The Common Good

by Robert B. Reich

  Both political parties have transformed themselves from mainly state and local organizations that channeled the views of members upward, into giant top-down fundraising machines. In the 1980s, the Democratic Party began drinking at the same trough as the GOP. “Business has to deal with us whether they like it or not, because we’re the majority,” crowed Democratic representative Tony Coelho, who, as head of the Democratic Congressional Campaign Committee, commenced a shakedown of corporate America. Coelho’s Democrats soon achieved a rough parity with Republicans in contributions from corporate and Wall Street campaign coffers. It proved a Faustian bargain. Once hooked on corporate money, Democrats couldn’t unhook themselves. The Democrats’ dependence on big corporations became evident when, months before the party’s trouncing in the 1994 midterms, many congressional Democrats voted against Bill Clinton’s health care plan because their corporate sponsors opposed it.

  Business executives haven’t cared which party they contribute to as long as the money gets results. During the 2016 Republican primaries, Donald Trump, who was then getting attacked by his GOP rivals for having once donated money to Hillary Clinton, explained that “as a businessman and a very substantial donor to very important people, when you give, they do whatever the hell you want them to do. As a businessman, I need that.” Apparently, he got what he needed. After Trump’s charitable foundation made a $25,000 contribution to a campaign organization linked to Florida’s attorney general, she decided not to open a fraud investigation of Trump University that her office had been considering.

  Businesses have also dangled before public officials the lure of well-paying jobs after government. In the 1970s only about 3 percent of retiring members of Congress went on to become Washington lobbyists. By 2016, fully half of all retiring senators and 42 percent of retiring representatives had turned to lobbying, regardless of party affiliation. This wasn’t because more recent retirees have had fewer qualms than their predecessors about making money off their contacts in government. It was because the financial rewards from corporate lobbying had ballooned. The revolving door rotates the other way, too: If a lobbyist can land a plum job in an administration, he or she becomes even more valuable on leaving. In his first six months as president, Trump handed control of every major regulatory agency to lobbyists from the industries they would oversee.

  The quid is tightly linked to the quo. After Wall Street became a gusher of campaign funds starting in the 1980s, the Street got Congress to repeal Depression-era regulations that for a half century had prevented another great crash—restrictions on interstate banking, on intermingling investment and commercial banking, and on banks becoming publicly held corporations. This freed the Street to once again gamble with other people’s money, and led in 2008 to a financial crisis similar to the one that occurred in 1929. A giant taxpayer-funded bailout kept the big banks from going under and avoided another Great Depression, but homeowners and workers caught in the downdraft received no such help. Millions lost their jobs, homes, and savings. Millions more felt vulnerable.

  Not surprisingly, the day-to-day decisions emanating from Congress and the White House no longer reflect the views of average Americans. After examining 1,799 policy issues in detail, two eminent researchers, Princeton professor Martin Gilens and Professor Benjamin Page of Northwestern University, concluded that “the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”

  All of this has enhanced the economic gains flowing to big firms and the wealthy, while reducing the share going to the majority of Americans. It’s been a vast redistribution, essentially taking money out of the paychecks of the middle class and poor, and channeling it upward. Intellectual property rights—patents, trademarks, and copyrights—have been enlarged and extended, allowing pharmaceuticals, high-tech, biotechnology, and many entertainment companies to preserve their monopolies longer. This has meant higher prices for average consumers, including the highest pharmaceutical costs of any advanced nation. At the same time, antitrust laws have been relaxed, resulting in large profits for firms like Monsanto, which sets the prices for most of the nation’s seed corn; for a handful of high-tech companies with market power over network portals and platforms (Amazon, Facebook, Apple, and Google); cable companies with little or no broadband competition (Comcast, AT&T, Verizon); and the largest Wall Street banks, among others. As with the broadening of intellectual property rights, the relaxing of antitrust laws has raised prices and reduced services for average Americans. We have the most expensive and slowest broadband of any industrialized nation, for example. In 2016, The Economist magazine reported that two-thirds of all corporate sectors have become more concentrated since the 1990s, making corporations far more profitable than at any time since the 1920s.

  Contract laws have been altered so that consumers and employees can’t take their grievances to court; they have to use arbitrators selected by big corporations. A few states have enacted “noncompete” laws making it impossible for employees to leave their jobs for new ones unless they can show that the move wouldn’t “adversely affect” their current employer—leaving workers and their wages at the mercy of their bosses. Securities laws have been relaxed to allow insider trading of confidential information, and to let CEOs use stock buybacks to boost share prices when they cash in their own stock options. Tax laws have been altered to create loopholes for the partners of hedge funds and private equity funds, special favors for the oil and gas industry, lower marginal income tax rates on the highest incomes, and reduced estate taxes on great wealth.

  Bankruptcy laws have been loosened for large corporations—notably airlines and automobile manufacturers—allowing them to rip up labor contracts, threaten closures unless they receive wage concessions, and leave workers and communities stranded. Notably, bankruptcy has not been extended to homeowners who owe more on their homes than the homes are worth, or to graduates overburdened with student debt. Meanwhile, as I’ve noted, the largest banks and auto manufacturers were bailed out in the downturn of 2008–09. The result has been to shift the risks of economic failure onto the backs of average working people and taxpayers.

  Finally, taxes have been reduced on corporations and the wealthy, even as corporate profits and the incomes of the rich have soared.

  In all these ways, and more, the market has been altered to redistribute money from the middle class and poor to the wealthy. It is a vicious cycle. As large corporations and the wealthy accumulate more of the nation’s assets, they gain more power to rig the market to their advantage.

  CHAPTER 6

  The Decline of the Good in Common

  TO REPEAT, three exploitations of trust set off chain reactions that have undermined the common good: Whatever-it-takes-to-win politics disregarded what had been the unwritten rules of good government, based on equal political rights—enabling the most powerful players to extract all political gains. Whatever it takes to maximize profits rejected what had been the unwritten rules of corporate responsibility, based on obligations to all stakeholders—allowing CEOs, Wall Street, and investors to extract all financial gains. Whatever it takes to rig the economy dismissed what had been the unwritten rule that the “free market” should work for everyone—permitting the most powerful economic actors to extract almost all economic gains. As a result, the key political and economic institutions of our society—political parties, corporations, and the free market—have abandoned their commitment to the common good.

  The consequence has been a catastrophe for most Americans. By 2016, the typical American household had a net worth 14 percent lower than the typical household in 1984, while the richest one-tenth of 1 percent owned almost as much wealth as the bottom 90 percent put together. Income has become almost as unequal as wealth: Between 1972 and 2016 the pay of the typical American worker dropped 2 percent, adjusted for inflation, although the American economy nearly d
oubled in size. Most of the income gains went to the top. In 2016, the annual Wall Street bonus pool alone was larger than the annual year-round earnings of all 3.3 million Americans working full-time at the federal minimum wage of $7.25 an hour.

  The middle class is shrinking. Whereas 90 percent of American adults born in the early 1940s were earning more than their parents by the time they reached their prime earning years, this proportion has steadily declined; only half of adults born in the mid-1980s are earning more than their parents by their prime earning years.

  Most Americans are working longer hours than they had worked decades before and taking fewer sick days or vacations, and they are falling behind the economic security enjoyed by their parents. Nearly one out of every five is in a part-time job. Two-thirds are living paycheck to paycheck. Along with pay, employment benefits have been shriveling. The gap in life expectancy between the nation’s most affluent and everyone else is widening as well. Increasing numbers of working Americans have been succumbing to opioids. Death rates have been rising for Americans with high school degrees or less, due to suicides, chronic liver cirrhosis, and poisonings, including drug overdoses.

  Discrimination based on race, gender, and ethnicity has magnified these economic differences, and the economic stresses have fueled further bigotry. Many Americans who for decades have been on a downward economic escalator have become easy prey for demagogues peddling the politics of hate. While in the 1950s and 1960s the nation began struggling to overcome racial discrimination, progress has slowed and in many respects reversed. By 2017, a higher share of America’s population was in jail or prison than in almost any other country on the planet, and the inmates were disproportionately black and Latino.

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  The standard explanation for why America has become so economically lopsided is that most Americans are no longer “worth” as much as they were before digital technologies and globalization, and therefore must now settle for lower wages and less security. If they want better jobs, they need more education and better skills.

  This account doesn’t explain why other advanced economies facing similar forces haven’t succumbed to them nearly as dramatically as has the United States. Or why America’s U-turn from broadly shared prosperity to stagnant wages for most and great riches for a few occurred so quickly in the late 1970s and 1980s. It doesn’t clarify why the pay of top executives at big companies rose so dramatically since then, or why the denizens of Wall Street are now paid tens or hundreds of millions annually.

  Nor can it account for the decline in wages of recent college graduates. Although young people with college degrees have continued to outpace people without them, the real average hourly wages of young college graduates have dropped since 2000. A college education has become a prerequisite for joining the middle class, but it is no longer a sure means for gaining ground once admitted to it.

  To attribute all this to the impersonal workings of the “free market” is to be blind to the disproportionate political power of America’s economic elites over the rules of the game, and their failure to use that power to deliver rising or even stable incomes and jobs to most of the rest of the nation. It is to ignore the increasing willingness of moneyed interests to rig the system for their own benefit, and their dwindling concern for the common good.

  As they gained more wealth and power they could have made a different choice. They could have used their political and economic clout to get better schools for all, comprehensive job retraining, wage insurance, better public transportation, and expanded unemployment insurance. They could have pushed for universal health insurance. They could have paid for all this by accepting, even lobbying for, higher taxes on themselves. They could have strengthened rather than fought off unions, and pushed for laws giving workers more rather than less voice. They could have demanded limits on campaign spending.

  They did the reverse: They spent more and more of their ever-expanding wealth to alter the rules of the game to their own advantage. We are now living with the consequences. The ethos of whatever-it-takes-to-win has taken a profound toll. Much of the public no longer believes that the major institutions of America are working for the many; they are vessels for the few.

  In 1963 over 60 percent of Americans trusted government to do the right thing all or most of the time; nowadays only 16 percent do. In 1964 more than 60 percent thought government was “run for the benefit of all the people,” while just 29 percent said government was “pretty much run by a few big interests looking out for themselves.” Nowadays the numbers are almost reversed, with 76 percent believing government is run “by a few big interests” and just 19 percent saying government is run “for the benefit of all.”*

  Gallup polls of U.S. adults over the last forty years asked “how much confidence you, yourself, have in each” of the following institutions. The graphs below show the combined percentage of those answering a “great deal” or “quite a lot.”

  There has been a similar decline in trust for corporations. In the early 1960s most Americans said they had a “great deal of confidence” in the nation’s major companies, banks, and financial institutions. Now just one in ten has a great deal of confidence in them. Public trust has also plummeted for nonprofits—universities, charities, and religious institutions. Trust in the media has dropped as well (even before Donald Trump’s disparagement), as has that for the scientific community.

  The decline in trust has not been confined to the United States. A similar erosion has occurred in other advanced nations, and for a similar reason. The political and economic systems that fostered widespread prosperity and democracy in the three decades after World War II have ceased to work for most people. They became the vehicles for elites to entrench their wealth and power.

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  When the game is widely seen as rigged in favor of those at the top, others view cheating as acceptable or fear they’ll become chumps if they don’t cheat. The system becomes rife with smaller bamboozles and con jobs, frauds and swindles. Employees pilfer from employers. Middle managers skim off some of the profits and accept small bribes and kickbacks from contractors. Professional ethics wither among lawyers, doctors, accountants, even professional athletes, who feel freer to cheat. Politicians bestow favors on campaign donors.

  As a result, rules are tightened. Time-consuming screening and security checks are imposed. Additional reviews are instituted. Red tape multiplies with the profusion of finagles it seeks to contain. Contracts become longer and more convoluted. There is less willingness to put in extra effort or go the extra mile, to do what is needed but not required, to report unexpected problems or devise new solutions, to blow the whistle on illegality. The overall economy may show some growth because of all this additional spending on security personnel, screeners, accountants, auditors, lawyers, law enforcers, and monitoring equipment, but these defensive expenditures do not enhance anyone’s quality of life.

  Another consequence is that society shifts from a system of mutual obligations to a system of private deals. Rather than being founded in the common good, political and social relationships increasingly are viewed as contracts. People ask less about their obligations in various situations, more about what’s in it for them. When it’s all about making deals, one “gets ahead” by getting ahead of others. Duty is replaced by self-aggrandizement and self-promotion. Calls for sacrifice or self-denial are replaced by personal demands for better deals.

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  It is commonly supposed that contemporary Americans are no longer joiners as we once were. We “bowl alone,” as sociologist Robert Putnam has put it. Yet this fails to account for a monumental shift in whom we join and for what. We still join together, but now we join for services too expensive to purchase alone—child care, the schools our children attend, recreational facilities, and security. Rather than come together for the commo
n good, we come together to get the best possible deal. We’re clustering by income—attracting members who can contribute the most while excluding those who are more costly.

  Whether called “private” or “public,” the underlying mechanism is the same. Membership dues pay for services in exclusive private residential communities while local property taxes pay for them in exclusive public townships like Vail or Greenwich, but in neither case is the endeavor common; it is for people with the same high incomes. Public schools in exclusive communities are “public” in name only because tuition payments are disguised within high home prices, local property taxes, and parental donations. Parents are intent on policing the boundaries, lest a child whose parents haven’t paid the same price reap the same advantages as their own child. Hell hath no fury like an upscale parent who thinks another child is getting an unfair advantage by sneaking in under the fence.

  In November 2016, school officials in Orinda, California, determined that a seven-year-old named Vivian, whose single mother worked as a live-in nanny for a family in Orinda, did not “reside” in the district and should not be allowed to attend the elementary school she was already attending there. Vivian is Latina and poor, and Orinda is white and wealthy. Orinda’s schools are among the best in California—public schools that glean extra revenues from a local parcel tax (that required a two-thirds vote to pass) and parental contributions to the Educational Foundation of Orinda, which “suggests” donations of $600 per child. Harold Freiman, Orinda’s district attorney, said the district had to “preserve the resources of the district for all the students.” That is, all of Orinda’s students. Which is why the district spends some of its dollars to root out children like Vivian. (After Vivian’s story exploded in the media, Orinda’s school district backed down and informed her mother that Vivian would not be kicked out.)