Monday, June 30, 2008

Democracy Part XI: Mass Democracy and Shareholder Democracy Converge

Individuals as political participants are really only good for one thing, that is they serve one purpose extremely well--voting. That is their principle connection with the mechanics of state organization. Groups, on the other hand, are good for governance. In a world of mass democracy, in political collectives in which every vote counts, only the voices of collectives can be heard. Inclusion, at the level of the individual, produces exclusion as well. The more people appear to have been granted participatory rights, the fewer people participate other than by voting as they are told. And by the later I mean, voting on those questions and for or against those people presented to them for voting. Mass democracy is good for the managerial state, the way shareholding is good for managerial corporations. We have finally reached that age in which the mass collectives of politics and economics have begun to so resemble each other that they have become fungible. As these changes mature, the relationship between law, governance institutions and the individual have been changing as well. See Larry Catá Backer, Reifying Law: Let Them Be Lions, Law at the End of the Day, October 22, 2006.

Corporations can govern and states can function as economic actors. The governance techniques for both appear to be converging as well. Academics have begun to catch on. Thus the renewed interest in governance and regulation beyond formal lawmaking and institutionalized judging. It has taken almost a century for the world to catch up to Nietzsche's insights on this point (Nietzsche, Friedrich, The Antichrist, in The Portable Nietzsche. Trans. Walter Kaufmann. New York: Viking Press (1968) (1888)). It took almost half a century to understand Michel Foucault's idea that government had moved well beyond both its limited jurisdiction and its methodology in formal lawmaking and judgment systems (Michel Foucault, Discipline and Punish: The Birth of the Prison (Alan Sheridan, trans., 19977, NY: Vintage Books 1995)). From both Nietzsche and Foucault it is possible to understand better the methodologies through which democratization--that is the socialization of apparent governance--can affect equally all institutional actors with governance powers. Those effects can be significant as states and corporations move from formal to more totalizing governance. The most interesting of these effects touch on the convergence of shareholder and voter democracies. There are four principles points of convergence:

1. The separation of ownership from control. It has become a commonplace since the 1930s to bemoan the separation of ownership from control in corporate governance circles. All that whining of course hides the reality of governance--as governance is dispersed over a greater number of individuals, than the functions of governance must be divided into the many, who retain a power to vote, and the few, who retain the power to speak and act for the entity. Power is wielded by the elected representatives as well as by large aggregations of shares. So, too, has this transformation been effected in political governance as well. The focus on voting reflects the necessary expansion and diminution of power to individual sovereigns. Individuals vote, that is virtually all that is left to them (other than taking to the streets form time to time). Power is wielded by the few, who govern either as elected officials or speak as aggregations of individual power (civil society organizations).

2. Migration and Exit. The more power flows to the greatest number, the smaller the sphere of actual power available for exercise by that large group. Individuals acquire voice by aggregation, mimicking the state apparatus against which these groups are arrayed. For the individual, then, beyond the passive activity of voting (and voting as they have been instructed by one or another of the host of competing institutional aggregations of power), there is exit. Among shareholders, exit is easy and encouraged--selling shares and acquiring others. Among citizens of states, exit is also encouraged, either with or without papers. The extraordinary migrations across the globe that has marked labor globalization for the last two centuries. Inefficient states lose population the way that inefficient corporations lose shareholders. Welfare maximization works in both contexts.

3. Contests for Control. It is an academically uninteresting truism that modern transnational corporate activity is built on a foundation of economic efficiency, and principally the efficiency of control groups. congests for control are the means by which managers are replaced by more efficient others. And efficiency is meant to produce welfare maximizing behavior--that is to steer the corporation to the attainment of its highest aspirational goals. For that purpose, legitimate changes in corporate control must be effectuated in accordance with a fairly well established set of behavior norms--transparency, disclosure, the preservation of a full and free election among shareholders, a level playing field among those who would seek corporate control, etc. For that purpose in the United States, for example, a large body of state and federal law has been created and an even larger administrative and judiciary machinery has developed to oversee this system of control and its challenge. State fiduciary duty law, federal securities and disclosure law, the Williams Act, all contribute to a well functioning corporate democracy, especially when governments change. Yet consider the modern managerial approach to the governance of political states. For them, there is also a strong focus on governance and contests for control. Preserving the franchise, transparency, accountability, disclosure regimes are all now fundamental parts of constitutional systems to preserve democracy and the legitimacy of those who would control the state apparatus. Inefficient states--states that have not served their constituencies well enough (in terms of maximizing voter welfare) are subject to challenge and to contests for control. That, of course, is the essence of poltiics in representative democracies, and recently an academically uninteresting truism as well. For that purpose, a number if statutes, rules, understandings and aspirational statements have been developed to oversee this system of control and its challenge. International human rights laws and standards, constitutional protections, human dignity, democracy and the like, all contribute to well functioning democracies. Contests for control are as encouraged among market oriented corporations as they are among democracy rich political states. They serve similar purposes.

4. Monitoring. States and corporations have increasingly embraced the notion that individuals cannot be trusted. Both have long sought to control the behavior parameters of their members, stakeholders and associates, and to ensure that behavior conforms to expectations. For a while, over the last two hundred years, an excess of such control was viewed with a bit of suspicion--totalitarianism among political states, and inefficiency among corporate actors. But over the last half century that has changed dramatically. With the diffusion of power down comes an obligation to conform. Corporations are required to ensure that no servant works against the corporate interest, and that shareholders exercise their franchise properly. Political states have assumed a similar burden to be imposed on its voters. But monitoring has become more than a means of enforcing conformity and preserving the integrity of states or economic entities. It has begun to serve as a substitute for governance itself. And that is a great advance in efficient control of populations (populations ostensibly charged with controlling those who serve them within the state or corporate apparatus and thus the great perversity of the system)). Monitoring provides a means to coerce behavior without the need to legislate, or to transparently declare one's intentions. It is governance by misdirection--appearing to seek one goal and actually bending the methods to a different set of objectives. And thus those in control become themselves controlled. See Larry Catá Backer, "Global Panopticism: States, Corporations and the Governance Effects of Monitoring Regimes," Indiana Journal of Global Legal Studies, Vol. 15, 2007.

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