After World War II, political scientists sought to explain the relative stability and responsiveness of American democracy. They hypothesized that even though the voices of individual Americans counted for little, most people belonged to a variety of interest groups and membership organizations—clubs, associations, political parties, and trade unions—to which politicians were responsive. “Interest-group pluralism,” as it was then called, did not conform to the old textbook models of direct or even representative democracy. But it was responsive to the needs and aspirations of most citizens. In the view of these scholars, democratic governance depended on ongoing negotiations among such competing but intertwined groups. “The principal balancing force in the politics of a multi-group society such as the United States,” wrote Columbia University political scientist David Truman in The Governmental Process, an influential 1951 treatise, consisted of “overlapping membership among organized interest groups.” According to Truman, most Americans belonged to several such groups, which in turn conveyed their members’ preferences to political leaders. These overlapping groups stabilized democracy while allowing for peaceful change. Yale political scientist Robert A. Dahl, in A Preface to Democratic Theory, published in 1956, noted that democracy had succeeded in America while failing elsewhere because it embraced a wide number of such groups, each of which was separately a political minority. Because each of them had to form coalitions with others in order to get anything done, the overall system remained flexible and responsive. The result was neither rule by majority nor by minority but rule by a “majority of minorities.”
Research showed that elected leaders paid attention to local elites—small businesses that constituted the local chamber of commerce, for example—and to national organizations whose members were active within local and state chapters, such as the American Legion, the Farm Bureau, and local affiliates of national labor unions. Political parties were likewise layered from the bottom up, based on strong local and state organizations. Communications flowed mainly upward. The American Legion, for example, whose divisions existed in every state, with chapters in every major city, was largely responsible for passage of the GI Bill of 1944, which guaranteed every returning veteran up to four years of postsecondary school education, subsidized home mortgages, and business loans. The Legion was successful precisely because its divisions and chapters mobilized tens of thousands of members to pressure their own senators and representatives.
Even more significant was the federal government’s success, beginning with the New Deal and extending through the first decades after World War II, in creating new centers of economic power that offset the power of the giant corporations and Wall Street. As I have noted, unions pushed for and won legislation in 1935 that legitimized collective bargaining, and then, in subsequent decades, built economic and political strength on that foundation. Unorganized workers gained economic power in the form of minimum-wage legislation. Small farmers got federal price supports, as well as a voice in setting agricultural policy. Farm cooperatives, like unions, won exemption from federal antitrust laws. Small retailers obtained protection against retail chains through state “fair trade” laws, requiring wholesalers to charge all retailers the same price and preventing chains from cutting prices. At the same time, the retail chains were allowed to combine into national organizations in order to counter the significant market power of large manufacturers. Small investors gained protection under the Securities Exchange Act against the power of big investors and top corporate executives. Small banks were protected against Wall Street by regulations that barred interstate banking and that separated commercial from investment banking. And so it went, across the economy.
Economist John Kenneth Galbraith approvingly dubbed all this “countervailing power,” seeing in these new centers of influence the means by which the benefits of economic growth were widely spread. “In fact, the support of countervailing power has become in the last two decades perhaps the major peacetime function of the federal government,” he wrote in 1952. Countervailing power across the economy had created a counterweight to the centralized power of big corporations and Wall Street. “Given the existence of private market power in the economy,” Galbraith continued, “the growth of countervailing power strengthens the capacity of the economy for autonomous self-regulation and thereby lessens the amount of over-all government control or planning that is required or sought.” These alternative power centers ensured that America’s vast middle and working classes received a significant share of the gains from economic growth.
Starting in the 1980s, however, something changed profoundly. It wasn’t just that big corporations, Wall Street, and wealthy individuals were becoming more politically potent, as Gilens and Page’s research clearly shows. It was also that the centers of countervailing economic power were beginning to wither. Just as the large moneyed interests gained increasing dominance over the rules by which the market runs, these countervailing centers of economic power deteriorated—as did their voices in helping set the rules.
Grassroots membership organizations such as the American Legion shrank, largely because Americans had less time for them. As wages stagnated, most people had to devote more time to work in order to make ends meet. That included the time of wives and mothers who began streaming into the paid workforce in the late 1970s to prop up family incomes threatened by the new fragility of male wages. As sociologist Robert Putnam has documented, Americans stopped being a nation of “joiners.” By the 1980s, the vast mosaic of organizations that had given force and meaning to American pluralism was coming apart. By the first decades of the twenty-first century, many of these organizations had all but disappeared, as had their collective voices. They have been replaced by national advocacy organizations, typically headquartered in Washington. “Membership” no longer means active engagement at the local and state levels, with affiliates and chapters communicating their members’ preferences upward to national leaders. It means little more than an individual’s willingness to send money in response to mass solicitations flowing downward.
At the same time, as I have discussed, union membership began dropping, as corporations starting sending jobs abroad and threatened to send more unless unionized workers agreed to wage and benefit concessions, moved to nonunion “right-to-work” states, and fought attempts of nonunionized workers to form unions. President Ronald Reagan helped legitimize these moves when he fired striking air traffic controllers, but competitive pressures were already pushing CEOs in this direction. Subsequently, as I have shown, the unfriendly takeovers and leveraged buyouts of the 1980s put ever-greater pressure on top executives to cut labor costs by fighting unions. The decline of unions not only reduced the bargaining power of average workers to obtain a share of corporate profits. It also reduced the political power of average working people to negotiate laws and rules that would help maintain their incomes—labor laws that preserved and enlarged upon their contractual rights to bargain collectively, trade agreements that protected their jobs (or adequately compensated them for jobs lost), corporate laws that gave them something of a voice in corporate governance, bankruptcy laws that gave union agreements a high priority.
Unions have continued to lobby and make campaign contributions, but their political and economic clout has waned, especially when compared with that of big corporations, trade associations, Wall Street, and wealthy individuals. In the 2012 elections, for example, the Koch brothers’ political network alone spent more than $400 million. This sum was more than twice the political spending of the ten largest labor unions put together. That same year corporations spent fifty-six dollars on lobbying for every dollar spent by labor unions. Democratic candidates no longer rely nearly as much on labor unions to finance their campaigns as they do on wealthy individuals. In 2012, the richest 0.01 percent of households gave Democratic candidates more than four times what unions contributed to their campaigns. The loss of American workers’ collective economic power has thereby compounded the l
oss of their political power, which in turn has accelerated the loss of their economic power.
Other centers of countervailing power—small retail businesses, farm cooperatives, and local and regional banks—have also lost ground. Many small retailers went under due to repeals of state “fair trade” laws and court decisions finding resale price maintenance to violate antitrust laws. The large chains that spearheaded such moves argued that consumers would get better deals as a result. But the moves also opened the way to giant big-box retailers, such as Walmart, which siphoned away so much business from the Main Streets of America that many became ghost towns. The changes also led to the closings of millions of locally owned businesses that had provided their communities with diverse products and services, some produced locally or regionally, and many jobs. Likewise, the deregulation of financial markets—demanded by Wall Street—allowed the Street’s biggest banks to become far bigger, taking over markets that state and local banks had previously served and thereby cutting off financing for many small local and regional enterprises.
Meanwhile, political parties changed their orientation. As income and wealth began concentrating at the top and as the costs of political campaigns escalated, parties that had been centered on state and local organizations that channeled the views of members upward began to morph into giant top-down fund-raising machines. The Republican Party was already well attuned to the preferences of large corporations, Wall Street, and other wealthy patrons long before it succumbed to escalating demands for campaign contributions, but in recent years the Democratic Party has become almost as responsive to these same moneyed interests. “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 in the 1980s, 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, but the presumed dependence of big corporations on the Democratic Congress and the consequential bipartisan generosity of such firms proved a Faustian bargain. Democratic dependence on big corporations became evident when, months before their 1994 trouncing, many congressional Democrats voted against Bill Clinton’s health care plan because their corporate sponsors opposed it.
While nonbusiness causes, such as the rights of minorities and women, continue to have better odds of success under Democratic administrations and Democratic Congresses than under Republican ones, business interests have done well under both. For example, in his first two years in office, when Democrats controlled both houses of Congress, Bill Clinton pushed for enactment of the North American Free Trade Agreement, followed by the establishment of the World Trade Organization—two items of central importance to big business. He also committed himself to reducing the federal budget deficit, as Wall Street’s bond traders insisted upon. While the Democratic Party of Franklin D. Roosevelt’s New Deal had devised financial regulations to constrain Wall Street, Clinton and his allies in Congress eliminated many of those same restraints. In 1994, Democrats supported the Interstate Banking and Branching Efficiency Act, which eliminated restrictions on interstate banking; in 1999, Clinton pushed for repeal of the 1933 Glass-Steagall Act, which had separated commercial from investment banking; and in 2000, he went along with the Commodity Futures Modernization Act, preventing the Commodity Futures Trading Commission from regulating most over-the-counter derivative contracts, including credit default swaps. Finally, as I have noted, President Clinton moderated his 1992 campaign promise to prevent corporations from deducting executive pay in excess of $1 million and allowed the deduction as long as such pay was linked to “performance” (which came to mean stock options and awards). During the Clinton years, corporate profits exploded, the stock market surged, and CEO compensation went into the stratosphere.
Likewise, Barack Obama—although often criticized by the business community for being anti-business—in fact presided over one of the most pro-business administrations in American history. Obama pumped hundreds of billions of dollars into Wall Street in order to save the Street (and the U.S. economy) from imploding after the crash of 2008, created a stimulus program that avoided another Great Depression, and enacted a broad-based health care law that enriched insurance and pharmaceutical companies. Under Obama’s watch the stock market made up for all the losses it suffered in the Great Recession and reached new record highs, and, as I have noted, corporate profits rose to the highest portion of the national economy since 1929.
The career paths of recent Democratic officials before and after holding office confirmed their close ties to business and Wall Street. Bill Clinton’s Treasury secretary, Robert Rubin, who chaired Goldman Sachs before going to Washington, upon leaving became chairman of the executive committee of Citigroup. Tim Geithner, Barack Obama’s Treasury secretary, who had been handpicked by Rubin to head the New York Fed before arriving in Washington, returned to Wall Street as president of the private-equity firm Warburg Pincus. Jack Lew, who replaced Geithner as Treasury secretary, had been chief operating officer of Citigroup’s Alternative Investments division, dedicated to proprietary trading, before joining the Obama administration. Peter Orszag, Obama’s director of the Office of Management and Budget, left the administration to become Citigroup’s vice chairman of Global Banking and chairman of the Financial Strategy and Solutions division. Perhaps it was not entirely coincidental that the Obama administration never put tough conditions on banks receiving bailout money, never prosecuted a single top Wall Street executive for the excesses that led to the near meltdown, and even refused to support a small tax on financial transactions that would have generated tens of billions of dollars in annual revenues and discouraged program trading.
The pertinent comparison is not between the career paths of Democratic and Republican officials but between people who served in Washington decades before the big money began pouring in and those who served after the deluge began. In the 1970s, for example, only about 3 percent of retiring members of Congress went on to become Washington lobbyists. In recent years, fully half of all retiring senators and 42 percent of retiring representatives have turned to lobbying, regardless of party affiliation. This is not because more recent retirees have had fewer qualms than their predecessors about making money off their contacts and experience gained during government service, but because the financial rewards from corporate lobbying have grown considerably larger.
Wall Street has gained influence among Washington Democrats as well as Republicans as it has poured more money into campaigns. As Connecticut Democratic senator Chris Murphy admitted to an audience at Yale in 2013, when complaining about the necessity of fund-raising, “You spend a lot of time on the phone with people who work in the financial markets. And so you’re hearing a lot about problems that bankers have and not a lot of problems that people who work at the mill in Thomaston, Connecticut, have.”
Wealthy individuals, meanwhile, have accounted for a growing share of contributions to candidates from both parties. In fact, starting in 1980, the amounts of political contributions by the richest one-hundredth of 1 percent rose even faster than their incomes. In 1980, the top 0.01 percent accounted for 10 percent of total campaign contributions. By 2012, while the richest 0.01 percent of households received about 5 percent of the nation’s total income, their campaign donations soared to 40 percent of all contributions to federal elections (see figure 9).
FIGURE 9. CONCENTRATION OF INCOME AND CAMPAIGN CONTRIBUTIONS IN THE TOP 0.01 PERCENT OF HOUSEHOLDS AND VOTING-AGE POPULATION
Notes: The dark line tracks the share of campaign contributions in all federal elections donated by the top 0.01 percent of the voting-age population. The number of donors included in the 0.01 percent share of voting-age population grew from 16,444 in 1980 to 24,092 in 2012. During the same period, the minimum amount given to be included in the top 0.01 percent grew in real terms from $5,616 to $25,000 (in 2012 dollars). The shad
ed line tracks the share of total income (including capital gains) received by the top 0.01 percent of households. The figure includes individual contributions to super PACs and 527 organizations but excludes contributions to nondisclosing 501(c)4 organizations, which are recorded to have spent approximately $143 million in 2010 and $318 million in 2012, much of which was raised from wealthy individuals. Were it possible to include contributions to nondisclosing 501(c)4s, the trend line would likely be 1–2 percentage points higher in 2010 and 2012.
Source: A. Bonica, N. McCarty, K. Poole, and H. Rosenthal, “Why Hasn’t Democracy Slowed Rising Inequality?” Journal of Economic Perspectives 27, no. 3 (Summer 2013): 112; drawn from income data from Piketty and Saez (2013).
In 2012, the two biggest donors were Sheldon and Miriam Adelson, who contributed $56.8 million and $46.6 million, respectively. But the Adelsons were only the tip of a vast iceberg of contributions from the überwealthy. Of the Forbes list of four hundred richest Americans that year, fully 388 made political contributions. They accounted for 40 of the 155 contributions of $1 million or more. Out of the 4,493 board members and CEOs of Fortune 500 corporations, more than four out of five contributed (many of the noncontributors were foreign nationals who were prohibited from giving). In the run-up to the 2016 elections, billionaire brothers Charles and David Koch joined forces with their wealthy friends to assemble a war chest of nearly $1 billion—allowing their political organization to operate on the same scale as the Republican and Democratic parties.
Saving Capitalism Page 18