February 16, 2010
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Markets are NOT essentially democratic but they should be
I hear this a lot, usually spoken by people who mean very well and are trying to curb the influence of corporate power. They say, the only way to change the system and encourage companies to behave in a manner that is moral is to exercise our democratic will upon them. Hence you boycott companies doing bad stuff and buy products from companies doing good stuff. Similarly you invest in companies whose behavior you approve of and you don’t invest in companies whose behaviors you disapprove of. In effect you are “voting” they say on companies to ensure that they behave in a manner representative of your will. They say we can do this because “markets are essentially democratic”.
The problem is, this is just total bullshit.
Imagine if we changed our government system and had it work like this:
1. You can vote any number of times for your candidate at any time.
2. In order to vote at all you have to spend a certain minimum amount of money
3. Votes for certain candidates cost more than other candidates and the candidates themselves set their own price
4. Candidates can charge certain voters more or less for their vote depending on their whim or through negotiations they can offer large discounts to large groups of voters
5. Candidates can put any number of restrictions on whether or not you can cast your vote for them.
6. Anyone who gets a certain number of votes each year gets to be in office for that year. During any year in which someone fails to get enough votes they are taken out of office. There are no term limits.
7. In any year in which a person gets more votes than the minimum they need to be in office they can stockpile their money to ensure that they stay in office in years thereafter
8. All people in office can keep records of who has voted for them as well as their other voting habits
9. A candidate can buy votes for themselves in any number or quantity that they can afford
10. Large non-human entities such as the government itself or major multinational corporations can also buy votes for candidates for whatever reason they choose.Would you call that governance system a democracy? Obviously not. That’s a system where wealth determines votes and voter discrimination is legal and sanctioned. It’s a system not where each individual has an equal say in the determination of their government but where the amount of say you have is determined directly by your wealth and class. It’s not democratic at all. It’s ANTI-democratic.
Yet that’s precisely how markets work.
That doesn’t mean markets are bad. Markets aren’t trying to be democratic either nor do they pretend to be. Markets are trying to be efficient. In theory, their goal is to efficiently motivate people to create and distribute wealth.
No, the problem is non-competitive markets, run by monopolies are even worse than not being democratic. They’re downright totalitarian.
I do think the idea behind thinking of markets as democratic is right though. Trying to get concerted group behavior of citizens to influence the behaviors of businesses makes perfect sense. In effect when you do this you are trying to make companies within the marketplace MORE democratic by exercising popular sway over corporate decision making. But don’t mistake that for utilizing existing market democracy to your advantage. That gives markets way too much undeserved credit. You’re doing the opposite. Your bucking anti-democratic systems by organizing democratically.
But I applaud any effort to make institutions that are less democratic, more democratic. With corporations, in addition to at the customer marketplace level we are discussing above, there are two other levels where it is fruitful to attempt to encourage the institutions to become more democratic.
The first obvious level is the membership and employee level. At the employee level, most corporations are entirely totalitarian. They are top down structures where bosses dictate to underlings whose job depends entirely upon their doing the will of their masters. Boards of directors are little oligarchies ruling over the company as a whole as a cabal. Often even the board is just a farce and answers completely subserviently to one or two of the directors or some external power who is usually the owner or founder of the company. Some companies have small internal votes on minor decisions but generally it is just a show that can easily be overturned by the people who are REALLY in charge.
The typical method for fighting to make corporations more democratic at the employee level is the union. Unions, at least in theory, are meant to be democratic groupings of workers who use their status as workers to be able to negotiate better salaries and working conditions and other changes to the companies behavior.
Unions are not the best form of internal democracy either. At best they are just a stepping stone to an effective democracy. The problems with them as a matter of democratic theory goes are many. One is that it creates a separation between company employees into two groups: management and workers. That division is totally artificial and less and less relevant as company structures change. Often managers these days identify more with the low level workers than they do the big brass. On internal union decisions management gets no votes. On actual company decisions workers still get no vote, but the union as a whole, MIGHT get a vote if they can intimidate the management into allowing them a say. That’s not ideal. In addition unions require someone to pay dues in order to join, and they often cause you to be harassed or intimidated by management in order to encourage you not to join. These are barriers to entry that should not exist in a real democracy.
The last level at which a corporation can be democratic is of course at the ownership level. Many people tout how companies are beholden to the people because people by shares in them! But this is probably the LEAST democratic of the three. The share system is a marketplace so it has all the anti-democratic disadvantages of the marketplace for a companies products in that basically the more money you have the more votes you get. In addition there’s all kinds of gambling and risk taking, selling and reselling of your “votes” that goes along with it. It’s as if, you could not just vote for a candidate but you could vote for a candidate to not get into office or vote on a vote for a candidate to get into office and so on. In addition to that, with the stockmarket, often people are roped into or even REQUIRED to cast votes against their will in the form of retirement accounts and often do so without any real knowledge of what they are voting for. Moreover their future livelihood is directly dependent upon the outcome of this vote. That is they are compelled to want to elect companies regardless of whether their behaviors actually benefit them solely on the basis of whether the company will increase their profits and hence provide them with more retirement accounts.
In addition to all that, shareholders actually have very little say in how many or most companies are actually run. The board of directors has that sway and often the board is just a farce self chosen by a few wealthy elites that are REALLY in charge. Usually there’s no easy mechanism for shareholders to override the board or even determine who is on the board.
Obviously there’s a lot of work that’s needed to be done to make the ownership level of a corporation anything remotely resembling a democracy. But work definitely needs to be done in that area as well in order to ensure corporations are socially responsible entities.
If I had my druthers part of the very act of incorporating would require companies to hold a stakeholder convention in which they establish a kind of constitution with three separate articles governing the democratic rights protected by law for its employees, its owners, and its customers. Violations of said constitutions would be prosecuted through the judicial systems in which the companies operate.
