As the United States careens through a damaging government shutdown and faces the specter of defaulting on its debt, it's become painfully clear that there's not much big business can do to stop it: The tea party crowd doesn't give a fig for their protestations. But corporate clout was eroding long before 2009, as University of Michigan professor Mark Mizruchi describes in a new book. The American corporate elite has been losing its effectiveness since the late 1970s. We caught up to talk about how history explains the current mess. A lightly edited transcript follows.
Lydia DePillis: So, how did we get here?
Mark Mizruchi: In the period after World War II, the leaders of the largest American corporations were relatively moderate politically. And their primary expression was in a group called the Committee for Economic Development, which still exists today but doesn't have nearly the prominence that it did before. CED was formed in 1942 to figure out how to deal with the economy after World War II, and they would study various policy issues and issue position papers, and the positions they took were often adopted later by governments. So they were behind the Marshall Plan originally, the Employment Act of 1946. And their basic position was relatively moderate, and they really rejected the traditional conservatism of low taxes, no government regulation, free markets, anti-labor. They didn't love labor unions, but they felt it was in their interest to work with labor unions rather than try to destroy them. They were fighting all the time, but the legitimacy of labor unions per se was not called into question like it was later.
The people who are now the tea party were always around. But their views were considered outside the realm of political discourse. And one of the reasons for that was the leaders of the biggest corporations saw them as, I don't want to call them a lunatic fringe, but Dwight Eisenhower referred to them as "stupid." So big business occupied close to the political center at that point. They were between labor and liberals on one side, and conservatives on the other. And they were very influential in both Democratic and Republican administrations.
So what happened was, there was a broad consensus during this period, the American economy was very strong, partly because the rest of the world had been devastated by World War II. Unemployment was low, inflation was low; it was a very good period for the U.S. economically and politically.
So this worked pretty well until the 1970s, and then a whole series of exogenous shocks occurred that created a more difficult environment for big business. First, we had inflationary pressures brought on by the Vietnam war, and Lyndon Johnson's Great Society programs. Second, the rest of the world started catching up to the U.S. economically. Germany and Japan had dug themselves out of the hole they were in after World War II, so you start to see foreign products coming into the U.S. and competing with American companies. The big American companies and heavy industries had operated in highly concentrated environments with very little competition for quite some time. They got soft. They were heavily unionized; if they raised wages they would just pass on price increases to the public. So a lot of companies hadn't experienced competition for a very long time. And the third thing is because of the social turmoil of the 1960s, and then the Watergate scandal, major institutions lost their legitimacy, came under attack, and that included business.
And then we had the energy crisis in 1973 that threw the economy into a recession. And also we started to get for the first time simultaneously high levels of both inflation and unemployment, which was not supposed to happen, according to the Keynesian economic ideology. And then, finally, we had the implementation of the Environmental Protection Agency and the Occupational Safety and Health Administration, both of which are particularly aggressive regulatory agencies that also were economy-wide, so that they weren't focused on specific industries, they affected everyone.
So, for all these reasons, big American companies saw themselves as under siege, and they mounted a counteroffensive. In doing this, they did something which they hadn't done for a long time: aligned themselves with traditional conservatives. And so you start see big businesses funding organizations like the American Enterprise Institute, and there was the formation of the Heritage Foundation, and they started becoming very aggressive against what they saw as intrusive government regulation and labor unions in a way that they hadn't before.
And by the late 1970s, they were very successful. Corporate taxes decreased, government regulation became much more lax. The very forces that had led big business to be organized in the first place were significantly weakened. So in the late 1980s, you saw a fragmenting of big business. It's almost like they won the war, they don't need to fight anymore. So they started to go in their different directions, and just lobby for individual favors. And then you had the takeover wave of the late 1980s -- one-third of the Fortune 500 disappeared in the 1980s. If you were a CEO in the 1960s, you had a lot of slack and a high degree of job security. You could sit back and think about the longer-term implications of your actions for business as a whole in the larger society. But by the late 1980s, you didn't have that luxury, because your company could be taken over next month and you'd be out of a job. So they started exhibiting a much more short-term focus. So by the early 1990s, big business is fragmented. They're not organized in a way that would allow them to act collectively to address issues of mutual concern.
You first see this with the Clinton health-care plan, where originally most of the big companies were strongly supportive. And even the National Association of Manufacturers and the Chamber of Commerce, two groups that have traditionally been very conservative, initially supported the Clinton health-care plan. But what happened was, when the crunch came, and it came time to put their foot down, they chickened out and withdrew their support for the plan. And I think what happened is the Republicans in Congress began to threaten the big companies. There was one case where one major company had planned to invite President Clinton to speak on health care, and a group of Republicans in Congress threatened that if they went through with this invitation, they would slap new regulations on the company. And the Chamber of Commerce started experiencing a revolt from local chambers and losing members to the National Federation of Independent Businesses and other upstarts, and this was encouraged by the Republicans in Congress. So, ultimately, the Clinton health-care plan fell apart.
So to fast forward, you see the same thing in how they're reacting to the debt. In the earlier decades, large American companies would routinely support tax increases to balance the budget. By the 2000s, they just were not doing this. And what I think has happened now is that big business has lost control of the Republican Party. Republicans are acting in a way that it's pretty evident that big companies aren't happy with what's going on. Even the Koch brothers have said that Congress should not play games with the debt ceiling, and yet they don't seem able to exercise any influence.
Because big business has lost the ability to act collectively, their ability to shape the political process has declined. And just to clarify, they're very successful when it comes to receiving favors for their own companies. But whenever it comes to a situation where it requires them to act collectively, they seem to be entirely ineffectual.
LD: But, wait, lots of tea partiers have received contributions from Wall Street, and their positions aren't that far apart. Can we really speak of "big business" in the same group?
MM: They are split. So if you look at the extreme example, it's the Koch brothers, who seem to be just extremely right wing on almost every issue. But Wall Street's interesting, because lots of people on Wall Street have traditionally supported Democrats.
Health care's a good place to illustrate this. I've interviewed some Fortune 500 CEOs and HR officials. You would think that it would be in the interest of most American companies, both large and small, to support a single-payer system like Canada's. According to my calculations, in 2009, the Fortune 500 alone spent $375 billion on health care for their employees. Now, if we had a Canadian-style system here, that cost would not be zero, because it would be compensated for in higher taxes. But the cost would be spread throughout the entire population. so it would seem to be in the interest of American companies to not have to provide health-care to their employees, and particularly small business.
So the question is why they would be so opposed to it. The only thing I can think of is just ideology. They just don't like the idea of government involvement. Although the HR people I spoke with were unanimously opposed to a single-payer system, because administering the company health-care plan is their job. But the CEOs should be for it.
LD: So, the Obama administration, through bailing out the car companies and the banks, has been fairly friendly toward Wall Street. Do you think we'll ever see big business swing around to support them?
MM: I don't know that it'll ever happen that Democrats will ever become the party of big business. But there have always been big segments of business that did support the president. One of the big shifts was, in the period before Bill Clinton was nominated for president, there was this soul-searching in the Democratic Party after the 1984 election. There were a number of people who believed the Democrats had to move toward the center and become more friendly to business. And there was a very interesting episode during the first administration of George Bush senior, where he had a commission that was trying to develop some technological policy for the future, and Bush himself and his senior advisers came out with a report and just kind of ignored it. And they went to the Democrats, and Clinton was much more receptive to the idea, and the Silicon Valley companies at that point just switched over to supporting Bill Clinton. And to this day, the Silicon Valley companies have tended to be more pro-Democrat.
I don't see business ever moving predominantly towards the Democrats. But the business Republicans in the earlier period we were talking about were more moderate. If you look at Eisenhower, Nixon and even Gerald Ford -- Nixon's health-care plan was far to the left of Obama's. It never actually was implemented because of Watergate. But the political discourse of the time was far to the left of where we are now. I think the moderate Mitt Romney that was governor of Massachusetts pretty well represents the center of American business.
LD: Romney represents the center now? Or where the center was then?
MM: I think even where it is now. He was forced to move to the right to make sure he appealed to the Republican base, because they have moved so far to the right. I think big business has definitely moved to the right over the decades, but I don't think they're anywhere near where the tea party is. The irony, of course, is that the health-care plan was what he'd done in Massachusetts.
LD: So, what would you advise big business to do?
MM: I probably would tell them they have to stop blaming both sides. I think it's gotten to a point where you can't play the equivalence game anymore. This is not two sides that are equally culpable, both being intransigent. This is one group that is basically saying, we don't like this law, and either change it or we're going to shut down the government and not pay our bills.
In a purely neutral way, it really is extortion. I'm not saying this as a partisan, just as an observer. If they can elect enough people to overturn the law, they should do it.
LD: I talked to the leaders at CED, too, and just like the Business Roundtable, they totally used that false equivalence.
MM: I understand why they're trying to sound balanced because they want to provide the appearance of nonpartisanship. But, come on, the Business Roundtable? This is a case where they can play the nonpartisan game, but they're not going to have any influence unless they do what needs to be done. I do think they're trying to pressure the Republicans. I just don't think they have enough power to do it, at least right now. If they were to change the focus of their campaign contributions, maybe they will be able to exercise more power.