The power structure of 20th century industrial society

The power structure of 20th century industrial society had the following new characteristics:

1 Weakened capital ownership

With the development of company system enterprises, the size of enterprises required extensive use of technology and complicated the management process. The shareholding system expanded businesses while changing the nature of the firm; that is, businesses transformed from natural businesses to legal entities. The life cycle of a business lengthened because it was no longer restricted by the life cycle of individuals. The separation of ownership from management occurred naturally as the shareholding system transformed the natural business into a legal entity. The separation of ownership from management created professional managers, and management became a new' factor in the production and management process. The “manager revolution” advanced the division of labor in industrial society; that is, the division of labor between capitalists and managers brought by the separation of ownership from management. As managers became professional executives, capitalists became professional investors. Because manager’s income is linked to the profitability and growth of businesses, as Schumpeter (1939) states, the mission of managers is to continuously explore potential profit and turn that potential into actual profits by means of diverse innovations. Non-capital owners can participate more in capital management, and the control of capital by capital owners weakens. The emergence of managers renders businesses the investment objects of capital owners, and the privacy of the usufruct of capital presents extensive social search by means of social income distribution and redistribution.

2 The economic pow'er structure is characterized by the monopolization of goods and concentrated control over resources

In current industrial society, the development of a shareholding system is moving toward a more concentrated form of organizational capital. That is, shareholding system replaces the individual owmership in industrial society, and the subject of shareholding has shifted from private persons to legal entities. The traditional shareholding system of private capital is replaced by the shareholding system of corporate capital. The corporate capital (including corporate and institutional entities) has replaced private capital with the largest shareholder. Therefore, companies are larger, and the representatives of legal entities closely supervise managers, which has ensured company’s long-term development. In the 20th century, particularly after World War 11, mar- ketization, further advancements in the division of labor, and fierce competition worldwide placed limitations on the private share capital owmership system. Limited ability to raise funds and the personalized shareholding system led to short-term business operations. The ownership of corporate body capital has gradually replaced private share capital ownership system and seized a dominant position.

Compared with private share capital ownership system, corporate capital ownership system has the following characteristics. First, legal entity shareholdings strengthen the links between legal entities and companies, which overcome short-term corporate behavior. Modern enterprise is no longer controlled by certain capitalists but managed by professional managers with higher management skills. Second, corporate bodies have replaced individuals and become the main body of shareholders, which broadens the financing channel of the stock corporation, boosts production, and further concentrates capital. After World War II, in addition to commercial banks and investment banks, non-banking financial institutions, such as funds and insurance companies, flourished due to access to huge amounts of monetary capital. Such institutions entered the capital market and became shareholders of large corporations. Because most of these institutional corporate bodies are public utility organizations, such as pension funds and health insurance funds, the power structure of capital has gradually formed an open system of property rights and absorbed different sectors of the economy. Hence, different subjects of property rights coexist in the same economic organization. This corporate system has increased partnership-type business’s ability to raise funds and has opened the structure of property rights. Property rights are more diversified and socialized. The power structure in the 20th century is reflected in the diversification of capital sources, the decentralization of property rights, and the securitization and marketization of capital. The power of capital is concentrated on the surface but is actually dispersed, which has led to an increase in the welfare of society as a whole. The “people’s industrial society” has emerged.

3 The state increasingly intervenes in economic activities

The most notable change in the 20th century’s industrial economy is state power intervention. After World War II, Western industrial society, except the United States, had to be rebuilt, which provided objective conditions for political power to intervene in the economy. From the perspective of economic equilibrium, Keynes (1937) argues that the fundamental role of state intervention is to affect social aggregate demand and aggregate supply through the adjustment of resource allocation to achieve the goal of full employment. Particularly, government spending including direct investment, transfer payments, and government procurement could increase demand in the whole society. The nationalization movement in developed Western economies enabled the state to operate the production of large public goods such as postal services, railways, petroleum, and electricity and infrastructure construction directly. The nationalization guaranteed the scale supply effect of public goods and important commodities, which, to some extent, guaranteed the effective operation of a market economy. The primary causes of government intervention in the economy were the following. First, organized private interest groups can leverage state power to increase their own income. Second, intervention is the result of the expansion of political power and the needs of group interests. Third, due to the growing electoral power among low-income classes, higher educational level of laborers and increasingly powerful unions, people demanded social protection from losses caused by economic instability such as unemployment and disease by means of government intervention.

4 Capital power allocates resources globally with the aid of national political power.

If the enhancement of state power intervention in economies has made the socialization of private capital a state feature, the development of multinational corporations has strengthened the internationalization features of capital power. Both the General Agreement on Tariffs and Trade (GATT), signed into effect in 1948, and the World Trade Organization (WTO) with multilateral trade negotiations at core, established in 1995, have played an important role in the development of economic power globalization in industrial society in the 20th century. With the aid of state power, economic power institutionalized the world market and the resource-sharing system. With the progress of industrial society, the globalization of economic power is a prominent driver. First, in the process of economic globalization, many economic activities used the world as a platform to overcome different natural and social barriers, particularly transportation barriers, communication barriers, and market barriers. Second, the primary vehicle of economic globalization has been multinational companies. According to the World Investment Report 2017, the world has more than 100,000 multinational parent companies and more than 860,000 affiliated companies and subsidiaries. These companies control the world market through their own advantages in funds, technology, brands, and sales networks. They also control one-third of production, two-thirds of international trade, 70% of technology patents, and 90% of foreign direct investment globally. The nature of economic globalization is a process whereby multinational companies organize production and circulation worldwide. From the perspective of power relations, the expansion of multinational companies can be viewed as games played by a variety of global economic powers through which these companies profit from economic growth. In reality, multinational companies expanded their activities in locations with low costs, favorable market conditions, and economic potential. In the 20th century, multinational companies are the primary driving force of economic globalization as well as transnational special economic power groups: the business empire. Third, regional economic cooperation (i.e., regional economic integration) has become a form of economic globalization. Regional economic cooperation is a major trend in world economic development. Moreover, it is central to economic globalization. There are approximately 140 economic cooperation organizations worldwide, but only three occupy a large share of the market and play a decisive role in economic cooperation—the EU, the North American free trade area and the emerging East Asia free trade area. The rise and fall of the world economy is closely related to these three major regional economic blocks. After five rounds of expansion, the EU has become the world’s most integrated regional union. The EU has adopted a single currency and established the euro zone.

In essence, regional economic cooperation as the most critical form of economic globalization reflects that economic power establishes a sphere of influence. This influence expands the market and income through state power forming a relatively stable system. In fact, the result occurs due to games played by a variety of global political and economic powers. Due to its position in industrial society, particularly due to its advantages in capital and intellectual property (technology), economic power has benefited greatly from the global market and resource sharing.

In summary, compared to the slave and agricultural societies, the power structure in industrial society is more decentralized and relatively equal. Since the 20th century, power in society has become more centralized on the surface but actually more dispersed. Its open system of property rights enables the power in society to assimilate in different sectors of the economy, and allows multiple subjects of property rights to coexist in the same economic organization, which has formed a complicated, scattered, and unique system of property rights. In today’s society, due to the knowledge economy, information technology, and the diversity of resources and hierarchy of interests, different types of economic power frequently change. However, the power of different economic subjects at the same level has shown a growing trend of equalization.

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