All for ourselves and nothing for other people seems, in every age of the world, to have been the vile maxim of the masters of mankind (Adam Smith).
Class is a Communist concept. It groups people together and sets them against each other (Margaret Thatcher).
[Current opposition to free trade in the United States is] heavily influenced by perceptions that voters themselves now view trade issues in terms of a domestic class struggle, not as promoting exports and global integration (David Hale, economist).
The power and influence of the financial class in the United States has been explained in great detail by many analysts, including historians such as Gabriel Kolko and political scientists such as Thomas Ferguson. In order to understand its role in economic traumas such as the 2007 Global Financial Crisis, it is helpful to invoke Thomas Ferguson’s investment theory of party competition in the US and the logic of money-driven political systems.
In the US elections have long been contested by two factions of the ‘Business Party’ – Republicans and Democrats. Ideological differences between the parties are marginal, and often appear illusory. The parties sometimes appeal to different fractions of the capitalist class, but policy differences in the economic sphere are normally of nuance rather than principle.
For example, according to Ferguson, the “Democratic party that is supposed to represent ordinary working Americans … is actually run by investment bankers and their allies.”
To discover who is actually pulling the policy strings, it is necessary to apply Ferguson’s Golden Rule of political analysis: “follow the gold.” Only by tracing the financing of election campaigns is it possible to get beyond the mythological electoral choice presented by Republicans and Democrats.
It is competition between blocs of major investors which drives the US political system, not competition between the parties. Parties should, therefore, be understood as “blocs of major investors who coalesce to advance candidates representing their interests.” Despite the way they are covered in the media, at elections it is investors, not voters, that are the primary constituencies.
This shouldn’t come as a surprise. As Ferguson explains,
in a political system like that of the United States, the costs associated with control of the state effectively screen out the bulk of the electorate from sustained political intervention. … power passes ineluctably to relatively small groups of major investors. And political changes are usually – but not always – intimately involved with shifts in the balance of power among these large investors.
on all issues affecting the vital interests that major investors have in common, no party competition will take place. Instead, all that will occur will be a proliferation of marginal appeals to voters – and if all major investors happen to share an interest in ignoring issues vital to the electorate, such as social welfare, hours of work, or collective bargaining, so much the worse for the electorate.
Blocs of investors invest in candidates. If there is no investment in alternative policies there will be no candidate proposing them. The spectrum of policy choices narrows to the point where meaningful choices disappear into what is often called bipartisanship: largely the consequences of an ideological convergence.
There have always been divisions within, and splits amongst, business groups. Capitalists are not an homogenous class. The issue of free trade and which business groups mobilise for protection is a demarcation line in every ruling class within every capitalist economy.
Struggles between financiers and industrialists, for example, are an important key to identifying just who is preponderant in Washington. While alignments and alliances can suddenly shift and reorganise, particularly during economic downturns, America’s financial oligarchy is clearly the dominant business faction today. And it doesn’t hesitate to use its economic power to press for favourable political outcomes.
As Chomsky points out,
A recent study by Thomas Ferguson, Paul Jorgensen and Jie Chen on ‘How Money Drives US Congressional Elections,’ reveals a remarkably close correlation between campaign expenditures and electoral outcomes in Congress over decades. And extensive work in academic political science — particularly by Martin Gilens, Benjamin Page and Larry Bartlett – reveals that most of the population is effectively unrepresented, in that their attitudes and opinions have little or no effect on decisions of the people they vote for, which are pretty much determined by the very top of the income-wealth scale. In the light of such factors as these, the defects of the Electoral College, while real, are of lesser significance.
Case study: when a class mobilises
At the peak of the first global financial crisis of the twenty-first century, a window of opportunity briefly opened for the newly elected President Barack Obama to re-regulate the financial sector in exchange for bailing out the banks which had brought the world to the precipice of economic ruin.
Widespread anger at financial shenanigans and manipulations, reckless lending practices, complex, opaque and exotic financial instruments, and in particular the extraordinary bonuses which bank executives had paid themselves as they lost other peoples’ money, meant the US public was overwhelmingly ready for a re-regulation of the sector.
Then, remarkably, nothing of significance happened. The conditions which led to the worst economic crisis in eighty years were left largely unaltered. The economy was no better prepared for the next inevitable crisis as it was in 2007. This was for two main reasons.
First, Obama put the architects the crisis in charge of fixing it. Henry Paulson, Larry Summers, Tim Geithner, Robert Rubin and Rahm Emanuel had been champions of de-regulation and direct recipients of Wall Street largesse. They had no intention of admitting their failures, changing the direction of policy, or undermining the system that had rewarded them so handsomely. This was a perfect example of “regulatory capture”. As the former chief economist at the World Bank Joseph Stiglitz observed, the people who designed the rescue plan were “either in the pocket of the banks or they’re incompetent. America has a revolving door. People go from Wall Street to Treasury and back to Wall Street.”
The businessmen on leave from Wall Street who had long espoused the virtues of the market and the evils of big government, set about using their public offices to transfer vast amounts of taxpayer money into the same private institutions that they had previously guided to the edge of bankruptcy. And they did this without any acknowledgement of their ideological and management failures. As former IMF chief economist Simon Johnson and his co-author James Kwak observed;
Never before has so much taxpayer money been dedicated to saving an industry from the consequences of its own mistakes. In the ultimate irony, it went to an industry that had insisted for decades that it had no use for the government and would be better off regulating itself – and it was overseen by a group of policymakers who agreed that government should play little role in the financial sector.
Secondly, Obama faced a business class mobilisation which he could not, or would not confront. The financial sector had been the single largest donor group to his election campaign and they did not hesitate to call in the debt he owed them. As Simon Johnson explains,
The banking and securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favours the way, for example, the tobacco companies or military contractors might have to. Instead, it benefitted from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.
There would be no significant re-regulation of the financial sector, except at the margins, including “the very products and practices that directly contributed to the worst economic crisis since the Great Depression”: enough to give the illusion of reform but otherwise it was “back to business as usual – and then some.” Meaningful regulatory reform was successfully thwarted and the neoliberal “system of class power and inequality that had generated the crisis was being reproduced.” According to Johnson and Kwak,
Wall Street fought tooth and nail to block new regulation and preserve the favourable environment that emerged after the government rescue of 2008-09, with less competition, a strengthened government guarantee, and no new restrictions on the pursuit of profits.
It was the best possible outcome for the banks. No-one would be prosecuted for their malfeasance. Bonuses would still be paid, and after the collapse of Lehman Brothers, the taxpayer would bail out the other banks at risk. So much for the lauded free market. Whilst the business community demanded that the lender of last resort save them from the consequences of their own avarice, it would be the harsh discipline of market forces for the rest of the community. As Simon Johnson remarked,
throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here.
Not that Wall Street was ultimately satisfied by the President’s inaction. Despite his fidelity to the banks, the financial sector through its weight and money behind Obama’s rival in the 2012 election, Mitt Romney. So much for gratitude!
Despite owing little to the banks and hedge funds who backed his Republican rival, Obama squibbed a much needed regulatory overhaul in his second term, leaving the United States largely unprepared for and unprotected from, the next crisis. The ratings agencies, which had so spectacularly failed in the lead up to the crisis, were already factoring another taxpayer bailout during the next crisis, into their calculations. This was a tribute to what the New York Times described as Wall Street’s “lobbying frenzy” in 2008 and 2009.
This is how class power mobilises to trump political power. In this instance, it was devastatingly effective, especially given long-standing boasts that, unlike the UK, the United States doesn’t even have a class system.
If you are someone with power and privilege it is important to maintain class consciousness for yourself, while eliminating it in others. It is particularly important that the disadvantaged and oppressed do not see themselves as a group exploited by an inequitable system. Concern for others and class solidarity must be driven from their minds. Business communities across the Western world have always been highly class-conscious and ferociously hostile towards organised labour. As the billionaire investor Warren Buffett conceded, “there’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
The system, however, cannot be seen this way, as structurally unfair. To maintain the legitimacy of the state capitalist order it is important to make ordinary people believe that there are no such things as classes and that we are all equal members of a harmonious society. Mention of “class war” needs to remain “political taboo”, as political commentator Jason Wilson astutely notes. Or even better, sinister and unpatriotic.
The role of the state, according to political economist David Held, is to defend “the ‘public’ or ‘community’ as if: classes did not exist; the relationship between classes was not exploitative; classes did not have fundamental differences of interest; [and] these differences of interest did not define economic and political life.” This is not always easily accomplished.
Historically, it means that “each new class which displaces the one previously dominant is forced, simply to be able to carry out its aim, to represent its interest as the common interest of all members of society … to give its ideas the form of universality and represent them as the only rational, universally valid ones” (Karl Marx). This is often defined as the “national interest” – in fact, particular interests masquerading as those with a concern for the general good – implying that those who dissent lack sufficient patriotic zeal, or worse.
What conservatives really want
According to economist Dean Baker, the political Left make a fundamental error when they complain that the Right wants to roll back government intervention and leave everything to the market. “This is nonsense,” says Baker and an example of the “myth of market fundamentalism”:
The Right has every bit as much interest in government involvement in the economy as progressives. The difference is that conservatives want the government to intervene in ways that distribute income upward. The other difference is that the Right is smart enough to hide its interventions, implying that the structures that redistribute income upward are just the natural workings of the market. Progressives help the Right’s cause when we accuse them of being ‘market fundamentalists,’ effectively implying that the conservatives’ structuring of the economy is its natural state.
The presumed bastions of free-market capitalism – the heads of the firms who are responsible for ensuring the free flow of capital throughout the economy – love feasting on the government as much as the laziest civil servant.