democracy and corporations

Today my class on the politics of the corporation read Coleman, Kaufman, Nace, Perrow, and one of my papers. (Here is an updated version of the syllabus, which you can see has changed a lot because of your great feedback.) These are a really interesting set of papers to read together. One problem, in particular, really hit me. You might even call it a paradox. It deals with the role of the corporate form in relation to the state and the effect this has on democratic participation. Does the corporate form hinder or help democracy? I don’t think there’s a simple answer to this question.

Kaufman points out that the corporate form in the U.S. emerged in a context of state domination by the British monarchy. American colonists began using corporations to enhance their autonomy from the British state and establish independent governance systems. It’s no wonder that the first corporations in the U.S. were not businesses but religious organizations, colleges, and other organizations that we would today think of as nonprofits. Colonists used corporations to build independent institutions through which civic life took place. Businesses were still family oriented and typically agricultural or small shops and thus didn’t require incorporation. Another one of the main points that Kaufman makes is that the prevalence of corporations varied geographically. Colonies that were themselves founded through corporate charters were much more likely to issue charters of their own. Incorporation became a tool that allowed people to connect with broader society and exercise collective influence in these areas.

Thus, Kaufman shows that corporations, at least in the U.S., had a democratic function. Contrast this with Perrow who sees corporations as tools of large business interests. Although Perrow is less interested in the legal status of corporations than Kaufman, it’s clear that he sees corporations as a means to concentrate power in the hands of a few. Corporations enable the large scale accumulation of resources and the exercise of authority.  Corporations in his view are anything but democratic because they stamp out the exercise of individual influence in collective decision-making processes.* Perrow and Coleman are close in this regard. Coleman also views organizations as having “asymmetric” influence in society; however, I think Coleman’s argument is more nuanced, recognizing the tension between democratic and anti-democratic tendencies in the corporate form.

Coleman argues that the new social structure created by the prevalence of corporate actors actually frees the individual from some of the old constraints and lines of authority.

In the old social structure, before invention of the modern corporate actor, the person was an element in the structure of social action. Now, the person is merely an occupant, and the position which that person fills is the element of the structure of social action. A consequence of central importance is that the person, as a person, is now free. When it was the person who was the element of the structure, then the exercise of authority over action meant the exercise of authority over the person…

With the invention of the modern corporate actor and its pervasive spread across all areas of action, freedom was no longer limited to those artisans or traders who were self-employed and those of high estate. Freedom became universal, for a person was no longer part of an organic hierarchical structure but was in a free and open market, free from the master and able to sell his services and exercise choice in doing so….

But there is another edge to the sword: the person is not only free; he is irrelevant in a fundamental sense. The person is merely an occupant of a position in the structure and can at any time be replaced. Persons have become, in a sense that was never before true, incidental to a large fraction of the productive activity in society. This is most evident when the person who occupies a position in a corporate actor is replaced not by another person but by a machine. Then the general irrelevance of persons is clear.

Coleman, seamlessly transitioning between neoclassical economics and Marxist theories of alienation, offers a great insight here. Corporate actors have both enabled democracy in the sense that people are now freer from old lines of authority and more mobile than in the past, but they are also relatively ineffectual compared to large corporations, for-profit or nonprofit alike. Therefore, even in exercising democracy, as when we donate money to an interest group or nonprofit, we are dependent on the corporate form as a means of exercising collective influence.  One counterargument is that social movements offer an alternative model of organizing. One might say that many social movements eschew the corporate form entirely. While this is true in principle, we are all aware of the iron law of oligarchy and the consequent deradicalization of subversive forms. Even cooperatives, which are on their face distinct from corporations, often start to look a lot like corporations once they reach a certain size.  If you don’t believe me look at this list of U.S. cooperatives, which includes large businesses like ACE Hardware and Associate Food Stores. From Coleman’s point of view, it would be pointless to distinguish between large cooperatives and corporations. They have both attained the status of collective actor and are disproportionately influential relative to natural persons. The same could be said for large scale social movement organizations, like Greenpeace.

Coleman’s bigger point, which I think is true, is that the fundamental difference between today’s society and those of old are that individual efficacy is translated through corporations. One can’t imaging getting much done without forming an organization, even if that goal is to fight or resist other organizations. It’s hard to imagine what democracy would look like without the corporate form.

*Perrow even argues, contrary to Kaufman’s argument, that the “explosion of big firms at the end of the century did not come from nowhere, and certainly not out of our culture, or the play of democratic politics…” (pg. 227).

Written by brayden king

October 1, 2009 at 1:20 am

6 Responses

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  1. All good points, but is Coleman quite accurate here:

    Freedom became universal, for a person was no longer part of an organic hierarchical structure but was in a free and open market, free from the master and able to sell his services and exercise choice in doing so

    At least on my view, some corporations have more organic ties to their stakeholders than Coleman lets on. I understand his need to paint in broad brushstrokes to make this subtle point. But as a factual matter, it seems that few actual corporations are so frictionless. Maybe in the financial sector? Maybe the sales teams elsewhere?


    Michael F. Martin

    October 1, 2009 at 5:03 am

  2. Coleman’s making big comparisons here. When compared to a feudal society, then yes, people are freer in a system in which corporate actors dominate. They are free in the sense that they can choose, more or less, which corporate authorities they want to subject themselves.



    October 1, 2009 at 1:48 pm

  3. Great post Brayden!

    I often get frustrated when people make claims about things like “the effect of corporations on democracy” because they often fail to tell me what alternative forms of organization they are comparing corporations to. Often it is an imagined utopian organization rather than a real example. And I say this as a proud member of a housing cooperative and supporter of alternative forms.


    Michael Bishop

    October 2, 2009 at 4:18 pm

  4. Any relationship between corporation governance and democracy would have to explain how having one vote for each share of stock is “democratic.” This might have some applicability to our other social interactions. Does anyone here belong to a garden club or bowling league whose constitutions give more votes to some people? It might not be a bad idea. I fear, however, that our democratic sensibilities would be challenged. However, we accept this when it comes to corporations — and personally, I concur in the wisdom of such arrangements.

    Despite what Schumpeter said about creative destruction, Jane Jacobs in _The Economy of Cities_ pointed out that older forms seldom die out completely, but only change. On that cue, though we no longer live in the horse-and-buggy era, you can make a pretty good living selling goods and services to equestrians. Although the nation-states subsumed the baronies, Andorra and Monaco still exist, as do pseudo-baronies such as Hong Kong and the Cayman Islands. Consequently, although it seems that the corporation will replace the nation-state, flags and their armies will long be with us.

    In a wider sense, blogs such as OrgTheory and megasites such as Facebook, suggest still newer forms of social interaction that may well layer over the corporations. Those who work for MegaMax, Inc., and for Gemeinstoff AG will share commonalities that escape the constraints of corporate governance as we now perceive and define them.


    Michael E. Marotta

    October 4, 2009 at 2:28 pm

  5. […] their relation to democratic politics — are raised, albeit in a somewhat oblique way, in this awesome Orgtheory post about democracy and corporations. Daniel Roth, “The Answer Factory,” Wired 17.11 (Nov 2009). Hilariously, the article […]


  6. Corporations are far from a democracy, but then again it all depends on how a corporation is structured and if the company is private or public. Whether your a fan of Michael Moore or not, his recent movie on Capitalism illustrates a small company which functions as a democracy where each worker has an equal vote in how the company is operated. In a public company the shareholders vote on the leadership and board of directors, however not every shareholder is equal given their shares are dictated by the wealth/ownership they have in the company. Hence not a true democracy. Then again in the U.S. we each have an equal vote to elect our leaders, however the elected leaders are typically influenced by lobbying groups which are usually more powerful based on the money they receive from their interest groups. So hence is the U.S. a true democracy or more like a public corporation? For a Corporation to function like a true democracy, the employees should be the sole owners and each employee’s voting rights and shares are equal. Hence if the company grows by adding employees without growing revenues/market capitalization then they dilute the shares of the company. However, if they grow the profitability of the company at a faster rate than the number of employee/owners added then they experience wealth creation.


    Richard Sypniewski

    October 15, 2009 at 1:29 am

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