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There are two main reasons why many observers are beginning to question the assumption -- previously taken for granted -- that capitalism and democracy are firm allies. First, modern capitalism is global, while democracy is mainly rooted at national and more local levels. Second, modern capitalism is driven by finance, which leads to increasing inequality. Yet, high levels of inequality threaten the operation of democracy.

That globalization presents a problem for democracy is clear. Much of the global economy is unregulated, and where it is regulated, it is done so by international organizations only very indirectly answerable to democratic bodies, or by informal and usually confidential arrangements among corporations themselves.

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Furthermore, transnational firms can compromise the authority of national democracy by choosing to invest only in countries that pursue policies they like. The most visible manifestation of this is the decline in taxes on corporate earnings that has taken place across the world, as governments compete to offer the most generous fiscal regimes. The result has been a shift in the burden of taxation to individual citizens and a decline in the resources available to public services.

Governments could, of course, counter these developments by joining forces to confront the corporate challenge and protect space for autonomous political decision-making, but the temptation of trying to become the country that offers corporations the most generous terms usually prevents them from doing this. The European Union is a partial exception, and its parliament is the world’s only example of transnational democracy. Its impact, however, is weak, with European democracy facing two hostile forces: corporations lobbying the European Commission and individual governments at levels European Parliament cannot reach; and xenophobic populists trying to pull power away from the EU and back to the nation states. And because most populists are from the political right, they are not bothered by nations losing out to corporate power.

Corporate lobbying is so powerful at both the European and national levels because growing inequality has generally strengthened the political might of the wealthy. This is the second threat posed by contemporary capitalism to democracy.

Democracy operates in two different theatres: the formal roles played by elections and parliaments; and the informal actions of lobbying and other forms of political pressure that take place across civil society. For the former, we are careful to ensure considerable equality: one person-one vote, irrespective of wealth. Informal politics, by contrast, does not have many rules, and that is basic to its vitality and to our freedom. We can at any time use many different kinds of pressure to try to persuade governments to pursue various policies, provided we do not resort to corruption or violence. But our ability to exercise pressure depends on the resources we can command, so informal politics favours the rich, even though we all benefit from it. The equality rule that is fundamental to democracy is breached. This does not matter too much if inequality is limited, or if power exercised in one policy area cannot easily be transferred to another. This was broadly the case for the first three decades after World War II. Since then, however, inequality has been growing -- not so much in the form of inequality within the broader population, but inequality between tiny groups of the super-rich and everyone else. One needs a lot of wealth to able to wield political power, and this small group, perhaps 0.1 percent of the population, is in such a position. This degree of inequality is most prominent in the U.S., but it is spreading to Europe.