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Corporate Power and Democracy


Since the American Revolution, Democracy has become the dominant political system in Western and large capitalist societies.  The driving factor is that democratic governments are thought to derive their legitimacy from popular sovereignty, as opposed to divine sovereignty.  However, the states and their people recognized the impracticality of actual direct democracy and opted instead for republicanism, or representative government.  Since this form of governance is still based in popular sovereignty and the theoretical rule “of,” “by,” and “for” the people, it is still often referred to as “democracy.”  As democracy has been observed over time, political scientists have redefined it”as a system whereby elites competed for the votes of a largely passive electorate.”  This position became known as “elite pluralism,” and its success rests on the idea that “as long as one group of elites was without power, its members could appeal to the public to replace the incumbents with those presumably more favorable to their interests.” (Mizruchi and Bey, 2005,311)  Since the success of this type of democracy requires competition, or division, of the elites, many detractors of democracy in capitalist states claim that the elites are, in fact, unified due to “common interests in maintaining their privileges” as well as “common socialization experiences (including attendance at elite prep schools and universities), common membership in social clubs and policy-making organizations, and social and kinship ties.” (Mizruchi and Bey, 2005,311)  Many also believe that these unifying traits are not only shared by the political elites, that are symptomatic of representative democracy, but also in the capitalist class.  If this were to be proved the case, then the elites meet the full requirements for a group to be powerful, “resources and unity,” and would threaten the effectiveness or success of democracy.  The extent that this threat, based on the possible causes and perceived “degree of business unity” the topic of four contemporary theories regarding corporate power and democracy, highlighted by Mark S. Mizruchi and Deborah M. Bey and discussed below. (Mizruchi and Bey, 2005,312)

The “Elite Theory,” by G. William Domhoff, posited “that a power elite, drawn from the social upper class, corporate leaders, and officials of policy-making organizations, collectively dominates American politics,” and that all of the unifying traits mentioned earlier are, in fact, present.  However, despite many revisions and the sophistication in Domhoff’s theories, he points to actions by the state that are opposed by business and those that they advocate as both being in the interest of business, and neither, according to Domhoff, detract from the “view that the elite perpetually dominates” and “thus raises questions about nonfalsifiability” and the overall legitimacy of this theory.(Mizruchi and Bey, 2005, 323)

The next two theories are best understood in the context of the “Berle and Means Thesis,” which basically states that “because of the large and increasing size of corporations, and because of the consequent difficulty of maintaining substantial family holdings in individual firms, stock holdings in large U.S. corporations gradually dispersed.  The consequence of this dispersal…was the usurpation..of power by the firm’s managers.  These managers…were viewed as a self-perpetuating oligarchy, unaccountable to the owners who had elected them.” (Mizruchi and Bey, 2005, 312)  With this in mind, Michael Useem, found that since the “largest single block of stockholders by the 1990s was not individuals,…but institutional investors,” they were the dominant power holders in business.(Mizruchi and Bey, 2005, 324)  Useem, however, made no claim to their unity and so his theory mostly contradicts that the managers are unaccountable, at least in recent decades, due to the influence of institutional investors.  The third theory, proposed by Gerald Davis, also attempts to negate the Berle and Means thesis by claiming that it makes no difference if a corporation is owner or manager run since they both must conform to “pressure from an amorphous, but no less real, source,” the “capital market.” (Mizruchi and Bey, 2005, 324-325)  The elites are “compelled to vow allegiance to ‘shareholder value'” and their “structures and policies are driven by anticipations of their economic consequences.” (Mizruchi and Bey, 2005, 325)  However, while Davis tries to use this observation to show a unity of purpose and political domination by the anonymous members of the “capital market,” but the very nature of this group, where no individuals, elite or otherwise, or their interests can be specified indicates that Davis’s theory simply creates a generalization so broad that almost anyone could be a part of it.  If that is the case, then the dispersal and division of interests that would exist in the “capital market” would actually be a boon to democracy if they were the truly the dominating force.

The fourth theory is conceptually different than the previous theories due to its international scale.  “Several scholars have suggested that with the increasing globalization of economic activity” and “the extent to which corporations have the ability to move capital outside their borders” giving “them leverage over their host states…national governments have lost the ability to regulate their own business communities.” (Mizruchi and Bey, 2005, 329)  This would certainly appear to diminish the power of national governments, but it does not necessarily mean an increase in corporate power, or the general business community, since that would still require unity in effort, which faces all of the difficulties present in the earlier theories.

I would like to close with my theory on corporate power and politics.  The first part explains why corporate interests seem to be advanced, overall, in spite of real conflicting interests within the corporate community. The state holds a monopoly over “legal” coercion and this is its only real service it has to offer on the marketplace.  The “passive electorate” is not as concerned, or as dependent a customer, of government coercion; whereas, corporations are interested in using state coercion to prevent or reduce competition and to advance its interests.  So overall, the government responds to the market for coercion, acting in the interests of various corporate entities who are most able to afford it, in means of resources and influence to protect the political elites’ privileges.  This does not require unity from the various corporate interests and the inconsistency of the policies enforced through state coercion seem to support that there is no need for unity from the corporate community in order for the state to act generally in their favor.  This on its own is destructive to society and damaging to the democratic ideal but does not cause a complete collapse of they system because of the lack of unity.  However, this trend may very likely lead to the second part of this theory which will lead to the collapse of democracy.  As the state continues to use coercion to choose the “winners” and “losers”, whether among the corporate community or between the corporate community and the rest of the electorate, there will be fewer and fewer parties competing or seeking the state’s coercive service.  Common sense dictates that it is easier for a few to coalesce, than the many, and so this increased centralization of both political and corporate elites will make it much more likely that complete unity, and the destruction of democracy will occur.

Mizruchi, M.S., & Bey, D.M. (2005). Rule Making, Rule Breaking, and Power. In T.A. Janoski, A.M. Hicks, & M.A. Schwartz (Eds.), Handbook of Political Sociology: States, Civil Societies, and Globalization (310-330). Cambridge, UK: Cambridge University Press.

Mar 30, 2011