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Building the Myth: Capitalism=Democracy, Part 3

George Salamon
July 26, 2017


by George Salamon

To read Part 1, click here. For Part 2, click here.

“We have to stop telling ourselves stories about American exceptionalism. We can’t keep repeating those myths that we are a land of social mobility when we’re not.” — Nancy Isenberg, author of White Trash: The 400-Year Untold History of Class in America on NPR, July 7, 2016

IF YOU MADE a list in the days before the 1992 presidential election, in which Bill Clinton (D) defeated the incumbent George H.W. Bush (R), of what ailed American society and its economy, your list would have been depressingly long. Among the issues you might have put on such a list, the following would likely have been included:

  1. Real wages falling
  2. Productivity growth down
  3. White collar jobs no longer secure
  4. U.S. having hard time competing globally
  5. Infrastructure collapsing
  6. Federal deficit soaring
  7. Health system deteriorating
  8. Schools not performing up to expectations
  9. Cities becoming unsafe
  10. Gap between rich and poor widening

And then, if you fast-forwarded to the anxious days before the 2016 election a quarter of a century later, you might have come up with a stunningly similar list. What the hell happened? Or, what we should really ask: What the hell didn’t happen that we had expected to happen?

By the mid-1970s, many Americans began to realize that a great deal had changed in their society. In the years between 1945 and 1973, the average family’s purchasing power had doubled. The percentage of Americans living in poverty dropped from one third to one seventh. But after 1973, average purchasing power didn’t grow at all, poverty rates began edging up and income inequality widened.

Big business was unable to return to its domination of the world market. By 1975, a strong sense of crisis existed among the country’s leading CEOs. They were still riding high in 1969, when the Fortune 500 industrial companies boasted of sales adding up to 46% of the GNP (Gross National Product) and employed 15 million, or 75%, of the nation’s workforce. But by 1978 it became clear that they were unable to cope with the decade’s turbulence from high inflation, technological change and global competition. Their management was too bureaucratic, too rigid and too sluggish.

At that time, really hard questions were being asked in and about our society, its economic system and the relationship between that system and our political institutions. Our political leadership decided then, starting with Jimmy Carter and continuing through the administrations of the subsequent five presidents, that they did not want to deal with them. So they threw the ball to the market. By 1980, just before Ronald Reagan was to replace Carter in the White House, deregulation of many industries was in full swing. Politicians of both parties were not eager to perform the hard work of rethinking manufacturing, repairing roads, rails and bridges, or reforming education.

Instead, they proposed that Wall Street create growth in our economy. Wall Street did, but it turned out to be fake growth. Wall Street jacked up the markets through injections of easy money, and the collapse was predictable because those market bubbles did not reflect the fundamentals of Main Street. The fundamentals remain ignored, and that is one reason the list of current social and economic ills remains so much like the older one.

The chief slogans of the two 2016 presidential candidates reflect the unwillingness of Washington to deal with the socioeconomic crisis of American society. Winner Trump offered the snake oil of “Make America Great Again,” while loser Clinton responded with the soporific of “America is Already Great.” Voters are now starting to understand why it’s called snake oil.

The road to Trump’s snake oil started to be built when snake oil solutions replaced hard and complicated, often ambiguous and unpopular, political and economic changes, adjustments, and sacrifices rejected on Main Street and in Washington. Toward the end of the 1970s, politicians and corporate leaders failed to pose and address the central question, after the abysmal long-term performance of the stewards of a huge chunk of our national wealth — the large corporations. And that question was: are the fundamental problems of big business even susceptible to managerial solutions?

During hard times in the USA, as in the Great Depression, political solutions were welcomed and they restored the balance of power between the free play of the market and politically mandated restraints to meet social needs and entitlements. After so much growth and profitability during the exceptional decades after World War II, big business feared and resented looming political interference in the dog days of the 1970s, looking at it as market-distorting and a democratic excess, insisting that a truly free and unrestrained market would deliver the expectations of an economically uneducated population -- full employment and social justice -- in the long run.

It never played out that way. In the post-Watergate and post-Vietnam late 1970s, politics and politicians were portrayed by conservatives and in the media as corrupt, irresponsible and incompetent. There was much truth in that picture. What the people were also told, as in massive advertising campaigns which Marshall McLuhan exposed in The Mechanical Bride (discussed in part 1), was that the market is clean, free and incorruptible. They were told little or nothing, despite what economists and the media knew, of the fraud, cartels, price agreements (aka price fixing) and bank rescues. The market, unlike politics, thus remained an ideal world in the minds of American citizens.

THE STAGE was thus set for the 1980 “Reagan Revolution,” a revolutionary event because political and social theory and policy, from White House to state house, was replaced by capitalism’s economic theory and practice. Political resistance was weak or non-existent. Coolidge’s relentlessly misquoted “The business of America is business” was transformed into our political and social reality, politics into a sideshow, economic equality and social justice into irritating slogans for “losers.” (What Coolidge actually said, to newspaper editors in 1925, was: “After all, the chief business of the American people is business.” But he added: “Of course, the accumulation of wealth cannot be justified as the chief end of our existence.”)

The public was led to believe, and eagerly believed, that capitalism and political democracy could thrive together if only business could discover the magic managerial formula. In book after book in the self-help section at Barnes & Noble you could find guides and inspiration for personal and professional management.

Immediately after Watergate, the two top best-sellers of non-fiction were Billy Graham’s Angels, God’s Secret Agents, followed by Robert Ringer’s Winning Through Intimidation. If divine intervention didn’t propel you to wealth and godliness, take the low road and intimidate. A year later, Wayne Dyer cautioned readers, in either approach, to watch Your Erroneous Zones, something Graham’s buddy Nixon neglected to do. By 1977 a still-hot seller clarified the essential element for success, Ringer’s Looking Out for #1. Americans, not just businessmen, read and obeyed. A year later the author saw this approach as the national way in Restoring the American Dream.

All that advice resonated, personally, professionally, politically. But it has not restored the American Dream, at least not for at least 80% of America’s people. Why not?

Jimmy Carter tried to tell the people. In his famous “malaise” speech of July 15,1979, he described a “crisis” (not “malaise”), evident in the “growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our Nation.” He predicted that this crisis would lead to a loss of faith, not just in our “government itself, but in the ability as citizens to serve as the ultimate rulers and shapers of our democracy.” Carter turned out to be a better prophet than he was a president.

A year-and-a-half later, Americans voted his challenger, Ronald Reagan (R), into the White House, choosing, as political philosopher Morris Berman put it, Reagan’s promise of “outward lavishness and inner vacuity” over Carter’s ”inner richness and outward simplicity.”

Reagan didn’t show ‘em the money. Instead, the General-Electric-educated Reagan (while he toured the country for that company’s “General Electric Theater” TV program) started them on the road to the political impotence that Carter had forecast. As the study cited in the first of these articles concluded: “...the majority of the American public actually have little influence over the policies our government adopts...” But then, who does and how did they get it?

Well, big business and big banks and leading financial institutions, the crème de la crème of FIRE, the Financial-Insurance-REal Estate Complex that is the leader and bully of our economy, do. How did that happen? And who, besides the owners and executives of FIRE, benefited?

During the constant churning in our economy during the 1970s, business leaders founded the Business Roundtable (BRT) in 1972. Ostensibly formed to “promote pro-business public policy and public policy for the general welfare,” BRT did what business magnate and financier T. Boone Pickens described in a 1987 op-ed in the New York Times: “Although they love to talk about the good of ‘society’, the Roundtable prefers to do things quietly, behind closed doors, and use political influence in Washington to shape the laws to serve their interests.”

BRT succeeded because corporate money allowed them to hire an army of lobbyists to “influence” -- a synonym for “buy” -- politicians and thus government policies, at first primarily in Washington, now in state houses as well. By 2015, corporations, industries and the BRT spent $2.6 billion annually on lobbying, more than yearly costs for maintenance of Congress: $1.18 billion for the House, $860 million for the Senate. For every $1 spent on lobbying by unions and public interest groups, large corporations and their industry associations spend $34.

Big business succeeded because it gradually changed its lobbying strategy: “...rather than trying to keep government out of its business (as they did for a long time), companies are now increasingly bringing government in as a partner, looking to see what the country can do for them.” (“How Corporate Lobbyists Conquered American Democracy,” Lee Drutman, The Atlantic, April 20, 2015.) And the country, via the politicians in the pocket of business, did a lot. Under Carter, who had begun industry deregulation, they passed the anti-union Labor Reform Act of 1977; under Reagan, the Economic Recovery Tax Act of 1981, trimming taxes paid by corporations over five years by $150 billion. They put a stop to the regulatory “binge” of the 1960s. Corporations were purring.

FEW CITIZENS UNDERSTOOD just how powerful this new industry/finance-government complex had become. Most read occasional articles about lobbyists in the corridors of Congress but, without the $500 toilet seat-like scandal in the military-industrial complex, paid little attention to how business directed politics and came to own it. Only in the past couple of years have such stories as the following made clear that the acquisition of politics by business, or capital, has rendered much of politics a front, an entertainment, a market democracy packaged as a people’s democracy:

--“By Molding Tax System, Wealthiest Save Billions; Hiring an Army of Lobbyists and Lawyers to Exploit Loopholes and Steer Laws” (New York Times, December 30, 2015)

--“How Private Equity Firms Quietly Cash In on Political Capital -- Harnessing Lobbying Power” (New York Times, July 15, 2016)

--”How G.O.P. Leaders Came to Reject Climate Science -- A Shift in Positions Is a Tale of Big Money and Democratic Hubris” (New York Times, June 4, 2017)

For all three, the headline could read: “Money Talks, Politicians Listen, Citizens Endure.” Those three stories make up a tiny tip of the iceberg on which the ship of democracy has foundered. When New York Congressman Steve Israel retired in 2016, he told the New York Times: “I always knew the system was dysfunctional. Now it is beyond broken.” (January 5, 2016)

He meant: the money was always there, making the political system dysfunctional, but now politicians who stood in its way are hard or almost impossible to find. Politicians like FDR, who said in his Inaugural Address on March 4, 1933:

“Recognizing the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit.”

He added, to get specific, that the country needed “an end to conduct in banking and business,” given the people’s trust in them, of “callous and selfish wrongdoing.”

COMPARE HIS WORDS to the widely reported words of President Obama at a meeting with 13 bankers after the financial meltdown of 2008: “You guys have an acute public relations problem that’s turning into a political problem. And I want to help. I’m not out there to go after you. I’m protecting you.” No wonder one of the bankers exulted after the meeting: “...nothing much changed.” (In Ron Suskind, Confidence Men: Wall Street, Washington, and the Education of a President, 2011)

Wall Street emerged as America’s golden calf and dance master after corporate America’s reinventions of the economy during the 1970s and 1980s had failed to restore the country as king of the emerging global market. No matter what new form of capitalism was offered as kingmaker -- technological society, post-industrial society, information economy, postmodern economy (whatever that might be) -- what worked was what Reagan’s alma mater, GE, did and what start-ups in new technologies (Apple) or in distribution systems (Amazon) did.

Between 1981 and 1983, GE’s first two years under new CEO Jack Welch, hailed by Business Week as “the gold standard against which other CEOs are measured,” the company laid off more than 70,000 people, or 20% of its workforce, and three years later another 60,000. To the people in Schenectady, New York, where 22,000 jobs disappeared, or to the folks in Evendale, Ohio, which lost 12,000, Welch was not gold standard but grim reaper -- killer of opportunity, expectations, community and often of personal health and family future. Those two cities joined a growing list of “dead cities,” with boarded-up stores and warehouses, plants and distribution facilities.

The deindustrialization of America continued throughout the 1980s, as did the deregulation started under Carter (airlines, trucking and railroads), with oil, telecommunications and electrical power under Reagan. During the Reagan decade, a third of the country’s largest manufacturing companies were acquired or merged. The churning of the 1970s continued; few market segments were steady. Investors, followed course: in 1960, institutional investors held on to stocks for an average of seven years; by 1980, it was down to two years.

And for American workers, job security was disappearing. In the following decade, during the great outsourcing adventure under President Clinton, his former Secretary of Labor, Robert Reich, admitted in 1996: ”the job security many workers experienced in the three decades after World War II is probably gone forever.”

As industrial America was being gutted, high finance ascended to the throne of the American economy. The rise of the FIRE sector of our economy was not just grounded in the decline of the manufacturing segment but rose at its expense, and simultaneously at the expense of decent wages and the money that once flowed into the manufacturing sector and its centers. The American economy, starting in the Reagan era, entered into the world of junk bonds, leveraged buyouts, megamergers and acquisitions and asset stripping.

All this took place, in the 1980s and during Clinton’s administration of the 1990s, to support windfall profits in high-interest-returning junk bonds and the enormous fees or commissions paid to oversee these transactions. No longer did Wall Street do what Main Street thought it was meant to do -- raise money to finance industry and other long-term commerce.

In his book, Gambling with the Economy (2007), author Roger Lowenstein observed: “collateral debt obligations raised nothing for nobody. They were simply a side bet—like those in a casino—that allowed speculators to increase society’s mortgage wager without financing a single house.”

The wealthy and professional elite bought into what the magic of the investment banker promised to give them. Between 1980 and 2005 in the financial segment of the economy, profits rose by 800% (not a typo), more than three times the rise in the non-financial segments. No wonder, then, that, as one observer put it, “creatures of finance, rare or never seen before, bred like rabbits.”

In the early 1990s there existed a few hundred hedge funds; by 2007 financial writers counted ten thousand. Wall Street developed a substantial “shadow banking system,” consisting of hedge funds, private equity firms, brokerages dealing in so-called “credit instruments.” This system grew to make up fifty percent of the whole financial industry, all before the crash of 2008. A lot of money was made by the few, and very quickly, fulfilling the dream of the American investor: a fast big buck.

One hedge fund manager described the euphoria experienced by well-off investors: “The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around.” And Larry Summers, Clinton’s Secretary of the Treasury, put that observation into the big picture: “Financial markets don’t just oil the wheels of economic growth, they are the wheels.”

But when it became clear that the oiling was done with mirrors, manipulation and deception, the 1% had already walked away with billions and the professional elite and politicians serving them with millions. For the rest there was monstrous damage. Between 2008 and 2011 three million people lost their homes. By 2011 eleven million homeowners were financially “underwater.” Thirteen trillion dollars in houses and stocks were lost. One in every seven Americans was being hunted by creditors. Family income, around that time, was lower than it had been in the late 1990s. The recovery came only to a few. The “bankers” responsible went unpunished. A couple of Wall Street’s big banks paid millions in fines, peanuts to institutions with assets in the hundreds of billions.

The recovery of American manufacturing now looms as elusive as the American Dream of yore to millions of middle-class and working-class families. The social damage has barely been assessed. Harvard historian Lawrence Katz compared our post-crash society to a condominium: the couple of penthouses on the top floor are getting fancier and fancier. There are many vacancies in the units of the middle floors. And the apartments on the lower floors are getting more and more crowded.

And in those apartments the American Dream is a mere shadow of its former self. For Leon, a Colombian immigrant living in a 300-square-foot apartment with five others in New York City it is “a feasible life, a life in which it is easier to be human.” (“When the Kitchen Is Also a Bedroom: Overcrowding Worsens in New York,” New York Times, February 29, 2016).

LOW-WAGE LIFE in America is pandemic. One half of all jobs in America pay less annually than $34,000; one quarter less than the $22,000 that sits on the poverty line for a family of four. And 20.5 million people earn under $9,500 a year. The Center on Poverty, Inequality and Public Policy at Georgetown University estimated that 103 million Americans, or one third of the population, qualify as low-wage earners. We could, as a country, be heading to where we belong, as Gore Vidal once quipped, to a spot “between Argentina and Brazil.”

Is that all the fault of capitalism in its role as our economic system? I’d be inclined to assign more blame to our political system and our leading figures in it from both parties. They abandoned government’s role to act in the people’s interest in preserving the social contract they were meant to honor. They were, as FDR understood, meant to balance resources and their distribution between the social needs of citizens and communities with the resources coming from and allocated to the play of free markets. Grant to commerce what is commerce’s, but they handed the whole politics schmear to capital, took capital’s money and turned themselves into B-list celebrities.

George Trow saw it coming. Watching Faye Emerson host of one of the first TV talk shows, he snapped: “The Germans lost World War II. Television won.” Entertainment won over politics, so politicians, starting with entertainer-politician Reagan, switched suits with the lobbyists, and while the lobbyists attended to the serious business of legislating, they rode and fell off bicycles in the political circus.

Leaving democracy in the hands of capital may turn out badly. If the capitalist market economy cannot even produce some measure of equitable growth for Americans, will anyone even propose that democracy and capitalism must part ways? Or, will our capitalist-dominated ruling class establish a form of social dictatorship in which the market economy is protected from democratic correction? The Trump administration of billionaires acts as if it might be heading towards that solution, but that’s just “as if” for now.

But one thing that can be done to prevent it: we can expose the myths about capitalism and democracy that were widely accepted in the days after World War II. Just informing the people of what the rule of capitalism has done with politics and to our middle class and working class might go quite a way in showing the public that they swallowed such myths as:

  • Capitalism is synonymous with and good for democracy
  • When capitalism makes the rich richer, the rest get richer, too
  • Capitalism is good for human development

Quite a few folks might at least be willing to admit by now: “Not necessarily, not always.” Quite a few, by now, might say: “No way, at least not for a long time now.”

But before we ask, do we have answers?