Tag Archives: lobbying

Will Trade Associations Exacerbate Growing Economic Inequality in the United States?

An essay prepared for a special section of the Journal of Management Inquiry gave me an opportunity to reflect on potential social changes in the US resulting from major political changes over the past three decades.   I believe a long-term decline in class consensus within the American business elite (Mizruchi, 2013) has raised the relative power of trade associations, compared to the powerful peak business associations of a bygone era, paving the way for more narrow self-interested actions and diminishing the influence of other kinds of interest associations. The worldview of the incoming president and his cabinet officials will facilitate this development, I believe.

Escher "Drawing Hands"

M.C. Escher “Drawing Hands”

Historically, business managers and owners could attempt to exert influence at four different levels in the system. First, they could get involved as individual executives, contributing money, lobbying officials and agencies, and so forth. Second, representatives of their organizations could do the same, especially through board interlocks with other firms in different industries, through which could diffuse general business practices as well as practices aimed at producing public goods  (Davis & Greve, 1997; Galaskiewicz, 1985). Third, firms could participate in specific industries’ trade associations that favored policies and practices they favored (Ozer & Lee, 2009). Fourth, and perhaps most important, a handful of peak associations sat above the previous three levels, cutting across firms and industries, and claiming to speak for the business community as a whole. For example, the now-defunct CED (Committee for Economic Development) advertised itself as offering “reasoned solutions from business in the nation’s interests.”

Mark Mizruchi argued that after World War II, American business leaders, working individually and through peak associations, were voices of moderation and pragmatism as the American economy expanded and the US became a global power. Foregoing narrow self-interest, business leaders accepted the legitimacy of organized labor and some federal oversight of the economy. By pursuing a policy of what the CED referred to as “enlightened self-interest,” they made it possible for the federal government to pass significant legislation that took account of national collective interests, such as the construction of the interstate highway system and improvements in the Social Security system, as well as the expansion of Medicaid. However, all this changed in the 1970s, as businesses were buffeted by global competition, rising inflation, and strong public pressure to do something about the environment, public health, working conditions, and so forth. That pressure led to the creation of many new federal agencies in the 1970s, such as the Environmental Protection Agency. What Mizruchi characterizes as a relatively harmonious working environment prior to the 1970s — involving government, business, and labor — changed into a much more confrontational system. The financialization of American corporations in the 1980s intensified pressures on executives and diminished their enthusiasm for pursuing collective solutions (Davis, 2009; Mizruchi, 2013). The corporate scandals of the early 2000s and the Sarbanes-Oxley Act of 2002 further disrupted the formerly cozy relationships between members of the corporate elite (Chu and Davis, 2016).

Changes in patterns of mergers and acquisitions, initial public offerings, and the growing importance of private equity firms have led to the slow disappearance of corporations from the American economy over the past two decades (Davis, 2016). Previously, publicly held corporations might have felt some obligation to temper their self-serving actions with more public-regarding actions, to the extent that shareholders and activists could hold them accountable (King). However, privately held corporations have no such watchdogs and thus can act with much more autonomy and disregard for collective and societal interests.

Because of these changes, the business elite has fragmented over the past three decades and lost its ability to act cohesively (Walker & Rea, 2014). Unlike in earlier eras, when presidents and political leaders could call upon business leaders in peak associations to help them push for policies that might involve some sacrifices on their part, elites pulled back into policies reflecting more narrow self-interest. Mizruchi argues that many of the problems plaguing US politics – – extreme partisan polarization and inability to enact needed legislation, such as improvements in national highway infrastructure – – stem from the damages done to social and political consensus by developments since the 1970s. Consequences can even be seen at the state level, where efforts by public interest associations to expand Medicaid, under the Affordable Care Act, ran into strong opposition by conservative nonprofit advocacy organizations that mobilized public opinion against expansion (Hertel-Fernandez, Skocpol, & Lynch, 2016). Traditional general business interest associations like the Chamber of Commerce, as well as associations of hospitals and doctors, were unable to overcome special interest lobbying against expansion.

Today, with the loss of elite cohesion resulting in fewer class-wide constraints on businesses pursuing narrow self-interest and lobbying against policies purported to be in the public interest, strong trade associations are much better positioned to pursue their own interests. In the past, they might have been constrained by networks of ties between firms and their membership in strong peak associations. However, in the changed political and economic environment of narrow partisan self-interest, they now have much more room to fight for industry-level benefits against more comprehensive cross-industry solutions, as in issues such as environmental protection. Moreover, in this new environment, big firms are not as constrained by class-wide norms as in the past, and they can use their dominance within trade associations to push for their own interests (Barnett, 2009). Whereas in the past special interest associations — such as the American Legislative Exchange Council or Americans For Prosperity — might have been restrained by needing to justify their actions to more moderate peak associations, that is no longer the case (Jackman, 2013).

The United States is entering uncertain political times, with political parties polarized, and collective action in the public interest extremely difficult to achieve. To the extent that the decline of elite class cohesion and moderate business peak associations weakens the forces of conciliation and compromise, strong trade associations may actually step into the void and make matters worse by pursuing policies favoring their own industries. Of course, as Walker and Rea (2014) remind us, we should not conflate business unity with business power, and each case must be assessed on its own merit. Nonetheless, the possibility worries me – a lot.

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