In his presidential address to the American Economic Association, John Kenneth Galbraith said â[E]conomics divorced from consideration of the exercise of power is without meaning and certainly without relevance.â1 The main conclusion of this volume is that when economic and political power are held by the same people, the result is stagnation; when those who hold economic power are not the same people who hold political power, the result is progress. The remarkable increase in prosperity the world has seen since the beginning of the Industrial Revolution a few hundred years ago has been the result of the separation of economic from political power. For readers who are immediately inclined to agree with this conclusion, the policy challenge is to see how economic power can be separated from political power in cases where they are combined, and once separated, how they can remain separated. People seek power, so preventing people who have one type of power from using it to acquire another is not a trivial issue. Institutions must be in place to keep those types of power separated, and those institutions must be robust enough to resist attempts by the powerful to combine economic and political power.
These institutional challenges cannot be addressed without understanding the concept of power. After considering the nature of power in abstract terms, this volume looks at the historical evolution of institutions of power. In pre-agricultural clan-based societies, power is undifferentiated. Powerful people in those societies have social power, which encompasses all types of power, so political and economic power are combined with all other types of power in those societies. In agricultural societies, political and economic power also tend to be held by the same people. Power in agrarian societies comes from control over land, which brings with it control over the people who work the land. Commerce and industry can facilitate the development of institutions that allow economic power to exist independently from political power because capital and entrepreneurship are more significant factors of production, and they are mobile so they can escape the abuse of power. The chapters that follow explain why economic and political power tend to be held by the same people, describe factors that can lead to their separation, and explain why stagnation occurs when they are combined and progress occurs when they are separated.
People do not willingly give up the power they have, and economic power became separated from political power not by taking economic power away from the powerful, but through institutional innovations that allowed people without political power to accumulate economic power by creating more of it. A clear example of this is the economic power that was accumulated by American industrialists in the late 1800s. Rockefeller, Carnegie, Vanderbilt, and others gained economic power not by taking it away from those who previously held it, but by creating new economic power through the growth of the businesses they owned.
This example suggests several important issues. One stems from the fact that an almost immediate response to the rise of those industrialists was an attempt by those with political power to control the economic power of those new industrialists, through regulation, antitrust laws, and taxation. Those with political power often use it to try to control and confiscate economic power. A second issue is that those with economic power have an incentive to use it to obtain political power, both to protect themselves from the predatory use of political power, and to further their business interests by using the force of government to protect their businesses from competitive pressures. One way those with economic power can keep their economic power from being subordinated to political power is to buy off those who have political power. Issues such as these suggest the value of undertaking a more thorough study of economic and political power.
Types of Power
Economic power is institutionalized control over resources. Political power is institutionalized control over the actions of people through threats of coercion. Political power provides its holders with the institutionalized ability to make people comply with their mandates because of the threat of sanctions to be imposed on those who do not comply. In early societies, and even in many societies up into modern times, there has been little difference between these two types of power. Control over resources was maintained by force, and was one component of the ability to force people to act as the powerful wanted. To control peopleâs actions meant to control their use of resources. In advanced societies, economic power and political power are more clearly distinct. One important question is how those two forms of power, nearly indistinguishable in earlier times, and even combined in some twenty-first century societies, became differentiated through the development of economic and political institutions that enabled them to be separated.
Not all power fits neatly within these two categories. People may have social power, military power , religious power , and other types of power they can use to influence people, all of which are supported by institutions. The concepts of economic and political power, as used in this volume, always have an institutional foundation. An example of a robber threatening a victim with physical harm shows that not all uses of power are supported by institutions, and indeed, most societies have institutions that are designed to prevent robbery. Not all uses of force by one person against another are exercises of political power. But economic and political powerâand all types of power considered in this volumeâare supported by institutions.
Another type of power, emphasized by John Kenneth Galbraith, is conditioned power, which is exercised by changing the beliefs of individuals so that they act as the holder of conditioned power wants because they find it the natural, proper, or right thing to do.2 It is not force, nor exchange, but a form of persuasion based on the beliefs of those subject to the power. Political power, religious power , social power, and all institutionalized power can be enhanced by conditioned power.
All of these types of power interact with each other, and all will be considered in the chapters that follow. The volume focuses primarily on economic and political power, however, because when those who have economic power are not the same people who have political power, so they can use their economic power without being coerced by other types of power, economic progress results. The remarkable prosperity that the world has seen since the beginning of the Industrial Revolution is the result of that separation, something that has been underappreciated by economists and social scientists more generally. And, economic power has almost always been dominated by political power throughout the history of humankind.3 The causes of the economic progress that has occurred since the beginning of the Industrial Revolution cannot be completely understood without understanding how economic power was able to develop separately from political power.
As modern social science has advanced, the study of the institutions of economic and political power has evolved from the nineteenth century study of political economy, where both were studied together, into the separate disciplines of economics and political science. There is value in examining economic and political power together, and studying their historical evolution lends insight into their current relationships. Even in the twenty-first century, when economic power and political power are obviously two different things, the two are intimately connected, as suggested by accusations of cronyism, corporatism, and corruption. Economic and political power have common origins, and an understanding of how they have evolved illuminates the institutional innovations that facilitated their separation, explains why economic progress depends on their separation, and emphasizes the evolving relationship between these two types of power in the twenty-first century.
The Concept of Power
Kaushik Basu says âPower and influence are complex concepts, and it is quite likely that these concepts have so many facets and nuances that it will never be possible to capture them in a single definition.â4 The claim of the present volume is not that it offers the indisputably correct definitions of political and economic power, but that this way of defining those concepts provides useful insights for understanding some of their features. Political power is the ability to use the institutional framework to credibly threaten to impose costs on people so they will act as those with political power want them to act. Economic power is institutionalized control over resources. Control over resources, in all but rare cases in which people can maintain physical control of everything they own, requires an institutional framework that defines and enforces property rights. This institutional framework is created by those who have political power. Economic power can be protected by those who have political power, which is reflected in the concept of rule of law, but it can also be appropriated by those who have political power, when they use that power to forcibly transfer resources from others to themselves. There is a complex interrelationship between economic and political power.
Defined this way, political power enables its holders to force people to act in ways they might otherwise choose not to. Coercion underlies political power. Economic powerâthe control over resourcesâdoes not enable its holders to force others, but rather gives them an opportunity to entice others to engage in voluntary exchange for their mutual benefit. Some readers will be skeptical, and the next two chapters are devoted to fleshing out more fully the properties of political and economic power. But because readers may not be used to thinking in these terms, it is important to clarify these important characteristics of the way economic and political power are defined here.
Political power, exercised through formal institutions, is always based on force. If people would voluntarily pay for publicly provided goods and services, there would be no need to force them to pay taxes. If people would voluntarily act as regulations require, there would be no reason to impose penalties on people who do not comply. This is true no matter how much people agree with the activities of their governments. If the law requires that automobile drivers fasten their seatbelts when driving, the threat of force lies behind that requirement even for those who would always voluntarily choose to fasten their seatbelts, and even for those who agree that this is a desirable law.5 Political power is founded on the institutionalized ability to use force. In saying this, there is no judgment as to whether the exercise of political power is harmful or beneficial. A governmentâs use of force to prevent some people from assaulting others creates a more orderly society, based on the threat of force against those who do not comply with the governmentâs rules.
Robert Dahl defines power in this way: âA has power over B to the extent that he can get B to do something that B would not otherwise do.â6 This corresponds with this chapterâs concept of political power, but not economic power. Two parties engage in an exchange because both want to do it. Nobody is forced. Both parties have control over resources the other party wants in exchange, and they both agree that they benefit from the exchange. When separated from political power, economic powerâcontrol over resourcesâonly gives its holders the ability to entice others to engage in voluntary exchanges. Kenneth Boulding says âpower is the ability to get what one wants.â7 People who have political power can threaten the use of force to get what they want; people who have economic power can entice others to engage in voluntary exchange to get what they want.
In a manner similar to Dahl, Steven Lukes defines power by saying that âA exercises power over B when A affects B in a manner contrary to Bâs interests.â8 One difference between Dahlâs and Lukesâs definitions is...