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Robert Reich: The Great Power-Shift (Part II) – OpEd

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In Part I, I argued that corporate and financial elites have perpetrated two dangerously misleading narratives about our current predicament: first, that Trumpism is mainly a reaction by white working-class men to the increasing number and dominance of people of color, immigrants, women, and LGBTQ people. Second, that the soaring inequalities of income and wealth in America are due mainly to the impersonal workings of the “free market.” 

Both of these views are self-serving because they ignore the increasing power of America’s corporate and financial elites, which goes a long way to explaining both Trumpism and soaring inequality.

Today, in Part II, I want to show how this power shift has allocated more of the economy to corporate profits and less to the wages of the middle and working class, which in turn has contributed to populist revolts on the left and right — beginning in 2016 in the form of the candidacies of Bernie Sanders and Donald Trump. Yet Trumpism itself is an elitist strategy to prevent Americans from joining together to create a more sustainable and shared prosperity. 

I. Profits and wages

Given the changes in the structure of the market I outlined in Part I, it is not surprising that corporate profits have increased as a portion of the total economy, while wages have declined. The upward redistribution over the past 40 years has shifted $50 trillion from the bottom 90 percent to the top 1 percent — $50 trillion that would have gone into the paychecks of working Americans. 

Those whose income derives directly or indirectly from profits — corporate and financial elites — have done better than ever. Those dependent primarily on wages have been on a downward escalator. 

Take a look at this chart. The blue line indicates the share of the economy going to profits, starting just after World War II; the red line, to wages. (It’s actually worse than this, because the largest share of the “wages” portion is going to the richest 10 percent.)

The underlying problem is not that most Americans are “worth” less in the market than they had been decades ago, or that they have been living beyond their means. Nor is it that they lack enough education to be sufficiently productive. 

The basic problem is that the market itself has become tilted ever more in the direction of a corporate and financial elite that has exerted disproportionate influence over it, while average working people have steadily lost bargaining power — both economic and political — to receive as large a portion of the economy’s gains as they commanded in the first three decades after World War II. 

As a result, the means of most Americans have not kept up with what the economy could otherwise provide them. And most Americans’ aspirations — and assumptions — of upward mobility for themselves and their children have been dashed. 

II. A vicious cycle

To attribute this to the impersonal workings of the “free market” is to disregard the power of large corporations and the financial sector, which have received a steadily larger share of economic gains as a result of that power. As their gains have continued to accumulate, so has their power to accumulate even more. 

These changes in the structure of the economy have been reinforcing and cumulative: 

As more of the nation’s income flows to large corporations and Wall Street and to those whose earnings and wealth derive directly from them, the greater has been their political influence over the rules of the market, which in turn enlarges their share of total income. 

The more dependent politicians become on their financial favors, the greater is the willingness of such politicians and their appointees to reorganize the market to the benefit of these moneyed interests. 

The weaker unions and other traditional sources of countervailing power become, the less able they are to exert political influence over the rules of the market — which causes the playing field to tilt even further against average workers and the poor.

Reversing the scourge of widening inequality therefore requires reversing the upward re-distribution within the rules of the market, and giving average working Americans the bargaining leverage they need to get a larger share of the gains from growth. 

Yet neither will be possible as long as corporate and financial elites have the power to prevent such a restructuring. As they continue to collect the lion’s share of the income and wealth generated by the economy and use some of that income and wealth to bribe politicians and influence public opinion, their power over the rules of the economic game continues to grow. 

III. The Democrats’ response?

The answer to this conundrum is not found in economics. It is found in politics. 

Today’s Republican Party is treacherous and treasonous. It is in the vanguard of the anti-democracy movement. It has become a front for corporate and financial elites who fear democracy at a time in our history when they are siphoning off a record share of the economy for themselves. 

So why are Democrats facing midterm elections that are too close to call? 

Some commentators think Democrats have moved too far to the left — too far from the so-called “center.” This is utter rubbish. Where’s the center between democracy and authoritarianism and why would Democrats want to be there? 

Others think Biden hasn’t been sufficiently angry or outraged. Please. What good would that do? And after Trump, why would anyone want more anger and outrage?

The biggest failure of the Democratic Party has been its loss of the American working class. As Democratic pollster Stanley Greenberg concluded after the 2016 election, 

“Democrats don’t have a ‘white working-class’ problem. They have a ‘working class problem’ which progressives have been reluctant to address honestly or boldly. The fact is that Democrats have lost support with all working-class voters across the electorate.”

The working class used to be the bedrock of the Democratic Party. What happened?

Democrats have occupied the White House for 18 of the last 26 years. Democrats controlled both houses of Congress during the first two years of the Clinton, Obama, and Biden administrations. 

During these years, Democrats scored some important victories for working families: the Affordable Care Act, an expanded Earned Income Tax Credit, the Family and Medical Leave Act, and the Inflation Reduction Act, for example. I take pride in being part of a Democratic administration during this time.

But I’d be lying to you if I didn’t also share my anger and frustration from my battles inside the White House with Wall Street Democrats and battles with corporate Democrats in Congress, all refusing to do more for the working class, all failing to see (or quietly encouraging) the rise of authoritarianism as the middle class continued to shrink. 

Clinton used his political capital to pass free trade agreements without providing millions of blue-collar workers who consequently lost their jobs the means of getting new ones that paid at least as well. His North American Free Trade Agreement and for China to join the World Trade Organization undermined the wages and economic security of manufacturing workers across America, hollowing out vast swaths of the Rust Belt — and turning much of Wisconsin, Michigan, Ohio, Pennsylvania, and upstate New York, Republican. 

Clinton also deregulated Wall Street. This indirectly led to the financial crisis of 2008 — in which Obama bailed out the biggest banks and bankers but did nothing for homeowners, many of whom owed more on their homes than their homes were worth. Obama didn’t demand as a condition for being bailed out that the banks refrain from foreclosing on underwater homeowners. Nor did Obama demand an overhaul of the banking system. Instead, he allowed Wall Street to water down attempts at re-regulation.

Both Clinton and Obama stood by as corporations hammered trade unions, the backbone of the working class. They failed to reform labor laws to allow workers to form unions with a simple up-or-down majority vote, or even to impose meaningful penalties on companies that violated labor protections. 

Biden has supported labor law reform but hasn’t fought for it, leaving the Protecting the Right to Organize (PRO) Act to die inside the ill-fated Build Back Better Act.

At the same time, Clinton and Obama allowed antitrust enforcement to ossify, enabling large corporations to grow far larger and major industries to become more concentrated. Biden is trying to revive antitrust enforcement but hasn’t made it a centerpiece of his administration.

Both Clinton and Obama depended on big money from corporations and the wealthy. Both turned their backs on campaign finance reform. In 2008, Obama was the first presidential nominee since Richard Nixon to reject public financing in his primary and general election campaigns, and he never followed up on his re-election promise to pursue a constitutional amendment to overturn Citizens United vs FEC, the 2010 Supreme Court opinion opening the floodgates to big money in politics.

Throughout these years, Democrats drank from the same campaign funding trough as the Republicans – big corporations, Wall Street, and the very wealthy. “Business has to deal with us whether they like it or not, because we’re the majority,” crowed Democratic representative Tony Coelho, head of the Democratic Congressional Campaign Committee in the 1980s when Democrats assumed they’d continue to run the House for years. Coelho’s Democrats soon achieved a rough parity with Republicans in contributions from corporate and Wall Street campaign coffers, but the deal proved a Faustian bargain. Democrats became financially dependent on big corporations and the Street.

By the 2016 election, the richest 100th of 1 percent of Americans – 24,949 extraordinarily wealthy people – accounted for a record-breaking 40 percent of all campaign contributions. That same year, corporations flooded the presidential, Senate and House elections with $3.4 billion in donations. Labor unions no longer provided any countervailing power, contributing only $213 million – one union dollar for every 16 corporate dollars.

IV. Biden and the Democrats post-2020

Hopefully, Democrats will retain control over the House and Senate next week. But it is remarkable that with most Republican candidates supporting Trump’s big lie, the contest is as close as it is. 

Joe Biden has tried to regain the trust of the working class, but Democratic lawmakers (most obviously and conspicuously, Senators Joe Manchin and Kyrsten Sinema) have blocked measures that would have lowered the costs of childcare, eldercare, and education. They’ve blocked raising the minimum wage and paid family leave. They’ve blocked labor law reforms. 

Yet neither Manchin nor Sinema nor any other Democrat who has failed to support Biden’s agenda has suffered any consequences. Why does Manchin still hold leadership positions in the Senate? Why is Manchin’s West Virginia still benefitting from the discretionary funds doled out by the administration?

Why haven’t the Democrats done more to rally the working class and build a coalition to grab back power from the emerging oligarchy? Presumably for the same reasons Clinton and Obama didn’t: The Democratic Party still prioritizes the votes of the “suburban swing voter” – so-called “soccer moms” in the 1990s and affluent politically independent professionals in the 2000s – who supposedly determine electoral outcomes. And, as noted, the party depends on big money for its campaigns. 

Yet the most powerful force in American politics today is anti-establishment fury at a rigged system. There is no longer a left or right. There is no longer a moderate “center.” The underlying choice is either Trump Republican authoritarianism or Democratic progressive populism. 

Democrats cannot defeat authoritarianism without an agenda of radical democratic reform — an anti-establishment movement. Democrats must stand squarely on the side of democracy against oligarchy. They must form a unified coalition of people of all races, genders, and classes to unrig the system. 

Trumpism is not the cause of our divided nation. It is the symptom of a rigged system that was already dividing us. While Trump authoritarianism masquerades as being anti-elitist, it is backed by some of America’s richest corporate and financial leaders — such as money manager Stephen A. Schwarzman, industrialist Charles Koch, venture capitalist Peter Thiel, shipping magnate Richard Uihlein, and almost every major American corporation and trade association. 

The central goal of the corporate and financial backers of Trump authoritarianism has been to split the bottom 90 percent of Americans into warring factions so they don’t look upward and see where all the wealth and power have gone. 

We will soon discover whether their ploy is succeeding.

Robert Reich

Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, and writes at robertreich.substack.com. Reich served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fifteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "The Common Good," which is available in bookstores now. He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.

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