The Power of Business In Australia-Lindblom's Theory.
1-1 INTRODUCTION:
The extent to which Business possesses structural power of the Australian Government can be argued from several different aspects. It is important to realize that there is a basic interdependence between the two. From a monetary perspective, the Government is dependent on Business activities for survival and from the Business perspective, Government plays a supportive role. This interdependence tend to neutralize the power forces that is shared between the Government and the Business sectors. According to Vogel (1987: 37), "In the real world, neither business nor government get all it wants from the other." Further, Dahl (1957: 202-3) would argue that power relationships are often of mutual convenience of both parties, much like how lending money could benefit both the borrower and the lender.
This research essay will primarily discuss the power of Business in Australia in the light of the comment that business possesses structural power both political and economic. Also, several relevant "power" theories such as Lindblom's structural theory, Corporatism and Pluralism will be discussed. Before any further discussion should be attempted, it is important to clarify the concept of structural power.
1-2 A DEFINITION OF STRUCTURAL POWER:
In a true capitalistic democracy, businesses play an integral part in maintaining and/or enhancing the overall well being of people. On the basis of its monetary power in the nation state, it is possible to conclude that the government would not be able to function without the continuous support of the business sectors. In other words, due to businesses structural importance in the nation state, "governments remain dependent on business for the provision of a healthy economy" and financial resources (Bell and Wanna, 1992: 47). Moreover, the success of a government in power is based on the satisfaction of people, which in turn is usually a result of the financial well being of the majority of the population. Governments are also dependent on the success of business enterprises in the electoral process. For instance, who would vote for a party that has lowered the standard of living for the majority of people? However, according to Bell and Wanna (1992: 47), "Business, by virtue of its structural location in capitalist democratic systems, enjoys an important but not unique form of political power." Other academics, such as Lindblom argues that governments must be able to meet and maintain business needs and confidence while making polices (Bell and Wanna, 1992: 189).
2-0 THE POLITICAL POWER OF BUSINESS
The power of business in the Australian political atmosphere is both strong and weak depending on certain factors. Ravenhill explores areas in which businesses lack political power, but also pin points the areas where businesses enjoy high levels of such power. However, Lindblom's argument of the structural power of business still serve the basis on which the arguments are based in this section. Also, it is impossible to discuss the political power of business without mentioning two important theories, Corporatism and Pluralism.
2-1 Lindblom's Argument.
Lets now examine Lindblom's argument in detail. Basically, this argument consists of three major assumptions. First, the private business sector occupies a strategic sector in society and that it decides upon future investments. Investments which are critical for new employment and to enhance national income. To summarize this point, business people are detrimental to the development of national welfare (Ravenhill, 1993: 262). In the second part of his argument, Lindblom argues that businesses enjoy a privileged position in society due to their success in politics and in maintaining pressure groups, industry associations, unions and interest groups. Lastly, Lindblom means that businesses are able to exercise control over public opinion throughout the use of propaganda measures (Ravenhill, 1993: 262). Ironically, Lindblom writes in his Politics and Markets (1977) that "the large private corporation fits oddly into democratic theory and vision. Indeed it does not fit." (Vogel, 1987: 34). Now, when one of the most prestigious theories regarding the power of business in politics is made somewhat clear, we can analyze it in the context of the Australian environment.
2-2 Ravenhill's Arguments.
Ravenhill explores four major factors contributing to the political power of businesses in Australia. These four factors are; (1) The level of interaction and cooperation between Australia's diverse business sectors, (2) The political matrix in Australia, (3) The possibility of powerful interference from other sectors in society, (4) The strengths of structures supporting organized interests in the community (Ravenhill, 1993: 263). In order to validate Lindblom's argument, one should closely focus on Ravenhill's four unique factors that may contradict Lindblom's theory (these will be incorporated in the following four sections).
2-3 Fragmentation of Business.
Australia's industry sectors are extremely diverse. Everything from mining and agricultural industries to manufacturing and high-tech engineering industries is represented. Therefore, we can assume that there are conflicting ideas, interests and needs of the various industry sectors. In other words, the power of business in political context is very fragmented between various industry sectors (Ravenhill, 1993: 264). This fragmentation may cause internal conflicts within businesses, which may be to the government's advantage. Also, from the government's perspective, it may be more difficult to satisfy the needs of all the industry sectors at the same time, since policy actions will improve the operating environment for certain industries and hinder development in others. From this discussion, it is possible to conclude that the political power of business is powerful, but yet very fragmented.
Fragmentation of political power is not only a problem for businesses, but also for other pressure groups in the Australian community. Businesses are forced to compete with other powerful sources of political interest, such as interest groups, unions, associations and communities. These groups can very well influence politics and go head to head with the structural power that businesses enjoy. Also, and perhaps even more important is the fact that the government itself is fragmented into various sectors. Naturally, conflicts within the government will make it structurally weaker and thereby enhance the power of less fragmented power groups in society. An example of such a conflict is the recent quarrel between Federal and State governments over the division of the proceeds of the reforms included in the Hilmer Report (Quiggin, 1995: 14). In addition, a government body could implement a policy that could be challenging to both business and government bodies (i.e. new environment protection policies).
2-4 Business Enjoys a Favorable Parliamentary Structure
The parliamentary system of Australia is structured to businesses favor. In this political system, much of the policy-making is decentralized to individual departments of the government. Therefore, Ravenhill (1993: 265) argues that "Insider status is particularly important." Naturally, it is relatively easy for business groups, with their large capital base and policy networks to gain "insider status" and thereby obtain political power. Likewise, Ravenhill (1993: 266) argues that it is to businesses advantage "that much of the lobbying takes place behind closed doors."
2-5 The Corporatist and Pluralist Dimension.
The political power of business can also be determined by examining the power infrastructures in society. Two kinds of channels of interest mediation are usually used, the Corporatism theory and the Pluralist theory (Ravenhill, 1993: 267). Corporatism is characterized by few polarized interest groups confronting the business sector. The government serves as a coordinator of the interests of the two. In contrast, the Pluralist theory argues that the power is distributed between numerous interest groups and businesses in an authoritarian like grievance system. Moreover, there are few institutionalized procedures for bringing the groups together in the policy making. Businesses with "insider status will benefit from such as system. Australia falls into both of these theories (Ravenhill, 1993: 268), but perhaps even more into the category of Corporate Pluralism. In such a system, there is unequal and privileged group access to government policy making and policy making is to a certain degree institutionalized (please refer to table #1 Perceptions of power in Australia).
Table #1: Perceptions of power in Australia.
The most influential group in Australian Society (based on a survey in 1977 by the National Times):
Free-Trade unions 42%
Federal Government 21%
The Media 10%
Multinational Companies 9%
Large Domestic Companies 7%
Others 9%
Source: (Dufty and Fells, 1989: 40)
It is clear that business sectors exercise political power, but that is the essence of democracy. All citizens have the power to influence politics. Critics of pluralism often address the issue whether business has too much power in proportion to the society (Vogel, 1987: 39). The political power of business today is challenged by various public pressure and interest groups. Also, business influence on government "vary from industry to industry, from issue to issue and from time to time" (Vogel, 1987: 39)
2-6 The Electoral Power of Business.
The true capitalistic democracy is designed in such a way that power is decentralized to people by the means of influence able groups in society and that people have the privilege and the freedom to vote for any political party. This fact clearly delegates political power to the business sectors.
Political parties are very much aware that there is a positive correlation between satisfactory performance and being reelected. Naturally, few voters would continue to vote for a party which has performed inadequately. One way of securing a dominant seat in the Parliament would be to closely adopt policies to business needs and interests. A favorable business climate fosters investments and thereby provide employment and an increase in general economic welfare (Woodbridge, 1993: 88). All these economically linked factors tend to lead to satisfied voters.
3-0 THE ECONOMIC POWER OF BUSINESS
"The structural economic power of capitalism (as a system) and the forms of constraint this imposes on government policy are remarkable robust." (Bell and Wanna, 1992: 190) The belief in maintaining a free market economy has been particularly popular in recent years. Business interest groups have clearly pointed out that it is the very best for the state to leave economic decisions to market forces (Wilson, 1990: 2). In the essence of such an argument, it is possible to conclude that business would have a favorable position in the struggle for power against governmental forces. However, Wilson (1990: 6) also argues that the extent of economic power of business cannot be directly related a particular nation's economic success.
3-1 Business Is Essential to the Success of a Capitalistic Democracy.
The fact that business activities are essential to the overall functions of the Capitalistic State is relatively clear. The infrastructure, both economic and physical is dependent on the success of business activities. Therefore, governments often face a conflicting paradigm that represents the basic conflict between regulating market forces in order to control business activity on the left hand, and Laissez faire (e.g. market forces control the economy) on the right. The ultimate task of the government is to carefully balance business regulation with a Laissez faire strategy.
Again, it is valuable to refer to and criticize Lindblom's theory. The power over employment is particularly interesting in this discussion. A lack of business confidence can lead to unemployment, which according to Vogel (1987: 38), "frequently, though not always, hurts elected officials." On the other hand, government policies, such as deregulation, inflating the currency, increasing taxes, or introducing costly environmental controls could reduce the power and wealth of business.
Likewise, Vogel argues that government dependence on business investments is not as high as Lindblom believes. This statement is based on the assumption that capitalists will hurt themselves by withholding investments (Vogel, 1987: 38). Furthermore, "the dependence of the economy on investor confidence is limited by the fact that GNP is made up of three components- investment, consumption, and government spending." (Vogel, 1987: 38) Likewise, Stretton argues that the business sector depends heavily on the opportunities fostered by development policies set by the government (Stretton, 1987).
In addition, Vogel argues that the economic business cycle influence the power of business. When the economy is flourishing, the government is less likely to listen to demands and requests from the business sectors. Also, during economic downturns, politicians frequently blame businesses for causing the problems. For instance, Australian businesses have been blamed for not being competitive enough in the international marketplace by the Labor party during the latest economic recession. Generally, "Government controls on business tend to be increased when the economy is doing poorly and when it is doing very well." (Vogel, 1987: 38) We can place the performance of the Australian economy somewhere at a mediocre stage, therefore, according to Vogel's theory, "politicians are more willing to defer to the needs of business" (1987: 38).
3-2 Government Dependent on the Business Sector.
A perfect example demonstrating Australian Government dependence on the Business Sector is the fact that the public sector is primarily run by financial contributions derived from the private sector. The cost of maintaining a high standard of living and social security is extremely high and no politicians are interested in lowering the level of welfare in nations. If the government is not able to maintain a favorable business climate, businesses may have the power to "bail out" from the economy and invest elsewhere since less industrialized nations are presently competing for foreign investments. However, it can not be overemphasized that government business power structure is based on interdependence. In other words, business is dependent on the government as much as the government is dependent on business.
3-3 Business Provide Essential Funds to Various Pressure Groups.
Businesses do not only provide essential economic benefits to the state, but also provide official and unofficial support to many pressure groups in society, including essential funding to various parties. In the Australian political climate, this indirect power enjoyed by business can effectively influence policy making. By supporting different societal networks, business can enhance its interests in government policy making. Also, business can leverage its own political activity by the supportive measures from other pressure groups.
However, frequently, business sectors find themselves in a neutral position and decide to support several different parties at the same time. This type of political leverage would make the overall power impact on the Australian political environment very diffuse and from the business perspective less effective.
An excellent example of this exclusive power can be found in Australian Industrial Relations and in particular enterprise bargaining. On the national level, employers and unions tend to apply political strategies in order to influence the government responsible for making economic, legal and social policies. For instance, The Australian Worker's Union (AWU) has historically aligned with employers in purpose "...to promote the general and material welfare of the members and to improve the relations between employers and workmen" (Hampson and Lloyd, 1991: 3). Here, business has, in exchange for political support, guaranteed monetary compensation and support to unions. In addition, the Business Council of Australia represents one of the most powerful associations in Australia.
3-4 Business Own and Control Much of the Economy.
According to Bell and Wanna (1992: 47), the government does not have control over many economic factors such as employment levels, technological innovation and investments. Instead businesses enjoy much control over these essential components of the economy. Critics argue that this may not be the case since the government controls much of the fiscal policies such as interest rates and protective measures in trade and legislation. However, businesses always enjoy the opportunity to either adopt to new policies, de-invest or diversify into multinational markets.
According to Vogel (1987: 37), "Corporate executives decide a nation's technology, the pattern of work organization, location of industry, market structure, resource allocation, and, of course executive compensation status." A study that examined the power of business in the European Community supports Vogel's argument as it concluded that; "Neither the adoption of corporatist institutional structures, not banding together as a cartel (at least as represented by the EC) accords national governments any decisive advantage in dealing with capital." (Bowler, 1988: 532). This study concludes that business enjoys political and economic power due to its control and knowledge over capital issues.
3-5 Economic Power Directly Linked to Political Power?
Most people are aware of the expression, Money talks... If we assume that business possesses structural power both political and economic, there is a direct correlation between monetary power and political power. If this is the case, one may ask how governments in a capitalistic democracy are able to influence and control business processes? Lindblom would most probably agree with this theory, since he finds the structural position that business occupies in society to be extremely important. However, as outlined in previous sections and in particular Ravenhill's and Vogel's arguments, economic and political power are not directly linked.
Dahl (Vogel, 1987: 36) agrees with Lindblom that business "...is one among a large number of institutions that exercise authority in our society." However, its economic status is not as significant as Lindblom believes. Instead, business power is funded on the political power of the large masses of people involved in business entities (stakeholders). In other words, the power of business resides on the fact that the corporation in it self is a private government (Vogel, 1987: 39). If we take Vogel's argument one step further, we can assume that the power and interest of business is nestled in the general population via complex network communities.
A practical example could be useful in this section. The Hawke government found it politically necessary to support the problematic steel industry in the early 1980's. This selective assistance program was initiated in order to serve the general population (i.e. reduce unemployment levels), to protect the domestic steel industry from aggressive foreign competition and finally, protect the economic interests of the government (Frenkel, Peetz 1990: 178).
Naturally, there is not right or wrong answer to the question discussed in this section. However, the contrast between Lindblom's and Vogel's arguments has touched on two interesting approaches to the issue.
4-0 MULTINATIONALS.
Multinational corporations play an important role in the Australian context. Yet, the political and the economic power of these entities is different from that of domestic firms. Lindblom's argument is particularly coherent in the power relationship between multinational corporations and the Australian government. Since it can be assumed that there is a somewhat positive correlation between political power and economic power in Australia, it should be helpful to discuss the economic power of multinationals in Australia first.
4-1 Economic Power and Microeconomic Change.
Multinational entities enjoy the benefit of not being dependent on one particular economy. In addition, they usually have a large capital base which can be used for investments and/or to fund de-investments. In other words, if the Australian government is unable to provide a favorable business climate, they may chose not to invest, or de-invest. One particular example of this exclusive power is the Ford company's recent threat to close down operations in Australia if acceptable efficiencies cannot be reached. This economic power made it possible for the company to exercise political power over trade unions and the government. Furthermore, this is particularly true in Ford's extensive lobbying against trade tariff reductions, that would make automobiles less expensive to import and thereby question the purpose of having an inefficient assembly plant in Australia. In 1988, Volvo Car Corporation decided to close its factory in Victoria due to inefficiencies and because of new tariff regulations that made it less expensive to export cars to Australia rather than assembling the products domestically.
4-2 Political Power- A Direct Link to Independence of Multinationals.
The economic independence which has been described has direct impact on the political power of multinational corporations in Australia. Bowler (1988: 529) explores this impact in the European Community (EC) and concludes by supporting the "Lindblom 'problem' for governments"(1988: 532). Multinational firms will enjoy political power as long as the Australian government needs foreign capital investment, technological innovation and employment opportunities. This dependence will persist until the nation has been able to build up a competitive secondary processing sector that can replace the current dependence on the export of primary produce.
We can conclude this section by assuming that Lindblom's argument of the sectorial power of multinational business interests in the Australian context is robust. Its economic power and structural independence of the domestic economy has been used to explain this favorable position of power.
5-0 CONCLUSION
The structural power of business in Australia has been discussed from two dimensions, representing Lindblom's theory on one side and opposing beliefs on the other. Lindblom's theories first published in 1977 in Politics and Markets are still valid, however we can conclude that the government enjoys many of the powers that business has due to its structural importance in a Capitalistic Democracy. The essence of Lindblom's argument that businessmen and woman are uniquely powerful because the government relies upon them to organize the nation's production and distribution of wealth is not completely true, since Australian government bodies actively interfere with the market economy. However, as Vogel points out, there is a 'give and take' relationship between business and government and a high level of interdependence between the two. Academics such as Bell and Wanna (1992: 267) also argue that there is dependence in both sides of the equation with business on one side and government on the other. Furthermore, the political power of policy networks throughout the society impact on both fragmented business and government sectors. In addition, it has been concluded that multinational business enterprises in comparison with domestic industries, enjoy a more privileged position in the Australian political context.
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