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Financial Interest Groups and Interlocking Directorates

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The role of banks in the interlock network--and in the corporate world--has been a long discussed issue, but the connection between finance capital and interest group formationh as been mostly ignored. This study seeks to reintegrate these ideas.
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    Social Science History Association is collaborating with JSTOR to digitize, preserve and extend access to Social Science History . http://www.jstor.org Social Science History ssociation Financial Interest Groups and Interlocking Directorates Author(s): Beth Mintz and Michael Schwartz Source: Social Science History, Vol. 7, No. 2, The American Corporate Network, 1815-1974 ( Spring, 1983), pp. 183-204Published by: Social Science History AssociationStable URL: http://www.jstor.org/stable/1170839Accessed: 22-07-2015 17:20 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/  info/about/policies/terms.jspJSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. This content downloaded from 132.198.142.235 on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  Financial nterest roups and nterlocking irectorates BETH MINTZ University f Vermont MICHAEL SCHWARTZ SUNY, Stony Brook Many recent tudies f nterlocking irectorates ave paid special attention o the possible existence f interest roups or cliques within he corporate world Allen, 1978; Dooley, 1969; Mariolis, 1977; Mintz and Schwartz, 981a; Mizruchi, 982b). The search for conomic groupings f this ype dates from he early part of the twentieth entury when financial domination f industrial firms as thought o characterize merican usiness. Bank con- trol theory, n particular, osited the coalescence of individual companies nto a number f competing roups, ach organized around banking nterests. hus, Baran and Sweezy 1966: 17) define nterest roups s a number f corporations nder om- mon control, he ocus of power being normally n investment r commercial ank or a great amily ortune. Early work in this area, therefore, ttempted o identify separate groups of companies rganized round ither amily r financial nterests. ochester 1936), for xample, sed nforma- tion on stock ownership, anking dependence, ervice elation- ships, capital investments, nd oint ventures o identify many autonomous liques headed by founding amilies. weezy 1939) used a similar et of criteria o identify ight ominant inancial interest roups. Perlo (1957) replicated hese results 0 years later. As the century rogressed, he dominant heory f corporate control hifted o managerialism, paradigm hat assumes the replacement f ownership nd financial nfluence n the firm y the direction f unpropertied anagers. As a result, he concept SOCIAL SCIENCE HISTORY, Vol. 7 No. 2, Spring 1983 183-204 S1983 y the Social Science History Assn. 183 This content downloaded from 132.198.142.235 on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  184 SOCIAL SCIENCE HISTORY of corporate nity egan o change: The modern irm as viewed as an autonomous ctor with hifting lliances o other ompan- ies rather han s a member f a larger roup. n response o this change n perspective, he question of who controls whom of early research was replaced by investigations f who interacts with whom. Instead of searching or clearly defined groups formed round ither bank or a founding amily, tudies egan to seek reas of relative ensity ithin he network f nterlocking which the modern firm nteracts Allen, 1978; Sonquist and Koenig, 1975). Dooley's (1969) work llustrates his approach. He identified 5 regional corporate groupings on the basis of the number of interties maintained within each group. No evidence f underlying ontrol r coordination was offered; no assertions f unified conomic ehavior were made. Although banks were found o be central, ooley did not nterpret his s evidence f financial ontrol. Conceptualizing nterest roups s a collection f companies under ommon ontrol as mportant mplications. lthough he role of banks in the interlock etwork-and in the corporate world-has been under much discussion f ate Glasberg, 1981; Gogel and Koenig, 1981; Kotz, 1978; Mintz nd Schwartz, 981 ; Mizruchi, 982a), the connection etween he theory f finance capital and interest roup formation as been nearly ost. The purpose of this tudy s to reintegrate hese deas. More specifi- cally, this article addresses two questions. First, t considers whether he orporate world s organized nto discrete roupings formed round financial nstitutions, s described y the theory of bank control. econd, it explores he mplication f nterest group formation or lite unity. he traditional heory f finance capital assumes both ntragroup nity n one hand and fierce intergroup ompetition n the other see especially elton, 970). If the orporate ector s characterized y discrete roups rgan- ized around financial nterests, e nterpret his s indications f points f cleavage n the ystem; s potentially ompeting actions within he corporate world. This content downloaded from 132.198.142.235 on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  FINANCIAL INTEREST GROUPS 185 THE METHOD AND THE DATA The extensive iscussion entered n the ubstantive eaning of director xchanges Mintz and Schwartz, 1983; Mizruchi, 1982a; Palmer, 1980) has demonstrated hat nterlocks epresent many ifferent ypes f relationships ncluding ttempts o access important esources, o accommodate bankers, nd to add to company tatus by attracting restigious utsiders. ome inter- locks trace friendship etworks, thers race tockholding ela- tionships, till thers race ustomer-supplier inks. Despite their aried and changing oles, however, nterlocks always provide n opportunity or one or both of the connected firms o access vital nformation bout the other. Though the degree f access depends n the xpertise, oyalty, nd demeanor of the ndividual inking he two companies, we can safely nter- pret he xistence f an interlock s a symptom f nonantagonis- tic corporate elations. rom this we extrapolate proposition about financial roupings: wo companies onnected y n nter- lock are not typically members f competing nterest roups. Based on this proposition, Mariolis (1977) developed a method or dentifying iscrete roups n an interlock etwork. Derived from bank control theory nd based on the logic of centrality nalysis iscussed y Mizruchi n the previous rticle,' this method s called peak analysis. t uses a recursive efinition f clique membership: (1) A company s a peak f t s more entral han ll firms o which t s nterlocked. (2) A company s in a cluster f every irm more entral han it-to which t s nterlocked-is n that luster. (3) A firm hich onnects pward nto wo different lusters s not member f ither roup. Thus, orporation is a peak and defines cluster iff V r >0=*C >C j ii i j This content downloaded from 132.198.142.235 on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  186 SOCIAL SCIENCE HISTORY And orporation s a member f E i iff V r >0 and C >C * IcE 1 kl 1 k i where = the luster ssociated ith orporation i r = measure f overlap etween orporation and ij corporation C = centrality f corporation r = measure f overlap etween orporation and corporation C = centrality f orporation Mariolis, 977).2 k The notion f peak allows us to search or potential liques. Clearly, he most central irm n the network s a peak since, by definition, t is more central han any of its nterlock artners. Other highly entral ompanies re peaks and define liques only if hey nterlock ith orporations ess central han hemselves. t is therefore ossible to have only one peak in the network; t s also possible o have numerous eaks. We note two important mplications f this definition f corporate lique. First, wo ompanies eed not nterlock irectly to share lique membership; hey may tie to the clique through connection o the group peak or to different roup members. Competitors, ustomers, uppliers, r firms hat re legally ro- hibited rom nterlocking ay therefore e grouped ogether n the absence of direct ies. Second, a corporation need not be included n a clique. Any ompany nterlocked pward with wo firms n different lusters annot be considered o be in either group, ince this would violate the assumption hat competing groups void interlock elationships. This second consideration mphasizes hat all corporations are not necessarily ssigned o clusters. hus, peak analysis will This content downloaded from 132.198.142.235 on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions
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