Chapter 2
Wealth and Power:
The Bias of the System

I.     Comparative Per Capita Income Data

II.     Capitalism and Socialism

A.     Capitalism

Capitalism is on of two methods that industrial societies use to organize their economic activities.  It is an economic system in which the means of production and distribution are privately owned. Personal profits are derived through market competition and without government intervention  Capitalism is based on the following assumptions.

1.     Private Ownership of Property

Individuals are encouraged to own not only private possessions, but the capital to buy more possessions (see Eitzen and Baca-Zinn, 1998:356-57).

2.     Pursuit of Maximum Profit

Individuals are encouraged to maximize their personal gains. Seeking personal gain is morally and socially appropriate. It's the position of Adam Smith that this has many beneficial consequences for Americans.

3.     Free Competition

This is the element that keeps out profit seeking in check. In a competitive society, if one agent raises prices too high, then others will step in to sell goods more cheaply. Fraud is thus weeded out and the market is stabilized.

4.     Laissez-faire Government

Laissez-faire government is a government that does not intervene in the economy.

How does a society hang together in a scenario where everyone is pursuing their own interest? Adam Smith argues the capitalist economy maintains integrity because someone will provide whatever is needed. As demand increases for a product, the potential to make profit will increase. The potential of earning profit will encourage someone to produce those commodities that are in demand.

Competition acts as an economic regulator. Competition not only regulates the supply of desirable commodities, it also ensures that prices remain fair and product quality remains high.

Capitalism regulates wage levels in much the same way as it regulates production and prices. If wages are too high, someone else will rush in to work for a lower wage. If wages, on the other hand, are too low, employees will seek better jobs. The law of the marketplace ensures a self-regulating economy. This is the philosophy behind free enterprise. The economic system of Adam Smith is not egalitarian, because through competition someone wins and someone loses. Grass roots capitalism is, however, fair when all competitors have essentially the same economic base. The capitalist economy, however, is not a static phenomenon. It undergoes continual transformation and has done so since the end of the 15th century (see Wallerstein, 1974).

B.     Socialism

Socialism is an economic system in which the means of production are owned by the people for their collective benefit. There are five principles of socialism.

1.     True Socialism must Be Democratic

Representatives of a socialist state must be answerable to the wishes of the public who is ultimately making the decisions and whose interests are ultimately being served.

2.     It Must Be Egalitarian

There must be equality of opportunity for all and decision-making should not be hierarchical. Equality opportunity for the self fulfillment of all; rather than hierarchy in decision making; and equality in sharing the benefits of society.

3.     Socialism Is a Community

Cooperation should characterize social relationships, not competition.

4.     Public Ownership of the Means of Production

The people own basic industries, financial institutions, utilities, transportation, and communication

5.     Socialism is Efficient Planning

Society should direct social activities to meet common goals. The society is organized to provide at the least possible individual and collective cost. The goal is serving the public, not making profit.

III.     The U.S. Economy:
The Concentration of Corporate Wealth

A.     Monopolistic Capitalism

Competition is a primary ingredient of capitalism that is disappearing from modern capitalism.  Eitzen (2000:27) argues that the most significant of the inherent contradictions found within capitalism is the inevitability of monopolies. Monopolies are antithetical to the capitalist system. The monopolies, and not supply and demand, ends up determining price and quality of products. In the U.S. one percent of corporations produce 80 percent of private sector output.

1.     Shared Monopoly

 

2.     Examples of Shared Monopolies

 

B.     Megamergers

Mega-mergers refer to the combining of corporate entities that are already very large.  E.g., In January of 2005, Procter & Gamble bought out Gillette Corporation.

Megamergers generate the following problems:

• They increase the centralization of capital. 
• They eliminate jobs. 
• They increase corporate debt.

C.     Interlocking Directorates

Eitzen (2000:29) describes interlocking directorates as another mechanism that promotes ever-increasing concentration of the size and power of large corporations. An interlock occurs when

• one individual serves on the board of directors of two companies (a direct interlock)
• or when two board members of competing companies serves on the board of a third company (an indirect interlock).

When interlocks occur, there is the potential for cohesiveness, common action, and unified power.

In 1969, of the 8632 individuals who sat as directors on 797 of the largest corporation, 1572 sat on at least two boards of directors. In 1978, of 123 corporations studied, each had an average of 62 interlocks. Interlocking is important because it reduces competition. It also allows "insiders" to more efficiently influence other corporations. Top corporate officials share information. This in turn helps create a sense of unity among those who control corporate America (see Mintz and Schwartz, 1981).

The chart (associated with the link below) shows the companies that are interlocked with the Mellow Corporation. The numbers on the fringe of the graph show the number of interlocks the interlocked corporation has. For example, Mellow is interlocked with Penn Central. Penn Central, in turn, is interlocked with 34 other corporations.

Click here to see Chart by Mintz and Schwartz (1981)

D.     Multinational Corporations

There is a trend for corporations to increase in size to the point where they form effective monopolies.  They experience an ever-increasing centralization of power.  They do more of their business in the global arena.   Multinational corporations are economic entities whose existence is transnational. They may be based in specific countries (e.g., Exxon in the United States, Shell in Holland), but production and sales occur in the international sphere.  The flow of goods and services recognize few boundaries  Eitzen's & Baca-Zinn (2003:33) presentation entitled "Corporate Cash" shows that several giant corporations wield more economic power than most of the nation-states on earth.  Eitzen & Baca-Zinn (2003:31-33) argue that Exxon-Mobile, General Motors, and Ford have larger economies than all, but seven, of the 191 countries on earth.

[FIND LINK WITH THIS INFORMATION]

The Consequences:

As corporations shift production off-shore, there are fewer semi-skilled and unskilled jobs domestically.  Further, tremendous power (financial & other) resides in the hands of a few corporations.  This power and influences allows multinationals to meddle in the internal affairs of other nations.

E.     The Concentration of Wealth

IV     The Political System:
The Links Between Wealth and Power

A.     Oligarchy

Oligarchy is a political system that is ruled by a few.  Eitzen & Baca-ZInn (2003:38) quote Bernard Sanders as saying "Oligarchy refers ... to the fact that decisions that shape our consciousness and effect our lives are made by a very small and powerful group of people."  In the opinion of Rep. Sanders, the U.S. is increasingly an oligarchy.

The ruling class is able to play a major role in shaping the social and political climate because it dominates the federal government through a variety of organizations and methods. It controls the corporate community where power is further enhanced as a result of large corporations being linked to form a corporate community. The American ruling class is linked through joint ownership of stock, joint ventures, and common sources of bank loans. Large corporations have similar legal, accounting, and consulting firms. They share similar values and goals. They also have common enemies like labor movements and middle-class reformers.

The ruling class is able to influence the nonelite population by providing funding for policy groups, foundations, think tanks, and university research institutes. It influences public schools, churches, and voluntary organizations by providing them with movies, television programs, books, pamphlets, speakers, advice, and financial support.

While Domhoff's (1974) ruling class represents only about 1 percent of the population, they "own 25 to 30 percent of all privately held wealth in America, own 60 to 70 percent of the privately held corporate wealth, receive 20 to 25 percent of the yearly income, direct the largest corporations and foundations, and dominate the federal government in Washington."

B.     Government by Interest Groups

1.     Democracy

Democracy is a political system in which the majority will prevail if there is equality before law and if decisions are made to maximize the common good (Eitzen & Baca Zinn:2000:36)

2.     The Financing of Political Campaigns

Contributors of large sums of money to political campaigns receive access to politicians and they, there fore, have influence over the positions of politicians on important issues.

3.     The Candidate Selection Process

V.     The Bias of the Political System

A.     Systemic Imperatives

Eitzen & Baca-Zinn (2003:42) begin from a position that the wealthy have significant advantages in society.  Some advantages are obvious (e.g., their financial power, Laws that favor business, etc.).  Other advantages are more structural and more subtle.  Choices people make are limited by systemic imperatives.  Systemic imperatives are economic and social constraints placed on political decision makers.  They promote the status quo.  A culture will develop norms and expectations that what exists is no doubt good because it has existed for a long time.  Expectations can become so fixed that few people even see a need to question them.  The character of these social institutions is to a large extend shaped by those who wield power within the political economy.  They are also the beneficiary of these social arrangements.

Example:  People who protest against war in Iraq are seen as supporting terrorism. 

Example:  "If a policy is good for business, then it's good policy."

B.     Power

Power is the ability to achieve goals despite opposition from others (Kendall, 1998:24).

C.     Who Rules America?:

1.     C. Wright Mills and the Structure of Power in America

Who controls the giant corporations. C. Wright Mills in The Power Elite (1956) defines three social structures where he feels power is rooted. The first of these structures is the economy. Boards of directors of transnational corporations dictate policy to the capitalist world. The second seat of power lies in the political apparatus of the United States, which primarily consists of the President and his close advisors (who Mills calls the "men of higher immorality"). The third seat of power rests in the hands of the United States military (who Mills called "the warlords.")

Power associated with these three social structures is telescoped by the linking of major institutions, which have become dominated by two or three hundred giant corporations (Mills, 1956:5). Power and control continually experience centralization. Other social institutions like the church, the family, and education are shaped by decisions of the executive, the economy, and the military.

For Mills, those who make up the power elite are not necessarily those with the most wealth. Power and wealth accumulates and is protected as a result of structural (institutional) positions held by the wealthy. Members do, however, have a similar social origin, but according to Mills there is not a strict class distinction. "There is more of a mutual attraction among these members" (1956:11).

This model rejects the notion that a conspiracy exists among those people who rule. The ruling class does not control the course of capitalism. The position in the economy occupied by the power elite merely determines that they are better able to act on their interests.

2.     G. William Domhoff and the Social Origins of the Power Elite

William Domhoff investigates the social origins (social class) of those who rule America. Mills, while highlighting the importance of social structure in bestowing power in America, notes that the particular individuals who rule tend to have similar social backgrounds. In the U.S. Republican presidents replace Democratic ones and vice versa. Domhoff contends that regardless of who is president, whether Republican or Democrat, the same moderate conservative families are in control of America year after year. These families include the Mellons, Rockefellers, duPonts, and the Carnegies. Social class is, therefore, very important in determining who occupies positions that determine policy in the United States.

The ruling class model, described by Domhoff (1983), argues that there is a cohesive ruling class in America and their power resides in large corporations and banks. Those who rule, the upper-class, have a distinctive lifestyle that sharply differentiates it from the rest of society. Domhoff (1983) argues that social elites are able to maintain their status, in part, because they are in a position where they can sponsor their own to fill structural positions of power.

3.     Elite Models vs. Pluralist Models

Pluralism (see Robert Dahl) is the philosophy most often presented as a rebuttal to the power elite view. Pluralism interprets power relations in terms of competing interest groups. Pluralists see power as something that is not centralized. Interest groups create diversity within society rather than a similar united elite. Many groups, each with different agendas, compete within the political process and exercise power and influence. The goal of these groups is to defend their interests, not to dominate society.

David Riesman (in Robertson, 1989:324), however, points out that even within a pluralist arrangement, some interest groups have more influence than others. Riesman calls these groups "veto groups," because they are able to block or accommodate powerful groups. Despite the existence of veto groups, the relationship between powerful and less powerful groups is not so much one of domination, as one in which the powerful seek out the less powerful as allies in the political process.

D.     The Consequence of Concentrated Power

Today's economy shows little similarity to the one Adam Smith described 200 years ago. According to Eitzen (1986:28) the primary ingredient that is missing from modern capitalism is competition. During the 200 years since Smith, individual capitalists have faithfully engaged in competition. A few succeeded, but many failed. Throughout the competitive process, wealth and power became more concentrated. The capitalist economy today is "now dominated by huge corporations that, contrary to classical economic theory, control demand rather than respond to the demands of the market" (Eitzen, 1986:28).

Bibliography

Domhoff, G. William

1974 The Bohemian Grove and Other Retreats. New York: Harper & Row.

1983 Who Rules America Now? New York: Simon and Schuster.

Eitzen, D. Stanley and Maxine Baca-Zinn

1998 In Order and Conflict: Understanding Society. (8th Ed.)   Boston: Allyn and Bacon.

2000  Social Problems. (8th Ed.) Boston: Allyn and Bacon.

2003  Social Problems. (9th Ed.) Boston: Allyn and Bacon.

Kendall, Diana

1998 Social Problems in a Diverse Society. Boston: Allyn and Bacon.

Mills, C. Wright

1956 The Power Elite. New York: Oxford University Press.

Mintz, Beth and Michael Schwartz

1981 "Interlocking Directorships and Interest Groups." American Sociological Review, 6: 851-869.

Wolff, Edward N.

1997 "Top Heavy." in Crisis in American Institutions. (10th Ed.) by Jerome H. Skolnick and Elliott Currie. New York: Longman.