Who Stole the American Dream? (5 page)

Small business, too, became a major political player. From 1970 to 1979, the National Federation of Independent Business, the major trade group for small business, leapt from 300 members to 600,000. To connect with this sprawling network, the organization had 600 full-time employees at its California headquarters and a Washington office of 20.

The National Association of Manufacturers moved its national headquarters to Washington and mobilized its business network nationwide. The U.S. Chamber of Commerce, which had been slumbering politically, woke up. Its membership doubled to 80,000 companies in 1974, its budget tripled, and by 1980 it employed 45 full-time lobbyists. Trade associations mushroomed, representing nearly every sector of the U.S. economy. By 1978, nearly 2,000 different trade associations were operating in Washington, with a combined staff of 50,000 employees. Amply funded by their business members, the national organizations and trade groups hired an army of professionals—9,000 lobbyists and 8,000 public relations specialists—to work the corridors of power.

In fact, by the late 1970s, business interests had mustered such a huge force that they outnumbered Congress 130 to 1: They had 130 lobbyists and advocates for each of the 535 members of Congress.

With all that corporate muscle, business shifted the political balance of power in Washington, and that caused a huge swing of the policy pendulum in favor of the corporate elite—at the expense of the middle class.

A parallel transformation was coming in economics with the onset in the 1980s of the New Economy and a business mind-set focused on corporate downsizing, offshoring production, and rewriting the social contract that had been an important foundation of middle-class prosperity in the long postwar period.

But the first bend in the path of American history came in the late 1970s—while the Democrats were firmly in control of Congress and the White House.

1978
IS A YEAR LARGELY FORGOTTEN
or overlooked by many political commentators, but the legislative session of the Ninety-fifth Congress that year was one of the most pivotal in our modern political history.

The power shift in favor of pro-business policies began not under Ronald Reagan and the Republicans in the 1980s, but earlier—under Jimmy Carter, in the Democratic-controlled Congress of the late 1970s.

In part, that was because Jimmy Carter came to Washington in 1976 with a reform agenda to help the middle class, but as a one-term governor of Georgia, he was unprepared for the rough-and-tumble of the Washington power game. But Carter was also confronting a hidden new reality: The newly organized legions of business, energized by the Powell memo, were ready to play hardball.

As Thomas Edsall wrote in
The New Politics of Inequality
, the anti-business Congress of the early 1970s became the pro-business Congress of the late 1970s.

Time
magazine commented that in 1978
the decisive force blocking much of the Carter and liberal agenda was “the startling increase in the influence of special-interest lobbies…. Partly because of this influence, Congress itself is becoming increasingly balky and unmanageable.”

Consumer activist Ralph Nader was the first target to feel the potent new challenge of the corporate mutiny against the political status quo. For several years, Nader’s chief ambition, and the primary goal of the consumer movement, was to have Congress create a consumer protection agency that would give average American consumers an advocate within the federal bureaucracy and that would consolidate pro-consumer rule making in one place.

Several efforts had been mounted in the early 1970s, but each time a consumer bill would pass in one house, it would fail in the other chamber, or it would be vetoed by Republican president Gerald Ford. With a Democrat in the White House, Nader and other consumer advocates saw their opportunity.

But they were ambushed by the new business lobbying army. Taking House Democratic leaders and Nader’s supporters by surprise, corporate forces simply overwhelmed the consumer movement with an unprecedented lobbying blitz that House Speaker Tip O’Neill described as the most potent he had ever seen. “I have been around
here for 25 years,” O’Neill remarked. “I have
never seen such extensive lobbying.” The corporate forces, charging that a new $15 million consumer protection agency would mark a massive expansion of the federal bureaucracy, mobilized small business and other supporters across the nation to inundate Congress with mail and phone calls.

Shrewdly, the business lobbying campaign targeted moderate Democratic congressmen who had ridden Nixon’s Watergate scandal to victory in 1974 and 1976 in traditionally Republican districts. Their surprise victories left them feeling vulnerable as they faced the 1978 elections. Business played heavily on their fears of a voter backlash against them. When Speaker O’Neill pushed the Carter consumer agency bill to a vote, most of the newly elected Democrats bolted against party discipline and rejected the bill.

The business strategy worked. What the White House and Ralph Nader had expected to be an easy win turned into
a disastrous defeat in the House. The idea of a powerful consumer agency was buried for the next three decades.

Having beaten President Carter and Ralph Nader on their first big showdown, the business forces were ready for a test of strength against a politically more organized and more formidable foe, organized labor.

Since the early 1960s, the AFL-CIO labor federation had been itching to roll back the tough anti-union provisions of the Taft-Hartley Act of 1947 and the Landrum-Griffin Act of 1959, with little success, and to win more favorable conditions for union organizing. With a Democrat in the White House for the first time in eight years, the union movement saw a chance finally to achieve victory on three top union priorities—“labor law reform,” to make it easier for unions to organize and to curb the most aggressive anti-union activities of business; “common situs picketing,” to allow multiple unions to picket a construction site on a grievance from a
single union; and legislation to generate automatic increases in the minimum wage, tied to inflation and rising wage scales generally.

Previously, American business had been divided on such issues. Major corporations, which were used to dealing with unions, were inclined to go along with some labor demands to keep peace in their own backyards. But there was a growing sentiment among medium-sized corporations, small businesses, and retailers that labor had gone too far and had gotten too strong. Anti-union feeling was particularly on the rise among the Sun Belt business community, some of it stirred up by the blazingly anti-union rhetoric of Barry Goldwater, the right-wing Republican presidential candidate in 1964, and by Ronald Reagan’s run for the presidency in 1976.

With employee health and pension costs rising sharply and a growing gap between union and non-union wages, even employers accustomed to unions were taking a harder line. Some business leaders were determined to roll back union power. The National Association of Manufacturers, with thirteen thousand member companies, set up its own
Council on Union-Free Environment to try to get rid of unions as the go-between for management’s dealings with employees. So in 1977, the business community was responsive to Powell’s call for confrontation politics against organized labor.

With a heavy mail campaign, business lobbying killed the picketing bill in the House. But AFL-CIO president George Meany vowed a tougher fight for the labor law reform bill, and
it passed the House by a solid 257–163 vote margin. It was in the Senate, where the rules made it easier to block legislation, that business lobbying paid off. Major corporate leaders from the Business Roundtable joined the lobbying campaign of the U.S. Chamber of Commerce and the National Association of Manufacturers.

A Senate filibuster, led by Utah’s junior Republican senator, Orrin Hatch, tied up the labor bill for five weeks. “
What the filibuster does is give the right wing and business groups enormous power,” complained Ray Marshall, Carter’s secretary of labor. “What it does is make it possible for senators who represent about 10 percent of the
population to block the will of 90 percent of the population.” To try to eke out enough votes, pro-labor Democrats offered some compromises to exempt small businesses from the bill’s provisions. But the best they could do was to muster fifty-eight votes, two short of the sixty votes needed to end the filibuster. The bill died without getting a vote—a major triumph for business and a grievous setback for labor.

In frustration over the solid business opposition to the labor bill and what he saw as the political ineptitude of the Carter White House,
Douglas Fraser, president of the United Auto Workers union, resigned from Carter’s labor-management advisory council. “I believe leaders of the business community, with few exceptions, have chosen to wage a one-sided class war today in this country,” Fraser declared, “a war against working people, the unemployed, the poor … and even many in the middle class of our society.”

Carter did manage
some wins for labor, including a good job-training bill and an increase of the minimum wage from $2.30 to $3.35 an hour in four annual steps. But small and independent business interests lobbied hard to block labor’s appeal for automatic future increases in the minimum wage. Carter, Marshall, and labor’s allies in Congress argued that the minimum wage should be treated the same as Social Security—that is, either indexing it to inflation or pegging it to the nation’s average wage. If the average wage went up, they reasoned, the minimum should rise, too.

Business lobbies were adamantly opposed to that, and they successfully bottled up the proposal in Congress. Once again, the political success of business had major long-term impact. In the 1970s, the minimum wage was about 46 percent of the average wage. By 2006, without any legally fixed ratio between the minimum wage and average wages, the
federal minimum wage fell to under 31 percent of the average hourly wage in 2006 and recovered to 37 percent in 2009. This wider gap has sharpened income inequality at the lower rungs of the economic ladder.

But the corporate political rebellion was intent on more than blocking its opponents. Business was bent on gains of its own.

In 1978, the corporate political machine went on the offensive and achieved a legislative agenda that would have profound and far-reaching impact. Over the next couple of decades, it would dramatically affect the standard of living of tens of millions of middle-class Americans and the American middle-class dream of winning a fair share of the prosperity generated by the nation’s economic growth. Virtually every economic bill that passed in 1978 had a policy tilt in favor of business and the wealthy, often at the expense of the middle class, even if that impact was not immediately apparent.

The first priority for the new corporate lobbying army was to repeal the regulatory regime instituted by Richard Nixon and his predecessors. Business lobbies pushed Congress in 1978 to pass bills deregulating the trucking, railroad, and airline industries. Congress was more than willing. Even liberal Democrats like Senator Edward Kennedy of Massachusetts shared the fervor of Republicans for deregulating various industries to get the economy moving better. They anticipated, correctly, that deregulation would add to business bottom-line profits, and they assumed, incorrectly, that bigger earnings would be shared with rank-and-file employees as they had been in the past and not used just to fatten the bonuses of corporate CEOs and to increase the stock market returns of wealthy investors in the New Economy of the 1980s and 1990s.

Another piece of legislation that came to have broad practical impact on the economic balance of power between corporations and their employees was the little-noticed bankruptcy law passed in 1978 by the pivotal Ninety-fifth Congress.

That law,
the first major bankruptcy reform in forty years, put corporate management in solid control of restructuring a company during bankruptcy. Instead of ousting the old CEO and replacing the old corporate leadership with an outside bankruptcy trustee, as in the past, the new law not only left the old management in place, but let it mastermind the whole process. Also, by making bankruptcy courts more efficient and financing easier, and by allowing much more handsome pay for a new generation of bankruptcy lawyers, the 1978 law made bankruptcy more attractive for big companies. Instead of facing the old stigma of failure, corporate leaders increasingly saw that the new bankruptcy law, as interpreted by the courts, offered them a legal way to shed old debts and to abrogate long-standing
labor union contracts that had guaranteed wages, health benefits, and lifetime pensions. As in the past,
banks got top priority for repayment, and management was empowered to deprive rank-and-file employees of billions of dollars in hard-won economic gains.