How the Wealthy Organized to Rip Everyone Else off -- And What You Can Do to Stop It
For years, wealth has been increasingly concentrated at the very top of the income pyramid with the super-rich owning a larger and larger share of wealth, benefits and power. But while much attention has been focused on fixing a flawed economy, other experts suggest the problem would be better addressed by examining the politics and policies behind the phenomenon. Those policies that continue to benefit a tiny fraction of Americans resulted from a long-concerted effort by the very wealthy who organized campaigns to thwart those laws that might give the rest of Americans a chance. The history and policies are detailed in a book by professors Jacob Hacker and Paul Pierson titled Winner Take All Politics: How Washington Made the Rich Richer and Turned its Back on the Middle Class.
Maria Armoudian: Let’s start with the numbers. You note in Winner Take All Politics that the numbers have been historically hard to get but that now they have been tracked by some economists. What do the numbers tell us?
Jacob Hacker: You’re absolutely right. It’s difficult to look at what’s happening at the very top of the income pyramid because most of the evidence we have had was based on surveys, and because there is not a huge number of rich people in the United States who respond to phone interviews. In the last ten years or so, people have started to really home in on a unique source of evidence, namely income tax statistics, which give us a clearer picture about the rewards of economic growth. What we find is that the wealth is going not just to the top 10 percent of Americans, but really to the tiny slice at the very top, the top one tenth of one percent, even the top one hundredth of one percent. The Congressional Budget Office, using these income tax statistics, calculated that in 2005, the top 100th of one percent, the richest 11,000 households -- had an after-tax income that averaged $24 million a year. That was up from a $4 million average for this group back in 1979. That’s a remarkable change. In contrast, the middle fifth, the middle 20 percent of Americans, saw their incomes over this 1979-2005 period go from $41,000 a year to $50,000 a year. The concentration of income at the top is remarkable and sustained, and over the last 30 or 40 years, it has resulted in relatively little trickle-down to those lower on the economic ladder.
Paul Pierson: People have talked about inequality for a long time, but the fact that the winner’s circle is so small really raises troubling questions about how the American economy is working and how American democracy is working or isn’t working.
MA: Did you look also look at changes in real income?
PP: No but we looked in quite a bit of detail at all the different kinds of income, both what people earn and what they get from government programs, private health insurance and so on. All of that is calculated into these distributions. Some conservatives argue about benefits like healthcare balance out the inequality, even when you take all those things into account, you still see the same results.
JH: We looked at whether or not the middle-class has gotten ahead on other indicators but it’s still clear that most of the economic gains have gone to the richest of the rich. For the first time we have definitive evidence on this point. For example, we looked at social mobility, the degree to which people move up the income ladder, health insurance, pension coverage, debt, foreclosures, bankruptcies and the hours that people are working. Running down the list on all those indicators, the picture looks even worse than merely looking at income. I think this is really why it’s so puzzling. We asked two questions in this book: Why did this occur? And how did this occur? We argue that policy and what government did and didn’t do played an important role. In a democracy, we would expect the middle-class to have tremendous political sway, is where these trends have taken place over a 30 or 40 year period.
MA: You also compared the US to Europe to see if the same phenomenon was happening. What did you find?
PP: Although the United States isn’t the only country that has experienced rising globalization and increasing reliance on technology, it’s one of the few nations that has experienced a big increase in winner-take-all inequality in which the gains are going to the very top. Of the countries that have experienced similar trends, the US is most pronounced. That raises serious questions about the view that this is somehow linked to changes in our economy or society, because many of those [related] changes have occurred in other nations that haven’t experienced these kinds of runaway gains at the top. It also allows us to see that other economic models produced different outcomes. Europe We looked to see if Europe had experienced American levels of economic growth, to determine if there is a kind of silver lining to the cloud of American inequality. We did not find evidence of that. It’s surprising how close American economic expansion and European economic expansion are over the same 30 or 40 year period. Yet Europe has experienced much less of a rise in inequality than the United States.
MA: You also reject the argument that the changes are due to educational and skill differences among people.
JH: Yes, you don’t have to look across the nations to really see that it can’t be education and skills. The most common story is that this [growing inequality] is related to the college-educated pulling away from those who haven’t gone to college. But really what has happened is that the very richest of the rich pulled away from the rest of Americans. Thirty percent of Americans have college degrees and about 10 percent have advanced degrees. Many of those who are outside the winners’ circle are highly-educated. So to use the analogy from Charlie and The Chocolate Factory, this is really a story about how a very small slice of people have received the golden ticket in their chocolate bars, which has catapulted them into a world of great riches. While this is taking place and it is quite distinctively American, we argue that it is closely linked to policy and politics that have very negative consequences for the broad middle class.
MA: You point out aptly in the book that the tension really arises between democracy, which is supposed to be equality for all, and capitalism which is property and ownership-based benefits, which tend to be unequal. How does this tension fit into your argument?
PP: Ever since democracy started, there has been a long-standing interest about its relationship to an economy that often had very high levels of inequality. Some people worried that voters would essentially confiscate the wealth from those who had property while others worried about the opposite, that democracy will be smothered by the wealthy because they’ll be able to translate their disproportionate economic resources into disproportionate political power. It’s a longstanding, real debate that the nation’s founders discussed at length. In the United States, these same issues showed up again and again: They show up during the Progressive Era and during the New Deal. We’re seeing them again today. In the current era, there’s a bigger risk of the second kind of problem -- economic power and growing inequality are translating into political inequality. This was not just a benign economic process. Government played a really important role in shifting power away from unions and towards business. Over the last 30 or 40 years, control of government has been central in reshaping the economy. Many economists don’t see the role that the government plays. That narrow view misses how government influences the economy and the distribution of income and rewards. Obviously, financial regulation is a very prominent example, but much of what we’ve experienced, especially in the last decade, is connected to the political process that fueled financial deregulation. Similarly, the decline of unions has impacted the distribution of both economic rewards and political power.
MA: While the changes go back to WWII, it seems the real shift arrived in the 1970s with the CEOs of large corporations organizing for political and policy changes within the Chamber of Commerce, the Economic Roundtable, The Manufacturer’s Association and these groups. What have you found?
JH: The 1970s are the forgotten decade of American politics. We tend to locate the roots of our current politics and the ideological clashes particularly around cultural issues in the 1960s, but it’s really the 1970s when big shift lead to our present economically and politically polarized era. The turning point is 1978, which no one mentions. That was that year that business mobilized and started to flex their new organizational muscle around issues such as labor law reform, a proposed Consumer Protection Agency, environmental regulation, energy, and a whole host of other issues. On all these issues, the business position and the conservative position won. There was a dramatic showdown in 1978 over labor law reform that involved one of the first sustained filibusters outside the civil rights era, waged by Orrin Hatch. There was just a remarkable shift in the political climate that can’t be attributed to elections or to the balance of power in Congress and the White House – the Democrats had Congress and the White House. It was really linked to the changes in the organization of [big] business. Back in the 1960s and early 1970s, business was really quite [politically] disorganized. They were not active on most issues, and they didn’t have a very extensive lobbying presence. Now that [they] have 30 lobbyists per member of Congress, it’s easy to forget that the 1960s and early 1970s were not dominated by the powerful economic interest groups that are [currently] the major feature of our political climate. The1970s was the turning point that brings to power a new, much more muscular organized business community along with the very up-and-coming conservative movement that hitched its wagon to these new organizational realities.
MA: As I understand, this big business collaborative was really a counter movement to Ralph Nader, the environmental groups and the labor unions – groups that the CEOs believed were hurting their profits. That was articulated in the so-called Lewis Powell memo. Tell us about this.
PP: Before Lewis Powell was appointed to the Supreme Court by President Nixon, he was in a high level position for the Chamber of Commerce where he penned a famous memo, which is symptomatic of a broader shift that was taking place. It articulates the change in attitudes and behavior within the business community exceptionally well, although it was not the original source of this movement. Powell basically said we – the business community -- have got to become more politically organized; we are suffering major defeats in Washington. At this time, towards the later part of a period, Nader and other [related] groups were winning big victories in Washington, such as expansions of environmental regulation, occupational safety legislation and Social Security. Now, a lot of these things occurred with a Republican, Richard Nixon, in the White House, which shows that while partisanship matters, the organizational playing field and the balance of organizational power also matters. So Powell wrote that they [big business] were being badly outflanked by opponents and therefore need to organize, be more aggressive, get businesses to pool resources, develop a long-term strategic plan and the capacity to execute that plan in politics. After that, we saw a whole series of developments: A huge expansion of lobbying groups; the Chamber of Commerce expanded their organizational capacity; the Business Roundtable formed, representing CEOs of the very biggest American companies and activated their political participation. The Roundtable quickly became quite influential in Washington. The NAM, the National Association of Manufacturers, moved their office from New York, where they had been headquartered for a century or more, to Washington, because the director saw Washington as the place of action. Across the board, there was a huge increase in the political role of business, and it has just accelerated since then.
MA: Since that time, new groups have also emerged, such as the Club for Growth, and the business groups also connected to the right-wing Christian organizations. Describe these relationships.
JH: One of the things to understand is that this shift in businesses organization and power was not occurring in a vacuum. Simultaneously, there was a big decline in middle-class organization. Labor unions were obviously the biggest player there, but they weren’t the only middle-class organizations to lose ground. Voluntary federations and fraternal organizations were also losing out to more professional, Washington-oriented and lobbyist-centered organizations. In terms of the Democratic Party’s coalition, they were losing out to groups organized around issues that resonated with professional and more affluent members of the democratic coalition, notably feminism, environmentalism. On the Republican side, the big shift was bringing evangelical Christian conservatives into the fold. This was brokered at the elite level by activists in the Christian conservative movement who were angry, not about Roe v. Wade, but about threats to Christian schools in the early 1980s and their tax-free status. These activists felt very strongly that Christian conservative voters should align with the Republican Party and they very skillfully brought that alliance into being. This was a really important way in which the business community and more affluent members of the Republican coalition were able to enlarge the coalition behind their positions. And this would only have had that kind of effect were it not for the fact that there were changes that were taking place on the other side with the decline of unions and other voluntary organizations. The result is that the organizational landscape transforms over this period, and policy and politics shift in response. It is like a change in the ecosystem of Washington, with a new set of organizational realities, and that changes the kind of species that can find a niche in the Washington policy and political jungle. Both parties were dramatically transformed over the next 30 years in ways that reinforced both policy and politics that are conducive to these very concentrated rewards at the top of the economic ladder, the winner-take-all economy.
MA: In the book’s section titled “Making America Safe for CEOs,” you describe the policies and limitations that really enhanced this system – of course, limits on labor unions but also limits on a person’s ability to file lawsuits against corporate CEOs and corporations and other policies. What are these laws and policies that safeguard CEOs and the super-rich?
PP: The list is long, but I think the core point is first, that this is just one piece of the connection between Washington and the winner-take-all economy. There are changes in financial industries, in tax policies that favor the wealthy, in the way in which corporate governance has evolved to favor the capacity of CEOs to come pretty close to writing their own paychecks. They have docile boards of directors that get a lot of perks from being on boards and are often appointed, one step removed from the CEOs, for whom they set salaries. As everyone knows, the CEO salaries have skyrocketed in ways that don’t bear much connection to the actual performance of the companies. Obviously they do well when the companies prosper, but they often do spectacularly well even when they run the companies into the ground. Washington has played a role in that, mostly just by blocking any attempt to exercise oversight. Any effort toward encouraging the capacity of shareholders or other groups to exercise a role in corporate governance has been blocked. The SEC under Clinton was considering some fairly modest regulations that would have given shareholders a little more leverage. The head of the SEC got called in by Phil Graham who was the head of the Senate Banking Committee and had a lot of control over the SEC’s budget. Graham said, “Unless the water is crimson with the blood of investors, we don’t want you engaging in any regulatory flights of fancy.” And of course, it wasn’t long after this that the water WAS crimson with the blood of investors. Graham was the prototypical figure in developing this very tight connection between winner-take-all politics and economics.
MA: Can you fast forward to today and connect the Tea Party Patriots and the recent election?
PP: The Tea Party is a really interesting development because it represents a very angry conservative movement mobilized in response to Obama’s administration, but in many ways there are some common elements with what many Americans are feeling right now. There is a sense that democracy isn’t working well, that the middle class is not being well-represented. That is indeed reality – middle-class Americans are losing out to a set of concentrated economic interests that have a great deal of sway in Washington. What the Tea Party is doing essentially is using this organization as mobilization to press for a very conservative economic agenda. The electorate as a wholeis much less mobilized. In fact, over the last 30 years, it has been the demobilization of the great broad majority of Americans that has really helped perpetuate this winner-take-all politics. Most Americans are cynical about Washington and distrustful because they think that Washington has worked really well for those at the top but not really well for the rest of Americans. One poll by the Pew Research Center this year found that when Americans are asked who the government helps a great deal, 53 percent thought that Wall Street had been helped a great deal, but only two percent thought that the middle-class had been helped a great deal. There is a really deep sense of grievance about how poorly American democracy seems to be working to represent the middle-class. But now, with the election, we will face gridlock that will make it even harder for us to address the problems.
MA: So in essence what you’re saying is that the voters are exacerbating the problem.
JH: Yes, that is our position. If you believe the evidence, it would be hard to read our book and come away from it thinking that electing a big new group of conservative Republicans is going to make Washington introduce policies more favorable to the middle-class.
MA: So where do we go from here? What are the big fixes that might correct the problems that we’re facing?
PP: The central message of our book is that politics are at the heart of the problem, and therefore politics must be at the heart of the solution. There are people who think our book is bracing because the problems our country faces seem deeply intractable. But these problems are not inexorable or beyond our control. Globalization or technological change does not make it inevitable that the middle or the lower rungs of the economic rungs of the ladder will fall further and further behind a smaller and smaller set of winners at the very top. It is the policies related to taxes, unions, corporate governance, financial deregulation and other such policies that exacerbated the winner-take-all economy. So changes in public policy and government need to be at the heart of the solution. The first order challenge is making new policies, not a new economy. And the number one target for the short-term should address the political system, making it more responsive to the middle. That means making it so that we can actually pass things that matter to Americans. Right now we have a filibuster that requires 60 votes in the Senate on every major issue. It is a huge roadblock to addressing middle-class concerns. It also means, in the longer-term, that we need to figure out ways to bring Americans more broadly into the political process on the same or relatively similar footing to those who are highly organized right now -- the affluent and the ultra-conservative. We need to create middle class organizations. Obviously, rebuilding labor movements is part of that. In the short term, we have to figure out how to make politicians more accountable to middle class voters by increasing people’s access to information and their political leverage.