How the 1 percent rules

October 26, 2011

Lance Selfa, author of The Democrats: A Critical History explains how the 1 percent has rigged the supposedly democratic political system so they're always the winners.

THE OCCUPY movement's most powerful unifying factor has been its clear and simple identification of the key problem in American society: the divide between the vast majority of the population--the 99 percent--and the richest and most powerful 1 percent.

This 99 percent/1 percent formulation isn't just a statement about income inequality in the U.S. today. It's also an acknowledgement that the 1 percent largely controls the government and is therefore able to rig laws, taxes and regulations in its favor.

If you look at opinion polls on questions like taxing the rich, regulating Wall Street, spending money on jobs, prioritizing economic growth over cutting the deficit or preserving and protecting Social Security and Medicare, you'll find popular, often lopsided, majorities opposed to austerity and in favor of "redistributionist" policies.

Yet the dysfunctional government seems incapable--and not even much interested--in doing much of anything to meet these popular demands. By contrast, Congress acted with tremendous speed--and with little regard for the deficit--to appropriate hundreds of billions of dollars for the banks and other corporations when the financial crisis struck in 2008.

The U.S. Capitol building at night

In theory, we're all equal at the ballot box, and so popular majorities should be able to force politicians to address their concerns. But the Occupy movement has caught fire because millions of Americans realize that the way Washington works in reality bears no resemblance to the political science textbook explanations.

So how does the 1 percent get away with it?

A government of, by and for the corporations

The political scientist Sheldon Wolin has gone so far as to call the U.S. an example of "inverted totalitarianism"--where corporations dominate the government, voting is the only acceptable political participation, and democracy is "managed" to produce only results that the government and corporations want. To Wolin, the corporate-controlled media play a role in helping to manage democracy, even behind its conceit of being a free press.

It's undeniable that corporations play a major role in government--and always have. Most great American fortunes were made by capitalists who used the power of government to gain advantages over competitors or to profit from public resources. For example, the Gilded Age plutocrats--the Vanderbilts, the Astors, the Stewarts, the Goulds--built their railroad-based fortunes on the foundation of $100 million in federal and state grants and 200 million acres of federal land grants. In today's economy, the nuclear power industry and the Internet are both products of the privatization of technologies developed in government laboratories.

Despite the free-market ideologues' rhetoric about "big government" pitted against "big business," the truth is that big business has always found it useful to invest in politicians and their political parties to win government policies that improve their bottom lines.

Thus, during the 1980s savings-and-loan crisis, Congress hauled S&L crook Charles Keating before a hearing and one representative asked if he thought the thousands of dollars he had given to politicians was to buy influence. Keating answered, "I sure hope so."

The two main pro-capitalist parties in U.S. politics have certain tendencies of supporting different industrial sectors: Republicans generally win the support of the oil and gas industry, agribusiness and defense, and Democrats rack up money from Silicon Valley, Hollywood and Wall Street. In fact, according to a recent Wall Street Journal report, the financial sector accounted for 30 percent of all spending on all sides during the 2008 election cycle.

Still, it would be misleading to conclude the Democrats simply represent one section or coalition of business, while Republicans represent another.

The operation of the two-party system assures that these divisions within American business are ad hoc and don't congeal into permanent ideological camps. Business must learn to operate within the U.S. federal system, which means that industries that may be big Republican donors at the presidential level support, but also contributors to local Democratic political machines.

Secondly, corporations like to increase their bargaining power. They want to get as much as they can from their political involvement, and it helps them to play one party off against the other.

Finally, corporations seeking government favors subscribe to "lesser evilism" as much as voters do. The majority party in Congress is usually assured a majority of campaign contributions as well. Since its leaders will be in positions of authority in Congress, with the power to advance legislation, business will contribute in order to maintain their "access."

What does Corporate America expect for its investment? In total, the 2008 presidential election cost somewhere north of $5 billion. While this seems like a staggering sum--and, indeed, it represents a huge increase in the cost of the presidential election in just four years--it is equivalent to the size of an average "mid-cap" company, as measured by the value of all its stock. In other words, larger than Panera Bread, but smaller than Chipotle Mexican Grill.

In fact, what's most notable is how a relatively small investment in politicians will bring big returns for the "investors."

For what amounts to peanuts, the defense industry won tens of billions in business from the Iraq war, and Wall Street scored trillions from the federal government's bailout. A 2007 study analyzing corporate donations and company stock performance between 1979 and 2004 found that corporations which contributed the most to political candidates had stock prices that beat the overall stock market by an average of 2.5 percentage points annually.

The two-party swindle

Despite much anti-government rhetoric that emanates from business sectors, the ruling class needs a capitalist state to guarantee its property and its influence against rival capitalist classes.

As long as the regime's political parties remain committed to maintaining that state, big business can abide changes in government. But to assure that governments don't enact policies that work too much to the detriment of business, the capitalists attempt to shape and control the political parties that regularly compete to run the government. This is one way by which the capitalist class mediates conflicting goals and agendas.

Pro-capitalist policy doesn't come from some business cabal, as conspiracy theorists allege. It flows through different private foundations and think tanks, universities, quasi-public agencies and the political parties. All of these recruit professionals from the corporate sector who are groomed to carry corporate policy into government. Just think of the many ways in which billionaires like Bill Gates and Eli Broad have managed to influence government policy on "school reform."

The government--and in particular, the executive branch acting as what Karl Marx called "a committee for managing the common affairs of the whole bourgeoisie"--pursues policies that balance between short-term economic and political needs, and even between sections of capital.

In this sense, the capitalist state is less of a tool in the hands of capitalists as an arena in which capitalist interests are mediated.

The idea that Democrats and Republicans are committed to capitalism and to advancing U.S. interests overseas is hardly news. But the capitalist class takes nothing for granted. It exerts constant pressure on the political parties to assure that its interests are carried out. While there are numerous tentacles that tie the parties to big business, two major areas of corporate influence stand out: candidate selection, and corporate lobbying and policy advice.

Legal graft in U.S. elections

Mark Hanna, the first modern political fundraiser and fixer who helped the Republicans sweep to a landslide victory in 1896 over the Democrats and Populists, once said: "There are two things that are important in politics. The first is money, and I can't remember what the second one is."

A modern-day equivalent might be Chicago Mayor Rahm Emanuel, who ran the Democratic Congressional Campaign Committee before advancing to chief of staff in Barack Obama's White House. He once reportedly told DCCC staffers: "The first third of your campaign is money, money, money. The second third is money, money and press. And the last third is votes, press and money."

Anyone hoping to mount a successful campaign for national office needs millions of dollars. In the 2010 congressional election, the average House candidate spent almost $1.7 million for his or her seat. The average senator spent $3.1 million. The average incumbent senator running for reelection spent over $9 million.

The expense of electioneering means that both major parties look to wealthy individuals and corporations for their funding. And thanks to the Supreme Court's Citizens United decision equating campaign spending with free speech, we have the rise of Super PACs--non-profits that can collect millions in corporate cash to spend on campaigns without disclosing their donors.

The system of organized bribery that finances American political parties assures that no one who might challenge this status quo becomes a serious contender. "Any candidate that expects to show up on the PAC lists is well aware of the need to tailor, if not eliminate, any populist leanings," a Democratic congressional aide told investigative journalists Alexander Cockburn and Ken Silverstein. "It's not a formula that opens the door to any but establishment candidates."

Perhaps it's no surprise, then, that 40 percent of House freshmen elected in 2010 are millionaires.

Even the fact that Democrats gain the bulk of contributions from labor unions doesn't change the fact that corporate money swamps labor money. In the 2008 election cycle, the Democrats collected more money from just the finance, insurance and real estate industries ($83.7 million) than from all labor and liberal organizations combined ($79.9 million).

Foxes guarding the chicken coop

Once in office, administrations are subject to constant pressure from big business to adopt pro-corporate policies.

Since the 1930s, the Business Council, an advisory organization composed of chief executive officers of major U.S. corporations, has acted as a sounding board and proponent for pro-business policies within every presidential administration. All U.S. presidents have regularly consulted the Council and other organizations, like the Committee for Economic Development (CED). Democratic and Republican administrations have appointed Council and CED members to government advisory panels and to government administrative positions.

Business sustains these kinds of organizations--along with others like the Conference Board, the Chamber of Commerce and the National Association of Manufacturers--to be able to develop class-wide positions on a range if issues. These can then be presented to the government through elected politicians and through executive branch agencies.

Business isn't always successful in getting everything it wants, but it always gets what it can.

When politicians seek to develop policies on any one of a number of topics, they find business think tanks ready to offer advice. One particularly crude example was that of former Democratic Sen. Bill Bradley, who represented New Jersey when it played host to 10 of the largest 18 pharmaceutical companies. Bradley's speeches "parrot[ed], sometimes virtually verbatim, background material produced by the Pharmaceutical Research and Manufacturers of America, the industry's chief lobbying group," wrote Cockburn and Silverstein.

Likewise, hawkish former Sen. Henry Jackson of Washington state was for years known as the "senator from Boeing" because of his devotion to the interests of his state's largest military contractor. Today, Sen. Charles Schumer is known as Wall Street's gopher in Congress.

The statistics show that business devotes more money and time to lobbying and advocacy than it does to electioneering. This is because the real bonanza for companies takes place behind closed doors, often in the arcane minutiae of legislation and regulations. Here is where companies can get favors for themselves, or--equally as important--rewrite regulations to support their profit-making endeavors, the environment or consumers be damned.

This is where a single line in legislation or regulations can undo or render meaningless any politician's campaign promises. It's also the place where "our side," broadly defined, is completely overmatched. During the 2001 "debate" on the Bush administration's tax cut legislation, Capitol Hill was crawling with lobbyists from every conceivable industry, seeking favorable treatment. At the same time, the AFL-CIO had one lobbyist working quarter-time on this.

Given what we know, is it any surprise that the 12 members of the congressional "super-committee" charged with proposing $1.2 trillion in cuts to the federal deficit have seen increased contributions to their coffers? Or that thousands of lobbyists are organizing members of Congress to pressure the super-committee?

When elections change the congressional majority, there is a parallel changing of the guard in lobbying firms and congressional staffs. So today, there's a former lobbyist for the Securities Industry Association serving as staff director for the House Ways and Means committee--and a former lobbyist for Lockheed Martin running the staff of the House Appropriations Committee.

All of this helps to create what's been called an "iron triangle" of industry, Congress and the executive branch, which remains largely intact regardless of election results. It assures that no matter which party is officially in power, big business' interests will be attended to. This is even more assured today, as a revolving door between lobbying groups and government officials becomes institutionalized.

For industry bosses, this is the beauty of the two-party system. If one party falls out of favor with the voters, there's always the other one--with predictable policies--waiting in the wings.

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