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funded, quasi-independent educational enterprises. Proponents of choice argue that parents would seek the best school for their children and that the ensuing competition would have an invigorating effect on public schools. But school administrators maintain that vouchers and charter schools drain away resources and exacerbate the challenges for the neediest students. Coalitions have formed on both sides of the choice issue and have lobbied vigorously at the state and national levels. Available research suggests that, on the whole, some charter schools are very good and others are not, but, on average, student learning outcomes are neither better nor worse than conventional public schools.
Business-Government Ecosystems Government and business inevitably intersect in a multitude of ecosystems. Perrow (1986) discusses one example: pharmaceutical companies, physicians, and government. A major threat to drug companies’ pro”t margins is generic drugs, which sell at a much lower price than brand-name equivalents. In the United States, the industry trade association, an interorganization coalition, successfully lobbied many state legislatures to prohibit the sale of generic drugs, ostensibly to protect consumers. The industry also persuaded the American Medical Association (AMA) to permit drugs to be advertised by brand name in its journals. Consumers normally buy whatever the doctor prescribes, and drug companies wanted doctors to think brands rather than chemical names. As a result of the policy shift, the AMA’s advertising income tripled in seven years, and the manufacturers strengthened the position of their respective brands (Perrow, 1986).
The ecosystem shifted with the rapid rise of a newly powerful group of players: insurers and managed-care providers. The growing market dominance of a few large insurers dramatically reduced the bargaining power of physicians and drug companies. Insurers used their growing political leverage to push physicians to prescribe less expensive generic drugs. In an effort to save consumers’ money, state legislatures began to require pharmacists to offer the generic equivalent when a brand name is prescribed. Pharmaceutical companies fought back with televised ads encouraging patients to ask their doctors for brand name drugs.
Drug companies are not alone in their attention to politics. Government policy can be a powerful source of competitive advantage because it “determines the rules of commerce; the structure of markets (through barriers to entry and changes in cost structures due to regulations, subsidies, and taxation); the offerings of goods and services that are permissible; and the sizes of markets based on government subsidies and purchases. Consequently, gaining and maintaining access to those who make public policy may well be a “rm’s most important political goal” (Schuler, Rehbein, and Cramer, 2002, p. 659).
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Politically active “rms use a range of strategies for in!uencing government agencies (Schuler, Rehbein, and Cramer, 2002). FedEx illustrates the possibilities. In Chapter 7, we noted the company’s sophisticated approach to managing people. FedEx has been equally agile in managing its political environment. The New York Times described it as “one of the most formidable and successful corporate lobbies in the capital” (Lewis, 1996, p. A17). FedEx CEO Fred Smith “spends considerable time in Washington, where he is regarded as Federal Express’s chief advocate. It was Mr. Smith who hit a lobbying home run in 1977 when he persuaded Congress to allow the !edgling company to use full-sized jetliners to carry its cargo, rather than the small planes to which it had been restricted. That was the watershed event that allowed the company to grow to its present dominating position with almost $10.3 billion in business” (p. A30).
FedEx’s political action committee ranked among the nation’s top ten, making generous donations to hundreds of congressional candidates. Its board was adorned with former political leaders from both major political parties. Its corporate jets regularly ferried of”ceholders to events around the country. All this generosity paid off. In October 1996, when FedEx wanted two words inserted into a 1923 law regulating railway express companies, the Senate stayed in session a few extra days to get it done, even with elections only a month away. A “rst-term senator commented, “I was stunned by the breadth and depth of their clout up here” (Lewis, 1996, p. A17).
A similar coevolution of business and politics occurs around the world:
No one would dispute that business and politics are closely intertwined in� Japan. As one leading “nancial journalist puts it, “If you don’t use politicians, � you can’t expand business these days in Japan—that’s basic.” Businessmen� provide politicians with funds, politicians provide businessmen with infor- mation. If you wish to develop a department store, a hotel, or a ski resort, you� need licenses and permissions and the cooperation of leading local political� “gures. And it is always useful to hear that a certain area is slated for� development, preferably several years before development starts, when land� prices are still low (Downer, 1994, p. 299).�
The same intertwining of business and politics is even more dominant in China. It is almost impossible to start or build a business without the support of party and government of”cials. Guanxi (relationships) generally matters more than laws and regulations. Negoti- ating the ethical terrain is treacherous in a country where bribes are technically illegal but
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the exchange of cash-“lled “red envelopes” is deeply rooted in a culture that sees gift-giving as basic to building relationships.
Society as Ecosystem On a still grander scale, we “nd society: the massive, swirling ecosystem in which business, government, and the public are embedded. A critical question in this arena is the power relationship between organizations and everyone else. All organizations have power. Large organizations have a lot: “Of the 100 largest economies in the world, 51 are corporations, and only 49 are countries. Walmart is bigger than Israel, Poland, or Greece. Mitsubishi is bigger than Indonesia. General Motors is bigger than Denmark. If governments can’t set the rules, who will? The corporations? But they’re the players. Who’s the referee?” (Longworth, 1996, p. 4).
This question is becoming more urgent as big companies get bigger. In 1954, it took more than 60 companies to equal 20 percent of the American economy; in 2005, it took only 20 companies. “We don’t often talk about the concentration of corporate power, but it is almost unfathomable that the men and women who run just 20 companies make decisions every day that steer one-“fth of the U.S. economy” (Fishman, 2006, p. 22). A number of writers (including Bakan, 2004; Korten, 1995; Perrow, 1986; and Stern and Barley, 1996) emphasize that whoever controls a multibillion-dollar tool wields enormous power. Bakan (2004, p. 2) sees the corporation as “a pathological institution, a dangerous possessor of the great power it wields over individuals and societies.” Korten’s view is similarly dark:
An active propaganda machinery controlled by the world’s largest corpora- tions constantly reassures us that consumerism is the path to happiness, government restraint of market excess is the cause of our distress, and economic globalization is both a historical inevitability and a boon to the human species. In fact, these are all myths propagated to justify pro!igate greed and mask the extent to which the global transformation of human institutions is a consequence of the sophisticated, well-funded, and inten- tional interventions of a small elite whose money enables them to live in a world of illusion apart from the rest of humanity. These forces have trans- formed once bene”cial corporations and “nancial institutions into instru- ments of a market tyranny that is extending its reach across the planet like a cancer, colonizing ever more of the planet’s living spaces, destroying live- lihoods, displacing people, rendering democratic institutions impotent, and feeding on life in an insatiable quest for money (Korten, 1995, p. 12).
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Greatest Hits from Organization Studies Hit Number 2: Jeffrey Pfeffer and Gerald Salancik, The External Control of Organizations (New York: HarperCollins, 1978)
Pfeffer and Salancik’s book fell out of print for several years and is little known outside academic circles, but scholars love it; it occupies the second rung in our ranking of most-cited works. As its title suggests, the book’s principal theme is that organizations are much more creatures than creators of their environment. In the authors’ words: “The perspective [in this book] denies the validity of the conceptualization of organizations as self-directed, autonomous actors pursuing their own ends and instead argues that organizations are other- directed, involved in a constant struggle for autonomy and discretion, confronted with constraint and external control” (p. 257). The authors follow Cyert and March (1963) in viewing organizations as coalitions that are both “markets in which in”uence and control are transacted” (p. 259) and players that need to negotiate their relationships with a range of external constituents.
Pfeffer and Salancik emphasize that organizations depend on their environment for inputs that they need to survive. Much of the job of management is to understand and respond to demands of key external constituents whose support is vital to survival. This job is made more dif!cult by two challenges: