In 2015, 10 companies appeared on a list of the 30 largest corporate and government entities in the world (based on revenue). All 10 companies had annual revenue higher than that of the governments of Switzerland, Norway, and Russia, and 69 of the 100 largest corporate and government entities (ranked by revenue) were corporations. The size of many corporations exceeds that of modern states, threatening to transform small and midsize countries into modern versions of banana republics and even posing economic and political risks for large high-income countries.

The term banana republic denotes a politically unstable country whose economy is dependent on the export of a limited-resource product (e.g., minerals). Typically, a banana republic has stratified social classes—a large, poor working class and a ruling-class plutocracy comprising the business, political, and military elites. A banana republic has an economy of state capitalism, in which the country is operated as a private commercial enterprise for the exclusive benefit of the ruling class. Such exploitation is effected by collusion between the state and the favored economic monopolies and can lead to the uneven economic development of the country.

To mitigate these risks, the author argues, several political tools could be used. These tools include increased transparency of corporate activities, improvements in corporate democracy, more aggressive use of the antitrust authority, and ensuring the functioning and independence of the media market. The single most critical remedy, however, may be broader public awareness of the risk of deterioration of the corporate form. This greater awareness could lead to striking the proper balance between corporations and governments.

Although the author does not conduct a conventional quantitative dataset analysis, he does review theoretical approaches and historical records for useful examples and formulates qualitative judgments to generate an analytical framework.

Arguing that the interaction of concentrated corporate power and politics is a threat to democracy, the author begins with a discussion of how these concerns were originally present in Adam Smith’s (1776) work, how they were neutralized in the neoclassical theory of the firm, and how they were revisited in the “incomplete contracts view” of the firm. The incomplete contracts literature explains how firms’ power stems from their market power and provides scope for lobbying, rent seeking, and manipulation. The potential of corporations to influence politics is not new. The economic power of modern corporations can compete on equal terms with the political power of modern states. The state seeks to regulate the corporation, and the corporation seeks to avoid being regulated. In this interplay between the large corporation and the modern state, both sides are continually jockeying for position, with the corporation potentially superseding the state as the dominant form of social organization.

Owing to the rise in the relative size of large corporations, there is a risk of a “Medici vicious circle,” in which economic power and political power reinforce each other. The extent of the Medici vicious circle depends on six nonmarket factors, including the condition of the media market, the independence of the prosecutorial and judiciary power, and campaign finance laws. The author synthesizes these six factors by incorporating them into a broader political theory of the firm.

The author correctly concludes that the limited liability corporation is a double-edged sword that can be used to foster both growth and oppression. The size of many corporations now exceeds that of national governments, posing economic and political risks for small, midsize, and large economies alike. Broader public awareness of the societal and political risks posed by the modern corporate form can help achieve the appropriate balance between states and corporations. This is especially, though not exclusively, the case in emerging markets, which are a substantial component of many institutional investors’ portfolios. It would have been instructive if the author had extended his argument to consider the efficacy of government regulations and the impact of such technology companies as Apple and Google, as well as providing a quantitative dataset and methodology to complement his qualitative framework.