Something is missing. As we wonder why it is so hard to sustain a small business or find a job, why wages are so low and health insurance so expensive, why the economy isn’t working any more for most of us, maybe the first thing to understand is that opportunity and wealth end up in the hands of a few where authority is held in the hands of a few, in other words, where democracy is missing. It is widely acknowledged today that America is just such a place, where wealth is consolidated in the hands of a few and where democracy has gone missing or at least is dangerously diminished.
But to understand where, exactly, democracy is missing from our society, we must consider where it still remains, where it used to be and where it never was to begin with. The last holds the key to our current despair – and to hope.
Where Democracy Remains
Democracy remains today within the essential form of American government. The Constitution stands, laying forth the separation of powers among the three branches of the federal government and among the federal government, state governments and the people as citizens. The separation of powers helps defend against (but cannot wholly prevent) the consolidation of decision-making authority in the hands of a few. It promotes shared authority and mutual accountability among the diverse parts of government, so that government is inclined to represent the diverse political-economic communities within society and to mediate their competing claims so that all have a say.
Political-economic communities are not geographic neighborhoods; they are constituencies grounded in economic roles, in how people make their living. Examples of political-economic communities in American society through history are corporate shareholders (often including top management), independent business owners, union workers, farmers, religious leaders and licensed professionals. When the members of such a community are politically well organized, share a sense of who they are and what kind of world they want and hold considerable economic power, they can influence law and society.
Where Democracy Is Now Diminished
Although our democratic form of government remains, the laws which ought to manifest the Constitution’s protections and standards in our daily life have instead lost great chunks of their former democratic character. Laws about the conduct of banking, employment and wages, collective bargaining, public services, taxation, land use and natural resources, civil liberties, the conduct of war – all seem to be going in the direction of protecting the interests of the few against the inalienable rights of the many. One radical social conservative law at a time and one business-like fiscal conservative law at a time, our constitutional rights are blocked, confined to that historic piece of parchment so that the words “We the People” scarcely effect the daily affairs of the people of the United States.
Where Democracy Never Was
Democracy is absent from shareholder corporations and never was there to begin with. Corporate officers wield authoritarian control over employees and are accountable only to shareholders. These shareholders are investors who might reside anywhere in the world and whose stake in the corporation is simple: a high return on their financial investment. And shareholder voting power is not the democratic one person, one vote. Instead it is one share, one vote. The person who can afford to buy and hold the most shares wins.
There are other nondemocratic institutions in American life, of course. Religious institutions typically are not democratic. They can exert economic influence as employers, investors and consumers, or political influence by the beliefs they promote. But they are not major providers of for-profit products or services.
Small independent businesses are direct participants in the for-profit economy and they wield authority over their employees; however, these independent businesses are by definition small, so that the power of each is limited.
Shareholder corporations are the key large-scale economic institution where democracy is missing.
The absence of shared authority and mutual accountability – the absence of democracy – in shareholder corporations means they can create huge profits by taking the total economic value produced by their employees and paying back just a portion of it in wages, while splitting the rest between executive salaries and shareholder profits. The lower the wages, the greater the share left over for executives and shareholders.
Loss of Balance in the Economy
The economic effects are just as we might expect. Real wages for American workers have remained essentially flat since the early 1970s, while corporate profits and CEO pay have multiplied. Corporate profits in the US nearly doubled from $434 billion in 1990, to $819 billion in 2000, and doubled again to $1.6 trillion in 2010, according to the April 2011 “Survey of Current Business.” And inflation-adjusted CEO pay in 2009 was more than double the average CEO pay of the 1990s and more than quadruple that of the 1980s, according to a 2010 report by the Institute for Policy Studies in Washington, DC.
No worker would freely choose to be paid 1/500th or even 1/100th what their boss is paid for a day’s work. It is the lack of democracy within corporations which allows corporate officers to unevenly distribute wealth.
This imbalance in wealth, created corporation by corporation, then throws our society as a whole out of balance because one political-economic community – corporate shareholders – has the clout to overwhelmingly influence private and public affairs. They can dominate media content through paid advertising and direct ownership of media outlets. They can make or break reputations, make or break private or political careers and offer lucrative corporate careers for retired politicians. And, of course, they can offer big election campaign contributions. Data collected by the Center for Responsive Politics shows that, in 2010, corporate interests spent more than a billion dollars on political contributions in the US – nineteen times more than labor unions spent. Corporate shareholders have used their clout to remake the economy in their own image through law. “For the last three decades the right has been busily restructuring the economy in ways that ensure that income flows upward” writes economist Dean Baker, author of “The End of Loser Liberalism.”
Loss of Balance in Government
When political-economic communities are roughly balanced in power, then government, as shaped by the Constitution, helps preserve that balance by refereeing their competing claims. But if one community becomes vastly stronger than the rest, then even as the Constitution ensures, in principle, that everyone has a say, all the laws which are supposed to bring the Constitution to life start, instead, to favor the strongest community. It is as though one team in a game wields so much raw power that it can bully the referee, so that even as the rules of the game stay in place, the rulings all start going in one team’s favor. The bully in the days of the American Revolution was the English monarchy and the shareholders of its crown corporations. The bully today is multinational shareholder corporations.
Thomas Jefferson saw signs of trouble in America’s corporations as early as 1816, and wrote, “I hope we shall crush in it’s birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.” No one heeded the warning then. But some 120 years later, the New Deal policies implemented during the FDR administration restored a measure of balance.
During the 1940s, ’50s and ’60s, business owners thrived even as federal and state laws also strengthened the economic security and political rights of working people. It was the political-economic power of organized farmers and union-organized wage workers, balanced alongside the power of business owners, which made the passage of these laws possible. Prosperity was not shared by all: people of color continued to struggle and women endured a pay gap still present today. But there was a rough balance of power in American society. Since the 1970s, however, policies have increasingly favored one political-economic community – that small minority of Americans who are large corporate shareholders.
And the result of overwhelming corporate power? Trade deals that send American jobs overseas as shareholders seek out the world’s lowest-paid workers. Financial markets without rules or standards as shareholders find that speculative deal-making brings higher profits than productive work. Loss of customers for small businesses and family farms as corporations saturate markets with cheap overseas products and services. Health insurance priced beyond reach as insurance companies boost profits and employers cut benefits. Declining wages for all Americans but the top 1 percent. The lower the wages, the greater the share left over for executives and shareholders. The laws governing all of these economic issues are going in one team’s favor. And step by step, the power of corporate shareholders grows, dwarfing the rest of America by comparison.
More than 200 years ago, James Madison wrote, “It is essential to government that it be derived from the great body of society, not from a favored class….” Although democratic government under America’s Constitution offers good tools, like the separation of powers, to mediate the influence of competing economic communities, no system of government can mediate the vast and growing imbalance of wealth we have suffered since 1970. We won’t see a restoration of balance in law and government policy until we see a restoration of balance among America’s political-economic communities.
The source of the problem is the absence of democracy in shareholder corporations, the key large-scale economic institution where the mode of governance actively consolidates wealth and power in the hands of the few, the corporate officers and shareholders. This is the core problem we need to solve. We must replace today’s authoritarian shareholder corporations with democratically governed corporations, partnerships, cooperatives, or associations in which all participants, including employees, hold the power of one person, one vote, so that authority is shared and all are accountable to each other. Employee-owned cooperatives already use this mode of governance and it can be applied in other economic institutions as well. Economic democracy theorist Marjorie Kelly suggests advancing employee ownership in ways that include real power, such as the power to impeach the chief executive. Writing in “The Divine Right of Capital,” Kelly also notes the power of financial accounting in shaping our view of how corporations operate. In today’s corporate income statements, the dividends paid to shareholders are counted as part of profit, while wages paid to employees are counted as a cost to the company. There is nothing mathematically invalid about reversing these two. As a result “a corporation would define its purpose – its bottom line – as maximizing returns to employees.” These sound like dreams, don’t they? They are dreams until they become law.
Just as America’s revolutionary founders secured democracy in our form of government through the bedrock law of the Constitution, we need to secure democracy in our shareholder corporations through law. Our founders tried seeking voluntary reforms from the English monarchy and its crown corporations, but they soon realized they were on a fool’s errand. England had much to gain by maintaining its authority over the colonies and could not reasonably be expected to consent to meaningful reforms. The founders’ solution was to seize freedom through the Declaration of Independence and to secure freedom through the Constitution. Kelly argues that “in the long run, it won’t be enough to rely on voluntary initiatives, toothless codes of conduct, enlightened leadership, or reforms that proceed company by company. We must ultimately change the fundamental governing framework for all corporations in law.”
But how do we secure changes in the laws of corporate governance at a moment in history when shareholder corporations possess such overwhelming raw power, a moment when most of the lawmaking in the US Congress and the state legislatures is going in the corporations’ favor?
The Way Forward
The answer is to move our money first and then begin moving the law. At a recent celebration of fair trade, Baldemar Velasquez of the Farm Labor Organizing Committee shared the advice Martin Luther King Jr. had given him in 1967: “When you impede the rich man’s ability to make money, anything is negotiable.”
We can start by seeing every purchase we make, no matter how mundane, as an investment in a political-economic community and then shift our purchases away from shareholder corporations and their chains and franchises. Yes, it is impossible today to entirely avoid these corporations. But we can choose to patronize local independent businesses, cooperatives and nonprofits before shareholder corporations and unionized corporations before non-unionized. We can forge new unions and cooperatives and associations to leverage joint purchasing power and joint bargaining power. We can save our money in community banks and credits unions headquartered on Main Street instead of the multinational financial corporations that rule from Wall Street.
Step by step, we will be investing, through patronage and purchases, in institutions which are more likely than shareholder corporations to advocate, someday if not today, for laws which reform and limit the power of shareholder corporations.
And we must tell the people who run these independent businesses, cooperatives, nonprofits and unionized corporations why we have chosen to patronize them: Because we believe they help build a fairer, more democratic society in which people’s work is valued and people come before profits.
Don’t worry that there are saints and sinners alike in every profession and every political economic community. This isn’t about good people and bad people. This is a battle to support the kinds of institutions that, by their governance structure, or sometimes just by sheer smallness of size, contribute to a separation of powers and a degree of local accountability supportive of a democratic society. The goal of America’s founders was not a perfect world, but a better world. They did a pretty good job of envisioning good government. But not such a good job of envisioning corporations … or racial equality … or gender equality and choice … A better world can be our goal again today. And we can do it better than they ever did.
Copyright by the author. May not be reprinted without permission.