After the Collapse of the Large Corporation – Progressivism 2.0?

By Gerald Davis and Israel Drori.

A landmark moment in the development of progressive politics in the U.S. was Theodore Roosevelt’s “New Nationalism” speech in Osawatomie Kansas in August 1910. Roosevelt described the social problems of the early twentieth century – soaring inequality, concentrated economic power, the corrupting influence of corporate money in politics, and the shadowy role of Wall Street – and called for a more robust Federal government to rein in the national-scale corporations that were beginning to dominate the economy.

The problems we face today are nearly identical to those diagnosed by Roosevelt. The root cause of our current situation, however, is not the rise of the large corporation but its collapse, and the proper response is not more centralization but a better match between the locus of governance and the shape of the new economy.

Wall Street-fueled mergers around the turn of the 20th century created corporate behemoths that dominated the American economy for the next century. Progressives like Roosevelt advocated building a more muscular Federal government that was a better match for the new corporate giants and pushing corporations to serve society’s interests. In subsequent years, corporate employers took on the provision of pensions and health insurance for workers and their families. They afforded stable employment and opportunities to move up. Some education and an entry-level corporate job provided a ready path to a middle-class life.

This era has now passed. The economies of scale that favored giant corporations in the twentieth century have given way to a networked information economy that encourages disaggregation. Think of this as the Nikefication of the American economy. Nike focuses on design and marketing while contracting out production to suppliers in East Asia. The Nike model has spread widely in sectors from clothing to consumer electronics to pet food to pharmaceuticals. The best-selling U.S. television brand last year was not Sony or Samsung but Vizio, located in Irvine, California. Vizio outsources production and distribution, much like Nike, and has introduced scores of new high-tech products – all with fewer than 200 employees.

The fear with companies like Vizio or similar firms is not that they are too powerful but that they are too weak, that is, that they are too ephemeral to carry out the policies that we expect of corporations. Why should a temporary company be expected to provide health insurance or pensions to workers who will outlive them by decades? And who can expect a 200-employee company to provide long-term careers or job ladders?

The old corporate system has also turned up short for investors and retirees: real returns for the first decade of the twenty-first century were worse than any decade in U.S. history, and the number of listed corporations today is less than half of what it was in 1997.

These are not problems that a central government can solve by prodding corporations to do more, as in past generations. It would take more than 3000 Facebooks to employ all of the jobless people in the U.S. today. With corporations no longer equipped to provide middle-class employment, benefits, and career mobility on a national scale, the current economy is like an inscrutable game of chutes and ladders, lifting a few kids from their dorm rooms to the economic stratosphere while millions of others drop unexpectedly into long-term unemployment.

The tools of governance suited to a U.S. Steel economy are not those suited to a Facebook economy. Just as national defense had to adjust to a world in which security threats are more likely to come from non-state actors than from other nation-states, our approach to economic security needs to adjust to a post-corporate economy. Contemporary technologies favor a kind of cosmopolitan localism. In a Web-based economy, there are opportunities for small- and medium-sized local businesses with global access. And it is likely to be local innovators, not big corporations, who will be in the vanguard.

The economic strains we face today cannot be addressed either by a quixotic return to states’ rights nor by more centralized governance but by strengthened local economies. There are hints of such models in post-industrial cities, like the Evergreen Cooperative system in Cleveland, but what is needed now is a more thorough assessment of the economic underpinnings of a new progressivism. Unlike the twentieth century version, which favored centralized solutions, progressivism 2.0 could mark the emergence of a more democratic and cosmopolitan localism.

(This post is based on an earlier article: https://globality.cc.stonybrook.edu/?p=288)

Further Readings:

Davis, Gerald F. (2013): After the Corporation. Forthcoming in Politics & Society.

Please also check out the comment blog post by David Levy: Corporate Power in an Age of Global Value Chains

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13 thoughts on “After the Collapse of the Large Corporation – Progressivism 2.0?

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  3. Pingback: Can you imagine a world without Disney? Five reasons why some old corporate giants never die | Organizations and Social Change

  4. Thanks Jerry and Israel, for this excellent post. Although I agree that there is a decline of the large corporation as we know it, even the smaller, more ephemeral corporations of the present wield tremendous political power. There is a danger here in presuming that small and more ephemeral means politically weak. Yes, the corporations of today are not providing the lifetime employment and job security, and employ far fewer people, but they are well-protected from having to think about the problems this poses for the overall economy because of their political influence. This influence manifests itself in lobbying against higher tax rates, the revenues from which can not only soften the blow for those out of the economy but prevents large scale public investment that can help spur innovation, grow the economy, and provide jobs. One potential metric to measure power might be the amount of money they donate to political candidates and lobbying groups, and to which ones they donate.

    Despite this political monopoly, pressures can emerge locally as you note. Your example of the Evergreen Cooperatives is an excellent one. These types of successful experiments with workplace democracy need to be more broadly understand and imitated. However, it is also important to see beyond this quaint image of the small, fully democratic cooperative, and to extend our view to acknowledge the steady and quiet emergence of a more diverse set of worker owned companies. Some of these are close to the cooperative model, such as New Belgium Brewing, which is 100% owned by its over 400 employees through an employee stock ownership plan (ESOP). Others, like Google and many high-tech firms, provide different avenues for employees to acquire stock and combine this shared ownership with different types of decentralized organizational structures. There are many other examples, and each them combine some form of shared stake in the financial returns of economic production with higher autonomy and involvement at the job level. Are all of these companies similar to democratic worker cooperative model? Absolutely not. Do they provide alternatives to the concentration of ownership and control, and open up potential avenues for more local control and governance? Absolutely. At the core of most of these organizations is a fundamental assumption that it is more than the CEO and top dogs that drive the value of the company. Current estimates from the National Center for Employee Ownership estimate that 36% of the American workforce own stock in their employers through one type of plan. If we are looking for places to find the underpinnings of a new progressivism, this population of firms is overlooked and often discounted because they do not fit in with our image of the small, local worker cooperative.

  5. Pingback: After the Decline of Large U.S. Corporations: Where Do the New Giants Come from? | Organizations and Social Change

  6. I would like to take Jerry’s point even further. Not only is there no single “metric” (market share, size, …) by which corporate power can be “measured” today, but power is not something companies “have” or “accumulate” in any straight-forward way to begin with – not least because of the multiplicity of business models and global or regional strategies that exist today. I think power is very contextual. For example, a midsize Western company that establishes a large offshore engineering center in a second-tier city somewhere in Eastern Europe as a first mover is likely to “have” power when it comes to negotiating deals with local authorities, universities and other incoming firms. Much more perhaps than a large U.S. or European corporation setting up an offshore operation in Shanghai – next to thousands of other firms. Both time (or: timing) and location matter here. In addition, I would like to ask: power to do what?: Again: this might be very contextual. In countries where lobbying and giving large donations to politicians and presidential candidates is a “tradition”, companies (and individuals) being able to allocate money for that purpose will be powerful. In countries where “German engineering” enjoys a high status, German engineering firms will be powerful in terms of being able to attract talent and negotiate deals with universities. In professional communities where not size but hipness matters, young trend-setting start-ups will be powerful in promoting their products and business models, and in attracting talent. And let’s not forget the power of certain individuals in the corporate world who invest in both large players and start-ups, in both advanced and emerging economies, in both business and not-for-profit endeavors. Their power may derive from crossing these boundaries more than from any one of these engagements. So, I agree with Jerry that (corporate) power has become a more diffused property or capacity. But I don’t think that the accumulation (and application) of power has become any more “mystical”. As a matter of fact, power within particular contexts can be very concrete, and sources of power can be very obvious.

  7. The responses to this post reveal some of the conundrum we face when trying to figure out the nature of corporate power today, and assessing whether it is increasing or declining. It is easy to think of examples that seem to reflect unbridled corporate power, for instance, Goldman Sachs and Walmart. But this immediately suggests the problem: is there any reasonable “metric” for comparing power that would allow us to answer whether “corporate power” is going up or down, for individual companies or in the aggregate? Goldman Sachs must be powerful because it pays huge salaries to its Ivy-educated employees, many of whom go off to influential positions in government. Walmart must be powerful because it is able to pay really low wages to its high-turnover workforce, few of whom go on to powerful positions in government. Goldman’s power is exercised by the high fees it charges to corporate clients and high net worth individuals, and through incomprehensible trading strategies that it enables or engages in. Walmart’s power is realized in part by forcing major corporations like Procter & Gamble and Kraft to charge it low prices, which enables it to sell things really inexpensively. (A slightly outdated list of companies who are heavily dependent on Walmart is here: http://usatoday.printthis.clickability.com/pt/cpt?action=cpt&expire&urlID=5243978&fb=Y&partnerID=1661)

    The first wave of Progressives had no difficulty identifying the sources of corporate power. In a brief period around the turn of the 20th century, Wall Street bankers like JP Morgan had helped organize dozens of mergers that turned relatively dispersed regional producers into national oligopolists and monopolists. Technology and trains had created economies of scale in many industries; the down side, as Teddy Roosevelt pointed out, was that big national corporations (which were overwhelmingly railroads, oil companies, and manufacturers), under the influence of big Wall Street banks, could squeeze suppliers and charge high prices to consumers. Standard Oil and US Steel were the prototypes here. “Big” firms were big in revenues, assets, and employees; tactics for gaining market power highlighted vertical integration of suppliers and collusion with competitors. Market share was a good indication of power. A strong federal government could act to rein in corporations that grew too concentrated.

    Market share is no longer a reliable indicator of corporate power. Our intuition might be that Apple is now powerful and Nokia is not. But who has a larger global market share? (Nokia, by far.) The company with the biggest market share in LCD televisions in the US is Vizio, with perhaps 22%. Is it more powerful than Sony and Samsung? In 2009, Flip (with 100 employees) had the largest market share in portable video cameras; in 2011 it was closed. The reason companies like Vizio and Flip’s parent were able to have such large market shares with miniscule assets and employment is because there are generic suppliers capable of scaling up and down rapidly. As a result, there is surprisingly little correlation today among revenues, employees, and market capitalization, and any of these might or might not proxy for “power.” Moreover, determining what counts as a “market” for the purposes of caculating share is not trivial either. What is Facebook’s market, or Google’s market? (To the best of my knowledge, I have never paid a penny to either of them.)
    We could conclude that corporate power is multidimensional and diffuse, and allude to hegemony. But if we can’t locate a durable basis of corporate power, it becomes a hard construct to work with. Wall Street seemed unambiguously powerful in early 2008. At the time, the five major independent investment banks n the US were Goldman, Morgan Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns. (Two survive, after converting to commercial banks.) The mortgage markets were dominated by Fannie Mae and Freddie Mac. (Both are now wards of the state.) The biggest thrift was Washington Mutual; the biggest mortgage originater was Countrywide; the biggest insurance company was AIG. (The first two were sold under threat of imminent liquidation; the third had a slightly more circuitous journey.)

    Our point in the original post was that the traditional understandings of corporate power, associated with the Progressive movement, need to be revised. If Walmart is powerful, or Apple, it is in a very different way than Standard Oil was powerful, and progressives need a better map of this new system if they are to generate a coherent policy response.

  8. The problem is that the multinational corporations own the political parties in Washington and in the State governments. Increasingly on the county, township, borough, city and municipal level, the anti-tax, anti-regulation, anti-government crusade has continued it’s onslaught. This is all fueled by the Tea Party and other “astro turf” so called “grassroots” groups such as FreedomWorks, Citizens Alliance for Pennsylvania etc. These so called grassroots groups are funded by billionaires such as the Koch Brothers. The most incidious groups is the American Legislative Exchange Council or ALEC. There are state and local politicians, corporations, chamber of commerce members who are members of this organization. ALEC drafts model legislation on deregulation, eliminating public education and other “pro growth strategies for state and municipal governments. With the Citizens United Supreme Court decision, corporations have free reign to spend as much as they want in elections on any level. You couple that with 6 mega corporations control the mainstream media, which controls what the public see, read and hear, you have the “perfect storm” of “corporatocracy”. The state and corporations are not going to “wither away”. I think the way forward is organizing, educating for nonviolent direct action coupled with organizing parallel business and NGO’s to provide the goods and services that corporations and government are less willing to provide to workers and citizens. As more and more people become disillusioned with partisan politics as there is more and more gridlock in Washington, DC, and any local control of corporations and taxes are removed, we need to be engaged to organize and lead the movement to a better form of both government and economy. We need more “checks and balances” to the corporations. We need to support municipal banking, credit unions, micro-credit, and worket owned businesses. We need an economy focused on main street not Wall Street. It won’t be easy, but we have to try, It is the duty of the opposition to oppose. As union organizer Joe Hill once said, “Don’t mourn, organize.”

  9. ‘The tools of governance suited to a U.S. Steel economy are not those suited to a Facebook economy’. Catchy phrase, but it seems to overlook that many big corporations still exist and have even become even more powerful. How do you deal with the Exxon’s, BP’s, Walmart’s, Goldman’s, Amazon’s or Starbuck’s? (e.g. Walmart’s Death Grip on Groceries Is Making Life Worse for Millions of People http://truth-out.org/news/item/15404-walmarts-death-grip-on-groceries-is-making-life-worse-for-millions-of-people). If Walmart controls 25% of the grocery market how long do you want to wait for ‘the emergence of a more democratic and cosmopolitan localism’? Especially retail is going through a transformation that may be web-driven, but essentially comes down to a few big players. I think the post makes the mistake to focus on the disappearance of the Rockefeller-type of persona rather than the rise of global, often tax-avoiding complicated structures that are very powerful, but have a different feel to it, because there’s no ‘Mr. Exxon’ or ‘Mr. Walmart’. Maybe centralized structures are (still) needed in some areas of the economy?

    • Walmart is the largest employer in the state of Pennsylvania. It pays no state corporate income tax. It is known as the “Delaware Loophole” in the legislature in Harrisburg, PA. My state rep has tried to pass legislation to overturn that loophole in the tax code that allows corporations, incorporated in the State of Delaware to not pay any tax to the state or Commonwealth of Pennsylvania, which is the official legal name of the state government of PA. It is just another example of the good old “golden rule”, them that has the gold write the rules. We have to keep trying to correct this law at the same time we have to organize and build alternative businesses for people to shop at instead of at Walmart and the other “Big Box” stores.

      We have been successful to stopping the building of “Big Box” stores in our township, through citizen action, Both picketing, petitioning, lobbying and lawsuits have altered the plans of a developer. It makes no sense to build another Home Deport, Lowes, Walmart and Shoprite or Pathmark, less than half a mile from another shopping center or strip mall with the same stores in a residential, farming and rurallly zoned area. It made us look at our zonng codes, which we are still revising. It is very complicated and you need a good lawyer to write them the legal way to protect the interests of the citizens and the environment. When ever you build a house, housing development, shopping center or mall, your building and parking surfaces cause water run off from rain and snow melting. It also causes problems with water, electricty, natural gas, sewage, traffic flow patterns and if residential, seats for children in the public schools. It is complicated but you have to get engaged and learn how to do this in a sustainable way. Eternal vigilance and engagement are the only ways to make a democracy work. You can’t be a bystander and not be involved.

  10. Pingback: Corporate Power in an Age of Global Value Chains | Organizations and Social Change

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