Saving Capitalism

by Robert B. Reich

  The increasing dominance of money from the superwealthy would be less significant if their concerns and attitudes paralleled the concerns and attitudes of most other Americans with the same party affiliations. Under these circumstances, the power of Democratic billionaires presumably would countervail the power of Republican billionaires. But in fact the rich have quite different priorities from average Americans. Dueling billionaires are no substitute for countervailing power.

  To take but one example, according to a 2014 Pew Research poll, a large majority of Americans, regardless of party, were worried about jobs. Yet when political scientists Benjamin Page and Larry Bartels surveyed Chicagoans with an average net worth of $14 million, they found that their biggest concerns were either the budget deficit or excessive government spending, ranking these as priorities three times as often as they did unemployment. And—no surprise—these wealthy individuals were also far less willing than other Americans to curb deficits by raising taxes on high-income people and more willing to cut Social Security and Medicare. They also opposed initiatives most other Americans favored, such as increasing spending on schools and raising the minimum wage.

  The other thing distinguishing Page and Bartels’s wealthy respondents from the rest of America was their political influence. In the previous twelve months, two-thirds of them had contributed money (averaging $4,633) to political campaigns or organizations. A fifth of them had even bundled contributions from others. That money bought the kind of political access most Americans only dream of. About half of these wealthy people had recently initiated contact with a U.S. senator or representative, and nearly half (44 percent) of those contacts concerned matters of relatively narrow economic self-interest rather than broader national concerns. This is just the wealthy of one city—Chicago. Multiply it across the entire United States and you begin to see the larger picture of whom our elected representatives are listening to, and why. Nor does the survey include the institutionalized wealth and economic clout of Wall Street and large corporations. Multiply the multiplier.

  If wealth and income were not concentrated in the hands of a few, and countervailing power had not withered, the Supreme Court’s decisions in Citizens United v. Federal Election Commission (2010) and McCutcheon v. Federal Election Commission (2014), both supported by the five Republican appointees to the court, would not be nearly as worrisome. Citizens United declared that corporations are people under the First Amendment, entitled to participate fully in elections through financial contributions. A subsequent federal appeals court ruling, SpeechNow.org v. Federal Election Commission, which explicitly relied on Citizens United as precedent, allowed corporations and individuals to make unlimited contributions to independent expenditure committees, better known as “super PACs.” McCutcheon eliminated the $123,200 cap on the amount an individual can contribute to federal candidates and political parties, allowed a presidential candidate to solicit as much as $1.2 million per donor in a two-year election cycle, and permitted a House leader to raise as much as $2.3 million per donor in a two-year election cycle.

  By effectively eviscerating campaign finance laws, the Supreme Court accelerated the vicious cycle to which I have referred, in which large corporations and wealthy individuals pay to shape the rules of the game to their advantage, thereby becoming even richer and having even greater influence over the rules. Even worse, much of this is in secret. In the 2014 midterm election, more than half the advertising aired by outside groups came from organizations that disclosed little or nothing about their donors. Some of these organizations were established specifically to shield the identities of the wealthy individuals and corporations that contributed to them. These groups financed more political advertising than did super PACs.

  Economic and political power have thereby been compounded. In 1990, the Supreme Court sensibly viewed corruption as including “the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.” Twenty years later, the court defined corruption far more narrowly, to mean the exchange of specific money for specific votes—outright bribery. Writing for a majority of the court, Justice Anthony Kennedy simply declared that “independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.”

  Small wonder that confidence in political institutions and actors continues to wane. In 1964, just 29 percent of voters believed that government was “run by a few big interests looking out for themselves.” But by 2013, that opinion predominated, with 79 percent of Americans agreeing.

  The erosion in public trust has been particularly steep in more recent years. In 2006, 59 percent of Americans felt that government corruption was widespread; by 2013, 79 percent of Americans felt that way. In Rasmussen polls undertaken in the fall of 2014, 63 percent thought most members of Congress were willing to sell their vote for either cash or a campaign contribution, and 59 percent thought it likely their own representative already had. Sixty-six percent believed most members of Congress didn’t care what their constituents thought, and 51 percent said even their own representative did not care what they thought.

  A large portion of the American public no longer even bothers voting. The largest political party in America is neither the Republican Party nor the Democratic Party; it’s the party of nonvoters. Only 58.2 percent of eligible voters cast their ballots in the 2012 presidential election. Turnout in midterm elections is always lower, but in the midterm elections of 2014 a measly 33.2 percent of the voting-age population turned out—the lowest percentage since the midterm elections of 1942, which, not incidentally, occurred in the middle of World War II. Moreover, those who do vote have tended to express their discontent by careening from one wave election to another, each one replacing the dominant or controlling party. Barack Obama and the Democrats were overwhelmingly elected in 2008, only to have the tide turn abruptly in the opposite direction and Republicans take over the House in 2010 and the Senate in 2014.

  Other nations, facing a similar divergence between the economic gains of a controlling establishment and the economic precariousness of everyone else, have shown analogous signs of discontent. By 2014, separatist movements were breaking out in many of the world’s major economies. In 2014, Scotland came close to seceding from Great Britain, and Catalonians in a straw poll showed a desire to separate from Spain. Earlier that year, in European parliamentary elections, ultranationalist parties gained ground. National movements against global elites and international institutions also surged in Russia, Japan, India, and China.

  In the years leading up to the 2016 presidential election in the United States, a perfect storm of a record concentration of income and wealth at the top combined with unprecedented amounts of campaign spending and influence peddling by corporations, Wall Street, and wealthy individuals—much of it in secret—has taken a toll. Countervailing power has all but disappeared in America. Not surprisingly, most Americans feel powerless, disdain politics and politicians, and express cynicism about the possibilities for meaningful change. But powerlessness is also a self-fulfilling prophecy. The only way back toward a democracy and economy that work for the majority is for the majority to become politically active once again, establishing a new countervailing power. The moneyed interests will continue to do what they do best—make money. The rest of us must do what we do best—use our voice, our vigor, and our votes to wrest back economic and political control.

  19

  Restoring Countervailing Power

  If we are able to rid ourselves of the notions that the “free market” exists separately from government, and that people earn what they are worth to society, it will be possible for Americans to view more clearly the underlying choice: not more or less government, but a government responsive either to the demands of a wealthy minority becoming ever wealthier or to the needs of a majority that is becomi
ng relatively poorer and less economically secure. We could then move beyond the ideological brawls that have consumed so much of the political right and left and attend instead to the central challenge of our time—restoring countervailing power to our political-economic system.

  Moneyed interests do not want the curtain of the “free market” lifted because that would expose their influence over the rules of the capitalist game and reveal potential alliances that could countervail that power. They would prefer the bottom 90 percent continue to preoccupy themselves with tendentious battles over government’s size (or that it war over noneconomic issues such as same-sex marriage, abortion, guns, race, and religion) than find common economic cause.

  It is therefore necessary to lift the curtain. When a majority of Americans are becoming poorer while a small and privileged minority is becoming richer than ever—and when the rules of the game redistribute economic gains upward—there exist possibilities for new alliances, and a new politics. Some who are now typically on the right of the political spectrum—individual investors, family businesses, entrepreneurs, the inhabitants of rural communities, and the white working class, for example—may discover they have much in common with working women, minorities, and urban professionals, all typically on the left. Among other things, all are paying more for pharmaceuticals, broadband connections, food, credit card debt, and health insurance than they would be were the rules of the market not shaped by big corporations.

  Many are also struggling with a financial system whose rules are crafted and enforced by the biggest banks on Wall Street, which have grown bigger after the bailout: small-business owners, who are paying substantially higher interest rates on loans, if they can get loans at all; former students buried under student loan debts; homeowners who owe more on their mortgages than their homes are worth. Others are up against an intellectual property system whose entry barriers are impossibly high: individual inventors trying to bring their ideas to life, lone entrepreneurs trying to start companies, creative artists seeking audiences for their works, consumers merely wanting to share designs or images. Or they are paying through the nose for access to platforms and networks that are costly solely because their corporate owners have created a standard that everyone has to use because so many others are using it—and the corporate owners have been able to hold antitrust enforcers at bay.

  Franchisees find themselves trapped in contracts that siphon off almost all their profits, don’t allow them access to courts, and can be unilaterally terminated by big franchisors at any time. They are in a similar position to many hourly workers trapped in employment contracts that require them to work long hours or irregular hours at low pay, impose mandatory arbitration, and can be unilaterally terminated by their employers at any time. Likewise, small creditors, union members, individual shareholders, family farmers, and small contractors are on the same side when a big corporation that owes them money stonewalls them. And they’re in a similar fix when the corporation enters into bankruptcy and they find themselves assigned a lower priority than large creditors because that is how the banks and big creditors have organized the rules.

  Consider also the potential linkages between individual investors, salaried employees, and hourly workers, all of whom receive smaller and smaller portions of the pie as the portions going to CEOs, other top executives, and portfolio and hedge-fund managers continue to grow. This is because the latter have access to inside information and the power to set the rules for how and when such information is distributed.

  In all these ways, the bottom 90 percent of Americans—regardless of whether they are owners of small businesses or working poor, entrepreneurs or student debtors, small investors or homeowners, white or black or Latino, men or women—have far more in common, economically, than they do with the top executives of large corporations, the Wall Street crowd, or America’s wealthy. The bottom 90 percent are losing ground in large part because of upward pre-distributions embedded inside “free market” rules over which those at the top have great influence. If the smaller players understood this dynamic, presumably they would seek to gain greater influence by allying themselves. This alliance, or set of alliances, would form the new countervailing power.

  It is impossible to predict how or when this might occur, but it is already possible to discern the bare beginnings of a movement. By 2014, antipathy toward Wall Street and large corporations was at record levels. In a CNBC/Burson-Marsteller international survey, released in September 2014, more than half (51 percent) of the respondents agreed with the statement “Strong and influential corporations are bad, even if they promote innovation and growth.” Meanwhile, a civil war has raged inside the Republican Party between anti-establishment Republicans who eschew large corporations and Wall Street and establishment Republicans closely tied to them. We “cannot be the party of fat cats, rich people, and Wall Street,” said Republican senator Rand Paul, in seeking to position himself for a 2016 presidential run. Republican senator Ted Cruz, another presidential aspirant, has accused the “rich and powerful, those who walk the corridors of power,” of “getting fat and happy.” Republican David Brat, who, in June 2014, beat House majority leader Eric Cantor in the Republican primary in Virginia’s Seventh Congressional District, accused Cantor of “crony capitalism” and charged big corporations with wanting only “cheap labor that’s going to lower wages for everybody else.”

  The sincerity behind these statements might be questioned, but sincerity is not the point. Such statements are uttered because those who make them know they will be received enthusiastically by the voters they are courting. Pollsters and campaign consultants who advise Republican candidates have picked up on an indelible strain of voter anger toward the “rich and powerful” who are “getting fat and happy” and “going to lower wages for everybody else.” Polls show, for example, support among self-described Republicans as well as Democrats for cutting the biggest Wall Street banks down to a size where they are no longer too big to fail. In 2014, Republican representative David Camp, House Ways and Means Committee chair, proposed a quarterly tax on the assets of the biggest Wall Street banks in order to give them an incentive to trim down. “There is nothing conservative about bailing out Wall Street,” said Rand Paul.

  Similarly, rank-and-file Republicans as well as Democrats are in favor of resurrecting the Glass-Steagall Act, which used to separate commercial and investment banking until it was repealed in 1999 by a coalition of congressional Republicans and the Clinton White House. In 2013, when Democratic senator Elizabeth Warren introduced legislation to re-create such an act, Republican senator John McCain co-sponsored it. Tea Party Republicans expressed strong support for the measure, even criticizing establishment Republicans for not getting more fully behind it. “The establishment political class would never admit that their financial donors and patrons must hinder their unbridled trading strategies,” wrote the Tea Party Tribune. A similar alliance occurred briefly at the end of 2014, brought together by Congress’s omnibus spending bill, which contained a provision rolling back the Dodd-Frank financial reform legislation and allowing the big banks to once again gamble with commercial deposits. Several progressive Democratic senators, including Elizabeth Warren, joined Tea Party Republican senator David Vitter of Louisiana in opposing the rollback.

  There is also growing bipartisan support for ending “corporate welfare,” including subsidies to Big Oil, Big Agribusiness, Big Pharma, Wall Street, and the Export-Import Bank. Progressives on the left have long been urging this, but by 2014 many on the right were joining in. David Camp’s proposed tax reforms would have eliminated dozens of targeted tax breaks. Ted Cruz urged that Congress “eliminate corporate welfare and crony capitalism.” Finally, as I have noted, grassroots antipathy has grown toward trade agreements crafted by big corporations. In the 1990s, Republicans joined with Democrats to enact the North American Free Trade Agreement, join the World Trade Organization, and support China’s membership in the WTO. But after the turn of the
new century, rank-and-file Republicans as well as Democrats turned against such agreements. “The Tea Party movement does not support the Trans-Pacific Partnership,” stated Judson Phillips, president of Tea Party Nation. “Special interests and big corporations are being given a seat at the table,” while average Americans are excluded.

  It is likely that in coming years the major fault line in American politics will shift from Democrat versus Republican to anti-establishment versus establishment—that is, to the middle class, working class, and poor who see the game as rigged versus the executives of large corporations, the inhabitants of Wall Street, and the billionaires who do the rigging. By late 2014, big business and Wall Street Republicans were already signaling their preference for a Democratic establishment candidate over a Republican anti-establishment one. Dozens of major GOP donors, Wall Street Republicans, and corporate lobbyists told the Washington journal Politico that if the Republican Party did not put forward a candidate supportive of big business and Wall Street—Jeb Bush, Chris Christie, or Mitt Romney—they would support Hillary Clinton. “The darkest secret in the big money world of the Republican coastal elite is that the most palatable alternative to a nominee such as Sen. Ted Cruz of Texas or Sen. Rand Paul of Kentucky would be Clinton,” concluded Politico’s analyst. A top Republican-leaning Wall Street lawyer told the journal, “If it’s Rand Paul or Ted Cruz versus someone like Elizabeth Warren that would be everybody’s worst nightmare.”

  Everybody on Wall Street and in corporate suites, that is. And even if the “nightmare” did not occur in 2016, some such nightmare is likely within the following decade if the economic and political trend we have been examining does not change. There is simply no way the American economy can be sustained if the richest 10 percent continue to reap all the economic gains while the poorest 90 percent grow poorer; there is no way American democracy can be maintained if the voices of the vast majority continue to be ignored.