How Political and Economic Guardians Cooperate

The Renaissance represented a rediscovery of classical ideals in art, technology, and trade. It also resurrected old ways of thinking about government. This reawakening of Greek and Roman ideas increased social appreciation for individuals: people who constituted the entire demos and not just the guardian elite.

Slowly, the difference between aristocrat and peasant began to shrink, at least in the eyes of the law. By the time of the Enlightenment, “natural law”–a system of rights adhering to people simply because they’re human–applied even to citizens who were not significant property owners. From this perspective, fairness became something more than a deal worked out between economic and political guardians. If states could no longer command the obedience of citizens without granting them meaningful property rights, they were also obligated (in principle, at least) to extend some of the rights of property to citizens who lacked the requisite wealth. After all, people are people, and none of us choose our parents.

These new rights and freedoms–decoupled from aristocratic privilege–mobilized a substantial part of the population that had, for centuries, essentially toiled as serfs. They created new markets and new wealth, and while capitalism may not have mandated democracy, our appetite for democracy grew much stronger because of it.

The exploration of the New World and the development of the scientific method led to faster conversion of theoretical knowledge into technology and, eventually, to the Industrial Revolution. Here, production stepped out of the home and into the factory, achieving a long-sought guardian goal: centralized control over economic activity. Expanded production and trade (mainly through specialization and exchange) meant expanded markets, which led to mercantilism, the notion that a state could, and should, control the growth and distribution of its wealth. However, neither economic nor political guardians could do this alone. It demanded their active cooperation, even collaboration–and, in some cases, collusion. Under this early form of capitalism, economic guardians grew coequal with their political counterparts, especially with politicians who depended on elections to stay in power. Similarly, political guardians began to exercise more freely the economic clout that goes with sovereignty. They used their power to selectively tax, spend, and regulate behavior to forge new bonds (often in the form of rights-based legislation) directly with non-guardian citizens. These bonds, in turn, influenced the practices of private guardians.

According to Dahl, this new, integrated capitalist hierarchy depended on political guardians’ ability to employ state-sanctioned violence to protect (or leave unprotected, if that was their choice) the property of economic guardians as well as to enforce their own political will.25 This helped private-sector guardians extract surplus from the economy while giving preferred groups of citizens easy access to capital and special regulatory protection. It also made sure the educational process served guardian needs by producing compliant citizen-workers and voters who did not rock boat.

Unfortunately this accommodation, while great for mass production, resulted also in mass alienation–of craftspeople from their craft, of producers from their customers, of citizens from the land that claimed them–causing a nosedive in personal pride and a reduced sense of community in a substantial part of the population. Because political guardians, especially in the nineteenth century, so often sided with economic guardians at the expense of citizen-workers, state power came to be seen more and more as a resource available mostly to the monied class, a perception that persists–and not without cause–to this day.

Theorists like Rousseau, Mill, and Hobbes concluded that, in one way or another, government’s basic job was defining the “common good” and achieving the “general will” of the demos. Until the late eighteenth century, these terms had been used by public and private guardians as code words for their own interests. What was good for all citizens, including non-guardians, and what society as a whole might want, seldom registered and was thought by many to be irrelevant or unknowable. If it was mentioned at all, it was as rhetorical window-dressing to make guardian preferences more palatable to the public. This pattern changed little in the nineteenth and twentieth centuries, although populism, including plebiscitary politics, was becoming a stronger force. For most of this period, though, politics was a zero-sum game played by, and for, guardians and their preferred groups. Monopoly over legislation and the coercive power of the state was prized not only because of its ability to advance guardian causes, but also for its potential to protect winners from retribution by the losers.

From the mid-nineteenth century to the turn of the twentieth century, American economic guardians protected their property rights and social/political prerogatives mostly through private means: by pooling investments, forming trusts, and creating vertical monopolies. The New Deal, commonly assumed to be the U.S. government’s reaction to capitalist failures that caused the Great Depression was, more accurately, a long deferred and very public display of the power state guardians always held in the industrial age but were reluctant to use. In this sense, Roosevelt’s New Dealers were less “meddlesome socialists” intruding into private enterprise than silent partners who had suddenly become very vocal about how the nation’s political economy was being managed. The Great Depression was a great embarrassment–and liability–to the integrated guardian hierarchy, not just its private component. State guardians therefore demanded, and got, a bigger piece of the pie, to be paid in coin most meaningful to politicians: more taxes and more power to deliver benefits to preferred groups. One of these concessions was the unprecedented buildup of government bureaucracy–a “standing army” of administrators and regulators who could implement state guardians’ will and insulate elected officials, to some degree, from the negative consequences of their own acts.

This is the true source and nature of the so-called rift between big government and big business. They are like two playground bullies squabbling over a ball, united mainly in their determination to keep anyone else from playing the game. Neither wants the average citizen to participate in their day-to-day agenda-setting and decision-making; but their periodic disagreements require them, occasionally and separately, to appeal to the general public. In this sense, the non-guardian demos–“the people” we so often hear about–are less the source of all state power than an occasional tie-breaker in sibling rivalries; a sleeping dog all guardians would just as soon let lie.

In the years following World War II, the burdens of political guardianship (an expensive bureaucracy plus the plethora of expanding programs needed to win new friends and satisfy old allies) grew faster than the benefits public guardians could deliver. In the world of representative democracy, however, this social and financial “red ink” did not lead to bankruptcy and reform, but to more promises, greater spending, and inflation–not to mention institutionalized waste. Budget overruns begat bigger budgets, and cumbersome, ineffectual policies only spawned more red tape. Citizens on the lowest socioeconomic rungs became a permanent underclass and their potential for social disruption became a persuasive argument for increased guardian power. Private guardians, too, became addicted to the perks that went with their accommodation. These included not just tax breaks and beneficial regulations for favored industries, but more laws aimed at perpetuating non-democratic corporate governance.

Seeing how this system worked, non-guardian citizen-workers began organizing into groups that emphasized identity and special-interests: a host of squeaky wheels all clamoring for grease. By the 1980s, this “system” had devolved into nothing less than a low-intensity civil war, or social war, whose weapons were group identity, single-issue politics, individual anomie and alienation, civil disobedience (and occasional public disorder), judicial crusades, legal harassment, and the death of even the pretense that representative guardianship was somehow concerned with the common good and general will.

One result of all this was a tendency to define fairness not as the product of consensual processes and adherence to mutually agreed-upon principles, but as the victory of one aggrieved group over another. Self-perpetuating bureaucracies and guardians in both the public and private sectors came to owe allegiance not to their constituents, but to the integrated hierarchy that kept them in power–characteristics of a true “ruling class.”26 Liberal capitalist representative democracy found its biggest threat came not from fascism, communism, or socialism–all of which featured their own brand of guardianism and were, at one time or another, openly allied with U.S. interests–but from ordinary people who sought to substitute popular power for guardian rule, to make exclusionary governance more inclusive.

The primary mission of guardianism, therefore, became not just the arbitration of one set of interests versus another–a myth designed to keep dependents infatuated with guardians and see them as indispensable–but the preservation of guardian control over the entire political economy, keeping non-guardians out of the loop. Isaiah Berlin articulated the creed of these “armed prophets” thus: “I know which way to drive the human caravan; and since you are ignorant of what I know, you cannot be allowed to have liberty of choice even within the narrowest limits... I know what you need, what all men need; and if there is resistance...it must be broken and hundreds of thousands may have to perish to make millions happy for all time.”27

This is not, and never was, the voice of the people; it is the roar of a leviathan–and its blast withers the buds of both civitas and societas.

In a corporation, for example, the board of directors’ ostensible duty is to look after the interests of shareholders, the nominal owners. Similarly, in a representative democracy, elected officials–the political equivalent of the corporate board–are supposed to look after the interests of the demos. The corporation’s employees are analogous to the government’s bureaucracy; they are the people who actually get things done. Ownership and sovereignty are distinct in both cases and theoretically rest with a specific constituency, although directors and executives (in the private sector) and politicians and appointed officials (in the public), who exercise day-to-day control over workers and bureaucrats, often view constituent interest very differently from the way those owners and sovereigns might view it themselves.

In the eyes of political guardians, the public’s main function is to “purchase” with their votes and taxes the “products and services” the government provides. Just as corporate boards of directors and executives want to please shareholders by operating at a profit, top bureaucrats want to make their elected and appointed political patrons look good by maximizing praise, and minimizing complaints, from the groups upon which those guardians depend for their position. Pleasing the upper strata of the integrated guardian hierarchy is the way lower- and mid-level guardians keep their jobs and get promoted. In government, backing up political promises with bureaucratic action keeps incumbents safe, keeps campaign contributions flowing, and prevents public policy from changing too often, which causes administrative and legal headaches for those who must implement that policy directly.

This, at any rate, is how the system has come to work. Guardians in both the private and public spheres face remarkably similar relationships, structures, motivations, and mechanisms; they are really two subsystems of same political economy–two sides of the same power-wielding coin, joined like Siamese twins by the umbilicus that nourishes them both: the taxpayer-consumer’s wallet. In reality, neither politicians and top bureaucrats nor corporate directors and executives are especially beholding to their respective constituents. They are bound instead to the upper-tier guardians who hire them and whose patronage results in bigger budgets, better perks, and more power.

Although each has its favorite methods for preserving and increasing power, political guardians have historically been a bit more savvy than economic guardians about treading the narrow line between oligarchy and democracy–of giving citizen-dependents a sense that they are still at the center of the political process instead of its periphery. This is partly because political guardians depend regularly on popular votes and public opinion polls to get their way; whereas corporate guardians, depending mostly on other guardians and the courts, find it easier to exclude whomever they choose.

Nonetheless, citizens’ gradual awareness of their political rights has led them to demand more say in economic matters as well. “More say” in this case means not just consultation (giving advice that guardians may freely ignore), but participating in the major, binding decisions that govern a firm. To the degree that this participation is representative (as when corporate guardians add outside stakeholders to the board of directors), it is an extension of guardianism; which is one reason why corporations accept these accommodations so readily–they change very little. To the extent that stakeholders participate directly and in large numbers, as in the occasional, meaningful proxy fight, such reforms can be truly democratic; though both private- and public-sector guardians strive mightily to see that these occasions are few and far between.

This raises the question of that unique brand of conflict resolution called competition, the free and unfettered use of which is often called the essence of free enterprise. If this were true, you would think that economic and political guardians would do more to promote it. At minimum, it would mean streamlining transactions and facilitating the flow of information, giving buyers more complete and objective facts about prices, costs, and the difference between them–profits. You would also think these disclosures would be regulated at least as well as the information given by firms to investors, and that products would be proven safe and effective, that job conditions would be safe and sanitary, and that workers’ compensation would be fair–for all these factors contribute to a firm’s competitive posture in both input (labor and raw materials) and output (goods and services) markets.

But which “government” is ultimately accountable for ensuring that this fabled competition actually occurs? Elected representatives? The executive branch? Bureaucrats? Judges? Or the demos who is supposed to be sovereign over all? And on the private side, which part of the corporation is ultimately responsible for observing society’s rules about competitive fair play and paying the penalty for noncompliance? Top executives and directors? Managers and workers? Or the shareholders who are supposedly the company’s sovereign?

We can see now the corner into which our current system has painted itself. Market regulations, as well as the penalties for violating them, are handled like virtually everything else in our political economy: by a non-democratic accommodation between public and private guardians. These guardians are like adults arguing an umpire’s call at a little-league game: some are coaches with a track record to protect and some are simply parents with dependents they want to help–but their arguments ultimately have less to do with sports and more to do with status and comparative advantage. As Heilbroner puts it: “The economic domain is simply of one piece with the political... capitalism represents ‘the ultimate privatization of politics’... .”28 This doesn’t mean that private and public guardians at all times consciously conspire to place special interests, including their own, above the common good and general will; only that, by the very nature of guardianism, that’s what usually happens.
To illustrate, let’s look more closely at how corporate boards of directors cultivate allies among elected officials, since both must periodically turn to some kind of demos (shareholders in the first case, citizen-taxpayers in the second) to stay in power.

Politicians need just enough clout–the “clubs are trumps” power of sovereignty–over private guardians to preserve their place in the integrated hierarchy. This means they must occasionally placate non-guardian citizens, the bulk of the population, who are otherwise prevented from meaningful participation in making binding decisions about their jobs and communities. For their part, corporate directors often serve on multiple boards, increasing their clout within and between industries, and therefore increasing their bargaining power when it comes to making deals with public guardians. If you doubt this happens to any significant degree, read any publicly held company’s notice for the annual meeting in which directors are “elected” and executive compensation is set. New directors are not elected from a slate of candidates arising from the company’s “demos” (its broad base of shareholders), but are nominated—noncompetitively–by current board members whose selections are then ratified (usually, rubber-stamped) in a shareholder vote. If you peruse the resumes of these candidates, you’ll find that their common denominator is not resemblance to the average shareholder, but prior membership in the corporate guardians’ club. Virtually all are, or have been, key executives in complementary or competing industries and sit on multiple boards–elite members of an already very exclusive circle. When it comes to top executives’ salaries, sharp increases in compensation are invariably justified by the claim that they are “comparable to other firms in the industry.” Similarly, public officials justify big raises for top bureaucrats by saying such increases are needed “to keep talented administrators from joining the private sector.” The intent of such salary-fixing may or may not be collusive, but the result certainly is. Top guardians make top dollar because guardians, not their constituents, make these key decisions.

This de facto collusion goes far beyond cultural kinship and personal greed, which are probably its most trivial aspects. Corporate executives and government bureaucrats often share the same policy interests, since top leaders in both sectors usually spring from the same educational institutions and follow similar career paths, often rotating between high-level corporate and government positions. Both must live with the decisions of the other, so it makes sense to cooperate, if not collaborate, even when those decisions are ostensibly independent. After a while, it’s only natural for these guardians to begin looking at their spheres of influence as a private preserve, and the quid pro quos exchanged among them as essential for “doing business” in that area.

Worst of all, even if their sense of stewardship for non-guardians is strong, their authority is still autocratic and oligarchic, not democratic. We are at the mercy of their moods and calculations, of their prejudices and whims. Conflicting views are heard only at their sufferance, and then after clearing appropriate gatekeepers. If it’s lonely at the top, it’s because our guardian hierarchy has made it so.

The mechanisms by which these collegial guardians achieve their ends are tangible favors: seeking or dispensing tax relief and other favorable regulations; awarding or receiving government contracts; and granting or seeking taxpayer subsidies. Political guardians can also punish private guardians by selectively increasing taxes and regulatory burdens, or by focusing public scrutiny on those who don’t play the game. Political guardians also have the power to transfer private diseconomies–such as the cost of cleaning up factory pollution, or bailing out troubled industries–to the public sector, while requiring other, less-favored industries to shoulder such costs themselves. They can also use the bully pulpit of high office–politicians’ ready access to the media and high-profile legislative hearings–to fine-tune citizen perceptions.

The intensity and overtness of this symbiosis shifts with economic and political currents. In good times, citizen-watchdogs either tend to look the other way or find few ears for their complaints. Since World War II, the advance of Keynesianism (government management of aggregate demand, with private profits being the main criterion for allocating resources) and the growth of the welfare state (firms and individuals rebating of a portion of their income to the government so it can mitigate social problems and placate dissent) went hand-in-hand. This accommodation did nothing to correct the shortcomings inherent in the system; in fact, it perpetuated them by transferring responsibility for diseconomies away from the private sector and toward public guardians, who are held accountable by different standards.

Periodic grass-roots agitation for true democratic reform serves mostly to strengthen the bonds between private and public guardians, since a group under attack tends to close ranks and band together. In periods of actual or potential guardian crisis, such as the Clinton impeachment and the Bush-Gore electoral stalemate, some public guardians actually found it necessary to remind Americans that they live not in a democracy, but in a republic, where there are some matters that the “sovereign people” just don’t have any business meddling with.

In short, free enterprise has come to mean neither the freedom of corporations from government interference nor the freedom of government to interfere with them, but the freedom of both types of guardians from interference by non-guardian stakeholders. Globalization of what had previously been national economies–and the traumatic, rolling financial crises that seem a permanent part of that landscape–showed Keynesianism to be what monetarists always said it was, a poor substitute for following a few general rules about growing the money supply and underscored once again the wisdom of broad-based, decentralized decision-making.

As it turns out, there are real limits to guardians’ ability to control aggregate demand. The high cost of the resulting entitlement economy–from unaffordable health care to bankrupt public utilities and a culture of self-serving corporate executives–eventually overwhelms its productive elements, making political guardians look foolish and inept, and its economic guardians look greedy and short-sighted.

There had to be a better way, and a key piece to that puzzle was profits.

  1. 25. Dahl. Democracy and Its Critics.
  2. 26. Two typical examples were reported on the same date in California in 2001. In the first case, Governor Gray Davis demoted a state lawyer “whose interpretation of labor laws angered employer groups from retailers to Silicon Valley...” (Lucas, Greg. “Davis demotes labor lawyer for state,” San Francisco Chronicle, June 28, 2001). In the second, an out-of-state developer was told by a San Francisco bureaucrat to hire a prominent state senator, a friend and ally of the city’s mayor, as a “consultant” if he expected to participate in a lucrative waterfront deal. (Finnie, Chuck; Strasburg, Jenny; and Williams, Lance. “N.Y. developer says Burton was touted for lobbyist job: SF port director allegedly urged hiring,” San Francisco Chronicle, June 28, 2001.)
  3. 27. Berlin, Isaiah. “On the Pursuit of the Ideal,” New York Review of Books, March 17, 1988.
  4. 28. Heilbroner. Nature and Logic. 86, 100.

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