In 1971, a corporate lawyer from Virginia (one of his clients was Philip Morris, and he was frustrated when Congress passed the Public Health Cigarette Smoking Act in 1970), chair of the education committee of the National Chamber of Commerce (whose budget doubled in size between 1974 and 1980), had written a widely circulated memo arguing that “the American economic system is under broad attack.” It continued: business had to learn the lesson “that political power is necessary; that such power must be assiduously cultivated; and that when necessary it must be used aggressively and with determination.” For instance, “The national television networks should be monitored in the same way that textbooks should be kept under constant surveillance. . . . Efforts should be made to see that the forum-type programs (the Today Show, Meet the Press, etc.) afford at least as much opportunity for supporters of the American system to participate as these programs do for those who attack it.”
His memo insisted that advancing pro-free-market politics be “a primary responsibility of corporate management”—“far more than an increased emphasis on ‘public relations’ or ‘government’ affairs,” but that corporations hire new executive vice presidents whose entire brief was countering “the attack on the enterprise system,” with a “budget and staff adequate to the task.” Corporate “public affairs” officers—lobbyists—had heretofore worked in Washington mostly to secure companies’ advantages against their competitors. He was recommending something more radical: political action to assert the interests of corporate America as a class—a sort of union movement on behalf of capital. “Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.” The lawyer, Lewis Powell, was soon appointed by Richard Nixon to the Supreme Court. And what he was recommending had already begun increasing apace. The National Association of Manufacturers had been aggressively lobbying against liberalism for decades, but from New York; in 1972 the group (and its political arm, the Business Industry Political Action Committee, or BIPAC) moved house to Washington, D.C.—because, a spokesman said, “the thing that affects business most today is government.”
Two of the most prominent activists in the effort were former Nixon administration officials. Bryce Harlow had been Nixon’s appointment secretary, and one of his most trusted confidants—all while on leave from Procter & Gamble’s first Washington lobbying shop, which he himself had established in 1961. Now back in harness at P&G, he drafted himself as field general for the kind of organizing Powell proposed. “The danger had suddenly escalated,” he recalled, referring to the election of the Watergate Babies in 1974. “We had to prevent business from being rolled up and put in the trash can by that Congress.” The other, Charls (sic) Walker, had been a Treasury Department undersecretary. In 1975 he took over a struggling organization that advocated for estate tax recipients and turned it into a turbocharged lobbying shop dedicated to the proposition that the American economy was foundering for a lack of “capital formation”—that business did not have enough money, largely because the government extracted too much from it in taxes, which were then distributed downward to Americans who were not capitalists, destroying the conditions for national prosperity. This argument was precisely the opposite of Keynesianism—but a proposition that proved attractive enough to several formerly Keynesian Fortune 500 corporations that they each contributed two hundred thousand dollars to soon turn Walker’s “American Council for Capital Formation” into a Washington juggernaut.
These were the circles in which the present treasury secretary was traveling. And he had no intention of bailing out New York—ever. Neither did William Simon intend to let his boss bail out New York—ever. Instead, he intended to make an example of it. And what he saw happen next only confirmed him in his judgment.
In December 1974 Mayor Beame ordered large-scale layoffs and cutbacks in municipal employment—and then, following union protests, reversed them. A young lawyer at Bankers Trust reported his accidental discovery that the tax receipts legally required to secure a $260 million note the bank had planned to buy did not exist. In January 1975, the city’s comptroller canceled a planned sale of municipal notes; in February, a second sale was canceled. Promptly, the city’s Urban Development Corporation became the first major government agency in the United States to go into default since the 1930s. Two weeks later, on March 6, the city offered another note on the market—and didn’t receive a single underwriting bid. By May, the city’s debt was $12.3 billion, and the word had gone forth from the great investment banks that such debt was unmarketable at just about any interest rate; officials predicted the city would default by June. The mayor made another ill-fated trip to Washington, this time for an audience with the president, Governor Hugh Carey, and representatives from Chase Manhattan, First National City Bank, and Mortgage Guarantee Trust in tow. A federal loan guarantee, Ford told them, would “merely postpone the city’s coming to grips with its fiscal problems through needed budget slashing.” On May 29, Beame complied, announcing an austerity budget calling for the immediate elimination of more than 12 percent of all city employment—a four-day municipal workweek, reductions in CUNY admissions, and library and health center closures.
He immediately reaped the whirlwind: cops blocking the Brooklyn Bridge; garbageman pledging a pestilence of rats—and no more money forthcoming from banks.
Like the fall of Saigon, it all seemed so sudden. “What was ‘sudden,’ ” thundered back Simon in his 1978 book, “was the traumatic discovery by the financial community that it was being rooked into a Ponzi game.” At the time, he was hardly less decorous. “We’re going to sell New York to the Shah of Iran,” he said to reporters. “It’s a hell of an investment.”
His voice led a chorus of business conservatives emboldened by the imminent collapse of a great American city to mock the profligacies of an utterly failed liberalism. Barron’s invoked the news from Cambodia: “All Abe Beame need do is adopt the Khmer solution. That is, order every man, woman, and child out of the city.” Christian conservatives, too: “Maybe it would be good for America if New York would go bankrupt,” Christianity Today opined. “The citizenry might learn some elementary lessons of economics that apply to cities and nations as well as individuals.” It was in part, said the young senator from Delaware, Joe Biden, a cultural thing: “Cities are viewed as the seed of corruption and duplicity.” His House colleague Richardson Preyer agreed, echoing what he was hearing from his North Carolina constituents: “There is a general negative feeling toward New York. New York has a certain overtone of sinfulness about it.”
“New York,” Fortune magazine reported, “is different. City politicians seldom had to say no to anybody—whether union leaders making extravagant demands or citizens seeking benefits for themselves.” Though it in fact was not really all that different. Simon spoke of overpaid, “parasitical” municipal workers, conceptually separate from the “productive population.” They drew, he said, “appalling” pensions, though for what it was worth the pension of the average retiring New York City policeman—$9,000—was $3,000 less than a pension in Chicago and less than half that in Los Angeles and San Francisco. City teachers and firemen also earned less than in salary than their counterparts in all of those cities, with a considerably higher cost of living. New York had fewer citizens per capita on public assistance than Philadelphia, Detroit, Milwaukee, and Chicago. (An oft-repeated claim that New York spent the most on welfare in the country ignored the fact that expenses covered elsewhere by state and county governments were borne by city governments in New York State.) Among the private corporations that paid their workers more in pensions than New York City were General Motors and First National City Bank—the financial institution most aggressive in pushing Beame’s austerity budget, whose chairman Walter Wriston, municipal labor leaders never tired of
pointing out, earned $425,000 a year. Mayor Beame, for his part, never tired of pointing out all the other cities facing similar balance sheet woes—among them Grand Rapids, Michigan, the president’s hometown.
On June 10 the state legislature in Albany authorized the Municipal Assistance Corporation (“MAC”), an authority with the power to borrow up to $3 billion in bonds if city default appeared imminent—with the caveat that MAC didn’t have to lend money at all if the city did not squeeze its budget according to the specified terms. The man who emerged as MAC’s spokesman and most respected member, Felix Rohatyn of the investment bank Lazard Frères, was a Democrat, the son of parents who fled Nazi-occupied France, a recently divorced bachelor, the subject of public fascination and even affection for his “tiny 12-by-15 foot office that looks as if it might have belonged to an accountant of modest means” and his tiny apartment in a residential hotel. A former physics major, he seemed to hold out the promise of a wizardly technical fix: “I look for the basic elements of a problem,” he explained in the Wall Street Journal. “If you can’t get agreement on the nature of the problem, the solution is too difficult.”
Alas, the solution to the problem of too little money appeared to rest in the hands of those who held the money. On July 17, a delegation of bankers including Wriston, David Rockefeller of Chase Manhattan, and Donald Regan, who was CEO and chairman of Merrill Lynch and a vice chairman of the New York Stock Exchange, met with Rohatyn and his Municipal Assistance Corporation. Together, they accused MAC of “business as usual”—the Bill Simon line. Rohatyn set up a meeting with the mayor to tell him that the only way to regain the confidence of such investors was to carry out what Rohatyn called “shock impact.” Promptly, MAC and city officials got to work on a financial plan that included four weeks of unpaid furloughs for municipal employees. The next week the Brooklyn Bridge was shut down once more—this time by four thousand doctors, nurses, health workers, and their patients, protesting cuts to the hospital budget.
CAN CAPITALISM SURVIVE? asked Time on the cover of its July 14 issue. “The root problem,” the editors explained, “is that everybody wants more. Even in prosperous times, the demands of labor for ever higher wages . . . and the less affluent for expanded government services always add up to more than the economy can produce at stable prices. Rather than say no to the demands of any vocal constituency, democratic governments too often find it easier to run huge budget deficits, thus fueling inflation.” Though they also quoted seven Nobel laureates in economics, including the legendary Kenneth Arrow, who disagreed, having signed a declaration blaming the economic crisis on corporations that produced “primarily for corporate profit,” and demanding that “alternatives to the prevailing Western economic systems must be placed on the agenda at once.”
The letters three weeks later were neatly split down the middle, capitalism pro and con—for example, “When farmers are slaughtering calves because it is not profitable to raise them, and when oil companies refuse to drill because it may not be profitable, then we must seriously question whether the system based on the profit motive is meeting the needs of society” (Sanford Stein, Chicago), versus, “Without profit there is no freedom” (Charles T. Clark, Tulsa, Oklahoma).
ANOTHER LETTER IN THAT ISSUE of Time tartly savaged the president for a decision that seemed to have obliterated once and for all whatever political truce he had established with conservatives in the wake of the Mayaguez raid. It read, “President Ford’s refusal to see Solzhenitsyn [June 21] is the refusal of a midget to see a giant for a very obvious reason. He would have to look up to him.”
The arrival of the Nobel Prize winner in literature named Aleksandr Solzhenitsyn in the United States late in June had become a surprise flash point for arguments about the ideological future of the Republican Party. The fifty-seven-year-old Soviet Nobel laureate in literature had turned his 1945 arrest for writing a letter to a friend criticizing Joseph Stalin’s conduct of the war (“anti-Soviet propaganda” and “founding a hostile organization”), and his subsequent incarceration in the system of Siberian work camps he memorably dubbed the “Gulag Archipelago,” into one of the greatest bodies of writing in twentieth-century Russia. Soviet authorities had shockingly allowed his first short novel, One Day in the Life of Ivan Denisovich, to published in edited form in 1962. Not, however, his staggering nonfiction accomplishment, The Gulag Archipelago, as he knew they could not. Fragments of its massive handwritten manuscript, written in secret, were passed from hand to hand over an unfathomably heroic decade-long process of research and composition. It was finally published in the West in 1973, six years after its completion, though not before the KGB seized one of three extant copies at the home of his typist, who promptly hung herself within days of her release by the secret police. In 1971 the KGB had allegedly tried to assassinate Solzhenitsyn. In 1974, the Kremlin expelled him, rendering him a stateless martyr to the endurance of Communist terror, a wandering prophet decrying the mad cruelty of the state that Henry Alfred Kissinger insisted on treating like any other member of the family of nations.
That, at least, was how conservative Republicans and right-leaning Democrats saw it. Back when Henry Kissinger had been practicing it under President Nixon, many of them made their peace with the signature foreign policy known as “détente”—a French word, roughly translated as “relaxation of tensions.” Ronald Reagan, for instance, met Brezhnev during his summer 1973 visit to the United States, a moment accompanied by much talk that the Cold War had finally ended. At a lavish pool party for the Soviet leader held at Nixon’s Western White House, the California governor exulted over “what I think is the most brilliant accomplishment of any president of this century, and that is the steady progress towards peace and the easing of tensions.”
But another definition of détente was “trigger of a gun”—which is what it had come to sound like to Reagan now that the man in charge was Gerald Ford.
“There are some who believe we should grant favors to our adversaries with no strings attached,” he said in one of his radio broadcasts. But “Soviet leaders from Lenin to Brezhnev have been realistic, unsentimental bargainers, men highly reluctant to pay for something offered free of charge.” And: “ ‘Détente—isn’t that what a farmer has with his turkey until Thanksgiving Day?” That was at least more polite than what William Loeb said. The flamboyantly reactionary editor and publisher of the Union Leader, the most important newspaper in first-in-the-nation New Hampshire, called Henry Kissinger a “bootlicking supplicant of the Communists.”
The fundamental political debate concerned whether relations with other sovereign states should be based in part on how they treated their own citizens. The Nixon-Kissinger position had been: absolutely not. If that had been the litmus test, there could not have been the historic opening to China. Nor the Strategic Arms Limitation Talks (SALT) Nixon began in 1969, which led in May 1972 to Nixon’s signing of an Anti-Ballistic Missile Treaty in Moscow—nor the kind of diplomatic pressure Nixon was able to put on both Communist rivals, China and the Soviet Union, to persuade North Vietnam to negotiate an end to American involvement in Vietnam. It was time to transform the Soviet Union from a “revolutionary” to a “status quo” power, the better to make the world a safe and more stable place, was how Henry Kissinger conceived it—a moral end, he reasoned, in a world armed with enough nuclear warheads to destroy itself.
Now, however, that view was being challenged by a coalition that was not only bipartisan but trans-ideological. In 1973 a liberal Democratic congressman from Minnesota, Donald Fraser, launched hearings that produced a landmark report, Human Rights in the World Community, accusing an amoral Nixon of paying for America’s supposed diplomatic gains by debasing the most powerful currency America had to offer: its values. “Human rights” was also the rallying cry when Scoop Jackson, a senator so sympathetic to Nixon’s foreign policy during his first term that the president had considered him as a potential defense secretary, joined by Democratic congressman C
harles Vanik, introduced an amendment to the 1974 Trade Act punishing the Soviet Union for limiting the emigration of Jews. “For if new relations between East and West are to mature into long-term peaceful cooperation there must be progress toward the freer movement of people and ideas between East and West, which is to say progress in the area of human rights and liberty.”
The coalition behind Jackson-Vanik included some of the most liberal and most conservative members of Congress. That drove President Ford, who thought he’d acceded to the White House with a mandate to further advance what had once seemed to be Nixon’s most popular and uncontroversial achievement—détente—to baffled distraction. Now he wasn’t just negotiating with the Soviets. He was negotiating with Scoop Jackson—a puffed-up senator with presidential ambitions—on a piddling symbol. But not, apparently, to the House of Representatives, which late in 1974 passed the Jackson-Vanik amendment unanimously. The Gulag Archipelago had just wound up an eighteen-week run on the New York Times bestseller list. For conservatives, it served a powerfully emotional purpose: it let them believe that Brezhnev’s Kremlin, which merely consigned dissidents to mental hospitals, was still identical to Stalin’s, which sent them off to rot in sadistic frigid gulags while consigning millions of kulaks to die of starvation. It let them dismiss the nuances of diplomatic strategy as sheer moral abdication.
Ford bowed to political pressure and signed the act; the Soviets promptly canceled the entire new trade relationship so carefully negotiated by Nixon and Kissinger in 1972. Kissinger, in a hastily announced press conference, almost sounded like he was complaining about being forced to negotiate for the wrong side. “The Soviet government states that it does not intend to accept a trade status that is discriminatory and subject to political conditions,” he said, and promised that the administration “will, of course, continue all available avenues for improvement in relations.”
The Invisible Bridge: The Fall of Nixon and the Rise of Reagan Page 67