Pulitzer Prize-winner Hedrick Smith examines the roots of American income inequality in his latest book, Who Stole the American Dream? Smith joins us on Chicago Tonight at 7:00 pm to discuss his reporting.
Read an excerpt from the book:
The Business Rebellion
The Power Shift That Changed American History
Tt is one of those intriguing ironies of history that the immediate provocation for Lewis Powell’s political manifesto to Corporate America—his powerful private memorandum of 1971—came not from a liberal Democrat in the White House, but from Republican Richard Nixon, the very president who was about to name Lewis Powell to the Supreme Court.
Powell’s intention was to spark a full-scale political rebellion by America’s corporate leaders—what one writer called “the Revolt of the Bosses”—to change the political and policy mainstream in Washington and to put the nation on a new track, a track more favorable to business. And he succeeded, probably far beyond his expectations.
In his memo, Powell never mentioned Nixon or his administration by name. But writing in 1971 on the heels of Nixon’s new regulatory initiatives and his new tax law that was hard on business and the wealthy, Powell warned the corporate community that anti- business sentiment in Washington had reached a dangerous new high, and it was threatening to “fatally weaken or destroy” America’s free enterprise system. Business was being victimized, he said, by government regulations, consumer activism, and politically powerful trade unions. The political influence of the business community had become so weak, Powell contended, that the business executive had become “truly the ‘forgotten man.’ ”
In a tone of exasperation, he chided America’s corporate leaders for bowing to mainstream middle-of-the-road policies and for adopting a strategy of “appeasement, ineptitude and ignoring the problem.” The time has come, he insisted, for Corporate America to adopt “a more aggressive attitude” and to change Washington’s policies through “confrontation politics.”
Political mutiny had been brewing for some time. By the early 1970s, the free market fundamentalism of economist Milton Friedman, a Nobel laureate from the University of Chicago, was giving new legitimacy to pro-business laissez-faire economics in academic circles. William Buckley’s National Review and Irving Kristol’s Public Interest were challenging the long-accepted governmental activism of the welfare state, as it was then called. The “movement conservatism” spawned by the 1964 presidential candidacy of Senator Barry Goldwater, with its ardent anti-union, anti-government ideology, had growing appeal in Sun Belt business circles.
But it was Powell’s rallying cry and corporate manifesto, infused into the political bloodstream of the business community by the U.S. Chamber of Commerce, that generated broad tremors of change in Corporate America and set off a seismic transformation of our political system. Forty years later, we still feel the aftershocks.
The Powell Blueprint
Powell was like a commanding general gearing up an army for battle. “Business must learn the lesson . . . that political power is necessary,” he asserted; “that such power must be assiduously sic] cultivated; and that when necessary, it must be used aggressively and with determination—without embarrassment and without the reluctance which has been so characteristic of American business.”
Powell provided a blueprint, a long-term game plan that would leverage the enormous advantages of corporate money and organized business power to do battle with their critics, with the U.S. Chamber of Commerce in the lead. “Strength lies in organization,” he advised, “in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.”
And in the clinch, business should not hesitate to take the gloves off. “There should not be the slightest hesitation to press vigorously in all political arenas . . . ,” Powell urged. “Nor should there be reluctance to penalize politically those who oppose it.”
The Problem: Nixon’s Action Agenda
The timing of Powell’s 1971 memo, in the midst of a Republican administration, might have seemed strange. Richard Nixon, a self-styled conservative who had won the White House in 1968 with business support, was a great admirer of the captains of American industry. He considered himself “extremely pro-business.” In a private session with top auto industry leaders in April 1971, Nixon excoriated consumer advocates and environmentalists in language that Lewis Powell would have heartily applauded. Nixon derided them as “a group of people that aren’t really one damn bit interested in safety or clean air. What they’re interested in is destroying the system [sic]. They’re enemies of the system.” By “the system,” Nixon meant free enterprise—the very system that Powell sought to defend.
But Nixon was a political pragmatist who reflected the politics of his time. He took a different line in public and in legislation from what he conveyed in his private talks with business leaders. On policy, he zigzagged. On the one hand, he enacted measures to support business and he watered down bills pushed by liberal Democrats. On the other hand, he launched his own array of regulatory initiatives in response to grassroots pressures from the powerful consumer and environmental movements. So that however much his private diatribes against the political Left appealed to business leaders, Nixon’s action agenda—what he actually did—deeply rankled them.
The Bipartisan Consensus: Hallmark of the 1950s to the Mid-1970s
In today’s bitterly partisan political climate, people often forget that one hallmark of the 1950s through the mid-1970s was the bipartisan consensus. Republicans as well as Democrats favored stronger regulation of business and industry to protect consumers and workers from the excesses of American capitalism. Often the impetus came from Congress, reacting to demands from the burgeoning consumer movement.
The Nixon administration was swept along by the popular tide. Even more than Democrat Lyndon Johnson, Nixon presided over major expansions of federal regulatory powers, creating several new regulatory agencies and commissions. The most high-profile was the Environmental Protection Agency (EPA), with its laws on clean air, clean water, safe drinking water, and control of pesticides and other toxic substances. Nixon created other agencies as well, such as the Occupational Safety and Health Administration (OSHA), charged with ensuring safety in the workplace; the Consumer Product Safety Commission; the National Highway Traffic Safety Administration; and the Mining Enforcement and Safety Administration. In addition, Nixon expanded the powers of the Federal Trade Commission and launched an important initiative to protect worker pensions, the Employee Retirement Income Security Act, ultimately enacted under Gerald Ford after Nixon had resigned in 1974.
William Ruckelshaus, a Justice Department lawyer with an impeccable Republican pedigree who was tapped by Nixon as the first administrator of the EPA, confided that Nixon’s motivation on environmental policy was purely political. He did not want to be outflanked by pro-environment Democrats, especially Senator Edmund Muskie of Maine, a strong contender for the Democratic presidential nomination in 1972. “He didn’t know much about the environment, and frankly he wasn’t very curious about it,” Ruckelshaus told me. “He never asked me the whole time I was at EPA: ‘Is the air really dirty? Is something wrong with the water? What are we worried about here?’ He would warn me, ‘You’ve got to be worried about that’—Ehpa, he called it. He was the one person in the country that called it Ehpa. The E-P-A, he’d call it Ehpa, and he said, ‘Those people over there, now don’t get captured by that bureaucracy.’ ”
Nixon was pushed along by popular pressure. Facing reelection in 1972 and expecting that his opponent would be the pro-environment senator Ed Muskie, Nixon felt he had to respond to the public’s demands. In his memoirs, Nixon later claimed credit for enactment of the Clean Water Act, but in fact he vetoed that legislation. Muskie had been eliminated in the Democratic primaries, and once Nixon saw that he could easily beat the Democratic nominee, Senator George McGovern, he no longer worried about the environmental vote. He felt free to veto the Clean Water Act. After the election, Congress with its strong bipartisan majority on green issues passed the bill over his veto and then armed Ruckelshaus with a raft of new laws imposing strict pollution limits and specifying penalties for violators.
As a firm believer in law enforcement, Ruckelshaus felt he had to go after some high-profile polluters—cities infamous for dumping waste into the air and local rivers, or industrial giants indifferently fouling the skies and the waters. He felt he had to show polluters as well as the public that the EPA took the new laws seriously. Ruckelshaus took strong action. He banned DDT. He imposed a tight deadline for reducing auto emissions. He sued cities like Atlanta, Cleveland, and Detroit, and he took companies like Dow Chemical and U.S. Steel to court. His tough approach made enemies, especially in Corporate America.
“Most of the people running big American manufacturing facilities in those days believed this was all a fad,” he recalled. “They figured all they had to do was sort of hunker down until public opinion subsided, public concern subsided, and it would go away.” When Ruckelshaus made clear that he was going to enforce the new environmental laws, corporate leaders got angry. “I was the epicenter of hell,” Ruckelshaus recalled with a laugh. “I remember going up to see Ed Gott, who was the CEO of U.S. Steel, and he told me, ‘You know, we don’t like your agency, and we don’t like you.’ And I said, ‘Well, okay, get in line, a lot of people don’t like me. But you’ve got to comply with these laws. We can discuss timelines of compliance, but not whether or not you’re going to comply. And if that’s your attitude, then we are probably going to get in a fight over it.’ In the end, we sued U.S. Steel and they came into compliance.”
Perhaps most surprising for Nixon, given his philosophical sympathies for business interests, was his proposal for a tax bill that hit high-end taxpayers and helped low-wage workers. Moving to bring budgets more into balance, Nixon called in 1969 for repeal of the business investment tax credit granted by Democrat John F. Kennedy, thus raising corporate taxes by nearly $3 billion. His package also included an increase in the capital gains tax rate; restrictions on the use of tax shelters by the wealthy; and a new “low-income allowance” that removed two million of the working poor from the tax rolls. As Ed Dale wrote in The New Republic, the Nixon tax package was “far and away the most ‘anti-rich’ tax reform proposal ever [sic] proposed by a Republican President in the 56 years of the existence of the income tax.”
In this political climate, Lewis Powell’s corporate manifesto hit a responsive chord. Business sprang to life politically. After having kept government at arm’s length, the business community massively expanded its physical presence in the nation’s capital. In a few short years, more than 2,000 companies set up Washington offices. The number leapt from 175 in 1971 to 2,445 a decade later. Previously, business politicking had been fragmented, each company operating on its own. Now, business made a concerted effort to organize a broad coalition. Corporations founded new think tanks like the Heritage Foundation and the Cato Institute and vastly stepped up funding for the previously modest American Enterprise Institute, to generate policy analysis from a business perspective.
The chief executives of some of America’s blue ribbon corporations—Irving Shapiro of DuPont, Reginald Jones of General Electric, Thomas Murphy of General Motors, and Walter Wriston of Citibank—banded together to form the Business Roundtable to leverage the personal clout of the nation’s most powerful CEOs in face-to-face meetings with congressional leaders.
As the core of a new management movement in politics, the Roundtable recruited 180 CEOs from the corporate elite—CEOs with the stature to call anyone in Washington and get their call answered. “If you don’t know your senators on a first-name basis, you are not doing an adequate job for your stockholders,” GM’s Tom Murphy told them bluntly.
The Roundtable quickly became, and remains today, the main political arm of big business in Washington, with a large, professional, full-time staff. Initially, what united these powerful CEOs was a resolve to curb the power of labor unions, but they quickly expanded their agenda to cover the full spectrum of economic policy issues, not only labor law, but taxes, antitrust regulation, banking, and employment.
Small business, too, became a major political player. From 1970 to 1979, the National Federation of Independent Business, the major trade group for small business, leapt from 300 members to 600,000. To connect with this sprawling network, the organization had 600 full-time employees at its California headquarters and a Washington office of 20.
The National Association of Manufacturers moved its national headquarters to Washington and mobilized its business network nationwide. The U.S. Chamber of Commerce, which had been slumbering politically, woke up. Its membership doubled to 80,000 companies in 1974, its budget tripled, and by 1980 it employed 45 full-time lobbyists. Trade associations mushroomed, representing nearly every sector of the U.S. economy. By 1978, nearly 2,000 different trade associations were operating in Washington, with a combined staff of 50,000 employees. Amply funded by their business members, the national organizations and trade groups hired an army of professionals—9,000 lobbyists and 8,000 public relations specialists—to work the corridors of power.
In fact, by the late 1970s, business interests had mustered such a huge force that they outnumbered Congress 130 to 1: They had 130 lobbyists and advocates for each of the 535 members of Congress.
With all that corporate muscle, business shifted the political balance of power in Washington, and that caused a huge swing of the policy pendulum in favor of the corporate elite—at the expense of the middle class.
A parallel transformation was coming in economics with the onset in the 1980s of the New Economy and a business mind-set focused on corporate downsizing, offshoring production, and rewriting the social contract that had been an important foundation of middle-class prosperity in the long postwar period.
But the first bend in the path of American history came in the late 1970s—while the Democrats were firmly in control of Congress and the White House.
Excerpted from Who Stole the American Dream? by Hedrick Smith Copyright © 2012 by Hedrick Smith. Excerpted by permission of Random House, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.