Take Me to Your Leader: The Rot of the American
Ruling Class
By Doug Henwood
June 15, 2021 "Information
Clearing House" - - "Jacobin"
- Back in the George W. Bush years, I began
thinking the US ruling class had entered a serious
phase of rot. After a round of tax cuts skewed
toward the very rich, Bush and his cronies launched
a horribly destructive and expensive war on Iraq
that greatly damaged the reputation and finances of
the United States on its own imperial terms.
The president and his cronies seemed reckless,
vain, and out of control. Bush adviser Karl Rove
dismissed the critiques of “the reality-based
community,” with its conclusions drawn from “the
judicious study of discernible reality.” Instead,
Rove asserted, “We’re an empire now, and when we
act, we create our own reality.” One waited in vain
for the grown-ups to appear on the scene and right
the imperial ship, but, if they existed at all, they
were too busy celebrating their tax cuts and pumping
up the housing bubble to bother.
After that bubble burst, creating the financial
crisis and the Great Recession, the smooth and
cerebral Barack Obama seemed like a stabilizing
force. That’s not what many of his more fervent
supporters expected of his presidency; they were
hoping for a more peaceful and egalitarian world,
but they got neither. Facing the greatest economic
crisis since the 1930s, one like that depression
driven in large part by Wall Street, Obama was not
about to do anything on the scale of the New Deal.
There was the early and underpowered stimulus
package, but beyond that, there would be no major
reregulation of finance and no programs of public
investment, income security, or redistribution.
Unlike the Franklin Roosevelt administration, or
even John F. Kennedy’s, for that matter, there was
little political ferment around the White House,
even though the Democratic policy elites came out of
the same Ivy League circles as their ancestors.
The disappointments of the Obama years prepared
the way for Donald Trump. Throughout the 2016
presidential campaign, many people (including
sometimes me) thought the establishment would
somehow keep Trump from winning. Hillary Clinton,
the product of Wellesley College and Yale Law
School, would stop the vulgarian who cheated his way
into Wharton from entering the Oval Office. But her
brand of status-quo politics failed to inspire.
Trump was not the bourgeoisie’s favorite
candidate. He had support from provincial plutocrats
but not from the executive suite at Goldman Sachs.
When he took office and immediately began
ransacking, one wondered if the deep state would
rein him in. Maybe the CIA would even arrange a
malfunction in Air Force One’s fuel line. But it was
not to be. Tax cuts and deregulation made capital
forget all their reservations about Trump, and the
stock market made 128 fresh daily highs — on
average, one every six days — between inauguration
and the onset of the coronavirus crisis. It took his
encouragement of an attack on the US Capitol for the
big bourgeoisie to complain openly — 99 percent of
the way through his time in office.
Fish rots from the head, they say, and it’s
tempting to think the same about US society. We’ve
always had a brutal ruling class — more brutal at
certain times (the years of slavery and Jim Crow)
than others (the New Deal). But despite the
brutality, there was usually a great economic and
cultural dynamism. That now seems long past, and I’m
not just talking about the era of Trump and the
coronavirus. Something has gone badly wrong at the
top of this society, and all of us are suffering for
it.
One doesn’t want to idealize the ruling classes
of the past. For all of history, their wealth and
status have depended on exploiting those below
them — and they’ve never shied away from extreme
measures if they feel that those things are
threatened. But the present configuration of the
American ruling class is having a hard time
performing the tasks it’s supposed to in order to
keep the capitalist machine running. It’s not
investing, and it’s allowing the basic institutions
of society — notably the state but also instruments
of cultural reproduction like universities — to
decay.
Capitalists have long been driven by
shortsightedness and greed. But it feels like we’ve
entered what Christian Parenti calls the necrotic
phase of American capitalism.
Lest anyone misunderstand, this isn’t an argument
for a better elite or a “true” meritocracy; it’s
ultimately an argument for a different society, one
not dependent on the rule of plutocrats and their
hired hands.
A core concept of Marxism is class struggle, but
the tradition exhibits a strange dearth of
investigation of the ruling class. When I first
started getting interested in elite studies, I asked
the Marxist political scientist Bertell Ollman whose
writing he liked on the issue. He thought a moment
and said, “Marxists don’t write about the ruling
class.” When I asked why not, he said, “They think
it’s obvious.”
You could say the ruling class is the capitalist
class, of course, but what does that mean? CEOs of
Fortune 500 companies? Their shareholders, to whom
they allegedly answer? What about the owner of a
chain of franchised auto parts stores in the
Midwest? The owner may be able to get his
congressperson on the phone — a senator might be
harder — to get a tax break slipped unobtrusively
into a larger bill, but what influence does he have
over larger state policy? Are car dealers part of
the ruling class? If so, what about new versus used?
And what about someone like Henry Kissinger, a man
who started as a clever functionary and ended up
shaping US foreign policy in much of the 1970s, and
who still has an influence over how diplomats and
politicians think? How about less grand politicians
and high government officials? Are they employees of
the ruling class or its partners — or shapers, even?
It’s not at all obvious.
Before proceeding, I should say I’m not taking
seriously the idea that there is no ruling class —
that there are voters in a democracy who may be
divided into interest groups but none are dominant.
Yes, the constrained democracy we live under is a
lot better than a dictatorship would be; elections
do act as a limit on elite power. But that’s a long
way from the popular self-government socialists
dream of. Nor am I taking seriously conceptions of a
ruling class that center on PC-obsessed,
organic-food-eating urban elites. That set has some
influence, especially among the liberal wing of the
consciousness industry, but it doesn’t shape the
political economy.
I’d say the ruling class consists of a
politically engaged capitalist class, operating
through lobbying groups, financial support for
politicians, think tanks, and publicity, that meshes
with a senior political class that directs the
machinery of the state. (You could say something
similar about regional, state, and local capitalists
and the relevant machinery.) But we shouldn’t
underestimate the importance of the political branch
of the ruling class in shaping the thinking of the
capitalists, who are too busy making money to think
much on their own or even organize in their
collective interest.
One way to approach the question of a ruling
class is through Italian elite theory, namely the
work of Vilfredo Pareto, Gaetano Mosca, and Robert
Michels. In his four-volume warhorse The Mind
and Society, Pareto laid out a clear vision
of society:
Ignoring exceptions, which are few in number
and of short duration, one finds everywhere a
governing class of relatively few individuals
that keeps itself in power partly by force and
partly by the consent of the subject class,
which is much more populous.
To preserve its power, that governing class must
be “adept in the shrewd use of chicanery, fraud,
corruption.”
Individual governing elites do not last: “History
is a graveyard of aristocracies,” Pareto declared.
Contributing to their passing is a loss in vigor, an
effect of the decadence of the well-established and
the failure to invigorate the stock by recruiting
from below. For Pareto, a healthy governing class is
able to absorb the leaders of the “governed” and
thereby neutralize them. “Left without leadership,
without talent, disorganized, the subject class is
almost always powerless to set up any lasting
régime.” (Karl Marx said something similar: “The
more a ruling class is able to assimilate the
foremost minds of a ruled class, the more stable and
dangerous becomes its rule.”) But if the governing
class is overcome by “humanitarian sentiments” and
is unable to absorb the natural leaders of the
oppressed, it could be overthrown, especially if
“the subject class contains a number of individuals
disposed to use force.”
Mosca wrote at some length about strata below the
ruling elite. The one just below it, which plays the
officer corps to the enlisted personnel of the
masses, is crucial to the health of the system and
functions as the backbone of political stability.
Should it erode, morally or intellectually, then
society will unravel. It can tolerate foolishness at
the top if the stratum just one level below is in
good order — one thinks of Trump and the grown-up
problem.
Mosca saw clearly the profound relation of the
family to political and economic power, something
modern conservatives understand (and people who
wonder about the coexistence of “family values” and
neoliberal politics don’t). Upper-class parents do
their best to prepare their children for rule, and
there’s always a heavy dose of inheritance in social
power. In an exuberant moment, Mosca wrote:
In order to abolish privileges of birth
entirely, it would be necessary to go one step
farther, to abolish the family, recognize a
vagrant Venus and drop humanity to the level of
the lowest animalism. In the Republic
Plato proposed abolishing the family as an
almost necessary consequence of the abolition of
private property.
Further down, Mosca lamented the state of the
European middle classes in the 1930s. He warned, “If
the economic decline of [the middle] class should
continue for a whole generation, an intellectual
decline in all our countries would inevitably
follow.” They are “great repositories of independent
opinion and disinterested public spirit,” without
which:
we would have either a plutocratic
dictatorship, or else a bureaucratico-
military dictatorship, or else a demagogic
dictatorship by a few experts in mob leadership,
who would know the arts of wheedling the masses
and of satisfying their envies and their
predatory instincts in every possible way, to
the certain damage of the general interest.
He didn’t define the “general interest,” a
concept often confused with what’s good for the
upper orders, but the erosion of the US middle ranks
over the last few decades has had a trajectory not
unlike what Mosca worried about.
Of the Italian trio, Michels is the most
interesting, not least because so much of his
attention is paid to the Left formations to which he
once belonged. His most famous contribution is known
as the “iron law of oligarchy,” a belief that
organizations will always evolve into hierarchies,
even parties ostensibly trying to overthrow the
hierarchies of bourgeois society. Marx was right
about class struggle as the motor of history,
Michels conceded, but every new class coming to
power will itself evolve a new hierarchy. Even
syndicalists, argued Michels, who criticize the
oligarchic tendencies in socialist parties and favor
instead direct strike action by organized workers,
need leaders. “Syndicalism is even more than
socialism a fighting party. It loves the great
battlefield. Can we be surprised that the
syndicalists need leaders yet more than do the
socialists?”
Within socialist parties and organization,
Michels pointed to the prominence of traitors to the
bourgeoisie. Most of the prominent
nineteenth-century socialist writers, Marx and
Engels most famously, were bourgeois intellectuals;
Pierre-Joseph Proudhon was a rare exception. So,
too, the revolutionary leaders of the twentieth
century: Vladimir Lenin came out of a middle-class
family and was educated as a lawyer; Leon Trotsky
was born to a rich farming family and educated in
cosmopolitan Odessa; Che Guevara was another child
of the middle class who was surrounded by books and
political conversation as he grew up. No doubt the
descendants of the old syndicalists would argue that
these relatively elite origins contributed to the
ossification of the Russian and Cuban revolutions —
but one could cite Michels’s retort about the
necessity of leaders to the syndicalists in response
to that critique. Growing up bourgeois confers some
advantages — time to study, as well as exposure to
the nature of power — often denied to people further
down the social hierarchy. Instead of lambasting
their “privilege,” it might be better to welcome
these class traitors.
This doesn’t mean one should be complacent about
them, or about the concept of leadership in general.
Many on the Left have resisted applying Michels’s
iron law to our parties and occasionally our
governments, but it would be better to acknowledge
the power of the tendency and figure out the best
way to keep those leaders accountable through what
Michels called “a serene and frank examination of
the oligarchical dangers of democracy.” It’s better
to be open about the reality of hierarchies than to
pretend they don’t exist; even professedly
leaderless organizations are subject to domination
by the charismatic.
The Italians focus primarily on politics and the
state as the sites of rule, without much interest in
their relations with capitalists. For an American,
that seems like a serious deficit. But in some
senses, the focus on politics is clarifying. That’s
where class conflicts are often crystallized,
sharpened to a point — more so than in the
workplace, which can appear to be the site of
interaction among individuals rather than classes.
As the Marxist political theorist Nicos Poulantzas
put it, through relations with the state, the
complex and diffuse relation between classes
“assumes the relatively simple form of relations
between the dominant and the dominated, governors
and governed.”
We once had a coherent ruling class, the White
Anglo-Saxon Protestants (WASPs), who more or less
owned and ran the United States from its founding
through the 1970s. Based largely in the Northeast,
with offshoots in the Upper Midwest, WASPs went to
the same elite schools and colleges, belonged to the
same clubs, married out of the same pool, and
vacationed in the same favorite rural retreats.
There were Southern WASPs, descendants of the
slave-owning gentry, but they never had the social
weight of their northern relatives — though they did
rule their region and enjoy an outsize role in
Congress for decades.
At the rank-and-file level, men worked in genteel
law firms and brokerages or as executives in
old-line manufacturing firms, and women did
volunteer work for museums and charities and
maintained the social relations that kept the group
functioning together as a class. At the high end,
WASPs played a role in government far out of
proportion to their numbers, most notably in foreign
policy. The Council on Foreign Relations (CFR),
target of innumerable conspiracy theories generated
from left and right for its prominent role in
shaping imperial policy, traces its origins to the
end of World War I, when a delegation of British and
American diplomats and scholars decided to preserve
the transatlantic comity of the war years and form a
council whose purpose was, in the words of Peter
Gosse’s official history, “to convene dinner
meetings, to make contact with distinguished foreign
visitors under conditions congenial to future
commerce.” The CFR didn’t begin to influence policy
until the 1930s, when its fellows and members helped
plot the takeover of the British Empire, a concern
of the Franklin Roosevelt administration.
That special identification with England has been
foundational to WASP identity from the first. But it
took waves of fresh immigration from Southern and
Eastern Europe, people with strange customs and
sometimes dangerous politics, for the formation to
come to energized self-consciousness as a class,
beginning in the 1880s. That decade brought the
obsession with finding one’s old-stock roots, the
first country clubs, the founding of the
Social Register, and, quite importantly, the
opening of the Groton School by Endicott Peabody,
which shaped generations of the wellborn as well as
the children of arrivistes who wanted to learn the
ways of the wellborn. Peabody’s vision was one of
“Muscular Christianity,” popular among elites of the
time, who were worried about a loss of manliness in
an increasingly urban society — austere,
disciplined, athletic. FDR said that the influence
of Peabody and his wife meant more to him than “any
other people next to my father and mother.”
Coming out of World War II, elite WASPs like
Averell Harriman (son of a robber baron) and Dean
Acheson (son of the Episcopal bishop of Connecticut,
who learned how to row crew from Harriman at
Groton), supplemented by recruits like George Kennan
(son of a Milwaukee lawyer) and John McCloy (a poor
kid from Philly who learned the ways of the elite at
an early age and got certified with a Harvard Law
degree), shaped what would become the US empire.
Their skill can’t be denied; that empire has had a
long and successful run, though it now looks to be
coming unglued. (The competitive pressures of having
the USSR as rival, and having socialism as a
plausible alternative to capitalism in the twentieth
century, did bring out some of the talent in the
upper crust.)
McCloy, despite being a recruit, earned the title
of “chairman of the American establishment” for
having run postwar Germany and becoming a name
partner of the law firm that represented the
Rockefellers, Chase, and Big Oil (from which he took
a break to run the young World Bank, which he kept
safe for Wall Street). At one point, he was
simultaneously chair of Chase, the Ford Foundation,
and the Council on Foreign Relations and partner at
the elite law firm Milbank, Tweed, where he
basically ran US Middle Eastern policy.
Cast into political exile in the Eisenhower
years, the WASPs returned with the status-anxious
John F. Kennedy, desperate for the approval of a
stratum suspicious of Irish Catholics. Kennedy, who
was denounced by WASP columnist Lucius Beebe as “a
rich mick from the Boston lace curtain district,”
went to Choate and Harvard to learn the manner of
the upper orders. As president, he brought back the
older patrician crew and added the notorious
McGeorge Bundy, another Groton product, who would be
one of the most enthusiastic promoters of the
Vietnam War, a disaster that pretty much ended that
caste’s dominance of foreign policy.
Fresh from helping wreck Southeast Asia, Bundy
went on to run the Ford Foundation, where, among
other things, he applied counterinsurgency
techniques developed in Vietnam to the urban crisis
of the 1970s. Bundy’s strategy, as Karen Ferguson
recounts in Top Down: The Ford Foundation,
Black Power, and the Reinvention of Racial
Liberalism, was to split off the “natural”
leadership of the black community and incorporate it
into the ruling class, then encourage the separate
development of black schools and cultural
institutions on an apartheid model, because the
broad population just wasn’t advanced enough to join
white society. The Italian elite theorists would
have been proud of him.
As the twentieth century rolled on, WASP
predominance eroded in spheres other than foreign
policy. The 1970s saw a mini genre of “decline of
the WASP” books and articles crop up, as Jews,
Eastern and Southern European ethnics, and even
blacks and Latinos began to permeate cultural,
political, and business elites. At the same time,
the old-line manufacturing companies, headquartered
not only in New York but also in outposts of the
WASP archipelago like Pittsburgh and Cleveland, fell
to Japanese competition and squeezed profits.
Inflation and multiple generations of inheritance
ate away at old WASP fortunes. And the deregulation
of Wall Street that began in the mid-1970s turned
the genteel world of white-shoe investment banking
(and associated law firms) into a ruthlessly
competitive one. Gone were the days when a well-bred
young man could pop out of Yale and into a quiet job
as a bond salesman.
To use the language of finance theory, the
transaction replaced the relationship. All those old
WASP ties of blood and club were replaced by
principles of pure profit maximization. Firms that
had dealt with the same investment bank for decades
shopped around to find out who could give them the
best deal. The stable world of the immediate postwar
decades, in which the same companies dominated the
Fortune 500 and trading on the New York Stock
Exchange, was transformed by a massive wave of
takeovers and business failures.
This new competitive structure destroyed the WASP
dominance at the same time that it created fresh
fortunes: oil and natural resources in the South and
the West, and takeover artists like Henry Kravis and
Carl Icahn. At the center of the turbulence was the
investment banking firm of Drexel Burnham Lambert,
which, though it bore a pedigreed name — the firm’s
founder, Anthony Drexel, was a partner of J. P.
Morgan and a member of Philadelphia’s aristocracy —
had turned into a machine for borrowing lots of
money and powering a fresh generation of arrivistes.
But with the aristocracy in decline, the new
arrivals had little to be assimilated into, unlike
in Peabody’s days. Instead, the 1980s brought us
stylized remnants of the old order like The
Official Preppy Handbook, a guide to dressing
and acting like the aristocracy, and Anglophilic
clothing designed by Ralph Lauren (born in the Bronx
as Ralph Lifshitz).
Though always a major part of American life,
money was about to take a starring role. It’s hard
to believe now, but when Forbes
compiled its first list of the 400 richest Americans
in 1982, there were just over a dozen billionaires
among them, and the minimum price of entry was $100
million, or $270 million in 2020 dollars. Oil and
real estate tycoons were prominent among them. Now,
tech and finance dominate the list, and the fortunes
are far larger — the minimum price of entry in 2020
was $2.1 billion. The five richest 2020 members were
worth $520 billion; in 1982, the top five were worth
$11 billion, or $26 billion in current dollars. A
2015 study of the Forbes list over the
years found a decreasing prominence of inherited
wealth and a rise in self-made fortunes — though the
new arrivals were more likely to depart the list
than the pedigreed.
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The economic and financial forces that helped
destroy the WASPs and create a new capitalist class
deserve close attention. Much of it revolved around
the stock market, as the 1970s became the 1980s. The
entire model of how to run large corporations was
transformed.
Stock markets are peculiar institutions. They’re
touted in the media as economic thermometers, to a
public that has little idea what they do. Few people
have deep ownership interest in the markets; only
about half of American households have retirement
accounts, with an average holding of $65,000. The
richest 1 percent own 55 percent of stocks; the next
9 percent own 39 percent, leaving all of 6 percent
for the bottom 90 percent. The market’s behavior can
seem bizarre to outsiders and connoisseurs alike,
swinging from extremes of joy to despair. Its
reaction to news can be perplexing, but it’s a realm
where people are all trying “to beat the gun,” an
American phrase that John Maynard Keynes adopted in
The General Theory of Employment, Interest and
Money to describe the logic of speculative
markets.
As frivolous as the market can seem, there’s a
serious business going on under all the froth. Much
of the productive apparatus of the United States is
owned by public corporations — that is, ones whose
stock is widely held and traded on exchanges. Those
shares represent ownership interests in those
corporations. As detached as the stock market may
appear from reality, it’s actually an institution
central to class formation — the way an owning elite
stakes its ownership claims on an economy’s means of
production as a whole. That’s in contrast to the
nineteenth century, when industrial firms were owned
by individual capitalists or small partnerships. As
those firms grew, they became too big to be run and
funded by a small circle; their organizational form
gave way to the professionally managed corporation
owned by outside shareholders. That became the
dominant form of economic activity in the early
twentieth century.
But the owners — the shareholders — don’t know
the first thing about how to run corporations, so
they have to hire specialists to do the work for
them. This presents what’s known in the trade as an
agency problem: the owners are dependent on hired
hands to run their companies for them, but how do
they know the executives are running the firms in
the shareholders’ interests and not their own? Yes,
shareholders elect the board of directors, and
boards hire and fire top management, but in
practice, it’s not easy for disperse shareholders to
supervise a board, and crafty CEOs can turn boards
into rubber stamps. If the market were working in
accordance with official theology, it would be
disciplining actors into the proper
profit-maximizing behavior, but clearly that’s not
enough.
A classic work on the topic is Adolf Berle and
Gardiner Means’s The Modern Corporation and
Private Property, published at the depths of
the Depression in 1932, when capitalism was in deep
disrepute. Berle and Means, both advisers to FDR,
saw the large, publicly owned corporation — ever
since nicknamed the Berle-Means corporation, marked
by what they call the “dissolution of the atom of
property” — as a profound innovation. It was about
to become, if it wasn’t already, “the dominant
institution of the modern world.”
There were many perils in this new arrangement.
As Berle and Means noted, “out of professional
pride,” managers could choose to “maintain labor
standards above those required by competitive
conditions and business foresight or . . . improve
quality above the point which, over a period, is
likely to yield optimum returns to the
stockholders.” This would benefit other
stakeholders, as we call them today, namely workers
and customers, but it would be in “opposition to the
interests of ownership.”
But that was not without political promise. As
good New Dealers, they thought this new capitalism
could be managed responsibly after the reckless high
jinks of the 1920s. Gone were the rabid profit
maximizers of the robber baron era; why push to
maximize profits when they’ll only be passed along
to shareholders? With the profit maximizing
incentive gone, under a regime of proper state
regulation and enlightened management, the system
was evolving into a “collective capitalism,” as
Berle called it in the preface to the revised 1967
edition. Or, as the authors put it in the original
text, the modern corporation is “approach[ing]
toward communist modalities.” It would be more
accurate to say that this view aimed to make
socialism obsolete and irrelevant now that the days
of Jay Gould and J. P. Morgan had given way to the
man in the gray flannel suit.
As the legal historian Mark Roe argues, the Berle-Means
corporation emerged out of a nineteenth-century
populist distrust of concentrated financial power.
Better dispersed ownership, the thinking went, than
bank ownership. These trends were reinforced by the
New Deal, which broke up banks, took them largely
out of the stock ownership game, and made it harder
for financial operators to interfere in corporate
management.
There was a clear political intent here. As Roe
notes, the New Deal leashing of finance moved issues
of ownership and class division off the political
agenda, issues that were hot in the 1930s. FDR was
explicit about the need to break up “private
socialism” — concentrated corporate and financial
power — in order to prevent “government socialism.”
For New Dealers — many of them renegade WASPs
rebelling against their kind’s Republicanism — the
point of regulation wasn’t to stifle capital, it was
to legitimate it by making financial power seem
transparent and disinterested.
For the first few postwar decades, the New Deal
model was standard liberal doctrine. In The
New Industrial State, John Kenneth Galbraith
argued that rapacious profit maximization had been
replaced by a secure mediocrity, and greedy
capitalists by a “technostructure.” Top managers,
who were well paid but on nothing like today’s
scale, saw little point in risk-taking; they wanted
sales growth and prestige, not the paychecks that
would later populate the Forbes 400. Today’s
paychecks are driven by stock prices; in the 1950s,
top executives were paid mostly straight salaries.
Shareholders had become vestigial; if they didn’t
like the performance of firms they held stock in,
they’d just sell the shares. No one ever troubled
management.
That comfortable world began falling apart in the
1970s, as profits stumbled, financial markets
performed miserably, and inflation rose inexorably.
As we’ll see later, the corporate class organized to
address this politically, but there was also a
fierce fight within the capitalist class as
shareholders began demanding more.
Enabling that demand for more was the major shift
in the ownership of stocks. In the early 1950s,
households (mostly rich ones, of course) owned over
90 percent of stock; now it’s under 40 percent.
Large institutional holders like pension funds and
mutual funds owned about 2 percent of all stock in
the 1950s; now it’s around 30 percent. While the
household owners of the mid-twentieth century had
common interests in rising share prices and stable,
generous dividends, they had no means of organizing
to influence the corporations they owned. Today’s
institutional owners have plenty of means. The
diffuse, passive shareholders of the past have given
way to the professional money managers of recent
decades.
Deteriorating economic and financial performance,
combined with the change in ownership, provided rich
material for the shareholder revolution. Beginning
in the 1970s, financial theorists, notably Harvard’s
Michael Jensen, began to query the Berle-Means
corporation. In a 1976 paper, Jensen and coauthor
William Meckling noted the oddity of the public
corporate form: “How does it happen that millions of
individuals are willing to turn over a significant
fraction of their wealth to organizations run by
managers who have so little interest in their
welfare?” Having raised the question, they let the
arrangement off the hook, essentially saying that
it’s worked well so far. Jensen turned more
aggressive in the 1980s, denouncing corporate
managers as inefficient wastrels sorely in need of
outside discipline. He particularly liked debt as a
form of discipline; if a company had big debts to
pay, it would concentrate managerial minds on
maximizing profitability by cutting costs and
closing or selling weaker divisions.
Theorists revived interest in a 1965 paper by law
professor Henry Manne, who argued that efficiency —
by which he meant profitability — would best be
served by having corporations constantly up for
auction to the highest bidder. What came to be known
as the “liquid market for corporate control” would
discipline managers, forcing them to concentrate on
profits and stock prices at the expense of all those
old New Deal considerations.
As theorists like Jensen did their work,
financiers developed the practice: a debt-driven
restructuring of corporate America. A wave of
takeovers undertaken by investment boutiques like
Kohlberg Kravis Roberts (KKR) and individual
takeover artists like Icahn was launched at
“underperforming” firms. While details vary, the
model involved borrowing lots of money, taking over
target firms against management’s wishes, and
forcing a sale to the operator or some third party.
Corporate indebtedness rose massively and fed the
broad attack on labor that was underway in the
1980s; the quickest way to cut costs and raise your
stock price was to do mass layoffs. The larger point
of all these exercises was to center the stock price
in managerial consciousness. That would solve the
agency problem: make managers think like
shareholders, relentlessly cutting costs and raising
profits.
The takeover wave of the 1980s completely
disrupted the corporate landscape, bringing down a
lot of old names and, with them, an old corporate
culture. The renegades were initially seen as
disreputable and greedy, conducting an assault on
old values — the “barbarians at the gate,” as Bryan
Burrough and John Helyar called their book on the
battle for RJR Nabisco. Texas oilman turned
financial operator T. Boone Pickens framed his 1983
takeover attempt on Gulf as an attack on a pampered
corporate elite. Pickens never took over Gulf; it
ended up being bought by SOCAL (Standard Oil of
California), but he made over $700 million by
selling the stock he’d accumulated in the attempt.
Another casualty of the deal was to diminish the old
WASPy Pittsburgh corporate elite, of which Gulf was
a pillar. And, as Fortune noted in an
admiring 2019 obituary for Pickens, raids like his
changed the way managers did business; the constant
fear of a hostile takeover was “revolutionary,
forever changing the way companies interacted with
their shareholders.”
As often happens, the debt mania came to a bad
end when too much money was borrowed to buy bad
assets at excessive prices. The model collapsed in a
wave of bankruptcies and a long recession in the
early 1990s. But later in that decade, shareholders
came up with a new ploy to press their interests:
pension-fund activism, perversely led by public
funds like the California Public Employees’
Retirement System (CalPERS). (Curiously, KKR, one of
the pioneers of the 1980s takeover movement, which
had initially been seen as reckless and maybe
scandalous, was legitimated on Wall Street when it
won an investment from the Oregon state pension
fund; the second K, Henry Kravis, still publicly
thanks the fund for helping launch them. Everywhere
you look, you can see that states shape markets.)
CalPERS would draw up lists of underperforming
companies and lobby management to tighten the ship —
meaning cut costs and boost the stock price. When I
interviewed the chief counsel of CalPERS in the
mid-1990s, I asked him about the propriety of using
funds held in workers’ names to pursue an
anti-worker agenda; he said they just cared about
maximizing returns.
The result of all this was to turn the stock
market into an ever-updating grade on corporate
performance. To induce managers to think like
shareholders, their compensation was increasingly
linked to the stock price. The intra-capitalist
family fight looked to have been resolved in favor
of shareholders. Predictable mediocrity, the
lodestar of the 1950s and 1960s, had given way to
the cult of the profit-seeking CEO with a 25 percent
return on equity.
The shareholder revolution of the 1980s was
supposed to make the passive investor a thing of the
past. No longer would management run companies as
private fiefdoms with little outside supervision:
they’d be disciplined by activist investors and
real-time report cards provided by stock prices.
That was the case for quite a while, but the
intraclass peace treaty after the shareholder
revolution has brought back several aspects of that
old world. Two are especially important: the growth
of index funds and the explosion in stock buybacks,
through which corporations have shoveled trillions
of dollars into their shareholders’ pockets.
Financial theory from the 1960s onward argued
convincingly that it’s nearly impossible to beat the
market. Sure, there are star investors like George
Soros and Warren Buffett, but most people aren’t
them. Instead of trying to beat the market, many
investors decided to settle for matching it. Big
money managers like Vanguard began offering mutual
funds that replicated prominent stock market
indexes, notably the S&P 500, by investing in the
component stocks in proportion to their weights in
the index. Because the management of an index fund
is almost automatic, fees are very low compared to
actively managed funds, which require the attention
of highly paid specialists (who rarely deserve their
compensation given how many of them lag the averages
they’re supposed to beat).
Over the last decade, law professors Lucian
Bebchuk and Scott Hirst report, 95 percent of all
inflows into investment funds have gone to passively
managed funds, like mutual funds. The lion’s share
has gone into funds managed by the Big Three
(BlackRock, Vanguard, and State Street), and that
proportion has been rising. In 1998, those three
firms held about 5 percent of the total
capitalization of the S&P 500, an index made up of
the stocks of the largest blue chip corporations.
That share is now 21 percent, and it’s almost
certain to keep growing. Managers of index funds
rarely challenge management — and why would CEOs
listen to them if they couldn’t, by definition, sell
their stock? And while managers of passive funds
swear that they care deeply about their corporate
governance responsibilities — high-mindedly called
“stewardship” in the literature — they have little
economic incentive to do much. Any improvement
caused by an indexer’s stewardship would accrue to
other indexers as well, which would violate all
norms of capitalist rationality. And with fees as
low as they are, there’s not much money around to
pay the stewards. Those entrusted with that task
have about half a day for every company they cover.
Index fund managers sometimes say they engage in
behind-the-scenes lobbying of corporate managers,
but the Big Three had no engagement at all with more
than 90 percent of the firms in their portfolios.
Of course, the kinds of supervision that authors
like Bebchuk and Hirst long for, like dismantling
defenses against hostile takeovers, aren’t good for
the working class. But this does represent a
significant departure from the early hopes of the
shareholder revolutionaries. There are still
activist hedge funds that take positions in
companies they see as underperforming to provoke
management changes or takeovers, but they’ve become
a lot rarer than they were in the 1980s, when CEOs
routinely felt like they were under siege.
If you can’t buy and sell stocks based on
corporate performance, there’s less discipline
coming from the stock price. A financial world in
which index funds dominate is one where the stock
market plays almost no role in how corporations are
run. That prompts the question: Who needs outside
stockholders?
In 2016, Inigo Fraser Jenkins, an analyst with
the investment house Bernstein, declared indexing
“worse than Marxism.” Central planning is bad
enough, he argued, but a system in which capital
allocation was purely formulaic looks backward
rather than shaping the future, which will damage
innovation. Soon after writing that, Fraser Jenkins
was diagnosed with lymphoma, and when he returned
from his brush with death, he wrote a
near-four-thousand-word essay musing on whether what
he does for a living is worth it. Both those
positions are worth taking seriously. With
stockholders tending in the direction of autopilot,
are they irrelevant?
This new unity of purpose between managers and
shareholders has produced some perverse results,
notably an eagerness to shower the shareholders with
corporate cash. In both academic and popular theory,
the stock market is supposed to be a way to fund
corporate investment; shareholders are providing
capital to firms in need of it. In fact, the stock
market does very little of that. According to
statistics collected by finance professor Jay
Ritter, US corporations raised just over $755
billion in initial public offerings (IPOs) — first
sales of stock to the public by previously private
corporations — between 1998 and 2020. That pales in
comparison to the $8.5 trillion firms spent buying
back their own stock over the same period, which is
still only half their profits. Such stock buybacks —
which were mostly illegal before 1982 — are intended
to boost prices and make shareholders happy. But
since CEOs and other top executives are now paid
mainly in stock, buybacks make them happy, too.
(Research by the Washington Post and
the Securities and Exchange Commission has found
that corporate executives often sell into a buyback
program, profiting off the lift all the corporate
purchases give to prices.) The Berle-Means
corporation has been transformed into a machine for
stuffing vast sums into the wallets of shareholders
and CEOs.
A study by Germán Gutiérrez and Thomas Philippon
shows that buybacks have depressed investment, and
that firms with high share ownership by index funds
and other broad mutual funds that hold stocks rather
than trading them aggressively (which, it should be
said, makes excellent financial sense) do more
buybacks and stint more on investment. Another
reason to ask why we need outside shareholders.
The capitalist class is showing faint signs of
rethinking the shareholder-first orthodoxy. In
August 2019, the Business Roundtable, big capital’s
trade association, issued a statement signed by 181
CEOs declaring the business had social goals other
than profit-making — responsibilities to “all
stakeholders — customers, employees, suppliers,
communities and shareholders.” Commenting on the
statement, JPMorgan Chase chair Jamie Dimon vowed
“to push for an economy that serves all Americans,”
a wish that is hard to square with his role in life.
A subset of Wall Street money managers has been
pushing for corporations to take environmental,
social, and governance (ESG) factors into account
when investing. That sounds nice, but a primer on
ESG filters published by CNBC reports that such
exemplars as Microsoft, Lyft, and Honeywell (which,
among other things, makes parts for military
aircraft) pass the worthiness test.
Just after Joe Biden’s inauguration, BlackRock
boss Larry Fink announced that because “climate risk
is investment risk,” he would be voting shares under
that firm’s management against boards and CEOs that
failed to show “significant progress on the
management and reporting of climate-related risk,
including their transition plans to a net zero
economy.” In that statement, Fink also expressed
concern for those capitalism has forgotten to treat
well, though he was sparing in detail on how he’d
change things. After that high-minded display,
however, Fink is finding some of Biden’s early
climate moves a bit extreme. There’s the bottom line
to consider.
While much of this is risible, considering the
sources and their material interests, the rhetorical
shift is noteworthy. The corporate class is feeling
unloved in ways it hasn’t since the 1970s.
At the same time the stock market was acquiring a
larger role in our economic life, so was a
countermovement toward privatization. The number of
public corporations has fallen dramatically — though
their share of the economy has, if anything, grown —
through mergers as well as the growth of private
equity (PE), a form of business that hearkens back
to the nineteenth century, before the emergence of
the Berle-Means corporation.
Curiously, modern PE traces its roots to some of
the prime agents of the shareholder revolution,
buyout boutiques like KKR. Of course, the 1980s
buyout firms weren’t the first to prowl the
financial landscape, armed mostly with other
people’s money and looking to do deals — you could
see J. P. Morgan himself as such an operator — but
they were obscure players in the early postwar
decades. The 1982 buyout of Gibson Greetings, led by
former Treasury secretary (and avid right-wing
propagandist) William E. Simon, made him and his
partners millions of dollars when the company went
public sixteen months later. It’s often credited as
the deal that got the 1980s buyout movement going,
but it was KKR, founded in 1976 by three alumni of
the late investment bank Bear Stearns (which blew up
in the 2008 financial crisis), that really made the
headlines. Among KKR’s triumphs of the 1980s were
the buyouts of Safeway — which led to mass layoffs,
union-busting, and worker suicides — and RJR
Nabisco, the deal that inspired the 1989 best-seller
Barbarians at the Gate.
With the end of the “roaring ’80s,” the markets
and the economy entered a period of doldrums that
they didn’t emerge from until the middle of the next
decade. Buyout activity slowed markedly, as
corporate America tried to digest all the debt
contracted during the period of extreme exuberance.
There was a surge with the dot-com mania of the late
1990s, a retreat when it collapsed, another surge in
the mid-2000s, a bigger retreat when the whole world
nearly fell apart in 2008 (a year when a private
equity titan, Bain’s Mitt Romney, ran for
president), and yet another surge over the last
decade.
The core structure of private equity is fairly
simple. A small management team raises a pool of
money from rich individuals and institutions, then
cruises for deals. The outside investors don’t have
much say in how things are run; they have to trust
that the management team knows what it’s doing. The
typical target is an established firm that has seen
better days. The PE shop buys the firm and works it
over, cutting costs — most notoriously through
layoffs but also by selling or closing the weaker
operations. The purchase usually involves a major
amount of borrowed money — money contributed by the
outside investors is just a foundation, on top of
which sits copious amounts of debt — which means a
good deal of the target’s cash flow has to be
devoted to paying off interest and principal. On top
of that, the new PE owners often issue debt in the
target’s name and pay themselves rich dividends with
the proceeds. Returns for the PE firm’s principals
can be very generous; outside investors, however,
don’t necessarily do so well after the principals
take their cut. The goal is usually to sell the firm
to someone else several years down the line, either
to another PE firm or to the public with a stock
offering.
Private equity has become a major employer — not
directly, since their staffs are relatively small,
but through the companies they own. The Carlyle
Group, KKR, and Blackstone together employ close to
2 million people. It’s odd to think about PE this
way. As Financial Times columnist
Gillian Tett put it a few years ago, because of
“their ruthless focus on efficiency and profit,”
these companies are “better known for cutting jobs”
than creating them.
Private equity’s apologists say the model
contributes to growth and employment, but lately, PE
has been in the news for carnage in retail — chains
like Toys “R” Us were killed in part by the enormous
debt imposed by their PE owners — and for jacking up
the price of health care, where the buyout artists
have recently been working their magic. PE went from
being little involved in health care twenty years
ago to having a massive presence today. Hospitals,
medical and dental practices, and ambulance
operators were taken over and often “rolled up,” as
they say in the business, into large, heavily
indebted regional or national behemoths. With the
unexpected costs of the COVID-19 crisis, the PE
model “amplified . . . salary cuts, layoffs, and
bankruptcies across the health care industry,” in
the words of an article in, of all places, the
Journal of the American College of Radiology.
Faced with unexpected costs and little financial
cushion, “the short-term focus of the PE model led
to hard cost cutting rather than more in-depth
planning for the future.” Salaries and staff were
slashed amid a profound health emergency.
But what’s most striking about PE is how it’s
reconfigured the capitalist class — away, to some
degree, from the dispersed ownership of the public
company and back to a narrower ownership group.
Curiously, many of the PE firms have themselves gone
public, including KKR and Blackstone. Blackstone’s
IPO in 2007 was exquisitely timed, arriving as the
first symptoms of the great financial crisis were
revealing themselves; you’d suspect that the firm’s
two leading figures, Stephen Schwarzman and Hamilton
“Tony” James (a member of Henry and William’s
family), surmised that things were about to go south
and it’d be a good time to cash in on the exuberance
of the investing public. Blackstone’s principals
kept all the voting shares and the right to set
their own pay. Other PE firms have engaged in
similar maneuvers to maintain tight management
control. Even going public hasn’t changed the
industry’s predilection for calling the shots with
little external supervision.
A less malignant subset of PE is venture capital
(VC), which provides money to start-ups, many of
them in tech. It’s not picking over “incumbent” old
companies for unexploited values; it’s trying to
create new value, some of it fanciful.
In a world made flush with free Federal Reserve
money — trillions of it after the 2008 financial
crisis, and a few more trillions amid the COVID-19
crisis — VCs have had cash to burn. The
characteristic creature of the time has been the
“unicorn,” if it achieved a billion-dollar
valuation, and a “decacorn” if it managed ten times
that. The exuberant funding of unprofitable firms
was reminiscent of the late-1990s dot-com era, but
unlike that time, the public didn’t participate
through the stock market — it was funded by VCs
using money from institutional investors and
billionaires.
In the historiography of Wall Street, VCs and
other “insiders” were the smart money who began
selling off their investments to the masses through
IPOs when it looked like time to get out. That was
the spirit of the late 1990s, captured by star
analyst Henry Blodget’s characterization of a
now-forgotten stock called 24/7 Media as a “piece of
shit” even while his employer, Merrill Lynch, was
urging clients to “accumulate.” Blodget, who was
fined $4 million and banned for life from the
securities business, went on to be a financial
journalist.
This time, though, the VCs held back, waiting
years to go public. Word was that they and their
beneficiaries didn’t want all the scrutiny that came
with an IPO — pesky shareholders wanting their say
and their share. And when some of the big names
finally made their debut, many initially fell on
their faces. That didn’t stop the IPOs, however;
from 2018 onward, we’ve seen some of the most
vigorous activity in initial offerings, though
nothing like the late 1990s. The public company is
far from dead, but it’s not as alluring as it once
was.
Recent decades have seen another throwback to
nineteenth-century models: an increasing prominence
for the owners of very profitable private firms. A
study of US tax records, “Capitalists in the Twenty-
First Century,” by economist Matthew Smith and
colleagues, finds that a large portion of the upper
ranks — just over half of the proverbial 1 percent —
is populated by the owners of closely held firms,
rather than the public company CEOs who get so much
of the press. Under American tax law, these are
structured as pass-through entities, meaning their
profits are untaxed at the firm level and
distributed directly to their owners, either a
single individual or a small partnership.
The form has grown sharply over the decades. Its
share of total business income rose from 10 percent
in the mid-1980s to 35 percent in recent years.
Contributing to that growth are both a rise in value
added per worker and an increasing share of that
value taken by the owners.
Who are these owners? Most of them (85 percent)
are “self-made,” at least in the sense that their
parents were not in the 1 percent — though the
remaining 15 percent whose parents were is fifteen
times their share of the population. They’re
unlikely to operate in capital-intensive industries,
like manufacturing, which are more appropriate to
conventional corporate forms. As the authors say:
Typical firms owned by the top 1–0.1% are
single-establishment firms in professional
services (e.g., consultants, lawyers, specialty
tradespeople) or health services (e.g.,
physicians, dentists). A typical firm owned by
the top 0.1% is a regional business with $20M in
sales and 100 employees, such as an auto dealer,
beverage distributor, or a large law firm.
These enterprises yield a nice living for their
owners, especially at the highest end. Firms owned
by the top 0.1 percent (those with annual incomes of
$1.6 million or more) have an average of
seventy-four employees who yield a profit of $14,000
each for the boss — more than $10 million in total.
Few of these owners have more than one business,
which makes for some precarity, and few businesses
survive their owners. Even at the high end, this is
not “Big Capital,” though it’s fat personal income.
But they make up much of the top 0.1 percent — 84
percent of it in all. That’s thirteen times the
number who make their big incomes as officers of
public corporations; in the aggregate, privateers
make eight times as much as their corporate
comrades.
An interesting take on regional elites — those
who live outside metropolitan centers and own
businesses that might be small by globalists’
standards but are big in local terms — comes from
the historian Patrick Wyman. Wyman wrote about what
he called the “local gentry” in his hometown of
Yakima, a city of 94,000 in Washington’s fruit and
wine country, a long 140 miles from cosmopolitan
Seattle. They own the region’s orchards and
vineyards, and the businesses that serve those
industries. Many are quite rich — not private equity
rich, but enough to fund, in Wyman’s words, “hilltop
mansions, a few high-end restaurants, and a
staggering array of expensive vacation homes in
Hawaii, Palm Springs, and the San Juan Islands.” You
can say the same of hundreds of small cities around
the country — Jeep dealers, McDonald’s franchisees,
construction companies.
This formation looks a lot like a major base for
the Republican Party: fervent enemies of taxes and
regulations who may be too dispersed to cohere
independently as a class but who can be nurtured by
conservative politicians, donor networks, and think
tanks. As of late October 2020, Yakima’s
contributions to Donald Trump exceeded those to
Biden by two or three times — a sharp contrast with
Seattle, where, in some zip codes, Biden was ahead
by as much as a 72:1 margin (and with five times as
many dollars as Yakima). Upper-class Yakima is part
of a formation that has been around for a long time;
they were the financial base of right-wing politics
back when Richard Hofstadter was writing about the
paranoid style, but they’ve gotten a lot richer.
It’s not just geographical, it’s also a sectoral
angle to the class base for right-wing politics. The
MyPillow guy, Mike Lindell, was the most charmingly
visible of Trump’s marginal business supporters, but
there are also characters like Marty Davis, whom the
Washington Post described as a
“quartz-countertop mogul” based in suburban
Minneapolis, at whose lakefront house Trump held an
indoor fundraiser just before his COVID diagnosis.
Minneapolis is far from a backwater, but Davis
operates in an industry that would never qualify for
inclusion in the commanding heights of capitalism.
Still, the Davis family, which diversified into
countertops after a successful run in the dairy
business, was rich enough to have made a brief
appearance on Forbes’s 2015 list of
America’s richest families, with $1.7 billion in net
worth.
All these developments do have some things in
common: the share-price-motivated and buyback-driven
public corporation, the extractive private-equity
model, and the more exploitative closely held firm
that dies with its founder all aim to take out as
much money as possible, without much consideration
for the future.
The two-party system has undergone a remarkable
transformation over the past several decades. Once
the party of New Dealers and Southern
segregationists, the Democrats have evolved into a
coalition of the softer side of the metropolitan
establishment and a progressive wing the party
leadership hates. And the GOP, once the party of the
northeastern WASP elite, has evolved into a
coalition of plutocrats and an enraged provincial
petite bourgeoisie (often mistaken for the “white
working class”).
Both transformations can be read as driven partly
by circumstances and partly by conscious effort
applied to parties themselves. For example, the
decline of manufacturing weakened the Democrats’
labor base as well as the economic base of the old
WASPs in the Republican Party. Democrat support for
civil rights drove Dixiecrats out, and Richard
Nixon’s Southern strategy welcomed them into a
Republican Party that had once been fairly
progressive on civil rights.
But there were also vigorous internal
restructuring programs that transformed the
ideological coloration of the parties. In the 1980s,
the Democratic Leadership Council (DLC), led by the
likes of Bill Clinton, aimed to reinvent the
Democratic Party for the neoliberal era by purging
it of progressive forces left over from the 1960s
and 1970s. The goal was to make it friendly to Wall
Street and the Pentagon while dropping the civil
rights and tree-hugger talk, and it was largely
successful, as the party found popular support among
professionals in the nicer suburbs.
Without downplaying the importance of the
transformation of the Democrats — always a party of
capital that had to pretend not to be one for
electoral purposes — it must be said that the change
in the GOP and the growth of the Right are a far
more interesting story, because that’s where the
organized energy among the bourgeoisie has been for
decades.
In The Paranoid Style in American Politics,
Richard Hofstadter quoted a woman who greeted Dwight
Eisenhower’s victory over Ohio senator Robert Taft
at the 1952 Republican convention by saying, “This
means eight more years of socialism.” That seemed
daft at the time, but now, many Republicans view Joe
Biden and Kamala Harris as communists of some sort.
Back in the 1950s, the Right was basically a
movement of intellectuals funded by provincial petit
bourgeois industrialists — the owners of machine
tool makers in Milwaukee and the like. They saw
Walter Reuther’s United Auto Workers (UAW) as
socialism on the march, and Eisenhower as too
accommodating of it. (Contempt for Eisenhower drove
a lot of right-wing organizing in the 1950s.) The
big bourgeoisie had made an unhappy peace with the
New Deal. The corporate and Wall Street
establishment, based in the Northeast, featuring
marquee names like Rockefeller, du Pont, Pew,
Mellon, and Whitney, and supplemented by small-town
worthies from the Midwest, found political
expression in Eisenhower’s party, a formation that
survived into the early 1960s. They were
temperamentally conservative in the sense of being
cautious, but not ideologically driven.
For most of the twentieth century, there was a
great deal of ideological diversity within the two
major parties. Though more conservative than the
Democrats on economic issues, the Republican Party
had a liberal wing, just as the Dems had a
conservative one. Though it’s hard to believe today,
when the Republican Party routinely race-baits to
win the votes of white bigots, the GOP of the 1950s
and 1960s often had a stronger civil rights record
than the Democrats, because they didn’t have a large
Southern component. Into the 1960s, the Republicans
were frequently stronger than Democrats on civil
liberties, too. There had long been far-right
tendencies in the Republican Party — most
notoriously Wisconsin senator Joseph McCarthy, who
ended up disgraced after a wild run in the 1950s but
whose obsessions, like hatred of upper-class
Harvard-educated liberals, prefigured his modern
descendants. But the party was dominated by
northeastern WASPs. As Taft, a leader of the party’s
conservative Midwestern wing, put it in 1952 after
losing the presidential nomination to Eisenhower,
“Every Republican candidate for President since 1936
has been nominated by the Chase National Bank.”
Chase was a Rockefeller family enterprise, and it
was certainly not socialist. But Eisenhower was not
a reactionary. As he wrote to his brother:
Should any political party attempt to abolish
social security, unemployment insurance, and
eliminate labor laws and farm programs, you
would not hear of that party again in our
political history. There is a tiny splinter
group, of course, that believes that you can do
these things . . . [but] their number is
negligible and they are stupid.
The business branch of that “splinter group” had
a material problem with the Eisenhower-era
settlement: General Motors may have preferred life
without the UAW, but it could afford to pay union
rates, especially in exchange for labor peace.
Smaller fries couldn’t. They were caught in the
petite bourgeoisie’s classic position, squeezed by
big labor and big capital. Their freedom was under
siege, and they reacted by funding a right-wing
insurgency. The John Birch Society was founded in
1958 by the retired CEO of a Massachusetts-based
candy company, Robert Welch, who’d made a fortune
off lollipops and Junior Mints. Welch was rich, but
he was no Rockefeller or Mellon.
Three years earlier, William F. Buckley, a few
years out of Yale, founded National Review,
with the mission of “stand[ing] athwart history,
yelling Stop,” as he wrote in the magazine’s first
issue in November 1955. As incredible as this may
sound now, Buckley had trouble raising money for the
magazine and needed help from his father, a
small-time oil baron. As Buckley later put it, the
capitalists didn’t seem all that interested in the
project of saving capitalism.
Eisenhower’s tepidity and compromises energized
the Right, whose insurgency was almost Bolshevist in
its ideological and organizational discipline. The
Bolshevik tendencies were no accident. There were
not only intellectuals like James Burnham, a
Trotskyist turned cofounder of National Review,
but important organizers like Clif White and the
ex-Communist Marvin Liebman, who consciously
emulated Red tactics in organizing their insurgency,
from organizational and ideological discipline to
how to dominate a meeting. That rigor and energy
dismayed and disoriented the moderates, who
preferred politeness and compromise above all
things.
The Birchite and Buckleyite tendencies would
eventually split, sort of — but before they did,
they united in their affection for Arizona senator
Barry Goldwater as their political avatar.
Continuing the provincial petit bourgeois theme,
Goldwater was the grandson of the founder of a
five-outlet department store chain based in
Phoenix — a flyspeck next to the likes of Macy’s.
Goldwater — or, more accurately, Goldwater’s
supporters — launched a bid for the 1960 Republican
nomination that failed badly and had victor Richard
Nixon betray the Right in several ways, but most
visibly with his choice of the Massachusetts
aristocrat Henry Cabot Lodge Jr as his vice
presidential candidate.
Goldwater tried again in 1964, and though he
would eventually be crushed in the general election
by Lyndon Johnson, the convention that nominated the
Arizonan was an important rite of passage for the
conservatives. As journalist Murray Kempton put it,
“This convention is historic because it is the
emancipation of the serfs . . . The serfs have
seized the estate of their masters.” New York
governor Nelson Rockefeller, a leader of the
moderate Republican faction whose name embodied the
old elite’s domination of the party, was shockingly
heckled, a sign of the WASPs’ impending decline. The
party’s transition on race was made crudely clear by
insults directed against black attendees — one of
whom saw his jacket deliberately burned with a
cigarette. Jackie Robinson, who was a delegate, said
that the performance made him feel like “a Jew in
Hitler’s Germany.”
Movement conservatives were undeterred by
Goldwater’s massive loss and continued with their
plot to take over the Republican Party. A year
later, Buckley ran for mayor of New York on the
Conservative Party ticket, with the conscious aim of
drawing enough votes away from the liberal
Republican John Lindsay to elect the Democratic
candidate, Abraham Beame, and thereby weaken the
GOP’s left flank. (The contrast with left liberals,
who condemn any third-party challenge that might
lead their party to a loss, is a vivid symptom of
their lack of conviction.) Buckley initially thought
he’d harvest votes from the city’s WASP elite, but
they were put off by his social conservatism.
Instead, he tapped into the growing backlash of
white ethnics — the people at the end of the subway
lines, as future Nixon adviser Kevin Phillips, lead
architect of his anti–civil rights Southern
strategy, put it. Buckley ended up with 13 percent
of the vote — not huge, but a nontrivial amount for
a third-party candidate, and a sign of things to
come.
Though much of that backlash was driven by race,
there was also a class angle that most center-left
analysts overlook. Lindsay was a social liberal and
very attentive to the concerns of black New Yorkers,
but on economic policy, he worked largely on behalf
of the city’s powerful real estate industry,
reflecting his patrician base. At the time, city
policy was several years into accelerating the
eviction of manufacturing and working-class housing
from Manhattan and replacing it with offices and
upscale residences. This was good for financiers,
developers, and lawyers, but not for working-class
whites — who expressed their resentment by lashing
out at blacks and liberals rather than the less
visible moneybags.
Nixon, elected in 1968, would work similar
resentments on a national scale, developing a mass
base for conservative politics. But he mostly
governed to the left of his rhetoric. His time in
office brought us food stamps, the Environmental
Protection Agency, and a proposal for a guaranteed
annual income. Those compromises with liberalism
energized the Right the same way Eisenhower’s had
two decades earlier. (In the brief period when I was
a young conservative, I cast my first presidential
vote against Nixon because he was too liberal.) But
Nixon provided longer-term assistance to the cause
of the Republican right with his Southern strategy —
appealing to the resentments of white Southerners
(and their fellow thinkers in the urban North) over
the social gains of black Americans.
During Nixon’s final years as president, the
Right began mobilizing in the extraparliamentary
realm as well. Sidney Blumenthal’s 1986 book
The Rise of the Counter-Establishment traces
the ascent of the insurgent right’s policy
infrastructure. The book is a reminder that while
capitalists have a gut sense of their class
interests, they can’t really think in detail about
policy. For that, they fund think tanks.
Blumenthal highlights a shift within the
capitalist class that led to a change in the
political complexion of its hired intellectuals. For
decades, the corporate establishment funded the
likes of the Council on Foreign Relations (which
has, among others, a David Rockefeller room); the
Brookings Institution, a hotbed of Democratic
centrism; and the American Enterprise Institute
(AEI), which is conservative but, as Rockefeller
once said, not “far out.” According to Irving
Shapiro, CEO of DuPont in the 1970s and one of the
era’s business statesmen, AEI shaped capitalist
thought in that decade.
A new cadre of rising Sun Belt entrepreneurs
rejected this establishmentarian order, lusting for
something more muscular. As Blumenthal points out,
many of the nouveaux riches ran their own firms,
unlike the old elite, who were the heads of public
corporations. To the new class, that traditional
order was stagnant. In 1973, beer mogul Joseph Coors
founded the conservative think tank the Heritage
Foundation, which took some time to get going but
eventually became a powerhouse as the Reagan
revolution set in.
This new subclass brought a fresh worldview. As
Blumenthal puts it, “The Sunbelt entrepreneurs
possess neither authority endowed by inheritance nor
authority stemming from bureaucratic function. For
almost all Sunbelt entrepreneurs, social status is
derived entirely from crisp new money.” Heritage,
the intellectual avatar of this consciousness, spun
forth multiple-volume briefings for the Reagan
administration, much of which found its way into
policy.
But the big capitalists weren’t screaming for
Ronald Reagan. In Blumenthal’s telling, they had to
be pulled in his direction, and the think tanks
played an important role in that process. Walter
Wriston, the influential chair of Citibank from 1967
to 1984, said that his East Coast business set
underestimated Reagan’s skills. His crowd initially
preferred a more orthodox candidate, like former
Texas governor John Connally or George H. W. Bush,
for the presidency in 1980. But they came around.
David Rockefeller provided the ultimate blessing:
“My enthusiasm has grown. I didn’t adequately
recognize the strength of his leadership.”
Rockefeller’s conversion came about despite the
early conservative movement’s ire toward his family
and institutions like the CFR that it endowed.
Blumenthal’s arrivistes held a mix of envy and
contempt for the old establishment, resenting its
prestige while lamenting its decadence. It’s curious
how that view still pervades the American right,
even though that old establishment is considerably
reduced. Equally curious is how its institutions,
the Ivy League universities, have become the
boutique workshops for producing today’s
meritocracy. While it’s tempting to point only at
the Democratic side of that formation — the
Clintons, Barack Obama — some of our leading
right-populists have a similar institutional
pedigree, a formation distinguished by its
denunciation of elites. Josh Hawley went to Stanford
and Yale Law; Mike Pompeo, Tom Cotton, Ted Cruz, and
Ron DeSantis all went to Harvard Law. The former New
Right, once the joint project of a rising subclass
and movement conservatism, has aged into a game
played by cynics.
Blumenthal’s account centers on movement
conservatism, which the corporate establishment
didn’t participate in. But it began mobilizing on
its own, developing new institutions and reviving
older ones to fight the inflation-prone,
worker-friendly(ish) Keynesian order and impose what
we would later call the neoliberal agenda.
As Benjamin Waterhouse emphasizes in
Lobbying America, many of the businesspeople
who pushed that neoliberal agenda in the 1970s were
neither movement conservatives nor self-made
entrepreneurs but career managers. They were often
socially liberal. But they objected to the host of
new demands coming from women and racial minorities,
as well as to the explosive growth in regulation.
This strained the accommodation with the New Deal
and the Keynesian state beginning in the late 1960s,
a discontent that intensified in the 1970s when
inflation and fiscal recklessness seemed not like
transient problems but the foundations of a new
disorder. Deepening the hurt feelings of capitalists
was perceived hostility to business in public
opinion, popular culture, and, increasingly, among
their employees.
The major old-line business lobbies, the National
Association of Manufacturers and the US Chamber of
Commerce, had lost credibility and power in
Washington because of their relentless anti-labor
and anti–New Deal stances in the postwar decades,
ceding ground to more accommodationist
organizations.
It took some time for capital to mount its
counterrevolution. Modern business political action
committees (PACs) got their start in the early
1960s, but their ranks were thin and their legal
status murky until the Federal Election Commission
legalized them in 1975. The number of corporate PACs
subsequently exploded.
You can’t tell the story of the new political
consciousness of the 1970s business class without
mentioning the Powell Memorandum, named after Lewis
F. Powell, then a corporate lawyer and later a
Supreme Court justice. Writing to the Chamber of
Commerce in 1971, Powell worried about “the
Communists, New Leftists and other revolutionaries
who would destroy the entire system,” but he worried
even more about the spread of antibusiness attitudes
in previously respectable realms like academia, the
media, and churches, and among intellectuals,
artists, and even politicians. He lamented the
passivity of business in the face of these
existential threats and urged a massive ideological
mobilization by capital to make a fundamental case
for its legitimacy.
While the influence of the Powell memo is
sometimes exaggerated, it did embody the business
wisdom of the time and help inspire a quadrupling of
the Chamber’s membership during the 1970s. Shedding
its musty reputation but not its conservative
politics, it reinvented itself as a slick, modern
organization — but one railing against occupational
safety inspectors and environmental regulations. It
argued that business had no social responsibility, a
position once associated with marginal figures like
Milton Friedman, who was himself on the verge of
becoming not at all marginal. The renascent Chamber
became an important part of the Right’s
institutional structure.
But capital was organizing on other fronts as
well. The Business Roundtable, made up of the CEOs
of 150 large corporations, was founded at a private
club in Manhattan in 1973 to fight the antibusiness
drift of American politics. But the founding wasn’t
on the executives’ initiative — they needed
political actors to organize them, as they often do.
When visiting Washington in 1971, John Harper, CEO
of Alcoa, was urged by Treasury secretary John
Connally and Federal Reserve chair Arthur Burns to
form a “nonpartisan” lobbying group for big business
as a whole — something that had never existed
before. There were specific trade associations but
nothing to represent the whole crew. Harper and
several colleagues founded the Roundtable in 1973,
an early sign that capital was becoming a class “for
itself,” one capable of consciously organizing to
pursue its own power and interests. It was, unlike
the Heritage Foundation crowd, bipartisan,
pragmatic, and (by its own imagining)
nonideological.
The Roundtable came into being just as the Right
was founding its flagship think tanks: Heritage was
born in the same year, 1973, and the Cato Institute
four years later. For that relatively brief moment —
the late 1970s into the early 1980s — productive
parallel agitation by the mainstream business lobby
and the newly mobilized right would result in
moments of political triumph like the appointment of
Paul Volcker to the chairmanship of the Federal
Reserve and the election of Ronald Reagan as
president. Together, Volcker and Reagan would end
the “inflationary spiral” of the 1960s and 1970s and
break the economic and political power of organized
labor.
That triumph, however, would lead to a
dissolution of capital’s broad political unity. As
Lee Drutman shows in The Business of America
Is Lobbying, his history of the industry,
after creating an infrastructure for politicking,
the focus of business narrowed dramatically, to
sectoral and even firm-specific issues. Its
fragmentation was so complete that it was unable or
unwilling to mobilize when a posse of hopped-up
reactionary GOP backbenchers shut down the
government and threatened default on Treasury bonds.
In an interview, Drutman explained this silence as a
symptom of capital’s narrowing field of vision:
It’s a business-wide issue, and they’re all
looking out for their own narrow interests . . .
Business rarely lobbies as a whole . . .Success
has fractured them. When there was a lot at
stake, it was easy to unify. They felt like they
were up against Big Government and Big Labor.
But once you don’t have a common enemy, the
efforts become more diffuse . . . There’s not a
sense of business organized as a responsible
class.
Most of the organizational energy ever since has
been on the Right. The most prominent figure in that
agitation for decades has been Charles Koch, a rare
case of a serious capitalist organizing
independently on his class’s behalf. Along with his
late brother David, Charles has led a small but very
rich network of plutocrats who have pushed American
politics to the right at every level of government
over the last few years. The family’s money comes
from control of a private company, Koch Enterprises,
with $115 billion in annual revenues. Were it a
public corporation, it would rank around seventeenth
in the Fortune 500.
The Koch network organizes regular conferences
for the like-minded, where they raise money and plot
strategy, and their tentacles have spread into every
state in the country. The circle — now with hundreds
of major donors, distributing hundreds of millions
of dollars every year — is thick with hedge fund
managers and fossil fuel magnates, supplemented by a
rank and file drawn from the pass-throughs in the
top 0.1 percent. At the summit, financiers like
Steven Cohen, Paul Singer, and Stephen Schwarzman —
who mostly run their own investment funds rather
than working for established banks — were drawn to
the enterprise in the early Obama years, fearing he
was a reincarnation of FDR about to crack down on
their business models. (As it turned out, he never
did much more than call them “fat cats” once, a
remark many on Wall Street never forgave him for.)
They were joined by carbon moguls who were afraid
Obama was serious when he said, upon clinching the
Democratic presidential nomination in 2008, “this
was the moment when the rise of the oceans began to
slow and our planet began to heal.” A big portion of
the Koch network consists of financiers who own
their own firms and not public corporations. They
don’t like anyone telling them what to do — neither
government nor outside shareholders.
Unlike many on the Left, Charles Koch has never
seen a contradiction between electoral work and
other organizing. His network showers cash on
right-wing candidates up and down the ballot, but it
also supports professors, think tanks, publications,
and advocacy organizations — all as part of a
coherent, long-term, and ideologically rigorous
strategy. There’s nothing remotely like them in US
politics.
That’s not to say there isn’t some big money on
the liberal left — just not as much, and not as
ideologically coherent. The closest liberals come is
the Democracy Alliance (DA), which was founded in
2005 and gets money from George Soros and other,
less famous monied liberals. But it distributed only
about $500 million in the first decade of its
existence — less than the Koch network spends on one
election cycle. And unlike the Koch network, whose
spending is tightly controlled by the leadership, DA
members decide where to spend their money.
For Koch, following the model laid down by
Friedrich Hayek and his comrades, political ideas
have a production chain. The Mont Pelerin Society,
the organization of neoliberal economists convened
in a village by that name in Switzerland in 1947 on
Hayek’s invitation, had a clear conception of how to
spread its influence. Peak intellectuals, like
Hayek, Ludwig von Mises, Milton Friedman, and other
luminaries of the movement, would develop ideas,
which would spread down to think tanks, then to
politicians and journalists, and finally to the
public. (Friedman spanned several levels of the
hierarchy at once, writing books and papers that
were influential in the economics profession at the
same time he lobbied politicians and wrote a column
for Newsweek.) As Burton Yale Pines of
the Heritage Foundation put it back in the 1980s,
“Our targets are the policy-makers and the
opinion-making elite. Not the public. The public
gets it from them.”
One of the principal actors in the Koch family’s
intellectual production and distribution network has
been Richard Fink. Fink, then an NYU grad student in
economics, dropped in on Charles one day in the late
1970s and asked for money to found a libertarian
institute. Koch wrote him a check, which he used to
set up the Center for the Study of Market Processes
at Rutgers. He soon relocated it to George Mason
University (GMU), where it became the Mercatus
Center. In 1985, the Koch-funded Institute for
Humane Studies moved from California to join
Mercatus at GMU. This sequence of events transformed
a formerly obscure state university in the DC
suburbs into the Vatican of libertarian intellectual
life. They’ve reproduced the model at universities
around the country, financing institutes and
endowing chairs with considerable influence over the
direction of research. Unlike many leftists, Koch
and co. take academia seriously.
In a 1996 article, Fink outlined his master
strategy: an intellectual economy of producer goods
and consumer goods, as in the real economy,
reminiscent of the Mont Pelerin structure. The
intellectuals, often university-based, are the
makers of the producer goods (ideas), which are then
transformed into intermediate goods by think tanks,
and ultimately into products for mass application by
activists. Or, as Koch himself put it, “libertarians
need an integrated strategy, vertically and
horizontally integrated, to bring about social
change, from idea creation to policy development to
education to grassroots organizations to lobbying to
litigation to political action.” He’s done a lot to
make it happen.
Think tanks are the middlemen in the production
and dissemination of ideas. One of the most
important has been the Cato Institute, founded in
1977 with Koch money. The name came from Murray
Rothbard, the libertarian economist, who emphasized
there was nothing “conservative” about the
institute’s mission: he dismissed conservatism as “a
dying remnant of the ancien régime . . . ineluctably
moribund, Fundamentalist, rural, small-town, white
Anglo-Saxon America.” For Rothbard — like Koch and
Cato — libertarianism is a revolutionary doctrine.
Koch money also funded the Reason Foundation, best
known for its eponymous magazine. Reason
was founded by a Boston University student in 1968
and published out of his dorm room in its early
days. A decade later, Charles Koch agreed to finance
it if it remained “uncompromisingly radical.”
All these Koch-fueled entities — GMU, Cato,
Reason — busily schooled Republican
politicians and operatives throughout the 1980s and
1990s on the wisdom of privatization and austerity.
There are other right-wing mega-donors, though
none with the broad scope and vision of Koch.
Hedge-fund billionaire Robert Mercer, who was
originally part of the Koch network and then went
off on his own, was a major funder of the Trump
campaign and the Breitbart News operation. Another
striking pair of characters is Richard and Elizabeth
Uihlein. Richard inherited a bunch of Schlitz beer
money and then built a second fortune in the Uline
packaging business. They support media, like the
Federalist, and candidates that some on
the Right find a little hot to handle, like Roy
Moore, the Alabama judge with a taste for teenage
girls. They’re also major supporters of the Club for
Growth and Scott Walker, former governor of their
home state, Wisconsin.
Right-wing funders, led by the Koch network, have
created scores of policy outlets around the country.
The State Policy Network (SPN) has sixty-six
affiliates and over eighty associates populating
every state but North Dakota. Founded in 1992 by the
industrialist Thomas A. Roe, who had set up the
first of these think tanks in South Carolina six
years earlier on a suggestion from Ronald Reagan
(politicians in the lead again!), the SPN flock
develops policies, disseminates propaganda, and
trains personnel to promote “economic liberty, rule
of law, property rights, and limited government,”
which, in practice, means gutting regulations,
cutting taxes and services, privatizing public
schools and pension systems, and destroying unions.
Closely associated with the SPN is the American
Legislative Exchange Council (ALEC), which shares
funders and priorities but operates at the political
ground level, writing bills and lobbying
legislators. Since state and local governments often
function in obscurity, with part-time legislators
and thin staffs, having prewritten bills and trained
politicians is a vital lubricant for the right-wing
agenda. Aside from the usual right-wing funding
sources, ALEC also draws from a wide variety of
business interests, often by offering their
assistance on a specific policy issue and then
bringing the firms more permanently into the fold.
It’s an impressive network, running from the Oval
Office all the way down to places like Schoharie
County, New York, where a Mercer-funded think tank
has been agitating. It’s been crucial to Republican
control of statehouses across the country,
influencing the shape of Congress because of their
jurisdiction over districting and electoral law.
Despite this power, the Right has never achieved
political hegemony, nor have its business patrons
achieved economic hegemony. The Koch network is
rich, but its wealth pales next to the Fortune 500’s
cash flow. One way to make this point is to poke
about their think tanks, where money is made into
policy. There’s a decided lack of big names.
The board of the Cato Institute, despite its ties
to the Koch world, is heavy with second-tier and
third-tier capitalists — the chair of something
called TAMKO Building Products, a Missouri-
based firm; a managing director with Susquehanna
International Group, a money management firm based
in Bala Cynwyd, Pennsylvania; and the former owner
of the Tennessee-based Young Radiator Company. Koch
aside, it’s light on seriously elite connections.
As is the Heritage Foundation. Its president, Kay
C. James, was previously a dean at Regent
University, the school founded by televangelist Pat
Robertson. Another link to the educational right is
board member Larry Arnn, president of Hillsdale
College, a deeply conservative institution that
takes no federal cash so Washington can’t tell it
what to do. Other trustees include a corporate
headhunter with two degrees from Baptist colleges; a
real estate developer and chair of a food service
company, both of which almost no one has heard of;
the chair of a small maker of wearable biosensors;
the head of a small private equity firm; another PE
guy who advertises himself as “a life member of
MENSA and the NRA”; and “one of America’s leading
authorities on the development of human potential
and personal effectiveness.” Its major funders
contain few recognizable names outside standard
right-wing circles (Bradley, Coors, Scaife, Walton).
Its lower order of funders includes some big names —
ExxonMobil, GE, Google, Visa — but they’re greatly
outnumbered by much smaller ones.
Contrast this with the centrist Brookings
Institution, whose board includes ambassadors from
Goldman Sachs, Deutsche Bank, TD Bank, Duke Energy,
and Young & Rubicam. Its top funders include the
Gates Foundation, the Hewlett Foundation, the
Carnegie Corporation, the Rockefeller Foundation,
Comcast, Google, JPMorgan Chase, Chevron,
Exxon-Mobil, Shell, Time Warner, Toyota, AIG, and
the governments of Japan, Qatar, and the United Arab
Emirates — and even the libertarian would-be
secessionist Peter Thiel, who, like any big
investor, knows the importance of diversification.
Or take the Clintonite Dems’ favorite think tank,
the Center for American Progress, which has a
“Business Alliance” — price of admission: $100,000 —
that includes Comcast, Walmart, GM, GE, and Boeing.
But their relatively inferior class status still
hasn’t stopped the Right from winning lots of
fights. As Blumenthal pointed out, the businessmen
around Reagan were not heavyweights; they brought us
Duracell batteries, the Diners Club credit card, and
Lassie — two second-tier brands and a defunct
fictional dog. Despite that light footprint, their
intense organization and commitment have allowed the
Right to punch way above its weight. These intrepid
capitalists served as an avant-garde for their
larger, more cautious comrades. It’s a messy
business, cutting taxes and regulations.
Another dimension of the Right’s influence is
what it does to the respectable left. As Thatcher
adviser Sir Alan Walters told me at a conference
twenty years ago, the Iron Lady’s most lasting
achievement was her transformation of the Labour
Party, which had ceased to stand for much. Something
analogous happened with the post-Reagan Democratic
Party, which has played an enormous supporting role
in the organizational and ideological collapse of
New Deal/Great Society liberalism. The party turned
its attention away from the urban working class
(which was savaged by deindustrialization) and
toward professionals in the suburbs. But you would
never characterize this formation as brimming over
with political or intellectual passion of any sort.
Trump is thankfully a fading memory, but his
relation to the right-wing counter-establishment is
worth a closer look. Most weren’t all that
interested in him; he certainly served part of their
agenda, but the economic nationalism bothered these
apostles of the free movement of goods, capital, and
labor. An exception was Robert Mercer, the hedge
fund billionaire famous for Cambridge Analytica
(which turned out not to be some AI Svengali but
rather a bit of a fraud), who threw Trump some money
and brought Steve Bannon and David Bossie — the head
of Citizens United, who mounted the famous legal
case that opened politics to vast and secretive
funding — into his orbit. Bannon and Bossie gave
Trump, never much on political philosophy, some
right-wing ideology (notably “America First
nationalism”) and connections. The Koch set at first
kept their distance from the new administration. But
they did have an in through Marc Short, Mike Pence’s
chief of staff, who headed a Koch front group called
Freedom Partners from 2011 to 2015. Trump — or,
given his ignorance of policy, more likely Pence —
soon turned to the Koch network for advice on
staffing his new administration.
A well-organized force is ideally suited to fill
a vacuum. The Koch touch was most visible in energy
and environmental policy, but they had personnel
placements elsewhere as well. Former CIA director
and secretary of state Mike Pompeo was once known as
“the congressman from Koch” when he represented the
Wichita area in Congress from 2011 to 2016. Earlier,
he had a business career in that city that was
partly funded by Koch Industries.
The network’s influence extended to informal
advisers as well. Trump took advice on energy from
pals like fracking magnate Harold Hamm, whom Jane
Mayer described as a “charter member of the Kochs’
donor circle.”
The Kochs won some victories in the Trump era: a
generous loosening of energy and environmental
regulation, friendly court appointments, and fat tax
cuts. But they never did repeal Obamacare, and the
tariffs and immigration restrictions were major
losses. Trump’s rhetoric about immigration and
Muslims were among the reasons Charles Koch refused
to endorse him. Much of corporate America wasn’t
happy with that part of Trump’s agenda either, but
they were too happy with their tax cuts to do much
about it until the Capitol riot.
But a new class fraction did find expression in,
or at least had affinities with, the Trump
administration. As I argued above, the business
coalition that came together in the 1970s to lobby
for deregulation and tax cuts largely dissolved as a
united force when it got what it wanted. Rather than
a broad agenda, the business lobby narrowed to focus
on sectoral and individual corporate interests. The
Chamber of Commerce, though purporting to speak for
business in general, came to rent itself out to
specific clients, often unsavory ones. Big capital
is socially liberal — or it pretends to be. It has
no interest in the Christian right’s moral agenda,
nor is it nativist. Almost every Wall Street and
Fortune 500 company has a diversity department,
handling everything from anti-racist training
sessions to the corporate float for the annual LGBT
pride parade. Their worldview is little different
from Hillary Clinton’s — but they’re not
passionately engaged in politics. They write checks,
but profits are high, and the tax rate they paid on
those profits over the last few years was the lowest
it’s been since the early 1930s.
They’re layabouts compared to the class fraction
I’m describing, a gang made up of the owners of
private companies as opposed to public ones,
disproportionately in dirty industries. The
financier wing comes largely out of “alternative
investments,” hedge funds and private equity, not
big Wall Street banks or Silicon Valley VC firms.
Most alternative investment operations are run as
partnerships with a small staff, often under the
direction of a single figure. Collectively, they
look like freebooters more than corporate
personalities, and asset-strippers more than
builders, be it natural assets in the case of the
carbon moguls or corporate assets in the case of the
PE titans. Trump himself ran a real estate firm with
a small staff and no outside shareholders. Like a
private equity guy, Trump loaded up his casinos with
debt and pocketed much of the proceeds.
The prominence of private ownership is striking,
and it’s politically reactionary. Lately,
institutional investors have been lobbying for some
action on climate — not profit-threatening action,
of course, but something. Central bankers are
starting to make similar noises; they’re
increasingly worried that a financial system reliant
on carbon assets (which could easily collapse in
value when they’re recognized for the
climate-killers they are) might run into serious
trouble. Since they have no outside shareholders,
the Kochs and Hamms of the world are spared having
to listen to this chatter.
This alliance between the private corporate form
and political reaction is a reminder of Marx’s
observations on the topic. He described the
emergence of the corporation, with its separation of
ownership and management, as “the abolition of the
capitalist mode of production within the capitalist
mode of production itself, and hence a
self-abolishing contradiction.” Workers could hire
managers as easily as shareholders, or maybe perform
the task themselves. The stockholder-owned public
corporation was a stepping-stone to a truly public
entity. Short of that ambition, public firms are
more transparent and subject to outside pressure
than those controlled by a small, secretive circle
of owners.
But, as we’ve seen, such owners have proven
highly capable of organizing as a political force.
Corporate America isn’t averse to working with Koch
organizations. Exxon and Microsoft worked with the
Koch-heavy Citizens for a Sound Economy to push very
specific agendas. But these are usually temporary,
targeted crusades; none have the durability and
ubiquity that the Koch agenda itself has. And that
agenda has a substantial toehold on state power.
Returning to the theories of Nicos Poulantzas,
while there are often divisions within the
capitalist class, its predominant bloc organizes a
“general interest.” The contradictions remain, but
the hegemonic fraction creates sufficient consensus
to rule by universalizing its worldview as part of
its dominance (or, as Marx put it in a classic
formulation, “the ideas of the ruling class are in
every epoch the ruling ideas”). That kind of
consensus seems to be missing in US politics in
recent decades, a point that became very clear
during the Trump era. The corporate and financial
establishment, initially suspicious of rule by such
a volatile incompetent, never tried to rein him in.
He was never interested in a universalizing
rhetoric, as Poulantzas’s hegemonic fraction is
supposed to be. Instead, he stoked division almost
every time he tweeted.
Within the GOP, the petit bourgeois mass base —
the car dealers and accountants — is in conflict
with its big business wing, and neither can gain
political or ideological hegemony over the whole
society. (That intraclass conflict became sharp and
visible during Trump’s second impeachment hearing.)
The Democrats, for that matter, look divided between
the old centrist DLC faction — tied to parts of Wall
Street and big capital, represented by Biden — and a
younger, more leftish, and more energetic activist
wing. It’s much easier to imagine (to take some
names from the fuzzy past) Everett Dirksen and
Lyndon Johnson coexisting in the same universe than
to picture Marjorie Taylor Greene and Ro Khanna as
colleagues in governance. Until the 1990s, the
federal government never shut down for any length of
time because of the inability to pass a proper
budget; since 1995, the US government has shut down
to a significant degree five times, for a cumulative
total of eighty days, and political leaders openly
suggested that a default on Treasury securities
might be a salutary measure. There’s something
fractured in a state that engages in periodic
shutdowns.
Bourgeois pundits often lament “divided
government” and the inability to compromise, which
they attribute to partisanship or bad temperaments.
A more fundamental reason may be that no fraction of
capital, neither the older centrist kind nor the
upstart right-leaning kind, is able to achieve
hegemony. The Right has considerable strength at
elite levels, but in the popular realm, it’s only
the Electoral College, voter suppression, and
aggressive gerrymandering that keeps it electorally
competitive. Its position is greatly aided, however,
by the deep weakness of more centrist forces, who
lack serious intellectual or political energy. As
the Right discredits itself with ludicrous attacks
on the Capitol and farcical QAnon conspiracies, the
center-left is feeble. The geriatric nature of the
mainstream Democrat leadership is a sign of
exhaustion. We’re a long way from when DLC-style
politics, as terrible as they were, had at least the
superficial appeal of novelty. Now we’ve got the No
Malarkey Express parked in the Oval Office.
Elite division looks to be in stark contrast with
the coherence and breadth of the WASPs, a relatively
narrow, homogenous owning class bound by inherited
wealth that married out of the same mating pool;
went to the same schools; belonged to the same
clubs; owned a lot of capital; ran the major
industrial companies, law firms, and banks; ran
major educational institutions like prep schools and
universities; ran major cultural institutions like
universities and museums, as well as the
philanthropies that shaped social thought and
cultural life; and defined the limits of liberal
politics. WASPs also populated government, like C.
Douglas Dillon in the Treasury or Dean Acheson at
the State Department or Nelson Rockefeller as the
governor of New York. We shouldn’t be nostalgic for
them; they were often deeply racist and driven by
notions of the “white man’s burden.” But they had a
unity and authority that our current rabble of
grifters and parvenus lacks.
That stratum’s leading analyst, the sociologist
E. Digby Baltzell (himself a product of
Philadelphia’s Main Line) thought a society like
ours needed an authoritative elite of the sort his
brethren once were. As he put it:
[U]nfortunately success is not synonymous
with leadership, and affluence without authority
breeds alienation . . . the inevitable
alienation of the elite in a materialistic world
where privilege is divorced from duty, authority
is destroyed, and comfort becomes the only prize
. . .
The essential problem of social order, in
turn, depends not on the elimination but the
legitimation of social power. For power which is
not legitimized tends to be either coercive or
manipulative. Freedom, on the other hand,
depends not in doing what one wants but on
wanting to do what one ought because of one’s
faith in long-established authority.
For those of us who believe in democracy, this is
an unacceptably hierarchical view of society. But in
a society like ours, one deliberately structured to
magnify elite authority and limit the power of the
horde — if you don’t believe me, check out
Federalist No. 10, in which James Madison makes
it quite explicit his constitution was designed to
do just that — the quality of governance depends
profoundly on the nature of that elite. Our
contemporary pack of plutocrats and scammers looks
incapable of legitimation or coherent rule — and it
appears to be nowhere near up to the challenge of
climate change. Maybe Biden’s top economic adviser,
Brian Deese, who came to the White House after
handling ESG issues for BlackRock, will organize his
class buddies into a significant force on addressing
climate, but Larry Fink’s objections to Biden’s
early executive orders suggest he’ll have quite a
task on his hands. And that’s before the Koch
network and the Freedom Caucus have gone to work.
Alas, it must be conceded that, until the bonds
of that constitution are broken and something
approaching a real democracy is instituted, Baltzell
has a point about how the loss of ruling-class
authority — a legitimation crisis — might lead to
social tensions and disorder. With the center so
weak, it does present an opportunity for the
organized right to make gains — but it presents an
opening for the Left, too.
Making revolution against the ruling class,
however, is a hell of lot harder than making a
revolution within it.
Doug Henwood edits Left Business Observer
and is the host of Behind the News. His
latest book is
My Turn.
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