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Corporatocracy[a] orcorpocracy is an economic, political and judicial system controlled or influenced by businesscorporations or corporateinterests.[1]
The concept has been used in explanations of bankbailouts, excessive pay forCEOs, and the exploitation of national treasuries, people, andnatural resources.[2] It has been used bycritics of globalization,[3] sometimes in conjunction withcriticism of the World Bank[4] or unfair lending practices,[2] as well as criticism offree trade agreements.[3] Corporate rule isalso a common theme indystopianscience-fiction media.
Corporatocracy can manifest in different forms, varying according to the degree of involvement of corporations in the political and social sphere, for example:
HistorianHoward Zinn argues that during theGilded Age in the United States, the U.S. government acted exactly asKarl Marx described capitalist states: "pretending neutrality to maintain order, but serving the interests of the rich".[13]
James Burnham's 1941 workThe Managerial Revolution discussed the increasing influence of "managers" at the expense of more traditional rulers.[14]
According to economistJoseph Stiglitz, there has been a severe increase in themarket power of corporations, largely due to U.S.antitrust laws being weakened byneoliberal reforms, leading to growingincome-inequality and a generally underperforming economy.[15] He states that to improve the economy, it is necessary to decrease the influence of money on U.S. politics.[16]
In his 1956 bookThe Power Elite, sociologistC. Wright Mills stated that together with the military and political establishment,leaders of the biggest corporations form a "powerelite", which is in control of the U.S.[17]
EconomistJeffrey Sachs described the United States as a corporatocracy inThe Price of Civilization (2011).[18] He suggested that it arose from four trends: weaknational parties and strong political representation of individual districts, the large U.S. military establishment afterWorld War II, large corporationsusing money to finance election campaigns, andglobalization tilting the balance of power away from workers.[18]
In 2013, economistEdmund Phelps criticized the economic system of the U.S. and other western countries in recent decades as being what he calls "the newcorporatism", which he characterizes as a system in which the state is far too involved in the economy and is tasked with "protecting everyone against everyone else", but at the same time, big companies have a great deal of influence on the government, with lobbyists' suggestions being "welcome, especially if they come with bribes".[19]
During theGilded Age in the United States,corruption was rampant, as business leaders spent significant amounts of money ensuring that government did not regulate their activities.[21]
Corporations have a significant influence on the regulations and regulators that monitor them. For example, SenatorElizabeth Warren stated in December 2014 that an omnibus spending bill required to fund the government was modified late in the process to weaken banking regulations. The modification made it easier to allow taxpayer-funded bailouts of banking "swaps entities", which theDodd-Frank banking regulations prohibited. She singled outCitigroup, one of the largest banks, which had a role in modifying the legislation. She also stated that both Wall Street bankers and members of the government that formerly had worked on Wall Street stopped bi-partisan legislation that would have broken up the largest banks. She repeated President Theodore Roosevelt's warnings regarding powerful corporate entities that threatened the "very foundations of Democracy".[22]
In a 2015 interview, former PresidentJimmy Carter stated that the United States is now "an oligarchy with unlimited political bribery" due to theCitizens United v. FEC ruling, which effectively removed limits on donations to political candidates.[23]Wall Street spent a record $2 billion trying to influence the2016 United States elections.[24][25]
Joel Bakan, aUniversity of British Columbia law professor and the author of the award-winning bookThe Corporation: The Pathological Pursuit of Profit and Power, writes:
The Law forbids any motivation for their actions, whether to assist workers, improve the environment, or help consumers save money. They can do these things with their own money, as private citizens. As corporate officials, however, stewards of other people’s money, they have no legal authority to pursue such goals as ends in themselves – only as means to serve the corporation's own interests, which generally means to maximise the wealth of its shareholders. Corporate social responsibility is thus illegal – at least when it is genuine.
— Joel Bakan,The Corporation: The Pathological Pursuit of Profit and Power[26]
With regard to income inequality, the 2014 income analysis of theUniversity of California, Berkeley economistEmmanuel Saez confirms that relative growth of income and wealth is not occurring among small and mid-sized entrepreneurs and business owners (who generally populate the lower half of top one per-centers in income),[27] but instead only among the top .1 percent of theincome distribution, who earn $2,000,000 or more every year.[28][29]
Corporate power can also increase income inequality. Nobel Prize winner of economicsJoseph Stiglitz wrote in May 2011: "Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to zero percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest." Stiglitz stated that the top 1% got nearly "one-quarter" of the income and own approximately 40% of the wealth.[30]
Measured relative to GDP, total compensation and its component wages and salaries have been declining since 1970. This indicates a shift in income from labor (persons who derive income from hourly wages and salaries) to capital (persons who derive income via ownership of businesses, land, and assets).[31]
Larry Summers estimated in 2007 that the lower 80% of families were receiving $664 billion less income than they would be with a 1979 income distribution, or approximately $7,000 per family.[32] Not receiving this income may have led many families to increase their debt burden, a significant factor in the 2007–2009subprime mortgage crisis, as highly leveraged homeowners suffered a much larger reduction in their net worth during the crisis. Further, since lower income families tend to spend relatively more of their income than higher income families, shifting more of the income to wealthier families may slow economic growth.[33][specify]
Some large U.S. corporations have used a strategy calledtax inversion to change their headquarters to a non-U.S. country to reduce their tax liability. About 46 companies have reincorporated in low-tax countries since 1982, including 15 since 2012. Six more also planned to do so in 2015.[34]
One indication of increasing corporate power was the removal of restrictions on their ability to buy back stock, contributing to increased income inequality. Writing in theHarvard Business Review in September 2014, William Lazonick blamed record corporatestock buybacks for reduced investment in the economy and a corresponding impact on prosperity and income inequality. Between 2003 and 2012, the 449 companies in the S&P 500 used 54% of their earnings ($2.4 trillion) to buy back their own stock. An additional 37% was paid to stockholders as dividends. Together, these were 91% of profits. This left little for investment in productive capabilities or higher income for employees, shifting more income to capital rather than labor. He blamed executive compensation arrangements, which are heavily based on stock options, stock awards, and bonuses, for meeting earnings per share (EPS) targets. EPS increases as the number of outstanding shares decreases. Legal restrictions on buybacks were greatly eased in the early 1980s. He advocates changing these incentives to limit buybacks.[35][36]
In the 12 months to March 31, 2014, S&P 500 companies increased their stock buyback payouts by 29% year on year, to $534.9 billion.[37] U.S. companies are projected to increase buybacks to $701 billion in 2015, according to Goldman Sachs, an 18% increase over 2014. For scale, annual non-residential fixed investment (a proxy for business investment and a major GDP component) was estimated to be about $2.1 trillion for 2014.[38][39]
Brid Brennan of theTransnational Institute stated that the concentration of corporations increases their influence over government: "It's not just their size, their enormous wealth and assets that make the TNCs [transnational corporations] dangerous to democracy. It's also their concentration, their capacity to influence, and often infiltrate, governments and their ability to act as a genuine international social class in order to defend their commercial interests against the common good. It is such decision-making power as well as the power to impose deregulation over the past 30 years, resulting in changes to national constitutions, and to national and international legislation which has created the environment for corporate crime and impunity." Brennan concludes that this concentration in power leads to again more concentration of income and wealth.[40][41]
An example of such industry concentration is in banking. The top 5 U.S. banks had approximately 30% of the U.S. banking assets in 1998; this rose to 45% by 2008 and to 48% by 2010, before falling to 47% in 2011.[42]
The Economist also stated that an increasingly profitable corporate financial and banking sector caused Gini coefficients to rise in the U.S. since 1980: "Financial services' share of GDP in America, doubled to 8% between 1980 and 2000; over the same period their profits rose from about 10% to 35% of total corporate profits, before collapsing in 2007–09. Bankers are being paid more, too. In America the compensation of workers in financial services was similar to average compensation until 1980. Now it is twice that average."[43]
Several scholars have linkedmass incarceration of the poor in the United States with the rise of neoliberalism.[44][45][46][47] SociologistLoïc Wacquant andMarxist economic geographerDavid Harvey have argued that the criminalization of poverty and mass incarceration is a neoliberal policy for dealing with social instability among economically marginalized populations.[48][49] According to Wacquant, this situation follows the implementation of other neoliberal policies, which have allowed for the retrenchment of the socialwelfare state and the rise of punitiveworkfare, whilst increasinggentrification of urban areas,privatization of public functions, the shrinking of collective protections for the working class via economicderegulation and the rise of underpaid,precarious wage labor.[50][51] By contrast, it is extremely lenient in dealing with those in the upper echelons of society, in particular when it comes to economic crimes of theupper class and corporations such asfraud,embezzlement,insider trading, credit andinsurance fraud,money laundering and violation of commerce and labor codes.[48][52] According to Wacquant, neoliberalism does not shrink government, but instead sets up a "centaur state" with little governmental oversight for those at the top and strict control of those at the bottom.[48][53]
In his 2014 book,Mark Blyth claims that austerity not only fails to stimulate growth, but effectively passes that debt down to the working classes.[54] As such, many academics such as Andrew Gamble view Austerity in Britain less as an economic necessity, and more as a tool of statecraft, driven by ideology and not economic requirements.[55] A study published inThe BMJ in November 2017 found the Conservative government austerity programme had been linked to approximately 120,000 deaths since 2010; however, this was disputed, for example on the grounds that it was an observational study which did not show cause and effect.[56][57] More studies claim adverse effects of austerity onpopulation health, which include an increase in the mortality rate among pensioners which has been linked to unprecedented reductions in income support,[58] an increase in suicides and the prescription of antidepressants for patients with mental health issues,[59] and an increase in violence, self-harm, and suicide in prisons.[60][61]
Clara E. Mattei, assistant professor of economics at theNew School for Social Research, posits that austerity is less of a means to "fix the economy" and is more of an ideological weapon of class oppression wielded by economic and political elites in order to suppress revolts and unrest by the working class public and close off any alternatives to the capitalist system. She traces the origins of modern austerity to post-World War I Britain andItaly, when it served as a "powerful counteroffensive" to rising working class agitation andanti-capitalist sentiment. In this, she quotes British economistG. D. H. Cole writing on the British response to the economic downturn of 1921:
"The big working-class offensive had been successfully stalled off; and British capitalism, though threatened with economic adversity, felt itself once more safely in the saddle and well able to cope, both industrially and politically, with any attempt that might still be made from the labour side to unseat it."[62]
In his essay 'Second Thoughts on James Burnham' (1946), Orwell summarizes the thesis ofThe Managerial Revolution: [...] 'The rulers of this new society will be the people who effectively control the means of production: that is, business executives, technicians, bureaucrats and soldiers, lumped together by Burnham under the name of 'managers'. These people will eliminate the old capitalist class, crush the working class, and so organize society that all power and economic privilege remain in their own hands.'
