definitions power is commonly understood as having the capability and the right to: make decisions...
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DefinitionsPower is commonly understood as having the
capability and the right to: Make decisions and control and consequences (outcome
power) Control the behavior of other people (social power)
Power is usually ascribed to political relations, but companies also possess and exercise power (related to the size of their material assets)
MNCs are the most powerful business players, because they hold enormous wealth and tend to escape regulation on the supranational level
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Political powerIn a democracy people delegate the power to
rule to the government (agency theory)Government is controlled and accountable to
the society (and business) and this is how it derives its legitimacy
The government can be peacefully changed (outvoted)
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Corporate powerBusiness has great economic power, because it
holds the primary decision of resource allocationBusiness has power, because it accumulates
resourcesBusiness power is legitimate, as long as the
company is profitable (owner keep the management hired)
As a consequence it shapes also the social environment
Business may act as a rival of the government, when it comes to power
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Political vs. corporate powerPolitical Corporate Centralized, collective
decisionsPublic interestUltimate power and
obligation lies with PM (President)
Governments can be outvoted
Government’s power is legitimized by (re)election
Decentralized, private decisions
Private interestPower and obligation is
in the hands of few/manyCompanies cannot be
outvotedCorporate power is
legitimized by economic success
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Sources of powerFrench and Raven (1960) identified 5 main types of power
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Type of power Political Corporate
Legitimate – followers believe the leader has the right to act
Reward – followers expect reward in the event of obedience
? Coercive – followers fear penalties in the event of disobedience
Referent – followers believe the leader has personal qualities and charisma
?Expert – leader has specialized knowledge and expertise
? (Source: http://www.negotiationtraining.com.au/articles/powerful-intrapersonal/)
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Business vs. stakeholders powerBusiness power vs. direct stakeholders (customers, suppliers, employees)Bargaining power (Porter’s Five Forces) Customers – consumer sovereignty and ethical consumerism ?Suppliers – how many are they ?Industrial relationsEmployees – trade unions ?Management – disperse ownership empowers CEOs
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(2)Business vs. stakeholders powerBusiness power vs. indirect stakeholders
(CSOs)Civil society can support or criticize business
activityNGOs can be an extension of business
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(3)Business vs. stakeholders powerBusiness plays a role in and affects the
political arenaBusiness exerts power to shape the policy-
making process:Individual companies (decentralized)Business associations (centralized)Lobbies (centralized)
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Pressure groupsResources InfluenceSize and membersPublic supportFinancial resourceExpertise and knowledgePersonal contacts
Policy-making processLinks to political partiesCampaigns,
demonstrationsMediaClaims to court
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Power relations and pressure groups
Pressure groups
Pressure groups
Pressure groups
Laws
LawsC
omm
odit
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s
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Globalization and powerGlobalization (through trade) and the rise of
MNCs underlie the shift of power from governments to corporations:
Exit optionsLocational advantage Too much deregulation and flexibility
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MNCs – the empiricsA Swiss study from 2007 found out that 1318
MNCs control 60% of the world revenuesLess than 1% (147) are in charge of 40% of world
revenueTop 20 of these companies is dominated by
investment banksSuch an overdependence explains the deepness of
the 2008 crisis (Source: PLoS One, The Network of Global Corporate Control, 2011) In terms of value added, 29 out of 100 economies
are companies (2005)ExxonMobile is the biggest and most profitable one
(value added - $63 billion)13
(Source: Global Development and Environment Institute: Corporate Power in a Global Economy, 2007)
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Power measurement of MNCsIndustry concentration ratios – calculates how
much of the industry revenues go to the four biggest companies. If it is above 40% the industry is an oligopoly. When the ratio rises, power also increases. (Breweries, Tobacco, Pharmaceutical and Petrochemical, Supermarket chains, Telecommunication).
Corporate economic data – measures the rise in revenues, profits etc. Top 50 corporations’ assets increased by 700% 1983-2003.
Declining power of trade unions – deregulation after 1980s and increase of service sector
Corporate tax decline – based on the business lobbying activities
14(Source: Global Development and Environment Institute: Corporate Power in a Global Economy, 2007)
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Drawbacks of oligopolyThe biggest MNCs operate in oligopolistic
markets:This reduces consumer sovereignty (exit)Firms become price-makers (cartels) and
establish entry barriers to new-comersThere is huge pressure on suppliersSmall-sized companies are eliminated
Management holds total control (power)It is damaging for the environment (outsourcing)
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Most powerful people in 2011Name Position Why?
Barack Obama President of USA Most powerful economy in the world
Vladimir Putin President of Russia Most powerful authoritarian leader
Hu Jintao President of PRC 2nd most powerful economy
Angela Merkel Chancellor of Germany Most powerful economy in EU
*Bill Gates Owner of Microsoft Spent the most on charity
Abdullah bin Abdul Aziz al Saud
King of Saudi Arabia Richest absolute monarch
Pope Benedict XVI
Head of Catholic Church Spiritual leader of 1.2 billion people
Ben Bernanke Chairman of Federal Reserve
In charge of US money
*Mark Zuckerberg
Owner of Facebook Posses the biggest personal database
David Cameron PM of the UK 2nd most powerful economy in EU
16(Source: Forbes, 2011)