Stanford Launches New Program on Capitalism and Democracy

The Corporations and Society Initiative (CASI) at the Stanford Graduate School of Business and the Center on Democracy, Development and the Rule of Law at FSI collaborate to address democratic recession.
Larry Diamond, Patrick Alley, and Anat Admati Patrick Alley (center) speaks on a panel with Larry Diamond (L) and Anat Admati (R) to launch the new Program on Capitalism and Democracy. Saul Bromberger

On April 1, Stanford University formally launched a new Program on Capitalism and Democracy (CAD), a collaboration between the Corporations and Society Initiative (CASI) at the Stanford Graduate School of Business and the Center on Democracy, Development and the Rule of Law (CDDRL) under the Freeman Spogli Institute for International Studies (FSI).

The program was unveiled by Jon Levin, the recently appointed incoming President of Stanford University who currently serves as Dean of the Graduate School of Business, alongside Kathryn Stoner, the Mosbacher Director of CDDRL. In his remarks, Dean Levin highlighted that CAD will "be centered exactly at the intersection of business decision-making, policymaking, and the foundations of democratic institutions." He commended the work of CASI and its founder, Anat Admati, for rigorously pursuing research on "inconvenient issues that we have often chosen to avoid or ignore" related to the role of corporations in society.

Kathryn Stoner further elaborated that "the program on Capitalism and Democracy will explore the complex interactions between democratic institutions, markets, and private sector participants." She indicated the initiative will examine a broad range of topics, noting that "sometimes corporations are causes for good and sometimes corporations may undermine the resilience and quality of democracy."

To mark the launch, CAD convened a discussion involving Professor Larry Diamond, the Mosbacher Senior Fellow in Global Democracy at FSI, Anat Admati, Professor of Finance and Economics at the GSB, and Global Witness Co-Founder Patrick Alley. Together, they focused on how the dynamics of capitalism don’t always align well with the principles of democracy. In their remarks, they addressed critical concerns such as the erosion of global democratic norms, a lack of good governance, rampant corruption, and “predatory capitalism.” They offered their insights into the challenges involved when both economic and political frameworks are of first-order importance but must be addressed in an environment of declining trust in institutions.

Admati opened by rejecting “false dichotomies” that frame the issues as stark choices between “capitalism and socialism” or “free markets and regulation.” She observed that capitalism can be thought of as “a set of markets that have institutions that are private sector based” but emphasized that “the private sector needs the government to protect its rights and to enforce its contracts. When you have markets at scale with people who don't know each other, you need institutions. You need contracts and contract enforcement.”

Larry Diamond, who has done extensive research on democratic trends and conditions around the world, brought up the paradox of the “resource curse,” the phenomenon by which developing nations with valuable natural resources often experience declines in democratic institutions as the proceeds from selling the resources get caught up in webs of corruption rather than being justly distributed for the benefit of the wider population. He claimed that “corruption and kleptocracy are at the core of underdevelopment in the world.”

Patrick Alley’s experiences at Global Witness made him very aware of corrupt politicians taking bribes from multinational oil companies. He recounted how “the politician takes money, and now their allegiance is inevitably shifting away from the electorate to their new money suppliers… so they'll start building a heavy mob around them, put big walls on the palace … and retreat into that. They don't want to lose the next election because this is going very nicely for them.” Alley summed up the cycle of corruption and concluded that “the democratic process is going to be screwed from within -- and you end up with autocracy.”

The discussion turned to exposing the role of enablers play in the persistence of systemic corruption. Enablers of corruption are not those who directly participate in illicit activities but rather are members of a “pinstripe army” (in Alley’s parlance) composed of platoons of bankers, lawyers, and accountants in global financial centers who facilitate illicit flows of money around the world. He observed that “corruption is a global industry.”

Acknowledging that corporations can be instrumental in driving economic prosperity and innovation, Admati reflected on her experience exposing the inadequacy of laws and regulatory tools that should place limits on the “pinstripe army,” She drew a sharp distinction between the private sector as “the engine of growth and the engine of innovation” and “financialized capitalism … the capitalism that is undermining democracy, the type we want to push back against. Once democracy asserts itself properly then we will be able to get the gains of capitalism.”

Diamond closed the conference by endorsing “individual enterprise and initiative—honestly earned, transparently conducted, rule-of-law-minded, with concern for the community. It's predatory capitalism that runs amok and breaks free of transparency and democratic regulation, that threatens fairness, human well-being, and democracy itself.”

CAD will be led by Prof. Anat Admati, with the support of Prof. Larry Diamond, Dr. Didi Kuo, Center Fellow at FSI, and Dr. Francis Fukuyama, Oliver Nomellini Senior Fellow at FSI.

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