"Power is not an institution, and not a structure; neither is it a certain strength we are endowed with; it is the name that one attributes to a complex strategical situation in a particular society."
~ Michel Foucault
If you read any publications from the "fringes" of society, you will probably encounter the word "establishment". Generally, this word is used in reference to entities that wield a large proportion of the political power in a society.
The eccentric personalities who write about "the establishment" tend to toggle freely between sane and insane frames of mind, and their florid accounts usually seem science-fiction-ish. However, their articles tend to be engaging and they make you ponder deeply about the mysteries of this world.
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In this post, I will use a model called The Establishment Triangle, and its elements (including; Big Unions, Big Companies and Big Governments), to discuss the forces that shape the destiny of most contemporary liberal democracies. I am not sure exactly where I encountered this conceptual tool, but it has helped me to understand the distribution of power, patterns of transactions and political events that occur in most liberal democracies.
Before I discuss the establishment triangle, I would like to point out an observation that Will Durant made when he dissected 6,000 years-worth of world history in his text entitled Lessons of History:
"Most governments have been oligarchies-ruled by a minority, chosen either by birth, as in aristocracies, or by a religious organization, as in theocracies, or by wealth, as in democracies. It is unnatural (as even Rousseau saw) for a majority to rule, for a majority can seldom be organized for united and specific action, and a minority can. If the majority of abilities is contained in a minority of men, minority government is as inevitable as the concentration of wealth; the majority can do no more than periodically throw out one minority and set up another."Hence, it is important to note that virtually every government in every society is an oligarchy, ruled by a minority that I will term The Establishment. But who are they?
The Establishment
The establishment in most contemporary societies mainly consists of three forces, (Big) Government, (Big) Unions and Big Companies; i.e. the organizational entities that different groups of individuals use to satisfy their Maslovian needs. The state of affairs in any society is usually the result of the dynamic tensions that stem from interactions of these organizational entities.
The Establishment Triangle
Big Companies
- They are large companies in industries that are at the mature phase of their life cycles.
- They generally seek political power and influence for use in the erection of barriers to entry that would keep new industry entrants at bay.
- They are primarily interested in maximizing shareholder value by getting a disproportionate share of government contracts (i.e .government spending), and, by minimizing the cost of doing business (through lobbying for less regulation - which reduces transaction costs).
- They generally desire a low cash tax rate because it maximizes their cash holdings. These companies primarily use their cash reserves to reduce business risk by buying-in new innovations and by making defensive acquisitions.
- They are managed by men and women of great merit who are usually "hubs" in elite social networks.
- They prefer smaller governments that they can easily control.
- They ultimately serve the interests of the financial and stock owning elites.
- They are net job killers and the main enemy of Big Unions.
Big Unions
- They exist to enhance their members' job security, and, to lobby for more earnings per unit of man hours.
- They generally seek political power to; leverage in their negotiations with Big Companies, erect barriers of entry in labour markets (i.e. reduce immigration) and to reduce the threat of competition from foreign labour (i.e. minimize the adverse effects of outsourcing and offshoring).
- They generally seek lower payroll taxes and consumption taxes to maximize the disposable incomes of their members.
Big Governments
- They are usually headed by cabals of Machiavellian politicians who rise to power by using the grass roots structures of Big Unions and the funding of a minority of Big Companies (that usually operate in the following industries: Infrastructure, Defense and Pensions / Investment management).
- They exist to pay back favours they received from Big Unions, Big Companies and segments of society that propelled them to power. In short, they appease their patronage networks via Government spending and contracts.
How the Forces Act
The prevalent state in any society is usually the admixture of the below mentioned scenarios, although one scenario usually tends to be predominant:
Scenario 1: When Big Companies are relatively powerful
- Corporate Taxes and Capital Gains taxes are generally low - and social welfare projects are underfunded.
- Incomes are on an downtrend in real terms and people increasingly use debt to supplement their dwindling incomes. Usually, this debt binge fuels an economic expansion that increases employment, resulting in a prosperity illusion and real prosperity.
- Wealth transfers from middle class to the upper class occur.
- Risky assets perform well.
- Income inequality increases and this may result in greater societal instability. To minimize the threat of instability, the government responds by increasing the size of the military / police and it intensively recruits members from restive pockets of society to: 1) Discipline them through military / police training, and; 2) Help contain civil unrest and crime.
- Recessions are likely to occur at the end of the debt accumulation cycle. And, it is then that the prosperity illusion vanishes.
Scenario 2: When Big Unions are relatively powerful
- Payroll taxes are generally low.
- Incomes are high.
- Wealth transfers from the Upper class to the Middle and Lower classes occur. This frustrates the elites, which causes them to divest from the economy. The government responds to this by increasing taxes on divestment and erecting exit barriers to business. This deters further inward investment.
- Income inequality falls, i.e. in the short term.
- The efficiency of businesses falls.
- The economy becomes chronically uncompetitive and sectors with the most powerful unions lobby for subsidies.
- Barriers to imports are erected to protect unionised industries from foreign competition.
- Immigration is reduced and xenophobic and nationalistic sentiments become ubiquitous.
- This type of government artificially bolsters wages while productivity and employment are falling. Hence, it is typically associated with stagflation / inflation.
Scenario 3: When Big Governments are relatively powerful
- The size of the government increases and it has to be funded by either a commensurate increase in taxation or government indebtedness, or both.
- The government budget deficit increases exponentially.
- The tax code becomes complex and hard to interpret, because each line would serve to address the demands of a specific special interest group.
- Transfers of wealth occur from all sectors of society to government contractors and favoured constituencies.
- Wealth becomes concentrated in the hands of a few oligarchs.
- Bureaucracy increases and inefficiency becomes rife.
- This type of government is usually toppled by a sovereign debt crisis that causes a (depression or) a recession. Or, it may cause hyperinflation if it chooses to inflate away its debts.
- The excesses of this form of government increasingly shift the support of the masses to the political surrogates of Big Companies.
Scenario 4: When Big Unions, Governments, and Companies have an equal amount of low power
- A fourth internal/external force comes in to seize the power, and, wealth would be concentrated in the hands of that "fourth force"
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Big Unions, Companies and Government don't usually collaborate, i.e. unless it is to squash a threat that would: curtail job security, remove barriers to entry and dismantle patronage networks. The most common points of origin for such threats are; technological and financial innovation.
