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Whatever-it-takes partisanship continued to escalate on both sides. Before the presidential election of 2008, both John McCain, the Republican candidate, and Barack Obama accepted limits on campaign contributions in exchange for public financing. When Obama’s powerful fund-raising ability became apparent, however, he abandoned his commitment. During the first two years of his presidency, when Democrats controlled both houses of Congress, Obama was able to enact legislation without any Republican input or cooperation. In 2010 Democrats enacted the Affordable Care Act without a single Republican vote. Not surprisingly, after Republicans assumed control of the House in January 2011 and the Senate in January 2015, they escalated whatever-it-takes partisanship—obstructing nearly everything Obama wanted to do—and sought to repeal the Affordable Care Act.
Republican obstructionism caused Obama to escalate further, announcing at his first cabinet meeting after Democrats lost control of the Senate that “we’re not just going to be waiting for legislation….I’ve got a pen and I’ve got a phone. And I can use that pen to sign executive orders and take executive actions and administrative actions that move the ball forward.” When Obama couldn’t pass legislation providing amnesty for certain categories of undocumented immigrants, he did it by executive order. Rather than try to enact stronger environmental protections, he used regulations under the Clean Air Act. He employed executive actions to close Guantánamo Bay, join the Paris Accord on climate change, allow transgender students to use public bathrooms that do not match their biological gender, and move toward stricter gun control and stronger financial regulation.
Liberals might say that by circumventing the Republican roadblock Obama achieved the common good. At the same time, though, he also undermined a larger common good—the constitutional system of separation of powers and of democratic deliberation. One might legitimately ask, What other options did he have at this point? Nonetheless, the gains he managed to achieve would prove short-lived. And, without those rudders, public policy would thereafter swing wildly from one extreme to the other: When Republicans regained control of both Congress and the presidency in 2016, they had no incentive to fix defects in the Affordable Care Act. They spent months instead trying to repeal it. As president, Donald Trump revoked or reversed many of Obama’s executive actions, through executive orders of his own.
Trump escalated conflict to another level. He used white resentment against the nation’s growing population of blacks, Latinos, and immigrants to solidify his largely white, working-class base—urging travel bans on Muslims, immigration enforcement raids on Latino communities, photo IDs to vote, a wall along the Mexican border, the purging of voter registration lists, and bans on transgender personnel in the military. These measures had nothing whatever to do with the central problems facing the nation nor with the deep unease at economic exclusion and vulnerability much of his core base experienced. They served only to advance a narrow political agenda at the expense of the common good.
In all these respects, the common good has been subordinated to winning. Step by step, our system of government has been sacrificed to the goal of short-term political success. The cumulative cost to trustworthiness and integrity of our democratic institutions has been incalculable.
2 Michael Milken, Jack Welch, and whatever it takes to maximize profits
A second chain reaction that undermined the common good was set off in the 1980s as “corporate raiders” mounted hostile takeovers of corporations, financed by risky bonds. The raiders made fortunes, Wall Street became the most powerful force in the economy, and CEOs began to devote themselves entirely and obsessively to maximizing the short-term value of shares of stock. The new rule was: Do whatever it takes to make huge profits.
Before then it was assumed that large corporations had responsibilities to all their “stakeholders”—not just their shareholders but also their workers, the towns and cities where their headquarters and facilities were located, and the nation. “The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in a 1951 address, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups…stockholders, employees, customers, and the public at large.” In November 1956, Time magazine noted that business leaders were willing to “judge their actions, not only from the standpoint of profit and loss but of profit and loss to the community.” CEOs had become “corporate statesmen,” responsible for the common good of the nation. General Electric, the magazine said, sought to serve the “balanced best interests” of all its stakeholders. As paper executive J. D. Zellerbach told Time, Americans “regard business management as a stewardship, and they expect it to operate the economy as a public trust for the benefit of all the people.” These sentiments may seem quaint today, but they laid the basis for rapid economic growth and, with strong unions, an equally rapid expansion of the middle class.
Starting in the 1980s, though, as a result of the corporate takeovers mounted by raiders such as Michael Milken—who is credited with inventing the use of high risk “junk” bonds for such raids—as well as Ivan Boesky and Carl Icahn, a wholly different understanding about the purpose of the corporation emerged. The raiders targeted companies that could deliver higher returns to their shareholders if they abandoned their other stakeholders—fighting unions, cutting the pay of workers or firing them, automating as many jobs as possible, and abandoning their original communities by shuttering factories and moving jobs to a state with lower labor costs, or moving them abroad.
The raiders pushed shareholders to vote out directors who wouldn’t make these sorts of changes and vote in directors who would (or else sell their shares to the raiders, who’d do the dirty work). During the whole of the 1970s there were only 13 hostile takeovers of big companies valued at $1 billion or more. During the 1980s, there were 150. Between 1979 and 1989, financial entrepreneurs mounted more than two thousand leveraged buyouts, in which they bought out shareholders with borrowed money, each buyout exceeding $250 million. As a result, CEOs across America, facing the possibility of being replaced by a CEO who would maximize shareholder value, began to view their responsibilities differently. Few events change minds more profoundly than the imminent possibility of being sacked. As a result, the corporate statesmen of previous decades became the corporate butchers of the 1980s and 1990s, whose nearly exclusive focus was—in the meat-ax parlance that suddenly became fashionable—to “cut out the fat,” “cut to the bone,” and make their companies “lean and mean.” Given what was to follow, it’s enough to make one a vegan.
Between 1981, when Jack Welch took the helm at GE, and 2001, when he retired, the firm’s stock value catapulted from $14 billion to $400 billion. Welch accomplished this largely by slashing American jobs. Before he became CEO, most GE employees had spent their entire careers with the company, typically at one of its facilities in upstate New York. But between 1981 and 1985, a quarter of them—one hundred thousand in all—lost their jobs, earning Welch the moniker “Neutron Jack,” and the growing admiration of the business community. Welch encouraged his senior managers to replace 10 percent of their subordinates every year in order to keep GE competitive. As GE opened facilities abroad, staffed by foreign workers costing a small fraction of what GE had paid its American employees, the corporation all but abandoned upstate New York. Between the mid-1980s and the late 1990s, GE slashed its American workforce by half (to about 160,000) while nearly doubling its foreign workforce (to 130,000).
Over the years, corporate raiders have morphed into more respectable “private equity managers” and “activist investors,” and hostile takeovers have become rare. That’s only because corporate norms have utterly changed. It is now assumed that corporations exist only to maximize shareholder returns. CEOs have become so obsessed by shareholder value that Roberto Goizueta, CEO of Coca-Cola, proclaimed in 1988, “I wrestle
with how to build shareholder value from the time I get up in the morning to the time I go to bed. I even think about it when I am shaving.” Goizueta’s obsession was quite different from the views of his predecessors, such as Coca-Cola’s president William Robinson, who in 1959 told an audience at Fordham Law School that executives should not put stockholders first. They should “balance” the interests of the stockholder, the community, the customer, and the employee.
Corporations have used their profits to give shareholders dividends and buy back their shares of stock—thereby reducing the number of shares outstanding and giving stock prices short-term boosts. All of this has meant more money for the top executives of big companies, whose pay began to be linked to share prices. CEO pay soared from an average of 20 times that of the typical worker in the 1960s to almost 300 times by 2017.
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Are we better off? Some argue shareholder capitalism has proven to be more “efficient” than stakeholder capitalism. It has moved economic resources to where they’re most productive, and thereby enabled the economy to grow faster. By this view, stakeholder capitalism locked up resources in unproductive ways, CEOs were too complacent, corporations were too fat—employing workers they didn’t need, and paying them too much—and they were too tied to their communities.
It is a tempting argument, but in hindsight a fallacious one. Any change that allows some people to become better off without causing others to be worse off is technically a more “efficient” use of resources. But when all or most of these efficiency gains go to a few people at the top—as has been the case since the 1980s—the common good is not necessarily improved. Just look at the flat or declining wages of most Americans, their growing economic insecurity, and the abandoned communities now littering the nation. Then look at the record corporate profits, soaring CEO pay, and jaw-dropping compensation on Wall Street. All Americans are stakeholders in the American economy, and most stakeholders have not done well.
As a practical matter, shareholders are not the only parties who invest in corporations and bear some of the risk that the value of their investments might drop. Workers who have been with a firm for years often develop skills and knowledge unique to it. Others may have moved their families to take a job with the firm, buying homes in the community. The community itself may have invested in roads and other infrastructure to accommodate the corporation. When a firm abandons those workers and those communities, these stakeholders lose the value of their investments. Why should no account be taken of their stakes?
Executives claim they have a “fiduciary obligation” to maximize investors’ returns. The argument is tautological. It assumes that investors are the only people worthy of consideration. What about the common good? Jared Kushner’s real estate company uses arrest warrants to collect debts owed by low-income tenants, often tacking on thousands of dollars in legal fees, because of its “fiduciary obligation” to investors—the largest of which are Jared Kushner and his family. After the company sued one of its tenants for moving out of her apartment without giving the company two months’ notice (despite her having done so), the company won an almost $5,000 judgment against her, and then garnished her wages as a home health worker and her bank account. When asked to justify such tactics, the Kushner Companies’ chief financial officer told The New York Times that the company had a “fiduciary obligation” to collect as much revenue as possible. One means of making sure tenants paid their rent on time and did not break their leases early was to instill in them a sense of fear about violating a lease.
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The goal of maximizing profits has leached into sectors of the economy that had once been based on the common good, such as health care. A century ago, hospitals and health insurers had palpable public responsibilities. The original purpose of health insurance plans, devised in the 1920s at the Baylor University Medical Center in Dallas, was not to generate profits. It was to cover as many people as possible. The nonprofits Blue Cross and Blue Shield accepted everyone who wanted to become a member, and all members paid the same rate regardless of age or health. By the 1960s, Blue Cross was providing hospital coverage to more than fifty million Americans.
In the 1970s and 1980s, though, some entrepreneurs saw ways to make big money by exploiting this common good. They founded for-profit insurance companies like Aetna and Cigna that, unhampered by the Blues’ charitable mission, accepted only younger and healthier patients. This reduced their costs, enabling them to charge lower premiums than the Blues while still pocketing big profits. The Blues couldn’t possibly compete. So in 1994, Blue Cross and Blue Shield succumbed and became for-profits—marking the end of nonprofit health insurance—turning the American health care system into one that eagerly insured healthy people while trying to avoid sick people, or charging people with chronic health problems a fortune for coverage.
Big financial houses, meanwhile, went from small privately held investment banks to giant corporations whose shares were traded on stock exchanges. This has also had unfortunate consequences. When investment bankers made all the profits and also suffered all the losses from their bets, they tended to be cautious. In order to understand the risks they were taking on, partners kept their banks small and their transactions relatively simple. But by 2000, because of deregulation, Wall Street had morphed into megabanks with employees numbering in the hundreds of thousands, and spanning the globe. There were no longer any constraints on risky bets. Shareholders bore the costs while those who made the bets got many of the upside gains in the form of giant bonuses. Bankers had every incentive to grab the cheapest funding possible to make the riskiest possible bets, and that led to the crash of 2008.
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When the only purpose of business is to make as much money as possible in the shortest time frame, regardless of how it’s done, the common good is easily sacrificed. In pursuit of high profits, whatever it takes, CEOs and the corporations they run have ignored or circumvented the intent of laws to protect workers, communities, the environment, and consumers. They abandoned the principle of equal economic opportunity that underlay their obligations to all stakeholders, and have too often put themselves first. Despite his avowed goal to rebuild customer confidence in Wells Fargo, John Stumpf didn’t care about his customers; he apparently cared only about himself. Although Martin Shkreli said he was motivated by investors who “expect me to maximize profits…to 100 percent of the profit curve,” it turned out his real motive was Martin Shkreli.
3 Lewis Powell’s memo, Tony Coelho’s bargain, Wall Street’s bailout, and whatever it takes to rig the economy
The third chain reaction eroding the common good came as a consequence of the first two. Whatever-it-takes politics removed all constraints on gaining and keeping political power. Whatever it takes to make big money eliminated all checks on unbridled greed. Put them together and what did we get? We got money pouring into politics in order to change the rules of the game in favor of big corporations and the wealthy, so they could rake in even more.
The start of this can be traced to 1971, when future Supreme Court justice Lewis Powell argued in a memo he wrote at the request of the U.S. Chamber of Commerce that the “American economic system is under broad attack” from consumer, labor, and environmental groups. In reality, these groups were doing nothing more than enforcing the implicit social contract I’ve referred to, ensuring that corporations were responsible to all their stakeholders. But Powell and the Chamber saw it differently. Powell urged businesses to mobilize for political combat. “Business must 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—without embarrassment and without the reluctance which has been so characteristic of American business.” Powell stressed that the critical ingredients for success were organization and f
unding: “Strength lies in…the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.”
Powell’s memo unleashed corporate money into politics, growing into the largest force in Washington and most state capitals. Once a few large corporations ramped up their lobbying and campaign contributions, competitors felt they had to do the same or lose out. The number of corporations with public affairs offices in Washington ballooned from one hundred in 1968 to over five hundred a decade later. In 1971, only 175 firms had registered lobbyists in the nation’s capital. By 1982, nearly 2,500 had them. The number of corporate Political Action Committees mushroomed from under 300 in 1976 to over 1,200 by 1980. Smaller businesses joined together in trade associations and business groups to do their bidding. Between 1974 and 1980, the Chamber of Commerce doubled its membership. By the 1990s, when I was secretary of labor, corporations employed some 61,000 people to lobby for them, including registered lobbyists and lawyers. That came to more than 100 for each member of Congress. Corporate money has also supported platoons of lawyers who represent corporations and the very rich in regulatory and court proceedings, often outgunning the Justice Department and state attorneys general. Corporations have also funded think tanks and public relations firms.
Most important, corporations began inundating politicians with money for their campaigns. Between the late 1970s and the late 1980s, corporate Political Action Committees increased their expenditures on congressional races nearly fivefold. Labor union PAC spending rose only about half as fast. By the 2016 campaign cycle, corporations and Wall Street contributed $34 for every $1 donated by labor unions and all public interest organizations combined. Wealthy individuals also accounted for a growing share. In 1980, the richest one-hundredth of 1 percent of Americans provided 10 percent of contributions to federal elections. By 2012, they provided 40 percent. The Supreme Court has made all this worse through a series of decisions holding that money is speech under the First Amendment and corporations are people.
The Common Good Page 6