Capitalism provides an opportunity for people to prosper and allows them to grow rich. However, it also divides the society into 'have's and 'have not' s.
Democracy allows participation of everyone and ensures the interests of everyone.
A combination of these systems (as seen in United States) offers certain advantages and disadvantages.
A capitalist democracy will have a number of big businesses and a large number of rich people. The presence of big revenue and in turn taxes will allow the democracy to spend on facilities and services that can be used by all. A socialist democracy suffers from lack of resources, which should not be as big a problem here. A democracy allows stability in administration, which in turn helps entrepreneurs grow and take risks. And since democracy aims to provide education to all, a large workforce is available for entrepreneurs to hire (even if it is a selective process).
However, rich people may not want to pay for those who can't. Simply put, taxes paid by rich people will be used to build infrastructure (parks, bridges, roads, etc) and services (such as medical care) and even the people who can't pay taxes use them. This system works by imposing high tax rates on rich individuals and businesses. Capitalist democracy also suffers from frequent government intervention in the market. This sometimes leads to businesses bribing the politicians and introduces corruption in the system.
A capitalist democracy is a combination of a capitalist economic system and a democratic political system. Thus, advantages and disadvantages of the hybrid system can be derived from the two systems forming the capitalist democracy.
Advantages of a capitalist democracy include the following:
- A capitalist democracy establishes a price system that ensures resources are conserved by producing what is needed in the market and anticipating consumer preferences.
- The market increases the need for useful skills and motivates individuals towards acquiring these skills for the benefit of the economy.
- Competition between the different organizations helps reduce costs and improve overall efficiency.
- Socially and politically, the interests of the general public are protected through their elected representatives.
- Policies will be established for the benefit of (ideally most of) the citizens.
Disadvantages of a capitalist democracy include the following:
- Businesses may engage in unscrupulous activities, including hiking prices to drive up profits.
- Due to complete reliance on the factors of demand and supply, a strong class distinction between the rich and the poor is established.
- At the social and political level, decision-making and implementation may become a slow process due to bureaucracy.