A republican economy should aim at maximising the genuine independence of economic actors. Only then can corruption be tackled at the root.
In part this essay is a response to Stuart White’s call in his introduction to the Democratic Wealth series to challenge the relevance of republican ideas for thinking about how to build a citizens’ economy. I will first point to a significant potential weakness in contemporary republican political theory. There is a danger in the republican view of non-domination, namely the failure to recognise in relation to a republican economic order that it is necessarily an order of power. In one sense this view is perfectly consistent with the version of republicanism that has been proposed in recent times by Philip Pettit and Quentin Skinner, in so far as they licence interference by the state as a means of preventing non-domination. But, as emphasis is often important, there is a need to focus on the other side of the republican equation of freedom – the minimisation of dominance entails the maximisation of independence.
How can this goal of the maximisation of the independence of economic actors be squared with the idea of governed economy where the conduct of those actors is subject to regulation and even prohibition? I will argue that the primary purpose of economic governance in a republican economy should be to promote the independence of economic actors as a means of preventing the abuse of economic power and the corruption of public life.
A republican model of economic governance sees the company as a self-governing association of members that incorporates owners, employees, users, and other agents that have an interest in the company’s success. At the same time, the objectives of the company must be consistent with the wider public or common interest. As I will claim, what constitutes the ‘common interest’ is a problem for republican thought and it must always be open to critical scrutiny. Nonetheless, independent citizens and citizens’ associations, rather than the central state or the market, are best able to protect the public power from corruption when they have the means of holding the powerful – both in political and economic terms – to account.
Republicanism: minimisation of domination or maximisation of independence?
José Luis Martí writes that the ‘key principle of Republicanism is to minimise domination wherever it is found’. Martí’s concerns are with the kind of political and economic domination of international institutions and corporations over citizens that has been established in the banking and euro crises. And indeed, it is right to claim that to a considerable extent the democratic rights and liberties of citizens have been subordinated to the interests of political and financial elites.
Yet there is a problem with the claim that the objective of republicanism in general must be to minimise domination. With respect to a republican economic order, the claim may obscure the fact that it must be both an order of government and an order of power relations. In a sense, the claim that we should seek the ‘minimization’ of domination is an acceptance of this fact. In a complex political order there will always be some people who will claim they are subject to arbitrary power and are forced to do things against their will – like pay taxes. The fact that a republic is a political order – rather than a religious or moral order – will mean that there are always at least some losers.
Philip Pettit’s distinction between interference and domination in part is designed to deal with the problem of losers in a republican order. Economic liberals argue that the state should not interfere with the economic activities of citizens as this constitutes an impingement on their liberty. But Pettit would claim that interference is permitted where it is licensed by the members of the republic and is aimed at minimising domination. In this respect, the problem with the kind of argument put forward by John Tomasi – as Martin O’Neill and Thad Williamson show in their review of his Free Market Fairness – is not that people do indeed find value in and self-worth through property, but its almost total ignorance of the effect on power relations of the accumulation of property in the hands of the few at the expense of the many. Property, as it has been under the neo-liberal governance, can be transformed into a resource for the exercise of domination by economic and political elites.
There is much to commend in the republican account of freedom as non-domination and it may have value as an ideal for a republican political movement to pursue. But the difficulty is that what counts in practice as legitimate interference is bound to be open to contestation. No one, apart from the most radical libertarian or anarchist, would argue that interference by the public power is never permissible. But precisely what constitutes the ‘common interest’ in the name of which interference is licensed is much more difficult to discern.
As agonistic thinkers like Bonnie Honig rightly argue (see the interview with herhere), it is important to see the common good not as agreed upon in a set of formal procedures or as fixed principles of equality, liberty, and justice. The common good is itself an object of public contest, and citizens must be provided the space and opportunity to contest the procedures and principles that give rise to it. This is one respect in which it makes more sense to emphasise the republican commitment to maximise independence rather than minimise domination. The independence fostered in a republican political order is a condition for the formation of citizens who have the knowledge necessary to both recognise and contest the corruption of the public power. Dependence of citizens – on the state and the market – debases a political culture of active citizenship.
We might thus think of the republic as a system of political and economic regulation aimed at the generation of a certain kind of political and economic subject. While that independence may be a good in itself – because it allows for self-realisation, the living of a more rewarding life than one of dependence etc. – its primary objective must be to contest the abuse of political and economic power in concert. The maximisation of independence is thus at the same time the minimisation of corruption.
Corruption and Economic Power
Neo-liberal policies of privatisation and marketization pursued in the last thirty years have promoted the corruption of the public power across the globe. This might seem most obviously the case in the developing world, where the imposition of structural adjustment programmes have in a number of instances benefited entrenched political elites while having disastrous effects on the capacity of states to provide essential welfare services to their populations. But it is also the case in developed economies such as the UK. Privatisation has seen the wholesale transformation of public assets into private wealth. Yet privatisation has in general failed to improve the level of services provided to consumers while costing the taxpayer far more than alternative public schemes (see for example Warwick Funnell, Robert Jupe, and Jane Andrew,In Government we Trust).
At the same time, while there tends to be little ostensible evidence in the UK of the blatant buying off of politicians and officials, the murky networks that connect political parties with private funders, and see the frequent movement of officials across the private and public sector, raise serious questions about the integrity of the public service ethos at the highest levels of power (as even Conservative commentators recognise – e.g. Ferdinand Mount, The New Few).
But the problem of economic corruption is not just confined to the transfer of state-owned assets into the private sector. Neo-liberal governance has promoted and justified the domination of economic activity by managerial elites and institutional shareholders and the exploitation of small shareholders, employees, and customers. In this environment, large public companies almost inevitably appear as hierarchies based on the absolute power of the Board of Directors, driven by the ethos of short-term gain for executives and corporate shareholders. The move towards financialisation has only served to entrench this form of internal absolutism.
This kind of corporate governance is not, as economic liberals would argue, simply an expression of free market principles. It has been politically managed and encouraged by the state over a long period of time. At the same time, the public sector has itself become increasingly modelled on this form of corporate governance. Jon Wilson has shown how the model – with its obsession on delivery, targets, and the ethos of managerialism – has been of great detriment to the public services in the UK (Jon Wilson, Letting Go, Fabian Society). Yet there is increasing realization of the inadequacy of this form of management in the private sector – it stifles creativity, punishes innovation, and promotes bad and unaccountable decision-making. Above all, it is a form of governance that undermines the independence of companies as they become vehicles for CEO enrichment and short-term return for institutional investors.
The Independence of Companies
If the revelation of the management inadequacies that gave rise to the financial crisis of 2008 were not enough, more recent controversies over the tax avoidance schemes of multinationals like Google, Amazon, and Starbucks, and the LIBOR fixing scandal, have further brought the question of the governance of corporations into the spotlight. In light of the clear moral failings of contemporary capitalism, it might seem peculiar to suggest that the independence of companies should be strengthened rather than weakened. Such a strengthening does not, however, mean neoliberal deregulation, but rather thinking about the forms of governance that may promote a flourishing of companies that are by their nature able to combat the corruption of economic power.
Many businesses and business people recognise a social value to the work they do and see their enemy less as the state than the global corporations and banks that are able to escape the constraints of national and supra-national laws to make massive profits while driving out well-established domestic businesses that meet public needs. The state has a vital role to play in both ensuring that all companies that operate under its jurisdiction meet their social obligations (by, for example, taxing them on all revenue generated within a territory), while at the same time promoting forms of corporate governance that cement company independence as a means of protecting against the abuse of economic power.
It could, then, be a requirement of incorporation under the law and the conferment of limited liability for investors, that a public company takes such measures as recognising its social as well as legal obligations. Substantive representation of employees on boards of directors as well as the participation of other interested parties – for example, users of services, or residents in the area in which the business operates if it has environmental effects – could be further conditions of incorporation. Limits could be placed on share issues and the extent of institutional share-holding. There have been some moves in the last couple of years towards empowering shareholders in the UK in relation to Boards of Directors, but owners must uphold the company constitution in its wider commitments to work in the public interest rather than simply maximise dividend value.
Alternative forms of company ownership should be recognised and promoted. Mutual and cooperative enterprises could be given tax-relief or preferential access to publicly funded grants. There should be clear and effective incentives for mutualisation and worker takeovers of companies.
The principle behind these measures would be to re-establish an understanding of the company as a self-governing association of citizens with a particular economic objective that has a public benefit beyond the making of profit for executives and corporate share-holders. Private companies should not be vehicles of public corruption, but must rather operate in a way that contributes towards and is consistent with the public interest. This clearly takes us some way from the neo-liberal understanding of economic freedom, in which no such requirement of the public benefit of private economic activity is stipulated. Yet this just demonstrates again the inadequacy the economic liberal’s understanding of the public conditions of private enterprise. A private company’s publicity consists in its public effects, and in a republican order these effects must be subject to control by citizens.
Above all, it must be recognised that the crafting of a republican economic order is an exercise in power. There will be losers and they will feel their freedom impinged. But that is the price to pay for cleaning up the economic corruption which for too long politicians and publics have wilfully ignored.
This article is part of the Democratic Wealth series, hosted by Politics in Spires in partnership with OurKingdom.