? 2002, Russell Hardin
TRANSITION TO CORPORATE DEMOCRACY?
New York and Stanford Universities
In the study of the current East European transitions from Communist autocracy to
liberal democracy, there are two distinct questions we should ask. First, what does it take to
make the democratic transition? Second, what will the transition lead these nations into? The
answer to the first query seems to be a lot less difficult than what political theorists of many
persuasions have supposed. Some of the East Europeans did it or are doing it with remarkable
quickness. The answer to the second query is much harder. In part it is the query whether
these polities will turn out to be like the liberal democracies of the West. This is a more
complex question than it might seem for the reason that the democracies of the West, as will
be exemplified for present purposes by the United States, are themselves far from any liberal
ideal that one might think they represent. They can increasingly be characterized as corporate
democracies, in the sense spelled out below.
The reasons for the western failure to be more nearly ideal are that the ideal is
virtually impossible to achieve because it does not fit the actual motivations of real citizens or
elected officials. Among the biggest incentive problems is the radical divergence between
incentives in the economy and incentives in politics. The political state can create and destroy
individual and corporate wealth. Hence, it is partly the combination of democracy and market
economics that wrecks the liberal vision. If one spells out the epistemological and incentive
problems of democracy, one cannot be optimistic about overcoming them (Hardin 2002b).
I wish to lay out the liberal model, address its problems in real-world application,
and then turn to an examination of the moves toward liberal democracy in the East. I will
generally assume that the model for both liberal politics and market economics (also liberal in
Hardin, Transition to Corporate Democracy?, p. 2
historical usage) is principally concerned with the welfare of citizens. I will not go very deeply
into analyzing the possible measures of welfare but will suppose only that certain simple
measures, such as GDP per capita and a small number of civil liberties are adequate for a first
If we suppose that the ideal liberal government would be concerned with the
welfare of its citizens, we immediately face the problem of how to motivate our governors to
be essentially benevolent toward us. The Qing government of eighteenth-century China
defined its role as “benevolent governance” (Rowe 2001, 447). Of course, its benevolence was
in the cause of its view of how the society should be organized and what roles the people of
various statuses should play in that society. It was surely also true that the agents of that
government, such as the renowned bureaucrat Chen Hongmou, looked upon that government
as in their interest. European kings similarly did not need arrogantly to claim L’état c’est moi
to believe and act as though their own interest largely represented the interests of their peoples.
The central problems of contemporary American liberal democracy are the scale of
the electorate with its consequent problems of representation and of citizen’s knowledge of
politics (Hardin 2002b). Some of the East European nations might be able to manage these
problems because their scale is substantially smaller, although it seems unlikely that a polity of
millions — even if it is only a few millions — can avoid these problems. These nations also
may prove to have an advantage in the coherence of their parties, although this is not yet clear.
So far, their parties are often a shambles (Carothers 1999). The American parties have lost
their former definition as essentially left and right ? on fundamental economic policy and are
now relatively ill defined. This fact complicates the problem of citizens” understanding,
because party identification of candidates has less meaning than it had before the coalescence
Hardin, Transition to Corporate Democracy?, p. 3
of views in favor of mostly letting the market run on its own without much central
management (Hardin 2000; forthcoming a). Many East European parties seem to agree on a
similar economic policy.
To set the stage, I will first discuss the problems of contemporary American democracy and then turn to a standard set of claims about how liberal democracy is organized
as partially the product of a vibrant civil society. Some writings on civil society suggest that
the East European political transitions would be potentially quite difficult, and yet some of
those transitions seem, on the contrary, remarkably quick and likely successful. Indeed, the
level of hostile, divisive politics in many of these nations is below that of the US during its first
decade or two, when extra-constitutional action against political opponents was relatively
A related issue is the Hobbesian problem of political transition. The central problem of such a transition in Hobbes’s view is its threat to social order. He insists that even
agitating mildly for reform threatens to destroy government and bring back anarchy (Hobbes
 1968, chap. 30, p. 380). Against traditional Hobbesian views in political philosophy,
the transitions in East Europe have been surprisingly easy. In particular, of course, there has
been virtually no problem of fundamental social order in many of these nations. There has been
a general rise in criminality in some nations, perhaps especially in Russia with its quasi mafia
1and its armed takeovers of newly privatized firms (Volkov 2002). But normal criminal law
has not been particularly defective — as contract law has been in many of the nations (see, e.g.,
Radaev forthcoming). Moreover, grand social theorists — who evidently fail to look at their
own societies — claim that social order depends on a broad consensus on values. Contrary to such claims, order in the eastern nations has been sustained from long before the transitions,
Hardin, Transition to Corporate Democracy?, p. 4 through the transitions, and on into the present. It would be hard to argue that there has been
a steady consensus on values throughout these periods.
A short-term conclusion from much of the discussion that follows is that the current Eastern transitions belie many standard views in political theory, views that often are
thought to rest on substantial experience in many diverse contexts. Some of these views
should now be laid to rest for failing the tests posed by the Eastern examples. The two most
important, related but not identical theses are that democratic society requires a value
consensus (Durkheim ?; Parsons ?; and many communitarians, such as Etzioni ?) or that it
requires the various elements of civil society (Tocqueville ?; Putnam ?; Arato and Cohen ?).
Thousands of pages have been written on these theses, the bulk of which make claims of the
virtual necessity for one or the other of these if democratic society is to cohere or to work
well. For example, it is widely claimed that, without civil society, and especially its
intermediary organizations, democracy is not viable.
In the era of democratic representative government, it would probably be wrong to say that the elected officials and bureaucrats see government as theirs in quite the same way as
the Qing rulers or as French monarchs saw theirs. But the elected officials have become a
separate class, as argued from the early twentieth century, and many of their actions seem to
serve their specific interests as office holders sometimes in conflict with the interests of their
constituents or the citizenry (see Hardin forthcoming a and forthcoming b). In part, their
interest is simply hanging onto office and power, but it is also to benefit themselves financially
and with perquisites that would come otherwise only to the most powerful officers of large
Hardin, Transition to Corporate Democracy?, p. 5 corporations or to the extremely wealthy. For example, Andras Sajo (1998) slyly remarks that
“government sleaze is often completely legal but still unethical, for instance, taking a vacation to Madagascar and claiming the trip was intended to study how that country’s public
administration operates.” One would like to see an accounting of the public costs of such
benefits for being a corporate democrat. Those costs are as little public as certain parts of the
extravagant emoluments of corporate CEOs. Many of these benefits would have come to
earlier aristocratic governors through their family fortunes rather than from the public finances.
Adolph Berle and Gardner Means (1932, 119-25 and passim; see also, Means 1959) note that the rise of the corporate form of organization of private firms broke the link between
ownership and management, opening the possibility of conflict of interest between owners and
professional managers. Writing in the heyday of beliefs in the superiority of communism or
socialism over capitalism (Stein 1989), they supposed that the corporate form would develop
into what would now be called a socially conscious institution. This wildly optimistic
expectation is at odds with their hard-headed analysis of what had already developed in
corporate governance. They quote Walter Rathenau’s 1918 view that the private “enterprise
becomes transformed into an institution which resembles the state in character” (Berle and
Means 1932, 352).
Berle and Means propose three legal forms that property in the corporate form might take. The first is analogous to pure property rights, with managers acting wholly as
agents of those who own the stock of the corporation and who retain the full rights of
ownership of property. The second is analogous to what we have seen in many corporations
historically, including many in recent years during the extraordinary stock bubble of the 1990s.
This form creates “a new set of relationships, giving to the groups in control powers which are
Hardin, Transition to Corporate Democracy?, p. 6 absolute and not limited by any implied obligation with respect to their use.” Through their
absolute control of a corporation the managers “can operate it in their own interests, and can
divert a portion of the [corporation’s income and assets] to their own uses,” and we face the
potential for “corporate plundering” (354-5). We have seen recently just how massive the
conflict between managers and owners in these two contending models of property can be,
with managers of many high-flying firms in the US looting the firms while very nearly
bankrupting certain owners, such as those whose retirement funds were virtually liquidated in
the subsequent collapse of the firms.
In a reversal of Rathenau’s view, democratic government has become a corporate form of organization in a sense analogous to the corporate form of enterprise management.
Elected officials act as “professional” managers on behalf of the citizenry who “own” the
nation. For the most part, these officials police themselves, if they are policed at all, with
citizens having only an occasional say, primarily at times of elections. Sajo (1999, 118) notes
that “the fundamental myth of parliamentary popular sovereignty today, namely, that the
members of [parliament] represent the people or the nation cannot be sustained.” The officials
are co-owners along with the citizens, but their rewards from management often far transcend
anything they can gain as their share of the general good produced by government, just as the
corporate managers of Tyco, WorldCom, and Enron gained far more from looting these firms
than from the genuine increase in value of the stock they owned. Indeed, they manipulated the
market valuation of that stock through accounting misrepresentations in order to enrich
themselves, as Berle and Means (1932, 296-7) virtually predict. Such corporate managers
were policed by corporate boards whose members they appointed, and many of these boards
were also paid in stock options.
Hardin, Transition to Corporate Democracy?, p. 7
In principle elected officials are subject to greater control, but in practice they are apt to be policed only by their opponents in power unless their behavior becomes egregious.
Even if I greatly disapprove of my party’s representatives, for example, any action I might
successfully take to replace them in office is likely to benefit, instead of alternatives within my
party, candidates from an opposing party, candidates of whom I would be likely to disapprove
even more than I disapprove of my party’s incumbents. Democrats who voted for Ralph
Nader, a guaranteed loser, are rightly charged with having helped put George Bush in the
presidency. I am very nearly stuck with my party, so long as its office holders are not
egregiously awful and self-serving to the detriment of me and my fellow citizens.
If presidents Andrew Johnson, Richard Nixon, and Bill Clinton had had majorities of their own parties in control of Congress, they very likely would not have faced serious
2impeachment proceedings. It was only the anomaly of so-called mixed government in the
United States that put them at risk. During the attacks on Clinton, for example, the interests of
most Democratic national legislators, as Democrats, were to defend him and the interests of
Republicans, as Republicans, were to attack him. Of course, it could just happen to be true
that almost all Democrats thought his offenses inadequate for removal from office while
almost all Republicans thought those offenses adequate. In the case of Andrew Johnson, one
of the Radical Republicans who opposed him would have taken the office of president if
Johnson had been removed and would have elevated many others of his party to positions of
national power. Separating personal interests from the positions all these people took would
be very difficult, but it is hard to believe that their personal interests as office holders were not
a major factor.
What might set legislators apart is that they become competent at politics and even
Hardin, Transition to Corporate Democracy?, p. 8
legislation and governance through the specialization of their roles. Our representatives even tend, in Bernard Manin’s characterization, to become aristocratic in that they must have relatively high levels of competence and achievement to attain and hold their offices (Manin 1997, chap. 4). As the American constitutionalist Benjamin Rush, writing as Nestor, says, government cannot be done well by people who “spend three years in acquiring a profession which their country immediately afterwards forbids them to follow” (see Hardin 1999, 225).
Moreover, actual elected officials clearly do not represent their constituents in the sense of being like them. There are, for example, almost no working class representatives in modern democratic governments, and lawyers are grossly over-represented in US legislative bodies. The representation of groups must often be through so-called active representation by people who themselves do not directly share the interests of the groups they represent. For example, Senator Ted Kennedy often represents the interests of union members and the poor, although he has no experience of either group in his own life.
An obvious but painful implication of this account is that representatives are
enabled to take advantage of citizens. This is true not merely in the manner of Silvio Berlusconi, who has used his official power to enact laws that specifically benefit him financially. For example, he has proposed legislation to allow him to change the venue of his trial for corruption, so that the trial would go before a court more likely to be friendly to him (Bruni 2002). To do this, of course, he has to get general legislation passed, although no one is likely to suppose he cares at all about the general legislation. It is true more fundamentally that legislators take advantage of citizens in the sense that, without such overt actions as Berlusconi’s, the elective personnel of government can be parasitic on the larger society, making most of them wealthier than they could have been in any other activity available to
Hardin, Transition to Corporate Democracy?, p. 9 them, giving themselves prerogatives far beyond their ordinary emoluments, and securing
themselves and often even their relatives in power. They commonly support legislation in large
part in return for support from the specific beneficiaries of the legislation rather than
supporting legislation because it would be generally good for the economy. Through such
devices, which help to keep them personally in office, they become an aristocratic class apart
from the society they both govern and represent, in a sense well beyond Manin’s.
Even the slightest Madisonian or Humean view of human nature yields this implication. Roberto Michels ( 1949) claims that the internal democratic government of
political parties — especially European socialist parties — produces an aristocracy with great
power over the rank and file members. This claim is true more generally of democratic
government, although the latter may typically be subjected to greater scrutiny that might
impede some of the worst excesses of oligarchic power. In Michels’s famous slogan, “Who
says organization says oligarchy.” Perversely, who says representative democracy evidently
also says oligarchy.
In the Manin and Michels theses of an aristocracy of leadership, in some sense it is not the individual elected officials but the class of them that is problematic. As John C.
Calhoun says, “The advantages of possessing the control of the powers of the government,
and thereby of its honors and emoluments, are, of themselves, exclusive of all other
considerations, ample to divide ... a community into two great hostile parties” (Calhoun 
1992, 16). As a class the political aristocracy are parasitic on the society that they ostensibly
serve and that has the power of election over them. Although some representatives may be
very well grounded in their constituencies, for many representatives their reference group is
far more likely to be their fellow “aristocrats” than their electorates so long as they attend to
Hardin, Transition to Corporate Democracy?, p. 10 certain issues of great salience to their constituencies. The supposedly powerful citizenry with
its power of election over officials does not have the power to refuse to elect all of them; it
can only turn out the occasional overtly bad apple. In the United States, it seldom has the
temerity to overcome incumbents’ advantage. Edmund Burke thought citizens should be
deferential to their aristocratic leaders. Few people would argue for such social deference
today, although there is pervasive deference to the power of elected officials and to their
celebrity, which is a peculiarly ugly aspect of modern democracies, perhaps uglier and more
pervasive in the United States than in other advanced democracies.
Calhoun spent the last two decades of his life defending slavery and the prerogative of the southern states to maintain slavery. The minority that his writings generally defend was
the minority of southern states and their representatives in the national government against the
majority of anti-slavery states and their representatives. Some of his central arguments,
however, are more generally compelling in the abstract and when applied to many other issues.
He argued the case that officials use their offices to serve their private interests nearly a
century before Berle and Means made the analogous case for the governance of the modern
corporation. Although the corporate form of organization had precedents in the seventeenth
century, the first important manufacturing firm organized that way — with a significant
number of stock holders, all of them minority stock holders — was the first of the large New
England textile mills, organized in Waltham, Massachusetts, in 1813 (Berle and Means 1932,
10-11). This company followed the virtual invention of modern representative government in
the US constitution of 1787 by a quarter century so that, in a sense, the corporate form of
control with large numbers of owners was pioneered by the US government, which remains
the world’s largest corporate entity while thousands of substantial private corporations have