Capitalism and Corporatocracy: Money in Politics in the United States

Written By: Dennis Shen

Capitalism and democracy are often characterized as the twin virtues that have defined America’s modern history and success.  But capitalism and democracy do not exist in uniformity: to be more capitalistic does not invariably make us more democratic.  Instead, there has always existed an intricate balance between free market principles and strong democratic governance, oftentimes counterbalancing one another, that has determined the long-run health and sustainability of a political and economic system.  America’s past success in becoming the world’s leading nation was founded and sustained by its managing this balance between private markets and government better than perhaps any other country in history.  The ingenuity and allocative efficiency of free markets in partnership with the vision and moral leadership of a strong American government helped design the modern world and make it in the image of a fair and decent people.

But this balance between markets and government can break down if not very carefully maintained.  At the core of America’s problems today is an existing imbalance of too much dependence on unregulated, free market capitalism and too little government oversight and leadership.  The progressive retreat of government over the last thirty years from responsibility in the economy and society, indoctrinated in the 1980s as a fundamental principle, has only been matched by an equally remarkable parallel expansion in the powers of special interests, mostly notably vested in America’s corporations. The withdraw of government from its civic duty of managing the rules to the game has allowed the progressive re-invention of a new America with record inequality and concentration of power and wealth in the hands of a few, with little evidence of the anticipated “trickle-down” effects to the median earner.  Instead, it has afforded corporations and CEOs an increasing leverage over policymaking through the role of money in politics.  It could well be argued that an over-extension of unregulated capitalism in America has interrupted the voice of true democracy.

In Winner Takes All Politics, Jacob Hacker and Paul Pierson write the revealing prescription that in today’s America, “the art of policymakers is not to respond to the median voter; it is to minimize the trade-offs when the desires of powerful groups and the desires of voters collide.”  In short, the goal of modern governance is to respond to the concerns of special interests, not anymore to those of the middle-income electorate.  But how did this come to pass?

Hacker and Pierson attribute the rising influence of corporate interests in American politics to three key developments over the most recent forty years: 1) the rise of the modern Republican doctrine, 2) a surge in the organization of business coincident with a decline in the organization of labor and 3) weaknesses in the American political process and a dramatic increase in political polarization.

First, the rise of the Reagan administration in the 1980s indoctrinated policies of tax cuts for the wealthy, destruction of organized labor, low oversight on corporate structure and pay and financial deregulation.  These policies have been carried over and extended by all administrations of both parties since and have manifested record-high inequality and a surge in incomes of the top 1%.   The effect has been a concentration of financial resources in select interest groups in America.

Second, the phenomenon of rising wealth at the top has been put into-play politically through an increasing organization of business interests since the 1970s with the purpose of involvement in Washington policymaking.  In 1971, only 175 firms had registered Washington lobbyists; by 1982, 2,445 did.  Companies have organized vast pools of new resources to shape the political climate.  Annual lobbying outlays hit $3.27 billion in 2011, up from $1.44 billion in 1998 (Data from the Center for Responsive Politics).  This new voice for big business is rooted in not just lobbying but extends also to sources in campaign financing, creation of business-friendly policy think-tanks, first-name relationships between CEOs and Washington politicians and direct funding of the political parties.  The leverage of money in Washington politics is on the rise.  But this rise in the voice of business has not been met by a coincident increase in the voice of labor.  Unions have instead declined: in 1960, 30.4% of salaried workers in America were in unions; by 2005, this number was down to only 12.5%.  Globalization and anti-organized labor movements have taken their toll- stripping unions of much of their former duty in issues of economic and social policy.  The result has been an imbalance between business and union representation in Washington.

Third, more than other national systems, certain characteristics of the American political system subject it to the distortionary influence of big money. An all-too-frequent election cycle and an allowance of all-access lobbying are two such characteristics. In addition, the complexity of our government’s system of checks and balances, and the existence of delay options like the Senate filibuster, have given vested minority groups in government plenty of opportunity to block passage of anti-business reforms. Lastly, the increasing polarization in Washington has come at an opportune time for vested interests when the prevailing, benign regulatory conditions are perfectly acceptable, making continued gridlock a desirable outcome.

To discuss the issue of money in politics, one must begin by recognizing that inequality does in fact distort our democracy.  It gives an outsized voice to the few who can afford high-priced lobbyists and billions in campaign contributions to drive the debate.  Large corporations today have a central role in funding both main political parties and exert policy influence like no other group.  This semi-monopoly over the democratic system in the new American corporatocracy should rightly make the average voter suspicious of a Washington system that seems unresponsive to their needs.

A recent Rasmussen survey finds that 60% of Americans agree that ‘government is the problem’ (Rasmussen Reports, December 16, 2011) and that 71% believe that ‘government should cut spending’ such as to reduce its size (Rasmussen Reports, December 27, 2011).  But here lies the unfortunate conundrum: though Americans are rightly critical of the present disconnect between the electorate and government policymaking, further limiting the size of government will not solve the problem.  Instead, it could very well make the problem worse.

The conundrum of solving the present issues in American governance is very much compounded by the fact that Washington’s retreat from public service is itself a result of the doctrine of less government since the 1980s.  Less government supported the rise of special interests, which has allowed these groups to capture political influence and push policymakers off-track.  If the resulting distrust in government leads only to additional calls for less responsibility to government- the current conundrum shows every sign of becoming a classic vicious cycle.  Something profoundly different is needed; America needs a re-strengthened national government to stand up and limit the influence of special interests and reset the nation’s priorities first.

The requirement for a re-vitalized American government is especially true in the modern age of globalization which has given multinational businesses huge, natural advantages over governments around the world.  The basic new problem is that large corporations today are multinational, while governments remain national thereby affording corporations an effective additional dimension of movement to seek lax policies abroad wherever and whenever governments threaten regulation or higher taxes. By continuing to act independently as nation-states and avoiding the parallel transition to international governmental cooperation, individual sovereign states will continue to put themselves at a disadvantage relative to the interests of multinational corporations. The age of globalization requires greater proactive governance and cooperation by governments.

The imbalance between markets and government has played a central role in our present economic, political, and moral dilemma. In 1944, in a different time in which the risk was too much government in Western democracies, Friedrich Hayek wrote in “The Road to Serfdom” that too much government intervention inevitably risks totalitarianism and the chance that “the will of a small minority be imposed upon the people.”  After thirty years of tax cuts, de-regulation and less government involvement in many facets of society, we confront a different risk today on the opposite end of the spectrum; too little government intervention might extend an American corporatocracy and imbalanced society, subjecting the nation to the interests of a different dominant minority.

In his recent work, The Price of Civilization, Dr. Jeffrey Sachs importantly articulates the need to return to a properly balanced, mixed economy as the true bedrock to American success. In his arguments for tighter regulation, higher taxes for the wealthy and bigger government, the idea was never to debate the values of capitalism nor deny the critical importance of markets. More than anything else, it is an argument that too much of one thing can have adverse effects, that all things are good in moderation. In the current debate, it is the case that too much dependence on unregulated markets and large corporations and not enough government oversight and leadership can lead to imbalances in our economy and in our democratic way of life.

We stand today at a unique point in history, in which the challenges both domestically and internationally are greater than ever before. To confront these challenges, America needs a re-vitalized government; one that again represents the strength and vision of our nation’s past. To begin, it is essential that America resolve its twin imbalances; first, in our capitalism between markets and government and second, in our democracy between wealthy and non-wealthy. We should encourage tax increases on the wealthy, increase regulation on the corporate sector and strengthen the provision of public goods. Next, government must act independent of special interests. This includes a limit on the numbers and access of Washington lobbyists, a cap on campaign contributions, elimination of so-called Super-PACs and an end to the revolving door. Only by resolving the capitalism and democracy we uphold as twin virtues can we reinstitute the nation that represents the freedom, equality, opportunity and compassion that is America at its best.

More Information:

Jeffrey Sachs’ The Price of Civilization (2011) and Jacob Hacker and Paul Pierson’s Winner-Take All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States (2010) are terrific references.

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