Part 1: The Power to Purchase

Political power is easy to see. For example, some people may be designated as law-makers, and others granted the right to execute or enforce the laws. Through elections, citizens select or even become law-makers. Sometimes laws themselves may be voted upon directly. Both the laws and the rules for law making are available to anyone who wants to seem them.

Economic power, by contrast, is not as easy to see, not as widely understood, and not as subject to popular control.

Economic power is what determines the ordering of the economy -- for example, what is available for purchase, what gets built, and what jobs there are. It is a myth that economic decisions are driven by the market, and that the market is a quasi-democratic institution where people "vote with their dollars." According to the myth, only investment decisions favored by the public will win in the market, and thus there is a significant element of public control over private decisions.

A closer look at how economic power is exercised shows the limits of this line of reasoning. Indeed, quite the opposite is true: those with economic power have nearly unfettered ability to order the lives of others. It is this impact on others that makes the exercise of economic power socially significant, and why the exercise of economic power must be placed under democratic control.

The simplest and most basic form of economic power is the ability to buy goods and services. Buying things has social implications only to the extent that the purchase impacts others. For example, whether I choose to have bread or caviar for dinner does not greatly impact others (at most I might increase the demand for caviar, slightly influencing food producers toward supplying more caviar and less bread).

However, if the thing I choose to buy is land near you, plus a coal-burning power plant to put on the land, as well as a private army of lobbyists to shape laws and public opinion in favor of my purchase, then my purchase has significant social implications, both for you and for the larger community.

If your situation is impaired by my purchase, but you lack the money to defend against my moves, then I have exercised economic power over you. If the community in which my power plant is located suffers unwanted negative effects (e.g., noise, air pollution, light pollution, impaired views, increased traffic), but it cannot resist my actions, then I have exercised economic power over the community.

Morever, the harm to the community is not only to its physical character, but also its economic character. For example, the community now has many new factory jobs available, which will influence community members toward factory work, and will draw to the community new members who would like to work in a factory. However, the community might have preferred that the land be used to create a nature preserve, instead of a factory, which would create new jobs for park rangers and ecologists, rather than factory workers.

The factory need not be a bad thing for the community; indeed, it may be a welcome development. The point is not whether economic development is bad, but who gets to decide. If the community wants a factory, but is dependent upon the capitalist to build one, then the capitalist has economic power over the community, and therefore has the ability to extract concessions from the community.

Creating a factory is a dramatic example, and shows how an economic action can have enormous social impacts. But there are many ways in which purchases can shape the world we inhabit together. I might start a business that offers shoe repairs, or a video game arcade, or a 24-hour restaurant, or movie theater. The business I choose will impact the character of the neighborhood, and influence people's behavior by making some activities more or less convenient. Even within my movie theater, I might choose to show family movies, adult movies, artistic movies, or just whatever the big studios decide to produce. In each case, my decision will influence the lives of the people around me. Some will prefer the art theater, and some will prefer the adult theater, but I get to decide because it's my money. That's economic power.

Economic power over a community may be exercised more directly, too. For example, I may purchase a billboard in the center of town to send people messages. The billboard might be an imposing object, like the giant video screens in New York's Times Square, and come to dominate the identity of the area. Or it might be a modest sign whose purpose is merely to keep in people's mind an idea that they might otherwise overlook. For example, I might wish to remind them why I am trustworthy, or why my projects have merit. Or I might remind them that smoking is harmful, or, instead, that smoking is desirable. More likely, the billboard will be rented to the highest bidder, thus enabling others with economic power to advance whatever agenda they may have.

Although we saw that my decision as to whether to buy bread or caviar for dinner had little or no social impact, decisions about what kinds of businesses should exist, where they should be located, and how they should be run have enormous social impacts. Any "purchase" that is really an investment in economic activity will always impact the people who interact with or are displaced by the economic activity. Because private investment always has public consequences, there really is no such thing as private investment.

It may be objected that economic power actually rests with buyers, who may choose not to purchase the electricity from my plant, not to patronize my movie theater, and who may avert their eyes when passing my billboard. This is true to an extent, and some attempted businesses fail because they find no customers. However, there are several defects in this logic.

First, where a variety of viable businesses might be possible, it is the economic actor who decides which one is actually implemented.

Second, the presence of the business itself may stimulate a demand and change people's preferences. For example, community members who might not have had any interest in art films might develop an interest when such movies become available. Thus, it is inaccurate to assume that the buyers rule the sellers; instead, they influence each other.

Third, collective action is difficult to coordinate. It is much easier for me to start a business than it is for a community to arrange a boycott, and nearly impossible to simultaneously coordinate a large number of boycotts if many businesses are disfavored. Therefore, the lack of a collective response on the part of buyers does not necessarily reflect an endorsement of the business.

Fourth, withholding of purchasing is only to be expected for businesses that are viewed negatively, and cannot be expected of a business that is viewed less positively than it might be. For example, if there is only one grocery store, and it does not make available the types of food I most prefer, I am more likely to buy what's there, rather than starve, even though I would prefer a different kind of store.

Fifth, the transaction costs for buyers in avoiding services are significant. For example, averting my eyes from disfavored billboards takes a certain amount of energy. Similarly, I may have less convenient access to a more favored supplier.

In every case, we may reasonably expect people to patronize businesses that they would rather see replaced. Thus, markets do not automatically ensure that economic power is exercised in the public interest.

Economic power is also not self-regulating. Political power has a self-regulating aspect, which is that if I exercise political power in an unpopular manner, people will be less likely to vote for me, and my power may be diminished. By contrast, if my power plant is profitable, my economic power actually grows, no matter how unpopular I become. In any case, I may repair even the personal damage by using part of the profits to hire a private army of public relations specialists to mold perceptions and improve my public image.

Thus, the exercise of the basic form of economic power, purchasing goods and services, does not necessarily advance the public interest, is not self-regulating, is not regulated by the market, and will frequently have social impact, sometimes significant. To the extent that the purchase represents an investment in economic activity, there will always be social impact.

This analysis undermines one of the basic tenets of capitalism, which proposes that unrestrained earning and spending is a manifestation of freedom, and that if a person comes upon his or her wealth legally, then no one else should have a say in how it be spent. We see instead that the capitalist's freedom is really the freedom to impose social conditions on others, and therefore to limit others' freedom. That kind of freedom is more accurately characterized as power. Whether that power is fairly gained and justly limited is our next question, but for now we will at least call it what it is: the power to determine the economic conditions that govern other people's lives.

The power to order the economy and control social circumstances is just the beginning of economic power. In Part 2, we will examine how economic power gives the wealthy direct control over others. The exercise of this type of power without democratic structures is even more harmful, and thus presents an even stronger justification for democratic controls.