The Future of Public Governance

The future may see the economic organism, now typified by the corporation, not only on an equal plane with the state but possibly even superseding it as the dominant form of social organization. The law of corporations, accordingly, might well be considered as a potential constitutional law for the new economic state, while business practice is increasingly assuming the aspect of economic statesmanship.”

 The Modern Corporation and Private Property, Adolf Berle and Gardiner Means, 1933

Like Mom, apple pie, and baseball, the need for a strict wall between the public and private sector seems to be something that all Americans can agree on, whether they are big-state types or lean toward libertarianism. 

Of course, they come at it from different angles: For the pro-business American, Milton Friedman provides the guiding light. Corporations have one purpose, and it isn’t governing. The Council of Institutional Investors gets right to the point, “It is government, not companies, that should shoulder the responsibility of defining and addressing societal objectives with limited or no connection to long-term shareholder value.” 

Government and Corporate Leaders find Agreement on One Point: Corporations Should Not Be in the Business of Public Governance

As for government advocates, they also think that the government should shoulder responsibility to the public, but because corporations have shown they cannot be trusted to work in the public interest. 

Time editor Anand Giridharadas is the living embodiment of this view, accusing attendees at the National Association of Government corporate leaders earlier this month, “Where were you in the run-up to the climate crisis? Where were you during widening inequality over the last four decades? Where were you in the run-up to the subprime crisis?”

Private, Schmivate: The wall between the public and private sector is crumbling

There is a problem with the deep-seated American belief, however. It is crumbling around the edges.

A quick clarification: The public discussion about shareholder vs. stakeholder capitalism and corporate social responsibility presents corporate activity in public governance as a choice that companies can make or not make.

In a similar vein, government leaders periodically make claims about how they plan to compel companies to do something. But they have limited power to do so. Government officials have discovered this the hard way when seeking to compel tech companies to give them iPhone data or other information that could be evidence in a legal case, for example.

That’s not my argument. Rather, it is that the redistribution of power is well underway. It is a form of nostalgia to wish to restore relationships of a century ago.  Corporate participation in public sector governance may look like a choice directors can make, but that won’t last forever. 

The pattern is unambiguous: the private sector is sliding into government-like roles and respects. The government’s relative power to monopolize decision-making about society is ordered and get things done–in other words, to govern–is slipping.

In the meantime, as business ethicists Jeffrey Moriarty and Waheed Hussain have pointed out, “Corporations are becoming increasingly involved  in performing various public functions, not only in weak or failed political systems but also in ostensibly well-functioning ones” (Journal of Business Ethics).

The Future of Governance will radically rewrite the public and private sector

Crazy? The radical reorganization of governance wasn’t out of the question for Adolf Berle and Gardiner Means. We remember them for laying the foundations of the idea that companies should prioritize shareholders in their 1933 book, The Modern Corporation and Private Property.  Yet, they conclude that this uniquely powerful form of organization may ultimately become “the dominant form of social organization.” 

We may find it difficult to look at this emerging pattern without judging whether it is good or bad. Many of us have strong opinions about what companies should do and what governments should do. But there is nothing that says that governance has to be organized in any particular way.  To future generations looking back, our versions of government may seem as foreign as the feudal systems of 500 years ago appear to us. 

Future fiction gives us dystopian visions of future governance in which governments have somehow faded away entirely. Corporations have taken over presumably everything from policymaking to taxation to security.  But that isn’t how it will happen. Governments and citizen roles are also changing. Think of the future of public governance, at its best, as a formal ecosystem. Different organizations and people will participate in deciding how society is ordered and gets things done.

Like today, but better: Optimized and organized to reflect the reality of how power is distributed. This is possible. But first, we have to come to grips with reality.