Ma Chapter 3

Chapter 3: The concept of countervailing power;
countervailing power in schools

Unrestrained economic power is … an enemy of the good society. I only urge that we have a full view of the processes by which it is restrained.’

Galbraith, J., (1954). ‘Countervailing power’, American Economic Review, Vol. 44, No. 2, Page 6

This chapter aims to briefly lay out Galbraith’s (1956) concept of countervailing power, before going on to survey critiques and applications of this concept. Then, an attempt to typify and identify manifestations of countervailing power will be made.


3.1: What is countervailing power?

In American Capitalism, Galbraith (1956) announced the arrival of new forces that restrained private economic power: that of countervailing power. Such forces were birthed and enhanced by the same processes of concentration which threatened competition. Such forces appeared ‘not on the same side of the market but on the opposite side, not with competitors but with customers or suppliers.’ The appearance of such forces meant that there was a second ‘autonomous regulator of economic activity’ and that there was an alternative to competition as the ‘only available regulatory mechanism apart from the state’. Like competition, countervailing power is also a ‘self-generating force’, because of a ‘tendency of power to be organised in response to a given response to a given position of power’. Since power on one end of the market tends to create ‘both the need for, and the prospect to, the exercise of countervailing power from the other side’, countervailing power may be relied upon as a curb on economic power. Galbraith (1956) identified the following as examples of the manifestations of countervailing power: the emergence of the United Steel Workers union to challenge the dominance and power of the steel industry in dictating employment of steel workers and the ‘rise of the food chains, the variety chains, the mail-order houses (now graduated into chain stores), the departmental-store chains, and the cooperative buying organisations of the surviving independent department and food stores’ to challenge monopoly suppliers of goods such as tyres. Together with competition and government regulation, countervailing power would keep the American economy going. There is a case for the government to continue its inadvertent support of countervailing power thus far, such as by granting minimum wage legislation to unorganised workers, and Galbraith (1956) argued that this support should be the ‘major domestic peacetime function of the federal government’.

Galbraith (1956) also asserted that ‘it is a wise economist who recognises the scope of his generalisations’ and that there are limits to the ability of countervailing power. Very strong monopoly positions might still prove impregnable against the manoeuvres of several buyers. Sources of countervailing power may also be identified by those in dominance, and successfully resisted, such as the American residential building industry, where the manufacturers of building materials reign supreme over the builders.


3.2: Recent manifestations of countervailing power

Recent evidence on the existence and usefulness of countervailing power appears to be mixed. Dobson & Waterson (1999) identified a trend within retailing towards increasing concentration, which is at least partially reinforced by the strategies of the retailers themselves, such as through the promotion of in-house brands. In British retail grocery for example, the market share of the top five firms has increased from 53% in 1988 to 64% in 1996 (Nielson, 1998). Such a trend is not isolated in Britain. Over the same time period, similar trends were observed in other European nations, where the market share rose from 27% to 42% in Germany, and from 42% to 52% in France (Nielson, 1998). Dobson and Waterson (1999) went on to suggest that the traditional Chicago school analysis of the retailing industry as perfectly competitive, because retailers face a small number of powerful suppliers with inordinately large market power, is outdated. Instead, they argue that retailing should be regarded as either monopolistic competition or an oligopoly with several key strategic players. Using a model where a single supplier negotiates with several differentiated oligopolistic retailers, they then attempted to investigate whether the increasing concentration may be regarded as a source of countervailing power to counteract that of the manufacturers (Dobson & Waterson, 1997). Though they acknowledge that higher retailer concentration would lead to a ‘fall in the supplier’s relative bargaining power’ and suggest that retailers do exhibit a countervailing power vis-a-vis their supplier, they conclude that ‘there is little to suggest that countervailing power is a reliable self-regulatory mechanism to protect consumers’. A similar conclusion was drawn using a separate model by Chen (2001), who argued that though an increase in countervailing power on the part of retailers may lead to a decline in retail prices for consumers, this decline is ‘not the result of a benevolent retailer acting on behalf of consumers but a self-interested supplier trying to offset the reduction in profits caused by the rise in countervailing power’. From Chen’s (2001) model, the supplier, in order to make up for a decline of profits, sells to fringe retailers at reduced prices to boost sales. Therefore, the lower retail price result is contingent upon a crucial assumption: the existence of ‘fringe competition’. Not only is lower prices not guaranteed, consumer choice may suffer from a reduction in product variety (Chen 2003). Therefore, countervailing power may be argued to be incapable of replacing competition as the economy’s regulatory mechanism.

On the other hand, in the examination of the pricing of a monopolist in a thirty round experimental posted offer market with two buyers and another identical market but with four buyers, Engle-Warnick & Ruffle (2002) found that prices were well below the monopoly price when the buyers are diffuse, and that competitive levels of pricing, or even lower, could actually be achieved. They attribute this result to two hypotheses: the ‘buyer empowerment hypothesis’, whereby fewer buyers intuitively feel empowered when there are fewer of them and can withhold demand more effectively, forcing the monopoly to lower prices in successive periods, and the ‘cautious monopoly hypothesis’, where ‘the mere threat of increased costly withholding when there are fewer buyers causes the monopolist to price more cautiously’ (Engle-Warnick & Ruffle, 2002). Concentration in the buyer market therefore has been effective as a source of countervailing power to eliminate monopoly power. Other papers that identify bargaining strength as a source of countervailing power include: Snyder (1998) and Ellison & Snyder (2001). With the advent of the internet as a communicative tool, countervailing power may rise as a check on retailers and manufacturers, since consumers may potentially form networks and work together effectively in collective bargaining (Rha & Widdows, 2002).

In mental health care, advocacy efforts from mental health care professionals and consultants ‘with their deeply held principles and ideals regarding public sector service’ (Minkoff, 1997) were identified as a countervailing power response to the imposition of managed care ideologies onto the system. This response is not in the form of outright criticism of the new, but of an inclination to work within the new framework, while ensuring that the public service ethos ‘that they feel most strongly about are incorporated into the newly developed systems of care’ (Minkoff & Pollack, 1997). Though groups and legislative efforts have been organised to fight for safeguards, such as through the establishment of standards, against the ‘managed care bottom line of cost control’ (Scheid, 2000), they are not generally viewed to have sufficient political clout to match up with the lobbying power of the managed care industry. Also, broadly in medical services, doctors and institutions have been postulated to be opposing countervailing agents (Light, 1991). In the Hafferty and Light (1995) perspective, ‘one party (such as the state, a profession, corporate interests or consumers) may gain dominance by subordinating other parties who, in time, counter-mobilise to redress the imbalances produced by the dominance of one party’ (Hartley, 2002). Doctors could emerge as advocates for their patients and increase their services, against efficiency-driven institutions acting for society to control spending (Schlesinger, 1997). Consumers may band together as a countervailing force too, such as in an Oregon case, whereby past patients at a birth centre protested and demonstrated against the closure of this centre and the firing of the midwifery staff, and ultimately saved the clinic (Hartley, 2002).



3.3: Countervailing power in schools
Following the discussion on what countervailing power is, and where it has been argued to have manifested in other industries, I will now go on to attempt to identify and describe its various appearances in the English school market. Before that however, I will suggest a simple typology of countervailing power, as illustrated in the diagram below, with which it may be easy to sort out their various possible forms and identify others.


Diagram 1: the axes of countervailing power

Countervailing power, as I see it, may lie on two axes. On the X-axis, the spectrum ranges from the eponymous adversarial to collaborative, while on the y-axis, the range is from top down introduction to bottom up development.

The key form of countervailing power that has emerged would involve the set of ‘quasi-regulations’ that has been introduced by New Labour under the Schools Standards and Framework Act 1998, specifically This includes the appointment of adjudicators to resolve disputes over admission policies and practices and the formulation of national codes of practice which the adjudicators would strive to uphold and enforce. The Code of Practice issued in 1999 mandated the need for explicit and transparent admissions policies, clear explanation of oversubscription criteria, and the rules under which schools may legitimately select, e.g. specialist schools were allowed to select a portion of their intake through aptitude testing, though other schools were disallowed from introducing ability testing if they had not already started during so in 1997/8; church schools were also allowed to interview pupils, but only to ascertain religious denomination. This and revised editions of the Code of Practice tells parents their rights as far as school admissions are concerned, and if they feel that they have been unfairly treated, the Code of Practice may be used to back them up in appeals to the school adjudicator. As the set of ‘quasi-regulations’ has been ordered by the state, and the process involves bring forth cases from one set of parties, such as aggrieved parents and children, against another set, that of schools and admissions authorities for judgement by an independent referee, on the typology of countervailing power, I would consider the School Adjudicator to be in the top down introduction and adversarial category.

A chief and 14 subordinate adjudicators are appointed by the Secretary of State for Education and Employment, though their work is independent of the Department for Education and Skills, which was until June 2001, the Department of Education and Employment. They are not allowed to be actively interventionist, and can only act to investigate when a body that is legally entitled to do so has made a complaint. The system is therefore a reactive rather than a proactive one. Parents may complain, but there are restrictions in place, among which is that a minimum of 10 parents is needed to trigger a parental complaint themselves (West & Ingram, 2001). Otherwise, it appears that parents have to count on their LEAs to voice objections about schools which abuse their own admissions authority. Given such restrictions, the low number of complaints made per annum is perhaps unsurprising. According to the Office of the School Adjudicator (2004), there were only 171 objections (from 126 objectors) in the 2003/2004 academic year and 165 in the year before. This is in sharp contrast to a total of 91,430 parental appeals lodged against non-admission of their children in 2002/2003 in England. However, the school adjudicators seem to be doing with a good job with this small number of cases. Out of the 126 objectors in 2003/2004, approximately 90 percent of them have had their objections upheld (Office of the School Adjudicator, 2004). Also, in their user survey, 92 percent found the service excellent or good overall (Office of the School Adjudicator, 2004).

Another example of an adversarial form of countervailing power, though one that is of a bottom up development, could be what Ranson et al (2004) calls the phenomenon of ‘storming parents’. This phenomenon involves ‘unruly parents’, who ‘enter school inappropriately, angrily seek out the head or a teacher and abuse them verbally or even physically’ (Ranson et al, 2004). Such actions are forms of exercising Hirschmann’s (1970) voice, and are attempts to influence the provision of education in schools. Though perhaps extreme and even illegal in its manifestation, Ranson et al (2004) argue that ‘storming’ occasions were reactions to events in schools, that parents were reacting to address the neglect of their needs, and that the underlying desire of these parents was to seek mutual understanding. In this light, legislating and punishing aggressive parents, as the Secretary of State for Education has done or promised to do[1], may be unfairly recreating a deficit model of groups of parents and reviving the long tradition of teachers seeing parents as problems (Croll, 2001). Therefore, government policy should perhaps focus on promoting understanding and communication between parents and schools, such as through enhancing Parent Teacher Association (PTA) links.

Communication and deliberation between parents and teachers, for example during parents’ evenings or through the PTA would be a collaborative form of countervailing power, and probably one of bottom up development as well. There is a National Confederation of Parent Teacher Association (NCPTA), which is an umbrella organisation for over 12,500 PTAs and 6 million members in England, Wales and Northern Ireland (NCPTA, 2004). This organisation supports PTAs in generating partnerships and dialogue between parents and teachers, and provides parents with an avenue to voice their views with regards to the education of their children. It also produces position statements to articulate its members views on matter including ‘parental preference and school admissions’, as well as magazines and newsletters, with articles on school safety measures and school networking, etc., to member organisations. At the local level, PTAs may organise parents’ forums, i.e. group meetings of parents, tutors, the headteacher and management, though these are probably relatively rare compared to social and fundraising events. Vincent and Martin’s (2000) observations of such forums have revealed that even though regular participants tend to be supporters of the school and are willing to accept professional knowledge and understanding, given persistence and strong convictions, they have on occasion been used as an effective channel for expressing parental dissent and dissatisfaction. The more common formal consultative parents’ evening is the main opportunity through which parents get to both get feedback from and give feedback to teachers.

However, there is perhaps a need to ensure that communication is improved at parents’ evenings, for Power and Clark (2000) have in their case studies of four schools found that parents generally report that they were ‘frustrating and unproductive encounters’, especially if they turn out to be more of a one way dissemination of information in chaotic, free-for-all ‘rugby match’ environments.

Finally, an example of a collaborative and top down introduction form of countervailing power could be the development of online forums for parents. This mirrors Rha and Widdows’ (2002) prediction, earlier mentioned, that with rising availability and usage of the internet, consumers would be provided with an avenue to communicate and take action together effectively. Parents Centre, at www.parentscentre.gov.uk, formerly Parents Online, is a government initiative, working in conjunction with Directgov, the central government’s official online resource website, to not only provide parents with information on schooling and parenting, such as childcare, school life, choosing a school, dealing with bullying, etc., but also, through the set up of a message board, to allow concerned parents to post queries, anonymously if they desire, and obtain information and support from other parents and experts who use the forum. Though this particular initiative has been implemented by the government, it is foreseeable that if there is a demand, similar websites and online forums may be set up by parents themselves, thereby providing a more bottom up development version of this countervailing power.

[1] Estelle Morris, in interview on GMTV Sunday Programme, 14th July 2002, according to Ranson et al. (2004).