Schumpeter
The transience of power
The powerful do not stay that way for long
The Economist
IF PARTISANS on the left and right agree on anything, it is that power is becoming more concentrated. Occupy Wall Street types protest against the all-powerful 1%. Tea-partiers rage against the cosmopolitan elite. Al Gore’s presidential campaign in 2000 may have been inept, but his campaign slogan—“the people versus the powerful”—is defining the politics of the 21st century.
It is easy to see why. During the financial crisis governments used oceans of public money to rescue banks from the consequences of their own folly and greed. Bankers quickly went back to paying themselves fat bonuses. Inequality is growing in many countries. Plutocrats wax richer as the middle class is squeezed and the poor are trodden underfoot. Hedge-fund moguls and casino kings spend fortunes to sway American elections—and the Supreme Court tells them to carry on spending.
Such is the popular view of power. Moisés Naím says it is bunk. In “The End of Power” Mr Naím, a former Venezuelan cabinet minister now ensconced at the Carnegie Endowment for International Peace, a think-tank, argues forcefully that rigid pyramids of power are collapsing. Micropowers are learning how to frustrate macropowers. Bigwigs are finding it harder to wield power and harder to hold on to it. The barriers that used to protect insiders, such as economies of scale and long-established relationships, are crumbling.
In the 1950s and 1960s the corporate world was ruled by cabals of giants—by the “Big Three” in American cars and broadcasting and the “Seven Sisters” in global oil. C. Wright Mills, a sociologist, complained that America was ruled by a tiny elite. J.K. Galbraith, an economist, argued that there was not much difference between state planning as practised by the Russians and corporate planning as practised by General Motors.
Today’s corporate world could hardly be more different. Time is being compressed: Google was incorporated only in 1998 but is now one of the world’s biggest companies. Geography too is being tightened: who would have guessed in Galbraith’s day that one of the world’s leading aircraft-makers would be Brazilian (Embraer) or that one of its most innovative clothes brands would be Spanish (Zara)? In 1980 a corporation in the top fifth of its industry had only a 10% chance of falling out of that tier in five years. Eighteen years later that chance had risen to 25%.
Bosses, too, spend less time at the helm: the tenure of the average American chief executive has plunged from about ten years in the 1990s to five-and-a-half today. Those who disappoint are held to account: about 80% of CEOs of S&P 500 companies are ousted before retirement. Bosses must confront a growing army of critics from within the capitalist system: look at the way that Apple’s head honcho, Tim Cook, has been roasted by angry investors. They also face a growing army of critics from outside. Even banks have been chided for sins such as interest-rate rigging (Barclays), money-laundering (HSBC) and illicit dealings with Iran (Standard Chartered).
The same pattern is being repeated in every walk of life. Take politics. In 2012 only four of the OECD’s 34 countries had governments with an absolute majority in parliament. The Netherlands spent four months without a government in 2010. Belgium spent 541 days without one in 2010-11. Established parties are ceding ground to upstarts such as the UK Independence Party or Beppe Grillo’s Five Star Movement in Italy. They are also constrained by rival power centres, both transnational and provincial. Or take organised labour. In America big labour’s clout is waning faster than that of big business. Unionisation in the private sector has fallen from 40% in 1950 to less than 7% today. Old labour baronies such as the AFL-CIO have been challenged by upstarts such as the Service Employees International Union.
Why is power becoming more evanescent? Mr Naím is reluctant—too reluctant—to credit the internet, which is surely the most obvious force undermining hierarchy. He points instead to three revolutions: “more”, “mobility” and “mentality”. Global GDP has grown fivefold since 1950, so more people have access to more things than ever before. People are more mobile; the UN estimates that there are 214m migrants in the world, 37% more than two decades ago. People are also more self-directed (or egotistic). Even in Saudi Arabia 20% of marriages end in divorce.
There are obvious objections to Mr Naím’s argument. The supposedly anarchic internet is now ruled by five big companies (except in China, where the state calls the shots). Among banks and accountancy firms, power is more concentrated than it was at the turn of the century. Amazon and eBay may grow more dominant than any of the giant retailers of the 1950s.
Look on my works, ye Mighty, and despair
But Mr Naím has good objections to the objections. His argument is not that companies are shrinking but that they are becoming more fragile. Internet giants can no longer rely on the economies of scale that kept General Motors and Sears on top for decades. Rather, they must constantly struggle to keep their products innovative and their brands fashionable—or fall prey to more agile upstarts. Powerful people are less secure than they were, too. The composition of the top 1% is constantly changing as CEOs lose their jobs and young go-getters outpace their elders.
Mr Naím celebrates the anti-power revolution for holding the mighty to account and providing ordinary people with opportunities. But he sees downsides, too. The more slippery power becomes, the more the world is ruled by short-term incentives and ever-changing fears. Politicians fail to tackle long-term problems such as climate change. Companies think of little besides the struggle for survival. Nonetheless, it would be worse if the populists were right and the 1% really did rule the world.
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