Many people seem to believe that America is ruled from behind the scenes by a conspiratorial elite with secret desires, i.e., by a small secretive group that wants to change the government system or put the country under the control of a world government. In the past, the conspirators were usually said to be secret Communist sympathizers who were intent upon bringing the United States under a common world government with the Soviet Union, but the collapse of the Soviet Union in 1991 undercut that theory. So most conspiratorial theorists changed their focus to the United Nations as the likely controlling force in a "new world order," an idea which is undermined by the powerlessness of the United Nations and the unwillingness of even moderates with the American power structure to give it anything but a limited role.
For a smaller group of conspiratorial thinkers, a secret group of operatives located within the CIA was responsible for many terrible tragedies and assassinations since the 1960s, including the assassination of President John F. Kennedy.
There are several problems with a conspiratorial view that don't fit with what we know about power structures. First, it assumes that a small handful of wealthy and highly educated people somehow develop an extreme psychological desire for power that leads them to do things that don't fit with the roles they seem to have. For example, that rich capitalists are no longer out to make a profit, but to create a one-world government. Or that elected officials are trying to get the constitution suspended so they can assume dictatorial powers. These kinds of claims go back many decades now, and it is always said that it is really going to happen this time, but it never does. Since these claims have proved wrong dozens of times by now, it makes more sense to assume that leaders act for their usual reasons, such as profit-seeking motives and institutionalized roles as elected officials. Of course they want to make as much money as they can, and be elected by huge margins every time, and that can lead them to do many unsavory things, but nothing in the ballpark of creating a one-world government or suspending the constitution.
Second, the conspiratorial view assumes that the behind-the-scenes leaders are extremely clever and knowledgeable, whereas social science and historical research shows that leaders often make shortsighted or mistaken decisions due to the limits placed on their thinking by their social backgrounds and institutional roles. When these limits are exposed through stupid mistakes, such as the failure of the CIA at the Bay of Pigs during the Kennedy Administration, then conspiratorial theorists assert that the leaders failed on purpose to fool ordinary people.
Third, the conspiratorial view places power in the hands of only a few dozen or so people, often guided by one strong leader, whereas sociologists who study power say that there is a leadership group of many thousands for a set of wealth-owning families that numbers several million. Furthermore, the sociological view shows that the groups or classes below the highest levels buy into the system in various ways and support it. For example, highly trained professionals in medicine, law, and academia have considerable control over their own lives, make a good living, and usually enjoy their work, so they go along with the system even though they do not have much political power.
Fourth, the conspiratorial view often assumes that clever experts ("pointy-headed intellectuals") with bizarre and grandiose ideas have manipulated the thinking of their hapless bosses. But studies of policy-making suggest that experts work within the context of the values and goals set out by the leaders, and that they are ignored or replaced if they step outside the consensus (which is signaled by saying they have become overly abstract, idealistic, or even, frankly, "pinko").
Finally, the conspiratorial view assumes that illegal plans to change the government or assassinate people can be kept secret for long periods of time, but all evidence shows that secret groups or plans in the United States are uncovered by civil liberties groups, infiltrated by reporters or government officials, and written about in the press. Even secrets about wars and CIA operations -- Vietnam, the Contras, the rationales for Bush's invasion of Iraq in 2003 -- are soon exposed for everyone to see. As for assassinations and assassination attempts in the United States, from McKinley to Franklin D. Roosevelt to John F. Kennedy to Martin Luther King, Jr., to Robert F. Kennedy to Reagan, they have been the acts of individuals with no connections to any power groups.
Because all their underlying assumptions are discredited by historical events and media exposures, no conspiracy theory is credible on any issue. If there is corporate domination, it is through leaders in visible positions within the corporate community, the policy planning network, and the government. If there is class domination, it is through the same mundane processes that social scientists have shown to be operating for other levels of the socioeconomic system.
Even though there are no conspiracies, it is also true that government officials sometimes take illegal actions or try to deceive the public. During the 1960s, for example, government leaders claimed that the Vietnam War was easily winnable, even though they knew otherwise. In the 1980s the Reagan Administration defied a Congressional ban on support for anti-government rebels in Nicaragua (the "Contras") through a complicated scheme that raised money for the rebels from foreign countries. The plan included an illegal delivery of armaments to Iran in exchange for money and hostages. But deceptions and illegal actions are usually uncovered, if not immediately, then in historical records.
In the case of the Vietnam War deception, the unauthorized release in 1971 of government documents called The Pentagon Papers (which revealed the true state of affairs) caused the government great embarrassment and turned more people against the war. It also triggered the creation of a secret White House operation to plug leaks (the "Plumbers"), which led in turn to an illegal entry into Democratic Party headquarters during the 1972 elections, an attempted cover-up of high-level approval of the operation, and the resignation of President Richard M. Nixon in the face of impeachment charges. As for the Reagan Administration's illegal activities, they were unraveled in widely viewed Congressional hearings that led to a six-month imprisonment for the president's National Security Adviser for his part in an unsuccessful cover-up, along with convictions or guilty pleas for several others for obstruction of justice or lying to Congress. The Secretary of Defense was indicted for his part in the cover-up, but spared a trial when he was pardoned by President George H. W. Bush on Christmas Eve, 1992.
It is also true that the CIA has been involved in espionage, sabotage, and the illegal overthrow of foreign governments, and that the FBI spied on and attempted to disrupt Marxist third parties, the Civil Rights Movement, and the Ku Klux Klan. But careful studies show that all these actions were authorized by top government officials, which is the critical point here. There was no "secret team" or "shadow government" committing illegal acts or ordering government officials to deceive the public and disrupt social movements. Such a distinction is crucial in differentiating all sociological theories of power from a conspiratorial one.
The group said by many conspiratorial thinkers to be at the center of the alleged conspiracy in the United States, the Council on Foreign Relations, is in fact a mere policy discussion forum. It has nearly 3,000 members, far too many for secret plans to be kept within the group. All the CFR does is sponsor discussion groups, debates and speakers. As far as being secretive, it issues annual reports and allows access to its historical archives. Historical studies of the CFR show that it has a very different role in the overall power structure than what is claimed by conspiratorial theorists.
For my responses to an interviewer on the issue of conspiracy, see http://www.publiceye.org/antisemitism/nw_domhoff.html.
For more about conspiracism, including links to other resources, please visit the Conspiracy section of PublicEye.org, especially Chip Berlet's excellent article entitled "Conspiracism as a Flawed Worldview".
The aim of this essay is provide a big-picture canvas of the wider meanings of the Left-Right dimension in human thinking, a dimension that precedes and transcends mere politics, but may well explain some of the puzzles about the political Left and Right. I begin by discussing general findings on the cross-cultural differences in the thinking and attitudes of Leftists and Rightists on many different aspects of life. Then I describe how this dimension has manifested itself in language, and how it became part of politics during the French Revolution. Then I show how the left-right dimension manifests itself in personality, and that political preferences do relate to this dimension.
After showing the considerable difference between the political Left and Right in personality and social attitudes, I suggest that they nonetheless share certain essential similarities that are relatively rare in the general population, especially a high degree of moral fervor and moral anger, even while they differ completely on what they are fervent and angry about. My next step is to suggest that this shared moral fervor leads political Leftists and Rightists to have similar condescending attitudes towards their more moderate left-oriented or right-oriented compatriots, those who are merely "liberal" or only moderately "conservative."
In the 1960s, a psychologist interested in philosophy and ideology, Silvan Tomkins, wrote an essay in which he argued there is a Left-Right dimension in every area of waking thought, from beliefs about mathematics to beliefs about child-rearing practices. Based on his research, Tomkins (1964) concluded that those on the Right end of this continuum first and foremost tended to be rule-oriented. They see rules as external to themselves, and even to people in general. Rules are part of the universe, or ordained by God. In addition, Rightists are often uncomfortable about emotions and tend to deny their feelings. They therefore want emotions under control. They also favor hierarchy, at least in part because they want to keep impulses under control through rules. The best people, those who follow rules and control emotions, should be in charge. Rightists become angry with rule breaking, not with oppressive authority.
Rightists tend to be very individually oriented. They tend not to see groups and social classes. They think that success is a matter of individual effort, overlooking the social support that they and everyone else has had in order to advance in life. This individualistic orientation, along with their respect for hierarchy, makes them into natural supporters of the current power structure, whatever their socioeconomic standing.
On the other hand, according to Tomkins, Leftists are oriented toward human needs and pleasures, not rules, and think that rules are created by people. They are attracted to new experiences and positive feelings. They are for equality and do not like hierarchy; they are egalitarians who are willing to change the rules if they think that is necessary. In addition, they tend to focus on groups and social networks. This group-oriented stance, along with their emphasis on equality, makes them natural allies of the underdogs, whether this means low-income people or people excluded from the dominant society on the basis of race, ethnicity, sexual orientation, or religious preference.
It is this underlying dimension of human thinking and experience that has been rediscovered by cognitive linguist George Lakoff (1996) in his work on "moral politics," in which he comes to similar conclusions about Right and Left thinking based on a metaphoric analysis of what Leftists and Rightists say and write.
Tomkins developed a questionnaire to test his ideas on American participants, mostly college students. The questionnaire asked people to endorse one or both of a series of paired statements, such as "Numbers were invented" or "Numbers were discovered." As Tomkins expected, he found that people differed in consistent ways on which statements they endorsed, supporting his hypothesis that there were Right and Left ways of looking at the world over and beyond how people felt about any specific issue. For example, when confronting the statements about numbers being either invented or discovered, Left-oriented thinkers (and keep in mind that we are not yet talking about politics, but a general way of thinking) replied that they were invented by we humans, whereas Right-oriented thinkers tended to say they were discovered, i.e., that they exist external to people. (The issue here is not which is "really" the correct answer, if there is one, but simply what people say off the top of their heads.)
Similarly, Right-oriented thinkers were for strict child rearing in order to tame the unruly emotions in children ("spare the rod and spoil the child"), while Leftist-oriented thinkers saw children as little flowers to be nurtured and supported, that is, allowed to grow more or less "naturally." More generally, when asked whether people are basically "evil" or "good" in terms of human nature, Right-oriented thinkers tended to say "evil" and Left-oriented thinkers tended to say "good." In fact, people's preference on this question about basic human nature best predicts how they will answer many other questions in a "Right" or a "Left" way. So we can say that beliefs about human nature are an anchor point of the general Left-Right dimension.
To show that there is a Left and Right to every question and even every academic discipline, Tomkins noted in his essay that the field of psychology is on the Left side, with engineering and the natural sciences on the Right, and the humanities to the Left of psychology. However, even within a field like psychology, there are Right and Left sides to every issue, with the "hard-nosed" experimentalists and "quantifiers," who study specific narrow psychological processes, on the Right, and the more field-oriented and clinical researchers, who use "qualitative" methods, on the Left.
In closing this section, let me stress that we are talking here about pure types at the ends of a continuum. Everyone believes in controlling impulses at one time or another, not just Right-oriented thinkers, and just about everyone likes to explore and take risks in some situations, not just Left-oriented thinkers. Thus, most people are somewhere in the middle in their overall thinking, and they are sometimes complex blends of the two orientations. Moreover, Tomkins claims that some of the most famous and creative people in Western history, such as the philosopher Kant and the composer Beethoven, are those who are able to synthesize aspects of the Left and Right, thereby appealing to both sides of the continuum. The point for now, though, is that there is a general Left-Right dimension that transcends any particular issue.
Why do we speak of the hierarchically oriented stand-patters as "Rightists" and the egalitarian, we-can-do-better, let's-change-things people as "Leftists?" According to the Oxford English Dictionary and conventional wisdom, it's because the conservatives happened to sit on the king's right when they marched into the French National Assembly that was convened in 1789 in the face of the upheavals facing the king and his court. Since the conservatives were on the right, it followed that the upstart bourgeoisie, radical intellectuals, and other insurgents had to sit on the left (see Laponce, 1981, Chapter 3, who analyzed French newspaper accounts from the 1790s to explain how the use of right and left spread across that country and into the rest of the world).
According to this account, the use of Left and the Right to characterize political views is just an historical accident. A precedent was set through what was much like a flip of a coin, and then it became a custom, and was invested with all kinds of meaning, and things rolled on from there, a small example perhaps of the "path-dependent" nature of history.
But Tomkins and other scholars claim it may not be that simple. As they note, Right and Left have been invested with deep meanings throughout Western history, and indeed, in every other culture we know about as well. The Right is always good and straight and true and up, and the Left tends to be the opposite. For example, the Maori, the indigenous people of New Zealand, have a very complex cosmology that ties many basic dimensions of life to the left and the right, as do many other peoples (e.g., Hertz, 1960; Needham, 1973). In the Bible, the elect sit on the right hand of God.
These associated meanings of Left and Right are also seen in word etymologies, which reveal the "meaning complexes" that embed specific terms (Thass-Tienemann, 1955, 1967). In many Romance languages, for example, the left is related to strange stuff and lesser aspects of life. For example, sinistra, the Latin word for left, is also the root for our word "sinister." Droche, the old word for left in French, also means awkward, and gauche, the current French word for left, has negative connotations. In Norwegian, the word for right, hoyer, literally means "higher."
Or take a look at English. People are "out in left field," not right field, when they have a far-out opinion. We give people "left-handed compliments." So the question may be: why did the nobility sit on the king's right in the first place?
Perhaps the left-right, bad-good dichotomy had its origins in the basic dualisms that exist in human thought everywhere, as implied by Tomkins's work. That's a big claim, but it gains support in work by psychologist Charles Osgood and his colleagues (1975) from the 1950s to 1970s. Osgood basically asked people all over the world to make snap judgments on just about anything you can think of -- whether it was colors like "red" and "blue," or concepts like "left" and "right," or specific people like presidents Dwight Eisenhower and John F. Kennedy -- using a series of polar opposites, such as soft/hard, up/down, hot/cold, and fast/slow. So, for example, if you were asked to rate a "turtle," you might strongly think it was more "hard" than "soft" and more "slow" than "fast." You also might rate a turtle as somewhat more "down" than "up" because they are close to the ground. You might be hard pressed to decide if a turtle is "hot" or "cold," so you might pick the middle point on the seven-point scale, meaning that it does not strike you as either "hot" or "cold."
On the other hand, if you were asked to rate a "giraffe," you might say it was more "soft" than "hard" because of its smooth skin and colorful fur, and more "fast" than "slow" because it can run plenty fast when it has to. You probably would rate it as more "up" than "down" because of its long neck, and you might say it is more "hot" than "cold" because you figure it is a warm-blooded animal living on the hot plains of Africa.
Osgood called his list of polar adjectives "the semantic differential." Based on very large samples of people from all over the world, and using very rigorous statistical analyses, Osgood established that there are three basic dimensions when people impute meaning. These dimensions hold all over the world and for whatever we rate, whether turtles or giraffes or presidents or cooking pots or colors or pictures. The importance of each of the three dimensions varies from concept to concept, but there are main factors that inform any intuitive judgment we make:
First, there is the evaluative dimension. Do I like it or not like it, which is soon translated in our thinking into a "good-bad" dimension. The evaluative dimensions includes polar opposites such as good/bad, pretty/ugly, and friendly/unfriendly
Second, there is the activity dimension. Basically, is it active or passive, fast or slow?
Third, there is the potency dimension. Is it strong or weak?
If the Left-Right dimension explained by Tomkins also has any relationship to our thinking about politics, then there should be differences on the semantic differential. So I tested this possibility by giving the semantic differential to college freshman and sophomores who did not know the purpose of the study. Eighty rated only the concept "Right," 78 rated the concept "Left." Then I studied children from the first grade through high school in Napa, California, thanks to an insider connection that got me entrée into dozens of classrooms in a single day, back in the mid-1960s (Domhoff, 1969). The two sheets of paper put before the students looked like what appears below, with either the word Left or Right at the top of the page, followed by instructions to judge where they would place Left and Right on each of the pairs of polar adjectives that we used (e.g., good/bad, male/female, unclean/clean). They had seven blanks they could mark to express the degree to which their idea of Left or Right fit with one or the other side of the continuum, which means they could mark the middle choice ("4") if the word at the top did not remind them of either side.
There was one added twist to this study. I used a set of polar adjectives that were related to "left" and "right" by the Maori of New Zealand to see if we had similar conceptions to what they have. The scale appears below.
|light||- - - - - - -||dark|
|curved||- - - - - - -||straight|
|high||- - - - - - -||low|
|female||- - - - - - -||male|
|sacred||- - - - - - -||profane|
|heterosexual||- - - - - - -||homosexual|
|mysterious||- - - - - - -||commonplace|
|unclean||- - - - - - -||clean|
|correct||- - - - - - -||incorrect|
|bad||- - - - - - -||good|
|beautiful||- - - - - - -||ugly|
|limp||- - - - - - -||erect|
|strong||- - - - - - -||weak|
Sure enough, just like the Maori, the older children and college students tended to say that the Left was bad, dark, profane, female, unclean, curved, limp, homosexual, weak, mysterious, low, ugly, and incorrect, while the right was judged as just the opposite -- good, light, sacred, male, clean, straight, erect, heterosexual, strong, commonplace, high, beautiful, and correct. This suggests there is a pan-human meaning to the Left and the Right.
If we look more closely at how we think about leftness, it is not always simply "bad," as in "not good." It is more like the Left is bad in the sense of "tempting." That is, the Left involves impulses that are not a good idea because they upset people and get you in trouble, which is in keeping with Tomkins's claim that expressing or controlling emotions is a key factor in the Left-Right dimension. But it is not just that the Right is good and the Left is "baaad," as in the admiring comment, "he's a baaad cat." The Right is also "up" and the Left is "down," as also seen in the rating of the Right as "high" and the Left as "low." That is, the hierarchical dimension that Tomkins talks about is built into the Left-Right dimension, too, through the basic equation of "good" and "up" and "bad" and "down" in our mental universe. How are you feeling today? "I'm really up, today, thanks." Or, "sorry to say, but I am feeling down today." When we are elated we are "high as a kite," on "cloud nine," or "walking on air." When we are feeling discouraged or depressed, we are "down" or "low," or "in the dumps."
So, Right and Left really do stand for something in our minds. They stand for proper, right-minded thinking versus playful/sinful/heretical thinking, and hierarchy versus equality, just as Tomkins suggests. To support God, the king, the president, the bosses, or the department chairperson is to be on the Right. To question or rebel against them is to be on the Left.
But does what I have outlined in this and previous sections relate to the actual people who are political Rightists and Leftists in countries like the United States? I now turn to the evidence that it does, starting with a study that a colleague and I did of political Leftists and Rightists using the Tomkins questionnaire.
Tomkins also claimed that the Left-Right dimension appears in politics, and I am now going to present evidence that such is the case.
But before I do that, I need to make sure we are all on the same page when it comes to talking about different political orientations in the United States. First, most people in the United States usually think of the Left-Right dimension as the "liberal-conservative" dimension, and rightly so, because it means the same thing at a theoretical level. However, a terminology problem arises because those who are "left of center" divide into two basic types, as do those "right of center." On the Left side, just to the left of the center," we find the "liberals," whereas those to the left of liberals are called "Leftists." In the past, the Leftists usually defined themselves as either "socialists," "communists," or "anarchists." Today they are more likely to self-identify as "progressives" or "anti-capitalists," although there are also those who lean in an anarchistic direction who call themselves "libertarian socialists" to emphasize their respect for individual rights and their wariness of a large government. Meanwhile, just to make things a little more complicated, the term "progressive" has also been adopted by some moderate liberals who don't want to be associated with "The L-Word." On the Right side, just to the right of the center, there are "moderate conservatives" and on their right we find the "ultra-conservatives," with the varying types of ultra-conservatives self-identifying as "New Rightists," "Christian Rightists," and "Neo-conservatives." There's also a very small and unusual group on the right, the "Libertarians," who dislike government but are -- in theory -- in favor of freedom to smoke dope, be gay, etc. They are in some ways a mirror image of anarchists, and they are civil libertarians, but anarchists and libertarians also differ totally in that the anarchists are internationalists and dislike markets, whereas libertarians are more nationalistic and love markets over and beyond just about anything else. In any event, it is the New Rightists, Christian Rightists, Neo-conservatives, and Libertarians that I am calling political Rightists in this essay. All of this can be confusing, so below is a chart that tries to provide an overview.
|Points Along The Left-Right Dimension in American Politics|
|Extreme Left||Moderate Left||Moderate Right||Extreme Right|
It's also important to make clear that the political substance of what is "Left" and what is "Right" can vary from time to time and place to place due to the different histories of different countries. This point is especially critical for understanding the differences between the European Right and the American Right. The European Right mythologizes a past of strong states, complete with kings and their courts, and a hierarchical church. It can see itself submerged in the state, and could therefore move, just 70-80 years ago, to the extreme of fascism.
The American Right, on the other hand, due to the history of the United States, has a myth of a highly individualistic past, with a minimum amount of government. That is, the American Right is based on the tenets of 19th century, Big-L "Liberalism," the philosophy that codifies and justifies a small-government, a "free" market, and anti-union policies and practices. It claims that people are rational self-maximizers. The people who become the wealthiest are assumed to be the smartest and the fittest. The American right therefore shares an elitist orientation with other Rightists, but it doesn't glorify the government.
Meanwhile, the small-L liberals in America, that is, those left of center within the Democratic Party, who want to end racism and sexism and exploitation of ordinary workers, came to the conclusion many decades ago that federal-level government programs were the only way to achieve their goals. The federal government would have to end segregation, women would have to have the right to vote, and workers would have to have the right to unionize to counter the power of big corporations. This need for action at the national level was especially obvious in the case of freedom for African-Americans because the state governments in the racist, segregationist South were clearly not going to change one iota without federal pressures (see Starr, 2007, for a full discussion of how the small-L liberals gradually evolved from the big-L liberals and therefore differ from the present conservatives and Rightists, who stick to the original big-L positions).
However, the American Rightists, given their strong desire to keep things as they are, and their respect for hierarchy, including the hierarchical relationship between whites and blacks and men and women as well as capitalists and workers, saw the new small-L liberalism as a form of "collectivism." Contrary to Rightist rhetoric, however, small-L liberalism is a relatively slight modification of old-style liberalism and an expansion of democracy to include more than the owners of income-producing properties. In other words, and this is crucial, most Americans are either 19-century liberals or 20-century liberals in an ideological sense. Contrary to the Rightists, there are few or no socialists or communists. And contrary to the Leftists, the American Rightists are not "fascists." Put another way, the conservatives and liberals use extremist rhetoric when talking about each other. However, because most Americans are one or another variant of Big-L liberalism, that is, they are neither communists/socialists nor fascists, they are usually able to compromise their differences without violence. On the other hand, the fact that the two sides can come to demonize each other so completely is a testament to the more fanatical aspects of the human mind.
Now we are ready for studies that try to relate styles of thinking and personality to political preferences. Such studies have a long history that dates back to the late 1930s in the United States, but I want to start with a study from the 1960s that used the Tomkins Left-Right questionnaire and then turn to the other studies. It's a study I did with my colleague Henry Minton at California State University at Los Angeles in the autumn of 1964, just before the presidential election between liberal Democratic presidential candidate Lyndon B. Johnson and ultra-conservative Republican Barry Goldwater. We were able to give the Tomkins questionnaire and several personality tests -- to be discussed in a second -- to five groups:
In addition to the Tomkins questionnaire, we collected basic demographic information on the participants that isn't essential here because everyone back then was standard-issue young white college students, along with something that is important for my current purposes, a self-rating on a 7-point liberalism-conservatism dimension. We also gave the Internationalism-Nationalism Scale, which is known to correlate with conservatism.
It's also important to note that we did not use the two or three Tomkins statements that relate at all to politics -- the ones about the nature of government and the best way to deal with criminals. In other words, we made the Tomkins questionnaire apolitical in that it focuses on statements about human nature, numbers, child rearing, and a few other non-political issues.
Here's what we found. First, on the liberalism-conservatism self-rating scale, all but one of the Communists and Trotskyists gave themselves the strongest possible liberalism rating, a "1," with one person giving himself a "2." All of the Young Democrats gave themselves a "2," "3," or "4," which clearly differentiates them from the Leftists. And all but two of the Young Republicans gave themselves the most extreme conservative ratings, a "6" or a "7;" the remaining two rated themselves as "3" and "5." So the self-ratings completely differentiate the various groups, with the exception of the Young Republican who gave himself a "3," who turned out to have been raised in a liberal family.
The second analysis consisted of a correlational matrix that included the liberal-conservative self-rating, along with the international/chauvanistic nationalism scale, the Tomkins questionnaire, and the Jackson-Minton Adjective Checklist. This analysis first of all showed that the participants' subjective self-ratings correlated very highly, r= .78, with the internationalism-nationalism scale, with the conservatives on the highly nationalistic, super-patriotic side, a finding that has been reported in virtually every study that has been done of Leftists and Rightists in the past 60 years. That means we are on solid ground when we turn to the Tomkins results.
The Total Left Scores, that is, the total number of Left-oriented statements that the person endorsed, correlated .46 with liberal self rating and .35 with internationalism, which is a solid result in the world of personality studies, and the Total Right Scores correlated .51 with the self rating and .65 with nationalism, which is an even more impressive result.
Although those are good correlations by the standards of personality studies, it's a fair question to ask why they aren't even higher. One important reason is that some of the self-identified Leftists and Young Republicans had not yet found their "natural" home on the Left-Right continuum. That is, we know from the biographies and autobiographies of many political figures that they start out at one place and end up at another. In particular, there are many dramatic examples of young Leftists who move to the Right. Most of the famous Neo-Conservatives of recent decades started out as Socialists or Trotskyists in the 1950s and 1960s, for example. There is also a little movement from the Right to the center, and even to mild liberalism, where Hillary Clinton would be a good case in point. Based on her upbringing, she was for Goldwater in 1964, but by the time she had finished college and law school she was a liberal. (More generally, there is a modest correlation between parental and offspring politics as people are growing up, but other factors enter into political orientation after age 18 or 19 -- including what the new generational as a whole is experiencing -- e.g., "the Sixties," "the Eighties.") So young adults often differ from their parents in political orientation, and siblings often differ from each other, too, for that matter. There's also social class and peer-group influences and situational factors like where you work.
There is one very interesting study of liberals and conservatives that is consistent with the Tomkins dimension. It is a by-product of a follow-up study of University of Minnesota students who had taken a battery of vocational interest tests in the late 1930's in an attempt to predict their future career interests. When they were studied via questionnaires and interviews 25 years later, they provided new information on their interests and attitudes, including their political orientation. So, as one small part of the data analysis, the participants were divided into liberals and conservatives (Rossmann & Campbell, 1965). And they differed in their interests, hobbies, and occupations in ways we would expect from the Tomkins dimension. More generally, there is a wealth of data showing that Rightists are much like Tomkins would expect, but much less information on Leftists.
The differences on values, interests, and occupations between political Leftists and Rightists must not be the whole story, however, because there is much evidence of extremely authoritarian Leftist political parties in the United States. In particular, there are various Marxist-Leninist parties that say they practice "democratic centralism," meaning that everyone has an equal chance to speak and participate, but they then agree to follow what the majority decides. What invariably happens in these groups is that they come to be run by an inner circle, the "central committee," which is in turn usually dominated by one strong leader. Some of the accounts of these groups are harrowing; there is evidence of self-righteous manipulation of the members and a willingness to use violence (Ellis, 1998; Lalich, 2004).
Although the Right and Left have major differences that make it almost impossible for them to agree on anything, they also have certain -- if not immediately apparent -- similarities as well. In fact, they are remarkably similar for how different they are. Since these similarities are of a type that tends to make them blind to any other view, these similarities further reinforce the dichotomy between them: that is, the similarities I am about to discuss make for more differences.
First, they share the same high degree of moral outrage and anger. This strong moral outrage makes them into absolutists. They become True Believers in their cause, with no doubts whatsoever. They see everyone else as sell-outs and trimmers. This includes many people who share their sympathies, but not their fanaticism. This disdain for less fanatical friends who share their general beliefs also reveals to us what the tamer versions of Rightists and Leftists, that is, conservatives and liberals, have in common: they are more pragmatic, tentative, and experimental in their beliefs. As might be expected, then, and as everyday observation makes apparent, there is often tension between moderate conservatives and Rightists on the Right side of the divide and between liberals and Leftists on the other side.
On the Right, the tension is due to the fact that the moderate conservatives are willing to accept the current situation on most issues, whereas Rightists are not. Rightists in the Republican Party often contemptuously call moderate conservatives "RINOs," which means "Republican in Name Only," and therefore fair game for attack because they are weak-kneed compromisers and backsliders. For example, most American conservatives do not want to go back to black-white segregation or to the subjugation of women, even though most conservatives of the 1950s and 1960s opposed the extension of equality, fairness, and opportunity to women and African-Americans (including famous libertarians like William F. Buckley). Present-day conservatives have accepted those changes; they figure that's the way things are, but things should change no further (and people like Buckley came to accept the changes and even regret some of their past views).
However, those on the far Right have not accepted most of these changes. They talk about the 1950s as a golden era, even though there were far fewer ultra-conservatives than there are now, and even though it was a time of racial segregation and almost complete male dominance. The thought that there have been changes in the tried and true ways completely upsets them. Indeed, they claim that the problems of today are due to the changes since the 1950s. There has been "moral degeneration," something that Rightists have been saying throughout Western history. They have once again created a self-serving myth about the past.
Similarly, there is tension between liberals and Leftists over many issues. Liberals want small gradual improvements, but political Leftists want major changes right now. When various types of Leftists have to define what they share in common, they are sure of one thing -- they are not mere liberals. Put another way, Leftists often define themselves as "not-liberals."
The moral outrage of True Believers of the Right and Left leads them to share a second similarity: they see everything as rushing to a huge crisis. They share the feeling that things have become intolerable and can't go on any longer. This sense of crisis is defined as growing immorality and degeneracy on the Right and as intolerable inequality, corruption, and injustice on the Left. However, at the same time, both Right and Left have hope because they believe that things are going to come out all right, that is, the way they want them to.
These feelings of impending doom followed by a new dawn lead the political Right and Left to share the same underlying theory of how history unfolds and how it will end. For both extremes, it is a story of an original paradise that is lost due to one or another mistake or sin, followed by a growing crisis that leads to an apocalypse, which then leads to a regaining of paradise. That is, both Right and Left begin with the idea that human beings once lived in positive, non-conflictual social groups that were, sadly, disturbed by one factor or another, which has led to the current crisis that is soon to reach an apocalyptic climax. This huge climax -- this Armageddon, this revolution, this upheaval -- will be followed by a new positive state of being. It will incorporate some positive aspects of what developed after the primordial human society was left behind.
Where Right and Left differ is in the substance of the matter. Reflecting the differences along the Right-Left dimension, what varies is the nature of the original human social setting, the cause of the problems that developed, and the nature of the resolution. This is best seen by looking at Christianity, which is the underlying theory of many on the far Right, and Marxism, which is the underlying theory of many on the far Left.
|Original state||Garden of Eden||Primitive Communism|
|Problem||Sin||Division of labor, private ownership|
|Conflict||Good vs. Evil||Class conflict|
|Result||Heaven on Earth||Socialism/Communism|
Although the two theories of history have very similar structures, their substance is completely different. The Rightist theory is far more individualistic and psychological. The Leftist theory is almost completely group or class oriented, and hence sociological. These differences far overshadow the similarities and drive the two extremes even further apart.
Third, the two extremes share the same story about how the current society is structured. However, they draw very different conclusions about who the good guys and the bad guys are in this shared scenario. The common story line goes like this:
The country is sustained by good and hard-working average people in the middle like us, but we have little or no power. For the Right, these "good people" are the middle class of small business owners, farmers, and white-collar workers. For the Left, they are the workers, that is, the people who work with their hands in factories and fields. Although important and hard-working, we good people are exploited and dominated by the few at the top. For the Right, that means the bureaucrats, internationalist financiers, pointy-headed intellectuals, and effete liberals. For the Left, that means the capitalists. Moreover, we good people have to contend with the ne'er-do-wells, those who don't contribute to the overall good of the society like we do. For the Right, that means the alleged welfare bums and allegedly shiftless people of color. For the Leftists, it means the lumpenproletariat.
Since this state of affairs is not fair to the good and hard-working majority, we have a right to be angry, and we should organize to create social change that brings about a new social order. For the Right, that means a return to an idyllic world of small business, small government, male dominance, and white Christian rule. For the Left, it means a transition to economic, gender, and racial equality (see Berlet & Lyons, 2000, for a statement of these ideas).
But these similarities in moral fervor and in the narrative structure of the Left and Right's views of history do not seem to fully explain how Leftists often end up in very rigid parties and perhaps eventually willing to call for revolutionary violence or engage in physical attacks on property and/or persons. A larger theory is therefore needed. The starting point for that theory can be found in group dynamics and organizational theory. That is, based on work in social psychology and sociology, it is possible to explain how extreme political groups on the Right and the Left can share many similarities even though the substance of their concerns is very different. Part of that theory can be found in the document on the four-network theory of power on this site, but there is much more to be said. Richard Ellis (The Dark Side of the Left) and Janja Lalich (Bounded Choice) provide two starting points on how Leftist groups become hierarchical and sometimes violent.
Berlet, C., & Lyons, M. N. (2000). Right-wing populism in America: Too close for comfort. New York: Guilford.
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Ellis, R. J. (1998). The dark side of the Left: Illiberal egalitarianism in America. Lawrence: University of Kansas Press.
Hertz, R. (1960). Death and the right hand. Glencoe, IL: Free Press.
Lakoff, G. (1996). Moral politics: What conservatives know that liberals don't. Chicago: University of Chicago Press.
Lalich, J. (2004). Bounded choice: True believers and charismatic cults. Berkeley: University of California Press.
Laponce, J. A. (1981). Left and right: The topography of political perceptions. Toronto: University of Toronto Press.
Needham, R. (1973). Right and left: Essays on dual symbolic classification. Chicago: University of Chicago Press.
Osgood, C., May, W., & Miron, M. (1975). Cross-Cultural Universals of Affective Meaning. Urbana: University of Illinois Press.
Rossmann, J. E., & Campbell, D. P. (1965). Characteristics of political liberals and conservatives. Unpublished manuscript, Chicago.
Starr, P. (2007). Freedom's power: The true force of liberalism. New York: Basic Books.
Thass-Tienemann, T. (1955). Left-handed writing. Psychoanalytic Review, 42, 239-261.
Thass-Tienemann, T. (1967). The subconscious language. New York: Washington Square Press.
Tomkins, S. (1964). Left and right: A basic dimension of personality and ideology. In R. W. White (Ed.), The study of lives (pp. 388-411). New York: Atherton Press.
This document explains why and how organizations are the starting point for understanding power. It focuses on four main organizational networks -- ideological, economic, military, and political -- as the building blocks for power structures. To provide a backdrop for understanding the American power structure, it then briefly applies the theory to Europe from the Middle Ages to the 19th century, showing how the economic and political networks gradually subordinated the ideological and military networks. Finally, it shows how the theory explains the class domination that characterizes the American power structure.
The theoretical starting point for power structure research is a seemingly mundane one, but that's what makes it very useful: power is rooted in organizations. From that humble beginning we can soon reach classes, states, the military and the ideological organizations that provide the basis for the collective search for meaning and forgiveness (organized religions).
Organizations at their most basic are simply sets of rules, roles, and routines developed to accomplish some particular purpose. They are ways of doing something together that people agree on, or at least accept for the time being. Religious rituals, for example, are routines that become the basis for the institutions called churches. The established routines for face-to-face economic exchanges become one basis for the more complex economic system of markets.
This too sounds very banal. But organizations can quickly become hierarchical and/or fierce when they begin to grow larger or face an outside threat. People will fight to hold on to their organizations. They like their roles and routines, which often become rituals.
Since human beings have a vast array of "purposes," they have formed an appropriately large number of organizations. But only a few of these purposes and organizations weigh heavily in terms of generating power.
According to sociologist Michael Mann's theory -- in my opinion, the theory that best suits power structure research -- the power structures within Western civilization, and probably other civilizations, too, are best understood by determining the intertwinings and relative importance at any given time of the organizations based in four "overlapping and intersecting sociospatial networks of power" (Mann, 1986, p. 1). These networks are ideological, economic, military, and political -- "The IEMP model" for short.
It is important to stress right away that the theory is not derived from any psychological assumptions about the importance of different human purposes. Instead, the point is strictly sociological: these four networks happen to be the most useful organizational bases for generating power. In Mann's (1986, p. 2) words, "Their primacy comes not from the strength of human desires for ideological, economic, military, or political satisfaction but from the particular organizational means each possesses to attain human goals, whatever they may be."
In focusing on these four networks, Mann's concern is therefore with the "logistics" of power (1986, pp. 9-10, 518). In terms of human history, no one network comes first or is somehow more "basic" than the others. That is, each one always has presupposed the existence of the others. However, that does not mean that the networks are usually equal in their importance. Generally speaking, one or two networks usually are more dominant than the others. For example, as I explain later in this document and elsewhere on this website, the economic network is predominant over the others in the United States, leading to class domination.
Furthermore, one kind of organizational power can be turned into any one of the others. Economic power can be turned into political power. Religious power can generate military power. Military power can conquer political power. And so on. In that sense, power is like the idea of "energy" in the natural sciences: it cannot be reduced to one primary form. Thus, there can be no "ultimate primacy" in the "mode of production" or "the normative system" or "the state," as in rival theories. Mann's summary statement on his overall framework is as follows:
A general account of societies, their structure, and their history can best be given in terms of the interrelations of what I call the four sources of social power: ideological, economic, military, and political (IEMP) relationships. These are (1) overlapping networks of social interaction, not dimensions, levels, or factors of a single social totality. This follows from my first statement. (2) They are also organizations, institutional means of attaining human goals. (Mann, 1986, p. 2.)
The four networks vary in size and reach at different times in history. For example, military power had a greater range throughout most of history than either political or economic power, but economic networks became even more extensive in recent centuries. Since the four networks are not encompassed within a larger social framework or any one physical territory, there is no need for concepts such as a "bounded society" or a "social system." Since there is no "totality," there can be no "subsystems," "levels," or "dimensions." Instead, social organization must be understood in terms of the four overlapping networks of power that run off in different directions and have varying extensions in physical space.
Since the emphasis is on people acting through social networks, the distinction between "social action" and "social structure," is cast aside. There no longer needs to be a periodic revival of the "agency vs. structure" debate. Because the four networks have different and constantly changing boundaries that vary with the invention of new technologies and the emergence of new organizational forms, the old division between "endogenous" and "exogenous" factors in the understanding of social conflict is discarded as "not helpful" (Mann, 1986, p. 1).
Mann underscores his general point about the interacting and intersecting nature of the four power networks by noting "the promiscuity of organizations and functions" (1986, p. 17). That is, the four networks can fuse and borrow from each other in complex ways. There are always power structures, but they vary from time to time and place to place in how the four power networks are interrelated. For example, medieval European states were "overwhelmingly, narrowly political" (Mann, 1986, p. 17) and they were autonomous, but states in modern capitalist societies are both political and economic, and they usually are not autonomous (Mann, 1993).
Mann defines the ideology network in terms of those organizations concerned with meaning, norms, and ritual practice (1986, p. 22). It generates "sacred" authority and intensifies social cohesion. Its usual manifestations are in organized religion, and its most prominent historical power actor was the Catholic Church. In all cases, it gains loyalty and financial support by providing answers to universal concerns about the origins of humanity, death, the purpose of life, the reasons for guilt feelings, and other existential questions.
The economic network is that set of institutions concerned with satisfying material needs through the "extraction, transformation, distribution and consumption of the objects of nature" (Mann, 1986, p. 24). The economic network gives rise to classes, which can be defined as positions in a social structure that are shaped by their power over the different parts of the economic process. The most powerful economic class is called a "ruling" or "dominant" class if it "has successfully monopolized other power sources to dominate a state-centered society at large" (Mann, 1986, p. 25). Geographically extensive classes arose only slowly in Western history, because they were dependent upon advances in infrastructure made possible by developments in the other power networks. For the first 2500 years of Western civilization, economic networks were extremely localized, especially in comparison to political and military networks.
Because economic classes are also social relationships between groups of people who often have different interests, the economic network can generate class conflicts, which are disagreements over such matters as ownership, profit margins, wage rates, working conditions, and unionization. Class conflicts can manifest themselves in ways that range from workplace protests and strikes to industry-wide boycotts and collective bargaining to nationwide political actions.
However, class conflict is not inevitably present because both owners and workers, the most likely rival classes in recent times, have to have the means to organize themselves over an extended area of social space for conflict to occur. For much of Western history, there have been well-organized dominant classes, but class conflict has been important only in certain periods of Western history, such as ancient Greece, early Rome, and the present capitalist era. That's because non-owning classes usually find it very difficult to organize themselves.
The military network is defined in terms of organized physical violence. It is the power of direct and immediate coercion. As already noted, military power had a greater range throughout most of history than either political or economic power. Even so, we often forget that until very recently an army could only carry enough food for a 50-60 mile march, which forced it to rely on the local countryside in extensive military campaigns.
Historically, many armies fought for the benefit of their own leaders, who created "empires of domination" by taking over newly arisen civilizations based on the economic, ideological, and political networks. In more recent centuries military networks usually are in the service of a political network, but they still can be separate from it, as seen with guerrilla armies based in subjugated ethnic groups and terrorist organizations based in ideological networks.
Although most theorists regard military power as one aspect of state power, there are four good historical reasons for distinguishing political and military power. First, the original states had little or no military capability. Second, most historical states have not controlled all the military forces within the territory they claim to regulate. Third, there are historical instances of conquest undertaken by armies that were not controlled by the states where they resided. Fourth, the military is usually separate from other state institutions even when it is officially controlled by the state, making possible the overthrow of the political elite by military leaders (Mann, 1986, p. 11).
The fourth and final network, "the state," is defined as a political network whose primary function is territorial regulation (Mann, 1986, p. 26-27). Its usefulness in laying down rules and adjudicating disputes in specific territories is the source of its uniqueness (Mann, 1984; Mann, 1986). This unique function is the basis for its potential autonomy, but it gains further autonomy due to the fact that it interacts with other states, especially through warfare (Mann, 1986, p. 511). The state can take on other functions besides territorial regulation and has had varying degrees of influence at different phases of Western history ( (Mann, 1977; Mann, 1986, p. 514).
People in general, and the economic network in particular, desperately need the regulatory and judicial services offered by the political network. Groups of people may be in general cooperative, but there are always disagreements here and there, and inevitably a few people who are a real pain in the neck, disputing every little issue, pushing themselves forward, and on and on (you know them well, no doubt). No other network is capable of providing regulations and a judicial system for sustained periods of time. Thus, the Four Networks theory does not put any emphasis on coercion or domination in explaining the origins of the state. Archaeological and historical evidence support this view. The earliest states had coordination functions, and were most closely allied with religious institutions, if not a direct outgrowth of them. Organized violence and class domination came later (Mann 1986, pp. 49-63, 84-87).
Looking at the growth and development of the four networks in Western history, Mann concludes that our theoretical goals as social scientists must be tempered by a respect for the complex realities of history. The historical record does not bear out the claims of any one "grand theory." There are too many exceptions. Lower-level, contingent generalizations are the best we can do. There seems to be a pattern in Western history, but only barely, and this pattern is conditioned by a number of historical accidents, not by some inevitable and immanent societal principles (1986, pp. 531-532). The "European miracle," meaning the tremendous growth in power resources over the past several hundred years, is seen as "a series of giant coincidences" (Mann, 1986, p. 505).
In the terminology that has been adopted since the 1990s, history is "path-dependent." It follows along the path that was taken at key choice points where things could have gone more than one way. Although these new paths sometimes involve mundane choices like the way in which typewriter keyboards were organized, the most important new paths usually involve power struggles between nation-states or classes within nation-states. For example, the world would be very different today if Hitler had not attacked Great Britain and the Soviet Union at the same time, undercutting the strong possibility that he might have solidified his control of continental Europe.
Because all large-scale civilizations and nation-states have been connected to each other in one way or another for several thousand years, comparative studies are far more limited in their usefulness than many social scientists believe. That's because there really aren't enough separate social systems to make meaningful comparisons, and comparisons back and forth in historical time can be downright silly due to the vastly different levels of power development at different historical epochs (Mann, 1986, pp. 173, 501-503, 525). For the most burning questions, historical studies of specific countries or systems of nation-states are the best we can do. This historical emphasis recalls C. Wright Mills's (1962, pp. 119-126) similar admonitions, and it justifies the kind of detailed studies that have characterized research on contemporary power structures.
Even the rise of independent civilizations in only four or five separate places was in good part due to a combination of relatively rare geographical coincidences, not evolutionary inevitability. Mann shows that in many times and places pre-historical social groups reached a level of social development that seemed to suggest that civilization -- defined in terms of cities, ceremonial centers, and writing -- was about to appear, only to fall back or remain at the same level. Significantly, one factor in this "failure" to develop civilizations may have been the ability of ordinary people to control the actions of their leaders, either by resisting or moving to a new group, thereby depriving the would-be power trippers of their base. People seemed to fear the development of full-fledged power structures (Mann, 1986, pp. 38-39, 67-68).
Before civilizations emerged, there may have been "inverted power structures" in which the rank-and-file could discipline would-be dominators through gossip, scorn, shunning, and if need be, assassination (Boehm, 1999). Only where river flooding allowed the possibility of alluvial agriculture, in conjunction with close proximity to geographical areas that encouraged different but complementary networks, did the "caging" of populations make possible the development of the fixed power structures of domination and exploitation that have characterized all civilizations. The strong egalitarian tendencies that characterized pre-historic social groups were submerged when power seekers could build on a religious, economic, military, or political base to gain control of others.
To understand the American power structure, we first have to consider briefly the power structures in the European civilizations that created colonies in what is now the United States.
The modern era of state and class relations in Europe had its origins in the first few centuries after the disintegration of the Roman Empire between 337 and 476 A.D. The institution of private property developed in the context of a system of numerous small, weak states that struggled along in the territory previously dominated by the militarized Roman state. This economic development was made possible by the "normative pacification" provided by the Catholic Church, which increased greatly in its power, and by the predominance of military techniques that rendered armored knights on horseback ascendant over serfs and peasants (Mann, 1986, pp. 376-378, 390-391).
In this context, it is important to note, feudal lords did not need "states" to protect their private property and increase the exploitation of producing classes. They dominated the peasantry through their own military capabilities in a context where religion played a role in sustaining and justifying hierarchy. Moreover, the weakness of the many small states was one factor that allowed the system of private property to take deeper root without the danger of state appropriation, and for an independent merchant class to develop. The result was a growing independence for the economic network in general: "By the time trade was really buoyant (1150 to 1250 A.D.)," claims Mann (1986, p. 397), "it was accompanied by merchant and artisan institutions with an autonomy unparalleled in other civilizations."
Put more strongly, weak states and a common religious ideology made it possible for economic networks in Europe to obtain a degree of independence that is not found elsewhere. The history of China, for example, is a history of states fighting back and forth to gain the upper hand. First, there were many small states, then one big state that eventually overextended itself, followed by hundreds of years of many smaller states, and then the cycle repeated itself into the 20th century, when the Chinese Communist Party created an extremely strong state after its 1949 triumph. The ideology network is always at the service of the state -- no independent religious organizations developed in China. And the means of organized violence are controlled by states, except when militarized outsiders march in and conquer the Chinese state or states. Then these warlords monopolize violence for themselves as the new state rulers, and become assimilated into Chinese society.
Where are the economic networks in Chinese history? Well, agricultural surpluses and trading networks were important in making it all possible, but they were always under the thumb of the state. There was no significant period, let alone a 1000-year time span, as during the Middle Ages in Europe, when economic networks had a fair degree of independence. This comparison does not make European history any less hierarchical and brutal for the great mass of people, but it does make it different.
During Europe's Middle Ages, to repeat, the state had very few functions. It consisted primarily of the king and his retainers, and the bulk of its revenues came from the king's own lands and judicial fees. It tried to guard its borders and control armies in its territory, and it had a role in settling some types of disputes within its confines, but it was not a major player. Strikingly, any increases in its budget were directly tied to warfare and war debts. That continued to be the case even after the state began to gain some importance as a regulator of economic activity within its boundaries (Mann, 1986, pp. 486, 511) and to supplant the Church as the primary means of normative pacification. As late as 1505, the powers of the state were minimal:
Paying the expenses of his household, buying the political advice of a few counselors, administering supreme justice, regulating trade across territorial boundaries, issuing a coinage, and waging occasional war with the help of loyal barons -- that was the sum of state functions, which almost certainly involved less than one percent of national wealth and were marginal to the lives of most of the state's subjects. (Mann, 1986, p. 452.)
Although private property and the first stages of capitalism developed without strong states, the situation began to change in the 12th and 13th centuries for a number of reasons. As markets grew within state boundaries, there was more and more need for state regulation. As merchants increased the scope of their trade into larger and larger territories, they needed more protection against bandits and the petty rulers of small territories (Mann, 1986, pp. 423-424, 431-32). Merchants also developed an interest in aggressive wars that would widen the territory in which they could operate: "From now on commercial motivations, the conquest of markets as well as land, were to play a part in wars" (Mann, 1986, p. 432). Merchants thus quietly encouraged the growth of the state, lending it the money necessary to raise a larger army.
Moreover, dramatic -- and, of course, unanticipated -- developments in the military network also triggered changes in the relationship between private property and the state. The sudden emergence of the disciplined military phalanx, that is, spear-armed infantry in close formation, quickly led to the defeat of nobles on horseback in a series of dramatic battles between 1302 and 1315 (Mann, 1986, pp. 18-19, 428). In this new context, the nobility had to turn increasingly to the state to raise a standing army of full-time foot soldiers to protect its lands. Now it started to be the case that the state was an "instrument of domination" in the service of the economic elites in general.
There soon followed a series of technological innovations that added up to a "military revolution" (Mann, 1986, pp. 453-454). In particular, large artillery guns made it possible to destroy castles. The arms race among states was on. It didn't begin after World War II ended in 1945. To the contrary, there have been few peaceful interludes between 1300 and the present. Only states with large armies could survive, and only states that could gain the loyalty of lords and merchants could afford large armies.
So, from that point forward capitalism and the nation-state gradually grew powerful together because they needed and aided each other. As the alliance between these two power networks solidified, they subordinated the previously independent ideological and military networks. States now began to fit the usual sociological definition: the organization that controls the military and police within a given geographical area. And when a state extended its regulatory powers over a new territory, so too did capitalism diffuse more fully into that territory. Contrary to the oft-expressed view that classes and states are antagonistic, they became closely intertwined in Western history.
True enough, the class system generated by capitalism was segmented into a small number of "class-nations" of roughly equal power that together formed a multi-state system. And, yes, from the start there was also tension within each state between the top bananas in the two dominant networks of modern Western civilization -- between economic elites and political elites. Feudal lords wanted protection for their lands, and merchants wanted protection and regulation for their goods and markets, but both feared the taxing power of the state elites (Mann, 1986, p. 433). Conversely, state elites tried to gain as much autonomy as they could. Much of Western history from this time forward is about the deadly bickering between economic and political elites, with an occasional time-out to deal with peasants or artisans who tried to take advantage of the divisions in elite circles.
As the power of the market system developed, merchants, lords, and rich peasants gradually merged into a capitalist class in many of these countries. However, there were some differences from country to country. Constitutional regimes fostered the unity of a property-owning class. Absolutist regimes tended to preserve the social structure of feudalism. Either way, these European states were not very powerful in relation to the dominant class or classes:
Thus constitutional and absolutist regimes were subtypes of a single form of state: a weak state in relation to the powerful groups of civil society, but a state that increasingly coordinated those groups' activities to the point where we may begin to talk of an organic class-nation whose central point was either the court or the court/parliament of the state. (Mann, 1986, p. 481.)
Gradually, but only gradually, the relationship between dominant classes and the state became even closer and their interests began to merge. "In the 17th and 18th centuries," concludes Mann (1986, p. 516), "it begins to make sense to describe the state -- paraphrasing Marx -- as an executive committee for managing the common affairs of the capitalist class." This is because the state had no distributive power over the classes of "civil society" and because power flowed "primarily from economic power relations to the state" (Mann, 1986, p. 516). Within this general framework, there were large differences among European countries between 1760 and 1914, as Mann (1993) also documents with unique data sets and many historical comparisons.
Although Mann's Four Networks theory and Marxism come to somewhat similar conclusions for the years after, say, 1790, this does not mean that Marx's analyses of key historical events in Europe in the 18th and 19th centuries were necessarily correct. In fact, there is reason to believe from historical studies that they were not. Generally speaking, Marx overstated the importance of industrial capitalists as compared to landed elites within the ruling circles of the 19th century, and of urban workers as compared to other urban dwellers and peasants (Hamilton, 1991).
Based on this history, it's clear to me that questions about the relative power of states and social classes cannot be answered in the abstract for any time period, including the modern era. States may become relatively autonomous by playing nobles off against merchants, or one set of capitalists against another. But they also can be dominated by a coalition of social classes, or by a single dominant class. They can become so powerful militarily that they can extract resources from civil society. And they even can be dominated by a fervent ideological network under the right circumstances (Iran since 1979, for example). None of these possibilities should be precluded beforehand.
And that brings us to a very general overview of the structure and distribution of power in the United States. How does power operate in this particular democratic capitalist country? Does power belong to the people through their elected representatives and their organized interest groups, as the pluralists claim, with the state serving as an impartial umpire that tries to reach compromises among the differing classes and factions?
Or is power lodged in the institutional elites who run the corporate, political, and military institutions of the society, as Mills (1956) claimed? Or is there a dominant capitalist class, as Marxist and non-Marxist class-domination theorists claim? Or do state elites dominate both capitalists and non-capitalists, either in their own interests or in the interests of the capitalist system, as the state autonomy theorists claim?
To a certain extent, these issues are a matter of degree. A class-domination theorist such as myself, for example, certainly agrees that elections can matter, and that workers, environmentalists, or other challengers can win on some issues. It is the more general framework that is being argued about.
How does the Four Networks theory apply to the United States? This section shows why it is plausible to suggest that there is class domination in the United States, especially compared to most other democratic capitalist countries. Economic elites have had no serious power rivals in the United States for a number of complex historical reasons.
When the United States is viewed in historical-comparative perspective as a fragment of the European system of capitalist nation-states, there is a prima facie case that leaders from the capitalist class are more powerful than in European nations and in comparison to any other group or the federal government. First, America did not have a feudal past, so its capitalists were not hindered by a rival economic class that had to be battled, assimilated, or deferred to in attempting to dominate the state. Conversely, the absence of such a rival economic elite meant that the state could not play off one strong economic class against another in an attempt to gain autonomy from the capitalist elites.
In Europe, the feudal landlords and state elites were able to limit the rise of corporate capitalism, and even to insist that capitalists had to bargain with organized workers. In the United States, there were no restraints on the rise of giant corporations from these sources, and the corporations were able to eliminate most attempts at union organization. That is a huge difference in terms of the wealth and income distribution, and in terms of the use of government to provide collective social benefits like health care insurance and a good retirement income.
By the late 19th century, the nationwide nature of the transportation and communication systems, and the commonality of language, education, and culture, meant that the bases for class solidarity were present for both corporate owners and their employees, although the corporate community was far more cohesiveness than the working class for a variety of reasons. Still, class conflict over wages, hours, working conditions, and other issues has frequently manifested itself since the late 19th century. Contrary to pluralists and state autonomy theorists, and in agreement with Marxists on this issue, I believe class conflict was the single most important factor (but not the only factor) driving American politics in the 20th century, even overshadowing the more visible and violent struggles over racial inclusion and exclusion.
But it was not just the absence of a rival economic elite (a feudal nobility rooted in the exploitation of peasant agriculture) that made it possible for capitalists to become dominant. There was no institutionalized church either, which meant that there was no ideology network that could rival them for power. Fragmented as it was from the outset into many rival Christian denominations, the ideology network has been subordinate to the economic and political networks. The historical role of churches also has been limited through the separation of church and state by the Founding Fathers, reflecting both the weak nature of the church network at the time and the Founders' own secular tendencies.
Since the 1960s, secular organizations like self-help groups and psychotherapy cults have enjoyed some success in providing meaning to the college-educated middle class, but churches remain the most important organizations in fulfilling this human need for Americans. Protestant churches in particular always have had an enormous role in producing American morality and culture. However, their constant splintering into new denominations, and then further schisms within the dominations, has limited them as a source of power.
True, the Catholic church was a power base in some urban areas in the late 19th and early 20th centuries through the Democratic party, often making alliances with local political machines. More recently its power has been limited to realms like abortion and school prayer, where it plays a potent role. When thinking of religious power today, it is conservative Christian churches that often come to mind, but African-American churches, especially in the South, are a significant power base. So, I can agree that ideological organizations have some political influence in the United States, but they are less important than in many other countries.
Furthermore, capitalists were able to come to power because the United States has not had a strong, independent, centralized state for a variety of historical reasons that are very familiar. First, the pre-revolutionary history of the United States as a set of separate colonial territories outside the context of the European multi-state system led to a federal form of government with many government functions located at the state as compared to the national level. The state level in turn ceded some of its power to the city level, where landed elites -- "place entrepreneurs" -- have been able to form growth coalitions that persuade local governments to protect and enhance their interest in intensifying land use (Logan & Molotch, 1987; Molotch, 1976; Molotch, 1979; Molotch, 1999).
The rivalries among the economic elites of the various states within the new United States were a second major factor in keeping the American national government limited in its scope until the 1930s at the earliest. The Founding Fathers created a system of checks and balances at the national level that has made the powerful legislative branch of the American government very accessible to elite economic groups. In particular, the rural agricultural party of Jefferson (the Democrats), which won out politically over the urban industrial party of Hamilton (roughly speaking, the Federalists/Whigs/Republicans) until the Civil War, worked very hard to keep the federal government small. It is my claim that the plantation capitalists of the South, after finding a few allies in the North, played an enormous role in restraining the growth of a strong centralized state that might challenge their domination of their African-American workforce, first through slavery, then through Jim Crow laws and the share-cropping system.
Even under these circumstances, the federal government has forced changes in power arrangements in the South twice, first through the Civil War in the 1860s, then through its support for the Civil Rights Movement in the 1950s and 1960s. These defeats at the hands of Washington reinforced the anti-government ideology of white Southerners, who refuse to forget what they see as a humiliation. Even today, the fiercely anti-government stance that pervades Southern white culture is a major barrier for those who would like to have the federal government take more responsibility for many social, educational, health, and science programs. This does not mean that wealthy white Southerners reject the many subsidies they have extracted from the federal government since the 1870s, but it does mean they have created an ideology that allows them to keep that government from helping ordinary citizens to any great extent.
The small size of the 19th-century American state meant there were powerful corporations before there was a large national government, another contrast of major importance with Europe (Mills, 1956, p. 272). The corporate elites that arose after the Civil War thus had a big impact on how the national government grew, contrary to what the pluralists and state autonomy theorists claim (Domhoff, 1970, Chapter 6; Domhoff, 1990, Chapters 4-6; Domhoff, 1996, Chapters 3-5). With the coming of World War II, and the Cold War, of course, there was no choice but to expand the state dramatically, but that expansion was completely controlled by the corporate capitalists (Domhoff, 1996, Chapter 6).
Finally, the lack of any dangerous rival states on American borders, along with the protection from European states provided by the British navy throughout most of the 19th century, meant that the capitalist class in the United States did not have to contend with a "permanent military establishment" until World War II ( see Mills, 1956, Chapter 8, for an excellent account of these matters). The American government most certainly had an army that played a large role historically in taking territory from Native Americans, Spain, and Mexico. However, it was never big enough for long enough until the second World War to be considered a serious contender for power. By that time civilian traditions were long established.
As for the many wars in which the United States has been involved since 1949, they were decided upon by elected officials and by corporate leaders appointed to important positions in the state and defense departments, not by military leaders itching for a fight. The 2003 invasion of Iraq is a perfect example. It was the product of assertive nationalists like Vice President Richard Cheney and Secretary of Defense Donald Rumsfeld, both former corporate CEOs, and the neoconservative ideologues they brought with them to government from right-wing think tanks. Most, if not all, of these pro-war civilians had carefully avoided military service in Vietnam after their graduation from college. President George W. Bush found refuge in the Texas Air National Guard, from which he took an extended leave of absence (Schweizer & Schweizer, 2004, pp. 191-195).
The United States Army was so small after the Civil War that the increasingly ascendant corporations often created their own organizations of violence to break strikes or resist unions, or else hired private specialists in such work. The largest of the private armies in that era, the Pinkerton Detective Agency, "had more men than the U.S. Army" (Mann, 1993, p. 646). The American government did not even try to stop organized corporate violence until the 1930s. That's because most of the unionization efforts by workers were defined by judges as violations of property rights and/or of the right to freedom of contract. Employers thus had a legitimate right to "defend" their property and hire replacement workers. When it came to using organized violence to enforce the law, though, the corporate leaders had to hire private armies (Mann, 1993, pp. 645-48).
So, when we turn to the current power structure in the United States, and look into the details of class domination by the corporate community and its power elite, we have to remember that the absence of feudal economic elites, the fragmented nature of the ideology network, the weakness of the decentralized government, and the small size of the military -- each explainable in historical terms -- all contributed to this outcome. It's not that the capitalists were somehow stronger or better in the United States. Instead, they found themselves in ideal circumstances in terms of the relationships among the four major power networks.
Boehm, C. (1999). Hierarchy in the forest: The evolution of egalitarian behavior. Cambridge: Harvard University Press.
Domhoff, G. W. (1970). The higher circles. New York: Random House.
Domhoff, G. W. (1990). The power elite and the state: How policy Is made in America. Hawthorne, NY: Aldine de Gruyter.
Domhoff, G. W. (1996). State autonomy or class dominance? Case studies on policy making in America. Hawthorne, NY: Aldine de Gruyter.
Hamilton, R. F. (1991). The bourgeois epoch: Marx and Engels on Britain, France, and Germany. Chapel Hill: University of North Carolina Press.
Logan, J. R., & Molotch, H. (1987). Urban fortunes: The political economy of place. Berkeley: University of California Press.
Mann, M. (1977). States ancient and modern. Archives of European Sociology, 18, 226-298.
Mann, M. (1984). The autonomous power of the state: Its origins, mechanisms, and results. Archives of European Sociology, 25, 185-213.
Mann, M. (1986). The sources of social power: A history of power from the beginning to A.D. 1760 (Vol. 1). New York: Cambridge University Press.
Mann, M. (1993). The sources of social power: The rise of classes and nation-states, 1760-1914 (Vol. 2). New York: Cambridge University Press.
Mills, C. W. (1956). The power elite. New York: Oxford University Press.
Mills, C. W. (1962). The Marxists. New York: Dell.
Molotch, H. (1976). The city as a growth machine. American Journal of Sociology, 82, 309-330.
Molotch, H. (1979). Capital and neighborhood in the United States: Some conceptual links. Urban Affairs Quarterly, 14, 289-312.
Molotch, H. (1999). Growth machine links: Up, down, and across. In A. Jonas & D. Wilson (Eds.), The urban growth machine: Critical perspectives, two decades later (pp. 247-265). Albany: State University of New York Press.
Schweizer, P., & Schweizer, R. (2004). The Bushes: Portrait of a dynasty. New York: Doubleday.
When Daniel Scheibe invited me to speak at Middlesex, my first response was a combination of curiosity and pleasure. I have heard about, and written about, Middlesex, for years, but, until today, I've never been to the school. I even emailed my friend and co-author, Bill Domhoff, with whom I've written about the American power structure, telling him that I might be adding Middlesex to my "life list." He wrote back and asked: "What's a 'life list?'" I explained to him (maybe some of you don't know either) that serious bird watchers, of whom I'm not one, often keep a list of the various species of birds they have seen, with special pride in the rare ones. So I'm happy to add Middlesex, a rare bird, to my life list of the elite boarding schools I've been writing about for more than twenty-five years.
My second response to Dan's invitation was to ponder whether I had anything meaningful to say about the class system in America, and, more generally, about social justice, to a group of Middlesex students. I'm not sure if I do -- you'll be the judge of that -- but I do have some thoughts about social class, social justice and how social change comes about. More specifically, I have some thoughts I wish to share with you about working from the inside, and pushing from the outside, in order to bring changes to institutions and societies that discriminate against African-Americans, Latinos, women, the handicapped, homosexuals, those at the bottom of the class structure...take your pick. Historical and contemporary examples of institutional oppression are not hard to find.
One of the books I assign in one of the courses I teach is titled The American Class Structure: In an Age of Growing Inequality. The author provides compelling data to demonstrate that the gap between those at the top and those at the bottom of the class hierarchy in this country has been increasing dramatically since the mid-1970s. Most demonstrably this can be seen in the difference in pay for Chief Executive Officers (CEOs) of Fortune-level companies and the lowest paid workers at those companies. That gap has skyrocketed over the past 25 years. A recent report puts the average pay of a Fortune-level CEO at 821 times as much as a minimum wage earner; this means, that the CEO, as the report puts it, "earns more before lunchtime on the very first day of work in the year than a minimum wage worker earns all year." Or, perhaps another example will speak to the experiences of some people in this room: that CEO will earn more in one day than a teacher here at Middlesex earns in an entire year. Long, long ago, back in 1980, CEOs also earned more, but only 42 times as much as the lowest-paid workers.
The phrase "growing inequality" in the subtitle of the book I've just referred to, and the comparative data from 1980 and 2006, serve to underscore the fact that the class structure, and the distribution of this country's wealth, are not static. In the 1950s and the 1960s, a period the author of the textbook calls the "age of shared prosperity," the gap between those at the top of the class system and those at the bottom decreased. Many factors affected the reversal that began in the 1970s and accelerated in the 1980s, a reversal some economists call "the great U-turn," but I wish to stress that these were not random patterns -- they were the result of actions and decisions made by men and women. Many of the articles in your packet of summer readings ("Drawing the Line") seem to assume that there are inexorable economic forces that lead to the distribution of wealth in this country. As Geraldine Fabrikant puts it in her article about old and new money in Nantucket, "the hyper-rich...emerged in the 1980's and 1990's, when tectonic shifts in the economy created mountains of wealth." Her choice of geological imagery suggests that these mountains of wealth were created by forces beyond human control, but, in fact, political, social and economic decisions determine who gets what portion of the pie. Ronald Reagan and the United States Congress were not innocent bystanders in the 1980s when many became "hyper-rich" and when, as Fabrikant points out, many working class people could no longer afford to live in places like Aspen and Nantucket, just, as we'll see in a bit, some people became "hyper-rich" in the 19th century based on the system of slavery.
Despite the widespread myth that ours is a relatively classless society, as you can see quite clearly in the various articles in your summer reading, there is a class system in this country, and it is very much related to issues of social justice. The USA, like other capitalist countries, has seen the need for laws and regulations to curb certain behaviors that ensue if the so-called free market is left to operate totally on its own. Here we could consider child labor laws, civil rights laws, or laws that require that workers be paid at least a minimum wage and how much that minimum wage is. Just how much protecting, and the extent to which such laws and regulations are enforced, has varied tremendously over time, again based on the decisions (and often the ideology) of men and women in positions of power.
I've chosen three examples for us to examine. Collectively they may help us draw some conclusions about what leads institutions to change. Each concerns both race and class. The first is the racial integration of elite boarding schools. Why, in the early 1960s, did a group of 16 prestigious boarding schools decide to put effort and money into recruiting African American students from working and lower class backgrounds through a program called "A Better Chance"? The second example concerns the racial integration of the boards of directors of the country's largest corporations. The third example is even more historical than the first two, which means it happened before the 1960s (putting it, I guess, in the realm of "ancient history"). It's about the movement to end the slave trade in England, a movement that began in 1785 when a divinity student won an essay contest, in Latin, and culminated 51 years later with the passage in the British parliament of legislation that banned the trade of human beings.
The story of the A Better Chance (ABC) program begins in the early 1960s with a conversation between two headmasters at Massachusetts boarding schools, Howard Jones at Mount Hermon and John Kemper at Andover. They sought to create a way to find talented African American students who could not only survive, but thrive, both academically and socially, at schools like theirs. Although black students had attended both Mount Hermon and Andover for many years, this was not the case at many other boarding schools; moreover, Mount Hermon, Andover, and other boarding schools that wanted to enroll black students had difficulty finding qualified applicants, they had difficulty persuading them to come, and many who did come did not stay. After this initial conversation, Jones and Kemper scheduled a meeting at Andover in February 1963 that was attended by headmasters from 23 New England prep schools. An executive committee was formed that consisted of Jones, Kemper and Charles Merrill; Merrill was the son of the Merrill who founded the company that was to become Merrill Lynch, and he was also the headmaster at the Commonwealth School, a school in downtown Boston that he funded and started in 1958.
From these efforts, an organization was formed that was soon to be named the A Better Chance (or ABC) program. What motivated these three men? Well, the civil rights movement was in full swing. In 1961, just a few miles from where I teach in Greensboro, North Carolina, four students at North Carolina A&T had defied the law by sitting down at the segregated lunch counter at the local Woolworth's. They refused to leave when told to do so, they were arrested, and that act of civil disobedience sparked a movement that led to marches, protests, many more arrests and, it is crucial to add, beatings and murders. Martin Luther King's famous "I Have a Dream" speech was delivered to thousands and thousands of people who had taken to the streets in Washington, D.C. in August 1963. Perhaps these three New England headmasters would have decided it was time to integrate their schools even if there had been no civil rights movement, but I doubt it. As one of them said to me in an interview in 1988, "The revolutionary implications [of the civil rights movement] hit even us, we the headmasters. I mean, we knew history was moving fast." It is therefore important to give these men credit for their willingness to use their influence, to work from inside their mostly segregated institutions to bring about change, and to acknowledge that they and other headmasters faced considerable opposition from their boards, from alumni, and in some cases from their student bodies (to cite just one example: at Pomfret, in 1960, the headmaster was dismissed and considered a Bolshevik by some because he advocated accepting black students into the student body). It is, however, also important to acknowledge that these headmasters acted in a larger context, and that the protests at lunch counters and in the streets played an indirect role in the integration of many prep schools.
Let me tell you an additional piece of the story that reveals what can be the indirect and unintended effects of challenges to the status quo. This new program needed money and it needed a home for a summer orientation program that the headmasters considered essential to prepare these new students for the dramatic changes they were about to experience. The money came from three sources: the Merrill Foundation, the Rockefeller Foundation, and from 16 schools that signed on as charter members. The money from the Merrill Foundation was a snap, since Charles Merrill was on the foundation's executive committee. The money from the Rockefeller Foundation turned out to be a snap also, and the reason reveals the way power works internally and the way external pressures have their effects, even when it is not as obvious as civil disobedience at lunch counters. In the summer of 1963, the president of Dartmouth came to Mount Hermon to give a speech. That night, the Mount Hermon headmaster, told him about the various efforts taking place to get the ABC program started. As it turned out, Dartmouth's president was under pressure to do more to demonstrate Dartmouth's commitment to equal educational opportunity. In fact, that very same week, he had received a proposal that called on Dartmouth to establish a secondary school on campus for black students from poor backgrounds, to reduce the size of Dartmouth's freshman class to make room for 80 black students, and to allocate at least one percent of its annual budget to this effort. The Dartmouth president had turned down the proposal, but when he visited Mount Hermon he was still trying to figure out a way to satisfy those who were pushing for a greater commitment to bringing black students to Dartmouth. He was also on the executive committee of the Rockefeller Foundation. Without hesitation, he told the Mount Hermon headmaster that Dartmouth would house the ABC summer program, and that he would obtain funds for the program from the Rockefeller Foundation.
The third source of funds came from the 16 schools that joined the ABC program as charter members. The executive committee had mailed 50 invitations, 30 schools responded favorably, and the following 16 schools actually joined: Choate, Commonwealth School, Deerfield, Emma Willard, George School, Groton, the Gunnery, Hotchkiss, Northfield-Mount Hermon, Phillips Academy (Andover), Pomfret, the Putney School, St. George's, St. Paul's, Taft and Western Reserve Academy. Two of these schools are on my life list, but, as you perhaps noticed, Middlesex was not among the charter members. I encourage any of you with an interest in local institutional history to look carefully at when Middlesex became involved with ABC, and why, and, more broadly, to explore what the internal and external factors have been that have led to the current diversity in your student body. (I note that Milton is also not on the list -- but I also note that an ABC graduate of Milton may be the next governor of Massachusetts).
Let's move from prep schools to the corporate boardroom (a pathway that some of your fathers, and now perhaps some of your mothers, have traveled, and perhaps some of you will travel). When did America's largest corporations first invite African Americans to sit on their boards of directors, and why did they do so? Again, the answer is the mid-1960s, and the very same civil rights protests that motivated the headmasters motivated the men who sat on the boards of the largest companies in America. In fact, one of the first two corporations to invite a black onto its board was a company called W. T. Grant, a general merchandise chain of 1000 stores which, like Woolworths, included many segregated lunch counters in its stores in the south. W. T. Grant had been picketed, and the publicity was not good for business.
When I looked at the first dozen companies to ask African Americans onto their boards, there was a very clear pattern in terms of who was invited to join: all were professional men, well-educated and from relatively privileged families. They were not likely to rock the boat. There was one exception and it, too, demonstrates the residual effects of protest.
In 1971, General Motors, the largest corporation in America, was under fire for its hiring practices, and for its lack of corporate responsibility. An anti-management group formed, and by buying GM stock the group managed to place some proposals on the annual shareholders' ballot. Even though none of these proposals garnered more than three percent of the vote, they had a number of indirect effects. One was the result of something that took place at the annual shareholders' meeting. James Roche, the CEO, was on his feet for most of what turned out to be a contentious six and a half hour meeting. Near the end of that meeting, he was challenged by a young activist, a minister from Ohio, who asked if GM was not a public corporation. Tired and frustrated, Roche answered with a racist slip of the tongue (it had to do with being "free" and "white").
A few months after this embarrassing episode, one that was widely reported in the press, Roche approached Leon Sullivan, an African American minister in Philadelphia well-known for his activism -- this was a man who did rock the boat. When Roche called Sullivan to ask if he'd come to New York to discuss joining the GM board, Sullivan told him he was too busy but he'd be glad to talk with Roche if he came to Philadelphia. Roche accepted this demand for respect, and Sullivan went on to join the GM board. Sullivan later became central in the movement to divest holdings from companies that did business in South Africa during its apartheid regime (many know of him for what came to be called "the Sullivan principles").
So, again we can conclude that the men in power at some major corporations did the right thing by integrating their boards, but they did so only because of various kinds of protests from below, some in the streets and some at the annual shareholders' meeting.
On one of his records, Arlo Guthrie, an old hippie singer-songwriter from my generation, and the son of Woody Guthrie, the great protest singer from the mid-20th century ("This Land is Your Land"), tells a great story in the middle of a moving rendition of "Amazing Grace." It's about a ship captain who halfway across the ocean had an epiphany in which he realized that slavery was wrong, so he turned the ship back, and set the slaves free. It's a powerful story, but unfortunately it is incorrect. John Newton was a ship captain, he did have a religious epiphany, he did leave the slave trade, he did become a minister and he wrote many hymns, including "Amazing Grace." However, after having become a very rich man because of the slave trade, and after he became a man of the cloth, Newton made no public comments against slavery for more than thirty years, even though he preached thousands of sermons. Finally, when he was in his sixties, when the abolitionist movement in England had gained unstoppable momentum, he spoke out against the slave trade.
But who were the abolitionists in England? As I have mentioned, a key figure was a twenty-five year old divinity student who in 1785 won an essay contest at Cambridge University -- in Latin -- in response to the question, "Is it lawful to make slaves of others against their will?" Adam Hochschild, the author of an excellent recent book on this topic titled Bury the Chains, writes that winning this essay contest was a widely celebrated event. As he puts it: "Latin and Greek competitions were a centerpiece of British university life. As with the Heisman trophy or a Rhodes scholarship today, to win one was to gain an honor that would be bracketed with your name for a lifetime."
Thus catapulted into instant celebrity, Clarkson soon found himself communicating with a group of Quakers who had been working on this issue for many years with little success. These Quakers saw the value in working with a young, celebrated, essay winner; he saw the value in working with a group of like-minded people who had long been committed to changing the status quo. According to Hochschild, Clarkson's meeting with 12 Quakers in London in 1787 was the start of a movement. Within five years, 300,000 Britons were boycotting sugar (the chief slave-grown product), but it took another 51 years before the powers that be in England legally banned the slave trade (this, of course, was decades before slavery was declared illegal in the United States). It is a remarkable story that begins with a mere handful of deeply committed people, astute political organizing, and both disruption and working within the legal system.
Thomas Clarkson, the divinity student who won the contest in 1785, spent his entire adult lifetime agitating to end the slave trade. Another who worked on this issue from the 1780s through the 1830s was a man named William Wilberforce. Clarkson was an outsider to the halls of power, described by Hochschild as "an agitator," and "a fiery radical;" Wilberforce was an insider, a member of Parliament, a cautious conservative and an Evangelical Christian. Together they were "one of history's great partnerships" (p. 352). Hochschild explains this in the following way:
Absent revolution, the usual purpose of building a movement, after all, is to get legislators to change laws. Clarkson would not have been an effective agitator had he not shared the dreams of change and freedom in the air during this pregnant interlude between the American and French revolutions. Wilberforce would not have been an effective member of Parliament had he not shared the worldview of his fellow M.P.s who were mostly reactionary landowners.
I very much recommend Hochschild's book, which I've given only the briefest treatment to here, but for now I encourage you to consider these three examples and what they reveal about what leads institutions and societies to change in ways that bring about greater equality and move us closer to social justice.
Whether one looks at the integration of prep schools, the integration of corporate boards, or the end of the slave trade in England, or if one looks at a larger sample of social protests in the last two hundred years, as one sociologist has done, it is clear that there is a role for the agitator and a role for the insider in order for change to occur. Agitators can be, well, disruptive, self-righteous, and in some cases quite obnoxious, and part of my purpose today is to encourage you to keep in mind the crucially important role that agitators play in making the world a more just place.
Especially those of us who benefit from the status quo can find such agitation off-putting not only because agitators can be annoying but because they make us feel uncomfortable. Many people, perhaps most people, avoid taking a stand on issues of injustice. Many join in as best they can -- the 300,000 Brits who gave up sugar in the 1780s were doing their part to end the slave trade. Some individuals provide invaluable leadership, either as insiders or as outside agitators.
As each of you considers what role you wish to play, and what issues
you wish to confront, I encourage you to keep in mind the importance of
working from within and from the outside. Some of you might become
great agitators (many of history's most successful rebels have come
from economically privileged circumstances). Others of you might, like
those headmasters at Andover and Mount Hermon, like those corporate
board members who decided to break the color line at their companies,
or like William Wilberforce, the evangelical Christian member of
parliament who was central to the legislation that ended the slave
trade in England, be insiders who contribute to changes that make for a
more just world. As I've tried to demonstrate, insiders and outsiders
are often in opposition, but they also, sometimes in unexpected ways,
can be interdependent.
I teach a course entitled "The American Upper Class." I first taught it in the early 1980s after having spent the previous few years writing about the extent to which Jews were and were not allowed into the Protestant Establishment. Drawing especially on the work of E. Digby Baltzell, an upper class sociologist from the Main Line of Philadelphia, and the work of C. Wright Mills, a radical sociologist from Texas whose father sold insurance, I had written a series of articles, and then coauthored a book titled Jews in the Protestant Establishment. In the process of studying upper class Protestants, and the ways they had and had not allowed Jews into their midst, I began to focus more on the relationships between the American upper class (including elite boarding schools, exclusive city and country clubs, and debutante balls) and the American power structure.
Most colleges have sociology courses on "Stratification" that seek to teach students that there is a class structure in the United States (a big surprise to some students). By the 1980s most colleges had courses titled "Race, Class and Gender" (I've taught that one, too, though I title my course "Class, Race and Gender"). So, too, do most colleges include courses that focus on poverty in the USA. Not many have courses on the American upper class.
In this class I have sought to address some basic issues. First, though most students, like so many Americans, deny it, I try to help students understand that there is a class system in this country and that it has for the most part worked in rather predictable ways throughout the last 110 years. Second, I hope to show students that those in the upper class not only have a lifestyle that is much-admired, and much-emulated, but that they are clearly connected to, but not the same as, those who run the institutions of power in the USA. Third, I hope that students will come to realize that those who are not in the upper class, and especially those who are at the bottom of the class structure, are very much affected by the advantages that those in the upper class have and work to maintain Fourth, although the class differs substantially from the course I teach called "Class, Race and Gender," I try to help my students understand that one can't really understand class without also considering race and gender -- the three (and other forms of oppression or discrimination) interact in complex ways. Fifth, I encourage students to think about how the American upper class is now part of an international upper class, and the way those atop the class hierarchy in this country connect with those in the upper classes around the world (hint #1: there are now far more international students at the most elite boarding schools in the USA than there used to be; hint #2: there are now a number of foreign-born CEOs of Fortune-level corporations, men from upper class backgrounds in their home countries).
I teach at Guilford College, a Quaker liberal arts school in Greensboro, North Carolina. Guilford is somewhat selective, but not nearly as selective as many New England colleges. The students are geographically diverse (mostly from up and down the east coast, but some from the west, and some international students), and there is considerable diversity in terms of their class backgrounds. These days the tuition, room and board runs about $33,000, though most students do not pay the full rate, and some are here mostly or fully on scholarships. Some students are from very wealthy families, many are from the upper middle class, and many are from middle and working class families. Many students are from rural North Carolina, or from small southern towns, and they see Greensboro as the big city. Therefore, when I teach this class, I do not assume that my students are from economically privileged backgrounds, or that they have ever heard of schools like Choate, or Andover, or Exeter, though some have (and one or two may have attended those schools).
I use a chronological approach in this course, not only because it makes intuitive sense, but because I have become more and more aware of how limited my students' knowledge of American history is. Although I have varied the reading in different iterations of the course, I've tended to use four books that I consider classics, published in 1899, 1924, 1956, and 1984. This allows us to consider what was going on in the country at those times, to examine the ways the upper class was portrayed in these works, and to explore the extent to which things seem to have changed (or not) since then.
I lead off with Thorstein Veblen's Theory of the Leisure Class. Veblen's book provides historical perspective, not only because he wrote it in the late nineteenth century, but because he begins with an anthropological look backwards to earlier civilizations and a (very) hypothetical treatment of the evolution of systems of stratification. His erudite and flowery (but also humorous) language is very much of a bygone era, but, surprisingly, most students like his book, and appreciate his sense of humor. Many of the concepts that Veblen introduced, most especially "pecuniary emulation," "conspicuous leisure" and "conspicuous consumption," are quite useful as we move to the other books, and move forward chronologically to the present.
When we finish reading Veblen, I ask the students to take a driving tour of Greensboro, and to use Veblen's ideas to write a paper about what they have seen ("Thorstein Veblen Comes Back From the Dead and Takes a Driving Tour of Greensboro, NC"). Like every American city of about 240,000 people, Greensboro has opulent houses (mansions really) and it has crowded projects. I detail a route for them which takes about an hour to drive. It sends them through the downtown, right past the Woolworth's where in 1960 four students from nearby North Carolina A&T University sat in at a segregated lunch counter in a protest that is generally considered to have sparked the sit-ins and economic boycotts that were central to the civil rights movement. The route also includes the projects where in 1979 at a "Death to the Klan" rally, sponsored by the Communist Workers Party, five people were killed, and several others were injured, by members of the Ku Klux Klan and American Nazi Party (six Klansmen and Nazis were later acquitted in a state trial). The route also includes working class neighborhoods, middle class neighborhoods, and the neighborhood that surrounds "the" country club (this neighborhood, with the unlikely name of Irving Park -- which always reminds me of one of my Jewish relatives in Brooklyn -- provides ample opportunity to write about conspicuous consumption).
We then read Fitzgerald's The Great Gatsby, published in 1925, and set in New York during the years following World War I. Many students previously have read this book -- it is a favorite in high schools -- but they have not focused on the text as a source for a class analysis. They know Daisy and Tom Buchanan are rich, and that Nick is not so rich, and that Tom's mistress, Myrtle Wilson, is from the working class, but they have not really thought much about Nick's family background and why it is important to understanding what Fitzgerald is saying about the Buchanans, about Gatsby, and about the Wilsons. They know that Gatsby is rich, and that he grew up poor, and that the source of his wealth is shady. This book provides a nice opportunity to look at the relationship between class and wealth, the distinction between new money and old money, the difference between celebrity and power, and the way that the relationship between wealth and class can change over two or three generations. (I ask my students if Bruce Springsteen is part of the upper class. What about LeBron James? What about Ice Cube? How might the children of these wealthy athletes and entertainers become part of the upper class? Would sending them to Lawrenceville, or Andover, help? Why?).
Batting third, bringing us into the 1950s, is C. Wright Mills' The Power Elite, a book that resonates now, over fifty years after it was written, more than one might think. Mills address directly some of the questions raised by Gatsby. Mills presents a readable, though extensively documented, argument that by the 1950s power in America no longer resided in wealthy families but was in the hands of the white Anglo-Saxon protestant men who held the highest positions in three institutions -- more specifically, those who were in the corporate elite, the political elite and the military elite. Mills showed empirically that those in the upper class were very much over-represented in these powerful positions, but he also showed that they were not one and the same (there were some Horatio Alger stories -- but not as many as the publicists claimed). Still, he argued, the system functioned to perpetuate the wealth of those who had it, and those in the power elite who were not from the upper class were typically, though not always, doing the bidding of the those in the upper class. Mills admired Veblen (he called him "the best critic of America that America has produced") but he also provided an important critique of Veblen's limited portrayal of the upper class (and indirectly of Fitzgerald's as well).
The fourth book that I assign, published in 1984, is Susan Ostrander's Women of the Upper Class. Based on interviews with 36 upper class women in a Midwest city, Ostrander looked at how these women fit into their families and into the local upper class. The book includes poignant descriptions of their work with the Junior League and other volunteer organizations, their relationships with their husbands and children, and their attitudes about the cultural changes taking place around them. They were clearly privileged economically, but many were also quite subservient to their husbands, and Ostrander's portrayal is rich with nuance. Here, especially, given the considerable changes in women's worlds that have taken place in the decades since the book was written, my students have a great deal to say about the changes they think have occurred, and we often spend time designing the follow-up study on this topic that I would love to see someone do.
I've taught this course three times since 1999, and in those classes the last book I've assigned has been either the first edition or the second edition of a book that I coauthored; the first (published in 1998) was titled Diversity in the Power Elite: Have Women and Minorities Reached the Top? And the second (published in 2006) was titled Diversity in the Power Elite: How it Happened, Why it Matters.
This book updates C. Wright Mills' The Power Elite by examining the extent to which Jews, women, African Americans, Latinos, Asian Americans and gay men and lesbians have become a part of the corporate, political and military elites. When Mills wrote his book, all three institutions were run by white Anglo-Saxon Protestant men, but, as was quite obvious in the spring of 2008, as Senators Barack Obama and Hillary Clinton vied for the Democratic nomination, there are now some African Americans and some women in positions of power. In the book, we detail just how many people from these various groups have made it to the top of these three institutions of power, and we look at the class backgrounds of those who have made it. It will not be a surprise to the readers of Radical Teacher that each of the Republican and Democratic Presidential nominees in the 21st century attended an elite boarding school (Bush: Andover; Gore: St. Albans; Kerry: St. Paul's; Obama: Punahou; McCain: Episcopal), but it is news to some of my students, and as we read and talk about this book we put the role of elite boarding schools into the larger context of understanding the upper class and the power elite.
The end-of-semester evaluations indicate that the students very much like the class, and think that they have learned a lot. Guilford uses a standardized form with both quantitative measures (24 questions) and open-ended questions asking for narrative comments. The numerical ratings have been consistently high, with scores higher than the college's average and, in fact, higher than I receive in many of the other classes I teach (the last time I taught the course, the scores were between 5 and 6 -- on a six-point scale -- on all 24 items, with 6 as the modal response to most items).
The narrative responses to the open-ended questions indicate that, for many students, the class is an eye-opener. As one student put it, the course "completed changed my perceptions of the class structure." In response to a question which asked what aspects of the course contributed the most to their learning, many students wrote about the short response papers that they were required to write and bring to each class. These short papers were designed to increase the likelihood of students actually reading the assigned material before they came to class, and to enhance the quality of the discussions. It seems to have worked. As one student wrote, "We had assignments due every class which forced us to do the reading and generated GREAT class discussions."
Many students mentioned the class discussions, at times focusing on the way they were structured ("The class discussions were set up to encourage us to interact with one another") and at times emphasizing the diverse make-up of the students in the class ("the varied backgrounds and perceptions of classmates reflected great diversity, and therefore provided an opportunity to learn").
Only one student raised a concern about bias, and this concern seemed to apply to the comments of students instead of (or perhaps in addition to) the make-up of the readings or the views I expressed. In response to a question about how the course could be improved in the future, this student wrote that I should "encourage the class to be open-minded about the upper class."
I, of course, do not tell them what to do with what they have learned, but I do encourage them to think about the choices they make. For those few very wealthy students, I'm always sure to mention Robin Hood Was Right: A Guide to Giving Your Money for Social Change, a book published in 2000 that encouraged extremely wealthy progressives to give their money away in ways that promote social justice rather than spending their lives trying to accumulate more.I also try to get them to think about the symbiotic relationship between social protests (for example, those who participated in sit-ins during the civil rights movement) and legislative changes (for example, the Voting Rights Act of 1965). The next time I teach the course I plan to tell them about Adam Hochschild's 2005 book about the end of the slave trade in England, Bury the Chains: Prophets and Rebels in the Fight to Free an Empire's Slaves.Although his book is not about the American upper class, it does show just how important it is to have both disruptive protest from the outside and people of commitment on the inside to bring about meaningful change. Whether my students disrupt from the outside, or try to work from the inside, is, of course, up to them, but I do hope that they will do what they can to bring about much-needed change in the way the class system is stacked in favor of those born into the upper class in America.
This document presents details on the wealth and income distributions in the United States, and explains how we use these two distributions as power indicators.
Some of the information might be a surprise to many people. The most amazing numbers on income inequality come last, showing the change in the ratio of the average CEO's paycheck to that of the average factory worker over the past 40 years.
First, though, some definitions. Generally speaking, wealth is the value of everything a person or family owns, minus any debts. However, for purposes of studying the wealth distribution, economists define wealth in terms of marketable assets, such as real estate, stocks, and bonds, leaving aside consumer durables like cars and household items because they are not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale (see Wolff, 2004, p. 4, for a full discussion of these issues). Once the value of all marketable assets is determined, then all debts, such as home mortgages and credit card debts, are subtracted, which yields a person's net worth. In addition, economists use the concept of financial wealth -- also referred to in this document as "non-home wealth" -- which is defined as net worth minus net equity in owner-occupied housing. As Wolff (2004, p. 5) explains, "Financial wealth is a more 'liquid' concept than marketable wealth, since one's home is difficult to convert into cash in the short term. It thus reflects the resources that may be immediately available for consumption or various forms of investments."
We also need to distinguish wealth from income. Income is what people earn from wages, dividends, interest, and any rents or royalties that are paid to them on properties they own. In theory, those who own a great deal of wealth may or may not have high incomes, depending on the returns they receive from their wealth, but in reality those at the very top of the wealth distribution usually have the most income.
In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2009).
|Table 1: Distribution of net worth and
financial wealth in the
|Total Net Worth|
|Top 1 percent||Next 19 percent||Bottom 80 percent|
|Top 1 percent||Next 19 percent||Bottom 80 percent|
Total assets are defined as the sum of: (1) the gross value of owner-occupied housing; (2) other real estate owned by the household; (3) cash and demand deposits; (4) time and savings deposits, certificates of deposit, and money market accounts; (5) government bonds, corporate bonds, foreign bonds, and other financial securities; (6) the cash surrender value of life insurance plans; (7) the cash surrender value of pension plans, including IRAs, Keogh, and 401(k) plans; (8) corporate stock and mutual funds; (9) net equity in unincorporated businesses; and (10) equity in trust funds.
Total liabilities are the sum of: (1) mortgage debt; (2) consumer debt, including auto loans; and (3) other debt. From Wolff (2004, 2007, & 2009).
|Figure 1: Net worth and financial wealth
distribution in the
In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.
|Table 2: Wealth distribution by type of asset, 2007|
|Top 1 percent||Next 9 percent||Bottom 90 percent|
|Stocks and mutual funds||38.3%||42.9%||18.8%|
|Non-home real estate||28.3%||48.6%||23.1%|
|TOTAL investment assets||49.7%||38.1%||12.2%|
|Housing, Liquid Assets, Pension Assets, and Debt|
|Top 1 percent||Next 9 percent||Bottom 90 percent|
|TOTAL other assets||12.0%||33.8%||54.2%|
|From Wolff (2009).|
|Figure 2a: Wealth distribution by type of
|Figure 2b: Wealth distribution by type of
Figures on inheritance tell much the same story. According to a study published by the Federal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand, 91.9% receive nothing (Kotlikoff & Gokhale, 2000). Thus, the attempt by ultra-conservatives to eliminate inheritance taxes -- which they always call "death taxes" for P.R. reasons -- would take a huge bite out of government revenues for the benefit of less than 1% of the population. (It is noteworthy that some of the richest people in the country oppose this ultra-conservative initiative, suggesting that this effort is driven by anti-government ideology. In other words, few of the ultra-conservatives behind the effort will benefit from it in any material way.)
For the vast majority of Americans, their homes are by far the most significant wealth they possess. Figure 3 comes from the Federal Reserve Board's Survey of Consumer Finances (via Wolff, 2009) and compares the median income, total wealth (net worth, which is marketable assets minus debt), and non-home wealth (which earlier we called financial wealth) of White, Black, and Hispanic households in the U.S.
|Figure 3: Income and wealth by race in the U.S.|
Besides illustrating the significance of home ownership as a measure of wealth, the graph also shows how much worse Black and Latino households are faring overall, whether we are talking about income or net worth. In 2007, the average white household had 15 times as much total wealth as the average African-American or Latino household. If we exclude home equity from the calculations and consider only financial wealth, the ratios are in the neighborhood of 100:1. Extrapolating from these figures, we see that 70% of white families' wealth is in the form of their principal residence; for Blacks and Hispanics, the figures are 95% and 96%, respectively.
Numerous studies show that the wealth distribution has been extremely concentrated throughout American history, with the top 1% already owning 40-50% in large port cities like Boston, New York, and Charleston in the 19th century (Keister, 2005). It was very stable over the course of the 20th century, although there were small declines in the aftermath of the New Deal and World II, when most people were working and could save a little money. There were progressive income tax rates, too, which took some money from the rich to help with government services.
Then there was a further decline, or flattening, in the 1970s, but this time in good part due to a fall in stock prices, meaning that the rich lost some of the value in their stocks. By the late 1980s, however, the wealth distribution was almost as concentrated as it had been in 1929, when the top 1% had 44.2% of all wealth. It has continued to edge up since that time, with a slight decline from 1998 to 2001, before the economy crashed in the late 2000s and little people got pushed down again. Table 3 and Figure 4 present the details from 1922 through 2007.
|Table 3: Share of wealth held by the Bottom
99% and Top 1% in the
|Bottom 99 percent||Top 1 percent|
|Sources: 1922-1989 data from Wolff (1996). 1992-2007 data from Wolff (2009).|
|Figure 4: Share of wealth held by the
Bottom 99% and Top 1% in the
Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s (Wolff, 2007).
Thanks to a 2006 study by the World Institute for Development Economics Research -- using statistics for the year 2000 -- we now have information on the wealth distribution for the world as a whole, which can be compared to the United States and other well-off countries. The authors of the report admit that the quality of the information available on many countries is very spotty and probably off by several percentage points, but they compensate for this problem with very sophisticated statistical methods and the use of different sets of data. With those caveats in mind, we can still safely say that the top 10% of the world's adults control about 85% of global household wealth -- defined very broadly as all assets (not just financial assets), minus debts. That compares with a figure of 69.8% for the top 10% for the United States. The only industrialized democracy with a higher concentration of wealth in the top 10% than the United States is Switzerland at 71.3%. For the figures for several other Northern European countries and Canada, all of which are based on high-quality data, see Table 4.
|Table 4: Percentage of wealth held in 2000
by the Top 10% of the adult population
by top 10%
What's the relationship between wealth and power? To avoid confusion, let's be sure we understand they are two different issues. Wealth, as I've said, refers to the value of everything people own, minus what they owe, but the focus is on "marketable assets" for purposes of economic and power studies. Power, as explained elsewhere on this site, has to do with the ability (or call it capacity) to realize wishes, or reach goals, which amounts to the same thing, even in the face of opposition (Russell, 1938; Wrong, 1995). Some definitions refine this point to say that power involves Person A or Group A affecting Person B or Group B "in a manner contrary to B's interests," which then necessitates a discussion of "interests," and quickly leads into the realm of philosophy (Lukes, 2005, p. 30). Leaving those discussions for the philosophers, at least for now, how do the concepts of wealth and power relate?
First, wealth can be seen as a "resource" that is very useful in exercising power. That's obvious when we think of donations to political parties, payments to lobbyists, and grants to experts who are employed to think up new policies beneficial to the wealthy. Wealth also can be useful in shaping the general social environment to the benefit of the wealthy, whether through hiring public relations firms or donating money for universities, museums, music halls, and art galleries.
Second, certain kinds of wealth, such as stock ownership, can be used to control corporations, which of course have a major impact on how the society functions. Tables 5a and 5b show what the distribution of stock ownership looks like. Note how the top one percent's share of stock equity increased (and the bottom 80 percent's share decreased) between 2001 and 2007.
|Table 5a: Concentration of stock ownership
|Percent of all stock owned:|
|Table 5b: Amount of stock owned by various
wealth classes in the
|Percent of households owning stocks worth:|
|Wealth class||$0 (no stocks)||$1-$10,000||More than $10,000|
|Both tables' data from Wolff (2007 & 2009). Includes direct ownership of stock shares and indirect ownership through mutual funds, trusts, and IRAs, Keogh plans, 401(k) plans, and other retirement accounts. All figures are in 2007 dollars.|
Third, just as wealth can lead to power, so too can power lead to wealth. Those who control a government can use their position to feather their own nests, whether that means a favorable land deal for relatives at the local level or a huge federal government contract for a new corporation run by friends who will hire you when you leave government. If we take a larger historical sweep and look cross-nationally, we are well aware that the leaders of conquering armies often grab enormous wealth, and that some religious leaders use their positions to acquire wealth.
There's a fourth way that wealth and power relate. For research purposes, the wealth distribution can be seen as the main "value distribution" within the general power indicator I call "who benefits." What follows in the next three paragraphs is a little long-winded, I realize, but it needs to be said because some social scientists -- primarily pluralists -- argue that who wins and who loses in a variety of policy conflicts is the only valid power indicator (Dahl, 1957, 1958; Polsby, 1980). And philosophical discussions don't even mention wealth or other power indicators (Lukes, 2005). (If you have heard it all before, or can do without it, feel free to skip ahead to the last paragraph of this section)
Here's the argument: if we assume that most people would like to have as great a share as possible of the things that are valued in the society, then we can infer that those who have the most goodies are the most powerful. Although some value distributions may be unintended outcomes that do not really reflect power, as pluralists are quick to tell us, the general distribution of valued experiences and objects within a society still can be viewed as the most publicly visible and stable outcome of the operation of power.
In American society, for example, wealth and well-being are highly valued. People seek to own property, to have high incomes, to have interesting and safe jobs, to enjoy the finest in travel and leisure, and to live long and healthy lives. All of these "values" are unequally distributed, and all may be utilized as power indicators. However, the primary focus with this type of power indicator is on the wealth distribution sketched out in the previous section.
The argument for using the wealth distribution as a power indicator is strengthened by studies showing that such distributions vary historically and from country to country, depending upon the relative strength of rival political parties and trade unions, with the United States having the most highly concentrated wealth distribution of any Western democracy except Switzerland. For example, in a study based on 18 Western democracies, strong trade unions and successful social democratic parties correlated with greater equality in the income distribution and a higher level of welfare spending (Stephens, 1979).
And now we have arrived at the point I want to make. If the top 1% of households have 30-35% of the wealth, that's 30 to 35 times what we would expect by chance, and so we infer they must be powerful. And then we set out to see if the same set of households scores high on other power indicators (it does). Next we study how that power operates, which is what most articles on this site are about. Furthermore, if the top 20% have 84% of the wealth (and recall that 10% have 85% to 90% of the stocks, bonds, trust funds, and business equity), that means that the United States is a power pyramid. It's tough for the bottom 80% -- maybe even the bottom 90% -- to get organized and exercise much power.
The income distribution also can be used as a power indicator. As Table 6 shows, it is not as concentrated as the wealth distribution, but the top 1% of income earners did receive 17% of all income in the year 2003. That's up from 12.8% for the top 1% in 1982, which is quite a jump, and it parallels what is happening with the wealth distribution. This is further support for the inference that the power of the corporate community and the upper class have been increasing in recent decades.
|Table 6: Distribution of income in the
|Top 1 percent||Next 19 percent||Bottom 80 percent|
|From Wolff (2009).|
The rising concentration of income can be seen in a special New York Times analysis of an Internal Revenue Service report on income in 2004. Although overall income had grown by 27% since 1979, 33% of the gains went to the top 1%. Meanwhile, the bottom 60% were making less: about 95 cents for each dollar they made in 1979. The next 20% - those between the 60th and 80th rungs of the income ladder -- made $1.02 for each dollar they earned in 1979. Furthermore, the Times author concludes that only the top 5% made significant gains ($1.53 for each 1979 dollar). Most amazing of all, the top 0.1% -- that's one-tenth of one percent -- had more combined pre-tax income than the poorest 120 million people (Johnston, 2006).
But the increase in what is going to the few at the top did not level off, even with all that. As of 2007, income inequality in the United States was at an all-time high for the past 95 years, with the top 0.01% -- that's one-hundredth of one percent -- receiving 6% of all U.S. wages, which is double what it was for that tiny slice in 2000; the top 10% received 49.7%, the highest since 1917 (Saez, 2009).
A key factor behind the high concentration of income, and the likely reason that the concentration has been increasing, can be seen by examining the distribution of what is called "capital income": income from capital gains, dividends, interest, and rents. In 2003, just 1% of all households -- those with after-tax incomes averaging $701,500 -- received 57.5% of all capital income, up from 40% in the early 1990s. On the other hand, the bottom 80% received only 12.6% of capital income, down by nearly half since 1983, when the bottom 80% received 23.5%. Figure 5 and Table 7 provide the details.
|Figure 5: Share of capital income earned by
top 1% and bottom 80%,
|Table 7: Share of capital income flowing to households in various income categories|
|Top 1%||Top 5%||Top 10%||Bottom 80%|
|Adapted from Shapiro & Friedman (2006).|
Another way that income can be used as a power indicator is by comparing average CEO annual pay to average factory worker pay, something that Business Week has been doing for many years now. The ratio of CEO pay to factory worker pay rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when CEOs were cashing in big stock options;. It was at 411:1 in 2005. By way of comparison, the same ratio is about 25:1 in Europe. The changes in the American ratio are displayed in Figure 6.
|Figure 6: CEOs' pay as a multiple of the
It's even more revealing to compare the actual rates of increase of the salaries of CEOs and ordinary workers; from 1990 to 2005, CEOs' pay increased almost 300% (adjusted for inflation), while production workers gained a scant 4.3%. The purchasing power of the federal minimum wage actually declined by 9.3%, when inflation is taken into account. These startling results are illustrated in Figure 7.
|Figure 7: CEOs' average pay, production
workers' average pay, the
|Source: Executive Excess 2006, the 13th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.|
If you wonder how such a large gap could develop, the proximate, or most immediate, factor involves the way in which CEOs now are able to rig things so that the board of directors, which they help select -- and which includes some fellow CEOs on whose boards they sit -- gives them the pay they want. The trick is in hiring outside experts, called "compensation consultants," who give the process a thin veneer of economic respectability.
The process has been explained in detail by a retired CEO of DuPont, Edgar S. Woolard, Jr., who is now chair of the New York Stock Exchange's executive compensation committee. His experience suggests that he knows whereof he speaks, and he speaks because he's concerned that corporate leaders are losing respect in the public mind. He says that the business page chatter about CEO salaries being set by the competition for their services in the executive labor market is "bull." As to the claim that CEOs deserve ever higher salaries because they "create wealth," he describes that rationale as a "joke," says the New York Times (Morgenson, 2005, Section 3, p. 1).
Here's how it works, according to Woolard:
The compensation committee [of the board of directors] talks to an outside consultant who has surveys you could drive a truck through and pay anything you want to pay, to be perfectly honest. The outside consultant talks to the human resources vice president, who talks to the CEO. The CEO says what he'd like to receive. It gets to the human resources person who tells the outside consultant. And it pretty well works out that the CEO gets what he's implied he thinks he deserves, so he will be respected by his peers. (Morgenson, 2005.)
The board of directors buys into what the CEO asks for because the outside consultant is an "expert" on such matters. Furthermore, handing out only modest salary increases might give the wrong impression about how highly the board values the CEO. And if someone on the board should object, there are the three or four CEOs from other companies who will make sure it happens. It is a process with a built-in escalator.
As for why the consultants go along with this scam, they know which side their bread is buttered on. They realize the CEO has a big say-so on whether or not they are hired again. So they suggest a package of salaries, stock options and other goodies that they think will please the CEO, and they, too, get rich in the process. And certainly the top executives just below the CEO don't mind hearing about the boss's raise. They know it will mean pay increases for them, too. (For an excellent detailed article on the main consulting firm that helps CEOs and other corporate executives raise their pay, check out the New York Times article entitled "America's Corporate Pay Pal", which supports everything Woolard of DuPont claims and adds new information.)
There's a much deeper power story that underlies the self-dealing and mutual back-scratching by CEOs now carried out through interlocking directorates and seemingly independent outside consultants. It probably involves several factors. At the least, on the worker side, it reflects an increasing lack of power following the all-out attack on unions in the 1960s and 1970s, which is explained in detail by the best expert on recent American labor history, James Gross (1995), a labor and industrial relations professor at Cornell. That decline in union power made possible and was increased by both outsourcing at home and the movement of production to developing countries, which were facilitated by the break-up of the New Deal coalition and the rise of the New Right (Domhoff, 1990, Chapter 10). It signals the shift of the United States from a high-wage to a low-wage economy, with professionals protected by the fact that foreign-trained doctors and lawyers aren't allowed to compete with their American counterparts in the direct way that low-wage foreign-born workers are.
On the other side of the class divide, the rise in CEO pay may reflect the increasing power of chief executives as compared to major owners and stockholders in general, not just their increasing power over workers. CEOs may now be the center of gravity in the corporate community and the power elite, displacing the leaders in wealthy owning families (e.g., the second and third generations of the Walton family, the owners of Wal-Mart). True enough, the CEOs are sometimes ousted by their generally go-along boards of directors, but they are able to make hay and throw their weight around during the time they are king of the mountain. (It's really not much different than that old children's game, except it's played out in profit-oriented bureaucratic hierarchies, with no other sector of society, like government, willing or able to restrain the winners.)
The claims made in the previous paragraph need much further investigation. But they demonstrate the ideas and research directions that are suggested by looking at the wealth and income distributions as indicators of power.
Anderson, S., Cavanagh, J., Klinger, S., & Stanton, L. (2005). Executive Excess 2005: Defense Contractors Get More Bucks for the Bang. Washington, DC: Institute for Policy Studies / United for a Fair Economy.
Dahl, R. A. (1957). The concept of power. Behavioral Science, 2, 202-210.
Dahl, R. A. (1958). A critique of the ruling elite model. American Political Science Review, 52, 463-469.
Davies, J. B., Sandstrom, S., Shorrocks, A., & Wolff, E. N. (2006). The World Distribution of Household Wealth. Helsinki: World Institute for Development Economics Research.
Domhoff, G. W. (1990). The Power Elite and the State: How Policy Is Made in America. Hawthorne, NY: Aldine de Gruyter.
Gross, J. A. (1995). Broken Promise: The Subversion of U.S. Labor Relations Policy. Philadelphia: Temple University Press.
Johnston, D. C. (2006, November 28). '04
Income in U.S. Was Below 2000 Level.
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This case study is one of several that could be used to demonstrate how the policy-planning network operates on issues of concern to the corporate community as a whole. But I have chosen to focus on the origins of the old-age insurance title in the Social Security Act, which is now known as "social security" even though the concept of social security originally encompassed unemployment insurance and various kinds of welfare payments that are included in the act. I focus on old-age insurance for a number of reasons, starting with the fact that its origins may come as a surprise to many readers, but also because the program is now the biggest and most popular government program that serves everyday people. It's also an interesting policy because it has been under heavy attack from corporate leaders and their ideological allies for the past 30 years.
Most people now think liberals and labor leaders created the program because they are the ones who defend it. But as this document will show, the basic principles behind old-age insurance were created and actively supported by the corporate moderates who owned and controlled the biggest and most powerful corporations of the 1920s and 1930s, companies such as Standard Oil of New Jersey, General Electric, and Metropolitan Life Insurance. In fact, government social insurance, including both unemployment insurance and old-age insurance, made enormous business and political sense to corporate moderates from the 1930s to the early 1970s. They only turned against it as part of a more general ideological and political attack on "big government" that began in the late 1970s in the face of a new set of economic and political problems caused by skyrocketing oil prices, stagflation, and the pressures put on government budgets by the social movements that arose in the 1960s.
As will be made abundantly clear, the corporate moderates of the 1920s and 1930s did not act without the advice and help of the experts on social insurance they financed and directed in the fledgling think tanks of that day, especially the first industrial relations counseling firm in American history, Industrial Relations Counselors, Inc. (Kaufman 2003). They also worked with experts who were brought together by the Social Science Research Council, founded in 1923 by the leaders of the Laura Spelman Rockefeller Memorial Fund to generate new policies on a wide range of social, economic, and agricultural issues (Bulmer and Bulmer 1981; Karl 1974). Other charitable foundations that corporate moderates created to shape policy proposals, led by the Rockefeller Foundation and the Carnegie Corporation, further aided these efforts over the next decade and longer.
The corporate moderates and their allies insisted that government old-age insurance had to be based on three principles they developed during several years of experience with private pension plans, especially in conjunction with the major life insurance companies of the time (Klein 2003). First, the level of benefits must be tied to salary level, thus preserving and reinforcing the values established in the labor market. Second, unlike the case in many countries, there could be no government contributions from general tax revenues. Instead, there had to be a separate tax for old-age pensions, which would help to limit the size of benefits. Third, there had to be both employer and employee contributions to the system, which would limit the tax payments by the corporations.
If my claims are as solidly grounded in new archival research as I think they are, it is worth asking why this analysis of the origins of social security is not better known. This question is especially pertinent because newspaper articles and memoirs from the 1930s suggest that my analysis would not come as a complete surprise to knowledgeable political observers who experienced and lived the New Deal firsthand. They knew that a few hundred large companies sat astride the economy and that plantation capitalists ruled the South through the Southern Democrats. They were familiar with the specific corporate leaders and their hired experts that are discussed in this document, and they understood their key role.
However, those who now theorize about the New Deal have overlooked the story that follows for several reasons. First, policy formulation is one thing in the United States and the politics of enactment are another. The planners and experts recede into the background and the politicians take over. This point is all the more important in the case of the Social Security Act because it was formulated by moderate Republicans and embraced by the New Deal. As the years passed, the Republicans did not want to admit any role in it and liberals and labor wanted to claim it as their own.
Second, just as the plan was being discussed in Congress, a Supreme Court ruling in May 1935, almost undermined the rationale for the new legislation and endangered its constitutionality in a case concerning a new government retirement program for railroad employees. The preamble justifying the social security proposal therefore had to be rewritten. The new version emphasized that such legislation would contribute to the "general welfare" of the country, which is permissible under the constitution. In other words, an ideology based in social welfare had to be constructed that stressed "needs," not efficiency and control of labor markets. This change in justification caused the labor-market and industrial relations bases of the plan to be lost from sight, and contributed to the belief that social workers, liberals, and unions had created the social security act (Graebner 1980; Graebner 1982).
Third, many prominent ultra conservative business leaders were highly visible in their opposition, including Congressional testimony against the bill, while its business supporters were less outspoken, leaving experts from think tanks financed by corporate moderates (Industrial Relations Counselors, Inc., and the Social Science Research Council in particular) as its main defenders as the act moved through Congress. Fourth, some of the key archival records upon which my assertions are based only became available through the Rockefeller Archive Center in the 1990s. Fifth, most of the standard histories of the New Deal are focused on Roosevelt, party politics, and the legislative process, with little or no concern for the possible role of business leaders and the foundations and think tanks they directed.
Government old-age pensions for a few of its employees go back to the nineteenth century and veterans of the Civil War, and later their widows and children, received government pensions that lasted into the early twentieth century (Skocpol 1992). Although these government pensions may have given the general idea of old-age insurance some respectability in the eyes of average citizens, this early history of government benefits is largely irrelevant because these pensions did not serve as a precedent. Instead, the starting point was in a few corporations, such as American Express in 1875, that saw pensions as a way to replace superannuated workers with more productive younger workers. Shortly thereafter, other corporations thought that pensions might be an a way to induce loyalty in workers and quell labor unrest, but that idea never really worked because the workers had no legal right to private pensions until the late 1920s. Even then, there were loopholes. Death benefits, accident insurance, and unemployment compensation turned out to be more important in terms of reducing labor strife, but they didn't work very well either (Graebner 1980; Sass 1997). However, the Pennsylvania Railroad, one of the largest railroads in the country, had a full-fledged pension plan for all employees at age 70 by 1900.
The push for old-age pensions actually received its biggest boost from the introduction of state-level accident insurance (workmen's compensation) by corporate moderates and their think tanks in the early 1900s. I won't try to tell that story here, but you can find most of the details in these three sources (Fishback and Kantor 2000; Klein 2003; Weinstein 1968). The plans, which involved the use of private insurance companies to provide legally mandated accident insurance, worked so well in the eyes or corporate leaders and insurance executives that they began to think the same type of approach might work for old-age pensions as well. Two of the three largest insurance companies, Equitable Life and Metropolitan Life, which shared many directors in common with major banks and corporations, began making the analyses necessary to offer group life insurance programs and group old-age pension programs to corporations. Insurance companies soon realized they could do a better job with private pensions than individual corporations could do if contributions were made by both the companies and their employees (Klein 2003; Sass 1997).
The gradual move toward actuarial soundness for old-age pensions received a boost in 1918 from the president of the Carnegie Foundation for the Advancement of Teaching, an early creation of corporate moderates in the policy-planning network. He put the foundation's program for pensions for professors on a better footing by founding the Teachers Insurance and Annuity Association, a life insurance company, which then fashioned the first fully insured pension system (Sass 1997, p. 65). By this point the experience of the insurance companies and the Carnegie Foundation for the Advancement of Teaching also began to have an influence on pension programs for government officials, as seen in the pension program designed for federal civil service employees in 1920 by the Institute of Government Relations, one of the forerunners of the Brookings Institution (Graebner 1980, pp. 77, 87; Saunders 1966, p. 25). In other words, by 1920 large corporations and a key organization in the policy-planning network, the Carnegie Foundation for the Advancement of Teaching, were shaping government insurance programs based on their own principles and experience.
During the 1920s the group insurance plans provided coverage for only a small percent of the elderly who had pensions in the United States. Most people bought old-age insurance from actuarially unsound plans sponsored by fraternal organizations, ethnic lodges, or trade unions, but by the end of the 1920s almost all of those plans had failed. As a consequence of these failures, there was a gradual movement towards support for government pensions by organizations such at the Fraternal Order of Eagles and some local and state union federations, using plans drawn up for them by the American Association for Labor Legislation, a corporate oriented group of academic experts financed by large foundations.
They were joined in these efforts by a new left-oriented group in 1925, the American Association for Old Age Security, which advocated comprehensive social insurance (including old-age pensions) at the state level paid for by general taxes, thereby directly challenging the approach favored by corporations. In the late 1920s and early 1930s as many as 25 states passed legislation allowing for government old-age pensions, usually without any state funding and at the option of individual counties, but few people actually received a pension and the benefits were meager if they did so. These efforts are sometimes credited with preparing public opinion for what came later, but I think that is a very generous assessment, a manifestation of the general desire in the United States--and mainstream academia--to assume that public opinion matters unless proven otherwise.
Despite these grassroots and leftist efforts, the major developments of the 1920s, the ones that impacted the Social Security Act, were being made by the individual corporations that had pension plans of their own and by the insurance companies that made their group programs sounder and less expensive by having both employers and employees contribute. By 1923 Metropolitan Life was confident that it had a group pension plan that was better than anything any one corporation could offer on an equally sound basis. So one of its main spokespersons eagerly presented the new plan to the corporate executives that his company invited to a special conference. However, even though he presented evidence that most corporate plans were unsound, the biggest corporations of the era were not prepared to abandon their own plans, which they still believed to be helpful in controlling their workforces and limiting strikes. Corporations also liked the fact that they had complete control over the plans and did not legally have to pay benefits if they decided not to do so.
But in reality the individual company plans did not help with control of the workforce and they were not actuarially sound. Shortly after the Metropolitan Life conference, for example, a meat packing company went bankrupt, sold its assets, and left its 400 retirees with 14 months of benefits (Sass 1997, p. 57). So it was not long before the Metropolitan Life plan became more attractive to smaller companies, especially when it packaged group old-age pensions with life, health, or disability insurance.
|John D. Rockefeller, Jr.|
It was at this juncture that a recently incorporated industrial consulting group, Industrial Relations Counselors, Inc., funded in its entirety over the next eight years by the richest man of that era, John D. Rockefeller, Jr., decided to pay more serious attention to company-level old-age pension plans to see if they needed to be reorganized. Rockefeller created the organization in an effort to reduce labor strife, especially in the companies he controlled, and to stave off unions. The result was "employee representation plans" that called for plant-level managers to meet with employee representatives elected by plant workers to discuss working conditions (but not wages or unions). As one small part of this general effort, Industrial Relations Counselors decided to take a more careful look at private social insurance plans, including old-age pensions.
This new emphasis within Industrial Relations Counselors was signaled by the employment of two very well trained independent experts on unemployment and old-age insurance, Murray Latimer and Bryce Stewart, who ended up at the center of the legislative drafting for the Social Security Act in 1934. Latimer, a twenty-five-year-old instructor in finance at the Harvard Business School at the time he was hired in 1926, was born and educated in Mississippi, and received an M.B.A. at Harvard in 1923 before joining the faculty. During his years at Industrial Relations Counselors he helped to establish new pension plans at Standard Oil of New Jersey as well as three other Rockefeller oil companies and an independent steel company, American Rolling Mill. His 1932 book for Industrial Relations Counselors on Industrial Pension Systems in the United States and Canada was well known and respected at the time, and is still frequently cited in historical accounts (Klein 2003; Orloff 1993; Sass 1997). Latimer also did a study of union plans for the American Federation of Labor in 1928-1929, concluding that "the experiments are far from having reached a sound basis and that unless drastic financial reorganization is made they are almost certain to end in failure in the relatively near future" (Klein 2003, pp. 56-57).
Stewart, forty-four years old when he joined the Industrial Relations Counselors staff in 1927, was a Canadian with many years of experience working with employment and labor issues. A graduate of Queens University in Kingston, Ontario, he earned a Ph.D. at Columbia University and first worked as a researcher, chief statistician, and editor for the Canadian Department of Labor, and then as an organizer and director of the Employment Service of Canada. After joining the Industrial Relations Counselors staff, he became its director of research in 1930 and held that position until his retirement in 1952, except for a return to Canada as deputy minister of labor during World War II.
Latimer and Stewart were often joined in their efforts by economist J. Douglas Brown, the director of the Rockefeller-financed Industrial Relations Section of the Department of Economics at Princeton. The son of an industrial executive in Somerville, New Jersey, Brown received his B.A. and Ph.D. at Princeton and taught for a year in the industrial relations program at the Wharton School at the University of Pennsylvania before returning to Princeton as a professor. Brown also worked closely with the industrial relations vice president of Standard Oil of New Jersey, Clarence Hicks. He also met with and sent reports to John D. Rockefeller, III, who oversaw Industrial Relations Counselors, for his father in the late 1920s and early 1930s before turning his full focus to philanthropic endeavors. One of Brown's tasks was to talk with corporate executives around the country and make periodic reports to Hicks and Rockefeller, III.
A pamphlet written for the American Management Association in 1928 by a personal employee of Rockefeller, Jr., best exemplifies the pre-depression thinking about company pensions within corporate moderate organizations in the policy-planning network. According to this detailed analysis, which contains discussions of the moral, economic, and technical issues involved in industrial pensions, a pension is part of a good personnel program. Especially in the case of corporations that have been around for many years, a pension is "a means, at once humane and approved by public opinion, of purging its active payroll of men who, by reason of age or disability, have become liabilities rather than assets" (Cowdrick 1928, p. 10). Pensions also provide the "opportunity to promote their younger subordinates" (p. 11). The pamphlet concluded with the prediction that industrial pensions will be "increasingly valuable to employers" (Cowdrick 1928, p. 21).
Although corporate moderates had a clear interest in old-age pensions by the late 1920s, they had no desire to move toward government social insurance, a point demonstrated in a report by the National Industrial Conference Board in 1931. Based on work by Industrial Relations Counselors employees and a survey of a large number of industrial executives, Elements of Industrial Pension Plans concluded that pension plans were becoming more important in the minds of industrialists and urged that the plans be made actuarially sound, in part through having employees contribute to them. No longer was there any mention of the usefulness of these plans in controlling employees. Now the emphasis was on staving off government plans by demonstrating that industry can "take care of its worn-out workers through pension plans resting on voluntary initiative and cooperation" (Board 1931, p. vi). Even more bluntly:
In proportion as such plans are established and become successful there is thus effected a reduction in the number of dependent aged that must be taken care of by society or the state. The extension throughout the field of industry of pension plans adequate in their provisions, equitably administered, and soundly financed will do much toward removing any real need or excuse for resort to the dubious expedient of state pensions (Board 1931, p. vi).
Most of the corporate moderates' policy-oriented efforts between 1930 and 1932 were directed toward unemployment plans and ways to stabilize employment, but by late 1932 the ongoing depression was starting to take its toll on even the best of the corporate pension plans. More workers were reaching retirement age and retirees were living longer at a time when corporate profits had been flat or declining for three straight years. In addition, low interest rates meant that the investments by corporate pension funds were not generating the cash flow that was needed to pay current monthly obligations. As economic historian Steven Sass (1997, p. 88) concludes, "The Great Depression of the 1930s sent a massive shock wave through the nation's fragile private pension system." This was especially the case for the railroads, which had an older workforce than many industries on top of unsound pension plans. Even a switch to "contributory plans" (meaning that both the workers and the company paid into the pension plan) over the previous three years had not been enough to save the railroad pension plans. But it was not just corporate plans that were in trouble: the handful of small pension plans controlled by the AFL and other unions also began to suffer, as Latimer of Industrial Relations Counselors had predicted they would even before the depression began. In 1932 the AFL dropped its longstanding opposition to government pensions, which was based on the premise that the corporations controlled government.
As the depression deepened and Roosevelt
took office in March 1933,
members of the policy-planning network who had worked on unemployment
and pension plans began to be involved in direct service to the New
Deal. For example, Stewart of Industrial Relations Counselors became
chair of a committee to advise Secretary of Labor Frances Perkins on
selecting the members for her Advisory Committee to the Department of
Labor. He also served as a member of the Advisory Council of the United
States Employment Service and chaired its Committee on Research. At the
same time, Latimer provided the Department of Commerce with estimates
on the amount of pension income that was being paid out in the country
and then became a member of the Advisory Committee of the Department of
Labor, where he spent part of his summer months assisting in the
revision of the employment and payroll indexes and in making studies
which would lead ultimately to the revision of the
As this mundane statistical work was grinding along, grassroots efforts by railroad workers, who had been building their movement since 1929, began to pick up momentum when the railroads announced they would be making sudden 10% cuts in both salaries and pensions. In a context where at least 84% of railroad workers had been covered by company pension plans since the early 1920s, and with young workers supporting the older workers so they could move into the senior jobs, the rank-and-file organized on their own because of the lack of interest in government pensions on the part of their union leaders (Klein 2003; Latimer and Hawkins 1938; Sass 1997). In 1931 and 1932, the railroad workers' independent actions--organized as the Railways Employees National Pension Association, which was outside the confines of their cautious union leadership--suddenly gained enough power to force Congress to take legislative action.
In the face of the impending pension crisis in the railroad industry, the Railways Employees National Pension Association was able to convince Senator Henry D. Hatfield, a one-term Republican Senator from West Virginia, to introduce their legislation in 1932. A physician who was a staunch supporter of unions and a former governor of the state, Hatfield had a special sympathy for railroad workers because he had worked for 18 years as a surgeon for the Norfolk and Western Railroad. Significantly, the legislation he introduced called for contributions by workers as well as employers. It also had generous benefits and an option for early retirement. "As pension agitation mounted," concludes sociologist Jill Quadagno (1988, p. 73), "labor leaders began to recognize that their indifference to the pension issue was alienating them from the rank and file, and in the same year they succeeded in inducing Senator Robert Wagner of New York to introduce an alternative proposal." Despite strong opposition from railroad executives, Congress passed the Wagner-Hatfield bill in 1933 (see also Graebner 1980, pp. 171-176).
In short, the railroad workers had won a class struggle with the railroad owners. It may seem small in the larger scheme of things, but it was major for them, and it soon had a much larger impact in an unexpected direction--on the corporate moderates. I underline this point because class conflict on specific issues is often the basic force behind seemingly liberal legislation. There is pressure from workers and then the corporate moderates decide to find a way to accommodate that pressure in a way that makes sense in terms of the ongoing profitable functioning of large corporations.
Although the federal coordinator of transportation advised Roosevelt to sign the railroad retirement legislation because "it is in line with sound social policy," he added that he would have preferred to wait in order to improve it (Latham 1959, p. 160). One of the problems he worried about was the actuarial soundness of the plan, which caused him to bring Stewart, Latimer, and J. Douglas Brown (the Princeton industrial economist whose work was funded by the Rockefeller network) to Washington in late 1933 to serve as members of an Employment Advisory Council that would design the new social insurance system for railroad workers. As Brown tells the story:
The group of us that went down [to Washington] on that centered very much on Industrial Relations Counselors, in New York.... So Latimer and I began working on the old-age protection of railroad workers. We put Hawkins [a student of Brown's] to work on the dismissal compensation. Bryce Stewart worked on the unemployment insurance (Brown 1965, p. 6).
Latimer, Stewart, and Brown lacked the information needed for the actuarial studies on which to base a sound program, and they did not have an army of clerks at their disposal to develop the information. They therefore applied for a $300,000 grant from the recently established Civilian Works Administration and then hired laid-off railroad clerks who had dealt with the relevant employment records for their respective companies--1,500 people collecting records on 400,000 employees and 110,000 pensioners. They also hired a staff of 500 in New York to analyze the data (Brown 1965, pp. 8-9; Latimer and Hawkins 1938, p. 111). The result was a new set of records with the space of a few months, which shows how rapidly state capacity can be created when there is the will to create it.
Latimer, Stewart, and Brown then crafted a plan that was satisfactory to all concerned even though the benefit levels were lower than those originally proposed due to the fact that the study showed the original actuarial assumptions were unsound (Latimer and Hawkins 1938, pp. 123-127). Employers were pleased because they were relieved of the cost of private pensions and their tax rates were lower. Railroad workers accepted the plan because the pensions were satisfactory--in fact, much higher than those later established for the Social Security Act--and there were disability and survivor benefits as well (Latimer and Hawkins 1938, p. 274). In the end the Railroad Retirement Act was a victory for all those who were willing to allow the government to play a role in providing social insurance. Because of this work Latimer was appointed chairman of the three-person Railroad Retirement Board in the summer of 1934.
Strikingly, the railroad worker's success did not lead to similar efforts by other workers, which Quadagno (1988, p. 74) attributes to the division of American workers along craft lines. The best that the American Federation of Labor could do, and its only positive contribution to the process that followed, was to end its opposition to government pension plans at its annual meeting in 1932, as also stated earlier in this document.
However, the lessons from this successful effort were not lost on Latimer, Stewart, and Brown. They began to understand the possibilities for using the group insurance policies developed by the private insurance companies, with whom they were always in close contact, as a model for government insurance plans. They realized they could package old-age pensions--as well as unemployment compensation, which I am not discussing in this document in order to keep it a manageable size--in such a way that they would be compatible with the major concerns of corporate leaders. They also realized that such plans would be far less expensive for corporations than having their own programs, some of which were on increasingly shaky grounds in any case. From this point forward they worked to convince corporate executives, fellow experts, and social workers of the soundness of their ideas. Their efforts are a textbook example of how experts function in the United States, which contradicts the emphasis of mainstream New Deal scholars on independent experts as well as any example could.
There is an even larger point that will be demonstrated in what follows. In effect, the foundations and think tanks created by corporate leaders became part of the government because they paid the salaries of private-sector experts who were de facto state employees. They thereby provided the government with the ability to build new processes and agencies through the utilization of expertise based in private organizations (and especially in Industrial Relations Counselors in the case of old-age insurance). Contrary to most theorists, and the historical institutionalist theorists in sociology and political science in particular, the American federal government does not necessarily build its own capacity, and those who administer the government are not necessarily independent of the corporate community and its closely affiliated policy-planning network.
By November 1933, the experts in the policy planning network who had been working on social insurance plans for nearly four years felt confident enough with what they had accomplished to bring it to the attention of experts just outside their circles. They did so through a small conference in Washington under the auspices of the Social Science Research Council (mentioned in the Introduction as an organization founded in 1923 with funding from foundations to support research and policy development in the social sciences). Twenty-two people attended this conference, representing a wide range of social service organizations as well as government agencies related to social insurance and social provisioning. Fourteen of the twenty-two had served on at least one policy committee of the Social Science Research Council or were connected to the policy-planning network in some other way. Several were affiliated with the local-level policy-planning network created in good part by Rockefeller philanthropies and housed by the Public Administration Clearing House at the University of Chicago (Roberts 1994).
The most prominent representative of the social service organizations was Edith Abbott, a leading reformer during the Progressive Era and since 1921 the dean of the School of Social Service Administration at the University of Chicago. The social welfare representatives also included the director of the Public Administration Clearing House and leaders from the American Association of Social Workers, the American Public Welfare Association, and the Institute of Public Administration.
Perhaps the most important government official present was Harry Hopkins, a former social worker and a close confidant of Secretary of Labor Perkins, who had been appointed by Roosevelt to create the Federal Emergency Relief Administration in May 1933 (Cohen 2009, Chapters 8 and 9). Arthur Altmeyer, Perkins's main assistant on social insurance issues, rivaled Hopkins in importance at the meetings. He had been the executive secretary of the Wisconsin Industrial Commission for many years before joining the New Deal. Also present were Mary Anderson, the director of the Women's Bureau in the Department of Labor, which had jurisdiction over the "mother's pensions" that would become stigmatized as "welfare payments" when they were enfolded into the new Social Security Act; John Dickinson, the Assistant Secretary of Commerce who helped draft the National Industrial Recovery Act just a few months before; and Isador Lubin, a former Brookings Institution employee who had been appointed by Perkins as the Commissioner of Labor Statistics. There were also several experts present who worked closely with government agencies, starting with M. L. Wilson, who played a key role through the Social Science Research Council in formulating the Agricultural Adjustment Act passed earlier by the New Deal, and J. Douglas Brown, the director of the Industrial Relations Section at Princeton who had worked on the railroad retirement plan.
The starting point for the discussions at the Social Science Research Council conference was a document prepared by Stewart listing the nature of the studies needed to understand several problems that had to be resolved to design a comprehensive social insurance program. There was a stress on issues dividing the proponents of various kinds of social welfare, which were most contentious on unemployment insurance for a variety of reasons. In the case of old-age pensions, the draft plan embodied the three basic principles mentioned in the Introduction that the corporate moderates insisted upon: the level of benefits must be tied to salary level, there should be no government contributions from general tax revenues, and there had to be both employer and employee contributions.
Although the attendees were unanimous in encouraging the Social Science Research Council to move forward in refining Stewart's proposal, the liberals and reformers of that era, many of them social workers, did not give their approval without expressing their disagreements with what they called "the insurance crowd," which meant experts such as Latimer and Stewart. This difference showed up most prominently over the issue of funding old-age pensions when Abbott stated her preference for "one welfare statute" that would be paid for out of general tax revenues and "available to all without stigmatizing qualifications" (see Gordon 1994, p. 261 for Abbott's general views; see Witte 1963, pp. 15-16, for the fact of disagreement). This and other differences of opinion show that Stewart and other insurance-oriented experts in the policy-planning network were not liberals in the eyes of the liberals of that era.
The same group of people then met for a second Social Science Research Council conference in early April 1934, to consider a second version of Stewart's proposal. However, they did so in very different circumstances because Senator Wagner had introduced a new state-oriented unemployment insurance bill on February 5 on behalf of moderate reformers. Reformers to the left of the moderate reformers, such as those involved in the American Association or Old Age Security, which had just changed its name to the American Association for Social Security, vowed to defeat the Wagner bill because it was so cautious. They also feared it would undercut their efforts towards more liberal programs in several states, which they thought had a good chance of success. At the same time, most business groups were equally opposed the new proposal for their own reasons.
With this conflict in Congress swirling around them, the Social Science Research Council group once again gave its general approval to the evolving plan that had emerged from the policy-planning efforts over the past several years. Stewart, with the help of a co-author, an economist employed by the Social Science Research Council, then revised his report to take into account concerns expressed at the meeting and to emphasize the group's support for a unified plan--that is, one that included unemployment insurance and benefits for single mothers as well as old-age insurance. They did so in part because Roosevelt, who was in close touch with corporate moderates on social insurance issues, also called for a unified plan. As Stewart and his co-author explained in a formal report to the Social Science Research Council:
In a draft report, revised following the April conference, the unified character of the task of planned protection was developed, and the several phases of relief and social insurance were considered in terms of (a) the problems of planning, administration, and coordination, (b) the present state of knowledge in each field, and (c) further work specifically required for the proper integration of each major segment into a unified program (Stewart and Givens 1934b, p. 1).
The Social Science Research Council group then sent Perkins and Harry Hopkins copies of their conference report in an effort to reinforce the idea that general, not piecemeal, legislation was necessary. From their point of view, their efforts were successful in influencing the creation of the Cabinet-level Committee on Economic Security, as explained in the same Social Science Research Council report of November 16 that I just quoted. I find the following paragraph to be strong evidence that the experts within the policy-planning network were working closely with Perkins and Hopkins to shape the government's agenda:
At the request of officials of the Department of Labor and the Federal Emergency Relief Administration, these materials were made informally available in the formulation of plans for a government inquiry. A draft plan for such an inquiry, developed upon the basis of the exploratory study, was placed in the hands of a Cabinet committee, and these plans have eventuated in the establishment by Executive Order, June 29, 1934, of the Committee on Economic Security. Thus the original project became merged in a major planning venture at the Administration (Stewart and Givens 1934b, p. 1).
Once the Roosevelt initiative was announced, Stewart and his co-author anticipated (on the basis of the liberal social workers' dissents at the two Social Science Research Council conferences) that there might be aspects of the final legislation that would not be acceptable to corporate moderates. They therefore revised their earlier proposal for immediate research funds from the Social Science Research Council to make it a call for a larger study that would begin after the shape of the final legislation became clear. They argued it was very unlikely that any new legislation would be thoroughly satisfactory, which meant that future Social Science Research Council studies would be important in influencing inevitable revisions in the program (Stewart and Givens 1934a, p. 1). Thus, members of the policy-planning network were already preparing for likely amendments--and for shaping the administration of the Social Security Act--well before the plan was finalized and sent to Congress in early 1935 (cf. Fisher 1993).
As this brief history demonstrates beyond any doubt, employees of the policy-planning network were actively involved in developing plans for social insurance (most importantly for my purposes here, old-age insurance) right up until the moment the government process began. They also had plans to draft amendments to the legislation if they thought changes would be necessary. My next step is to determine whether or not they were involved in the drafting processes inside the government and if so, if they had any impact.
Roosevelt announced the plan for a comprehensive study of a program for economic security on June 8, 1934. It would be conducted by a cabinet-level committee, the Committee on Economic Security (CES), chaired by Secretary of Labor Perkins and including Hopkins as the Federal Emergency Relief Administrator, along with the attorney general, the secretary of treasury and the secretary of agriculture (the latter three played minor roles, so I don't introduce them here). The CES was assisted by what was called the "Technical Board," a group of 20 government-employed experts drawn from several different agencies (several of the "government" experts had until recently been employees of foundations, think tanks, and universities).
It also had the input of an Advisory Council on Economic Security made up of 23 private citizens, including several prominent corporate moderates, labor leaders, and social welfare advocates. The business representatives included Walter Teagle, president of Standard Oil of New Jersey; Gerard Swope, president of General Electric; and Marion Folsom, the treasurer of Eastman Kodak -- all of whom had been working with or were aware of the work by Stewart and Brown in the previous few years. The other two business members were involved in a moderate think tank and the Social Science Research Council.
There were also five labor leaders, including the head of the American Federation of Labor, but they attended few meetings and generally had very little impact.
In addition, there was a research staff made up of experts brought in from Industrial Relations Counselors, the Social Science Research Council, other think tanks, and universities. It was the staff's job to draft the proposals to be discussed by the appropriate committees of the Technical Board and the Advisory Council on Economic Security before they were passed up the hierarchy to the CES (and Roosevelt from behind the scenes through his interactions with Perkins and Hopkins). Finally, there was an executive director to lead the staff and serve as secretary to the CES.
Significantly, and frequently commented upon at the time, the most visible left-liberal and leftist reformers on social insurance issues, who had advocated plans at the grassroots for well over a decade and written several influential books, were not included in any part of the formal process, not even as members of the Advisory Council on Economic Security. Like the liberals and the social workers, they advocated protection for everyone without qualification and wanted to finance the program out of general taxes. But they were far less willing to compromise than were the social workers, who despite any disagreements were part of the New Deal coalition through their many connections to Eleanor Roosevelt, Perkins, Anderson of the Women's Bureau, and several other government appointees.
On the basis of a strong recommendation from Altmeyer, Perkins offered the important position of staff director to Edwin Witte, a labor economist who had received his education at the University of Wisconsin and worked as the chief of the state's Legislative Reference Library, a service for state legislators who needed help in writing their bills. Unknown to anyone at the time, Witte kept a diary of the unfolding events to help him keep things straight in a complex situation. The diary became the basis for a memorandum he wrote in 1936 at the request of the Social Science Research Council's Committee on Public Administration, which used it as part of its efforts to help shape the administration of the Social Security Act (Witte 1963, p. xi). Later the Social Science Research Council asked Witte if it could publish his memorandum as a book, which appeared in 1963 and became the basis for just about every analysis of the origins of the Social Security Act since that time. It remains a valuable book, but it is too brief to tell the whole story in detail.
With this background material on Witte and his book in mind, I can begin my discussion of the impact of the policy-planning network on the act itself with the fact that the structure and process for the program and much of its research agenda were developed by Altmeyer and Stewart based on the report written after the second Social Science Research Council conference, as explained by Witte's biographer, Theron Schlabach (1969, p. 99). This conclusion, based on interviews and a statement in the CES files written by the three men for Roosevelt, is consistent with Stewart's(1934b) statement in an Social Science Research Council report that the conference's proposals were made informally available to government officials. In addition, Witte (1963, pp. 15-16) notes that he made "some little use" of the research suggestions in this report "in outlining the fields to be covered by various members of the staff." All in all, this is impressive preliminary evidence that the policy-planning network was an integral part of the governmental process.
To our unexpected good fortune, at this point the Industrial Relations Counselors experts also began to provide corporate industrial relations executives with inside information on the unfolding drafting process through periodic memorandums prepared for the organization's clients. These memorandums give us a new window into the thinking of the corporate moderates that has never been utilized in detail. The first of them, for July 10, provided a thorough overview of how the drafting process would be carried out, concluding that "It is patent that the Administration is determined to develop a program of social welfare to be presented at the next session of Congress, and that broad departures in the field of industrial relations may be anticipated" (Memorandum to Clients, No. 1, July 10, 1934, p. 2). Two paragraphs later it reminded its readers "to prepare for the advent of various forms of social insurance."
The corporate moderates and experts associated with Industrial Relations Counselors had extensive day-to-day involvement in the development of the plan for old-age insurance. Describing his search for a staff to study old-age pensions and draft a proposal, Witte (1963, p. 29) reported that "It was agreed by everyone consulted that the best person in the field was Murray Latimer, who was unavailable because he was chairman of the Railroad Retirement Board." However, Latimer was able to serve as chair of the Technical Board's Committee on Old Age Security, an important policy role in itself, and in any case he worked closely with the research staff in drafting the legislation. Latimer also was given the opportunity to recommend a leader for the staff. His suggestion, which is further support for my emphasis on the role of the Rockefeller-financed circle of experts, was J. Douglas Brown, one of his collaborators in the railroad retirement study, whom he also knew through Industrial Relations Counselors and annual conferences at Princeton on social insurance (Witte 1963, p. 3). When Brown decided that he could only give part of each week to the work at hand, Professor Barbara Nachtrieb Armstrong of the Law School at the University of California, Berkeley, was placed in charge of the old-age study (Armstrong 1965, p. 36). Latimer and Brown worked very closely with her, along with Otto Richter, an actuary on loan from AT&T.
|Barbara Nachtrieb Armstrong|
Armstrong is an intriguing and interesting figure who also figures importantly in my theoretical arguments with the current generation of historical institutionalists in sociology and political science because she is their evidence that independent experts are as important as they claim. Armstrong earned her law degree in 1915 at the University of California, Berkeley, and went to work for California's Commission on Social Insurance. Her report on sickness as a cause of poverty in California also became the basis for her Ph.D. dissertation at Berkeley in 1921. She next taught both law and economics at UC Berkeley for several years before becoming the first woman to be appointed a professor of law in the United States. During the 1920s she immersed herself in the study of European social insurance systems and in 1932 published one of the most respected books in the field at the time, Insuring the Essentials, with the help of a Social Science Research Council grant. She is indeed an example of the kind of independent expert that institutionalist theorists emphasize out of all proportion to their frequency.
Armstrong (1965, p. 38) reports in an oral history that she knew no one in Washington when she was asked to join the research staff and never learned who suggested her inclusion. She says she had received positive letters about her book from Roosevelt intimates and speculates that the president of General Electric, who wrote her a laudatory letter about the book, may have been responsible for her selection (Armstrong 1965, p. 30) However, since she also knew many of the experts in the field and was highly respected for her book, it may be that one of the other experts recommended her.
Originally hired to work on the unemployment compensation program, she was switched to old-age insurance when she arrived because Latimer and Brown would not take on the task. Like them, she favored a nationwide contributory system administered by the federal government. She also had the highest regard and affection for Brown and Stewart, whom she describes as kind and gentle people. After playing a central role in the drafting process, she returned to California, never returning to Washington to testify before Congress, in part because of time pressures, in part because she feared she might be too acerbic as a witness before congressional committees (Graebner 1980, p. 187).
The plan prepared by Armstrong and her colleagues, which contained all the provisions that Industrial Relations Counselors had come to advocate, sailed through the Technical Board's Committee on Old Age Pensions, but its two main features, its national scope and the inclusion of employee contributions, were worrisome to Perkins and the other members of the CES. However, the original plan prevailed on both issues when the CES finally voted. Thus, the process produced a clear policy victory for the approach first developed by the insurance companies and the experts at Industrial Relations Counselors.
However, the plan then faced a different kind of challenge. There may have been some inclination on the part of Roosevelt, Perkins, and Witte to exclude old-age insurance from the final package sent to Congress because they feared that opposition to it might interfere with the passage of the program that mattered the most to them, unemployment insurance. Perkins and Witte always denied there was any such move afoot, but Armstrong, Latimer, and Brown were convinced otherwise. They quickly spoke off the record to reporters to that effect after an ambiguous comment by Roosevelt in a speech to a national conference on economic security in Washington in November 1934, jolted them to attention. "I do not know," Roosevelt intoned, "whether this is the time for any federal legislation on old age security" (Davies 1999, p. 60). The immediate uproar in the newspapers led to assurances by all concerned that old-age insurance would be included in the legislative proposal (Armstrong 1965, pp. 88-89; Brown 1965, p. 13; Schlabach 1969, p. iii, based on his interview with Latimer).
Shortly after the public phase of the controversy ended, the corporate moderates came into the picture in a supporting role through their membership on the Advisory Council on Economic Security. According to Armstrong (1965, pp. 82-83) and Brown (1972, p. 21), they were crucial in convincing Roosevelt and Perkins to retain the old-age provisions in the legislation. As Brown recalled it:
The likelihood of gaining the support of the Cabinet Committee for our proposals was still in doubt. At this critical time, December 1934, help came from an unexpected source, the industrial executives on the committee's Advisory Council. Fortunately included in the Council were Walter C. Teagle of the Standard Oil Company of New Jersey, Gerard Swope of General Electric, and Marion Folsom of Eastman Kodak, and others well acquainted with industrial pension plans. Their practical understanding of the need for contributory old-age annuities on a broad, national basis carried great weight with those in authority. They enthusiastically approved our program. Just as the newspaper writers had carried us through the November crisis, the support of progressive industrial executives in December ensured that a national system of contributory old-age insurance would be recommended to the President and Congress" (Brown 1972, p. 21).
Brown later summarized what he called the "American philosophy of social insurance" in a retrospective book. Echoing Cowdrick in his 1928 pamphlet for the American Management Association, Brown's (1972, pp. 90-91) emphasis was on "the need for a perpetual corporation to assure a flow of effective and well-motivated personnel for the year-by-year operation of the company." More specifically, "retirement programs with adequate pensions became necessary to prevent an excessive aging of staff or the loss of morale which the discard of the old without compensation would involve;" thus, old-age insurance was simply "a charge on current production to be passed on to the consumer"(Brown 1972. pp. 90). This is exactly the conclusion most corporate moderates had reached by the late 1920s. However, it did take the "massive shock wave" of the Great Depression (Sass 1997, p. 88), the grassroots efforts of the Railways Employees National Pension Association, and careful actuarial work by Latimer, Stewart, Brown, and other experts to convince the corporate moderates that they would have to realize their purposes through a narrowly circumscribed government program.
With the arguments over old-age insurance at an end within the CES, much time and energy then was spent over a far more contentious issue, the plan for unemployment compensation. These battles between rival reformers need not detain us here, but I have written about them elsewhere (Domhoff 1996, Chapter 5). Suffice it to say that the more generous and comprehensive plan put forth by the experts from Industrial Relations Counselors was trimmed back through the efforts of more cautious reformers who preferred to have state-level insurance and in any case feared that Southern Democrats would veto national-level unemployment insurance.
It is now time for a brief overview of what happened within the legislative process.
The CES's overall plan was introduced into Congress in mid-January 1935, with the apparent support of a wide cross-section of the corporate community, including a committee of the National Association of Manufacturers (Brents 1984; Jenkins and Brents 1989). Then, too, a committee of the Chamber of Commerce endorsed the bill in March 1935, while it was still being dissected by Congressional committees (Nelson 1969, p. 214). The plan also had support from reformers and labor leaders. Nevertheless, the proposal had to survive a seven-month legislative gauntlet that included a complete redrafting in the House, near defeats in key Congressional committees, changes in the preamble due to the Supreme Court decision on the Railroad Retirement Act, and an amendment to allow companies with their own large pension plans to opt out of the government plan, which was so controversial that it almost led to a deadlock between the House and Senate. In the end, however, all of the old-age insurance provisions survived even though Southern Democrats insisted upon restrictions on federal regulation of the program.
The Industrial Relations Counselors Memorandum to Clients, No. 5, provided a detailed eight-page overview of the bill to its clients on January 25, eight days after it was introduced. It was very favorable toward the old-age insurance provisions, noting that the contributions to the program were low "as compared with the pension plans of progressive companies..." (Memorandum to Clients, No. 5, p. 10). However, it did worry that the government might not be able to "assure the contractual character of this obligation so long as Congress has the power later to change the terms of the law." It also expressed concern that the bill gave "no recognition to industrial pension plans that have been adopted in several industries, and a number of which have become well established and have accumulated considerable reserves" (Memorandum to Clients, No. 5, p. 10). Within a few days, however, they saw this lack of recognition for private pension plans as a very real opportunity for companies with pension plans.
As Roosevelt and Perkins had feared, most of the discussion in Congress focused on old-age social insurance. This part of the legislation was explained and defended at length and in detail by Witte, Brown, and Latimer. Latimer and others believe that Witte was by far the most creditable witness for the great majority of congressmen (Schlabach 1969, p. 144). However, Brown and Latimer's testimony is of greater theoretical interest here because it stressed labor market concerns, which supports the argument that the program was created with industrial relations in mind, not social welfare(c.f. Graebner 1980, pp. 187-189). For example, Latimer's only concern was that larger benefits might be needed to induce the larger number of retirements that he thought necessary to help improve the unemployment problem.
Responding to the concerns of companies that already had their own pension plans, the Industrial Relations Counselors' Memorandum to Clients, No. 6, for February 1, explained that the government plan would be less costly for these companies. It also proposed that the current company plans could be seen as supplementary to the government program, making it possible to provide more attractive pensions for higher income workers: "The combined cost to companies of the revised company plan and the national plan would presumably be less than the cost of their present plans, since the contribution rates levied by the Security Bill are set below actual cost on the assumption that the additional amounts needed later will be drawn from general tax funds" (Memorandum to Clients, No. 6, p. 1). This memo is very important in terms of current theoretical debates because it shows that Industrial Relations Counselors understood there would be cost savings and opportunities to provide better retirement benefits for executives much sooner than standard historical accounts realize
Memorandum No. 6 then explains why the employees themselves may prefer Social Security over company plans that claimed they would pay higher benefits. These reasons also are an admission of the weaknesses inherent in company pension plans discussed by Sass (1997). It first notes that there is an "absence of real guarantees" in company plans, which is a damning admission if there ever was one. Second, it notes that there had been "widespread cuts in the amounts paid to pensioners and reductions in the rate of pension which have occurred during the past four years," which is an admission that many company plans were not actuarially sound over the long run (Memorandum to Clients, No. 6, p. 2).
Memorandum to Clients No. 6 is also important because it provides the first mention of "contracting out," which would "permit a company to operate a separate plan outside the federal scheme if it is in no way less favorable than that of the government and has its current credits fully financed." The memorandum concedes that such a provision would have "a decided appeal from the industrial relations viewpoint of the individual company," implying that privately controlled pension plans might help the company in retaining and restraining employees, but it then adds that "we understand that the experts who drafted the bill believe such a provision would weaken the effectiveness of the measure for the great number of wage earners who are not under company plans" (Memorandum to Clients, No. 6, p. 2, my italics). In other words, the Industrial Relations Counselors experts, as exemplified by Stewart, had decided that contracting out was not a good idea for the corporate community. The memorandum then added that a separate plan would be burdensome besides: "Certainly the inclusion of the proposed provision would be accompanied by requirements for financial guarantees from the companies of a character that might prove burdensome and difficult to meet and to that extent would lessen its acceptability" (Memorandum to Clients, No. 6, p. 2).
I see such comments as part of the process of disseminating a new perspective in the corporate community. I also see them as the first of several pieces of evidence that the institutional theorist who wrote in the most detail about the origins of the Social Security Act is wrong when she concludes that "almost all of the welfare capitalists" were in favor of contracting out because of their alleged continuing opposition to federal old-age insurance (Orloff 1993, p. 293).
The depth of the Industrial Relations Counselors experts' concern over contracting out is revealed in a letter that Brown sent to Witte shortly thereafter, on February 13, reporting on what he had learned through his discussions of contracting out with corporate executives at the annual meetings of the American Management Association. Once again serving as the eyes and ears of the Rockefeller circle, Brown reported that most of them understood that this provision was not to their advantage. He also had learned that a Philadelphia insurance agent who was lobbying for the idea had very little support among insurance agents or the large insurance companies, with the exception of Prudential and Metropolitan:
The Prudential Company has been rather inept in the matter and I think that you will find that the dozen or more companies other than the Prudential and the Metropolitan are not particularly in sympathy with the tactics of those two companies. I heard in Pittsburgh, however, that the Metropolitan, at least on the surface, is saying the bill will be a boon to the insurance companies in expanding the demand for supplementary group annuity contracts. Both the Prudential and the Metropolitan are somewhat frightened by the threat of investigation of industrial insurance, and may not be as anxious to push the amendment on account of a backfire in this respect" (Brown to Witte, February 13, 1935, Brown Papers at Princeton University Library).
Brown had further encouraging conversations that he reported on in a letter to Witte on February 23. His list of companies lacking interest in contracting out is long and impressive:
I am continuing to receive word from industrial relations executives of their lack of interest in the contracting out amendment. Confidentially, the last word I had was from Art Young, Vice-President of the United States Steel Corporation. I have been in touch also with the American Telephone and Telegraph Company, Socony-Vacuum, Du Pont, United States Rubber, Union Carbide and Carbon, Western Electric, and a number of other companies. The men in question are the chief personnel officers, and since I have known most of them for six or eight years, I have confidence in what they tell me" (Brown to Witte, February 23, 1935, Brown Papers at Princeton University Library).
While committees in the House and Senate were deciding whether to permit the report from the Committee for Economic Security to be voted upon by the full House and Senate memberships, Stewart and the Social Science Research Council hosted a conference in Atlantic City on March 22-23, 1935, based on the earlier mentioned funding request from the spring of 1934, when they had anticipated that amendments to the final legislation would be necessary. This conference unanimously recommended funding for studies of the new social security administrative board. The studies would be carried out by two Social Science Research Council committees, the Committee on Public Administration and the Social Security Advisory Committee, as coordinated by the Committee on Industry and Trade. The Rockefeller Foundation immediately gave approval to this request, which led to donations of $611,000 between 1935 and 1940 (Fisher 1993, p. 139).
Shortly after the Social Science Research Council conference, the Industrial Relations Counselors' next Memorandum to Clients included two attached statements from insurance companies stating their belief that the legislation will "result in renewed appreciated and greater stimulation of life insurance activities both individual and group rather than the reverse" (Memorandum to Clients, No. 9, March 27, 1935, p. 8). This is further evidence that the Industrial Relations Counselors and at least some insurance companies understood the potential of the Social Security Act well before the date claimed by other commentators.
At the same time as Industrial Relations Counselors and the insurance companies were realizing that contracting out was not a good idea, the general CES proposal was being completely rewritten in the House Ways and Means Committee. Minimum benefits and merit hiring of state-level administrators were eliminated at the insistence of Southern Democrats on the committee, which is of course good evidence for an emphasis on their power during the New Deal.
The Industrial Relations Counselors' Memorandum to Clients, No. 10, dated April 10, provided a thorough summary and evaluation of the revised legislation that the Ways and Means Committee introduced into the House on April 4. In addition to changes in the unemployment insurance provisions that the private experts did not like, there were also changes in the plans for old-age insurance that did not meet their expectations. For example, benefits would now be higher for low-wage workers than they were in current company plans and lower than they would be for high-wage workers. Death benefits would now be higher than planned after short periods of employment and lower than after lengthy periods of employment.
When the revised legislation reached the House floor on April 12, it first had to survive two sideshows--one by the Communist Party, the other by a for-profit social movement of the elderly called the Townsend Plan. Both received attention in the media at the time and subsequent attention by historians and social scientists, but in fact neither alternative had any chance of passage. Both plans were far more generous than the Social Security Act, but neither received more than 55 votes. This total has impressed some leftist historians, but in fact most of those votes came from conservatives who opposed any form of government social insurance; there were not more than 20 representatives in the House who stood to the left of Roosevelt's New Deal coalition (Klehr 1984, p. 289). It is therefore unlikely that either the Communists or the Townsend Plan worried any legislators enough to push them into voting for the mainstream Social Security Act (Amenta 2006).
The Senate Finance Committee, which Witte feared as the biggest threat to the legislation because it contained many Southern conservatives, finished its hearings in February, then postponed further action on the proposal until April. It did not approve a report until May 17, after coming within a vote or two of stripping the bill of old-age insurance. However, in spite of Witte's fears, the Senate Finance Committee's bill ended up better than the version passed by the House according to the Industrial Relations Counselors' Memorandum to Clients, No. 12, for May 27, 1935, because it "restored to the bill several features that appeared in it originally but were omitted in the House draft" (p. 1).
The bill also had a new preamble due to a Supreme Court's decision in early May ruling the Railroad Retirement Act unconstitutional. (Not to worry; that act was soon rewritten and passed while the benefits continued.) Since the reduction of unemployment and the efficiency and morale of the workforce were not judged to be "proper objects" of legislation relating to retirement according to the court, the emphasis in the revised preamble was on the general welfare. This change, which obscured the major role of industrial relations experts such as Latimer and Stewart in writing the act, was made because the constitution allows the government to support the general welfare through its taxing power:
Now, to achieve the original purpose, the administration turned to the taxing power and the general welfare clause of the Constitution. In the process, the ideology of social security was given formal sanction. After May 1935, proponents of retirement legislation talked less about efficiency, economy and unemployment relief than about social security and the needs of older workers, which were now a central policy goal rather than ancillary to some larger purpose" (Graebner 1980, pp. 162-163).
Just as the bill was about to pass the Senate, it faced one final obstacle: an amendment to allow the contracting out that was so vigorously opposed by Industrial Relations Counselors and most of the corporate moderates interviewed by Brown a few months earlier. The amendment was formally offered by a conservative Democrat from Missouri, Bennett Champ Clark, so it came to be called the Clark Amendment. From the point of view of the corporate ultraconservatives and Senators who opposed the whole social insurance program, the amendment was a perfect way to undercut the Social Security Act without voting against it. Despite protests from Roosevelt and Perkins, along with actuarial arguments against the amendment by Witte and other experts, it passed the Senate by the wide margin of 51 to 35 on June 19, followed by the Senate's passage of the act in general by a 77 to 6 vote the same day (Witte 1963, p. 106).
Roosevelt then made it clear that he would not sign legislation that included the Clark Amendment because it would create major actuarial and administrative problems, especially when companies--and their pension plans--went bankrupt or when employees left companies with private pension funds before they retired. The standoff led to a two-month delay while the conference committee argued about the issue and searched for a compromise. Congress finally agreed that the bill would be passed without the Clark Amendment, but with the provision that the Clark Amendment would be reconsidered in the next session of Congress after experts had a chance to see if contracting out could be made compatible with the overall system. Roosevelt signed the legislation on August 14.
Industrial Relations Counselors sent out a brief summary of the act's provisions in Memorandum to Clients, No. 14, two days after it passed. The memorandum first repeated its disapproval of the Clark Amendment, concluding "it seems clear that from the practical operating viewpoint such companies would have nothing to gain from the amendment" (p. 1). It then noted that members of the Industrial Relations Counselors staff were meeting with "the representatives of leading insurance companies and other interests concerned primarily with the sections on pensions." Finally, the memorandum announced that the organization already was working on supplemental plans:
Industrial Relations Counselors is now engaged in the formulation of several types of private plans which will supplement the pension benefits provided under the federal scheme and more adequately cover employees in the higher salary brackets. Our recommendations on future procedure may vary as between companies installing a plan for the first time and companies that have operated a formal plan for some years" (Memorandum to Clients, No. 14, August 16, 1935, p. 1, my italics).
This brief memorandum was followed a week later by a longer and more reflective one, No. 15, which nicely reveals the moderate conservative viewpoint and presages the moderates' agenda for dealing with the Clark Amendment. By and large, Industrial Relations Counselors experts were satisfied with the overall result, calling it a program that "will increase mass purchasing power and act as a shock absorber for our economic system" (Memorandum to Clients, No. 15, August 23, 1935, p. 2). The memorandum also said that the old-age pension provisions "were much better drawn than the unemployment compensation phase," a conclusion that comes as no surprise because Industrial Relations Counselors experts--and their ally, Barbara Armstrong--wrote them (Memorandum to Clients, No. 15, August 23, 1935, p. 3). Indeed, I see their satisfaction with federal old-age insurance as further support for my claim that Industrial Relations Counselors experts were involved in shaping it.
In addition, the memorandum also contained some surprisingly moderate and even progressive comments that showed the empirical basis of their policy analyses. For example, the report said that Industrial Relations Counselors' cross-national studies of social insurance systems convinced its authors "that a very considerable proportion of the costs must be borne by the public treasury," which put them in greater accord with the social workers than originally seemed to be the case (Memorandum to Clients, No. 15, August 23, 1935, p. 3).
The summary also contained several criticisms of the Clark Amendment that past memorandums had refrained from mentioning because the oganization wanted "to avoid any comment which might have been misconstrued as being political argument..." (Memorandum to Clients, No. 15, August 23, 1935, p. 6). First, contracting out would be more costly for corporations by as much as 33 to 100 percent. Second, the need to make back payments to the government for "each employee leaving a company before retirement age would subject a company fund to an unpredictable cash withdrawal, which would tend to force investments into a form suitable for commercial banks rather than proper insurance investments" (Memorandum to Clients, No. 15, August 23, 1935, p. 7). Third, private plans would have "burdensome administrative and reporting problems" so that the government could oversee them properly. Finally, the existence of private plans "would tend to weaken the actuarial basis of the government old-age benefit plan" due to the fact that companies with the lowest costs were mostly like to set up their own plans, leaving the government "to deal with the poorest risks" (Memorandum to Clients, No. 15, August 23, 1935, pp. 6-7).
This list of objections to the Clark Amendment was the opening salvo in the effort to make sure that it was not adopted. In the end, no substitute for the Clark Amendment was ever offered, but there had to be a lengthy behind-the-scenes effort to remove it, led of course by Industrial Relations Counselors and committees of the Social Science Research Council.
Once the Social Security Act had passed and the Clark Amendment was buried, corporate moderates, New Deal liberals, and advocates of the Townsend Plan began to argue about how to improve the act, with much of the discussion taking place within Social Science Research Council committees. All parties agreed that the system should be financed on a pay-as-you-go ("paygo") basis rather than by building up a pension reserve, as the act had mandated at the last minute at the insistence of the fiscally conservative Secretary of Treasury. Furthermore, they could agree to a payment schedule that gave a slight boost to low-income retirees and restrained benefits at the top. Liberals, labor, and Townsendites favored these changes because of their concern that low-income people should have enough money to live on. They suited Keynesian economists because they put money into the hands of those most likely to spend it and avoided the drag on the economy that a government pension fund would create.
On the corporate side of the divide, insurance companies pushed for such a plan because it left plenty of room for their profitable private plans for those with higher incomes, and especially for the corporate executive plans that were their biggest customer target. Indeed, this desire was so great that one insurance company even helped finance the liberal reformers who pushed for "adequacy" in old-age pensions (Sass 1997, p. 282, ftn 17). As for the corporate moderates at other corporations, they favored pay-as-you-go in good part because they did not want the government to have any investment funds to manage, which they considered a dangerous precedent that might tempt the Social Security Administration to push for even better pensions.
Several other reforms to the 1935 act, which I do not have the space to discuss here, were carried out in 1939 based on recommendations by a Social Security Advisory Committee headed by J. Douglas Brown and including several members from the Social Science Research Council committees (Fisher 1993; Manza 1995). With the passage of the 1939 amendments, social security had reached just about the form it would have for the next 40 years. (Amendments in 1950 finally added coverage for agricultural and domestic workers, and also increased the size of pensions for everyone by a significant amount.)
The process leading to the drafting and passage of the Social Security Act was long and drawn out, but the final outcome fits well with the class-domination/class conflict theory that underlies this web site. It also provides excellent evidence for state building by the capitalist class through its policy-planning network, which proposed a sophisticated and comprehensive program based on years of experience with private company plans and with group plans developed by life insurance companies. The ultraconservatives in the corporate community went along reluctantly with the proposal on its merits and then turned against it at the last minute on general ideological, anti-New Deal grounds (a story I did not get into in this document). But the ultraconservatives could not stop the program or bring about any changes in it.
Organized labor made its presence felt through the grassroots activity of the Railways Employees National Pension Association, which forced the corporate community to consider government involvement in worker pensions. Then, too, the American Federation of Labor's decision in 1932 to end its opposition to government insurance removed an obstacle to a government program. As for liberals and social workers, they wanted something better and more generous than the corporate moderates' plan when it came to old-age pensions and unemployment compensation, but they ended up as lobbyists for the plan that emerged from the policy-planning network.
As for the plantation capitalists of the South, they wielded a veto power through the Southern Democrats. They were the reason why agricultural and domestic workers were not covered by old-age insurance until a little later even though an early study by the Committee on Economic Security research staff said that such coverage was feasible (Alston and Ferrie 1999). I also think the substance of the legislative battles in Congress show that the Southern Democrats were the main reason why unemployment insurance was placed under the control of the states, but I did not have space to discuss that issue. Southern Democrats also eliminated the civil service requirements for the staff that administered the programs and any minimal federal standards for payment levels, which both the Industrial Relations Counselors experts and the more cautious reformers favored. This allowed the representatives of the plantation capitalists to put their local cronies in charge of agencies and keep benefit payments low enough to maintain full control of their workforce (see Quadagno 1988, for detailed information on the powerful impact of the Southern Democrats on this legislation).
For all its shortcomings, old-age insurance is perhaps the most popular program ever developed by the federal government. And ever since social security benefits were first indexed for inflation in the early 1970s--with the approval of President Richard M. Nixon, by the way--they have reduced the previous high incidence of poverty among the elderly. But despite its conservative origins and great success, the system has been under constant attack since the 1990s by ultraconservative and moderate conservative experts from the Cato Institute, the Heritage Foundation, the American Enterprise Institute, and the Brooking Institution who want to privatize at least part of it and/or limit benefits. Using projections based on very low and unlikely estimates concerning the rate of economic growth, they claim that the system may not be solvent in 30 or 40 years. Their scare campaign through the media has convinced many young adults that the system may not be around when it comes time for them to retire. The ultraconservatives claim social security is a bad "investment" for people because it does not earn a high enough "rate of return." They therefore suggest that people be allowed to withdraw from social security and invest their money for retirement purposes through Wall Street (see Rogne, Estes, Grossman, Hollister, and Solway 2009, for information on how the corporate community has misled the public on social security).
The defense of the system has fallen to the liberal-labor coalition, which is joined on this issue by two potent lobbying forces, the American Association of Retired Persons and the National Committee to Preserve Social Security and Medicare. The defenders note that social insurance is a communal concept that insures a decent life for those who happen to live to an old age, not an individual investment strategy. They argue that any future deficits can be averted with a combination of very small changes, such as extending the payroll tax to include income over $107,000 a year (this 2009 figure will go up a little bit each year). They point to the long downturn in the stock market in the 1970s and the recent crash of the stock market to suggest that the stock market is not always as rosy as it was in the 1990s, which means that many people might not have what they thought they would a few years from now if the conservatives and ultraconservatives in the policy-planning network have their way.
If the corporate community ever succeeds in "reforming" social security by increasing the retirement age or reducing pensions, they will have pulled off one of the most massive peaceful transfers of wealth from the middle class to the upper class in Western history. That's because any cuts in payments or increases in the age of retirement would mean that the people who started paying higher payroll taxes in 1983 that were supposed to guarantee their security until 2042 won't get their fair return. Instead, the money supposedly "set aside" or "invested" for social security has been used to finance the very large tax cuts to the corporate rich over the past 25 years. Now that it is time for the Department of the Treasury to put the money it borrowed back into the Social Security Administration, the White House and Congress may decide not to honor this obligation.
In other words, the money the government has received from increased payroll taxes since 1983 has been used to help fund the federal government's yearly expenses, making lower taxes for high-income people possible without running even larger deficits. Put still another way, if benefits are cut, it is the equivalent of defaulting on some of the $1.2 trillion in Treasury bonds that President Reagan and other political leaders, Democrats as well as Republicans, told taxpayers they were purchasing with payroll taxes (Baker 2001; Baker and Weisbrot 1999).
And yet a step in the direction of such "reforms" seemed to be emerging early in the Obama Administration when the president talked with Senate Republicans about setting up a "bipartisan task force" to propose changes that might lead to later retirement ages, higher payroll taxes for average workers, and even caps on the amount that could be spent for Social Security (Calmes 2009; Greider 2009). Such a task force, which would have been staffed by economists from the policy-planning network, some of them already working in the Obama Administration, was strongly opposed by spokespersons and lobbyists for the liberal-labor coalition, which in turn generated opposition by liberals in the House and Senate. But according to a conservative New York Times columnist, the hope for a bipartisan bargain is not completely dead. Based on his conversations with "four senior members of the administration" he concluded that President Obama is "extremely committed to entitlement reform and is plotting politically feasible ways to reduce Social Security as well as health spending" (Brooks 2009, p. A23). He added that he "had the impression they'd be willing to raise taxes on the bottom 95 percent of earners as part of an overall package."
So, old-age pensions have surprising origins that fit my theory better than rival theories, but now they are under attack by the current incarnation of the corporate community, which grew far richer between 1980 and 2008 than anyone ever could have imagined, thanks in part to the tax cuts for the rich that were partly paid for by looting the Social Security Administration's investment portfolio (Baker, 2001; Greider, 2009).
For further information on how to preserve and improve social security in reasonable ways, see the National Committee to Preserve Social Security and Medicare at ncpssm.org.
For information on how to become involved in student activism to preserve social security, see Students for Social Security at studentsforsocialsecurity.org.
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"Pension fund socialism" in the 1970s. "Investor capitalism" driven by pension fund activists in the 1990s. Such are the large claims that have been made for the potential importance of public pension funds, working in tandem with union-controlled pension funds, in shaping the decision-making of corporate boards.
This document examines these claims and casts a cold eye on them by tracing the history of the "institutional investors' movement" since the 1980s. It suggests that there always has been far less to this movement than the media attention it receives. At the outset it was an effort by moderate Republicans and centrists who speak in the name of stockholders in criticizing allegedly self-serving corporate executives who supposedly do not look out for stockholder interests in a vigorous enough fashion. This emphasis on "shareholder value" led to common cause with liberal elected officials and union leaders, but the movement as a whole has had no lasting successes, just temporary and symbolic ones, as best seen by the rapacious and often illegal actions of a good number of corporate boards between 1998 and 2008 despite 25 years of effort by those who thought they could use public pension funds as a way to make corporations better for employees.
Not only did the movement fail, but many of the public pension funds themselves became money pots for the biggest risk takers on Wall Street, who carried out hostile corporate takeovers and corporate buy-outs in the 1980s with their help, then bundled mortgages -- including subprime mortgages -- into new kinds of "securities" in the late 1990s and early 2000s, which they sold to naive pension fund managers caught up in the excitement of the housing bubble. Indeed, several public pension funds ended up among the many financial organizations that received government bailouts via the billions of dollars that the Department of Treasury gave to AIG (American International Group, an insurance company) in early 2009.
To top it all off, the biggest financiers on Wall Street tried to make money by working insider deals to invest some of the funds held by the same federal government agency -- the Pension Fund Guaranty Corporation -- that manages $50 billion in retirement funds for the unlucky souls who worked for corporations that went bankrupt. They grabbed this business by cultivating relationships with Charles E. F. Millard, the former Wall Street investment banker that the Bush Administration had appointed to head the fund. You can read the story, and excerpts from some of the very revealing e-mails, on the New York Times' Web site. (In July of 2009, under scrutiny from Congress and others, the PFGC revoked the sweetheart deals with Goldman Sachs, BlackRock, and JPMorgan Chase.)
One of the most persistent claims about corporations in America is that the rich people who benefit from their stock dividends do not control them. The idea is that everybody owns and controls the corporations even though the corporations seem to dominate the economy to the benefit of a wealthy few. Taking this idea to its extreme, a few analysts have claimed that the accumulations of money owned by everyone through various types of public employee pension funds, union pension funds, mutual funds, and other forms of "institutional investors" might even come to have a significant role in shaping corporate behavior.
The idea that pension funds could be used to control corporations first gained visibility through the claim by management guru Peter Drucker (1976, 1993) that workers' legal right to their pensions--whether through a company or a local or state government--meant they now owned a significant percentage of corporate stock. It followed for Drucker that this was a form of socialism. As the dramatic first sentence of his 1976 manifesto put it: "If 'socialism' is defined as 'ownership of the means of production by the workers'--and this is both the orthodox and the only rigorous definition--then the United States is the first truly 'Socialist' country" (Drucker, 1976, p. 1). Now that workers owned the economy, it was just a matter of asserting control.
But as the most detailed analysis of the role of pension funds points out, "The idea of 'pension fund socialism' is an exercise in political rhetoric rather than reality" (Clark, 2000, p. 43). Employees who contribute to pension funds have a legal right to their pensions, but they rarely have any rights when it comes to voting any stock purchased by the pension fund. As for the pension fund trustees themselves, they have a fiduciary responsibility to invest the money they receive from employees as wisely and prudently as possible, but no legal ownership of any stock they purchase. To exert any influence on corporate boards they have to argue that insisting on "good corporate governance" is part of their fiduciary duty because it makes shares more valuable. This line of reasoning is rejected by corporate leaders and most Republicans.
Drucker's flawed idea led nowhere, but the possibility of public pension funds as active participants in corporate governance arose again in the mid-1980s when partners at the Wall Street investment firm of Kohlberg, Kravis, Roberts convinced the director of the pension fund in the state of Oregon to contribute major sums to their takeover projects. Takeover specialists soon drew other public pension funds into the action. The pension managers made some extra money for their funds, but it was clearly the private financiers who were calling the shots and making the big money.
|Robert A. G. Monks|
The pension funds' direct involvement with Wall Street was followed by a new theory from an unlikely source: pension funds could spark a movement that would bring in other institutional investors to make corporations and their boards more responsible to stockholders. A wealthy Republican maverick from Maine, Robert A. G. Monks, floated the idea while serving as the pensions administrator in Reagan's Department of Labor in 1984-1985. From this perch he decided to make it government policy that institutional shareholders had a fiduciary duty to behave as owners. He said this would improve "corporate governance" through pressures by ordinary stockholders on boards of directors to deliver better "shareholder value." His proclamation did not have the force of law, and could be easily changed by a new appointee or challenged by Congress, and it was ignored thereafter, but it did give the idea some legitimacy.
To further his goals, Monks founded Institutional Investors Services shortly after he left government to provide advice to institutional investors about the quality of the leadership at the corporations in which they invested. He was soon joined in this effort by Nell Minow, the daughter of the chair of the Federal Communications Commission during the Kennedy Administration, Newton Minow, which gave the effort a bi-partisan cast. Although public pension funds only held about 5% of the market value of all corporate stock at the time, they were seen as the key starting point because they were projected to grow in size and importance (see Table 1 for the percentage of market value held by various types of stockholders in 1975, 1985, and 1994.)
|Table 1: Percentage of Market Value Held by
Five Major Categories for
|Households (privately held)||57%||51%||48%|
|Personal Bank Trust Funds||11%||7%||3%|
|Corporate Pension Funds||13%||20%||18%|
|Public Pension Funds||3%||5%||8%|
|Total for These Five Categories||88%||88%||89%|
Source: Margaret M. Blair, Ownership and Control (Washington, D.C.: The Brookings Institution, 1995), p. 46, Table 2.1
Note: The percentages do not add up to 100 because the holdings of commercial banks, savings and loans, insurance companies, closed-end funds, brokers and dealers, and foreign groups are not included.
Monks then encouraged a liberal Democrat, serving as the elected treasurer of California, and the head of the New Jersey Division of Investment to take advantage of his ruling by holding boards of directors accountable for delivering maximum "shareholder value," meaning the highest possible stock prices. In 1985, Monks, the California treasurer, and the New Jersey investment official together urged the leaders of several public employee and union pension funds to form a Council of Institutional Investors that would help them influence corporate governance through their combined voting power with the stocks they held. The leaders of the New York City Employees Retirement System and the State of Wisconsin Investment Board also supported an activist approach. Monks and Minow then provided the Council with advice through their new company, Institutional Investors Services. (They sold the company in 1996, then went on to found The Corporate Library, a web site and consulting service that provides information on corporate governance, including information on the interlocking directors among corporations. Their information is excellent, and they have colorful graphics, but the information is too expensive for academic researchers to purchase.)
Led by the head of another activist public pension fund, the California Public Employees Retirement System, known by the acronym "CalPERS," the reformers at the Council of Institutional Investors made several efforts to influence corporate behavior by introducing various shareholder resolutions calling for more responsiveness to stockholders concerns. All of the resolutions were overwhelmingly defeated, although a few corporations did alter their policies to allow confidentiality in voting on stockholder resolutions. In 1989, at a secret meeting with members of the Business Roundtable, which is the main leadership group within the corporate community, the pension fund activists were quietly urged to criticize General Motors for its poor profit performance. Shortly after this attack began, the CEO at General Motors was ousted and new policies were put in place, with the Council of Institutional Investors receiving some of the credit for the change. There followed several other pension-fund campaigns against CEO's whose companies were performing poorly, and the movement seemed to be launched (Dobrzynski, 1994).
The small but highly visible successes of these efforts through 1993 suggested the possibility of an "investor capitalism" to one sociologist, Michael Useem, who studies corporate governance at the Wharton School of Business at the University of Pennsylvania. Acknowledging that the largest institutional investors are commercial banks, insurance companies, mutual funds, private investment managers, and corporate pensions that are not prone to challenging corporate boards, he nonetheless claimed that the activists at public pension funds, unions, and church groups affiliated with the Interfaith Center on Corporate Responsibility had come together to "play a role akin to that of political leadership in social movements" (Useem, 1996, p. 54). If they could pull in more cautious institutional investors, the movement might continue to grow.
But other institutional investors never joined the effort. Furthermore, the fledgling challenge to corporate managers all but died after 1993, just as Useem completed his research, because the public pension activists drew criticism from elected officials and some of the people appointed to their boards by the political leaders. The decline of these efforts is mirrored in the career of one of its leaders, Dale Hanson, a long-time state employee in Wisconsin, who was appointed head of CalPERS in California in 1987 to lead the pension fund into shareholder activism. He then took a major role in introducing stockholder resolutions in the late 1980s and was highly visible in the public criticism of the CEO of General Motors mentioned two paragraphs earlier. He was lionized in newspapers and criticized in business magazines.
But public pension fund managers such as Hanson are beholden to a board of directors that is in part appointed by governors and state legislators, so it was not long before Hanson and other activists were facing criticism at home. Since CalPERS was viewed as the leader of the insurgency, business leaders complained directly to the state's newly elected Republican governor in 1990, who reportedly tried to muzzle Hanson (Dobrzynski, 1991). Hanson became especially vulnerable when CalPERS itself did not do well in its investment returns for a year or two. By 1993 he was taking a quieter approach.
In May, 1994, Hanson resigned from CalPERS to become head of American Partners Capital, an investment firm funded by a Republican fundraiser. He also became a member of the board of directors of ICN Pharmaceuticals, a large California company with 2,500 employees. Leaders of other public pension funds, faced with similar criticisms from politicians and appointed board members, adopted a slower and quieter approach, simply meeting with individual CEO's or directors to express their concerns, or merely publishing lists of underperforming companies.
The reigning in of the public retirement funds was reinforced in 1996 by leadership changes at the Council of Institutional Investors, which by that time included insurance companies, mutual funds, and corporate pension funds as well as public and union pension funds. The majority of members expressed their lack of enthusiasm for activism by electing the director of the pension fund for a large corporation, TRW, as president, despite protests from pension fund activists. (A manufacturing company, TRW was the 125th largest corporation in the country in the mid-1990s.) The vote for the TRW executive was widely interpreted as a rebuff to the leaders of union funds and activists at public employee funds (Dobrzynski, 1996a, 1996b).
The futility of challenges to corporate boards of directors by public pension funds and their allies is also seen in a case in which the New York City Employee Retirement System tried to influence the homophobic employment practices of Cracker Barrel Old Country Stores, a restaurant chain headquartered in Tennessee, after it explicitly stated in policy documents that it would only hire straight people, and then proceeded to fire over a dozen gay employees. The Securities and Exchange Commission rejected the New York City pension fund's proposal for a proxy resolution against the policy each year from 1991 to 1998. At that point it allowed the challenge to be sent out to stockholders, who rejected it by a vote of 26.5 million shares to 5.5 million shares. But even if the challenge had won, the resolution would have been purely advisory. The board could have continued with its anti-gay policies. Ironically, the battle left corporate boards in general with even more control over company employment policies (Davis & Useem, 2002).
Reflecting on their efforts in September 2000, many of the leading pension-fund activists expressed disappointment with the cautious approach adopted by most institutional investors. The head of the Council of Institutional Investors said that they had "won the easy battles," such as being able to have nonbinding shareholder proposals sent out along with company proxies, but that they were in danger of ending up merely writing letters asking executives why they ignore the proposals. She noted, "We are seriously thinking about closing shop because we may be wasting money. We are at a turning point. The more (companies) ignore shareholder proposals, the more they realize they can do that, if they can withstand the embarrassment" (Day, 2000, p. 19).
By 2003 the New York Times was calling the movement a "Revolution That Wasn't" based on interviews with its disheartened leaders (Deutsch, 2003). In 2004 the longtime executive director of the Council of Institutional Investors resigned, having grown weary of the conflicts between representatives from corporate and union pension funds, each of which thwarted reform efforts in their own self-serving ways (Walsh, 2004b).
Matters also went from bad to worse about that time for activists at CalPERS, which had revived its efforts to influence corporate boards when Democrats took control of both the governorship and state legislature in California in 2000, only to see those efforts decline again with the election of a Republican governor, Arnold Schwarzenegger, in 2003. The union leader who had recently been elected chair of the pension fund's board was ousted in 2004 because of pressures he brought to bear on several prominent companies for excessive executive pay and inadequate health care benefits, including the Disney Corporation headquartered in Los Angeles. Prior to his removal, the California Business Roundtable, one of the voices of the corporate community in California, had written an open letter to Schwarzenegger complaining that renewed shareholder activism was the result of organized labor trying to settle contract disputes in the boardroom instead of through collective bargaining. When activists claimed that Schwarzenegger was bringing pressure against the board, one of his public relations assistants called the idea "paranoid musings and conspiracy theories" (Walsh, 2004a, C1). As for the California Business Roundtable, it denied that it had any involvement in the firing except for its general letter of criticism. Taking these denials at face value, the point is that the ascension of a Republican to the governorship, with his power to appoint several new members to the CalPERS board and other state pension boards, had changed the political climate considerably for pension-fund activists.
Any lingering thought that many public pension funds were not much more than happy hunting grounds for Wall Street sharks came crashing down in 2008-2009 as it became clear that public officials, pension fund managers, and political operatives had been for all intents and purposes bribed by rich financiers who wanted the opportunity to take big risks, and make huge profits, with government employees' money. With 40% of all public pension funds investing some of their money in hedge funds in 2008, a cool $78 billion overall, they were a huge source of investment funds for hedge fund managers (Wayne, 2009b),
In addition to large losses for some pension funds due to the risks taken with their money, there were legal problems and scandals for Wall Street bankers and their political go-betweens as it was discovered that criminal activities were part of the picture. For example, in April, 2009, a hedge fund executive pleaded guilty to securities fraud after admitting that he had been paid a stunning $5 million for helping to make it possible for the politically well connected Carlyle Group (an "equity fund" that invests large sums of money for wealthy people) to invest $500 million of New York state pension funds in an energy investment fund managed jointly by Carlyle and another private equity firm (Hakim, 2009; Wayne, 2009a). There are several other such scandals that could be recounted here, and many more that will have surfaced after this document has been completed and on this site for a year or two. It is like a re-run of what happened with "other people's money" in the first ten years of the twentieth century and then again in the 1920s.
As of 2007, institutional investors owned 76.4% of the stock in the 1,000 largest U.S. corporations, an all-time high, up from 46.6% in 1986 when the institutional investor movement began. The list of institutional investors now includes investment companies, mutual funds, hedge funds, insurance companies, banks, and foundations and endowments as well as pension funds. Strikingly, public pension funds only control 10% of these assets, double the percentage they had in 1985, but not much more than the 8% they held in 1994 (Brancato & Rabimov, 2008). Even if public pension funds had the political independence and will power to try to influence corporate boards, they don't have enough assets to make a push without allies. As for their best allies, the union pension funds, they have been decimated for the most part by downsizing, off shoring, and corporate failures in major manufacturing industries.
No one can be 100% sure, but it seems highly unlikely that institutional investors from public employee and union pension funds ever will be able to create a coalition of institutional investors that could do anything more than chide, chastise, or confer with directors and executives from the large corporations in which they invest. They are not a threat to the current power relations in the corporate community. They actually play their largest role when rival private investors vie for their voting support in takeover battles, or when they agree to take part in the profit-making schemes hatched by billionaire financial firms. However, in spite of all their defeats, the Council of Institutional Investors and the Corporate Library still soldier on, hosting meetings concerning "good corporate governance," providing hopeful interviews to newspapers and magazines about the likelihood that things are going to change soon, and selling their advisory services to institutional investors. They are gadflies who do well while doing good.
Looking back at the most vigorous days of the movement, from roughly 1988 to 1993, very little was accomplished. It is now possible for small stockholders to communicate with each other more easily, thanks to a ruling by the Securities and Exchange Commission in 1992, and corporate executives more readily meet with institutional investors. However, no stockholder resolutions relating to corporate governance came close to passing during or after the heyday of the movement. Even the most positive assessments of this activism conclude that it had "negligible" effects on the major issues that ostensibly motivated it, higher earnings and higher share prices (Karpoff, 2006)
By 2002, Useem seemed to agree that the pension fund movement had no power. Writing with a colleague, he noted that shareholder activism is too diffuse to matter (Davis & Useem, 2002). He and his co-author also showed that corporate takeovers have not been a threat to boards since around 1990, and that financial analysts have no clout because they are not objective (they don't dare to criticize the companies their firms are connected with and they rarely suggest that a stock be sold because a company is performing badly). Useem and his colleague are thus left with the possibility that boards and top management can do pretty much what they want to unless they run the company into the ground.
But they save the day by claiming that "share price" is a powerful restraint on corporate governance due to the "efficient market" hypothesis (i.e., the market is always right in its evaluations and can do no wrong, a belief that was totally accepted by many economists and business school professors between 1975 and 2005). Managers and directors are powerful, they conclude, but they are forced to focus on delivering shareholder value by efficient markets that set the price of their companies' stock. It is a theory that has been all but destroyed by the financial collapse of 2008-2009. Thus, contrary to the hopes of the public pension fund activists and those who wrote about them, the largest corporations in the United States are still controlled by a combination of their high-level executives, the for-profit financial institutions that are concerned with the price of their stockholdings in the corporation, and top individual stockholders, all of which are usually represented on the board of directors.
In addition to showing that the pension-fund movement had very little impact when it comes to corporate power, this documents demonstrates that any success for activists in charge of public employee pension funds depends upon the success of the liberal-labor coalition in electing legislators and governors who are supportive of, or at least willing to tolerate, challenges to the governance of private corporations. When the newly elected Republican governor and conservative legislators in California began to question the efforts by Hanson and CalPERS in the early 1990s, it was not long before he gradually began to lower CalPERS's profile. And when the Republican Schwarzenegger replaced the Democratic governor in 2003, pension fund activism by CalPERS began to decline. There are no shortcuts to taming corporate power.
For in-depth commentary on public pension funds, including the big problems they now face, by an experienced analyst, see "Are Pension Funds Drifting Towards Disaster?" at the Pension Pulse blog.
Brancato, C., & Rabimov, S. (2008). The 2008 institutional investment report: Trends in institutional investor assets and equity ownership of U.S. corporations. New York: The Conference Board.
Clark, G. (2000). Pension fund capitalism. New York: Oxford University Press.
Davis, G., & Useem, M. (2002). Top Management, Company Directors, and Corporate Control. In A. Pettigrew, H. Thomas & R. Whittington (Eds.), Handbook of Strategy and Management. Thousand Oaks, CA: Sage Publications.
Day, K. (2000, September 4). A voice for stockholders. Washington Post National Weekly, pp. 18-19.
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