Economic Power Part 2 -- Direct Control

We saw in Part 1 that wealth concentrations create economic power, which allows the wealthy to disproportionately influence through their spending the range of economic choices available to others: what jobs are available, what goods and services are available, and what opportunities are available (or are not available) for the community. Therefore, the question is not whether purchasing decisions have social impact, but how much impact, and at what point does the effect have enough social consequence that democratic controls should be imposed?

Before we answer this question, however, we should consider another type of economic power, which is much more socially significant: direct control.

Wealth not only commands goods, it also commands people. Capitalists like to say that workers sell their labor, but the worker's labor does not go off to work in the morning while the worker stays home to tend to his or her affairs. Instead, it is both the worker and his or her labor that go to work, and the employment arrangement allows the capitalist to control not only the worker's labor, but the worker as well.

This may seem like a fine distinction, but it shows that capitalism not only empowers the wealthy to make economic decisions, it also allows them to direct people. Thus, capitalism is not merely a method of ordering economic affairs, but also a system of governance.

The true nature of this power to direct others is revealed starkly in the structure of the workplace. The worker must do what he or she is told, when her or she is told, how he or she is told, and by whom he or she is told.

The worker's freedom is only the freedom to leave the enterprise entirely. The law considers this a reciprocal relationship because either party may end the relationship at any time or for any reason, or for no reason at all. The legal system calls this "at will" employment, and treats it as a mutual, voluntary relationship.

But even if the creation and termination of at-will employment relationships were indeed voluntary acts by both parties, the relationship may not be characterized as reciprocal or symmetrical in any other way. One side gives orders and the other side takes orders, and although the employer can discharge a worker from the company's employ, neither the worker nor even all the workers together can similarly discharge the employer. A truly reciprocal relationship is unthinkable because it would undermine a core component of the employer's economic power: the ability to command and control others.

In theory, the worker's ability to end the employment relationship might be a kind of balance to the employer's power to terminate for unsatisfactory job performance, because it could discipline an employer that imposes unsatisfactory working conditions. In reality, however, even the worker's option of last resort turns out to be less valuable than the employer's corresponding right, for several reasons.

First, employers shield themselves from the negative effects of workers leaving by creating efficient systems for recruiting new workers. The people who run this system have candidly styled themselves "Human Resources" professionals, and they ensure business continuity even in the face of significant and consistent employee turnover.

Second, workers cannot as easily shield themselves from the negative impacts of termination. They typically do not have any corresponding human resources organizations to locate for them jobs equivalent in value to the job they might leave. Instead, voluntary termination of employment may involve significant costs and risks for the worker.

Third, capitalists intentionally manage the economy so there is always a ready pool of unemployed workers, typically equal to at least 3-6% of the total workforce (at "full employment"). This army of replacements waiting in the wings not only dampens pressure to increase wages (thus ensuring that the benefit of occasional productivity gains need not be shared with the workforce), but also creates a reasonable fear among the workers that voluntary termination may result in an extended period of involuntary unemployment, thus raising the costs of exercising their only right.

Fourth, a standardization of workplace policies within and even across industries tends to ensure that whatever dissatisfactions trouble a worker in one place of employment will be roughly matched in the next. Dissatisfied workers who fear making a move occasionaly lament, "But every place else is just as bad," and indeed they frequently are.

The uniformity of difficult working conditions need not, however, result from any conspiracy. Every organization that is allowed to unilaterally control the speed and conditions of work, and keep for itself the surplus resulting from providing lower wages and requiring more work, will eventually cause conditions to deteriorate to a point approaching unbearable -- if not from greed, then from competitive pressures.

So in the end, the freedom to contract for the worker turns out to be mostly the freedom to do as he or she is told. Exploring alternatives is both costly and risky, and the alternatives are not likely to be significant improvements.

The employer's half of the freedom to contract, by contrast, allows the employer to make the rules, and protects the employer from the consequences of misbehavior, because the employer has easy access to alternative workers, who are likely to be just as good. This asymmetry of power allows the capitalist to control not only the work, but the workers themselves, which is why we say that capitalism allows the wealthy to govern not only things, but also people.

We see then that economic power allows the wealthy to control people indirectly by circumscribing their choices, and also directly by directing their actions. In both cases those subject to the exercise of economic power will find they have only a limited ability to resist the will of the wealthy: resistance is theoretically possible, but most often will be ineffective or involve untenable costs. As Samuel Bowles and Herbert Gintis put it,

"Capitalism consistently confers upon a specific minority (the owners of capital and their representatives) a form of effective command to be used for the satisfaction of their private ends. Or more bluntly, as Thomas Hobbes put it, 'To have servants is to have power.'"

-- Democracy and Capitalism, p. 72

The effect of economic power is therefore substantial and touches all aspects of our daily existence -- indeed, the exercise of economic power can affect people's lives as thoroughly and as devastatingly as the exercise of police power or political power. That fact alone would seem sufficient for us to conclude that economic power must be subject to democratic control.

However, capitalists claim that their exercise of economic power is legitimate and morally justified -- that they have a right to control both people and things -- and that popular controls would be unjust or even self-defeating. Before we can with confidence determine to limit the exercise of economic power and work out proper and effective methods to do so, we must consider whether the exercise of private economic power might be justified.