The Business Veto
The demise of social democracy shows the precariousness of any project of reform under capitalism.
by
Shawn Gude
In the aftermath of the 1984 presidential election, media outlets spoke with one voice: New Deal liberalism was dead. Given the choice between Walter Mondale’s tax-and-spend liberalism and Ronald Reagan’s morning-in-America conservatism, voters had decisively sided with the incumbent president.
The only alternative for Democrats now was to modernize. Anything but a wholesale rethink of the party’s more social-democratic commitments would invite future electoral disaster.
The conventional wisdom had also fingered the culprits: the Democratic Party’s base. Attacking what they termed “interest-group liberalism,” commentators insisted that the party become a broad tent, moderate enough to win a general election and allergic to particularistic concerns.
None of this held up to scrutiny. As
Vicente Navarro noted in Socialist Register at the time, the Democratic platform was more conservative than it had been in years — “despite the fact that never before [had] liberal and even radical forces (such as labor, blacks and Hispanics, feminists, ecologists, gays) been as active in the 1984 Democratic Party convention.” And even with Reagan’s resounding victory, polling suggested that the electorate hadn’t jolted right — only 35 percent supported substantially cutting social programs to shrink the deficit.
However, the mainstream diagnosis quickly took hold, and the Democrats adopted its advice. In the years to come, spurred by a shifting business coalition, the party of the New Deal would even more dramatically reorient itself.
During Bill Clinton’s presidency in particular, the Democratic Party became a standard-bearer of the “Third Way” — a politics that eschewed “big government” liberalism in favor of targeted public investment and privatized programs and looked to finance and technology industries to create prosperity. Barack Obama, for all the post-election depictions of him as the second coming of Franklin Roosevelt, has read from roughly the same script.
This sea change in the Democratic Party has had enormous implications for the direction of American politics. But it also points to something even deeper: the precariousness of any project of popular reform under capitalism.
Follow the Money
The New Deal consensus that collapsed in the early 1980s emerged in the throes of the Great Depression, amid immense upheaval — unemployed worker actions, sit-down strikes, campaigns for social security.
But the New Deal wasn’t just a workers’ New Deal.
The portrait of Roosevelt leading a band of ordinary people, the whole of the business community arrayed against him — this is an airbrushed contrivance. Most of corporate America may have been no friend of Roosevelt’s, but he had his own set of “economist royalists” — corporations like Shell and IBM and General Electric, Lehman Brothers and Goldman Sachs and Bank of America.
What was key, Thomas Ferguson and Joel Rogers argue in
Right Turn, was the nature of this party “investor bloc.” Because its members made their money in capital-intensive rather than labor-intensive sectors, a robust union movement didn’t pose an existential threat. If it meant potentially avoiding more severe disruptions, the oil baron could accept a level of union potency the textile owner could not abide.
Some of the New Deal’s crowning achievements carried the fingerprints of Roosevelt’s well-heeled backers: a committee bankrolled by John D. Rockefeller Jr drafted the Social Security Act, Chase Bank and other industry adversaries of J. P. Morgan provided the push for the
Glass-Steagall Act (which established the firewall between investment and commercial banking).
A few decades later, when Lyndon Johnson was grafting his Great Society policies onto the New Deal welfare state, the same investor bloc again pledged its support. With seemingly unending economic growth on the horizon, with profits racing ahead, with Democratic presidents committed to negotiating favorable trade deals, it behooved these elite actors to spread some of the wealth around. But on their terms. Major new programs received their revenue not from the pockets of corporations, but payroll taxes. Aid to the cities was spent in ways amenable to bankers and developers.
Yet many of these policies, though filtered through the sieve of dominant interests, also delivered genuine benefits to core Democratic constituencies. Despite a regressive funding mechanism, Medicaid enhanced the lives of its beneficiaries. So too with Medicare, passed over the wails of the American Medical Association. And urban projects like expanded public transportation benefited working people — not just real-estate developers.
Such polices at least partially reconciled interests elite and popular — the hallmark of any dominant party in, as Ferguson phrases it, “money-driven political systems.” The donor class provided the cachet and funding the party needed to function, the mishmash of organized interests delivered the votes.
Chief among those organized interests was the labor movement. But their power peaked early. That unions were an influential party player over the following decades was based entirely on the swift gains they had accumulated in the spurt of Depression-era and postwar labor agitation. The
1947 Taft-Hartley Act checked that rise. It mandated the expulsion of union radicals, legalized “
right to work,” and severely constrained workers’ freedom of action.
A conservative labor bureaucracy watched the subsequent drop in union density with startling equanimity. “Frankly I used to worry about the membership, about the size of membership,” AFL-CIO President George Meany said in the early 1970s. “But quite a few years ago, I just stopped worrying about it, because to me it doesn’t make any difference.”
By the mid 1970s, the foundation of the party’s coalition had begun to crumble. And the union movement had neither the will nor the means to reconstitute it on a different basis.
Things Fall Apart
Surging growth in the 1960s gave way to economic torpor in the 1970s. And companies felt pressure on all sides. Though organized labor had lost its strength, relatively low unemployment in the late 1960s and early 1970s bolstered workers’ power on the shop floor. They responded by going on strike at rates not seen since the immediate postwar years, often demanding not just better pay but more control over the work process.
Simultaneously, US firms were faltering after years of dominating international competitors. Other advanced capitalist countries had finally recovered from postwar devastation, and their companies were outstripping US firms to an extent that went beyond the simple rebound effect. The most significant net result, especially for private capital, was that profits bottomed out. Corporations’ rate of return peaked in 1965 and didn’t recover through the entire 1970s.
With the economy humming along, the Democratic Party had survived the fractious battle over the
Vietnam War. But in the profit-starved environment of the 1970s, with US companies’ position in the world economy in decline, such squabbles became increasingly irresolvable.
Regulation and social spending — tenets of the postwar system so broadly accepted that Richard Nixon, an archconservative, felt compelled to create the Environmental Protection Agency and propose a national health plan along the lines of Obamacare — quickly popped up as points of contention.
Both meant more costs for capital. Even for the “enlightened” sectors of American business, those costs were no longer prudent and placatory but unreasonably profligate. With competition heightened, companies couldn’t simply make consumers absorb elevated prices.
To cope with the new environment, business sought maximum flexibility — and that meant an offensive against organized labor. From 1970 to 1980, Ferguson and Rogers report, the number of charges against employers for terminating workers involved in union activity doubled.
When Jimmy Carter entered the Oval Office in 1977, the New Deal coalition that had set the contours of American political and economic life for decades was wilting. When he left — after defeating the doyen of New Deal liberalism, Massachusetts senator Ted Kennedy, in the 1980 Democratic primary — the economy was still stuttering. An inflation hawk presided over the Federal Reserve. And deregulation and deep social welfare cuts had started to set in.
Meanwhile, elites fretted about whether the Iranian Revolution and other convulsions presaged an inhospitable profit-making climate in the Third World. The time was ripe for more military spending. As for social programs? Not so much. For its elite backers, New Deal liberalism had outlived its usefulness.
Still, on the cusp of Reagan’s election there was no great mandate for conservative economic policies. In 1979, 79 percent of respondents polled agreed that “there is too much power concentrated in the hands of a few large companies for the good of the nation.” The same survey found that 51 percent of Americans thought “business as a whole is making too much profit.” Sixty percent even believed the state should impose a cap on corporate profits.
Yet after he came to power, Reagan promptly — with the support of scores of congressional Democrats and now backed by many of the moneyed interests that had absconded from the New Deal coalition — slashed taxes on corporations and the wealthy and expanded the social spending cuts Carter had started. At the same time, Reagan served up heavy doses of defense spending and anticommunist saber rattling.
When the 1984 election came around, Reagan’s Democratic challenger, Walter Mondale, could only attract support from a small segment of the business community: real-estate developers (whose coveted urban aid was getting squeezed by military expenditures) and investment bankers (angry at Reagan’s placidity toward the ballooning federal deficit).
With little business backing, one response would have been to try to activate the base and turn out disillusioned low-income voters with economically progressive appeals. Mondale instead played the role of belt-tightener. At his presidential nomination
acceptance speech, typically the province of soaring oration and rousing policy promises, he called for a tax increase to close the budget deficit, explaining, “Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did.”
While some hailed Mondale’s self-assured admission as an uncommon triumph of honesty over campaign trail perfidy, the average voter could be forgiven for wondering how that would help her. On Election Day, Mondale lost all but his home state of Minnesota.
Although Democrats took back the Senate in 1986, power had clearly shifted from a Democratic Party solicitous of business interests to a renovated Republican Party that was the unrivaled guardian of corporate America. And, because realignment means nothing if not the weaker party playing on the stronger party’s terrain, the hue and timbre of Democratic policies came to resemble those of Republicans.
