensuring economic decisions align with wider values in terms of social justice and contracts.
3. By aligning economic systems with democratic principles, societies can foster economic and environmental resilience. Democratically empowered markets can adapt more flexibly to economic shifts, natural disasters, and other challenges, as decision-making is distributed across diverse stakeholders who can respond to local needs and priorities.
Challenges and Considerations
While the principles and practices underpinning democratic markets hold potential for systemic change, the challenges and limitations are manifest in systems where years of systematic change have served to cement practices reinforcing present powers. Implementing democratic market structures requires overcoming entrenched economic and political interests resistant to or seeking to manipulate decentralisation agendas.
Democratic markets must navigate the risk of being hijacked by insularity if the impact cannot outweigh the shorter-term calls to extreme actions regularly masqueraded as self-determination or taking back control where the powers-that-be manipulate information availability to reinforce the present control. Democratic market approaches need to fit to networked nature with mutuality supporting local interests within regional, state, international region and global agendas — Subsidiarity in practice reinforcing an openness to data with the skills to discern misinformation at critical levels of decision-making.
Local actions reinforcing broader societal or environmental needs; the essence of climate adaptation and mitigation manifested in the business school adage — Think Global, Act Local. To meet and develop knowing these challenges, democratic markets need institutional support, policies to prevent exploitation, and frameworks balancing local and global priorities where quality government is the lynchpin initiating change by creating the enabling environment of hard and soft infrastructure supporting policy and practice.
Reimagining markets as democratic institutions challenges the current governance paradigm, which political elites and centralised decision-making have long dominated even when the rhetoric has included inclusion, localisation and decentralisation with derogation of powers. Democratic markets offer an alternative model where more people can be empowered to shape economic and environmental policies directly, thus integrating democratic values into the very structure of economic systems underpinning social development.
Such an approach is particularly relevant as societies confront climate change, enabling communities to play an active role in climate adaptation and sustainability with the necessary resilience tools and frameworks reinforcing the market functionality with democratic principles at its heart. Building livelihoods and well-being through developing markets where local skills are rewarded directly and accountability in value constellations is reinforced.
Challenges exist as set out in behavioural change models and the classic Berkana Institute’s two-loop change model. Democratic markets provide a vision for governance where power is genuinely vested in the hands of the people able to control their livelihoods, offer accountable ways forward in improving their own well-being and have the confidence to draw in the right technical support if and when required.
Aligning economic activity with the principles of social and economic democracy.
Bringing the suite of social and economic factors together, divorcing the subconscious linkage of politics and democracy will radically shift how we perceive and practice governance, ultimately fostering equitable, resilient, and sustainable societies.
Adopting democratic markets to underpin good governance, with economic realities to the fore, forces reflection on government’s role and remit. Engaged quality public-private partnerships, open accountability frameworks for wider service provision, and the development of an enabling environment sponsoring value constellations are democratic economics in practice.
[1] Charles Kenny, Vijaya Ramachandran and Riddhi Kankaria — Center for Global Development — https://www.cgdev.org/blog/do-clients-want-world-bank-focus-climate?utm_source=substack&utm_medium=email
