Big Corporations vs. Big Private Equity groups: which is the greatest threat to market capitalism?

Among the three major sectors (state, shadow and big business) encroaching on the market capitalism territory, big business represents an important threat. However, big business comes in two forms – big corporations and big private equity funds. Two representative household names in the US for the two types of organizations are Citigroup and KKR, both listed in the stock market.

Of the two, private equity has the worst reputation. This is due to fact that their key business is in the field of leveraged buy-outs. They also use aggressive tax optimization practices through offshore domiciles. And, although they are the most generous contributors to political campaigns they do not have many job opportunities for politicians.

Leveraged buy-outs often wipe out value, destroy jobs and fail to improve the performance of the companies acquired. However, whether they fail or succeed they never create oligopolies. On the contrary they often lead to company break-ups. Therefore, unconsciously and involuntarily, they contribute to increase the share of competitive markets.

On the contrary, big corporations as the personification of managerial capitalism are often seen in a benign mode. They employ armies of bureaucrats, politicians, public relations and other professionals that promote their interests and image in terms of public opinion. However, to pay for all these courtiers and their management they need to increase their oligopolistic profits. These can only be obtained by curtailing supply or by the elimination of their competitors. In either case they will reduce the share of transactions carried out in competitive markets.

So, one must conclude that not all big business is equal and that big corporations are the greatest threat to market capitalism. Yet, public opinion is unaware that the “polite and urbane” big corporation is worse than the “rough and dodgy” private equity firms.

Can representative democracy still foil the manipulation of public opinion?

Greece was the birth of democracy, and obviously the Ancient Greeks were the first to realize that forms of direct democracy had to be replaced by representative democracy. The reasons were self-evident 2500 years ago as they are now, and may be summarized in two main factors – cost efficiency and prevention of demagogy. It is costly and unnecessary to have the entire population drafting, discussing and approving all the laws. Likewise, elected representatives can be selected to support the views of many groups of people and can be trained to avoid being deceived by eloquent rhetoric.

For many centuries the art of rhetoric has been taught as one of the fundamental human arts. But, starting with Aristotle, many have since tried to regulate its application in law and politics to prevent it from following Plato’s negative definition of rhetoric as “the persuasion of ignorant masses within the courts and assemblies”. During Enlightenment many thinkers attempted to make language a neutral, transparent medium of communication, but in the 20th century there was a renewed focus on persuasion.

This was associated with developments in the science of psychology, which led to its association with other forms of opinion making. The most disastrous use was in the field of psychology of masses. Fascist, Communist and Nazi movements were the first to resort to the combination of rhetoric with martial music and marches and the exploitation of hate and similar low sentiments in relation to perceived or invented enemies among outsiders.

In democratic societies the new knowledge of psychology was channeled for pacific aims and used mostly for commercial purposes by an emerging new industry of advertising. This industry later extended to politics.

Meanwhile, a more dangerous form of manipulation through public relations has also extended from business to politics. PR is a more deceitful practice than advertising because it hides its sponsors and true objectives by combining many independent groups and opinion makers (often even unaware of being using) to construct the desired public perception. In particular, the fact that some organizations set up multi-million-dollar public relations and advertising campaigns to try to reframe the debates and shift the focus away from their responsibilities, gives them a powerful form of propaganda and manipulation.

So, how can representative democracy cope with this plethora of rhetoric, mass psychology, and advertising and public relations tools? The solution must be two-fold.

First, following on Aristotle’s ideas, these entire industries must be made transparent and well regulated while working on political issues. In particular, the PR industry must be carefully scrutinized.

Second, the relations between political parties and those industries must be also tightly regulated. In a context when the traditional media and journalists are being starved of resources, they are prone to succumb to ready-made news and articles prepared for them by PR agencies. Likewise, when elections are becoming more costly and competitive to get voters attention politicians are also an easy prey for richly-funded PR campaigns.

In the past representative democracy has been able to survive these threats. We believe it will be able to continue doing so. The alternatives – chaos or dictatorship – are simply not acceptable.