Decline of Democratic Pluralism
by David Korten
from the book
When Corporations Rule the World
published by Kumarian Press
The Case of Sweden
Sweden is known among the Western industrial countries for
its success in achieving prosperity and equity through mixing
elements of both capitalist and socialist models within a strong
framework of democratic pluralism. Sweden's experience offers
instructive insights into the dynamics of pluralism and the consequences
Few realize that industrialization came a hundred years later
to Sweden than to England. And until the years following World
War II, Sweden remained an extremely poor country. In the countryside,
many people lived on small farms that, given the poor soil and
climate, barely provided them a living. Some died in famines or
emigrated. Many others, even well into this century, lived in
serf-like conditions on large estates. Illiteracy was widespread.
In the late 1940s, it was still common for a family to live in
an apartment consisting of one room plus a kitchen (toilet facilities
were shared with other families). Even the Swedish royal house
was relatively poor by the standards of most of its European cousins.
Sweden's modern success was a creation of the Swedish Social
Democratic Party, which melded and sustained a national consensus
that kept it in power for forty-four years, from 1932 to 1976.5
The Social Democrats built Sweden's elaborate social welfare system.
Their wage policies brought working people into the middle class
and created a substantial degree of wage equity and greater equity
between the wages of women and men than in any other capitalist
country. The Social Democrats placed a high priority on maintaining
full employment. To encourage Swedish transnational firms such
as Volvo, Electrolux, Saab, and Ericsson to concentrate their
operations in Sweden, the applicable real effective tax rate was
much lower for profits generated in Sweden than for those generated
An alliance between the major Swedish industrial corporations
and organized labor served as the party's political base and supported
the centralized and peaceful negotiation of wages and working
conditions y national union and employers' organizations. This
alignment produced significant benefits for both big labor and
big capital. The arrangement had important structural flaws, however,
that eventually destabilized it. One was a tax system that subsidized
larger firms that were expanding and investing at the expense
of small-scale and family firms. This led to increasing concentration
and monopolization of ownership of the Swedish economy. Although
wage policies stressed equality within the working class, the
gap between the working class and hose who controlled capital
grew substantially. At the time, this was considered the price
of maintaining the industrialists' commitment to he coalition.
In the end, it brought about the coalition's destruction.
When the first shock of rising oil prices hit in 1973-74,
the resulting economic slowdown brought a fiscal crisis and triggered
popular resistance to higher taxes. During this same period, Sweden
was opening its economic borders and becoming a more active player
in the international economy. This loosened the bonds that tied
capital to local labor and weakened national labor movements.
In the early stages of globalization, the outward expansion
of Swedish firms generated new employment at home, and the objectives
of the two sides of the alliance did not significantly conflict.
But once Sweden's transnationals began to define their own interests
as global ether than national, the alliance between blue-collar
workers and the owners of capital began to disintegrate. By this
time, Sweden's highly educated white-collar workers outnumbered
blue-collar workers, and "he younger generation was taking
the welfare state for granted- Further weakening the political
base of Sweden's Social Democrats.
The growing contradiction between government support for the
global expansion of Swedish transnationals and the need to create
employment and rising real wages at home could no longer be sustained.
In 1976, the Social Democrats lost the election to a three-party
center-right coalition government.
When the Social Democrats returned to power in 1982, they
were a chastened party intent on promoting policies that would
allow Sweden's industrialists sufficient profit margins on domestic
investment to keep them "believing in Sweden," a phrase
coined by P. G. Gyllenhammar, the chairman of Volvo. Maintaining
a belief in Sweden meant increasing the share of the national
product going to profits compared with wages so that Sweden's
industrialists would find it worthwhile to invest at home. This
was accepted as the price of maintaining full employment at a
time when unemployment elsewhere in Europe was running at 8 to
9 percent or higher.
The resulting policies pushed corporate profits to previously
unimaginable levels. With so much more money in their pockets
than could be absorbed by productive investments, Swedish investors
turned to speculation, driving up the prices of real estate, art,
stamps, and other speculative goods. To stop the upward spiral,
the government loosened monetary controls so that the excess funds
could spill over into Europe. Money flowed out at such a rate
that it helped push real estate prices in London and Brussels
to record highs. As the speculative bubble fed on itself, the
quick profits offered by speculation drained funds away from productive
investments within Sweden. When the bubble in Swedish real estate
finally burst, the Swedish banking system lost $18 billion. The
bill was picked up by the state and passed on to the Swedish taxpayers.'!
During this period, Sweden's major industrialists played an
active role in dismantling the "Swedish model" that
had been constructed by the Social Democratic alliance. The Swedish
Employers' Federation rejected centralized wage bargaining, which
had been one of the model's cornerstones, and allied itself with
the Conservative Party. It also bankrolled think tanks espousing
a corporate libertarian economic ideology and conducted a major
public-relations effort praising individualism and the free market
while denouncing the Social Democratic state as oppressive and
inept. This led to a weakening of the political apparatus of the
state and its ability to define long-term policies.
In 1983, Volvo chairman P. G. Gyllenhammar stepped in to fill
the void by forming the Roundtable of European Industrialists,
made up of the heads of the leading European transnationals, including
Fiat, Nestle, Philips, Olivetti, Renault, and Siemens. The purpose
was to define long-term policies for the state and to serve as
an international lobby to press for their implementation.
By the end of 1992, the richest 2 percent of Swedish households
owned 62 percent of the value of the shares traded on the Stockholm
stock exchange and 23 percent of all wealth in the country. While
the average Swedish household grew poorer from 1978 to 1988, the
richest 450 households doubled their assets. Unemployment had
been below 3 percent when the Social Democrats were first voted
out of office. It rose to 5 percent in 1992 and was projected
to reach 7 percent, even though another 7 percent of the workforce
was already engaged in counter-cyclical retraining programs and
public employment projects.
From the beginning, the Swedish model contained the seeds
of its own destruction. It built a powerful financial elite whose
interests were far removed from those of the majority middle class.
It bred a sense of welfare complacency among the Swedish people.
It failed to install in the younger generation an awareness of
democracy's need to be continually re-created through constant
citizen vigilance and political activism. And its prosperity had
been built on the unsustainable exploitation of Sweden's natural
resources of timber, iron ore, and hydroelectric power.
As the elites gained more financial power, they were able
to pyramid their claims on the resources of society without making
a corresponding productive contribution. As the economic borders
were opened, the jobs of those who depended on earning wages for
doing productive work became hostage to those who controlled capital.
The more the government, in its desperation to keep jobs at home,
gave in o the demands of the financial elites, the greater the
amount of money hat passed into their hands, the greater their
power to dictate public policy in their own interest, and the
greater the stresses on the social fabric. The parallels to the
U.S. experience ... are striking.
The Swedish experience reveals a lesson of fundamental importance:
democratic pluralism cannot long survive extreme inequality.
The Need for Creative Balance
In our complex modern world, a society ruled by a single sector
is inevitably dysfunctional. The institutions of the civic, governmental,
and market sectors each have their necessary roles in serving
the needs of a well-functioning society.
Civic Sector. The civic or citizen sector is composed of a
vast array ~f alliances of people acting to demand their rights
and to fulfill their responsibilities as citizens. Such alliances
include, among others, the many representational organizations
that serve personal-interest constituencies-such as labor unions
that represent workers, medical associations that represent doctors,
or groups such as the NAACP that represent African Americans.
They also include the countless voluntary organizations that organize
around shared values to advance a public-interest commitment.
In their political roles, civic organizations supplement political
parties as varied and flexible mechanisms through which citizens
define and articulate a broad range of interests, meet local needs,
and make demands on government. In their educational roles, they
provide training grounds for democratic citizenship, develop the
political skills of their members, recruit and train new political
leaders, simulate political participation, and educate the broader
public on a wide variety of public-interest issues. In their watchdog
roles, they serve, long with the press, as checks on what Larry
Diamond described as the relentless tendency of the state to centralize
its power and to evade civic accountability and control."
The civic sector is the foundation of democratic societies. To
a substantial degree, citizen organizations and networks are replacing
the increasingly corporate-dominated press in the function of
Although it is civil society that grants the mega-institutions
of government and the market their power, the institutions of
the civic sector are themselves more limited in their ability
to amass concentrations of political and economic power. Unlike
the institutions of government and the market, which derive their
power from their size and financial resources, the strength of
the civic sector is found in the number and diversity of its organizations
and the speed and flexibility with which they form complex and
shifting alliances around shared values and interests. Through
such alliances, civic organizations can achieve powerful scale
The cacophony of competing voices within an active civil society
can be deafening. However, the ability of civic organizations
to form alliances around clearly defined public-interest agendas
gives them a distinctive role as catalysts of values-based social
innovation-defining, articulating, advocating, and building constituencies
for positions that may eventually find their way into the political
Governmental Sector. Government is the one sector to which
society gives the authority to use coercive power in the public
interest. Society cedes to government the power to confiscate
assets and to deprive a person of physical liberty and even life.
In a democracy, this authority is freely, if reluctantly, granted
by the citizens-who have the right to withdraw it at their discretion.
It is the legitimate exercise of coercive power that gives government
its ability to meet essential needs to maintain public order and
national security, collect taxes, and reallocate society's resources
to meet public needs-such as the need for sufficient equity to
maintain the legitimacy and viability of society's institutions.
Government also has important incapacities. Because of its
ability to command resources, it is insulated from market forces
and the discipline those forces impose. Thus government is generally
less efficient in the production of goods and services than are
organizations whose survival depends on their ability to compete
in the marketplace. Government's competence is in reallocating
wealth-an essential social function-not in creating it.
Governments are political organizations and respond to political
power. Even democratic governments serve the public interest only
when political power is widely shared within a strong and politically
active civil society.
Market Sector. The market sector properly specializes in functions
involving economic exchange-producing goods and services for sale
in response to market demand. The market has a distinctive competence
in creating new wealth through value-added activities and is society's
primary source of essential economic entrepreneurship and technological
However, markets don't tell people with substantial incomes
to consume no more than their rightful share of ecosystem resources.
They don't tell retailers not to sell guns to children. They don't
tell producers that their wastes must be recycled. They don't
give priority in the relocation of scarce resources to the basic
needs of those with little or no money before providing luxuries
for those who have great wealth, indeed, in each instance, they
generally do exactly the opposite.
Markets respond to money and financial values. They do not
disinguish between profits earned from the efficient production
of goods and unearned profits gained by exercising monopoly power,
eternalizing social and environmental costs onto the community,
privatizing common property resources, or creating artificial
demand through marketing campaigns for unnecessary and even harmful
products. In other words, markets are blind to many of the needs
of healthy human societies and often encourage behaviors exactly
contrary to fundamental human interests-and even to the needs
of the market itself.
Furthermore, when market power becomes concentrated in very
large corporations, these acquire a distinctive form of coercive
power that civil society never intended them to have-the power
to deprive people of heir means of livelihood. This power represents
a social dysfunction hat only a democratically accountable government
There is no substitute in a complex modern society for the
market ~s an efficient mechanism for setting most prices, motivating
productive activity, and processing routine economic transactions.
However, although markets are useful institutions for implementing
public priorities, they are inappropriate institutions for setting
Democratic pluralism melds the forces of the market, government,
and civil society to maintain a dynamic balance among the often
competing societal needs for essential order and equity, the efficient
production of goods and services, the accountability of power,
the protection of human freedom, and continuing institutional
innovation. This balance finds expression in the regulated market,
not the free market, and in trade policies that link national
economies to one another within a framework of rules that maintains
domestic competition and favors domestic enterprises that employ
local workers, meet local standards, pay local taxes, and function
within a robust system of democratic governance.
The order of precedence among the three primary sectors is
fundamental to the healthy and balanced function of society. A
civic sector without government and an organized market is anarchy.
This is why civil societies create governments and organized markets.
Civil society is, however, the first sector. The authority and
legitimacy of all other human institutions flow from it. Since
government is the body through which citizens establish and maintain
the rules within which the market will function in the human interest,
government is appropriately viewed as the second sector. The institutions
of the market appropriately function as the third sector.
Globalizing national economies and giving free reign to corporate
power invert this order. The market becomes the first sector,
government becomes subordinated to corporate interests, and the
ability of civil society to hold government accountable to the
public interest is seriously weakened. When the market reigns,
the corporation is king.
Playing by Different Rules
One of the most basic rules of market economics is that participants
I in market transactions must bear the full costs of their decisions-in
addition to reaping the benefits. In practice, market players
commonly go to considerable lengths to capture the benefits of
success for themselves and pass the costs to others. This creates
a tension between what efficient markets require and what self-interested
market participants are prone to do.
Market players are attracted to the corporation as a form
of business organization specifically because the legal nature
and structure of the corporation tend to exempt both the corporation
and its decision makers from accountability for many of the costs
of their activities. Actual shareholders, the real owners, rarely
have any voice in corporate affairs and bear no personal liability
beyond the value of their investments. Directors and officers
are protected from financial liability for acts of negligence
or commission by insurance policies paid for by the corporation.
The generous compensation of top mangers bears little relation
to performance, and they are rarely prosecuted for the illegal
acts of the corporation. Acts that would bring stiff prison sentences
or even death for individuals result-at worst-in small fines for
corporations that are generally inconsequential in relation to
corporate assets. Civil liability suits pose perhaps the greatest
threat to corporate malfeasance, but even here, corporations can
marshal massive legal resources in their own defense and they
aggressively seek legislation further limiting their liability;
if they lose, insurance companies may pick up the tab. It is with
good reason that William M. Dugger characterizes the corporation
as "organized irresponsibility."
Unlike real people, who are all eventually rendered equal
by the grave and whose fortunes are subject to confiscation by
inheritance taxes, corporations are able to grow and reproduce
themselves without limit, "living" and amassing power
indefinitely. Eventually, that power evolves beyond the ability
of any mere human to control, and the corporation becomes an autonomous
entity unto itself, using its power to "create its own culture,
using the lens of career to focus corporate culture on profit,
size, and power.'' Those who serve the corporate interest are
well rewarded and derive substantial personal power from their
positions. But in the end, their power is conferred by the corporation,
and they serve the corporation's interest at the corporation's
No real person can begin to match the political resources
that a large corporation is able to amass in its own behalf. Corporations
may lack the right to vote, but that is a minor inconvenience,
given their ability to mobilize hundreds of thousands of votes
from among their workers, suppliers, dealers, customers, and the
The corporate charter remains a useful social innovation that
allows us to meet needs that could not be met through other forms
of organization. However, like most technologies, it is subject
to abuse and has a tendency to take on a life of its own quite
apart from the human interest. Left to their own devices, corporations
colonize markets and defeat the very mechanisms that theory tells
us make the market work in the human interest. We might consider
corporations to be anti-market institutions. Thus it is fully
appropriate that citizens view corporations with the same skepticism
as the early American settlers did, granting corporate charters
judiciously, setting clear rules for their function, and holding
them accountable for their actions. Most important of all, we
must get corporations out of politics.
The owners and managers of corporations have the full rights
of any citizen-in their capacity as citizens-to participate in
defining public goals and policies. However, corporations themselves,
as non-human legal entities created to serve the public interest,
have no place using their resources to influence the processes
by which citizens define the public interest and set the rules
of corporate conduct. Corporations are not people. They are alien
to the ways of life and blind to the complex non-material needs
of human societies. They should be wholly barred from any form
of political participation-a point elaborated in Part VI.
A corporate charter represents a privilege-not a right-that
is extended in return for the acceptance of corresponding obligations.
It is up to the people, the members of civil society-not the fictitious
persona of the corporation-to define these privileges and obligations.
We are learning through harsh experience that the survival of
democracy depends on holding firmly to this principle.
Corporations Rule the World