Figure 1: KPD: sanction power
Usually economists do not study phenomena of power, and leave this analysis to the sociologists and psychologists. This columns starts by explaning the MAR theory about the exercise of power. She is combined with the theory of networks and groups of the economist Paul Frijters. Next this analytical framework is applied to the theory of the aristo-democracy of Van Cleeff and Pels, and to the historical materialism of Gorter.
A previous column describes the conceptions of man, that provide the foundation for the institutional structure of the society. The starting point of the common economic science, notably the neoclassical theory, is the so-called homo economicus, who merely considers his own interest, and thus does not use morals or ethics. This type of behaviour is called economically rational. In the mentioned column it is noted, that the nature of the real humans contains more facets than this. On the internet lists can be found, which contain indeed several tens of different types. Besides the homo economicus the most important ones are the homo politicus, the homo ethicus and the homo religiosus.
The homo politicus is motivated by altruistic motives. He takes his norms and values and thus his identity from the community, where he lives. The homo ethicus is motivated by his own morality. The homo religiosus has an inner inclination to believe. Originally this belief is still religious, for instance with the German philosopher Georg Wilhelm Friedrich Hegel (1770-1831). Later the term belief also gets simply a metaphysical meaning, disjoined from the concept of God. The religions tend to prescribe the human behaviour in the economy, and thus they restrict the room for action of the homo economicus. This kind of human facets introduces factors of power into the economic system.
In the beginnimg of the seventies the social-psychologist Mauk Mulder developed a theory in order to describe the exertion of power. The present paragraph is mainly based on the consultation of his book Omgaan met macht1. Although the view of man, the human identity and the morals do not really concern Mulder, his theory has an indirect relevance for these aspects. The theory is built on the human inclination of power distance reduction (in Dutch machts afstands reductie, in short MAR). The exertion of power is defined as a certain influence on the behaviour of others. A less powerful individual will in his relation with a more powerful individual always try to reduce the distance of power. The first individual wants to minimize the external influence on his behaviour.
Mulder and his collaborators have revealed and demonstrated this behaviour in empirical studies, both in laboratory experiments, and in their practical consults for enterprises and organizations. Moreover they have discovered, that the less powerful individual is discouraged, when the power distance is too large. He will end his efforts, because he does not succeed in bringing about a significant reduction of the power distance. Due to this apathy in fact the power distance will become larger. Henceforth the less powerful individual will associate mainly with his companions. Thus in the organization a coterie is formed at the top, and another coterie is formed in the rank-and-file. The power structure polarizes into two extreme groups. Henceforth the managing of action must employ coercion, mainly by the top.
According to Mulder this is a harmful development, because in this way the ideas and the creativity of the rank-and-file can not unfold. He proposes to split the two power coteries in various smaller sub-groups, called meso-structures. In subgroups the power distribution is more equal, so that there is more room for decisions by means of deliberation. This gives results with a superior quality.
It is also interesting, that Mulder distinguishes between four factors for the exertion of power. The first one is the power to sanction, which consists of rewarding or punishing the behaviour. The second is the formal power, which is possessed by the more powerful individual, because his functional authority is accepted by the less powerful individual. The third is the reference power, in situations where the less powerful individual identifies with the more powerful, and therefore also with his commands. The fourth is the expert power, because the less powerful individual respects and stands in awe of the knowledge and experience of the more powerful individual.
Incidentally the exertion of power occurs rarely in her pure form. Usually she will be a mix of the four mentioned factors. In principle the MAR theory is developed for individuals, but she can also be applied to groups, for instance to the board and to the members of the trade union. It is striking, that Mulder also wants to apply his theory in democratic mass organizations such as political parties. A gap is continually formed between the mass members or the voters on the one hand, and the party elite or the represtentatives on the other hand. Apparently the reciprocity is poor. This tends to create a class society2.
In the mentioned preceding column the theory of the economist Paul Frijters about greed, love, groups and networks has been discussed. He explains her in the book with the same name3. Although Frijters sticks to the view of the homo economicus, he still succeeds in explaining various social phenomena, such as power and the human morals and love. It turns out that man does develop non-material motives. An individual can fall in love with an object, when that object can satisfy his needs, and the individual can not force the object to do that.
In other words, the love grows, while the individual tries to find satisfaction with something powerful, in the expectation that the satisfaction will finally be granted. The primary motive remains greed! Thus the egoism of the homo economicus creates in a natural way the altruism of the homo politicus. In dramatic terms: he produces most of all his own grave-digger. The individual identifies with the interests of the powerful object. This can be a group of people, or a good cause, or an ideal. The own sphere of influence is apparently extended towards the other object.
Frijters distinguishes between three forms of collectivity: networks, the hierarchical group, and the reciprocal group. In the analysis of networks he limits his efforts to the economic system of industry and trade. Contrary to the groups, the trade network is free of a structural exertion of power and morals. The only power of the actors in the net is the starting and breaking off of economic trade contacts (contracts for production and services). Frijters applies the form of the network mainly in situations, where the nodes of the links consist of enterprises. He calls them contact makers. They keep uniting production factors, in an ever changing composition, dependent on the circumstances.
In general the enterprises have the internal structure of a hierarchical group. The decisions are made by the board. The hierarchy is used to satisfy individual ambitions, such as enrichment. The members tend to have the behaviour of the homo economicus. In reciprocal groups all members are more or less equal. Examples are the extended family, an association, a community, a religion, or a democratic nation-state. The decisions are made during a collective deliberation. This type of group must continuously prove its relevance (the reciprocity). Usually the members behave similar to the homo politicus4.
According to Frijters power is exerted exclusively by groups, and not by individuals. It is obvious, that some individuals occupy powerful positions, but still they derive their power mainly from the fact, that their group supports them. Now it is interesting to couple the theory of power of Mulder and the group theory of Frijters. In the hierarchy mainly the sanction- and formal power will be used. In the reciprocal group the reference- or expert-power will be the preferred type of power. Note, that in reference-power the group apparently shares the same norms and values, that is to say, they dispose of collective morals. The goals are internalized by all, which increases the cohesion of the reciprocal group. A rebellious member will be corrected by the social pressure.
The theory of power and the group theory could lead to the conclusion, that the society will split in a ruling class and a subjugated class. However, Frijters explicitely denies this5. His objection is, that the society consists of a large diversity of groups. This coincides with the ideal, that Mulder propagates for organizations. Notably, Frijters stresses the large cohesive force of the nationality. Your columnist is not completely convinced. In capitalism the distribution of the domestic product leads to a considerable conflict of interest. The wage earners are in an eternal conflict with the entrepreneurs and the rentiers. This social question has even dominated the entire nineteenth century.
The economist Bernard van Praag has made this nuance visible by analysing the German GSOEP data set with the so-called cardinal probit method of utility scaling. It turns out that the individuals with different incomes indeed develop a class-dependent definition of justice. At the same time, the empirical results of Van Praag show, that there is a large probability (say, 80%), that the opinion of the individual deviates from the opinion of his own class. It is obviously conceivable, that in the social situation of a century ago the same analysis would have revealed a more pronounced class conscious.
According to Frijters the trade networks support the democratic system. The civil rights are essential for the performance of the economy. The network wants to be safeguarded against the oppression and unwanted restrictions by the nation-state. Since in the network the homo economicus dominates, and not the homo politicus, the choice for the democracy is sheer opportunism. Therefore the net may prefer merely a limited form of suffrage. Probably the sociologist Heiner Ganßmann is right, that the universal suffrage had to be extorted by the labour movement6. On the other hand it can also be advantageous for the network, when thanks to the democratic right to vote the working class and the people develop a certain dedication towards the nation-state.
In the sociology and in the political economy the model of the (dual) class society is still quite popular. All thinkers in this column adhere to the model, with the exception of Frijters. In fact some scientists do not merely believe that the society is split in two classes, but they actually prefer this situation. For, the elite, the actual ruling class, highly distrusts the mass of voters, which in her view are ignorant. This paragraph discusses the ideas of two sociologists of this type, namely Ed van Cleeff and Dick Pels. In the next paragraph the attention will be turned to thinkers, who reject the class society.
Ed. van Cleeff has propagated his social-economic ideas mainly in the book Sociale economische ordening7. Van Cleeff is very much influenced by the spirit of the time, and he wants to socialize the production, although he does reject the social-democracy, becaus of its popular tendency. He believes that the state is a large reciprocal group, which he calls the aristo-democracy. In his book he considers the then reality, and subsequently tries to sketch the optimal future situation. The citizens must develop in the direction of the homo politicus, which according to Van Cleeff must also be a homo religiosus. He calls this future appropriately the Kingdom of God.
This can be interpreted as a moral transformation, which proceeds by means of an optimal formation and a minimal coercion. The individual mind will shift towards a complex of motives, which is ordered by justice, and centres the will to cooperate. This reminds of the attitude to convince by means of open arguments and deliberations, which is advocated by Mauk Mulder. An essential aspect of Van Cleeff's system is the cumulation principle, which identifies change with the building on already existing structures. He is rigourous in this aspect: for instance, he wants to maintain the nobility and the aristocracy. He even accepts the idea, that excellence may be hereditary.
According to Van Cleeff the contact makers of Frijters can be found mainly in the ruling elite. Therefore the elite must initiate the realization of the new order. For this reason Van Cleeff calls his future society the aristo-democracy. The market economy will change into a coordinated planned economy. This process must proceed with a maximum of subsidiarity, which implies, that in fact the aim is self-regulation. The reader may be surprised, but should remember, that after the Second Worldwar the Netherlands indeed has developed in this manner. An example is the illustrious polder model.
It will be clear, that the power of the elite requires high morals and ethics, so that abuse is unlikely. Van Cleeff calls this the moral purity. He states: "Of course we know, that our ideal can never be realized completely in this imperfect world with imperfect and sinful people. However, we do believe, that the society has the obligation to try to approximate this ideal". The religious and moral formation are consigned to the family, the school, the youth associations etcetera. The economic subjects will get used to a certain self-discipline. Motives and deeds are subjected to the discipline of reason, conscience and the public opinion.
Over half a century later Dick Pels in his book De economie van de eer8 repeats the ideas of Van Cleeff, with the exception of the planned economy and the religious aspect. Pels even copies the expression aristo-democracy for the desired social order. Incidentally this book does not mention Van Cleeff, perhaps because Pels wants to distance himself from the religious connotation. Pels is an individualist. He does refer to culture socialists such as Hendrik de Man and Jacques de Kadt.
The ideas of Pels concern the highly reciprocal nation-state, which supports the morals of the social meritocracy. Usually people rise to the position, where they belong because of their talents, intelligence, and work ethics. Social provisions guarantee, that the losers also have a decent existence. Without a social minimum, which expresses the community values and the solidarity, the meritocracy degenerates into a growing socio-economical inequality. Pels believes that this indeed happens, and laments this, because he thinks that such large inequalities are socially detrimental. He supports his statement about the growing gap with an abundance of practical cases.
Pels prefers a meritocratic system, which is based on a celebrity culture of reputation and fame. The social competition is necessary, because only in this way the innovation and creativity can blossom. But Pels rejects the exhibitionist and distorted height of the rewards, which are the hallmark of the present celebrity culture. The reasonable relation between the effort and the reward has disappeared. Outstanding individuals must find their satisfaction in symbolic marks of honour and distinctions, instead of material ones. Although Pels is a liberal, he argues that the market does not produce a just distribution. Therefore, the homo politicus must decide about the height of the reward. The material reward can be determined by the civil society, as the result of an open social discussion. Sometimes this already happens, for instance in collective bargaining.
Pels hopes to solve the material misconduct by means of a public counter-offensive. Greedy behaviour can be punished by a public and concrete condemnation, where the culprit is mentioned by name. A moral appeal is made to those, who excel. Although he recommends the celebrity culture, he rejects the present media culture. The media make some persons larger than is justified in view of their true talents. A false value of image is created. The decoupling of fame and fortune allows to praise individuals according to their qualitative merits9. People are vain, and tend to engage in rivalry. They want to know, who succeeds within the system. Ambition becomes the economic incitation. The pecking order counts, and not the money. Your columnist proposes to call this type of man the homo ambitiosus, for lack of something better.
Thus the honour bridges the gap between the individual interest and the general interest. The corresponding virtues are independency, self-disciplin, self-respect and authenticity. Since the ambition is egoistic, there always remains an impulse to improve the existing order. The democratic equality is counter-balanced by the aristocratic inequality. A rule of the best emerges. The good life is defined in an ongoing debate about value or utility. The politics becomes the spokesman of the enterprises. Thus the plutocracy, the rule of capital, will diminish.
Pels sketches a society, where the competition within the elite is permanent. This is necessary in order to provoke top performances and excellence10. At the front of the excellent innovation, creativity and risky entrepreneurship the logic of selection reigns. The idea, that everybody can excel, furthers mediocrity. On the other hand the losers and the weak people must organize solidarity and collective protection. Activities which are just routine, do not require a mentality of winners.
Your columnist is not completely satisfied by the future system of Pels, because it contradicts the power theory of Mulder. Namely, according to Mulder the individuals, that rise on the social ladder, will develop sympathy for their superiors. The relations within the elite are regulated by the reference- and expert-power. Thus the elite will develop a mutual solidarity, which hurts the mass of common people. A similar objection is raised by the historic materialism. This acknowledges, just like Pels, that the ruling class competes. However, this class has shared interests, which she will ultimately defend as a group against the assaults by the common people. This theme is the subject of the following paragraph.
This paragraph about the historical materialism is based on two books: Het historisch materalisme by the political writer Herman Gorter11, and Die Persönlichkeit by the Leninist philosopher L.M. Archangelski12. According to Gorter the production process is of existential importance for the society, and therefore the humanity must correspondingly adapt her social relations. This rule is the foundation of the historical materialism, which wants to explain the psychical life from the material circumstances. The labour is the driving force of society. In principle this method of analysis can be applied to any type of society, but Gorter focuses on capitalism.
In capitalism the large mass of the people consists of workers, who sell their labour force to the entrepreneurs. The entrepreneurs dispose of the means of production (the factor capital), which they own themselves, or hire from other capitalists. The capitalists, as the group of entrepreneurs and rentiers, obtain as their income the profit. Thus the distribution of the production creates a conflict of interest between these two income groups, namely the wage earners and the receivers of profit. The social conflict separates the humanity into the massive working class (at the time called the proletariat) and the capitalist elite (the bourgeoisie).
Usually the individual will adopt the habits and morals of his own class. Therefore a class conscience is formed, with its own norms and values, and typical morals. The free latitude of the individual mind is surprisingly limited by his social position. For the sake of convenience it must be mentioned, that here Pels agrees with Gorter, whereas on the other hand Van Cleeff firmly believes in the independent mind. But whereas in the end Pels is satisfied with the individual freedom of all, Gorter states that the social conflict due to the incomes dominates society, based on his experiences with the expanding capitalism of the nineteenth century and on the then social question.
Moreover Gorter has a second argument against the idea of Pels (but not against the idea of Van Cleeff!). When innovation and creativity are entirely left over to the individual, then much knowledge is lost. For, it does not suffice to invent something, since subsequently the find must also be made productive for society. And this occurs by no means by itself. In practice innovations must be socially embedded, so that groups of scientists and engineers search in a purposive manner for solutions of the problem. Innovation is a collective process. The ambition of a maximal human freedom requires, that the activities are coordinated, and certainly in the case of risky endeavours13.
The social conflict in capitalism can be removed by solving the question of distribution in a democratic manner. This is only possible, when the means of production become the property of the society. Gorter stresses, that just an equalization of the incomes is insufficient. For, then due to the private property the capitalist classe would still dispose of a large economic power, a sanction power. Besides the private property does not have added value for the society.
A special hallmark of capitalism is the concentration of capital. The entrepreneurs are mutually engaged in an intense competition, where the large-scale production has a competitive advantage. The larger enterprises succeed in ousting the small ones from the market. Despite this mentality of winners the capitalists keep up a mutual solidarity in order to protect their interests as a class against the working class. Thus the bourgeoisie accepts some reciprocity, even though as a group their number dwindles. Consider for instance the formation of cartels. It is precisely this tendency of the class of priviliged people to shrink, which undermines the social cohesion, and thus also the economic stability.
Furthermore it is remarkable, that following Charles Darwin and Friedrich Engels also Gorter assumes that the individual is affected by social impulses. Ambition, disciplin, loyalty, etcetera are biological properties, in addition to the obvious instinct of self-preservation, which have been strenghtened by the evolution, because they support the living in groups. They are innate impulses, which have been incorporated in the human morals. However, in capitalism the impulse for self-preservation dominates all social impulses, so that the individual becomes alienated from himself. The reader may remember, that according to Pels the self-preservation is a merit and the driving force for progress. But Gorter states, that the individual will only live in freedom and according to his nature, after the means of production have been brought into collective property14.
Your columnist accepts that this sounds reasonable. Nevertheless also the historical materialism is merely a model, and Gorter sometimes seems to forget this fact, in his enthusiasm to inform the workers. For instance, as has been mentioned, he relates the individual mind to the material forces of production, and therfore he states that the metaphysics of religions are no longer credible. The party member Th. van der Waerden argues with a fine feeling for the nuance, that Gorter is premature in rejecting the religion15. For it is possible, that the religious attitude herself is a part of the social impulses. Then the individual would be a homo religiosus, just like Van Cleeff assumes. The argument of Van der Waerden has a political relevance, because thus the believers can reconcile themselves with the historical materialism.
In the Soviet Union the historical materialism has been promoted more or less to the position of the official state ideology. When one reads the mentioned book by Archangelski, which has been published three quarters of a century after the book by Gorter, it comes as a surprise that hardly any new insights are added. The differences with the arguments of Gorter are marginal. For instance, Archangelski reduces the social impulses to simply the herd-instinct. According to Archangelski the solidarity and humanity are hardly innate, and they are formed in a conscious manner by the social experiences of the workers. Among the workers the individualism is an anomaly. Here he seems to agree with Pels, but he also condemns the individualism in harsh words. It has an anti-social and greed-enhancing effect16.
Just like other Leninist philosophers and sociologists also Archangelski stresses, that in the Leninism the individual and collective interests coincide. The reader be warned, that the Leninist state benefits from this presentation of reality. For, when the people accept her, then the Leninist state becomes legitimate. The policy of the state seems to fulfil the demand of reciprocity. The administration can make use of reference power instead of sanction power, and that is more effective and cheaper. The Leninist party has embraced the plea of Van Cleeff for social formation and education like no other.
Finally it must be mentioned, that Archangelski constructs a causal chain between the social relations and the ruling morals and values. The chain is: social relations → needs (utility) → interests → goals → motives (for action) → (socio-psychical) attitudes → morals. However, Archangelski admits, that many links in the chain affect the preceding links. That makes the construction less applicable.
The exertion of power in an economic system has as a consequence, that it is impossible to realize the situation, that is predicted by the neoclassical theory. In the neoclassical paradigm the economics ignores the sociology. The markets behave as networks with perfect competition. The product price is determined in an autonomous way by the curves of aggregated demand and supply, and by the requirement of clearing markets. No actor on the market can as an individual influence the product price. However, due to the formation of groups on the market, and their power, the reality is strikingly different.
Firstly, every producer and supplier can seduce his customers so, that they become attached to his product, even when in fact he does not possess a monopoly. The difference of the product with regard to similar products is insignificant in a rational sense, but yet it can turn the scale for the customer. Such a situation is called a monopolistic competition. The producer or supplier is able to dictate his product price to the market, together with the quantity, that is supplied by him.
A variant on this theme is the so-called price discrimination. Here the producer offers the same product on different markets, and sets a different price on each market. The segmentation of the market can be based on the location, the use of the product, age or income. A well-known example is the difference between industry- and consumer-prices. In that case the neoclassical theory can still be applied, namely by supposing that these are different products, but that is not really satisfactory.
The preceding argument implies, that the individual no longer determines his own indifference curves. Others dictate the preferences of that individual. The objection can be made, that the individual himself chooses to accept the external influence. Nevertheless, this will make the concept of indifference curves less attractive17. Another objection against the neoclassical theory is, that sometimes a powerful producer can discourage the entrance of new producers on the market, for instance by raising the entry costs. A final objection is, that in some of the described models (theory of power, historical materialism) the situation is inherently unstable. That contradicts the neoclassical idea of the general Walsrassian equilibrium.
The improvement of the system may be found in new institutional structures. This column has made several suggestions in that direction. Unfortunately in all cases the "proof" is rather thin. Is there a class society? Do social impulses exist? And what are the virtues? Since none of these arguments can truly convince your columnist, he suspects that the best solution will be a mixture. This approach may please everybody. The reader is invited to develop his own preferences.