The Inherent Link Between Democracy, Markets, and Human Dignity

Democracy is going through some trying times. Widespread popular discontent during the last decade leaves no room for doubt over the deepening crisis of legitimacy for liberal and market economy institutions. Autocrats and populists stoke resentment, hostility, and division in messaging usually confined to the fringes of the political discourse. Democratic institutions are on the defensive while populism, fueled by a combination of socioeconomic, cultural, and political factors, gains a foothold even in liberal democracies. How did the inherent link between democracy and human dignity become so strained?  

Though signs of democratic disillusionment and deepening disparity were evident in the early 2000s, it is since the Great Recession of 2008-09 that the democratic retreat has posed a more direct threat to the liberal order. The financial crisis highlighted the rewards and risks of rapid globalization of markets and automation of production, exacerbating income and wealth inequality, and fanning the flames of anti-democratic movement. Real wages for workers have not risen in 40 years, whereas for high earners wage gains have expanded by 15% since 2000.  

Although wage disparity and inequality are primarily linked to markets and economic policy choices, they are also symptoms of a deeper, strained, connection between democracy and human dignity.  Social science thinkers and philosophers have recognized this inherent connection since the 18th century. Immanuel Kant placed dignity at the core of human experience and argued that its intrinsic value cannot be bought or sold. Similarly, for George Friedrich Hegel, modern societal upheavals, such as the American and French revolutions in the late 18th century, were little more than the demand for recognition of one’s dignity and significance in society.  For much of the last century, however, the concept of human dignity was incongruent with one of the fundamental assumptions of economic theory: that humans are rational agents concerned with maximizing their utility. Subjective emotional and cultural experiences do not belong in this calculus. 

With the emergence of behavioral economics in the 1960s and 70s, however, these assumptions were challenged, and a more subjective, nuanced understanding of human behavior challenged the rational model. Daniel Kahneman and Amos Tversky pioneered the notion that utility function only partially explains human behavior and decision making. Kahneman and Amos demonstrated, through various experiments, that people are far more complex and motivated by more subjective forces involving psychological, social, cultural, and historical phenomena. Francis Fukuyama’s recent book, Identity: The Demand for Dignity and Politics of Resentment stands out as a recent example of scholarly momentum away from orthodox economic assumptions and toward Kant’s and Hegel’s starting point.  

Revolutions of Dignity

The field of behavioral economics brought back to light the Hegelian notion that, beyond material needs, humans crave respect and recognition of their place in society. When it comes to employment, wages alone cannot be the true measure of one’s work and worth. One’s vocation must have a broader purpose beyond the size of a check. But this work ideal eroded as technology and finance reshaped the economic landscape, rendered certain jobs obsolete, and moved others across the globe. Meanwhile, policymakers became spectators as the economic displacement deepened. They embraced the prevailing notion that only higher education would help people reap the rewards of the new economic order. This bias is shown in policy preferences, such as in the United States where the federal government spends about $150 billion to help people attain college degree, but only about $1.5 billion on vocational training. Student college loan debt stood at over $1.7 trillion in 2023. And yet, only about 37% of Americans 25 or older have a university education. In emerging markets, according to the Organisation for Economic Co-operation and Development (OECD), the share of adults with a bachelor’s degree is less than 15%. 

Meanwhile the economic changes rippling through working-class communities led to their alienation from a market system that disproportionately rewarded the highly educated. The loss of economic worth and social dignity created the conditions that drove voters to revolt against the political elites whom they saw as perpetrators of an unfair and unequal system. This backlash against liberal democracy from countries as diverse as the United States, Brazil, Turkey, Hungary, Tunisia and the Philippines is a variation on the same theme. Workers in traditional sectors in the real economy feel their work lacks meaning and is not valued by policymakers who design policies that favor industries such as technology, finance and banking or international trade.  

Despite becoming an important factor behind the appeal of populism, however, economic dignity eludes easy categorization or definition from a policy perspective. That is why explaining away populism with arresting phrases such as “ignorant masses” or “dance of the dunces” hasn’t led to a more enlightened debate about the source of discontent or genuine risks to liberal democracy. A better discussion requires a deeper understanding and recognition of the economic and human plight of those who feel left behind by the breakneck pace of globalization and the financialization of the economy.  

An Approach Centered on Economic Dignity

This year CIPE celebrates its 40th birthday. For four decades, the organization has been working with partners around the world to advance the notion that democracy delivers best in a rules-based market system where individuals and private enterprises flourish. Implicit in this mission is the guiding ideal that a liberal democracy is cemented in freedom and the consent of the people to choose governments and leaders, who in turn serve as stewards of this inheritance. In this view, a functioning democracy requires voters, elected leaders, and markets to abide by a set of rules, laws and norms. More broadly, however, the approach implies that democracy demands contributors and stakeholders work together and share values and norms rooted in fairness, equity, mutual respect, and dignity. A democracy that lacks this social contract is at risk of dissolution. 

Unfortunately, it is this breach of social contract that seems to be at the heart of democratic convulsions in recent years. Work done at CIPE, such as the HUBS survey—which aimed at measuring public perception of social and economic reform in the transition economies of Ukraine, Tunisia, and Bolivia—showed a significant erosion of faith in institutions and democracy. The most striking example came from Tunisia, where 63% of respondents blamed democracy for the ensuing political instability and economic crisis. In all three countries, respondents had more trust in small businesses than they did in public institutions and media. An inclusive private sector is key to helping society recover from this deficit of trust. 

As an organization guided by the vision of an inclusive democracy, with core values of integrity and respect, CIPE is ideally positioned to make the case that the link between economic dignity and democracy must be strengthened. Monetary compensation and contractual relationships are not enough to build sustainable systems of governance or business. No private enterprise can be successful in the long run if it doesn’t build a strong internal culture of belonging and recognition. CIPE’s own work, empowering marginalized groups such as women and youth, and promoting corporate governance and business ethics, validates this research. The organization can use this experience to offer a more nuanced perspective on how to restore trust in democracy and safeguard its core principles. To restore that faith and advance democratic ideals, however, it is essential to cultivate a culture of dignity, integrity, and freedom in which all people come to believe in a shared horizon of values, opportunities, and norms.