Markets and Power

The 21st Century Command Economy

Eric A. Schutz

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315501116
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In what ways do the actions and economic behavior of today's multinational corporations resemble the functioning and processes of the old command economics of the Soviet Union? By ignoring questions about power relations in markets, mainstream neoclassically-oriented economists conclude that there are no significant power structures operating in market systems to control allocation and distribution. This book argues to the contrary that there are fundamental and systemic power structures - monopoly, access to information or finance, employer power, etc. - at work in market economies, which affects their ability to achieve real "competition" in much the same way as state-controlled, command economies hinder business activities. Thus, for example, the biggest firms at the hubs of financial "networks" wield a kind of "shaping power" upon large numbers of relatively autonomous firms, not only upon those that belong to the networks but also on the many firms outside them that are also affected.

1

Introduction

For most people, “power” is so elementary an idea that, while it may be explicitly expressed only seldom, it infuses our every thought on human relations in one form or another. Sometimes it is a difficult concept to be very clear about, sometimes even taboo as well. When offered as explanation or description of the relationship between two people, or of any aspect of social life in general, power is rarely denied. Some do deny it, however, or at least deny that it is very helpful for understanding the most interesting or important things in human life. This book was written in an effort to counter the denial of power as a useful or meaningful concept by one particular such group: those in the mainstream of the field of economics. Because of the denial of power as a useful concept in mainstream economics, the study of that subject encourages the profound misconception among those who undertake it that modern market economies have somehow overcome the age-old problem of social power. I offer this book to students and others interested in economics as an antidote to that misconception.

While mainstream economists deny the usefulness of the concept of power, in the rest of the social sciences power is given much the same kind of attention as is the concept of the molecule in the fields of chemistry and biology. Indeed, those who study politics, sociology, anthropology, and history find themselves so repeatedly confronted with issues of power that for them one more book on that subject may be of little additional interest. Of course, even those already well acquainted with the idea of power might nonetheless find this book helpful, for it concerns the most important forms that social power takes in market economies from the viewpoint of modern economics—that is, in terms of the special comprehension that economists have of how markets work. Among all the social sciences, economics is the one most especially devoted to the study of market systems, and even though many economists might deny it, theirs is the field from which one would expect the most elucidation on how structures of power function in market societies. This book is intended to help fulfill such expectations.

Economics and Power

Where the concept of power has been an important element of inquiry, it has brought with it much controversy. Who has it and who does not? What are its bases? What are its possibilities—what does having it permit, what does lacking it prohibit? Of what exactly is it constituted—how does one know when one has it or lacks it? Is it “good” or “bad”? These are questions over which great argument has long coursed in all the social sciences, not to mention in philosophy and literature, but the mainstream of modern economics is uniquely silent on such issues. How can a social science not only avoid engaging in questions about social power but eschew its use as a theoretical construction altogether? Isn’t power an essential element of all human relationships?

The term power carries three distinct but closely related meanings. We refer, first, to an individual’s (or a group’s) power to do some particular thing or to achieve desired ends in general, the capacity to act decisively in the world. This sort of power is closest in meaning to the physical power of the natural sciences, the ability to exert energy to accomplish things, and in humans may be directly related, of course, to a person’s physical or intellectual strength. Second, in a more explicitly social sense of the term, we refer to power as the ability to influence other people, to get them to act or think in ways they would not otherwise. Power as the capacity to affect other people is indeed the very essence of social relations: Only to the extent that individuals affect each other can there even be “social relations” among them. Finally, we refer to power over people, in which an individual or group not only influences others but does so in a dominating way, getting them to do things that they do not wish to do or that are not in their own interest to do. This sort of power is, of course, strongly negative in connotation, and is the essence of power as a social problem as well as a philosophical and moral concern.

I will refer to these three sorts of power as, respectively, the power of accomplishment, influence or the power to influence, and dominating power. Perhaps not surprisingly, the last of these, the most problematic, will be the main focus of this book. One might ask, if dominating power is the main issue, why not then simply refer to it as “domination,” an obviously much more precise term that immediately makes clear my intentions—why not just title my book Markets and Domination? I prefer to use the much broader term “power” because while domination is distinct in meaning from the other two kinds of power, it needs emphasizing that it is so closely tied to them that the three kinds of power are, in an essential way, all of a piece, they are essentially one. Having power of accomplishment generally implies having power to influence others—and conversely, of course, being able to influence people not only requires that one be able to accomplish specific things, it is itself a kind of accomplishment. Similarly, the power to influence people generally implies also the power to dominate them to one degree or another—and conversely, domination not only is a particular form of influence but also requires that one be able to influence people in certain ways. Using the term power inclines one to ask about what specific connections there are among its three forms, connections that, as will become evident in this book, I believe are absolutely essential in an inquiry the ultimate concern of which is domination per se. Alternatively, looking at “power,” rather than at “domination,” inclines one to consider at the same time the particular powers people may have that enable them to dominate others, as well as at the particular powers that those who are dominated lack.

How can any modern social science almost totally avoid both discussion about and analytic use of the concept of power? First, let me clarify that not all economists avoid considering power in their work—merely most of those working in the mainstream of the field.¹ In the writings of those representing the now dominant, politically conservative schools of economic thought—neoclassicals, monetarists, and new classicals—the concept of power virtually never appears, not even in analyses in which the presence of power is pretty obvious, for example, that of market monopoly. Those representing the most conservative of all schools of economic thought, the Austrians, do discuss matters of power, but virtually always restrict their discussion to issues of the dominating power of government. For them, significant power relationships among private individuals and organizations in the market economy simply do not exist.

Among the less conservative economists in the mainstream—traditional Keynesians and some “new” Keynesians—power in both the public and the private sectors is at least acknowledged. For example, some do recognize the importance of monopoly power and urge the use of state power in antitrust action against it. Yet even for some of these more liberal economists, avoidance of analyses of power relations sometimes seems almost studied, for example, in labor economics, where, as will be seen later in this book, major power relationships beg recognition.

It is only on the fringe of the field, outside of acknowledgment in the top-selling textbooks and in the “most reputable” academic journals—among a group sometimes referred to as political economists—that the concept of power is both employed as a tool of inquiry and considered as a topic of interest in itself.² There, among traditional institutionalists (the so-called new institutionalists really belong in the mainstream of economics) and radicals of various degrees and kinds (some new and post-Keynesians, Marxians and other leftists, and feminists), power is both a fundamental instrument of analysis and a basic concern of inquiry. For example, for most Marxist and feminist economists, domination by the ruling class, or by the male sex, is the primary issue of economic inquiry itself. And for traditional institutionalists, post-Keynesians, and many new Keynesians, power relationships are a major element in understanding how the economy works.

How can the broad mainstream of a social science ignore considerations of power? The answer is twofold. To begin with, the economic model most often employed by the mainstream largely precludes questions about power. Two features of that model militate strongly against any inquiry into power relationships, hence into how such relationships might be understood to affect things. First, the standard economic model relies on a radically simplistic utilitarian individualism for sorting through in an understandable way the enormous complexities of socioeconomic matters. The individual is depicted as totally self-concerned and dedicated to maximizing personal satisfaction (“utility”)—real relationships with other people, power relationships as well as other kinds, do not impinge upon his consciousness, they simply are not part of his makeup. “Economic man” neither affects nor is affected by other people, and is, moreover, very much an automaton: Basically, his only activity is engaging in market transactions, and from these he seeks single-mindedly only one simple thing, again, his own pleasure. He owns and buys things, but exactly how he uses them is not of interest; he sells things, particularly his labor, but exactly how he labors, with whom, and in what sorts of social arrangements, are also not considered.

Pitiful and repulsive a character though he may be, economic man has been helpful for understanding markets, for he has greatly simplified what would otherwise be an enormously complex inquiry. Yet employing him in this capacity has had great costs: It may be possible to append to this rigidly simplified model of human behavior more realistic considerations of the social nature of actual human beings, but it has proved difficult to do so without complicating things to the point of obscuring definitive insights on issues of individual economic behavior. For example, in principle, we could preserve economic man’s self-centered concern with personal satisfaction, while still allowing him to have some influence on other people by, say, his altering the constraints to which they are subject in their economic activities—an approach that I will consider in more detail later on in this book. In this way, we could relax our restrictive assumptions about economic man somewhat by supposing that he may have direct effect on other people, as opposed to the indirect and very diffuse influence he routinely exerts on them in his buying and selling in markets. But doing so, most mainstream economists would point out, would so complicate the already difficult analysis of individual welfare-maximizing behavior as to force an abandonment of that particular enterprise altogether.

The other feature of the orthodox economic model that has consistently militated against considerations of power has been the idea of “perfect competition,” or somewhat more broadly, “perfect markets.” The idea of a perfectly competitive market is one of the most fundamental in economics, and students from the very beginning of their studies are drilled with its characteristics—even if no such thing has ever or could ever exist, with its “indefinitely large” numbers of buyers and sellers who “freely” enter into and exit from the market at any time and who deal in a “perfectly” homogeneous product. Soon after, students may get the list of additional characteristics that would make for a perfect market—buyers and sellers having “perfect and free” information about all relevant aspects of the market, bearing “zero” costs of doing business with each other, and having “zero” external effects arising from their activities (i.e., effects on others not directly involved in production, consumption, or exchange). Farfetched as these notions are, they have contributed greatly to our understanding of certain aspects of how real markets work. I will look more closely at some of these characteristics of hypothetically perfect competition and perfect markets later on, but for the moment, suffice it to say that whatever benefits these ideas have brought to economic analysis, they have done so at great cost: As I will explain, there can be no power relationships among people exchanging in an assumed system of “perfect” markets, and the ramifications of power in economic activity simply cannot be considered in such a world.

Thus both the agents that populate the world depicted in the mainstream economic model and the market structures within which they interact according to that model disallow considerations of power relationships. Of course, economists do often inquire about the ramifications of “dropping assumptions” of the mainstream economic model—for example, what happens when there are only a small number of sellers in a market, or when there are sizable transactions costs or external effects, or when economic man does not completely maximize his welfare but merely “satisfices.” Yet such inquiries virtually never venture into considering the power relationships that then become possible. Indeed, as I noted earlier, even where obvious and significant power relationships necessarily arise as assumptions of the conventional economic model are dropped, mainstream economists generally ignore them and eschew any use of the term power as well.

Given how important the concept of power is in the other social sciences, such an avoidance by economists seems altogether too studied. What could be wrong with giving some attention to power relationships where they obviously arise when dealing with exceptions to the model of economic man in perfect markets? What could be wrong with using other approaches than that model when it manifestly excludes analyses of major power structures extant in the economy? Where a particular mode of inquiry has limitations, other serviceable modes of inquiry should be taken up. Mainstream economics has not done so, but it is not because alternative modes of inquiry are lacking. Instead, the particular influences to which inquiry in the field has been subject from its social milieu, and the role economics has consequently played alongside the other social sciences, have inclined economists to stay comfortably within a mode of inquiry that precludes critical reflection on power.

Taken altogether, the social sciences are part of the same enterprise of the pursuit of knowledge for human progress as are the natural sciences and the liberal arts and humanities. As such they share the same traditions of humanism, enlightenment, and the modern movement for liberation. Thus the analysis and critique of established social power is a fundamental part of the tradition of the social sciences, and this is as true of economics as it is of the others. But the modern field of economics arose mainly not as a study of the economic aspects of societies in general but as the study of the economic aspects of capitalism (i.e., of the developing market system of Europe and Britain). Its critique of social power was mainly a critique of the then-established social power structures of European feudalism, against which it viewed the rising market system as the progressive opposition. Thus it allied itself very early with that system, as was so clearly manifest in the work of its “founding father,” Adam Smith.

Along with that alliance, which was based on a principled antagonism toward older social forms that would hinder human progress, came another based on practical need. The new class of leaders of the rising market system greatly needed both advocates in the political and ideological struggle for a social environment conducive to markets, and help in understanding how this rising system worked and how to manage things within it. At the same time, the rising field in which economic matters were studied needed resources: places of study, libraries, and incomes for teachers, writers, and researchers. As leaders of the rising market system perhaps may have put it, an exchange was called for: their financial and other help in return for the support they needed. Very early on, the study of economics was influenced by the practical alliance of many economists with business.³

Today most academic economists work in departments organized as divisions of business schools or other business programs of one kind or another. The primary purpose of such an organization is not to facilitate the critical examination of business and the power structures of the business world from the viewpoint of the larger concerns of humankind, but to provide what business needs—management education, consultation, political and social advocacy, and other support for the business/market system. That is, in business schools the practical organization of economics as a field of inquiry has been centered mainly upon the requisites of business, not those of the pursuit of critical insight and truth in general. Moreover, even those academic economics departments that are independent of business programs—mostly in small, liberal arts colleges—are influenced in similar directions by their having to compete with the larger and better financed business economics departments for students, teachers, and research resources.

Of the social sciences then, economics is, by virtue of its deep practical alliance with business, far and away the least inclined toward critical inquiry about the power structures of the market system. This is not to say that the rest of the social sciences have completely escaped the influence of business as a source of the requisites for the work of study and teaching—far from it—but they have certainly been less subject to that influence than has economics. Thus while economics shares with the other social sciences the progressive tradition of a critical attitude toward established power in general, it is uniquely accepting of the relatively novel power structures of the business/market system of modern times. If the inclination in economics has been to develop a marvelously complex and involving model of economic activity in which social power plays no role whatsoever, it is because such a model enables an avoidance of critical inquiry into the power structures of modern business society.

Not only has economics therefore contributed very little to people’s understanding of how power works in market societies today, but by avoiding the concept of power altogether in its inquiry into the nature of markets, it has actively fostered the grossly mistaken notion that such societies have, in their brief recent history, somehow escaped the problem of social power, or at least have put humankind on a path of such escape. The truth is, as I hope readers of this book will be convinced, that market systems, at least those seen predominantly in history thus far, are as much structured by social power hierarchies as are other major types of social systems. Markets do not really militate against structures of social power—they reinforce many such structures and add new ones of their own—they are themselves both constituted by and engendering of systemic power structures. To see this in a preliminary sort of way, and at the same time introduce the main themes of the rest of this book, it may be useful to consider in broad outline what the market system of today actually looks like.

Market Systems and Market Systems

A market is, of course, an ongoing and more or less routinized series of exchanges of some commodity for other commodities, especially for money, by significant numbers of people whose voluntary transactions determine the price of the commodity, or its exchange ratios in terms of the other goods for which it is traded. “Market system” sometimes refers to a collection of interrelated markets, but more often it designates a community or nation whose economic activity is mainly org...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Tables and Figures
• Chapter 1: Introduction
• Chapter 2: Power and Economics
• Chapter 3: Business Power I: Monopoly
• Chapter 4: Business Power II: Networks and Finance
• Chapter 5: Employer Power
• Chapter 6: Purchasing Power
• Chapter 7: Conclusion
• Bibliography
• Index
• About the Author