Sunday, July 26, 2009

Too-interconnected to fail?

Daniel Little sees strong parallels between the post-war American economy and polity as described by C Wright Mills in his Power Elite, and the networks of influence in the American politico-economic establishment today. Mills had talked of a hidden system of power and influence wielded by decision makers at the top ("in positions to make decisions having major consequences") that negated many of the democratic ideals. Much the same is evident in the America of today, and the most salient (and even ubiquituous) manifestation of this is the all-pervading influence of Goldman Sachs in the American political and corporate establishment.

Little first describes the power relationship described by Mills,

"There is a small subset of the American population that (1) possess a number of social characteristics in common (for example, elite university educations, membership in certain civic organizations); (2) are socially interconnected with each other through marriage, friendship, and business relationship; (3) occupy social positions that give them a durable ability to make a large number of the most momentous decisions for American society; (4) are largely insulated from effective oversight from democratic institutions (press, regulatory system, political constraint). They are an elite; they are a socially interconnected group; they possess durable power; and they are little constrained by open and democratic processes."

And then makes the comparison with modern day America,

"Corporations continue to have enormous influence on our society - banks, energy companies, pharmaceutical companies, food corporations. In fact, the collective power of corporations in modern societies is surely much greater than it was fifty years ago, through direct economic action and through their ability to influence laws and regulations. Their directors and CEOs do in fact constitute a small and interlocked portion of the population. And these leaders continue to have great ability to determine social outcomes through their "private" decisions about the conduct of the corporation. Moreover, as we have learned only too well in the past year, there is very little regulative oversight over their decisions and choices."

He refers to a network graph of corporate America that reflects the high degree of interconnectedness across the boards of directors of major American corporations.

The net result of all this is the presence of a small subset of the population who occupy most of the positions of power, and whose postions confer an unfair advantage on their sons and daughters in the race for power in their generation.

Update 1
Mark Thoma feels that the markets are too inter-connected that risks are not as widely dispersed as conventionally thought of.

Update 2 (5/4/2010)
Mark Thoma has this post on the importance of interconnectedness.

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