Jordan Brennan is a PhD candidate in political science at York University and contract faculty in the School of Liberal Arts and Sciences at George Brown College. He is working on a dissertation entitled The Business of Power: The Structure, Composition and Performance of Dominant Capital in Canada.

In March of 1975 Paul Desmarais Sr. — the chairman of Power Corporation — sought a controlling interest in Argus Corporation, another large Canadian-based conglomerate, then headed by the formidable Bud McDougald. This jostling for position in the corporate power game quickly caught the attention of Ottawa. Pierre Trudeau responded by establishing a royal commission to study the effects of corporate concentration on the Canadian political economy.

Trudeau was right to be concerned. It is doubtful that any society can maintain the ‘democracy’ in ‘liberal democracy’ when a few dozen individuals control the industrial life of the nation. The irony was that, up to that point, corporate power had been declining for three decades.

The period between 1945 and 1975 not only saw a decline in corporate concentration, it also saw a rapid expansion of unions, robust wage gains and a demographic bulge in the ranks of the middle class. The income share of the richest 0.1 per cent of Canadians declined while that of the middle and working classes increased.

But the expansion of the welfare state and accompanying creation of a shared prosperity would soon come to an end. The ‘Chicago School’ of economics was on the rise and its high priests were sermonizing about the virtues of unrestricted markets and less government intrusion. Under their ideological tutelage a new generation of politicians would re-engineer Canada to create conditions favourable to business.

An obedient labour force, privatization of state assets, a thinning of the social safety net, tax cuts for business and an ambitious trade and investment liberalization regime would set Canada on the road to free market utopia. And while average Canadians continue to endure the socio-economic consequences of this experiment, it’s become clear that events like Desmarais’ audacious bid for Argus have been a driving force behind the polarization of income and opportunity.

‘Differential capitalization’ is a concept developed by Jonathan Nitzan and Shimshon Bichler, two heterodox political economists, to capture the relative size (read: power) of large firms. I put this concept to work in the Canadian context by taking the average equity market value of the top 60 Canadian-based firms and dividing it by the average equity market value of all firms listed on the Toronto Stock Exchange. The resulting ratio captures the differential size (power) of large firms.

It turns out that there is a stunning historical relationship between relative firm size (corporate concentration) and the income share of the richest Canadians (inequality). In 1950, an average firm within the top 60 was five times larger than an average firm on the TSX. This ratio would slowly decline to three by 1977 and then, just as the Canadian state began to embrace ‘Chicago School’ principles, gradually rise to six by 1989 before surging to 23 in 2008 (see enclosed figure). What’s more, the pattern of this ratio is closely shadowed by the income share of the richest 0.1 per cent of Canadians.

The reasons for the growing concentration of income and corporate power aren’t hard to discern. After all, Adam Smith grounded his advocacy for laissez-faire in two counteracting principles: self-interest and competition. His ‘system of perfect liberty’ would optimize social welfare and enlarge human freedom so long as self-interest was always kept in check by the disciplining effects of intense competition between many small firms. Smith also believed that laissez-faire would entail a ‘perfectly equal’ distribution of income or conditions ‘continually trending to equality’.

But in Smith’s day it was already apparent that corporations work to subvert competition, and in so doing, deepen inequality. Larger relative firm size undermines competition and translates into thicker profit margins, a higher profit share of national income and redistribution from labour (in the form of wages) to capital (in the form of corporate profit) and from the middle to the top income brackets.

Other effects of growing corporate concentration can be inferred, if we care to look. Despite extreme inequality, three decades of wage stagnation and a two decade-long decline in union density, politicians at all levels of government — cheered on by corporations — are attacking unions. Unions give a voice to ordinary people in the workplace and, historically, have strengthened middle class formation by ensuring that gains from growth are widely shared among lower income brackets. Their erosion is closely tied to the concentration of corporate power and increasing income inequality.

What does this have to do with democracy? Detractors will answer ‘nothing’ on the basis that the governing party is subject to elections. But as Josiah Ober — the Stanford professor of classics — makes clear, for the ancient Athenians who invented it democracy did not mean majority rule, nor did it hinge on elections. Democracy meant a regime of empowered citizens with the ability to effect change in the public realm. It was centred on the capacity of an ordinary citizen to do good things in the life of the community.

This means that democracy is not a condition Canadians have realized, it is an ideal we pursue. Democracy is weakened when important decisions about our collective future are removed from the public realm and put in the hands of the few. It is severely impaired when a small faction in the polity, in this case corporate Canada, exercises control over the levers of the state.

Our democracy is being diminished. Given the concentration of corporate power, it’s not hard to see why.

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