Theories of Business Power - Research Paper Example

BUSINESS AND SOCIETY: THEORIES OF BUSINESS POWER Paper outline Title: Theories of Business Power: the Dominance Theory and the Pluralist Theory. Thesis:The Dominance and the Pluralist Theories of business power provide an avenue or justification for basing most business activities in an increasingly dynamic business world defined by the socio-economic and political dimensions. They also answer to the objections posed by those opposing while defending their scope in both characteristics, design and execution. 1. Introduction a) Background of the study b) State both theories c) Discuss the purpose and intentions of the theories. d) Questions of the study: i) What is power? ii) How do corporations exercise business power at both the surface and deep levels in the seven spheres of influence? iii) What are the main boundaries seen in managerial power? iv) How are the specific ways in which business and corporate power has changed the society? Literature review Carefully scrutinize literature based on the two theories to establish what scholars say about both their applicability and essence. Main body Will comprise of six chapters with building literature on the approaches of the two theories while answering on the questions stated above. Three chapters will be dedicated to the dominance theory seeking to answer the questions above while the other three will be dedicated to pluralist theory. Argumentative and supporting text will apply in both cases. Conclusion Restatement of the thesis statement. A recap of the discussion of the two theories. A summary of the effects of business power on the society. Abstract In the contemporary corporate sphere, tremendous power of business to transform the society through their actions cannot be underestimated. The paper takes a keen look to illustrate this power in the stories of the Standard Oil Company, J. P Morgan, American Tobacco Company. The Dominance and the Pluralist Theories of business power provide an avenue or justification for basing most business activities in an increasingly dynamic business world defined by the socio-economic and political dimensions. They also answer to the objections posed by those opposing while defending their scope in both characteristics, design and execution. Theories of Business Power: the Dominance Theory and the Pluralist Theory Introduction Houser, (2009) defines power as the strength or the force to act emanating from many sources. Business power, on the other hand, is defined as the driving force for an act by an industry, a company or sector with its primary source being a grant of authority from the society in the form of a social contract in efforts to convert the resources efficiently into goods and services that the society requires. This business power is and will always remain legitimate as long as it is exercised rightfully and in accordance to the agreed social contract. The power can be seen in forms such as economic power that stems from the use of property and resources in order to influence events and people, technological power that is the power to influence the rate, directions, characteristics and sometimes the consequences of innovations. Business power is also seen in terms of legal power that is the ability of corporations to influence laws and regulation in certain spheres, the cultural power to influence habits, values and the institutions and most importantly, the political power (Wilks, 2013). It is seen as the corporates or businesses ability to influence the governments in the home or foreign countries. Business power can also be felt as the power over individuals manifested over the employees, the management, the citizenry, the consumers, stakeholders and sometimes competitors. These effects are referred to as the levels or the spheres of business power. Literature review When discussing business power and the society, the American Tobacco Company cannot go unmentioned. The company, founded by entrepreneur James B. Duke shortly after the Civil War, maximized on new technology from the Bonsack machine in order to increase the output of its cigarettes. It used cunning methods to market them worldwide. By 1881, almost ten years after he had switched to cigarettes from chewing tobacco, he was using Russian immigrants to roll his cigarettes and women to market them. By 1883, he had expanded his business to China as well as negotiated an exclusive contract for a cigarette-rolling machine. Texts show that by 1892, about 2.9 billion cigarettes had been sold and over 10 billion sold by 1903. The monopoly, however, disintegrated in 1911 but its effect of leaving millions of smokers worldwide and billions by nowremains. Duke’s example in The American Tobacco Company illustrates the ability of commerce to change a society. The rise of the railroads in the United States in 1850 also illustrates how power radiated from this industry touching on the seven spheres of influence. The railroads changed both the American politics and the government in more than one ways. For example, the political candidates were able to get wide exposure, the government subsidized and later regulated these railroads too. To the American society, this railroad contributed to the Indian war, engineered professional management teams and introduced concepts such as cost accounting and division structures. Demographically, the railroad had the effect of introducing immigrants to provide labor. These immigrants are still there and have also intermarried to produce more effects on the social and demographic sphere. Primarily, though, these railroads redefined transportation as they provided speed and in some cases more defined and direct routes (Thomas, 2009). Railroads revolutionized capital markets too.In the 1800s, the railroads required millions in capital for their continued expansion. For this to happen, the railroads ventured into the selling of bonds as well as offering stocks in efforts to raise capital. Hence, they created the investment bank industry that consequently infiltrated its way to other spheres of the American economy, other industries and the world over. As seen, corporate power has an effect on the society at two levels. On the surface level, it is the direct cause of most visible or immediate changes while on adeep level corporate power shapes society over time through the aggregate, unforeseen and indirect changes manifested in industrial growth (Steiner & Steiner, 2002). There are two perspectives or theories on business power that have been advanced to explain business activities and their effects to the society. Dominance theory Kennett, (2008) states that thedominance theory is the view that the business is the most powerful institution in the society thanks to its unyielding control of wealth. Another scholar defines the dominance theory of corporate power as whereby, the corporate world commands a lot of power so much that it is the dominant force working and dictating the society while still able to manipulate changes that support its own interests. Hence, in the industrializing societies, the business organizations have been able to grow in both size and structure hence amassinga lot of wealth. The rise of these corporations has also created a business elite that can be seen to exercise inordinate power over the public policies. According to Dornhoff, (2010), the concentration of assets have further birthed and bred practices of monopoly and oligopoly in markets curtailing competition and harming consumers. The dominance theory notes that this power is viewed to be inadequately checked hence excessive. The perception that the concentration of economic power leads to abuse arose in response to the economic growth during the 19th century. Between 1895 and 1904, a merger wave arose leading to concentrated economic growth. The public then viewed these mergers which had resulted to huge firms as colossal monuments synonymous to greed. During the twentieth century, this practice was not any different as corporations continued to growbut the marked rise in the asset concentration slowed and later leveled (Neil, 2007). The business arena today is not any different as the number of transnational firms as well as the scale of their activity has escalated however devoid of signs of concentrating international assets from latest global firms. Business power: Pluralist Theory In (Dahl, 1958), the pluralist theory proposes a society with multiple groups and institutions through which power is diffused. In this power layout, no single entity or interest possesses overriding power and hence each may check and balance others. This setup is infused with democratic values, and most constitutions have been seen to encourage pluralism. Pluralism also views the political system as reasonably open to multiple interests if these interests feel strongly enough about a given issue to mobilize pressure. Pluralism is also the view that politics and decision making lie mostly in the frameworks of government although non-governmental entities can also mobilize and use their resources to exert influence. According to Dornhoff, (1998), the main question of pluralism is how power and influence can be streamlined in a system with every group of individuals trying to maximize their gains. The list of possibilities in a pluralist process is almost infinite inclusive of money, legal authority, legitimacy, free time, and experience. Pluralists also elaborate the discrepancies between actual and potential power with actual power referring to the ability to compel someone to do something. Hence, making power a causation, while,the potential power is taken to mean the possibility to turn the resources into actual resources. In this society, the business must interact with constraining forces within its environment. The business organizations may thus have considerable influence over some scopes but over most of them it has very limited influence and sometimes none at all. As opposed to most nations, America possesses no history of authoritarian or feudal rule and thus no entrenched deference to an aristocracy of wealth as it is (Lindblom, 2001). This is because during the colonial days, Americans subscribed to the belief that all people were created equally and thus entitled to the opportunities and protection. The observation led the French aristocrat Alexis de Tocqueville, who toured America and wrote an insightful book about America customs in the 1830s to be forcibly struck by the “prodigious influence” on the notion on equality. Alexis observed that the belief in equality was an intrinsic component to the American society fabric and directed public opinion, informed the law and also defined politics. Three of the major tenets of pluralist school are that the resources and, hence, the potential power are widely scattered throughout the society, some resources are available to everyone, or almost everyone, and that in any given time, the amount of potential power exceeds the amount of the actual power. Lindblom expounded on the tenets and the ideas of pluralism in his award-winning Politics and Markets (1977) and also in his presidential address to the American Political Science Association(1982) criticizing the pluralist theory of American polyarchy. The far-reaching importance of Lindblom and Dahl’s revised pluralism is only grasped when pluralism and class analysis are viewed in both historical and theoretical perspective. Historically, pluralism and class analysis have disagreed on not only the meaning of class,but also on whether a class exists profoundly. Other pluralists such as David Riesman (1950), however, acknowledge that despite the tenets of pluralism that exist on equal access to resources and equal possibilities, there have been periods during the American history when a ruling class existed. Most probably, from the days of the captains of industries, there exists a class structure in America that has grown to become far more complex and differentiated. In the business society and the ruling class, there arose so many “veto” groups. He says “this is not to argue that “class difference” are unimportant. It is to basically mean that, economic class is only one factor, and often less important than others that can. Most evidently, it yields distinct subcultures-ways of life, outlooks, norms, identification, loyalties organizations, and social structures. The dominance theory As pointed out above, corporates wield both financial and organizational resources that are unmatched by the opposing interests. For example, they make use of campaign contributions to corrupt politicians, hire lobbyists to undermine the independence of elected officials, will employ accountants and lawyers to evade taxes and run public relations campaigns that shape opinion in their favor (Dahl, 1982). Moreover, large corporations are able to achieve such importance in a given nation’s economy that the elected officials are forced to adopt the measures favoring businesses or risk facing public wrath and end up becoming unpopular exposing them to political disadvantages. Thus, as one proponent of the dominance theory writes, “If the enterprise falters for lack of inducement to invest, produce and hire, it is the members of the political elite that are more likely to lose their positions compared to the entrepreneurial elite.”More so, because the interests of these large corporations do not necessarily match with those of small entities, the society at large or the individual, the concentration of power within the hands of those running the biggest corporations tends to be problematic (Polsby, 1980). Corporate asset concentration Until the 1860, the United States had been majorly an agricultural economy. However, between 1860 and 1890, industrial progress transformed the country with statistics showing that this was striking. In those 30 years, the number of manufacturing plants more than doubled growing from 140433 to 355415 with the value of what they generated rising by a more than 400 percent mark from $1.8 billion to $9.3 billion. The capital invested in them rose from $1 billion to $6.5 billion, which was a 650 percent increase. The growth did not just create wealth but also facilitated its concentration. The effect was an unprecedented merger wave in the dominant firms from industry to industry and a legacy of enduring fear of big companies (Schelsinger 1935). Within this upper class there exists a smaller leadership group consisting of a controlling core of leaders in the corporate community. According to Dornhoff (2010), this core is a power elite made up of personalities who serve as the directors or trustees in institutions controlled by the corporate community through means such as financial support, stock ownerships and the involvement on the board of trustees or a combination of these factors. They have the power to shape and influence the economic and the political frameworks within which other people, groups or classes must operate. Another observation is that with globalization, a transnational power elite or a super-class has emerged operating upon borders through “networks of individuals and organizations. David Rothkoff calculated a superclass membership of about 6000 which only accounts for 0.0001 percent of the world population. These people attend elite institutions with Harvard, Stanford and the University of Michigan producing many who have then proceeded to join exclusive groups such as the Council on Foreign relations and numerous economic forums. Hence, Rothkopf observes that as multinational corporations, global banks and the hedge funds are “the largest and most significant transnational actors,” their leaders dominate and work together “in clusters knit together by business deals, corporate bonds, investment flows, old school ties, club memberships and other forms of connections to have forms that transform while furthering their aligned self-interests.” The elite dominance is, therefore, the belief that there exists a small number of individuals who, by virtue of wealth and position control the nation (Prechel, 2008). Unchecked power The dominance theory, as earliermentioned, holds that no countervailing power exists to rein adequately in the influence of these corporations. Indeed, the societal groups such as the government that might be expected to serve in mitigating the power of these corporations might find themselves serving corporate interests. The countervailing forces model consists of 1) Environmental catalysts under which lies economic conditions, markets, ideology, war, technology, nature, and culture change. 2) The public who bring opinions, values, supports and demands on board. 3) Corporations viewed in terms of markets operations, influence efforts, lobbying, and leadership. 4) Government who provide statutes, political regulation, political leadership and partisan behavior. An examples of corporate dominance shows when a multinational cooperation will enjoy tax holidays from a government. When it is allowed to have expatriates to work for it, siphon a country’s resources, expatriate a great share of the profits realized as a government, especially those from Third World Countries, and finds itself bending backwards to have these invest in their countries. Lobbies too and trade unions might find themselves in the middle of certain controversies and will be in most cases be voiceless as they are dominated by these corporations. Corporate dominance, therefore, the theory warns, is an unchecked, powerful force affecting the society both immediately and over time shaping it in deep and superficial ways. Different power sources As discussed, the seven different power types work to fuel corporate power creating a powerful arsenal which ensures domination. For example, a business can employ economic power, as illustrated to garner political power that might then be exchanged for legal power and used to get certain laws and regulations favoring their activities passed. With this corporate dominance operational in so many spheres, it is important for the small business owners to not just look at their immediate environment when coming up with a strategy. They also need to look at the larger environment of society and industry (Wilks, 2013). For instance, keeping abreast with business legislation news may provide valuable information and insights into the future climate at both the local and international level. Pluralist theory of business power Pluralism, in the United States, is the theory that a multitude of groups and not individual people, govern the United States. These organizations, as stated above, include among others unions, environmentalists, civil rights activists, business and financial lobbies, professional associations as well as the formal and informal coalitions made up of like-minded citizens. Like-minded citizens who influence the making and implementation of policies and laws. As mentioned in the literature review, the logistical problems of having the citizens meet to decide political issues and policies needs continuous and expert attention that is not available to average citizens. Robert Dahl, a renowned pluralist notes in one of his early writings that in societies like ours “politics is a sideshow in the great circus of life” (Warren, 2002). As most people, he explains that they will spend most of their time and energies in activities involving work, health, family, relationships, friendships and the like. They give little time for national or business growth (Warren, 2002). Other pluralists worry that the average person lacks the virtues such as reason, intelligence, and patience for self-government and therefore direct democracy will not be workable but also unnecessarily desirable leading to anarchy and the loss of freedom. Pluralist view of power Resources: resources are assets that can be employed to force others to do what one wants. Rather, people are powerful because they control various resources. In the 1960s, the civil rights activists relied heavily on their numbers and the legitimacy of their cause in order to advance their way. Corporations frequently depended on their access to officeholders, the control of information and also campaign contributions. Whichever the case may be, however, pluralists maintain that power cannot be defined as a physical entity which individuals possess or do not possess. They indicate that it flows from a variety of different sources (Neil, 2007). The actual versus potential power As mentioned in the literature review, pluralists stress the difference between potential and actual power. Here, cash is viewed as just an accumulation of bills unless it is put to use. Even then, a millionaire may or may not be politically influential as it all boils down to what one does with their wealth. For example, Martin Luther King Jr. was a very influential person but was neither in business nor rich. Thus, a particular reason, for instance, money cannot be automatically equated to power as this resource can be used clumsily or skillfully, partially and fully, or not even used at all (Khun, 1962). The scope of power Most importantly, this theory insists that no one is all-powerful. It also insists that an individual might be powerful or influential in one realm and very weak in another. For example, large military contracts influence military and defense matters but do not have much say over health or agricultural issues (Prechel, 2008). Thus, according to proponents of this theory, the measure of power is the range of spheres that it would be successfully applied. Thus, power cannot be taken for granted and people are encouraged to take an empirical trip to know who really governs. Pluralists believe that the best way to do this is to scrutinize a wide range of specific decisions to know which party took which side or ultimately lost or won. The above lay a foundation for the characteristics of pluralism. Characteristics of pluralism Societies, or governments are dominated by not single elites but multiplicity of relatively small groups, with some well-organized and funded. While some may be larger and possess more influence than others, the extent of their power far from being universal is restricted to relatively narrow areas as banking, agriculture or defense. Another characteristic is the intergroup competition in pluralism leads to countervailing influence (Lindblom, 1977). The power of one group, therefore, tends to cancel that of another group resulting to a rough equilibrium. The members of one associationmight belong to another or even a competing group. This overlapping membership serves to minimize the conflicts as loyalties tend to be often spread amongst many organizations. Another characteristic is that, the groups are known be politically autonomous or independent having the right and the freedom to do business in the political marketplace. Thus, how well they perform relies heavily on the indulgence of any higher power but rather on their skills in gathering the political resources. Other characteristics of pluralism include the openness of the system. The openness is felt in varied ways such as continuously recruit diversified members from the community drawn from all walks of life (Domokos-Cheng &MaryAnna, 2004). Also, pluralists judge the society not by its actual equality but the equality created in political opportunities. The theory argues that Americans possess an arguably higher comparative equal chance for their participation in government and its activities. Pluralism also has the characteristic of having endless quest by the office seekers and the groups to seek and bank on public support. Hence, in pluralism, even though the masses do not govern directly, their opinions can be used by one organization against another (Dornhoff, 2010). By mobilizing resources, they can exert influence on the existing administration, share the influence or bear new organizations that will compete with the established ones. Finally, another character of pluralism is consensus evident on the “rules of the game.” The consensus, otherwise known as, widespread agreement amongst some political activists and democratic principles and values holds the system together. The theory, in simpler terms, argues that the American government stays free because its main participants, the individuals that make policies agree on a code of conduct that is not shared with the public (Houser, 2009). The society also encompasses a large population spread over a big geographical sphere and involved in diversified occupations as provided for by the constitution. The boundaries of managerial power Despite these theories being significantly in their fundamental build up and their applicability to the business in societies, there exists a universality in the societies that they operate. It is so in order to mitigate their power. Boundaries of managerial power as they are called, are such as governments and laws in virtually every country to regulate business activities,the social interest groups that are a representative to every segment in the society. They use very many methods to restrain the businesses, social values transmitted through generations, reflected in the public opinion and protected by the law. Markets and economic stakeholders who impose very strong limits also fall under this category. Whether these will be used sensibly or will then metamorphose to yield the dominance over others remains an interesting topic. Conclusion According to a recent poll, over 75 percent of Americans felt that there is “too much power concentrated in the hands of a few large companies(Lindblom, 2011). The dominance theory, hence, holds that a few large corporations dominate by controlling assets. For any society to thrive and be harmonious, it is very important to have checks and balances. It ensures that some people are not trampled on by others as they scale the success ladder. While it is almost impossible to iron out the problems of both the dominance or pluralist theories, businesses should be more involved in the protection of the stakeholders, consumers and other players of the business arena efficiently. They should promote the idea that this will create a favorable environment for the consumer without falling into consumerism in line with the boundaries of managerial power. References Dahl, R.A. (1967). Pluralist democracy in the United States. Chicago: Rand McNally. Domokos-Cheng H., &MaryAnna, H, R. 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