Business Power (Chapter 3)Professor Charles H. Smith

Summer 2011

Read this case study on pages 53-55 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 59-62.

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 19th Century turned into 20th 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 20th Century went on, less asset concentration – but will this trend continue as more companies “go global” in 21st 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 71-72◦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 72-79 on your own before class and then discuss the questions on page 79 with small groups in class.