Did James Burnham’s Prediction of a Managerial Revolution Come True?

A Google search and a Chat GPT prompt asking “what kind of economy exists in the U.S.” each return the answer that the U.S. has a mixed economy. Both engines reveal definitions of “capitalism” and “socialism” that not only fail to account for elite theory but cover up the possibility of analyzing the economy in its terms. Capitalism means, according to ChatGPT, a system characterized by markets, private ownership of the means of production, competition, and the profit motive. Socialism, in Google’s favored search result (as of 8/25/2023), means government control of the market.

James Burnham, writing in 1941, offers two very different and far more helpful definitions of capitalism and socialism than those promoted by Google and Open AI. The power structure in all societies are best explained by Michels’ iron law of oligarchy. No matter what politicians assert in public, no matter the prevailing democratic ideology of the age, societies are and must be controlled by a ruling class—a relatively small minority that shares certain class interests and pursues those interests as against all other social classes. Under this law, then, capitalism is a system run by and for the benefit of capitalists. Feudalism is a system operated by and for the benefit of landowners. Socialism is little more than the rejection of the iron law in favor of the idealistic dream of a society without any rulers or classes. No such society, needless to say, has ever existed.

Using these definitions then, we can see that the answer that the U.S. has a mixed economy violates the iron law of oligarchy. It suggests that there are two or more ruling classes—a contradiction in terms. If there were two ruling classes there would be hot civil war until only one remained in power. The question that we must ask if we wish to give a clearer answer to the question, “what kind of economy does the U.S. have?” is “which class controls the means of production and receives the principal share of their benefits?” Leftists would be quick to answer that it is evil corporations who have control over the means of production and also receive the majority of the benefits that are produced by those means. This answer fails to look closely at the structure of the corporation to see who actually controls it.

The received understanding of the modern corporation is that corporations are characterized by the separation of ownership and control. Shareholders “own” the corporation and the board of directors while their appointed officers manage the everyday affairs of the corporation. Burnham argued, however, that the separation of ownership and control in the modern corporation is a fiction. He who controls the company, de facto owns it.

Sure, the shareholder may from time to time receive a dividend from the company. But the direction, purpose, and plan of the company will be set by its managers. The shareholders can band together to file suit on behalf of shareholder interests against the board of directors, but even when shareholders win, they achieve no more than the replacement of one set of managers with another set of managers. Therefore, shareholders who are mostly engaged in passive investing do not “own” the company in any meaningful sense. To own something I must have full access to it, be able to direct it in accordance with my wishes, and put it to any lawful use I see fit. Shareholders have no such power. So, they are not owners.

The managers of all of the companies, the finance-executives who pursue profit on behalf of the technical management team, the finance-capitalists who raise the funds necessary for operations to continue, have aligned class interests. These managers, executives, and financiers have interests that are so thoroughly aligned that it is fair to refer to them all by one name: managers. Their interests are in many ways opposed to those of a capitalist system. Henry Ford owned his company and managed it directly. There are very few if any companies like this today.

Managers have replaced capitalists like Ford. Today, managers control the means of production and therefore own them in the only sense of “own” that really matters: they decide what happens to the corporation and what plans the corporation will pursue. Since virtually all of American gross domestic product is generated by corporations it is no exaggeration to say that the managers control the U.S. economy. When we remember that humans are, no matter how other-regarding and morally upright, also self-interested, then we should not be surprised to find that the managers manage in the managers’ interests.

Since managers—not capitalists—control the means of production, decide how the benefits of production are to be distributed, and plan for the future of the economy, the U.S. (and the rest of the developed world) has a managerial economic system. In other words, the U.S. does not have a “mixed economy” that is partly socialist and partly capitalist. Insofar as social classes exist in the U.S. the system is not socialistic. Insofar as there are no capitalists left with control over the means of production, the system is not capitalistic. This last point needs some empirical justification.

The Organization for Economic Co-Operation and Development performs an exhaustive analysis of the owners of all of the world’s publicly traded companies. In 2019 there were 41,000 listed companies responsible for 84 trillion in GDP—i.e. the entire globe’s GDP at that time. The U.S. market share of global production is 33%, that is, the U.S. is responsible for 1/3 of the world’s production. 72% of the total U.S. GDP is “owned” by institutional investors—the likes of Blackrock, Vanguard, JP Morgan, et al. The owners of Blackrock, Vanguard, and JP Morgan in turn are owned by other institutional investors. That is, Blackrock owns large amounts of shares of Vanguard, and vice versa. In other words, there are no capitalists in sight. It is not sixty families with names like Rockefeller and Carnegie that own 72% of the U.S. economy. It is rather a network of passive shareholders who as we have seen have no control or true ownership over any given corporation (there are perhaps a few exceptions to this, for example Larry Fink, that I will explore in a later essay).

But let us now recall Burnham’s definition of real as opposed to fictitious ownership: those who control the means of production (not those who hold the shares of the corporations) are owners. Under Burnham’s definition then, the managers are achieved a stunning victory. The power over the entire economy is in their hands and the dispersed “ownership” of shares cannot have any substantial effect on their real ownership over the mechanisms of industry and finance.

So far in the analysis we have left out consideration of the role of the government. In the U.S., government spending accounts for between 25% and 37% of GDP (this is substantially more than the amount of GDP accounted for by government spending in “communist” China). The administrative agencies and the bureaucrats who staff them that are responsible for distributing this vast treasure share very similar interests with the managerial class. The bureaucrats (many of whom are former managers or will go on to join the managers in the private sector) have, among other joint interests with the managers, a vested interest in increased governmental management of the economy. The bureaucrats preserve their power and prestige thereby. The bureaucrats along with the managers plan the economy together to ensure that their interests are protected as against capitalists and any potential rival managers. “Corporate capture” is a widely understood phenomenon but the reverse is equally real—the bureaucrats have captured the corporations as much as the corporations have captured the bureaus. “Capture” is really the wrong word. Managers and bureaucrats cooperate and coordinate to plan the direction of whole sectors of the economy in ways that benefit both groups. See, for example, the cooperation between the pharmaceutical industry and the administrative state in the roll-out of the COVID-19 vaccines. Because of shared interests and shared techniques it is fair to lump the bureaucrats and managers together into one ruling class that Burnham dubs managers.

The idea of a mixed economy, therefore, is at best a misunderstanding, at worst, propaganda used to cover up the fundamental truth that we live in a post capitalist economy ruled by managers, in the interests of managers. Debates between left and right over capitalism and socialism are, therefore, a sideshow distracting the mass of ordinary people from the reality that they live in neither a capitalist nor a socialist economy. Hand-ringing over “our democracy” is therefore also mendacious insofar as the anti-democratic reality of an economy and a state controlled by a ruling class of managers is obscured thereby. Accusations against “Russian oligarchs” serve only to cover up the existence of American oligarchs who are actually far more powerful, well-organized, and anti-democratic than their fellow Oligarchs in Asia.

Furthermore, complaints by the people against an ineffectual Congress and President of the United Sates are misplaced because they are irrelevant. The Congress (whether lead by McConnell or Schumer) and the President (whether Mr. Trump or Mr. Biden) have little to no control over the administrative state, let alone the managerial state of which the administrative state is but an appendage. Cries to impeach this or that politician are as likely to cause an improvement in management of the government or economy as a shareholder derivative lawsuit is likely to replace a manager with a feudal lord.

The leaders of the populist movement in America and abroad, therefore, must face this reality if they are to have any impact on the state of affairs. This task will be difficult, however, since it will require individuals to transcend the propaganda they have been fed their whole lives and are presently inundated with at every turn (including in search results and the outputs of artificial intelligence). Most people, after all, choose the blue-pill when offered. This is not likely to change soon.