Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

Ensuring Successful Democratic Political Economies

Posted on | January 11, 2018 | No Comments

The recent election of Donald Trump, the US Republican Party candidate, over the Democratic candidate Hillary Clinton, for US president, has called into question the conditions and competences for leading a thriving democratic political economy (DPE). This post examines the roles of the public sector and the private sector in ensuring macroeconomic success. Government and business, while often sharing the common objective of a thriving economy, have differing motivations and strategies for reaching these aims.

One recurrent issue is whether a career politician is a better choice to ensure a prosperous national economic environment or is a candidate with extensive business experience? Who more likely to create the conditions for political and commercial satisfaction and growth? This issue received recent currency with media attention on self-made billionaire Oprah Winfrey after her talk at the 2018 Golden Globes Award. The issue also calls into question the relationship between government and the private sector and what each contributes to economic activity in a democratic environment.

Historically, presidents from the business sphere have performed below average when it comes to U.S. economic activity, although the sample is statistically small. Jimmy Carter turned around his father’s farm but struggled during the stagflation of the 1970s. George H. Bush was a successful oilman but had difficulties managing the economy after taking over from Ronald Reagan. His son, George W. and the first president with an MBA, made a fortune with the Texas Rangers baseball team but left the country with the “Great Recession” of 2008 and massive debts due to war in the Middle East. Herbert Hoover, who was elected 1928, was engineer and silver mining magnate but failed to ward off the Great Depression. More successful was Warren Harding, a newspaper publisher, who presided over “the roaring twenties” and Harry Truman, who, although a failed businessman, saw the country through the end of World War II and the post-war economic boom.

Trump inherited a fortune from his real estate father and developed an international chain of luxury condos and homes targeted at global elites. Although a media celebrity throughout his career, he never held a government position or ran for office. His first year as US president saw the extension of the seven-year economic recovery from the Great Recession, primarily due to advances in asset prices.

But rather than address the capabilities of Trump directly, I will examine some of the structural characteristics that make the success of the economy, a priority for political leadership in democratic political economies. DPEs are republics that have politicians represent the populace in managing governments and their public administrations. This blog post expands on the notion that a division of labor has emerged in DPEs and examines the structural pressures which drive both the public and private sectors towards a common objective – success at the macroeconomic level – despite differing approaches and competences.[1]

Companies drive economic activity by investing in potential profit-making activities. Failure to invest within a national boundary can raise significant difficulties for a government and its internal populace. The globalization of commerce and finance since the 1970s has created new forms of competition for capital by national and even regional governments. This trend has challenged the tax base of these governments as they offer better tax deals to multinational capital. The competition for jobs has also reduced wage rates, further eroding tax revenues.

While capitalists are often quite capable of success at the microeconomic level, they are not in a position to manage the economy as a whole. Towards procuring that success, corporations lobby governments and conduct other activities to influence government actions that will help their companies and industry.

Entrepreneurs and other people in business and professional services tend to be highly focused on their own profitability and while spending only limited resources on community and civic affairs. Private activities are insufficient to maintain parks, libraries, roads and other public goods that enhance the quality of life. As a result, democratic political economies tend to divide the responsibilities for modern economic life. Each shares an interest in robust commercial activities, albeit for differing reasons.

When it comes to ensuring a successful and prosperous political economy, democratic societies have certain structural conditions which guide the emergence of their particular form of capitalism. Neither the public nor private sector in modern democratic societies have sufficient managerial or policy competences to ensure a successful economy. Both rely on a vigorous economy for their success. Each needs economic success to satisfy their respective electoral and fiduciary constituencies. Despite the division and differing reasons, the goal is the same, a vibrant economy that will ensure both profits and political success. The political and commercial spheres both have an interest in macroeconomic success.

Governments look to the fruits of a growing economy to pay for debt interest, defense, and other services, including welfare. Their goal is to maintain a happy populace that will keep them in office. They want a prosperous economy to keep people employed, keep share prices high, and investment flowing into productive activities that will not only keep people feeling economically secure, but provide tax revenues.

The private sector, in general, is unable to ensure overall capitalistic growth on its own. It lacks sufficient organizational and policy consciousness to ensure success at the macroeconomic level. While corporations are often quite capable of success at the microeconomic level, they are not in a position to manage the economy as a whole.

The private sector wants growth and profits as well. Corporations strive to fulfill their fiduciary responsibilities – maintaining high profits for owners and shareholders. Towards procuring that success, they lobby governments and conduct other activities to influence government actions that will help their companies and industry. However, while these attempts may help individual companies or industries, they are insufficient to ensure the success of capitalism as a whole.

An interesting situation emerged with President Obama’s “You didn’t build that” statement during the 2012 presidential election campaign.

    “If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.”

The statement quickly received criticism by Governor Romney, a successful businessman, and others as an example of government encroachment in the private sector. The criticism echoed a similar critique against Vice-President Al Gore’s “I took the initiative to create the Internet.” Certainly, the Internet has progressed to be a major medium of global commerce due to entrepreneurial initiatives and accomplishments. However, much of the initial research and development, as well as the policy framework, was created by a wide range of government actions that transformed what was essentially military technology into commercial products and services.

The Republic’s Interest in the Economy

In the first of the major structural mechanisms that Fred Block proposed to explain why government officials pursue policies that are in the general interest of capitalism, he draws on the work of Claus Offe (1976). The officials of the government, according to this view, are to some extent dependent on the level of economic activity that: 1) allows the state to finance itself through taxation or borrowing; and 2) maintains popular support among the voting citizenry. Significant business investment, high levels of employment and minimal amount of government competition for surplus capital make up the most common strategies for ensuring high levels of tax receipts while keeping the voting public relatively contempt.

Governments require a tax base to fund their activities, whether meeting the bureaucracy’s payroll, building infrastructure or funding defense. They tax a combination of capital gains, income, sales of goods and services, etc. Taxes are policy decisions that affect different people, advantage different groups, make possible certain governmental directions. Inheritance taxes for example, are meant to not only collect revenues, but impose a cost on the transfer of wealth and limit familial privilege and class divisions.

Administrations also produce debt instruments that help finance government activities. In the global digital financial economy, debt produced through government securities increasingly fund a significant amount of education, healthcare, military, research and other expenditures.

These instruments also provide an important hedge for the financial sectors. The global trading environment requires constant trading in a large variety of financial instruments. Government debt allows traders to increase trading activities by allowing them to hold government securities in their portfolios and trade them constantly. Common economic doctrine argues that governments compete with the private sector for capital but in reality, the increase in government spending increases the financial sphere by expanding the trading environment and providing instruments for risk reduction. This is a dangerous trend for governments, but financial institutions apply pressure to increase the amount of debt in circulation.

Elected officials also need to keep the voting populace materially happy to stay in office. Economic indicators play a vital role in the public’s perception of the economy. These indexes provide numerical representations of various states of the economy, from consumer confidence, to price levels and the latest unemployment rates. In an age when pensions and retirement accounts are invested in the financial markets, the public also follows such indicators as the Dow-Jones Industrial Average (DJIA) and NASDAQ to gauge their personal wealth. Policies that increase corporate wealth, such as tax cuts, are seen by many voters as more valuable than government expenditures on food stamps or other forms of personal welfare as they increase stock prices.

Significant structural relationships make the business of the economy, the business of government. For one, modern democratic governments have significant fiscal determinants that compel them to establish a major stake in the economy. Relying on taxation and borrowing to propel their activities and programs, they need to ensure a robust commercial sphere in order to obtain the needed financing to run the government, provide for the national defense, monitor the economy, and conduct special programs.

The business class is acutely aware of the influence government has on their interests and work towards shaping that influence, whether it be depressing the minimum wage, alleviating environmental restrictions, or shaping tax policy. Many critics of democratic political economies argue that influence gives capital concerns sufficient control over the state. For Block however, it is the first of several reasons, the “icing on the cake.” Other structural factors are at work and need to be considered.

Influence Channels and Cultural Constraints

Two “subsidiary structural mechanisms” are also important when it comes to shaping the actions of public administrators towards economic growth. These are influence channels and cultural hegemony.

The first of the subsidiary structural mechanisms are the influence channels. The private sector can exert significant pressure on the state through its ability influence politicians, especially in a media age requiring significant expenditures on TV and other mediums for advertising. The aims of this influence have generally been oriented towards the procurement of government contracts, favorable legislation, tax cuts, regulatory relief, labor control, and specific spending in certain areas. They are most often lobbying activities, campaign contributions, and other favors. The high costs of elections, particularly media buys for procuring elections, have tied government officials to the influence of economic concerns.

Undoubtedly, issues related to bribery, coercion, and the revolving door into higher paying jobs may be factors that influence policy actions, however, this does not discount larger structural factors at work.

Cultural hegemony was cited as a second subsidiary structural mechanism. Unwritten rules infiltrate democratic political economies, which tend to indicate what is and what is not acceptable state activity. “While these rules change over time, a government that violates the unwritten rules of a particular period would stand to lose a great deal of its popular support. This acts as a powerful constraint in discouraging certain types of state action that might conflict with the interests of capital.”[2]

A contemporary example is the cultural divide over the idea of “liberalism.” This term was recoded during the 1970s and 1980s as an attack on conservative culture, specifically religion and the belief in work and entrepreneurial activity. This attack was also located in the work of the US government. President Ronald Reagan was a strong voice in the articulation and critique of “liberalism” and promised to “get government off our backs.” This divide has been a dominant cultural characteristic of the modern US political debate.

More recently, President Trump withdrew the US from the Paris Climate Accords. While not as popular as Reagan, Trump appealed to a growing backlash against the calls for government action to address the consequences of climate pollution influencing weather effects around the world. Many were convinced that such actions would too expensive and hurt economic progress. Others refused to believe the scientific discourse on the topic. But mostly, strong interests in petrochemical-related industries drive the discussion on climate change through media technologies such as astroturfing to avoid a major “carbon bubble” collapse. For the most part, liberal progressive movements have embraced sustainable technologies and renewable energies such as hybrid cars, solar panels, and vegetarianism.

Summary

Government and corporations, while sharing broad common objectives for a robust political economy, have differing motivations and strategies for reaching these aims. Despite the division and differing reasons, the goal is the same, a robust economy that will ensure both profits and political success. Neither can, by themselves, ensure successful economic growth, but by recognizing this division of labor, and the structural properties that guide each sector, democratic political economies can guide government and corporations towards mutually reinforcing successes.

Notes

[1] Claus Offe and Fred Block have been particularly influential in examining these relationships. When I was in grad school one of my minors was public administration. One the authors that interested me was the sociologist Fred Block. He delineated a set of structural mechanisms that determine the relationship between governments and the private sector in modern economies.
[2] I originally wrote a version of this essay in graduate school. I was reading a lot of public administration as well as neo-Marxist state theory. Fred Block’s work was particularly useful and much of the ideas of a structural division of labor is based on his work, including this quote on p. 14.

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AnthonybwAnthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

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    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

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