The Origins of our Politico-Economic Crisis

This is a summer of liberal / progressive discontent. As one talks to activists and leaders of progressive organizations and campaigns around the country, and read the blogs and commentary, one can't help but notice a sense of disappointment and worry and, from time to time, even despair.

Some of this worry is about the election. This is not going to be a great Democratic year, although I think that the Republican crack-up—the willingness of Republican party leaders to embrace a partly racist radical right wing tea party—is going to help a great deal. And it is not going to be 1994 all over again if only because we don't have all that many Southern seats to lose this time.

I think the bigger source of progressive disquiet is our worries about the economy and trajectory for progressive politics over the next few years.

Right now, we progressives are radically uncertain about two, related, issues (1) what it will take to make our economy work for everyone once again and (2) how to sustain a long term progressive movement in the country in the face of growing and ever more extreme right wing movement.

Obviously, we have to answer the first question to answer the second one. A political party or movement that can't figure out how to create jobs and raise living standards for working people and the middle class will not stay in power through democratic means. And no party or movement that fails to accomplish that task deserves to stay in power.

I want to examine the sources of our current political and economic difficulties. I'm going to suggest that they are deeper than many of us have realized and, moreover, that the political and economic difficulties that we liberals face right now ultimately flow from the same source—the increasing disjunction between the interests of the American corporate class and the rest of the American people.

Progressive expectations after the Obama Election.

Two years ago, when President Obama was elected, I thought we had a rough answer to these questions. I believed, first, that standard Keynesian prescription of deficit spending combined with a loose monetary policy would lift the economy out of the doldrums and create jobs and economic growth. I had no illusion that economic growth of a conventional sort would be enough to rebuild the middle class. But I thought, second, that health care reform would lead to a dramatic improvement in well-being of working people and the Employee Free Choice Act (EFCA) would lead to a rise in unionization which would soon be followed by a rise in wages. Together, health care reform and EFCA would rebuild the connection between an emboldened, progressive Democratic party and the working class and, together with growing support for Democrats among professionals and managers, sustain our electoral victories far into the future.

I knew that there would be opposition from right wingers to health care reform and EFCA. But I thought that we could build strong victories with some Republican support on the economic stimulus program and health care reform. And that, I thought, would give us a decent chance to win EFCA, if not before the mid-term elections than, as the economy recovered, soon after them.

President Obama was even more optimistic. He seems to have seriously thought that it would be possible to secure substantial Republican support for policy proposals that were just a little left of center. He believed that he could generate broad support for public policies that, like the health care legislation, used government not to replace or overshadow the market but to guide and reform it and make it work for the middle class.

Our Current Political and Economic Crisis

In both an economic and political terms, this path to the future looks closed right now.

On the one hand, the great recession shows very little sign of coming to an end for most Americans. Some people, including those who lead our big corporations and financial institutions, are doing well again. Profits are up substantially and salaries and bonuses are growing. Yet for average Americans, the crisis remains. Despite a huge government stimulus, over 10 percent Americans remain unemployed while an additional 6 percent are working part time when they want to work full time or have simply given up looking for work. What's worse, most projections suggest that the economy will not recover until well into a second Obama administration, if then.

It may be that the problem with the economy is that the stimulus was, as Paul Krugman has been arguing since the early months of the Obama administration, just too small. But there are worrisome signs, especially in the disjunction between corporations that are doing well and middle class Americans that are not, that suggest that our economic difficulties are much larger than just a failure of demand or even a failure of demand and the collapse of our financial system..

On the other hand, President Obama's hopes to transcend the extreme partisanship of the George W. Bush years have been shattered. On issue after issue, President Obama has faced almost complete Republican opposition. There have been legislative victories and, in the case of health care reform, a dramatic and historic victory. But even that victory was not as complete as we had hoped it would be. And Democrats did the work of health care reform without any support from the Republican Party and received very little support on the stimulus or financial reform legislation.

Even if our economic difficulties were primarily a product of a failure of demand, the political difficulties make it hard to see how the Obama administration will be able to right the economy through conventional means. Unified Republican opposition to whatever Democrats propose, and especially to programs that raise the deficit to help working and middle class (as opposed to cutting taxes on the rich) will make it almost impossible to enact new, larger economic stimulus legislation. If we lose a substantial number of seats in the 2010 election, that outcome is even more certain.

So we face two more years of President Obama's first term in which he may be unable to enact further progressive legislation that addresses an economy that is suffering from a very serious malady.

Is it any wonder that we liberals are a little worried right now?

The Origins of the Present Crisis

That we face a politico-economic crisis is fairly clear. But the origins of it are not as obvious. So I want to delve a little deeper into the source of our present concerns. While we can all see just how radical the Republican opposition has become, we have not yet come to grips with the ultimate source of that radicalism. And my guess—it is no more than that right now—is that the source of Republican radicalism can be found in the same economic phenomena that are at the source of our economic crisis.

The Business Opposition to Obama.

Everyone can see the radical right wing opposition to President Obama. We know more than we care too about tea partiers who have adopted politico-economic ideas totally out of touch with the realities of an economy dominated by giant corporations; who look at any use of government to attain the common good or economic justice as socialism; and who, on top of that, are clearly animated by the a desire to "take back the country" from the first black president.

The tea party opposition to Obama is not hard to understand. Anyone who recalls how the John Birch society grew after the election of our first Catholic president could have predicted something like this. And anyone who understands just how badly working people have been hurt by decline of manufacturing and the growing inequality of income, would have expected that distrust of government would color Obama's progressive proposals in the minds of working people. After all, many of us believed that health care reform and EFCA should be the top two priorities for a new administration because we believed that the federal government, even in the hands of Democratic presidents, has done almost nothing for working people since Lyndon Johnson was president, with exception of the earned income tax credit expansion under Bill Clinton.

So the tea party movement never really surprised me. But what did surprise me was the extent and depth of opposition to health care reform and financial reform and net neutrality and cap and trade in the corporate community, as well as the tepid support that community gave for the stimulus legislation.

I had assumed that leaders of big corporations recognized the dangers to them of the health care and banking crises and of long period of economic stagnation. So, while I knew that insurance companies would fight health care reform, I thought other business executives would side with us. While I knew that the banks and investment house and insurance companies would fight financial reform, I thought the other corporations would side with us. There was no question that Verizon and Comcast would fight net neutrality, but I thought that the leaders of other business enterprises would recognize how important a free internet was to their businesses. And while I knew that many corporations worried that cap and trade would increase their energy prices, I thought that for all but the most intensive users of energy, the long term benefits of reducing greenhouse gases, and our dependence on foreign oil, would give them a reason to support a good energy bill.

I knew that by the time we got to EFCA President Obama's attempt to build some bridges between Democrats and Republicans would collapse. But I thought we would have a run of successes before we got there.

By and large that has not happened. The usual explanation is that the Republican Party has turned to the right, spurred on by the right wing media ideologues and their followers in the tea party, and decided to be the party of no, spurred on by the political operatives who believed that the best way to defeat President Obama in 2012 is to create gridlock in Washington.

There is some truth to both explanations. The growing importance of right wing elements in Republican party primaries at home and of party operative who care only about the next election in Washington, has lead the Republicans to embark on an unusually obstructive path for an opposition party, one characterized by a shamelessness in making the most deceitful charges against the President and Democratic leadership.

But what is hard to understand is why there have been so few voices of reason coming from the corporate wing of the Republican Party. Where are the descendants of the responsible Republican leaders like Howard Baker and Robert Dole and James Baker who were more than willing to stand in the way of the right wingers and reach reasonable compromises with Democrats when they served the big businesses that bankrolled the party?

And where were the voices of business leaders themselves, if not speaking out loud, then at least in the backrooms, telling the Republican Congressional leaders that President Obama's proposals for a stronger stimulus, health care reform, financial reform, education reform, and even cap and trade actually were actually moderate, market oriented responses to problems that afflicted all of us? Where were the business people telling the Chamber of Commerce to start fighting for the good of the business community as a whole, not the special interest of each industry that would be regulated or taxed by a Democratic proposal?

And why were so many businesses contributing directly or indirectly to the tea party movement itself?

The Business Community's Political Agenda

That the business community was not where I (and I believe President Obama) thought they might be has two explanations. The first, political, explanation is that leaders of American business were as determined to defeat President Obama as the Republican leadership. They had concluded that what serves their interests is not a government that provides fair market regulations and the common goods we all need, but a government that gives each business greater control over its sphere of operation and that keeps taxes low on corporations and the rich.

To take just one example of what I think has been the general phenomena: Verizon and Comcast may worry about health insurance costs, but they can afford to pay higher health care if the government acquiesces to their plans to squeeze ever more money out of consumer for internet, cable and phone service. So while an Obama victory on health care might help them control their health care costs, they fear a stronger Obama presidency more than they do growing health insurance premiums.

And so on down the line. No business wants to see another financial meltdown, but they are willing to risk it if it means no Democratic administration becomes strong enough to cut out the special deals, tax breaks, no-bid contracts, or other preferments that the Republican administrations have been showering on big businesses for years. And no business wants a Democratic administration that is strong enough to roll back the Bush tax cuts on the rich or to pass the Employee Free Choice Act.

In other words, while tea partiers keep accusing Democrats of engaging in a class war against the rich, the business community has concluded that now is not the time to call off the class war in favor of the corporations and rich, and against labor and the working class, that Ronald Reagan began in 1980. The corporate class warriors have benefitted enormously from huge tax cuts, from the evisceration of the National Labor Relations Board, and from every kind of regulatory and tax benefit that Republicans could shower on them. They are not ready to the national slightly left of center consensus of the fifties and early sixties.

The Disjunction Between Corporate and American Interests

This political calculation is reinforced, I suspect, by an economic one. The idea that the business community would benefit from various public policies that addressed the serious health care, financial, environmental (and for that matter educational) crises that afflict our country, as well as the importance of maintaining a free and open internet, presupposes some minimal community of interest between the business community and the American people as a whole.

What I want to suggest is that this community of interest no longer exists. And that is the fundamental reason both that corporate America has turned so strikingly against the Obama administration and that our economy is recovering so slowly from the recession.

It was a huge overstatement when Charlie Wilson said what was good for General Motors was good for America and vice versa. But when almost the entire output of General Motors was sold in the United States and the General employed a half a million workers here and received most of its financing from American banks and stockholders, it was not entirely untrue.

Now, however, Charlie Wilson's claim would seem ridiculous. American financial giants and its corporate manufacturers no longer have a community of interest with the American people as a whole.

American corporations are, at the current moment, continuing to shed employees in this country even while hiring employees of other countries at much lower wages. American companies sell all over the world and in many cases, sell more abroad than they do here. And they are financed by banks and investment firms that that are themselves global in scope.

So if health care costs rise in America or the educational system collapse or energy costs rise, American corporations can move their operations to other places where health care is cheaper and education better or where they can just get a better handout from the government.

Of course large corporations need customers and one would think that a strong US economy would always be economically beneficial to them. But while that is to some extent true, when demand is worldwide and is likely to be growing faster in newly developing nations and especially in huge ones like China, huge corporations formally based in the United States do not need to worry as much about weakness in American consumer markets.

So our major corporations no longer have a clear national base. But that is not the only way their interests have become disjoined from that of everyone else. It is also becoming clear that the corporate economy is becoming more and more disconnected from the economy of medium and smaller firms. Medium and small businesses and consumers may have trouble raising capital. But the major corporations have close relationships with Wall Street banks and investment firms. Medium and small businesses and consumers may worry about internet and phone costs, but big firms are able to get highly discounted rates. Medium and small firms hire within local and regional markets. Big firms hire internationally, looking for low wages for the large number of production and services workers and paying top dollar for the much smaller number of executives who come from the top universities, business and law schools.

One would also think that business executive would, at the very least be sensitive to the quality of life in their own communities or, if not that, the future of the planet. But, here too, there is a growing disconnect between the leaders of major corporations and everyone else in America. Public good—schools, parks and recreations, roads and bridges, transit, police protection and much else—can collapse and the upper reaches of the business community will not notice it. As their incomes continue to diverge from that of the rest of the populations, corporate executives become ever less personally dependent on the public goods and services upon which the rest of us depend. They move by limousine, helicopter and corporate jet from corporate campuses to gated communities to upscale malls to private schools to exclusive resorts areas and back.

Similarly, while the environment disasters we all fear—rising ocean waters, melting ice caps, climate change—will have dramatic and horrifying effects on human beings all over the world, we should not assume that those effects will be felt by all. The rich will be able to protect themselves from most of the disaster that befall everyone else.

So, the economic changes that have taken place over the last thirty years have disconnected the corporate rich from their fellow citizens and from the local, regional and national economies and communities in which they are formally situated. These changes are not merely the products of endogenous technological and economic development. They have been driven by growing corporate political power that, in turn, has supported right wing political movements. These movements have brought into office politicians that have handed out tax cuts that have massively increased the wealth of the corporate rich and contracts, subsidies, regulations and other benefits that have raised the profits of the corporations they run.

In light of these developments, it is much easier to understand why, at this moment in time, corporate profits are skyrocketing while more Americans are unemployed and underemployed than at any other time since the great depression.

And it is also easier to understand why President Obama's hopes—and to some extent my own—that serious, reasonable and non-ideological thought could lead Americans to a common ground a little left of center have been so dashed.

President Obama presupposed that, for all the conflicts between rich and poor, business and labor, there was still some community of interest that holds Americans together. He thought that the common benefits of a moderately liberal, market based reforms, could take the edge off the zero sum game that characterizes class conflict.

It is becoming ever more¸ however, that President Obama was wrong. The corporations that are led by people who reside in America are no longer American in any serious respect. They are truly transnational, indeed rootless, forces that have almost no common interest with the rest of our country.

That, I believe, is the source of both our economic difficulties and the Republican embrace of the radical right.

The question, then, is what are we progressives going to do now?