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Is Democracy Good for Small Business?


We know that electoral democracy does not imply political equality. Some individuals and interests are more powerful than others because they have privileged access to key political assets: money; the resources needed to organise; or the capacity to set political agendas and influence the ways in which particular issues are understood. It is part of conventional wisdom that poor people are politically disadvantaged for these reasons, especially if they live in rural areas and lack education. Kenneth Shadlen suggests that, in political competition between producer groups for influence on public policy, small business can be viewed in a similar light: invariably disadvantaged in relation to big business, and often disadvantaged even in relation to organised labour.

There is a set of general reasons for this state of affairs. Big business can often exercise direct, personal influence on government. Small business has to organise. But business organisations still tend to be dominated by big business. One reason is that big business has more free resources - money and executive time - to put into organisations. The other is that, to overcome the many inter-sectoral conflicts (e.g. between car manufacturers who want low tariffs on the import of plastics and chemical processors who want to protect their internal market), business typically organises principally at the sectoral level. The Motor Manufacturers Association and the Association of Chemical Industries organise separately, and may combine in a (loose) peak federation of business associations. This leaves industry associations dominated by the big firms in each sector. If the small firms try to go it alone, their associations lack teeth because they cannot take advantage of the personal contacts and financial resources of big firms. Labour shares with small business this dearth of money and some other organisational resources. But labour organisations, unlike small business organisations, can take advantage of the physical concentration of their potential members in the same workplaces. When it comes to national-level elections and influencing political parties, big business can give money, and labour organisations (sometimes) can deliver a large number of votes. Small business can offer neither.

Shadlen provides this general framework as part of an explanation of why, since Mexico became genuinely democratic in the 1990s, small business steadily lost influence over government policy. The other part of the explanation is that democratisation resulted in the near-demise of long-standing corporatist arrangements, where small business had been represented via compulsory membership in the small business association associated with the long-term ruling party, the PRI. That form of representation was not very democratic, but it did bring real influence over public policy. That influence has now disappeared. Big business has become a significant ally of government, and its interests often clash with those of small business.

One point of significance is that, as elsewhere in Latin America, the replacement of monopolistic, corporatist arrangements for interest representation by more competitive and pluralistic politics has costs as well as benefits. Some interests, including sections of labour and small business, may have less influence than before. Another point, which Shadlen does not explore in full, is even more intriguing: these new political arrangements might help undermine political support for pro-market policies. He demonstrates how the end of the corporatist representation of small business in Mexico has led to the emergence of a diversity of organisations claiming to represent the sector. They compete with one another, and collectively have little influence. One effective strategy to obtain organisational resources has been to join a regional Latin American association that claims to speak for small business. But this regional organisation is able to obtain support and resources only by being a strong opponent of neo-liberalism and its alleged malign effects on small business. This ideological platform may have little connection with the issues that small business in Mexico would like to take up with the government. But, as previous research on business associations has demonstrated, pluralistic political competition can help nurture and support associations that are significantly driven by their own organisational self-interests, and do not closely reflect the policy concerns of the small businesses they claim to represent.

Source: Kenneth C. Shadlen, 2002, 'Orphaned by Democracy: Small Industry in Contemporary Mexico', Comparative Politics, Volume 35, Number 1: 43-62. Comparative Politics is published quarterly by the City University of New York (

Keywords: small business, government-business relations, democracy

Commentator: Mick Moore, IDS, (October 2002)

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