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/)

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

ie

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)

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)

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)