Fulbright Abstract: Stakeholder, Shareholder and Citizen

Stakeholder, Shareholder and Citizen: A different approach to the analysis and critique of democratic government

Fulbright Flinders University Lecture Series 1

Professor Howard Schweber Distinguished Chair in American Political Science

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Contents2 Welcome

4 FulbrightFlindersChairs

5 FulbrightatFlinders

6 ResearchInterests

7 WashingtonInternshipProgram

8 AmericanStudiesatFlinders

10 CollaborationsandPartnerships

11 LibraryCollection

12 FlindersUniversity

14 AdelaideandSouthAustralia

15 SupportofStateGovernment

16 OverviewofApplicationProcess

17 Research/Teaching

Welcome

Professor Michael Barber FAA, FTSE, FAICD Vice-ChancellorandPresidentFlindersUniversity

IamdelightedtopresentthelecturebyProfessorHowardSchweberaspartofFlindersUniversity’sinvolvementinhostingtheFulbrightFlindersUniversityDistinguishedChairinAmericanPoliticalScience.

FlindersUniversityisrenownedforitsstronginternationallinkswithuniversitiesandresearchinstitutionsacrossNorthAmericaandAsia,recentlyestablishingtheCentreforUnitedStatesandAsiaPolicyStudies.

TheFulbrightFlindersUniversityDistinguishedChairinAmericanPoliticalScienceenhancesAustralia’snationalengagementwiththeUnitedStates,anengagementforwhichtheFulbrightprogramhasbeensuchasuccessfulanddistinguishedinstrument.

Thelecture‘Stakeholder,ShareholderandCitizen:Adifferentapproachtotheanalysisandcritiqueofdemocraticgovernment’presentedbyProfessorHowardSchweber,thefirstFulbrightFlindersUniversityDistinguishedChairinAmericanPoliticalSciencesupportsFlindersvisiontobegloballyconnected.

TheFacultyofSocial&BehaviouralSciencesisproudtobethehostFacultyfortheDistinguishedChairprogram.Overthecourseofthisprogram,theFacultywillhostaseriesofdistinguishedscholars,eachcontributingtothecomparativepoliticalanalysisofAustraliaandtheUnitedStates,andeachaddingsignificantlytotheteachingandresearchprofileoftheFaculty.

Througheventssuchaslecturesandcolloquia,thesescholarswillprovideaninvaluableresourcetoundergraduateandpostgraduatestudentsacrosstheFaculty,andwillhelptofosterresearchlinksbetweenFlindersanduniversitiesintheUnitedStates.

AspartoftheDistinguishedChairprogram,aseriesofpublicationswillprovideaworthyrecordoftheworkofeachDistinguishedChair.Eachpublication,atranscriptionofalecture,willprovidearesourceforfuturestudents,andwillcontributetotheongoingdialogueandcooperationbetweentheUnitedStatesandAustralia.

Professor Phyllis Tharenou ExecutiveDeanFacultyofSocial&BehaviouralSciencesFlindersUniversity

EachoftheFulbrightFlindersUniversityDistinguishedChairsinAmericanPoliticalSciencewillmakeanimportantcontributiontothescholarshipontheUnitedStatesthatwecontinuetodevelopatFlindersUniversity.

WhileatFlinders,ProfessorHowardSchweberexploredtheideaofrepresentation,acoreconceptunderpinningbothAmericanandAustralianunderstandingsofdemocracy.InthislectureHowardpresentsthreedifferentmodelsofrepresentation,askingwhetherthe“CitizenModel,”themostdesirablemodel,istodayrealisingitsrepresentationalpotential.

Hepointstotheproblematicrolesplayedbymodernpoliticalpartiesandvotingsystemsindistortingthatideal.Electoralreformandpartyreform,heconcludes,arenecessary--informedasneverbefore,byaproperunderstandingofcitizenrepresentation.

Professor Don DeBats Head,AmericanStudiesFlindersUniversity

TheAustralian-AmericanFulbrightCommissionispleasedtosupportthepublicationoftheprincipalpubliclectureofeachoftheFulbrightFlindersUniversityDistinguishedChairinAmericanPoliticalScience.Eachofthesetalksbringstoawiderpubliceachscholar’sreflectionontheresearchwhichunderpinsthisdistinguishedchairprogram.

Eachscholarexpandstheiracademicexpertise,sharestheirknowledge,andstrengthensthenexusbetweenAustralianandU.S.stakeholdersthroughtheirresearchandanationallecturetouracrossAustraliawhichiscoordinatedbytheCommissionandFlindersUniversity.

Tangerine HoltExecutive DirectorAustralian-American Fulbright Commission

Contents03 The Concept of Representation: Mapping out Ways to Categorise and Critique Democratic Institutions05 Three Basic Questions about any Representative System11 Guiding Ideas for Australia: Locke and Madison14 The Problem is Political Parties16 Q & A

IntroductionMyresearchduringmystayinAustraliahasbeenaboutdemocraticrepresentation.Itstartedoutasastraight-forwardcomparativestudyofAustralianandAmericanpoliticalpracticesbutrapidlybranchedintoamoretheoreticalstudy:whatdowemeanbyrepresentation?Andwhatpurchasecanwegetonideasaboutdemocracy,democraticprocessanddemocraticpracticebyfocusingontheconceptofrepresentation?

Formanyreasons,democraticpracticeisahotissuerightnow.Insomepartsoftheworld,newconstitutionsarebeingwritten.Inothers,wholesystemsarebeingradicallyreformed.It’sprobablynotacoincidencethatinplaceswherereformisnothappening–suchastheUnitedStatesandAustralia–wefindextremelyhighlevelsofdissatisfactionwiththepoliticalprocess.Inotherwords,inplaceswheredeepreformingisnothappening,possiblyitshouldbe.

Professor Howard SchweberFulbright Flinders University Distinguished Chair in American Political Science

January–June2012

ProFESSor HowArD SCHwEBEr, MA (Chicago), PhD (Cornell)

ProfessorSchweberreceivedhisPhDinGovernmentfromCornellUniversityin1999andanMAinHistoryfromtheUniversityofChicagoafterspendingfiveyearspractisinglaw.Heteachescoursesfocusingonconstitutionallawandlegalandpoliticaltheory.ProfessorSchweberistheauthorofSpeech,ConductandtheFirstAmendment(PeterLangPress2003),TheCreationofAmericanCommonLaw,1850-1880:Technology,Politics,andtheConstructionofCitizenship(Cambridge2004),andTheLanguageofLiberalConstitutionalism(Cambridge2007),aswellasarticles,essays,andbookchaptersonavarietyofrelatedtopics.

Professor Schweber’s current areas of research include comparative analyses of different constitutional systems and theconstructionof“public”and“private”ascategoriesoflegalandpoliticaldiscourse.HeisamemberoftheBoardofDirectorsoftheWisconsinCenterfortheStudyofLiberalDemocracyandinthepasthasbeenactivelyinvolvedwiththeCenterforCivicEducation’sWethePeopleprogram.ProfessorSchweberisregularlyfeaturedonWisconsinPublicRadioprogramsandgivesfrequentnewspaperandtelevision interviews. In2004hewastherecipientoftheWilliamHKiekhofferAwardforDistinguishedTeaching.ProfessorSchweberhasalsotwicebeenselectedasthePiSigmaAlphaProfessoroftheYear,andreceivedtheStephenandMarjorieRussellAwardforOutstandingTeachingatCornellUniversity.

The idea of ‘representation’ is central to discussions of democratic government, economic organisation, and policymaking. Yet the meaning of ‘representative’ is subject to great disagreement: Who/what is represented? What is the activity of representation? What is the relationship between the representative and the represented?

Within a single system of democratic government, multiple versions of ‘representation’ are frequently at work. Applying classical models to modern political systems including Australia and the US, Professor Howard Schweber examines a different approach to the analysis and critique of democratic systems.

Stakeholder, Shareholder and Citizen: A different approach to the analysis and critique of democratic government

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Presentedby

Professor Howard Schweber

on29May2012

The Concept of representation: Mapping out ways to Categorise and Critique Democratic Institutions

fwethinkaboutdiscussionsonthetopicofdemocracycurrentlytakingplacearoundtheworld–forinstance,theEuropeandiscussionofdemocracydeficit,theEasternEuropeandiscussionsofdemocratic

consolidationandconstitutionaldesign,thevariousdebatesaboutthedemocraticorundemocraticrolesofelectoralsystems–intermsofthedeploymentofconceptionsofrepresentation,wearerewardedwithanaddedpurchase.Infact,wefindwaystothinkaboutcategorisingandcritiquingdemocraticinstitutionsthatwouldotherwisebenon-obvious.

Ifwethenturnthoseinsightsontoourowninstitutions,wemaybeconfrontedbyanimportantquestion:areourpoliticalinstitutionsservingusinthewaythatwewouldlike?Andtotheextentthattheansweris‘notentirely’,orperhaps,‘notatall’,howmuchisbecauseofacertaintensioninournotionofwhatwethinkrepresentationisaboutandaboutthewayrepresentationisactuallyundertaken.It’sworthnotingthatrepresentationisoneof‘those’words.Everybodywantstoberepresentative.

Allformsofgovernmentclaimtoberepresentative…andnotonlyformsofgovernment.Ifyouopenthebusinessjournals,they’refullofarticlesonbusinessgovernanceandtheroleofrepresentation:representationofinterests,representationofshareholders,representationofminorities,representationoflocalcommunities.Inmoderntimes,almosteverybodywantstobegovernedbyrepresentatives.

Everypoliticalgrouporcausewantsrepresentation,everygovernmentclaimstorepresent.Butthesametime,wearetroubledbythedifferencebetweenshamandrealrepresentativeinstitutionsandbythemanycompetingwaysrepresentationcanbeinstitutionalised. ‘representation’ goes all the way back to its Latin roots. while the Greeks had no word for representation, the Latin word ‘representare’ meant ‘to make present that which is absent’.Sorepresentationisalwaysaboutleavingsomethingout.It’snotonlyaboutwhatisincluded,it’saboutwhatisnot–andtheanalogyIlikeiscontainedinthisfollowingpassagefromSylvieandBrunoConcludedbyLewisCarroll,oneofthemostprofoundpoliticalthinkersIknowof.Thedialoguegoeslikethis:

‘That’sanotherthingwe’velearnedfromyournation,’saidMeinHerr,‘Map-making.Butwe’vecarrieditmuchfurtherthanyou.Whatdoyouconsiderthelargestmapthatwouldbereallyuseful?’

‘Aboutsixinchestothemile.’

’Onlysixinches!’exclaimedMeinHerr.‘Weverysoongottosixyardstothemile.Thenwetriedahundredyardstothemile.Andthencamethegrandestideaofall!Weactuallymadeamapofthecountry,onthescaleofamiletothemile!’

‘Haveyouuseditmuch?’Ienquired.

‘Ithasneverbeenspreadout,yet,’saidMeinHerr:‘Thefarmersobjected:theysaiditwouldcoverthewholecountry,andshutoutthesunlight!

‘Sowenowusethecountryitself,asitsownmap,andIassureyouitdoesnearlyaswell.’

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Amapisaperfectexampleofrepresentation:youdon’tincludeeverything,youchoosewhatisrelevant;andyouchoosedifferentthingsdependingonthepurposeforwhichyouaremakingyourmap.Economicmapsareverydifferentfrompoliticalmaps,whichareverydifferentfromterrainmapsoraltitudemaps,populationmapsoropinionmaps.Whenyouchoosetorepresentaterrain,youdosoonthebasisofhavingfirstdeterminedwhatyoucareabout,andthenleavingouttherest.Youcreatearepresentativeversionofthelandscapethatshowswhatyoucareabout.Inpoliticalrepresentation,thatisequallytrue.If we think of representation in terms of classic roman republican notions, in which freedom means not to be ruled by foreigners, the key is to be ruled by someone like ourselves, someone not foreign (however you define ‘not foreign’). That approach will lead you to map your idea of representation in certain ways. Soonesuitableidiom,ormetaphor,isthatrepresentationismap-makingandacriticalquestionisnotonlywhatyouwanttoleavein,butalsowhatyouwanttoleaveout.

Mysecondmetaphormakesexactlythesamepointinaslightlydifferentway:theideaoftherepresentativesample.Anyrepresentativesampleinvolvesfirstwhatwecalloperationalisingourvariables:figuringoutfirstwhatwecareabout,andthenfiguringouthowtomeasureandexpressit.Allofwhichisamatterofexcludinginformation.Andoncewe’vedecidedwhatwecareaboutandhowtomeasureitandhowtoexpressit,thenwemakeourrepresentativesample.

Therepresentationisnotthethingthatitrepresents,norisitdifferentfromthatthing.Ittakesaverystrangemiddlepath,amiddlespace,justlikeamap.Amapisnotthespacethatwearetravellingin–butit’snotdifferentfromthatspaceeither.Ifitwere,itwouldn’twork.

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Three Basic Questions about any representative System

Assoonaswestartthinkingaboutrepresentation(inanycontext,literary,artistic,cartographical,orpolitical)intermsofwhathastobeleftoutinordertomakeitwork,Ithinkwebegintorealisehowimportantthosechoicesare–andhowproblematicifinourinstitutionaldesignweareleavingoutthingsthatinournormativephilosophieswewouldactuallyprefertoseeincluded.Soletmetryandbreakthisdownalittlebitmoreconcretely.

Thethreebasicquestionsaboutanyrepresentativesystemare:

1 who (or what) is represented? Forexample,wemayrepresentidentities,or

interests;wemayrepresentworldviews,orpersons.

2 what is the activity of representation? Isitamatterofchoosingpeoplewhowillengage

indeliberationanddiscussiononourbehalf,orisitamatterofchoosingpeoplewhowillengageinbargainingonourbehalf?Dowehaverepresentativestomonitorwhatwedo,ortogovernwhatwedo?

3 what is the relationship between authorisation and accountability in the representative system?

Theusualdistinctionisdelegationvsagency. Areourrepresentativesentrustedtoacton

theirownjudgement,wisdomandoftheirownaccord,ordoweaskthemtobeouragentsandcarryoutwhatwewouldhavedone.Anddoweaskthemtoactforus,ortospeakforus?

Sotherearethreebroadaxesalongwhichwecanplacedifferencesinrepresentativesystems.HereIcanpointoutalternatewaysofthinkingthatyoumightnotordinarilyhavethoughtofasrepresentative.Buttheyareinfactexemplarsofextremecases.

ThenI’llmovetoaconsiderationofsomeclassicmodelsofpoliticalrepresentation,andfinally,applytheinsightsofthatdiscussiontoacriticalanalysisofthesituationinAustraliaandAmerica.Perhapsthatwillprovokeaquestion:justhowsatisfiedarewewiththefitbetweenourmapandthethingwethinkwearemapping?

The shareholder model

Youmaynotthinkofbusinesscorporationsasrepresentative,butthatiswhattheyclaimtobe.Decision-makinginapublicly-tradedcorporationis,explicitly,amatterofcollectingthewills,aggregatingthepreferencesofagroupofpeoplejoinedtogetherusingacertaincalculus,andbalancingoutwinnersandlosers.Thisdeterminestheboard,ortheexecutives,ortheCEO,whowillthengoontomakespecificgovernmentdecisions.Andthat’snotsomenovelinsight.Ifyougobacktothe19thcentury,whenbusinesscorporationsfirstemerged,thiswasexactlythenotion.TheshiftfromBritishCharteredCompaniestogeneralbusinesscorporations(whichreallybeganintheUnitedStatesinthe1850s,andlatertookoffinEnglandinthe1870sand1880s)isbasedontheideaofpullingcapitaltoallowprivategroupstodothekindsofpublicpurposetasksthatpreviouslyonlygovernmentscoulddobecauseitservespublicpurposes.Capitalwasorganisedinwhatwewouldnowcallarepresentativekindofway.

Railroadsweretheparticularenterprisesthatstartedallthisrolling.Butshareholdervotingisnotquitelikepoliticalvoting.It’snotoneman,oneperson,onevote.It’soneshare,onevote.Thephraseweusetoidentifywhat’sgoingonis‘votingyourshares’.Inotherwords,inthemostliteralpossiblesense:‘moneytalks’.Inashareholdersystem,whatisrepresentedismoney.

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Theshareholder,theactualpersonisreallythecarrier,orthevehicle,forbringingthemoneyintotheshares.Themoresharesyouhave,themorevotesyouget,themoreinfluenceyouhaveovertheoutcome.Ifyouthinkofthequestionback-to-frontitbecomes:howdidthepolicyofthiscorporationbecomedetermined?Theansweris:throughtheindirectrepresentationofthelargestblockofmoneyinvolvedinitsownership.Thatisnotintuitivelystrange,appliedtoabusinesscorporationbutthemoreyouthinkaboutitthemoreitbecomesinteresting.

Inthefirstplace,weassumetheauthoritytocontrolsomethingcomesfromowningit.Inotherwords,IshouldbeallowedtodecidewhatthiscorporationdoesbecauseIownmoreofit.Thissoundsintuitivelysensibleappliedtoacorporation–butwhatifappliedtoacountry?Ortown,orevenauniversity?Suddenlyyoumightbemuchlesscomfortablewiththeidea.

Wellnaturally,that’sbecausetheseareprivatebusinessentities,notpublicentities.Your comfort level changes when you realise we entrust private business entities with a huge range of public tasks.Thereareexplicitcasesofprivatisation:ofprisonsystems(inwhichAustralialeadstheworld,Imightpointout)andin

LatinAmericaprivatecompaniesthathavetakenoverthedrinkingwater.Wemightthinkoftheseobviouscasesaspublicgoodsunderprivatecontrol.Butalso,muchmoregenerally,theexistenceofaprivatebankingsystemmeansthatmassivelyimportantpublicfunctionsarecarriedoutbyprivatecorporationswhosepolicychoicesaremadeonthebasisthatmoneytalks.Inthemostliteralsense.

Toseethatnotiongivenfleshandwalkingaround,checkouttheUSSupremeCourtcasethatsaysacorporationhasfreedomofspeech.Whatmessagedoesacorporationexpress?Whatevermessagethelargestblockofshareswantstodeliverthroughitselectiverepresentativesontheboard.Doesthismatter?Youmaythinkbusinesscorporationsarerunforprofit,sowhoreallycareswhoisontheboard?Infact,itmattersanenormousamount.ItturnsoutthatwhoistheCEOinparticularmattersasmuch,perhaps,asitmatterswhoisthepresidentofacountry,orthepresidentoftheuniversity.

ArecentstudyjointlyconductedbytworesearchersfromHarvardandNYUisgettingagooddealofattentionbackintheUS.Ifinditabsolutelyfascinating:astudyofCEOs’behaviourcontrolledforoneinterestingvariable:militaryservice.

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It turns out that in the United States, over a 50-year period, CEos who had served in the military have very markedly different patterns of conduct than do CEos who had not served in the military.CEOswhowereveterancitizensshowlessthanhalftherateoffraud,financialmalfeasanceandcorporateirregularities.Theyperformmuchbetterduringbadtimesintermsofdiminishinglosses,althoughtheyshowmuchlessexcitingperformanceduringboomtimes.They’reriskaverse,they’recareful,theyfollowtherules.

Youmayconcludefromthatanythingyouwant:youmaythinkit’sagoodthingorabadthing.It’sjustoneniceillustrationofthefactthatitmatterswhocontrolscorporations.Andsoifyoubelievethatthecorporatesectorofoureconomyissignificant,youshouldthinkaboutthemannerinwhichthatleadershipisrepresentative,andofwhatitisrepresentative.Afterall,corporationsarenotnaturalobjects.Theyarecreaturesoflaw,createdbypoliticalentities.I’vealwaysloveditwhensomeonetalksaboutthenaturalrightsofcorporations.Ithasmescratchingmyhead–theyexistbyactsoflegislationafterall.

Sowho,andwhat,isrepresented?I’vesuggested–onlyslightlytongue-in-cheek–thattheanswerismoney.Whatistheactivityofrepresentation?Theunconsideredconsequencesofstructuraldesign(intheUnitedStatesatleast,Idon’tknowifthisistrueinAustralia)arethatifaCEOweretoactinthewaythatfailedtomaximisecorporateprofits,theshareholderscouldsue.Thisisnotamatterofagreementorsocialattitude;structurally,corporationsaredesignedforthepurposeofmakingaprofit,pullingcapitaltoinvesttocreateprofit.Thisisnotacriticism:that’swhattheyarefor.That’swhattheydo.Thismeansthatbystructuraldesign,theonlylegitimateactivityofbusinesscorporationsisthepursuitofprofit.Andthisisfine…untilyouconsiderthefactthatwe’retalkingaboutasystemrepresentativeofaverylargenumberofpeople’spensionfunds,forexample,orurbanbonds,orschoolbonds,orlabourunioninvestmentswithprofoundpolicyoutputs.

Thecorporationsarenotencouragedorpressured,they’rerequiredtoperformthatrepresentativeconduct,keepingonlyasinglelawinmind.Thisisavery,verynarrowandconstrainingmodelofrepresentationofeconomicinterests.

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Whatrelationshipistherebetweenauthorisationandaccountability?Almostnone.The notion of shareholders controlling corporate boards is, at least in the United States and (I suspect) here as well, something of a joke. Thevastmajorityofcorporatesharesareownedblind.Ihaveaninvestmentinaretirementaccount;myretirementaccountinvestsinanumberofmutualfunds;thosemutualfundsbetweentheminvestin,say,80differentcorporations.IfreelyconfessIhavenevereventriedtofindoutwhatwasgoingonatalltheshareholdersmeetingsofallthose80corporations.WereIGeorgeSoros,I’msureIwouldbehavequitedifferently,butthevastmajorityoftheinvestorsinthemarketaren’tGeorgeSorosanddon’tbehavelikehim.Sotheonlykindofscrutinyis,inpoliticalterms,internationalrelations:themarkets.Whatdocompetingcorporationslooklikecomparedtoyours?There’salmostnointernalgovernanceofcorporations,intermsoftheshareholderswhomtheyclaimtorepresent.

Manycorporationsdon’tworkthatway:creditunions,community-ownedorganisationsandworker-ownedorganisationsandlotsofother

corporateforms–butthestandardbusinessmodelofthepubliclytradedcorporationscontinuestousewhatoncloseexaminationturnsouttobearemarkablystrangemodelofrepresentation.Nowthisonlymattersinsofarasweinsistonascribingtoitarepresentativequality.Butwedo.

The Stakeholder Model

Whataboutadifferentmodel?Iftheshareholdermodelistoonarrow,ifweobjecttorepresentingonlymoneyinproportiontoitspresence,ifweobjecttotheconstraintofonlyseekingprofit,let’stryadifferentmodel.Attheotherendofthespectrumisthestakeholdermodel.JohnDryzek,fromtheAustralianNationalUniversityputsitthisway:‘collectiveoutcomesarelegitimatetotheextentthatallthosesubjecttothemhavetheright,capacityandopportunitytoparticipateinconsequentialdeliberationabouttheircontent.’Thisapproachisverybigindiscussionsoftransnationalgovernance,NGOs,non-electiveornon-politicalgoverninginstitutions,particularlyinEurope.

Theideathatthosewhoareaffectedbydecisionsshouldhaveasayinoutcomesisverypopularamongstpoliticalwritersandisattheoppositeextremetotheshareholdermodel.

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Theshareholdergetsasayintheoutcomebyowningapieceofthecompany,thestakeholdergetsasayintheoutcomebybeingaffectedbythecompany’sactions.one analogy I like is: would we like the rules of the road to be made by people who drive the cars or pedestrians? Careful,it’satrickquestion!

Sowhat’swrong,ifanything,withstakeholderrepresentation?Isn’tthatthesolution?Wemightsay,well,ifcorporationswanttodosomething,perhapsrepresentingstakeholdersistoomuchofastretch.Butifthegovernmentwantstodosomething,surelyanyonewhoisaffectedbytheoutcomeshouldhaveasayinit.Thisapproachcertainlyappealstoournotionoffairness,doesn’tit?Itgetsusoutoftheuncomfortableideaofarbitraryrule:beinggovernedbyactionsthataffectusoroverwhichwehavenocontrol.Forexample,bythislogicweoughtnottohavestrictrulesofcitizenshiprestrictingwhoparticipates.Ifyouliveinacountry,andifyouareaffectedbyitspolicies,youshouldbeabletovoteonthem.

Theproblemis,nobodymeansthis.Icanprovetoyouthatnobodymeansitwithaverysimpleexample:someoneinthecountryforaperiodofyearswhomyouwouldnever,everwanttoparticipate:foreigninvadingtroops.

No one says that foreign invading troops should be able to vote in the elections of a country they’re invading, even though they might be there for a period of years. Noonereallymeansit.Noonereallythinksourtradingpartnersshouldhaveasayinoureconomicpolicies.If,forexample,oneofourtradingpartnershasapopulationof1.3billionandourownpopulationishoveringsomewhereonthe25millionmark–noonereallythinkstheeligibilitytovotetodetermineAustralia’seconomicpolicyshouldincludealladultChinese.Sowedon’treallymeanthat,right?Notreally.Wedomeansomething,though.

Andwhatwedomeanpushestowardthenotionthatsomethingotherthanjustthepeoplewhoownashareinthecompanyshouldberepresented.Forexample,therearepeoplewhotalkaboutwaystorepresentfuturegenerations.Somehowincorporatingfuturegenerationsintoourpolicy-makingprocesswouldbeagoodthing,normativelyspeaking.Therearepeoplewhoargueweshouldincorporatenon-humaninterestssuchasnatureandtheenvironment.Themorethingsyouwantyourmaptoinclude,themoretherepresentationofthosethingsbecomesdifficulttopindown,andslippery.

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Andinfacttheseideasarenotalwaysrecognisedforwhattheyare;itcertainlyseemstomethatiftherearepeoplewhotalkaboutrepresentingfuturegenerations,thereareevenmorepeoplewhotalkaboutrepresentingpastgenerations.

Everytimeyouheartheappealtotradition,whatweowetoourancestors,orhowtheconstitutionshouldbeunderstoodinits‘originalsense’,whatyou’rehearingissomeonespeakingonbehalfofthepast,whichisnotunreasonable,butit’snotobviouseither.

A citizen-focused model

Sobetweenshareholdersandstakeholders,nobodyreallymeanseithermodelinitspureform.Noonereallythinksweshouldhavenopublicregulationsovercorporations,noonereallythinksthateveryoneaffectedbyeconomicdecisionsshouldhaveasayintheoutcome,notreally.Butthesetwowordsdoidentifythesetwopolesonaspectrum.

Andsomewhereinthatspaceinbetween,wehavecitizens.It is the citizens we really care about when we want to decide who will be allowed to participate in political decision-making in a state that is backed by its potential to use coercive force. Wewantthisparticipationtohappeninawaywewillrecogniseasdemocratic,orliberal,orlegitimate.Thatstatement,ofcourse,raisesthequestion:isourownsystemlivinguptothosedemands?

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Guiding Ideas for Australia: Locke and Madison

Andtoattempttoanswerthatquestion,wecanlookatthiscountry.Australiawasformedattheendofthe19thcenturyandtheguidingideasofthatformationarethoseoftheEnglishandAmericanwritersofthe19thcentury.

LetmereadyouashortquotationfromJohnLocke,probablytheparamountfigureinAnglo-Americanliberalphilosophy:itallgoesbacktoLocke’ssocialcontract.‘Legitimategovernmentisgovernedbyconsent.Thatgovernmentislegitimatewhichgovernsbytheconsentofthepeople.’Lockesaidtheindividualchoosestobepartofthestatebecauseitserveshisorherinterest.ThisisbedrockstuffforanyAnglo-AmericanpoliticaltheoristanditwasverymuchinthemindsoftheframersoftheAustralianconstitution.ButLockehadaverystringentnotionofwhatrepresentationwasabout–andit’snotonewefindparticularlyfamiliar.The thing Locke was most afraid of was that representatives would come into office with prior commitments.HewasmostafraidthatsomeonewouldcomeintoParliamenthavingsaid‘Ipromisetovoteforpolicyxorpolicyy’.Ifthathappened,saidLocke,it’sover–andyou’llfindyou’rehavingarebellionbecauseyouhavecorruptedyourCommonwealth.

SpeakingabouttheExecutive,theKing,here’showheputsit: ‘Heactscontrarytohistrust,whenheemploystheforce,treasure,andofficesofsocietytocorrupttherepresentatives.How?Byopenlypre-engagingtheelectorsandprescribingtheirchoices,thosehehas,bysolicitations,threats,promises,orotherwise,wontohisdesigns.

‘Whyisthatcorruption?BecausethepeoplewhochooserepresentativescoulddoitfornootherendbutthattheymightalwaysbefreelychosenandsochosenfreelyasthenecessitiesoftheCommonwealthandthepublicgoodshoulduponexaminationandmaturedebatebejudgedtorequire.Thosewhogivetheirvotesbeforetheyhearthedebate,andhaveweightedthereasonsonallsides,arenotcapableofdoingso.’our democratic system is based at its core on a philosopher who said the whole thing fails if anybody ever makes a campaign promise.That’sit,it’scorrupt,it’sover,it’snotdemocracy.Giveupandhavearebellionandstartover.Thelegislature,thesouloftheCommonwealthhasbeencorruptedandfailed.Why?RememberthosethreequestionsIaskedatthebeginning:Whoorwhatisrepresented?What’stheactivity?What’stherelationshipbetweenauthorisationandaccountability?

Well,Locke’smodelofrepresentationis,firstofall,purelydeliberative.Theactivityisfree,patientdeliberationwithnopreconceivedcommitments,focusedonlyonthequestion:whatdoesthegoodoftheCommonwealthrequire?Whomorwhatdotheyrepresent?TheCommonwealth,thiscollectiveentity.Sothesecondformofcorruptionwouldbeanythinglikealocalrepresentation,suchasfederalism.Representingthiscityorthatstateisanathema.Lockeisnotactuallyveryclear,hespeaksofelectionsbutultimately,thisgoesbacktowhatjustifiesrebellion.He’splayingwithliveammunition,ifIcanputitthatway.

Lockelaidoutwhat,inhisview,aretheminimumconditionsforacceptabledemocracy,andtheyare,ifyouthinkaboutit,widelymoredemandingthananythingwetakeseriouslytoday.Whichisinteresting.

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It’snotasifLockewasunfamiliarwithhowthingscangowrong.HelivedthroughoneEnglishrevolution,andhadmemoriesofamuchbloodieronenotthatlongbefore.ThisisnotaphilosopherlikeDescarteswhowrotehisphilosophylyinginbedinhispyjamas(Ialwaysthinkthatwasagoodjob).Butthat’snotLocke,hewasinthethickofit.

That’sonemodel,averypuremodelofunentrammelleddeliberation,byapersonwhoseonlygoalistospeakforthegoodofthewhole.Let’sjumpforwardalittlebit.At the opposite extreme is James Madison. Madison tried to make democracy safe for the unvirtuous. Ifweknowthatpeoplearegreed-driven,vocal,contentiousandsometimesdishonest,howcanwenonethelessmakedemocracywork?Theanswerisbybalancingthebranchesofgovernmentagainsteachother,balancinginterestsagainsteachother,balancingfactorsandsoon.HowdoesMadisontacklethisdiscussion?

Inacoupleofways:firstofall,MadisonmadeapointthatIfindcentralbutisoftenoverlooked;whichis,thatinanysystemofgovernment–andforthatmatterinanysystemofanycorporation,anycivicassociation,andmostsocialorganisations–there’smorethanoneideaofrepresentationatworkatatime.

Wedon’tjustbalanceinterests,webalancemodels.Forexample,intheAustraliansystemthejusticesoftheHighCourtarenotelecteddirectly,buttheyareindirectlyelectedbecausetheyareappointedbypeoplewhoareelectedandwhomaypayapoliticalpriceforappointingpeoplewhomtheirelectoratesdislike.

Inmoderntimes,aswemoveawayfromtheeraofRoyalinvolvement,thegovernmentisappointedbyconsentofthePrimeMinister,whoisthestandingembodimentofresponsiblegovernment:averydifferentbutequallyimportantformofrepresentation.

Howdoyouchoosethisgovernment?Well,yourSenateandyourHouseusedifferentsystems.Thereisthefederalsystem,representationoflocalitiesandtheSenate,representationofpopulation:eachofthoseisrepresentingadifferentthinginadifferentway.That was Madison’s insight. You design a government by deliberately using different kinds of representation and balancing them against each other. AndthereasonthisworksisbecauseofwhatGordonwouldcallthehomogeneityofpower.

IntheBritishsystem,thedifferentpiecesofgovernmentrepresenteddifferentpiecesofsociety:theLords,theCommons,theChurch,theCourt,eachrepresenteddifferentpiecesofthesociety.

James MadisonJohn Locke

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TheAmericanassumptionwasthatallpowercomesfromthehomogenous‘people’,whichmeansthatalldistinctionswithinthegovernmentareartificial,andartificialbydesign.Youchoosehowyouwanttohaverepresentationorwhatyouwantrepresented,andyoualsochoosehowtobalancethemagainstoneanother.Madison’shugeandcriticalinsightwasthatnoneofthisisnaturalorgiven,noneofthisisdictatedbythesociety.Wemakeitandwhenwemakeitweshouldbecognisantofwhatwearebalancingandweshouldtrytohave(andhewasveryexplicitaboutthis)differentformsofrepresentationtobalanceoneanother.Unfortunately, Madison got it wrong. His view was that the House of representatives would be full of high-minded people who would represent the common good, while the Senate would be the place where local and parochial interests were heard.It’shardtogetitmuchmorewrongthanthatintheAmericancase!

ThecleanestarticulationofthisbalancingactwasWalterBagehot’sexplicitdescriptionofresponsiblegovernment,in1872.WhatisstrikingaboutbothBagehotandJohnStuartMill,writingataroundthesametime,isthattheymakeaveryimportantmovethatgoesbacktotheMadison-Lockedistinction.

Madisonwasallaboutbargainingofinterestsandpolicy-makingandrules.Lockewasallaboutthefreediscussionofwhatisgoodforthepeopleanddeliberations.Bagehot said: ‘we’ll have both – and we’ll separate them. Government will be carried out by experts. A government is formed.’

PeoplewithBritishheritagelikeBagehotandMillusetheword‘government’inastrangewaythatconfusesAmericansnoend.Thegovernmentisformedoutofthedemocraticrepresentativebody,nottoit.Thegovernmentisactiveandmakesdecisions,itdoesthings.Therepresentativebodydeliberatesaboutthem.Australiahasthisamazingmixedmodelusingpiecesofalltheothermodels.Forinstance,youhavetheAmericanfederalistideaofrepresentingstates.Whystates?Ifyouthinkaboutfederalism,thefamouslineintheAustralianconstitutionaldebatewas‘eitherfederalismwilldestroyresponsiblegovernmentorresponsiblegovernmentwilldestroyfederalism.’TheAmericanpoliticalscientistVOKeyputitalittlebitdifferently.Hesaid:‘partyisthesolventoffederalism’.

Ithinktheywerebothwrong.Youhaverepresentationofstatesandrepresentationofthepeople–butthenyoualsohaveadividebetweendeliberativebodiesandactualgovernance,andindirectcontroloverallofthem.Andallofthatisfine.

James Madison

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The Problem is Political Parties

Iwanttoproposeachallenge.InboththeAmericanandtheAustraliancase,somethinghasgoneterriblywrong.Andthethingthathasgoneterriblywrongisparties.

NowIcouldbephilosophicallypureaboutthisandpointoutthatforeitherMadisonorLocketheideaofapartyisabsolutelyanathemainademocracy.ForMadison,itwascriticalnottohavefactions.Theirabsencesavesusfromfallingintoviolenceandconflictbecausemyallytodaymaybemyopponenttomorrowandviceversa.Shiftingalliancesofinterestareapositivething;ifwehaveabigenoughcountry,we’llprotectitagainstthedangerofcapturebyoneparticularinterestordominationbyaparticularclass.Theinterestskeepshiftingbecausethecountryisbigenough,andpluralenough,thatthereisalwayssomeotherlineofcleavageonthebasisofwhichanalliancecanbeformed.

ForLocke,theideaofapartyisallaboutpartydiscipline.Partydisciplinesaystopartymembers:we’lltellyouwhatyouarefor.Millhatedparties.‘Partiesarenotmajority-ruled,partiesareruledbyamajorityofthemajority,whichalmostalwaysisaminority’,hesays.Whatcontrolstheparty?Themajorityoftheparty.Thepartymightbeamajorityofthevotersbutthemajorityofthemajorityalmostcertainlyisn’t.

Howextremedoesthisbecome?well, one of the really important things that parties do is select the candidates for whom we will vote.IntheUS,thepartieshavecontrolovertheprocessbywhichwechoosewhowillbe,ineffect,thetwocandidates.ThepartiescontrolwhowillbethetwochoicesforleaderoftheFreeWorld.Andthat’sprettyimportant.Ifyoucontroltheagenda,ifyoucontrolwhothecandidatesare,you’vegoneafairwayinto

controllingwhothewinnerisgoingtobe,oratleastyou’venarroweditdowntoaveryspecificrange.Whoinbusinesswouldn’tlovetobeabletosay,‘youhavetwochoicesandoneofthemismine’?That’saprettygoodenvironmentinwhichtowork.Thisyear,VirginiawasoneofthecriticalstatesinvolvedinchoosingaRepublicancandidate,andthepercentageofeligiblevoterswhoparticipatedinthatdecisionwas5%.FivepercentofeligiblevotersinVirginia,acriticalandpivotalstate,participatedinthedecisionastowhowouldbeoneofthetwocandidatesfortheleaderoftheFreeWorld.

...And voting systems

Yourresponsemaybe:‘InAustraliaourturnoutsarearound90%,becauseit’smandatory’andIamactuallyquiteafanofmandatoryvoting.Andyouhaveamarvelloussystemofproportionalrepresentationthatensuresthatallvoicesareheard.Evensmallpartieshaveachancetobeheardandhaveafewseats.Despitethisopportunity,90%ofyouvoteabovetheline–votingforwhomthepartytellsyouto.And the party takes your second, third, fourth and fifth preference choices and negotiates them with the other parties.I’mnotsuggestinganyofthisisevil.Itmightbe,itmightnotbe(that’suptoyou),butwhatIamsuggestingisthatitdoesnotfitanymodelofrepresentation;neitheroftheclassicmodelsIhavejustdescribednoranymodelthatyoucouldarticulate.

AustraliahasnotyetreachedthelevelofdysfunctioninpoliticsthatweseeintheUnitedStates,butyouarewellonyourway.LetmeaskyoutolookattheUnitedStatesasacautionarytale.TheUSisnotatrivialdemocracy,butalarge,importantcountryandmanystudiessuggestthesystemisliterallybroken;brokentothepointthatitsdysfunctionalityisunlikelytoberepairedanytimesoon.

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AtthebeginningofthistalkIsuggestedthatthosecountrieswherenothoughtisbeinggiventosignificantreformarecountriesthatshowveryhighlevelsofdissatisfaction.AndtheUnitedStatesisaperfectexample.Ourelectoralsystemislunatic.Werewardandencourageparticipantsintheverysamestructuralwaythatashareholder-ownedcorporation,drivenbyalegalobligationtopursueprofit,mustpursuecertainlinesofresponsivenesstocertainkindsofinterests.Thisisnotacriticismofcorporations;that’showtheirsystemisbuilt.Americanpoliticalpartiesarebuiltinthesameway;theyhavetopursuethemostextreme,mostdivisive,mostangry,mosthostileandthemostparanoidstyleavailableinAmericanpolitics.Theyhaveto.

Idon’tthinkthatparticulardiseasehasinfectedAustralianpolitics.Whatyouhaveinsteadisadifferentdisease.Parties, or any institution large enough, are given enough control over the process to pursue their own interests – which may have simply nothing to do with the interests of those it claims to represent.

Representationiscentraltothewaywethinkofdemocraticpolitics.Whenwethinkofrepresentationinaseriouswayweimmediatelygainacriticalpurchaseonpoliticalpractices,becauseweare

confrontedbythequestion:areweleavingoutthethingsthatwewanttoleaveout?Andthemapmetaphorperhapshelpsusseethat.Itletsusorganiseourthinkingaboutthatbasicproblemofwho,andwhat,isbeingrepresented?Whatistheactivityofrepresentation?Whataretherelationshipsofaccountabilityandauthorisationthataredrivingthissystem?Weallliveinsystemsthatclaimtobebasedonasetof19thcenturywritersandyetatthesametimeweliveinsystemsthathaveabsolutelynothingtodowiththosephilosophiesweclaimasourheritage.

Ifwedorecognisetheobviousandratherblatantinconsistenciesbetweenthetheoriesthatweclaimasexplanationsforhowwebehaveandwhatweactuallydo,andifwefocusparticularlyontheroleofpoliticalparties,wethenhaveagoodplacetostartourthinkingaboutwhatwewouldwant(orneed)tochangeinordertogettoamoreinternally-consistentnotionofrepresentation.Andbeyondthat,toareformofourdemocraticsystems.

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Do you think there is a life cycle to democracy, or at least the democracies that we have developed? That there is a point at which we

are just so complex that we begin to atrophy? Because really, what alternative do we have other than to just stick with the system we currently have?

WhentheSovietUnionfell,therewasawholeburstofliteratureaboutdemocratization.Andthensomethingshockinghappened.Alotoftheseplacesbegantoceasetobedemocraticandbegantogobacktobeingauthoritarianandtherewasanewburstofliteraturecalleddemocraticconsolidation.AndthenassoonaswegotareallygoodcropofPhDthesesonthattheory,thecolourrevolutionsstartedup,inUkraine,inGeorgia,andsoon.Sotherewasawholenewtheoryaboutcycles.Idefinitelythinkthereissomethingtowhatyouaresaying.

ButlookattheUS,whichismucholderthanAustralia,afterall.’Backintheday’isn’tthatlongago.Therewasmassivereconstructionaround1870andonlyslightlylessmassivereorganisationandreconstructionofthegovernmentinthe1930s.That’snotancienthistory.Idonotfinditunimaginablethattherewillbeasubstantialreconstructionofthesystem,ofelections,ofrepresentation,uptoandincludingasystemofnationalelections.Idon’tfinditunconceivablethatthosethingscouldundergosignificantchangeinmylifetimeandcertainlyinmychildren’slifetime.Soyes,thereisanaccretionofcomplexity,ofgamesmanship,ofconstituencies,ofinterests,ofpeople.Yougettoapointwhereeverybodylosesifanythingmoves.SoIagreewithyourdiagnosisofthestateofaffairs,butIdon’tnecessarilyshareyourpessimismabouttheimpossibilityofchange.

A question tied in to the shareholder model and required voting vs voluntary voting. People who are supposed to be represented

on the map have a choice of whether they actually want to be on that map or not. So you as an investor in a mutual fund could go find out what the 80 companies are, then go harass your mutual company who would be an institutional investor. Equally, I could vote if I choose.

It’sarelevantpoint.TheanswerastohowitfitswithwhatIwastalkingaboutis:itdoesn’t,justbecauseIwasn’ttalkingaboutthat.Butcertainlyyouareright.Ialwaystalkmoreintermsof‘whenwesetuptherules’,howyouexercisethatchoice.Wecanonlymappossibilitiesofchoice.Butletmepointoutthatthetransactioncostsinwhatyouaredescribingareimmenselyhigh.IcouldfindoutexactlywhatinvestmentIhave,butitwouldbemorethanafulltimejobandIwouldprobablyneedtrainingtodoit.

Youarerightaboutthevoluntarychoicetovote,ornotvote,butthereareverypowerfulmechanismsthataffectthatchoice,fromthingsassimpleasthefactthatwevoteonworkdaysandpollscloseat7pm,tothingsascomplicatedasregistrationprocedures,eligibilityrules,theavailabilityofinformationaboutthecandidatesandtheirpolicies,ortheeffectsofmediaasconveyorsofinformation,conveyorsofmisinformation,orcreatorsofinformationoverload.Myveryshortansweris:Ifindcompulsoryvotingpreventstheemergenceofhighlyunwholesomestrategicactionsdesignedtosuppressvotinganddiminishenthusiasm.

Q & A

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If representation is a construct, a design, a map that can either include or exclude, then, in our design, should we not think about

the purpose? Surely there is scope for us to completely reframe democracy and governance in the interest of a sustainable future.

Ofcourseit’spossibletothinkaboutcompletelyrestructuringdemocracy.Ihappentothinkits…utopianismmakesmyfeetitch!Weneednotbeutopian,oreventhinkasbroadlyasthattorecognizesomeconsequences.InthecaseoftheUS,youcandefinethreedistinctphasesofunderstandingwhatcorporationsarefor.

Thefirstpurposewastolaunchlargescaleendeavourswithoutendangeringthepublicthroughastrategyofallowingprivatepeopletopoolprivatecapital.Thatwasthedrivingpurposebehindwhatbecamethebeginningsofmoderncorporationlaws.Inthesecondperiod,let’scallitfromWWIuntilthe1950s,corporationswereavehicleforprivateprofitandpublicprosperity.Itworked–theyareamongstthemosteffectivemodesofsocialorganisationseverdesignedbymankindforaparticularsetofpurposes.Theyhelpprovidejobs,goodsandservices.Sointhesecondphase,wethoughtofcorporationsasvehiclesforgrowthandspreadingprosperity.

Startingfromthe1960sforward,weneededasecureplacetoparkcapital,ratherthangrowit.Theideathatthestockmarketisn’tsecure,whichmakesstockanalystsjumpoutwindows,atleastthewiserones,wasaroundevenbeforetheGFC.Buttheideabecamethatwhilethestockmarketofcourse,hasitsupsanddowns,overasufficientlylongtermitisastablegrowthplace,andagreatplacetoparklongtermsavingsandsocialobligationslikepensions.

Whicheverofthosebroadly-describedpurposesyoufavour,you’relikelytohaveadifferentviewofhowtheyoughttobegoverned.Soshouldtherebestrictrulesrestrictingrisksandinassistingcorporationsaswellasbanksmeetingcapitalisationratios?Andaboveall,wemustbesurethatentrepreneursareabletoraisecapitalandtakerisksandtakechances,andlose.ButIthinkweallagreethatthethirdmodel,thesecuresavingsmodel,that’satoo-big-to-failmodelandthere’saproblemwhenyoucombinethatmodelwithveryhighrisk-takingactivity.Withoutre-conceivingdemocracytoutcourtandatamuchmoreconcretelevel,wecanthinkaboutpolicychoicesintermsofthisnotionthatrepresentationdoesrelatetothepurposesthatit’ssaidtoserveandmovefromtheretoareformratherthanarevolution.

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inspiring achievement

CRICOSNo.00114A

flinders.edu.aufulbright.com.au