Pedestrians walk past an HSBC bank branch. (SeongJoon Cho/Bloomberg News)

The Financial Times reports on how business actors are responding to new left-wing policies in Sweden.

Jacob Wallenberg, Sweden’s leading industrialist, told the FT before the elections that there was risk of “entrepreneurs leaving the country or electing to do other things”.

This is a beautiful rhetorical example of what political scientist Charles Lindblom described in his classic work as the “structural power of business.” Lindblom’s insight is straightforward. In capitalist democracies, we might like to think that all actors have or should have equal political voice. Yet private business will always have a greater role in shaping political decisions, because of its power to decide how to invest. Business investment decisions have enormous political consequences. If business decided to invest in one state rather than another, some people will gain jobs, and others will lose them. If business decides not to invest at all, the economy will suffer. This power is structural, because it is inherent in the way that capitalism is organized. No amount of regulation e.g. of political donations can change it, since capitalist economies, by definition, provide business with the freedom to allocate investment more or less as it sees fit. Business can then use this freedom to influence politics, by threatening to disinvest if politicians make decisions that it doesn’t like.

Yet the structural power of business can vary. For example, if it is easy for business to relocate its activities from one country to another, it will have relatively high structural power, and hence have a lot of political influence. If it is harder for business to relocate its activities, its structural power will be limited. According to a new article in Politics and Society (ungated version) by Pepper Culpepper and Raphael Reinke, this explains why the U.S. bank bailout was actually considerably less generous than its British equivalent. U.S. banks were heavily dependent on the U.S. market. Their British equivalents, in contrast, could much more easily threaten to move elsewhere.

Facing an existential crisis of their banking systems, the American and British governments both intervened on a sector-­‐wide scale and provided liquidity, debt guarantees and recapitalizations. In many ways, these policies were alike. However, the US plan contained a number of design features that made it better, from the perspective of the government and the taxpayer, than the British plan. Critics of the American plan have downplayed or ignored these crucial elements of the policy. The American Treasury Secretary, Hank Paulson, managed to include all major banks actively in the plan; all of them took state capital, whether they needed it or not. This allowed Paulson to avoid putting money exclusively in the worst banks and to finance the bailout through cross-­‐subsidies among the banks.

… After Paulson’s presentation of the plan, which reiterated the unpleasant consequences of not accepting the aid, the CEO of Wells Fargo complained to the other CEOs “why am I in this room, talking about bailing you out?” Paulson’s response was a threat of regulatory consequences: “Your regulator is sitting right there [pointing to the head of the FDIC and the comptroller of the currency]. And you’re going to get a call tomorrow telling you you’re undercapitalized and that you won’t be able to raise money in the private markets.” This is an explicit threat from a regulator against a financially healthy bank. The regulator could make trouble for the bank in unsettled markets – the regulator knew it, and the bank’s CEO knew it.

In contrast, UK officials could not make this threat. The UK government wanted to include HSBC in the recapitalization plan, but HSBC refused. HSBC’s threat to take the government to court was the sort of threat that only a bank unconcerned with its future relationship with national regulators could afford to make. …the different policies resulted from the outside option open to HSBC, in its negotiations with its regulators, because of its structural position as a global bank with a deep deposit base in external markets.