The Political Power of Business

Patrick Bernhagen

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781134057993
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This book analyzes the influence of business in democratic politics. Advice from business actors regularly carries more weight with policymakers than other interests because it refers to the core of the state-market nexus in democratic capitalism: the consequences for voters and policymakers of harming business and the economy. The book examines th

1
Introduction

In August 2006, Forbes magazine published its annual list of the world’s 100 most powerful women. The top three positions are taken up by politicians: the German chancellor, Angela Merkel, the US secretary of state, Condoleezza Rice, and the Chinese vice premier, Wu Yi. The following seven places are occupied by businesswomen in leading positions at transnational corporations, including: the chief executives of PepsiCo, Xerox, Archer Daniels Midland and Sara Lee; the chairwoman of Areva; the chief financial officer of Citigroup; and the co-president of Morgan Stanley. Thus, according to Forbes, the majority of the ten most powerful women are in business, with only a minority being politicians. The picture looks much the same as one scrolls further down the list of top 100 (MacDonald and Schoenberger 2006). This distribution is not the result of the gender bias in public and commercial life. Although the higher echelons of politics are notoriously wanting of female members, this is even more so the case for the commanding heights of private enterprise.

What makes these women powerful? How is it possible to compare the relative power of people in different spheres of life such as business and government? Three of the women are involved in the authoritative making of collectively binding decisions that comes with governing countries like China (Yi) or Germany (Merkel), or directing the foreign relations of the world’s supreme military power (Rice). The other seven, by contrast, are concerned with managing technology, agricultural and consumer goods companies and banks. This book seeks to provide answers to the question of how the powers of politicians and businesspeople relate to each other. At closer inspection, the question involves a trio of questions that are frequently raised by citizens, political activists and social scientists: Do the owners and managers of business enterprises have political power significantly above and beyond that enjoyed by other citizens? If the answer to this question is ‘no’, then usually no further questions follow and the discussion ends. If the answer is ‘yes’, two further questions arise: Where do they get their power from? And, are they justified in having it? While these questions have been frequently fought over, they are seldom answered satisfactorily. The first question in particular used to be very vociferously debated in Western industrialized societies, at least until about 1990. But what accounts for the vehemence of the debates is the fact that the third question – do they deserve such power? – is constantly looming in the background.

Critics of the capitalist mode of organizing social and economic affairs tend to hold the view that the power of a businessman or woman that goes beyond their power to cast a vote in an election or referendum or stand as a candidate in an election, is a reason for serious moral concern. If, so the argument goes, we are supposed to live in a society of equals, then surely it cannot be justified that some of us have significantly more power than others (Dahl 1989:106–18). Unless, that is, this power is conferred on them by some explicit act of empowerment intended to ensure some degree of democratic accountability and due process. It seems that defenders of the capitalist way of organizing economies sensed that the third question would be a difficult one to deal with, and therefore focused on the first one. If they could make a convincing argument that businessmen and women – in short, capitalists – have no greater political power than any other citizen, the two remaining questions, in particular the ethically charged third one, would be irrelevant.

Demonstrating that the capitalist mode of production and distribution is in no way inimical to political equality would also enable its proponents to counter most other major defects claimed by critics, typically from the left of the political spectrum, of the capitalist market economy. In particular, its defenders could show that for anyone with a concern for the fundamental values that have informed the organization of Western societies since the Enlightenment – liberty and equality – capitalism was the only game in town. Socialism, the major competitor as politico-economic systems go, appeared to fare much worse than capitalism with regard to individual liberty, but as long as critics from the left were able to claim that socialist systems scored better on equality, a fundamental ideological challenge to capitalist democracy remained. We know now what many have long suspected: that rather than promoting social and economic equality, elites in the planned economies of Eastern Europe and the former Soviet Union were able to enrich themselves at the expense of their fellow citizens. But the resulting inequalities were modest compared to the differences in income and wealth observed in countries like Britain or the US. Thus, with Western societies characterized by indisputable socio-economic inequalities, it was all the more important for advocates of capitalist democracy to refute the notion that capitalist elites wield unequal political power. If this could be achieved, socialism might still be claimed to perform better on social and economic equality, but because of the authoritarian character of their political systems the communist societies of the East were profoundly unequal politically. By contrast, while people’s economic and social circumstances in the West may be characterized by a degree of inequality, at least politically they would all be equal.

With the retreat of serious socialist challenges to capitalism in the late 1980s and early 1990s, the erstwhile competition between politico-economic systems ceased to provide a reason for demonstrating the political equality of citizens in capitalist democracies. The concomitantly uncovered extent of the atrocities, human rights abuses, inefficiencies and numerous other failings of the communist regimes in the former Soviet Union and Eastern Europe was such that just about any other politico-economic system would be deemed preferable by default. For the same reason, the critical voices that pinned down the shortcomings of capitalist democracy by way of contrasting its performance against utopian or socialist blueprints went silent. Capitalist democracy has factually and almost overnight become the only game in town, before the ideological debates about political equality have been resolved. In fact, the debates themselves seem to have been rendered obsolete by history as the people in the countries undergoing transitions from communism have simultaneously written ‘democracy’ and ‘market’ on their banners (Przeworski 1991:8). In this situation of easy victory, which prompted some to proclaim that history has come to an end (Fukuyama 1992), the ideological defenders of capitalist democracy have ceased to see the need to demonstrate how the institutions favoured by them – representative democracy, private property and the market – live up to the Enlightenment promises of freedom and equality. Instead, it has now become possible to recognize unashamedly that unequal economic power may imply unequal political power. Excuses no longer seem necessary, as few people would find anything objectionable in the fact that, in terms of power, the CEO of a soft drinks producer (Indra Nooyi of PepsiCo) is ranked just slightly behind the US secretary of state, and before the president of Chile or the prime minister of New Zealand.

Now that almost two decades have passed since the contest between the two major politico-economic systems ended with the collapse of one of the competitors, however, it is time for the victor to be judged by the standards of its very own normative foundations inherited from the Enlightenment. Above all, this involves a close look at the political role of economic elites. Politics, Lasswell wrote over 70 years ago, is about who gets what, when and how (Lasswell 1958 [1936]). Today, few would doubt that in this sense business is a formidable political actor enjoying a unique place in the political landscape (Coen and Grant 2006:13). In a review of the literature on corporate political activity, Hillman, Keim and Schuler (2004:838) find it ‘indisputable that business firms … are among the most prominent political players not only in Washington, DC but in capitals across the globe’. Thus, the factual question concerning the political power of business has been replaced by a commonly shared understanding that business fares rather well when it comes to securing favourable political outcomes. Concomitantly, the other two questions raised at the outset of this chapter have also become relegated to the background. Consider the third question: Do business people deserve to be as powerful as they are? Put differently, where does the legitimacy of their power derive from? In representative liberal democracies, people hold that procedures and institutions convey legitimate power to individuals and outcomes. For democrats and democratic theorists, election by popular vote constitutes the standard mechanism of conveying legitimate power onto leaders. Looking at the ten most powerful women in the Forbes ranking, it turns out that only Merkel has attained her position by some form of democratic electoral process. Rice comes close, having reached her position by appointment according to constitutionally determined procedures. While not being directly empowered through popular or parliamentary vote, the office of the US secretary of state derives mediated democratic legitimacy by virtue of the fact that her appointment is made by the president, who himself is held accountable through popular vote.

There are, of course, all sorts of powerful social limits to the factual equality of people’s chances to hold these kinds of offices. Despite the enormous differences between countries like, say, China and the US, all ten women have a number of social characteristics in common. All come from relatively wealthy and educated family backgrounds and enjoyed excellent third-level education in the finest institutions of higher learning in their respective countries. None of these women would count as ‘average’ or ‘ordinary’ by any meaning of these terms – although Merkel’s origins are at most middle class. But eight out of the ten most powerful women have come to occupy positions of power through procedures that lack any of the aforementioned criteria of due process and democratic legitimacy. Yi is powerful because of a successful career in the ruling party of a communist dictatorship. Ironically, the mechanisms that brought the remaining seven women – all business executives in liberal democratic countries – to enjoy their reputedly powerful positions are no different than the ones that elevated the vice-prime minister of China above the heads of a billion clerks, peasants and workers. They all ‘worked their way up’ by pursuing normal, if highly successful, top-level bureaucratic careers, climbing up strictly hierarchical ladders as they have been deemed reliable, efficient and acceptable by other bureaucrats, who themselves had attained their positions by the same mechanisms before them. At no point in their careers did the adult population of their countries cast a democratic vote over their appointment. Nor were they appointed by a democratically elected official. And nor are there any orderly procedures in place by which the fairness of their ascent to power can be evaluated. As Moene put it, ‘[w]hile democratic governance is occupying new territory in Eastern European politics, most firms in the West are still governed like command economies in miniature’ (Moene 1993:400).

It is possible that the power of business people is of a different kind than that of politicians. After all, unlike Merkel or Rice, Nooyi and Cruz do not wield command over state bureaucracies and armies. But the pollsters at Forbes do not seem to think that these differences matter much. Their power rankings are based on a composite of visibility (measured by press citations) and economic impact. The latter reflects the women’s résumés, the size of the economic sphere over which they hold sway and a weighting designed to render a firm’s size comparable to that of a national economy (MacDonald and Schoenberger 2006). After that, the Forbes investigators make no distinction between the power of a business actor and that of a political actor. As Forbes is a business magazine rather than a social– scientific research institute, the validity of this list and its method of measurement is not beyond doubt. Thus, a more systematic investigation into the nature and sources of the power of capitalists is needed.

We can distinguish two dimensions of power wielded by business executives. One dimension concerns their power within firms. Here, as Moene points out, command-style hierarchies continue to prevail, forming islands of authoritarian power in otherwise democratically organized societies. Dahl describes this poignantly:

Like the government of the state, the government of a firm makes decisions that apply uniformly to all workers or a category of workers: decisions governing the place of work, time of work, product of work, minimally acceptable rate of work, equipment to be used at work, number of workers, number (and identity) of workers laid off in slack times – or whether the plant is to be shut down and there will be no work at all. These decisions are enforced by sanctions, including the ultimate sanction of firing.

Dahl 1985:113–4

The authoritarian power structures within economic enterprises, however, may be justified by the normative underpinnings of capitalist democracy. The claim of owners and managers to rule autocratically within their firms can be backed up by the efficiency-enhancing aspects of that form of governance, through invocation of natural rights to private property or the hint at the fact that few employees might care much to get involved in the running of the firm they work in. Most justifications involve a mixture of these elements (ibid.: 111–35). But while one may agree or disagree with these justifications and their implications for the way economic enterprises are governed, few people would disagree with Hobbes’ succinct formula that ‘[t]o have servants is Power’ (Hobbes 1996 [1651]: 62). Capitalist democracy at any rate makes no pretence to intra-firm democracy.

The other dimension of the power of capitalist leaders concerns the possibility that their non-democratic economic power may have significant implications for decisionmaking in the public sphere – a sphere that in capitalist democracies is supposed to be governed democratically. The claim that economic power in some sense means political power is at the heart of disputes concerning the sources of the political power of business. The questions about the sources of business political power and the justification of such power are more relevant today than ever. This is despite the fact that both questions have been around for some time – at least since politics as we understand it today was brought into being with the French Revolution. In the middle of the nineteenth century, for example, Marx and Engels claimed that the power of capitalists is essentially political power when they wrote that ‘[t]he executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie’ (Marx and Engels 1977 [1848]: 223). One hundred and thirty years later, Lindblom expressed concern about the political power of capitalists in his study Politics and Markets, concluding that ‘[t]he large private corporation fits oddly into democratic theory and vision. Indeed, it does not fit’ (Lindblom 1977:356). And democratic theorists from different quarters are concerned that, if capitalists wield disproportionate power over political outcomes, then political equality, democratic accountability and the legitimacy of public policy may all be greatly undermined (Dahl 1989:324–28; Green 1985).

To begin with, disproportionate political influence on behalf of some by virtue of their positions as owners and managers of business enterprise is incompatible with the essential democratic requirement that ‘everybody should count for one and nobody for more than one’ (Green 1985:13). Furthermore, Macpherson (1973:8–9) points out that liberal–democratic theory contains an ethical claim to equally maximize human powers. The capitalist distribution of the means of production limits the access to what a person needs in order to use and develop their capacities, thereby forcing a majority of people to pay for access with part of their powers by working for others. In doing so, they subject themselves to the authoritative power of the owners of capital. The result is a ‘continuous net transfer of part of the powers of some men to others, and a diminution of the human essence of those from whom power is being transferred’ (Macpherson 1973:10). In this way, the capitalist organization of the economy contradicts the moral principle, implicit in the judgement of Western liberal democratic theory, that individual freedom is preferable to authoritative allocation of work and reward (ibid.: 19). The common recourse to a natural or human right to private property may not have sufficient reach to justify such transfer of power. For, as Dahl maintains, ‘[w]e cannot leap from my entitlement to secure possession of the shirt on my back or the cash in my pocket to a fundamental moral right to acquire shares in IBM and therewith the standard rights of ownership that shareholdings legally convey’ (Dahl 1985:7).

But how can we say that capitalists pose a threat to democracy if everywhere we look, capitalism and democracy go hand in hand? Friedman reminds us that, historically, there has been no society ‘that has been marked by a large measure of political freedom and that has not used something comparable to a free market to organize the bulk of economic activity’ (Friedman 1962:9). Moreover, capitalism has been portrayed as a necessary condition for the development of democracy. According to Lipset, the chances for both the emergence and the survival of democracy increase with the rise of the overall level of socio-economic development of a given society (Lipset 1959:75), and no other socio-economic system has proved a match for capitalism as far as the production of social wealth is concerned. Indeed, historically, whenever market economies have been successful over a period of time, pressure for democratization has not taken long to ensue (Berger 1992). Schumpeter (1976 [1942]: 297) even characterized modern democracy as ‘a product of the capitalist process’. And for Hayek (1944), capitalism and democracy equally embody the enlightenment foundations of European civilization complete with a commitment to individual freedom.

It is important to keep in mind, however, that the modern impetus to democratization came with republican forms of government that were primarily developed by aspiring commercial classes. While broadening access to political power from monarchs to aristocracies and then to propertied citizens was one thing, widening participation in politics to ‘the many’ as a genuine majority of the adult community was a much larger project (Carver 2003:253–4). In Britain and Europe, it has taken almost two centuries to secure the expansion of civil and political rights for the benefit of substantial groups of the population. All along, capitalists, and many liberals, have watched the processes of democratization with scepticism, and often with outright hostility. And they had good reason to be sceptical.

Macpherson points out that the gradual extension of the franchise went hand in hand with significant curtailments of capitalist property rights, not least through the emergence of the welfare state (Macpherson 1973:148). This trade-off reflects a fundamental tension betw...

Table of contents

• Routledge research in comparative politics
• Contents
• Tables and figures
• Acknowledgements
• 1 Introduction
• 2 Groups, institutions, networks, ideology or structural dependence
• 3 An informational–structural model of business power
• 4 Two real-world signalling games
• 5 Reputation and informativeness in lobbying
• 6 Structure, information and environmental regulation
• 7 Conclusions
• Appendix A Interviews and personal communications
• Appendix B Coding and summary statistics of variables used in Ch. 5
• Appendix C Coding and summary statistics of variables used in Ch. 6
• Appendix D Jack-knifed estimates of regression models in Ch. 6
• Notes
• References
• Index