Corporations and Democracy

The political Left in the US – especially Bernie Sanders – has done an excellent job framing capitalism as mere corporatism, and socialism as democracy. In this worldview, to favor capitalism is to oppose democracy.

Of course, each of these things is distinct. Capitalism, as a system of private capital ownership and free markets, couldn’t be further from corporatism – a system defined by interest groups determining the policies governing their areas of expertise (such as hospitals making health care policy). Whatever one’s views on the tradeoffs between expertise and opportunism under corporatism, one of the most important parts of free markets is free entry: the ability to compete without permission. This goes against the very heart of corporatism, which – as a purely practical matter – has to decide which people are qualified to participate in the governing process before the governing can even begin.

Nor is there anything inherently democratic about socialism: one is a mode of political organization, the other is a system of economic organization.

Such false equivalences are nothing new to politics; indeed, it’s a time-honored technique. Rather than confront the full weight of an idea, it’s much easier to taint (or bolster) it by association. Corporation sounds like corporatism, corporatism was integral to fascism, therefore corporations are fascist.

Are they, though?

On reflection, corporations are some of the most fully democratic institutions known to man.

This seems to conflict with common intuitions about corporations. Democracy means “rule by the people” – and regular people don’t get to vote on corporate policy. Even workers are ultimately just taking orders.

But this is identical to our “democratic” political institutions. State workers have effectively no say over policy – they merely administer the laws and priorities established by legislators. In terms of day-to-day operation, corporations function like any other bureaucracy: workers execute their particular jobs, but have relatively little voice. The internal affairs of corporations are not meaningfully different from what we commonly accept as democracy, and so do not form a basis for the accusation that corporations are “anti-democratic”.

Supposedly, State workers (and regular folks) can change policy through voting. But this again does not provide a meaningful contrast to corporations. To begin, most voting is ineffectual (on an individual basis). But more importantly, most policy issues are not addressed through plebiscites. Instead, people vote for legislators and governors. In exactly the same way, shareholders do not vote on corporate policy – they vote for a board of directors, which then creates policy. The separation between voting and policy is common to both.

In many ways, corporations are more democratic than governments. In a political system, one group’s preferences come at the expense of everyone else’s. If one group wants to teach Creationism in schools, that comes at the expense of everyone who wants to teach Darwin’s Theory of Evolution. In a market system, preferences are not inherently opposed – if one person wants a blue suit, nothing prevents someone else from getting a black dress. No choices are imposed on anyone. A system in which everyone’s wants are fulfilled ought to be considered more democratic than one which inevitably leaves a large proportion of the population unsatisfied.

Which leads to an important point: in a political system, people are allowed to have wants that are completely disconnected from the associated costs. In a market system, anyone can have whatever they want – provided they’re willing to pay for it. People don’t get everything they want regardless of whether they have their own skin in the game.

The fact that only shareholders have a direct voice in policy is not a bug, it’s a feature: the shareholders are the people with the most to gain or lose through their achievements or errors. Unlike the political realm, this means that the people responsible for policy have the most incentive to get things right. They don’t always do so, but they have the right incentives.

And even though non-shareholders don’t have a direct voice, they do still strongly influence policy. When a corporation really screws up, it is subject to massive lawsuits by anyone who was harmed. When the government does wrong (say, by spilling toxic waste into a river, as it did a few weeks ago), it can simply shrug and claim sovereign immunity, foreclosing legal action and court ordering. When consumers are generally dissatisfied with a corporation, they move to alternatives – which signals shareholders to change leadership immediately. Governments, in contrast, persist until at least the next scheduled election, and citizens have no feasible way to exit.

Naturally, all this is not really what people probably mean when they say “corporations aren’t democratic”. More likely, they mean something like “corporations behave in ways that are counter to political institutions, such as lobbying legislators”. But how democratic are those political institutions?

Democratic Socialism in particular is, in practice, corporatism. Since the days of Fabian Socialism – where the government directly owned and operated the means of production – the State has time and again proven itself incapable of producing goods efficiently. Fabian socialism gave way to Democratic (alternatively, Market) Socialism, where corporations produce wealth subject to extensive regulation which is then seized and reallocated by the government to achieve “social” objectives. Oftentimes, this regulation is drafted by corporate interests themselves, in a well-known process called regulatory capture. For their part, individuals have relatively few commercial or political options. Voice is limited, and exit nearly impossible. Despite the name, Democratic Socialism is not in fact particularly democratic.

The real question is, why are people so often okay with the statement “the government is us,” but not “corporations are people”? Of course, no one literally believes corporations are people – just as no one believes that of the government. As I wrote previously:

The core rationale of [Citizens United v FEC] was that individuals do not lose their rights by virtue of their associations.  A corporation is simply a voluntary association of individuals who combine their capital to undertake large expenditures and reduce individual liabilities.  It does include for-profit corporations, certainly, but also non-profits, think tanks, and policy advocacy groups such as the ACLU, NRA, etc.  Why should individuals, speaking jointly under the aegis of an advocacy group, be prohibited from speaking via broadcast, such as when the ACLU was prohibited from advertising the names of candidates who had voted for warrantless wiretapping and other invasive government powers?  Why should free speech be taken so literally as to exclude dissemination of information by print and broadcast media?  As Chief Justice Roberts stated, “The First Amendment protects more than just the individual on a soapbox and the lonely pamphleteer.”

For the unconvinced who would still claim that a corporation, particularly a for-profit one, is a danger to democracy, consider what would happen to liberty in other areas if organization along corporate lines may be a justification for some restriction.  We can have the right to practice religion – but not the right to build a church, which is often a corporate endeavor.  You’re free to attend a private school, but you can’t incorporate to establish or maintain one.  And you’re free to write about whatever you want on your blog, so long as you don’t use corporate-owned servers.  Logically, the kind of power the government had granted itself, and many citizens have supported in the name of “clean politics”, makes any freedom or right currently protected vulnerable to harassment or outright denial by government by restricting the property side of those rights.  Indeed, during oral arguments, the government actually admitted that McCain-Feingold empowered it to censor blogs and Kindles if it so chose.  Faced squarely against such odious ideas, the Court could not have reasonably decided otherwise.

A prominent politician once said “government is just a word for things we do together”. Well, “corporation” is just a word for things we do together voluntarily.

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