What indeed is democracy?
An economic-theoretic definition
Democracy is not just about majority rule; it is about compromise. In a democracy, the focus is on how we, as stakeholders, can collectively discuss, collaborate, negotiate, and then make a decision. While majority rule plays an important role, a simple majority is not always the answer, nor is it sufficient for making a decision.
Democracy has come under the most severe criticism these days, but I believe many of these critiques overlook two key issues. First, they equate democracy with simple majority rule, which is not an accurate definition. Second, they underestimate the costs of alternative solutions. Therefore, we must set aside this quixotic opposition and examine it more deeply.
Obviously, democracy is not flawless; it is fundamentally an institution that has gradually evolved and developed throughout history. As a human-made institution, it has always been and will continue to be imperfect, and all our efforts can only be directed toward improving it rather than making it ideal.
But what really is democracy? What problem does democracy seek to address, and what mechanisms does it employ?
Right at the outset, I want to be explicit and reject the definition of democracy that equates it with the tyranny of the majority. Democracy is not fundamentally about managing society based on the desires of a homogenous majority. Instead, it is a platform for sharing political power and, naturally, increasing the political and legal bargaining power of individuals.
This enables political transactions among people, which typically leads to the formation of numerous minority groups, bargaining, and reaching agreements among these disparate minorities. In such a system, legal and political changes in response to events and crises, decisions on common affairs, the allocation of public resources, redistributive policies, and the production of public goods are carried out without the need for violence and costly tensions, relying solely on mechanisms designed to reach agreements.
Let us look back a little to the year 1215, when King John I returned from war in ignominious defeat and the Magna Carta was imposed upon him. The Magna Carta is not a democracy in the modern sense, but it was a victory for the Barons, enabling them to play a greater role in politics and taxation so that more stakeholders could participate in the process of determining new taxes.
Clause 12 of this document states: “No ‘scutage’ or ‘aid’ may be levied in our kingdom without its general consent.” Although obtaining “general consent” did not take the form of modern voting, it represented the initial steps toward its formation.
Two issues are important in this historical narrative. First, the goal was to secure a share of power and to recognize the interests of multiple stakeholders in determining a critical matter called “taxation.” Second, achieving this goal was accomplished by exerting pressure on the king and forcing him to accept new arrangements and a new institution in the political sphere. This means that what was achieved was not an ideal solution, but rather a feasible one under the specific political and historical conditions of that era for the powerful political actors of the time, allowing them to better protect their interests.
They knew that protecting their interests was possible by gaining a share of power and influencing political decisions. The individuals who attended this council represented their own interests and those of their estates or dioceses, which were governed under canon law.
Moving forward a bit, we come to the story of Simon de Montfort’s Parliament of 1265, a parliament where the concept of “representation” played a more prominent role, as Burgesses were summoned from towns to attend. There, various matters that would today be called national issues, such as the fate of Prince Edward, were debated.
Recounting these historical narratives is not meant to justify a specific definition of democracy, but rather to demonstrate practical necessities regarding specific issues in history. The foundation of our argument is the acceptance of the subjectivity of values, the decentralization of knowledge, and the conflicting interests of different individuals and groups, such that an objective definition of justice and the public interest cannot necessarily be provided without dispute or causing tension among people.
To arrive at a comprehensive definition of democracy, let us begin from this point: first, all social relations, such as property rights, only make sense when we live in a society. A Robinson Crusoe life has no need for such relations, as the sole decision-maker regarding resource allocation is the individual themselves.
However, as soon as we enter social life, interpersonal tensions arise. These include how the boundaries of property should be defined, how externalities1 should be managed, how damage and loss should be defined, and so on.
The relations that define these concepts involve winners and losers, and throughout history, we have witnessed revolutions and uprisings aimed at changing these concepts and their boundaries. Individuals’ interests, the values they believe in, and their capacity for action have all been influential in shaping these movements and their impacts.2
Ultimately, the end of any conflict is usually accompanied by the creation of a mechanism to regulate future relations, with the hope of fewer costly tensions. Of course, this does not necessarily mean it will be permanent; rather, as conditions change and new circumstances emerge, relations may be disrupted, or tensions may increase due to uncertainties and unforeseen events.
However, the emergence and development of democracy occurred at points in history where individuals and groups intended to have a greater share of power and to play a more prominent role in determining collective arrangements. This is because common affairs are inescapable. Negative externalities and their costs, or even positive externalities and their benefits, always exist in societies and cannot be absolutely eliminated.
Furthermore, the existence of risks and uncertainties drives individuals to design institutions and mechanisms to manage them and make them less costly (or at least, they try to do so). The increasing complexity of the economy, along with information asymmetry in it, which leads to phenomena like moral hazard and adverse selection, are other issues that convince individuals to solidify their share in power to protect their interests, establish their values in the system, and resolve public disputes regarding legal frameworks arising from new phenomena in society.
But this is not the end of the story. Naturally, as the economy grows and becomes more complex, challenges become harder to solve, so individuals are stripped of the ability to participate directly in politics due to the specialization of affairs.
Moreover, reaching a consensus for a very large population is nearly impossible. This is where the concept of “representation” becomes prominent. Just as all shareholders of a company cannot personally participate in all company processes and decide on every detail, members of society cannot always be present to reach consensus on numerous issues.
This is especially true because this process involves exchanges among individuals; that is, people must sit down to debate different issues, defend their interests and values, and also grant concessions and benefits to others in exchange for obtaining concessions and benefits from them, or reach agreements with one another so that resolving social challenges, such as solutions for externalities, does not result in pure loss for one side and pure profit for the other, allowing a middle ground to be found and tensions to be managed.
Consequently, individuals elect representatives to conduct these transactions on their behalf. These representatives are not merely political figures; they can even be associations and lobbyists who enter politics on behalf of associations. In this way, the cost of reaching agreements is reduced, and consequently, the likelihood of achieving them increases.
Of course, such an arrangement is not cost-free. In these circumstances, we grapple with the principal-agent problem and all its challenges. Politicians, too, are individuals pursuing their own self-interest, and if they cannot be monitored, they will sacrifice the interests of those they were supposed to represent. Furthermore, within the structures of power, they form networks for themselves to protect their interests and secure more privileges for themselves (even at the expense of sacrificing the interests of their principals).
It is clear that amidst this, we also face rational ignorance, where individuals do not make much effort to acquire sufficient information about issues to make a precise choice, for instance, when voting. This is because a single vote has almost no impact, yet making a completely informed choice carries a high cost for the individual.
These points demonstrate that in practice, democracy is the consolidation of one’s role in power to bargain over public issues, and its output is not the result of a majority of individuals agreeing on a topic and imposing it on a minority, but rather the result of a consensus among various minorities.
However, it also faces significant and numerous challenges that must be studied from various perspectives. Furthermore, their solution lies in designing mechanisms that overcome these challenges. We need relations and contracts that make individuals accountable and keep them aligned with representing the people they are supposed to represent. Different voting algorithms, party arrangements, the separation of powers and checks and balances, the details of parliamentary structures, forming coalitions, determining whether a political system is parliamentary or presidential, etc., are all details aimed at preserving democracy for its intended purpose.
It is clear that if such structures are to form and remain stable, they require high-level agreements that nowadays typically take the form of a constitution and protect specific rights, such as freedom of speech, so that this flow of information exchange and representation can continue in an undistorted manner.
Finally, democracy can indeed deviate, produce undesirable outcomes, or impose costs on individuals who, because of its imperfect nature, come to see its benefits as negligible and turn against it. However, democracy must be protected, and this protection is not dogmatic; rather, we must emphasize its objectives and constantly reform its mechanisms so that more costly alternatives, such as civil wars, anti-democratic revolutions, and coups, do not destroy it.
Of course, it is undeniable that the path to achieving a democracy is not always a low-cost journey; rather, almost always in history, individuals were able to solidify their position in politics only when they demonstrated their power and removed the obstacles to this end. Perhaps democracy, as Daniel Treisman argues, has often in human history been the result of mistakes made by dictators. Still, to achieve it, we must make our best efforts, strengthen our power through political coalitions, and utilize the mistakes of the enemies of democracy to attain it, at least until we find a truly better alternative for it.
I recommend reading the essay “Subjective/Objective Ethics and Politics as a Space for Transaction Among Ethical Systems” regarding ethics and values.