Business Power (Chapter 3) Professor Charles H. Smith Summer 2011

 Read this case study on pages on your own before class and discuss it with small groups in class.  Questions ◦ Duke was an innovator of what popular trend? ◦ What were some basic principles Duke employed to achieve his success? ◦ How could you apply the same principles as a student, employee or businessowner to improve your chances for success?

 Power – one’s ability to act or to compel another to act in accordance with one’s wishes.  Business power – this ability in the context of business.  Business power is “legitimate” when used for the common good, which can be different in different societies and at different times; examples of power used for the common good include ◦ Slavery – permitted in U.S. until 1865; still exists in parts of the world. ◦ Minimum wage – has risen over time; states are free to set own minimum wage higher than federal minimum wage. ◦ Student examples.

 Surface level – power is direct cause of visible, immediate changes.  Deep level – power is shapes society over time through aggregate changes of industrial growth; may be unpredictable and slow to emerge but are more significant.  Examples of these levels being exercised in spheres corresponding to the seven business environments described in Chapter 2 (see following slides).

 Economic power – company’s ability to influence due to control over resources/property ◦ Surface – investors may gain if company opens factory (and lose if factory closes). ◦ Deep – companies have created wealth over time so as to dramatically raise standard of living in industrialized countries. ◦ Student examples.

 Legal power – company’s ability to influence laws of society ◦ Surface – big companies can outspend opponents in order to win a lawsuit or get other favorable outcome in a dispute. ◦ Deep – laws developed in accordance with big companies’ needs and desires. ◦ Student examples.  Also – technological power, political power, cultural power, environmental power, and power over individuals.

 The story of the development of the railroads and its impact on the U.S. is set forth on pages  Examples of the railroads’ impact on the U.S. include ◦ Creation of uniform time zones to replace hodgepodge of time zones throughout U.S. ◦ Observance of Christian Sabbath diminished due to need to use railroad equipment seven days per week (return on investment).

 Dominance theory.  Pluralist theory.

 Based on the dominance model stated in Chapter 1 (pages 11-14) ◦ Business, due to control of wealth, is preeminent in U.S. society. ◦ Business power is excessive and inadequately checked and thus acts in own interest which harms society.

 Corporate asset concentration ◦ As 19 th Century turned into 20 th Century – many mergers led to concentration of assets in few hands. ◦ Development of railroads made transportation more efficient and motivated companies to grow from regional to national. ◦ Sherman Antitrust Act of 1890 used to break up some huge companies such as Standard Oil and American Tobacco Company. ◦ As 20 th Century went on, less asset concentration – but will this trend continue as more companies “go global” in 21 st Century?

 Elite dominance ◦ Small number of individuals with wealth and position – acting together in undemocratic ways – control the U.S. ◦ Modern label of “power elite” (Mills) – U.S. society has three levels  Small number of elite people in charge of economic, political and military arenas.  Lieutenants (e.g., most high corporate management and politicians) who carry out elite’s policies.  Masses.

 Elite dominance cont. ◦ “National institutional elite” (Dye) refers to leaders of society’s 10 sectors  Industrial corporations, banking, insurance, investments, mass media, law, education, foundations, civic and cultural organizations, and government.  In any event, elite largely comprised of people who are male, white and “Christian” (largely mainstream Protestant).

 Case study – “The Rise and Decline of Powerful Corporations” on page 66.  Case study – “J.P. Morgan and the Panic of 1907” on page 69.  Student examples of dominance theory in action.

 Based on the countervailing forces model stated in Chapter 1 (pages 14-15) ◦ Business power is disciplined since it is subject to checks by markets, government, unions, special interest groups, and public opinion. ◦ Business can benefit society.

 Power in society is diffused due to influence of many groups and institutions – no one has overriding power and thus each can check and balance the others.  Business can have great influence in many situations but, on the other hand, may have little or not influence in some situations.

 U.S. is amenable to pluralism since ◦ History of democratic values due to no history of feudalism or authoritarian government; in fact, many in U.S. fled other countries to escape these. ◦ Large population in vast geographic area engaged in many occupations (diversity).

 U.S. is amenable to pluralism since cont. ◦ Constitution encourages pluralism; e.g., guarantees of free speech and association, due process and equal protection under the law. ◦ Market constrained by need to make decisions founded in quests for cost reduction and consumer satisfaction.

 See Figure 3.2 on page 71 and related “boundaries on managerial power” described on pages ◦ Governments and laws regulate business. ◦ Special interest groups can restrain business using many methods. ◦ Social values go from generation to generation, are reflected in public opinion, and become the law. ◦ Markets and economic stakeholders impose strong limits on business.

 Read “John D. Rockefeller and the Standard Oil Trust” on pages on your own before class and then discuss the questions on page 79 with small groups in class.