Why Today’s Problems Could Get Worse, and What We Might Do About It [Part II of III]

Getting capitalism and democracy working for all

Photo by Yarenci Hdz on Unsplash

Last edited: October 4, 2020.

[Please note: this is Part II of an ambitious 3-part series and is very much a work in progress. So if you have questions or comments, feel free to post them. All contributions are welcome. And if you like what you’ve read, check out Part III.]

Introduction

Today’s private progress has coincided with growing public peril.

Search “top inventions in the 21st century” on Google, and this is what you’ll get. Nanobots. Flying drones. Birth control patches. Head-of-a-pin operating systems. Virtual reality. Particle accelerators. Digital currency. Gene editing. Artificial intelligence. 3D printing. Lab-grown pancreases. Reusable rockets to Mars… and on and on, among the 6.33 million search results returned in 0.58 seconds.

Search “top issues of the 21st century” on Google, and this is what you’ll get. Global warming. Poverty. Nuclear proliferation. Fake news. Terrorism. Inequality. Famine. Obesity (?!). Deforestation. Population imbalances. Pandemics. Leadership crises… and on and on, among the 237 million search results returned in 0.70 seconds.

So doing the math here, we’re faced with nearly 40 times as many questions as answers — despite the fact that answers include the likes of “nanobots” and “lab-grown pancreases.” Indeed, we can do (dubious) math like this in mere seconds only thanks to the magic of equally mind-boggling internet search technology.

Trite though observations like this may by now be — and pessimistic as some truly are — it still jars to juxtapose human progress with human perils. We can build rocketships for passenger service to Mars, yet we plunder what remains of our plant, air, water, and other scarce bounty back home on Earth. As private sector tech approaches escape velocity, some of our vital public needs seem to be left in the dust.

We can break this phenomenon down.

This series argues that one approach to solving today’s big issues will be to couple individuals’ self-interest with the global public good; and it will propose a way to do this. The series comes in three Parts.

1.The first paper (published previously) presented Part I, identifying the source of today’s biggest issues. We saw that government historically solved pressing public problems well — especially when partnering with the private sector — and that government couldn’t have done this alone. But we also saw that today’s issues will be harder for governments to solve, largely because the private sector won’t be as helpful as it was in the past. We ultimately concluded that governments, firms, and individuals collectively manifest insufficient will and ability to address today’s biggest public issues — and especially those that require global coordination.

2. This second paper presents Part II, introducing a framework to describe what yields collective will and ability to achieve desired outcomes in a given human system; and it uses this framework to identify a class of solutions promising to provide greater focus in solving public problems. In Part II, we’ll see that focus can in general be improved by reorienting incentives, capabilities, and power relationships among society’s key actors. And we’ll argue that coupling individuals’ incentives more tightly with the global public good would be the single most effective and principled way to bring greater focus to addressing global issues. We’ll argue further that creating individual incentives that align with the global good could also reduce firms’ problematic and growing power over government as well, addressing both issues in a single stroke.

3. Finally, the third paper (published recently) will present Part III, evaluating a particular idea that lives within the class of solutions arrived at in Part II. I’ll argue that we can create individual incentives to pursue the global public good without jeopardizing the time-tested profit motive, by putting them together. And we’ll argue that addressing the root cause of the collective action problems outlined in Part I could solve many of its manifestations presenting today around the world.

Part II: Framing the Solution Space

In general, public outcomes are driven by incentives, capabilities, and power relationships among individuals, firms, and government.

Part I concluded that governments, firms, and individuals collectively manifest insufficient will and ability to address today’s biggest public issues — and especially those that require global coordination. This begs the question of what drives manifest will and ability in a given human system, and how this translates into outcomes, public or otherwise. To address these (big) questions, it will be useful to introduce a simplifying analytical framework to help direct our focus.

We’ll start with 1 proposed conceptual blueprint, then gather 2 sets of analytical raw materials to fill it in, amounting to 3 broad claims:

  1. Human beings produce outcomes through (i) negotiated decisions — “power” — in (ii) how to use our time, talents, and resources — “capabilities” — to achieve (iii) desired results — “incentives.
  2. Incentives, capabilities, and economic power are already well-explored in economic theory, but economic theory has less to say about political power.
  3. Sociology furnishes the missing thinking on political power needed to describe how political-economic systems yield (public) outcomes.

And piecing these together provides a self-contained framework, depicting that power mediates between different actors’ incentives and capabilities, resulting in manifest system-driven will and ability that ultimately produces outcomes, public and otherwise. The upshot of this thinking will be that outcomes, public and otherwise, can be seen to be driven by incentives, capabilities, and power relationships among individuals, firms, and government.

We can take claims 1–3 by turn.

1.Human beings produce outcomes through (i) negotiated decisions in (ii) how to use our time, talents, and resources to achieve (iii) desired results. At first blush, this might come off as an almost-laughably general characterization, I know — but hear me out. Believe it or not, it actually seems to prove useful as an analytical tool, in the end.

First, though, we should briefly review where this focus on human choice comes from. It starts from the most basic axiom that all outcomes on Earth result from (1) natural forces, (2) human choices, and (3) everything in between. Natural forces (1) here means the movements of tectonic plates, the seasonality of global winds and ocean currents, the forces driving the rise and spread of novel pathogens and sustaining the planet’s technicolour biodiversity. Human choices (2), always subject to these natural forces, aim to produce desired outcomes, and inadvertently cause some undesirable ones too. And human activity as a whole reflects what might be called ‘human forces’ (3): changes in human populations that follow predictable patterns — in how economic and political rewards are created and distributed; in changes in health, demographics, and the character of our families; in the spread of ideas, attitudes, values, and aspirations that become codified in shared patterns of behaviour; and in the salience of our various identities economic, political, national, ideological, religious, gender, race, age, or otherwise — all of which underpin our strategic interactions to get what we want.

So to reframe the axiom described above: all outcomes on Earth are subject to complex and interconnected natural forces (item (1) above) and human forces (item (3) above); but within this context, human beings make choices (item (2) above).

So that’s where this focus on human choice comes from.

Now, unpacking this idea of human choice, we might might dig in more specifically to say that human activity produces outcomes both intentional and inadvertent through (i) negotiated decisions (“power”) in (ii) how to use our time, talents, and resources (“capabilities”) to achieve (iii) desired results (“incentives”) (all of which then feeds back into longer-term forces, both natural and human).

This characterization needs to be justified for us to trust that it will be useful.

…inspired by the psychology literature…

This 100,000-foot representation of what drives outcomes — public or otherwise — is in part inspired by the psychology literature, and in particular Icek Ajzen’s seminal theory of planned behaviour. Ajzen’s theory posits that an individual’s behavioural intention is driven by attitudes, perceived behavioural control (“sense of self-efficacy”), and subjective norms; and these 3 factors are strongly suggestive of the 3 factors above. “Attitudes” amount to one’s volition or motivation to achieve, reflecting the “incentives” element in the proposed blueprint for human choice. “Perceived behavioural control” reflects the notion that people do what they (believe they) have the “capabilities” to do. And “subjective norms” speak to the idea that individuals account for the expected social costs and benefits of taking given actions, which is indicative of the “power” relationships that are important in all human interactions.

This representation is also consistent with the economics game theory literature, which assumes that actors use their capabilities (“capabilities”) to maximize their expected outcomes (“incentives”) given other strategic actors’ expected behaviour (“power relationships”), based on the information at hand.

This representation also on its face looks ‘MECE’ — ‘mutually exclusive and collectively exhaustive’ — meaning that it’s maybe not far from conceptually complete. “Capabilities” represent the objective expression of human activity. “Incentives” represent subjective motivations, independent of others’ will. And “power” represents subjective motivations dependent on others’ will. Seen this way, this representation accommodates any factor that drives individuals’ subjective and objective will and ability.

So characterizing human choice in terms of incentives, capabilities and power relationships appears at least on its face to be conceptually complete and consistent with prior thought across multiple academic traditions.

It is also arguably actionable, in the sense that it’s possible to incentivize, enable, or empower a given person or group, and thus achieve desired (e.g. public) outcomes more effectively.

But most importantly, this representation also seems to reflect reality.

On this point, that incentives focus behaviour and capabilities define what can be achieved are self-evident, and have been borne out in countless studies in any case. But it’s maybe somewhat less immediately evident that power relationships regulate how society’s key actors — individuals, firms, and government — spend their efforts to achieve their objectives. So here, it’s maybe instructive to consider especially international relations, which offer ready case studies in uses of and responses to power. This is what briefly follows.

…strategic actors do certainly appear to respond to power…

When new state leaders adopt more permissive foreign policies with respect to international partners, for example, partners may duly take advantage, reflecting that strategic actors do indeed respond to power. For real-world examples of this, we need look no further than at U.S. influences on global international relations between 2016 and 2020. Since the 2016 U.S. presidential election, for example, many foreign states have appeared very much emboldened in the degree to which they flouted previously sacrosanct tenets of the global world order, the enforcement of which has been historically led by the U.S. government. Russian operatives hardly bothered to hide their interference with foreign elections, including those in the U.S. Saudi officials ordered the assassinations of meddlesome journalists at home and abroad. China still openly represses democratic activists in Hong Kong, despite long-held assurances to maintain the model of “One Country, Two Systems.” Turkey invaded politically-fragile Kurdish territory. And all of this occurred arguably only with the at-least-tacit approval (if not open support, in some cases) of the Oval Office occupant at that time. So where previous to 2016, U.S. power held countries accountable to previously-well-established norms of international comity, when the willingness to enforce such standards lapsed around 2016, states around the world with the independent incentive and capability to break norms for their own benefit finally apparently felt free to do so.

Examples like these suggest that strategic actors do in actual fact appear to respond to power.

So characterizing human choice in terms of incentives, capabilities and power relationships is on its face consistent with reality, in addition to being arguably also theoretically credible, logical, and actionable. If so, then this representation meets the basic tests of a useful abstraction of reality. This would give license to develop more fully its key concepts of incentives, capabilities, and power relationships.

This is what comes next.

2. Incentives, capabilities, and economic power are already well-explored in economic theory; but economics has less to say about how political power develops and influences outcomes. Incentives and capabilities are already well-explored in economic theory. Incentives are modelled well by “utility functions,” which model how individuals value outcomes separately and jointly. Capabilities are modelled well by “production functions,” which model how labour, capital, and any other generic set of time, talents, and resources combine to produce goods and services within given capacities (“budget constraints”). And both ideas have been analyzed extensively to wring out many juicy drops of clarifying insight.

…economic theory … has much to say about what it takes to ensure “fair” markets…

Power relationships are also reasonably well-explored in economic theory, but primarily when it comes to economic power. Theory describes the significance of economic power in determining economic outcomes, clarifying that power between firms and labour determines wages, that power between firms and consumers determines prices, and that supply-and-demand determines these balances of power. Hence why economic theory also has much to say about what it takes to ensure “fair” markets that are less susceptible to market power abuses that cause so-called “deadweight loss.”

But economic theory has less to say about political power relationships. And political power dynamics are perhaps singularly important in understanding what yields public outcomes, by the following logic.

Many public outcomes — and especially those facing us today — don’t promise profits, and so won’t be pursued by private actors (as explored in Part I). So the pursuit of public outcomes by default falls to government — the designated steward of the public good (in Western democracies, at least). Since governments (are meant to) represent their peoples, they inherit their “desired outcomes” (“incentives”) from those that they are institutionally designed to represent. So power relationships between government and constituents are decisive in determining which constituents a government will be most inclined to serve — and so whose outcomes, publicly-oriented or otherwise, will get pursued.

(Of course, it’s by this rationale that “the people” are made sovereign on paper in democracies — on the theory that if individuals possess power over government by being able to elect its members, government will serve these individual citizens’ interests. If instead firms possess power over government, a nation may tend perhaps toward oligarchy and corporate clientelism. And if neither firms nor individuals possess power over government, government may tend towards tyranny (communism in the form it has historically taken represents perhaps a cautionary tale, on this last point).)

So, any unified theory describing how human activity produces (public) outcomes will need to describe political power.

3. Sociology furnishes the missing thinking on political power needed to describe how political-economic systems produce (public) outcomes. Now, since classical economics lacks a well-developed theory of political power, we must seek a more mature theory elsewhere. Fortunately, we can find a rich tradition on power in the sociology literature, represented foremost, in this author’s view, by Richard Emerson’s seminal power-dependence theory.[1] In fact, after inspecting the foundations of this theory, we’ll see that we can actually recast it in economic, game theoretic terms. And this will transform it into just the analytical scaffolding we’ll need to construct a unified, “economic-plus” framework that accommodates power, capabilities, and incentives — which we posited can describe how human activity produces all outcomes, public and otherwise.

So first, inspecting the foundations of Emerson’s theory, we are instructed that the power of one person — ‘A’ — over another — ‘B’ — derives from B’s dependence on A. B’s dependence is directly proportional to his ‘motivational investment’ in outcomes that A has control over, and inversely proportional to the ‘availability’ of alternatives to achieve his desired outcomes. So if B cares a lot about outcomes that A controls, and faces few alternatives to achieve them, A has a lot of power over B. If B doesn’t have reciprocal influence over things that A cares about, then A moreover has a lot of net power over B. And A can use this net power to compel B to do things that matter to A, in exchange for only very little from A.

Now second, with little contrivance, we’ll see that we can actually recast these key sociology ideas into economic game theoretic terms. Using only time-tested economic primitives — utility functions, production functions, and game theory methods to identify preferred strategies — it seems possible to derive the power relationships between a given set of entities. The only conceptual innovation required to infer power relationships in this way appears to be to explicitly account for strategic actors’ ever-present option to ‘coerce’ any other. Appendix A illustrates this conjecture with a simple worked example.

…power relationships … depend on 4 key drivers…

Using the simple economic example set out in Appendix A, we can show that 2 actors will be inclined to coerce and obey, respectively, if there exists a net power differential between them. Per the basic economic model set out in Appendix A, power relationships between α and β appear to depend on 4 key economic drivers:

  1. ∂(outcomesᵦ)/∂(effortₐ): how much β’s outcomes depend on α’s effort;
  2. ∂(outcomesᵦ)/∂(effortᵦ): how much β’s outcomes depend on β’s effort;
  3. ∂(outcomesₐ)/∂(effortᵦ): how much α’s outcomes depend on β’s effort;
  4. ∂(outcomesₐ)/∂(effortₐ): how much α’s outcomes depend on α’s effort.

A moment’s reflection will confirm that these terms express the essential relationships that Emerson identifies — namely, that power pivots on (i) parties’ relative motivational investments in given outcomes, and (ii) the relative scarcity of parties’ capabilities (or “efforts,” as labelled above) to (help) deliver valued outcomes.

This representation of power relationships in terms of economic primitives is useful for a number of reasons: i) it is amenable to standard economic analytical methods; ii) it allows us now to quantify political power relationships, tracing their magnitudes and boundaries within given mathematical specifications; iii) it enables prediction of not only who will have net political power given certain known economic primitives, but also how actors will tend to use that power; and iv) this last fact enables the reduction of any given power relationship between two actors into a single index — one number expressing the net power relationship between A and B for example, another for that between B and C, etc. (excluding Emerson’s other useful notions of “cohesion” and similar). In the result, power indices can be taken to reflect which groups will extract unreciprocated talent, tools, and other tribute from others.

So finally third, translating Emerson’s ideas into economic language transforms them into the analytical scaffolding we need to support an integrated model of political economy. Now that all key concepts are written in the same language, all key economic and political relationships can be represented with a single set of “economic-plus” variables applying to society’s key actors:

►“Incentives,” represented by value/utility functions — what does each group care about?

►“Capabilities” — how much does each group have to give, and how effectively are those contributions deployed?

  • Capacities/budget constraints — what relative levels of time, talent, and resources do groups have the capacity to devote to achieving outcomes?
  • Effort-outcome/production functions — how (efficiently) do individuals’ and groups’ efforts combine to result in outcomes, both intentional and inadvertent?

►“Power relationships” — to what degree will powerful parties be able to influence others to pursue outcomes that matter to the powerful?

These variables cover off those typical of a standard economic setup (above, embodied in the primitives defined by “incentives” and “capabilities”) — plus the addition of “power relationships,” which we’ve posited can be in fact derived from “incentives” and “capabilities.”

…these concepts together … describe how human activity … translates into outcomes…

So combined with an understanding of deeper socio-economic forces (as outlined in Part I), we’ve now characterized perhaps the most pivotal concepts we need to model the sources of present human institutions’ systemic failure to address (global) public outcomes.[2] These concepts together promise to enable us to describe how human choices today translate into outcomes both private and public, both intended and inadvertent.

For future ease of reference, we can capture these key framework concepts in a diagram like the one found in Appendix B. That Appendix exhibits the idea set out here that public outcomes, like all outcomes, are driven by incentives, capabilities, and power relationships among individuals, firms, and government.

Coupling individuals’ incentives more tightly with the global public good would be the single most effective and principled way to better address global issues.

The framework outlined above will help to clarify why coupling incentives in this way would help to address global issues. As applied to individuals, firms, and government, the framework will suggest two assertions leading to this conclusion:

  1. Western capitalist democracies today reflect insufficient power-adjusted incentive on the part of individuals, firms, and government to pursue the global public good.
  2. Imbuing individuals, specifically, with greater incentive would represent the most principled and effective way to better address global issues.

We can evaluate these assertions in turn.

1. Western capitalist democracies today reflect insufficient power-adjusted incentive on the part of individuals, firms, and government to pursue the global public good. As applied to individuals, firms, and government, the framework gives rise to 3 observations leading to this conclusion. First, (a) only government and firms have the capabilities to pursue the global public good, but not the independent incentive. Second, (b) individuals and firms have the power to influence government, potentially to pursue the global public good. But, third, even after accounting for prevailing power relationships, (c) still no group does in fact face the power-adjusted incentive to pursue the global public good.

(a) Only firms and government have the capabilities to pursue the global public good, but not the independent incentive.

This assertion becomes clear after summarizing what each of individuals, firms, and governments independently value, and summarizing also the capacities and interdependencies (“effort-outcome functions,” as labelled in our working framework) that each group faces in achieving their goals.

Start with individuals. Individuals do generally value the global public good; but the data show that, unsurprisingly, most of us care relatively much more about things posing more immediate concern to our personal wellbeing: health, safety, economic security, recreation, and the like.[3] And importantly, the less of these one has, naturally the more one prioritizes these more selfish concerns. So the tendency to prioritize one’s own personal wellbeing is therefore intensified by today’s widening inequality (driven by reasons described in Part I). To complicate matters, individuals don’t possess great standalone capacity to achieve (global) public outcomes: only as members of firms (a catch-all term here, representing all manner of private sector organization) do we multiply our combined capabilities to express our maximum potential to deliver outcomes.

…given today’s prevailing effort-outcome functions … the problematic result is that public outcomes systematically suffer…

Next, firms. Firms, and the shareholders they represent, seek not their own ‘utility’ directly, per se, but instead typically profits.[4] Unfortunately, today’s prevailing effort-outcome functions (a.k.a. “production functions,” when describing firms) tend to entail negative externalities to mental health and wellbeing, democratic integrity, the stability of foreign states, and global sustainability, as described in Part I . The problematic result is that public outcomes systematically suffer.

But as also discussed in Part I, firms have perhaps the most combined capability to improve (global) public outcomes, able as they are to flexibly enlist in effective combination the talent and resources needed to achieve any given organizational aim, for a fee acceptable to the market.

Finally, government. Government has few outcomes that it values independently of the constituents it represents, in theory. But in reality, public officials occupying public office are human too, and so seek to keep their position and grow their influence. And which constituents’ outcomes they prioritize to do this (e.g. as between the electorate or corporate political supporters) will depend on prevailing power dynamics between government, individuals, and firms, as discussed in section (b) below. But in any event, like firms, government has material capabilities to pursue the global public good — even if governments may be somewhat more constrained than firms, as discussed in Part I.

These properties of individuals, firms, and government are set out graphically for convenience in Appendix C. And the key takeaway here is that, reading these points together, we can readily see that only firms and government have the capabilities to pursue the global public good, but not currently the independent incentive.

(b) Individuals and firms have the power to influence well-functioning democratic government, potentially to pursue the global public good.

Having in section (a) above just canvassed individuals’, firms’, and government’s incentives and capabilities with respect to the global public good, we can now derive power relationships between these groups. Individuals’ and firms’ power over government becomes evident after reviewing power relationships between (i) individuals and government, (ii) individuals and firms, and (iii) firms and government. This is what we will turn to now, recalling that power turns on the following 4 factors in each relationship:

  1. ∂(outcomesᵦ)/∂(effortₐ): how much β’s outcomes depend on α’s effort;
  2. ∂(outcomesᵦ)/∂(effortᵦ): how much β’s outcomes depend on β’s effort;
  3. ∂(outcomesₐ)/∂(effortᵦ): how much α’s outcomes depend on β’s effort;
  4. ∂(outcomesₐ)/∂(effortₐ): how much α’s outcomes depend on α’s effort.

(i) So first, individuals still fortunately have a fair amount of net power over government in Western capitalist democracies. We can start to see this by first conceding that individuals’ valued outcomes do in part depend on government, to create the conditions and provide the public goods and services needed to enjoy a high standard of living: financial regulation, healthcare systems, transportation networks, educational systems, and the like.

These things definitely matter to us as individuals; but our individual outcomes depend much more on our own efforts: to earn an education, get a well-paying job, find a mate maybe, cultivate our passions with like-minded others — which undertakings most often don’t involve the government. So in “normal” times, we as individuals generally have much more direct control over the things that matter to us than do public officials, meaning that public officials have relatively less power over us as individuals.

…public officials depend much more on us to sustain their livelihoods…

By contrast, public officials depend much more on us to sustain their livelihoods, in that individuals provide scarce and valuable votes, which can’t be got anywhere else. This is true when electoral mechanisms work, political alternatives to current governments exist, and public officials cannot practically override these controls to secure their own enduring private gain. So under these conditions — fortunately relatively “normal” in 20th- and 21st-century liberal Western states — individuals have a lot of net power over public officials in a democracy.

(ii) Now second, power analyses between individuals and firms run along similar lines. Individuals play two key roles vis-à-vis firms and the investors/ shareholders they represent: individuals’ role as ‘consumers’ and our role as ‘workers.’ But in each case, power relationships are governed by market forces — namely supply-and-demand in product markets, and supply-and-demand in labour markets. And these supply-demand relationships embody, in the economic sphere, the essential elements of relative ‘motivational investment’ and relative ‘availability’ as first set out by Emerson, and as reflected in the 4 power factors above.

(iii) Third and finally, firms enjoy power over government. To see this, one might first concede that firms’ outcomes — namely profits — do depend on government to create a hospitable environment to make large sales at low cost. Government has a fair amount of power here, able as it is to set corporate tax rates, cast or cut regulation to help or hinder firms’ conduct of business, and generally encourage or suppress economic growth that determines the size and shape of customer bases and labour pools that firms need to earn their profits. Government may in the case of some firms even directly purchase or supply goods and services.

But still, in a globalized world, (large) firms have options: if domestic environments become too inhospitable, firms can typically relocate or outsource (certain of) their operations. (Some authors assert that large firms are still less mobile today than may be commonly assumed.[5] But especially as Covid-19 has forced the world to stay at home, in turn forcing firms to plan for such contingencies in the future and proving the potential benefits of running remotely, virtualization is arguably going to continue to become more and more the norm. And this supports the assertion that large firms are, and will increasingly become, quite mobile.)

Now, looking at the other side of the power relationship between domestic firms and government, politicians’ outcomes depend on firms for campaign financing, and public officials’ outcomes rely on firms for both corporate tax revenues and jobs, which benefit officials’ other masters of their fate — “the people.” These funds and jobs are pivotal to politicians’ election hopes, and can’t be got in the same supply anywhere else, in countries that distrust the unbridled expansion of government (and so can’t be furnished by government itself).

…government depends on firms for valuable and scarce funds and jobs…

Thus, whereas (large) domestic firms tend to have options around the world to turn a profit, and so need (domestic) government less, government depends on firms for valuable and scarce funds and jobs that are hard to find in the same supply elsewhere. So large, mobile firms today — representing an increasing share of all firms, per Part I — enjoy material net power over government.

Having reviewed power relationships as between individuals, firms, and government, it’s readily apparent that individuals and firms have power over well-functioning democratic government, and could compel government to pursue the global public good if they so desired. These specifications are set out graphically, for convenience, in Appendix C.

(A brief detour before moving on with the argument-proper: it’s worth noting one thing about government’s power over itself. As can be seen from the power analyses above, well-functioning democratic government has perhaps (and perhaps ironically) the least power over other parts of society. This (happy) circumstance is by prescient constitutional thinkers’ design; but it shouldn’t be taken for granted or assumed to hold forever. Public officials, being human, do what they can to rewrite democratic rules to their own advantage, and to insulate themselves from competition, as Katherine Gehl and Michael Porter note.[6] Gerrymandering creates electoral maps favourable to governing coalitions. Laws restricting independents’ access to the general election ballot discourage new political alternatives to incumbent parties. And arcane parliamentary rules restricting what gets debated in legislative chambers prevent good ideas from getting enacted (see the self-serving “Hastert Rule” in the U.S., for example).

Thanks to the foresight of some of history’s most profound political thinkers and constitutional designers, large federal democratic states will hopefully be able to avoid some of government’s worst possible tendencies toward tyranny, since sub-federal jurisdictions would also need to be overcome to bring about absolute totalitarianism. But sustained incremental perversions to electoral systems can substantially weaken the force with which citizens can direct government action and hold government accountable.

So while government still today responds to the will of its constituents (at least to some degree), constituents need to remain ever vigilant to ensure that government keeps working for them, and not itself.

Detour over: back to the main argument.)

(c) Still, no one has the power-adjusted incentive to pursue the global public good.

The result of section (b) above is that, since individuals and firms have power over well-functioning democratic government, government will tend to pursue what matters to individuals and firms, because public officials must win votes from individuals comprising the electorate, and financing from firms, to keep hold of their public titles, as first raised in section (a). And these power relationships hold so long as electoral mechanisms work, political alternatives exist, and public officials lack the ability to override electoral controls to secure their own enduring private gain.

Inconveniently, though, individuals and firms place value on the (global) public good relatively less than they do on matters that more immediately impact their own personal wellbeing, as mentioned in section (a). Individuals justifiably care much more about things posing more immediate concern to our personal wellbeing: health, safety, material well-being, recreation, and the like; and firms exist to make a profit. And this suggests that neither individuals nor firms have sufficient incentive to compel government to use its capabilities to pursue the global public good.

Thus, in the final analysis, pursuit of the global public good is relatively weak, ultimately because no group manifests the power-adjusted incentive needed to pursue the global public good. Any viable solution must necessarily — and perhaps even sufficiently, as we’ll see — instil this incentive.

2. Imbuing individuals with this incentive would be the most principled and effective way to better address global public issues. Pursuit of the global public good appears to be held back by a lack of power-adjusted incentive on the part of society’s key actors. So outside of a scenario where positive global public outcomes arise as a by-product of other private activity, any answer will need to instil sufficient incentive among some set of actors to pursue the global public good. And entrusting this incentive to individuals — as opposed to firms or government directly — would be most principled and effective at improving this pursuit. We can make this argument by process of elimination.

First, one might reasonably ask why it wouldn’t be best to incentivize firms directly for achieving the (global) public good. Firms have the necessary capabilities; and despite that today’s most powerful firms tend to exacerbate many of our presently-most-pressing public issues (as described in Part I), firms are still on balance a force for good in the world, continuing to work wonders where properly motivated. Indeed, politicians and jurists alike increasingly seem to support the idea that firms should be made directly responsible for making corporate decisions that align with the public good. This is reflected in, for example, the Supreme Court of Canada decision in BCE Inc. v. 1976 Debentureholders, which holds that directors’ fiduciary duty is owed to the “corporation” — a catch-all term including labour, impacted communities, and investors alike — and not solely to shareholders, as in previously well-established ratios.[7] Or another contemporary example: consider U.S. democrats’ contention that private sector entities like Facebook should themselves be held accountable for regulating certain political speech on its platform.

…to assign firms … would ultimately be dangerous and undemocratic…

But alas, to assign firms directly to the task of pursuing the global public good would ultimately be dangerous and undemocratic. Firm leadership is not elected by citizens but instead by shareholders, and so is unaccountable to anyone but shareholders. Furthermore, to assign today’s firms would be to diffuse the very focused incentives that currently underpin private sector effectiveness in the first place (as discussed in Part I). And this would introduce uncertainty on the part of shareholders who entrust their funds to firms explicitly to earn a financial return, and it would give practically unbounded license to corporate management to deploy corporate coffers — 3rd-party funds!— however it sees fit, under the legal aegis of the “business judgment rule.”

Okay then — so maybe it’s not best to entrust the incentive in question directly to firms.

So second, if stronger firm incentives to pursue the global public good aren’t the answer, what about direct government incentives? Again, government is probably capable enough to effectively pursue the global public good, if it were properly motivated. The likely reason government doesn’t is that public officials are beholden to their citizens (for votes), and to a growing extent, firms (for campaign financing, corporate tax revenues, and jobs) — and neither individuals nor firms have, to date, lobbied sufficiently aggressively for more intentional government action to pursue the global public good, when compared against matters that improve individuals’ lives more directly (jobs, healthcare, education, tax-reduction, etc.), or firms’ ability to make profits.

Alas, incentivizing government to pursue the global public good as distinct from the demands of individuals and firms would weaken democracy, as this would mean establishing institutional incentives altogether detached from constituents’ demands. And this would weaken government’s alignment with those it governs. This would be undesirable in a democracy, where sovereignty is rightly designed to be vested in the people.

(Some may suggest, at this stage, that the answer lies in some form of global government, such as a United Nations armed with coercive powers. This idea deserves much more thorough treatment than can be offered here; but suffice it to say that those who recognize human beings’ natural lust for power would be wise to eschew a supreme global force endowed with coercive powers, which, frankly, risks irreversible tyranny. To be sure, the world’s most attractive societies throughout history have tended to be designed in a way that corrals natural human greed and the drive for power such that these drives ultimately serve to benefit one’s fellow man. Indeed, this is just what capitalism and democracy are designed to do — establish systems whereby the individual gains personally by competing, according to the written rules of commerce and politics, for the privilege of selling to and serving others.

To establish a single ultimately-unchecked global authority would be to invite irreversible global tyranny.)

…provid[ing] individuals with relatively stronger incentives … would sit nicely in principle alongside existing liberal institutions…

So if this incentive doesn’t sit well with firms or government, we’re left, third, with individuals. And fortunately, greater incentives to pursue the global public good sit nicely with individuals. Individuals working outside of firms or government aren’t themselves particularly capable of achieving the global public good, as discussed. But individuals, in their role as the electorate, do have the power to direct government to pursue the global public good more intentionally. Appropriately incentivized public-good-oriented individuals in their role as consumers would also have the power to pay firms to pursue the global public good — perhaps an entirely new crop of firms devoted specifically to solving public issues for a profit. And this is exactly how accountability is meant to work in democratic capitalist societies: individuals directing their governments to improve the electorate’s wellbeing, and paying firms to provide services useful to consumers.

So if there were a way to provide individuals with relatively stronger incentives to pursue the global public good, this would sit nicely in principle alongside existing liberal democratic and capitalist institutions, which have until relatively recently served modern civilization demonstrably quite well.

Thus, coupling individuals’ incentives with achievement of the global public good would arguably be the most principled and effective way to better address global public issues.

Coupling individuals’ incentives with achievement of the global good could also reduce firms’ problematic and growing power over government, addressing both issues in a single stroke.

Part I remarked that private sector actors will continue to grow in capability and power at the expense of governments, largely as a result of natural and uncontrollable capitalist forces. But coupling individuals’ incentives with achievement of the global public good promises to break this trend.

Clarifying the drivers of group power assists in the thinking here, and ultimately suggests that coupling incentives would weaken corporate lobbyists’ grip on government, leaving government freer to pursue what’s right for the broader electorate:

  1. Group power is a function of three things: (i) the group’s relative ability to condition the valued outcomes of another group (per the 4 power factors laid out previously), (ii) coordination among group members, and (iii) strategic relationships with outside groups.
  2. As matters currently stand, all drivers of firm power will tend to grow (at least weakly) relative to those of the state.
  3. But coupling individuals’ incentives with the global public good promises to reverse this trend, leaving government freer to pursue what’s right for individuals.

We can take these claims in turn.

1. Group power is a function of (i) the group’s relative ability to condition valued outcomes, (ii) coordination among group members, and (iii) strategic relationships with outside groups. Emerson’s power-dependence theory is premised on the notion that a “group,” so defined, acts as a single unitary entity. In the discussion so far, “groups” have represented a looser collection of entities, which by and large possess comparable aims, capabilities, and power relationships — but by no means act perfectly as one. To accommodate this difference in definition, we must adjust for the fact that “individuals” and “firms” are composed of independent actors, with at-times idiosyncratic aims (accepting the simplifying assumption that “government” acts as one). And we must also adjust for the fact that domestic “individuals,” “firms,” and “government” exist within a broader ecosystem of other strategic actors (e.g. international actors), all of whom can have power relations with one another.

On this understanding, then, one group’s power over another is a function of three drivers: i) the degree to which the group can unilaterally condition the target outcomes of another, if acting perfectly in concert, per Emerson’s formulation and following much the same analysis as performed previously; ii) the degree to which the group itself can coordinate to act in concert; and iii) the degree to which the group can act strategically with other groups to condition another’s target outcomes. And this construction enables analysis of groups’ relative power with respect to each driver, as discussed next.

2. As matters currently stand, all three drivers of firms’ power as a group will tend to grow relative to those of government. We’ll explore these three drivers now.

With respect to the first driver (i) of group powerone party’s ability to condition the target outcomes of another partyfirms are gaining power over government as a result of the systemic effects of natural capitalist dynamics, as discussed in Part I. This result is consistent with that suggested by a review of how firms’ and government’s sources of power are likely to evolve.

Recall that firms have power over government in that they can i) finance super PACs, ii) pay corporate taxes, and iii) furnish jobs that matter to government’s other masters — individual citizens. And governments have power over firms in that they can condition firms’ ability to profit within the government’s jurisdiction.

…all of the sources of firms’ power over government are growing…

Now, as firms become larger as a result of innovation relationships (causing consolidation, automation, and the like as described in Part I), all of the sources of firms’ power over government are growing, while those of government over firms are shrinking.

Firms’ power is growing as rising corporate profits in the hands of fewer firms represents greater, scarcer potential to fill super PAC campaign war-chests and government coffers, in the form of (corporate) tax revenues and payroll taxes on highly-paid employees. And larger firms are becoming increasingly significant and scarce in furnishing good jobs that voters (and so by extension, government) care about. These dynamics give (larger) firms more power to help deliver the valued outcomes of politicians and public officials.

By contrast, Western democratic governments’ power over firms is shrinking. These governments have power over firms by virtue of their ability to provision access to, and to set the terms of trade in, attractive markets. But western markets are becoming less appealing to firms, as markets stagnate relative to other places (e.g. China, India, Brazil), for related reasons described in Part I.

So, that firms need Western (democratic) governments less, while these governments need firms more, erodes Western governments’ ability to influence firm behaviour in their jurisdictions; and indeed, firms are gaining greater (lobbying and other) power vis-a-vis government.

Now, with respect to the second driver (ii) of group powercoordination among group membersfirms tend toward greater concentration as described in Part I; and this translates into greater coordination relative to government. This follows from the fact that it’s easier to coordinate among fewer bodies, and also from the fact that the mega-corporations that have emerged victorious in global capitalist conquest increasingly share the same aims and obstacles vis-à-vis government — namely, to cut corporate taxes, to scrap consumer protections, to bolster barriers to keep proprietary resources proprietary (IP, data, etc.), to increase access to and availability of cheap labour, and the like. And this greater unity of purpose among (large) firms further improves their ability to coordinate.

But finally, with respect to the third driver (iii) of group powerstrategic relationships with other groups — whether firms are gaining the upper hand in strategic relationships with other actors vis-à-vis domestic Western governments appears, to this observer at least, more ambiguous.

To evaluate this, we first recognize that strategic behaviour is predicated on any shared (and impermeable, stable, and legitimate) marker of entities’ identities (according to so-called preference-based group theories). In this line of thinking, strategic actors may root a relationship on any given marker of identity for mutual benefit (according to so-called belief-based group theories[8]) — where a marker may be, for example, any of the following: theoretical, religious, social, political, aesthetic, and/or economic.[9] Key strategic actors with whom domestic firms and governments may interact for mutual benefit include domestic individuals (usefully distinguished here between poorer and richer) and foreign governments.

…government may increasingly have more committed allies in (poorer) domestic individuals…

Now, as greater shares of Western democratic populations become relatively poorer (per the natural capitalist dynamics described in Part I), Western governments may increasingly strategically align with domestic citizens as a group. This is largely because, generally, a greater proportion of the typical Western capitalist democratic population shares a salient economic identity marked by financial struggle; and poorer individuals and government can increasingly both improve their outcomes by working together to support legislation to achieve objects generally seen as beneficial to (a greater number of) consumers and workers (each worth 1 vote) and perhaps at the expense of domestic firms. Indeed, this phenomenon is manifest in the rise of populist regimes across the democratic world — especially prominent since 2016, for example, shortly after the financial crash of 2008. All of this suggests that government may increasingly have more committed allies in (poorer) domestic individuals as trends continue per the underlying economic forces at work as described in Part I.

On the other hand, though, larger and richer firms increasingly enjoy greater strategic alignment with richer domestic individuals (for parallel reasons) — and also perhaps with foreign governments. As explored previously, large firms bring tax revenues and jobs that can make or break a country’s economic future; and as firms’ coffers and influence grow, so does their attractiveness to foreign states, which become more willing do what firms want to win firms’ investment.

Reflecting these conflicting shifts in strategic alignments, while the world has seen a proliferation of populist rhetoric originating from historically liberal democratic states, this has not been matched with the same force in populist action from these same states. On balance, it’s perhaps ambiguous whether domestic firms are growing in power relative to domestic government in connection with their strategic relationships vis-à-vis other key strategic actors, domestic and foreign.

Nevertheless, taken together, the three drivers of firm power will likely tend to at least weakly grow over time relative to those of government (trending ambiguously, in the case of the third driver). And this could likely result in firms continuing to gain power over government over time.

3. Coupling individuals’ incentives with the (global) public good promises to reduce the power of firms over government, leaving government freer to pursue what’s right for individuals. With all of this said, coupling individuals’ incentives with the (global) public good turns the immediately-preceding power calculus upside down.

Coupling individuals’ incentives with the (global) public good promises to catalyze lifestyle-enhancing innovation (as defined in Part I). This result starts from the fact that new such incentives would turn individuals into potential new customers of firms that deliver the global public good — customers who are willing to pay others to achieve the (global) public good to realize their own individual incentives. So firms would arise to deliver these (global) public outcomes for a fee, to meet the needs of these new customers. As long as individual incentives from achieving the public good outweigh the costs of retaining firms to hit target outcomes, individuals would profit (in a financial sense or otherwise) — and so would the firms who get paid. And the rise of these firms would represent lifestyle-enhancing innovation (as defined in Part I), as such a rise would be addressing an entirely new class of consumer needs.

…lifestyle-enhancing innovation … would effectively redistribute wealth from those … who have it … to those … who don’t…

Lifestyle-enhancing innovation, as this incentive-reorientation would bring about as defined in Part I, serves ultimately to increase the total demand for labour (also as described in Part I). And in today’s environment, this would effectively redistribute wealth from those capital owners who have it to those labour owners who don’t.

In turn, this redistribution would reduce firms’ ability to condition government’s outcomes (the first driver of power that firms have over governments), as new firms arise to supply (i) new jobs that matter to voters, and (ii) new alternative sources of funding for super PACs and corporate tax revenues that matter to public officials. It would also increase government’s ability to condition firms’ outcomes (the first driver of power that government has over firms), as the healthier, more inclusive economies resulting from lifestyle-enhancing innovation make government’s previously-stagnating jurisdictions more attractive to firms.

Moreover, this redistribution would directly reduce concentration and coordination among firms (operating to directly weaken the second driver of firm power with respect to government).

And finally, given that this redistribution would generally serve to balance wealth and income among individuals, this would tend to reverse trends in firms’, individuals’, and government’s strategic alignments, still leaving perhaps ambiguous effects here (in connection with firms’ third driver of power with respect to government).

All of this means that, ultimately, coupling individuals’ incentives with the global public good could reduce firms’ problematic and growing power over government.

In short, summing up all of the foregoing, the central premise of this Part II is that focus on the global public good can in general be improved by reorienting incentives, capabilities, and power relationships among individuals, firms, and government. If so, then coupling individuals’ incentives more tightly with the global public good is perhaps the single most effective and principled way to better address global issues. And not only this, but this could also reduce firms’ problematic and growing power over government as well, addressing both issues in a single stroke.

[END OF PART II]

[Thanks for reading! Be sure to check out the third in this series — Part III — which evaluates a particular idea that lives within the class of solutions arrived at in this Part II. And of course, please feel free to post questions or comments inline or in the comments section below.]

Appendix A: Game Theoretic Representation of Emerson’s Power-Dependence Dynamics

Richard Emerson’s power-dependence theory posits that one’s power over another is rooted in the latter’s dependence on the former. We can arrive at this very conclusion within a game theoretic setting. After assigning to 3 hypothetical individuals (‘A,’ ‘B,’ and ‘C’) illustrative utility functions (‘U’) as a function of three outcomes (θ₁, θ₂, θ₃) and “capacities” (‘c’) (available efforts and/or resources to devote to pursuit of θ₁, θ₂, and θ₃), and after specifying illustrative “effort-outcome functions” (mapping individuals’ combined efforts ‘ε’ to outcomes), we will be able to infer which individuals stand to benefit by exerting power over others, and on what basis. We’ll start by specifying model parameters.

Illustrative model parameters

Model parameters include utility functions, capacities, and effort-outcome functions.

Utility functions for each individual A, B, and C (where “**” denotes exponentiation):

  • Uₐ = θ₁ ** ½
  • Uᵦ = θ₂ ** ½
  • U𝒸 = θ₃ ** ½

Capacities for each individual A, B, and C:

  • cₐ = εₐ₁ + εₐ₂ + εₐ₃, where εₐᵢ is the effort that ‘A’ devotes to achieving θᵢ
  • cᵦ = εᵦ₁ + εₐ₂ + εᵦ₃, where εᵦᵢ is the effort that ‘B’ devotes to achieving θᵢ
  • c𝒸 = ε𝒸₁ + ε𝒸₂ + ε𝒸₃, where ε𝒸ᵢ is the effort that ‘C’ devotes to achieving θᵢ

Effort-outcome functions for each outcome θ₁, θ₂, and θ₃:

  • θ₁ = εₐ₁ + εᵦ₁ + ε𝒸₁
  • θ₂ = εₐ₂ + εᵦ₂ + ε𝒸₂
  • θ₃ = ε𝒸₃ * (εₐ₃ + 1)

Individuals ‘A,’ ‘B,’ and ‘C’ choose efforts ‘ε’ to maximize their own utilities.

In this very simple setup, all individuals are equally well-placed to achieve outcomes θ₁ and θ₂ — the outcomes that matter to ‘A’ and ‘B,’ respectively. These outcomes are the straight sum of the effort that each individual devotes to them.

By contrast, only the efforts of individuals ‘A’ and ‘C’ matter in determining θ₃— the outcome that matters to ‘C.’ In fact, θ₃ is in part a multiple of the efforts of ‘A’ and ‘C,’ so ‘C’ would benefit materially from ‘A’s help in achieving θ₃.

Given these parameters, we can show that ‘C’s relative dependency on ‘A’ to achieve θ₃ (the outcome that matters to ‘C’) gives ‘A’ an incentive to compel ‘C’ to spend relatively more of ‘C’s effort achieving θ₁ (the outcome that matters to ‘A’), in exchange for ‘A’s reciprocating only in part to help out ‘C’ with θ₃.

Model solution

It will be convenient first to consider the world from ‘B’s perspective. First, we note that ‘B’s effort on θ₃ is irrelevant (as θ₁ is a function only of the efforts of ‘A’ and ‘B’); so ‘B’ logically considers spending effort on only θ₁ and θ₂; and of these two outcomes, ‘B’ cares only about θ₂. ‘A,’ who cares about θ₁, gains relatively no more from ‘B’s effort than his own in service of θ₁, and can provide relatively no more than B can in service of θ₂, so has no reason nor leverage to compel ‘B’ to devote effort to θ₁. The same goes for ‘B’ with respect to ‘A.’ So ‘B’ devotes all of his effort — his entire capacity ‘cᵦ’ — to θ₂:

►(1) εᵦ₁ = 0

►(2) εᵦ₂ = cᵦ

►(3) εᵦ₃ = 0

Next we can look at the world from ‘A’s and ‘C’s perspective, starting with ‘A’s.

Now, ‘A’ could follow ‘B’s lead, and devote all of his capacity to the outcome that he values, θ₁. In this case, ‘C’ would then likewise devote all of his capacity to his preferred outcome θ₃. And these choices would imply that ‘A’s valued outcome θ₁ would ultimately result in a value of cₐ:

  • θ₁ = (εₐ₁ = cₐ) + (εᵦ₁ = 0) + (ε𝒸₁ = 0) = cₐ
  • Uₐ= (θ₁ = cₐ) ** ½

And these choices would likewise imply that ‘C’s valued outcome of θ₃ would ultimately result in a value of c𝒸:

  • θ₃ = (ε𝒸₃ = c𝒸) * ((εₐ₃ = 0) + 1) = c𝒸
  • U𝒸= (θ₃ = c𝒸) ** ½.

But ‘A’ has another option here. ‘A’ could seek to compel (or if you prefer, “negotiate with”) ‘C’ into devoting strictly positive effort to ‘A’s valued outcome θ₁ (such that ε𝒸₁ > 0) in exchange for ‘A’s devoting some (lesser) positive effort to ‘C’s valued outcome θ₃ (such that ε𝒸₁ > εₐ₃ > 0). ‘A’ would reason that, since ‘A’s and ‘C’s efforts are equally potent in achieving θ₁, ‘C’s greater effort achieving θ₁ would more than make up for the loss of ‘A’s lesser efforts that go toward θ₃; and so ‘A’ would be better off.

In general, ‘A’ will be better off coercing if:

►Uₐ[Coerce] ≥ Uₐ[Refrain], where…

  • Uₐ[Coerce] = ((εₐ₁ = cₐ - εₐ₃) + (εᵦ₁ = 0) + (ε𝒸₁ = c𝒸 - ε𝒸₃)) ** ½)
  • Uₐ[Refrain] = cₐ ** ½

And ‘C’ will be better off acquiescing, if:

►U𝒸[Acquiesce] ≥ U𝒸[Resist], where…

  • U𝒸[Acquiesce] = ((ε𝒸₃ = c𝒸 - ε𝒸₁)*(εₐ₃ + 1)) ** ½
  • U𝒸[Resist] = c𝒸 ** ½

Using these inequalities and a bit of algebra, we can show that these conditions are met, in this model’s specification, when the following holds:

►(4) ε𝒸₁ ≥ εₐ₃ ≥ ε𝒸₁/(c𝒸 - ε𝒸₁)

Given the fact that ε𝒸₁ > 0 and (c𝒸 - ε𝒸₁) > 0, thus ε𝒸₁ > ε𝒸₁/(c𝒸 - ε𝒸₁), when (c𝒸 - ε𝒸₁) > 1, which is possible so long as c𝒸 > 1.

Combined with equation (4), this means that, so long as ‘C’s capacity is greater than 1, in this specification, there always exists a range of strictly positive values εₐ₃ where ‘A’ can compel ‘C’ to overcompensate ‘A’ so that both can get outcomes that are better for them than the base case where ‘A’ and ‘C’ each independently pursue only the outcomes that matter to each respectively.

Thus, ‘A’ will coerce ‘C,’ in this model, within the boundaries of ‘C’s relative dependence on ‘A,’ as alluded to at the outset.

Things to note in this model

The source of ‘C’s dependence on ‘A’ in this model is rooted in the fact that ‘A’s effort is, within a certain range, more potent than ‘C’s in helping ‘C’ achieve outcomes that matter to him, while at the same time ‘C’s effort is no more potent than ‘A’s in achieving outcomes that matter to ‘A.’ So ‘C’ is willing to trade more of his effort to help ‘A’ than ‘A’ needs to provide in return, and both ‘A’ and ‘C’ will still be better off than if they didn’t negotiate to achieve mutual aims. Thus, power-dependence relations in a simple setup such as this depend on 4 key relationships between a given individual ‘A’ and other individuals ‘i’:

  1. ∂(outcomesᵢ)/∂(effortₐ): how much i’s outcomes depend on α’s effort;
  2. ∂(outcomesᵢ)/∂(effortᵢ): how much i’s outcomes depend on i’s effort;
  3. ∂(outcomesₐ)/∂(effortᵢ): how much α’s outcomes depend on i’s effort;
  4. ∂(outcomesₐ)/∂(effortₐ): how much α’s outcomes depend on α’s effort.

It’s also worth noting that, if ‘B’s effort were more potent than ‘A’s in achieving θ₁, and if the three individuals could negotiate together at once, ‘A’ would have an incentive to try to strike a deal with both ‘C’ and ‘B,’ whereby ‘A’ helps out with θ₃ in exchange for ‘C’s overcompensating both ‘A’ and ‘B’, so that ‘B’ then provides some of his more potent efforts toward θ₁. This goes to show that this representation is also amenable to network solutions.

Appendix B: Framework of Political-Economic Parameters Predicting Pursuit of (Public) Outcomes

The framework introduced in this Part II suggests that incentives, capabilities, and power relationships determine the degree to which individuals, firms, and government will pursue the public good. We can depict these graphically for convenience, per the figure below.

Key parameters predicting pursuit of the public good

Appendix C: Populated Framework of Political-Economic Parameters

The framework introduced in this Part II suggests that incentives, capabilities, and power relationships determine the degree to which individuals, firms, and government will pursue the public good, as first depicted graphically in Appendix B. Once we populate these parameters, we can represent the results for convenience in a diagram like the one shown below.

Key parameters predicting pursuit of the public good, populated

Notes:

[1] Richard M. Emerson, “Power-Dependence Relations,” American Sociological Review 27, no. 1 (February, 1962): 31–41, http://webarchiv.ethz.ch/soms/sociology_course/Social_Interaction/R_M_Emerson_Power_Dependence_relations.pdf.

Thinkers have identified myriad sources and properties of power. Guerrero and Andersen observe that power applies only to relationships between entities. Kraus distinguishes between the power to build and the power to destroy. Dowding formalizes the definition of power to fit within economic rational choice frameworks. Sharp underscores that state power derives from subjects’ propensity to obey. Galbraith identifies that resources are often key sources of power. French and Raven apply a number of these ideas to identify 5 sources of power in an organizational context (later adapted to 6).

Such authors’ works would seem to support that power between parties is the relative degree to which one party can condition the expected target outcomes of another. Power is relative between parties, as Guerrero and Andersen note. Conditioning can be positive or negative, constructive or destructive, as Kraus notes. Power applies in connection with parties’ target outcomes, as implied in economic rational choice frameworks. Target outcomes are within the subjective control of parties themselves, and beyond the reach of purely objective determinism. Sources of power will be context-specific, depending on agents’ aims. (So in organizations, for example, where actors seek to achieve ultimately for pecuniary or reputational gain, another’s power comes from the ability to reward and punish yes — but also from expertise, relationships, information, position — all of which condition a worker’s ability to achieve.) This understanding is represented on the whole perhaps best by Richard Emerson’s seminal “Power-Dependence Relations.”

[2] Certain elements are necessarily still exogenous to this model — institutional and technological innovations that recast power relationships, for example (e.g., the introduction of central banking regimes, constitutional amendments, legal precedents, etc.). This representation is also lacking some of the political, sociological, and demographic “human forces” that may be necessary in a more complete long-term understanding.

[3] Tess Bonn, “Poll: Voters name health care as top issue going into 2020,” The Hill, last modified December 12, 2019, https://thehill.com/hilltv/rising/474327-voters-name-health-care-as-top-issue-going-into-2020.

[4] While non-profits do exist, of course, their capacities are limited by the charity of others, which tends to be dwarfed by what people are willing to spend on their own self-interest. Thus firms as a group can be relatively fairly represented in terms of aggregate activity by organizations solely of the for-profit variety.

[5] “How Compatible are Democracy and Capitalism?” The Economist, last modified June 13, 2019, https://www.economist.com/finance-and-economics/2019/06/13/how-compatible-are-democracy-and-capitalism. As The Economist notes, “for the system to hold a third pillar is needed: large firms that are not very mobile. … That increases the power of the state relative to firms, and allows it to tax and spend.”

[6] Katherine M. Gehl and Michael E. Porter, “Why Competition in the Politics Industry is Failing America,” Harvard Business School, last modified September 2017, https://www.hbs.edu/competitiveness/Documents/why-competition-in-the-politics-industry-is-failing-america.pdf.

[7] “Key Lessons from the BCE Decision,” Osler, last modified December 22, 2008, https://www.osler.com/en/resources/critical-situations/2010/key-lessons-from-the-bce-decision.

[8] Jim A. C. Everett, Nadira S. Faber, and Molly Crockett, “Preferences and Beliefs in Ingroup Favoritism,” Frontiers in Behavioral Neuroscience 9, no. 15, (February 2015): 1–21, https://www.frontiersin.org/articles/10.3389/fnbeh.2015.00015/full#h2.

[9] Ingolf Bamberger, “Values and Strategic Behaviour,” Management International Review 26, no. 4 (4th Quarter, 1986): 57–69, https://www.jstor.org/stable/pdf/40227818.pdf?seq=1.

Alex Mucalov is an observer of human social systems. He has enjoyed diverse and direct exposure to some of democratic society’s key economic and political institutions through varied strategy experience in financial services, government, and regulatory bodies. He holds a JD/MBA from the University of Toronto, a Master’s in Economics from the London School of Economics and Political Science, and a Bachelor’s in Commerce from Queen’s University.

Strategy & governance professional in financial services, former regulator. JD/MBA (Toronto), MSc Economics (LSE).

Strategy & governance professional in financial services, former regulator. JD/MBA (Toronto), MSc Economics (LSE).