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Posts Tagged ‘Requiem for the American Dream’

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The third principle of the concentration of wealth and power is “Redesign the Economy,” i.e., use your political influence to change the rules of the economic system, so that it favors the already advantaged class in new and more powerful ways. Noam Chomsky identifies two major factors under this principle: (1) financialization of the economy and (2) the offshoring of production.

Financialization

Writing in Forbes, Mike Collins defined the term financialization as “growing scale and profitability of the finance sector at the expense of the rest of the economy and the shrinking regulation of its rules and returns.” In the film, Chomsky says that financial institutions—”banks, investment firms, insurance companies, and so on”—have a legitimate role to play in the economy, but starting in the 1970s they started to expand their power and influence beyond that legitimate role, thereby enriching the wealthy and making the economy vulnerable to crashes. During this period, the U.S. economy weakened due to the shift from manufacturing to finance, until, in the words of Mike Collins, “The emphasis was no longer on making things—it was [on] making money from money.” According to Chomsky:

By 2007, right before the latest crash, they had literally 40% of corporate profits—far beyond anything in the past. Back in the 1950s, as for many years before, the Unites States’ economy was based largely on production. The United States was the great manufacturing center of the world.Financial institutions used to be a relatively small part of the economy, and their task was to distribute unused assets, like bank savings, to productive activity. That’s a contribution to the economy. Regulatory system was established. Banks were regulated, the commercial and investment banks were separated [to] cut back their risky investment practices that could harm private people. There were, remember, to financial crashes during the period of regulation. By the 1970s that changed.

In the United States, the history of growing inequality is really a history of the systematic dismantling of the New Deal. Chomsky points out that Richard Nixon was the last New Deal President, though he is rarely recognized as such. Starting from Franklin D. Roosevelt in the early 1930s all the way to Richard Nixon in the early 1970s, the United States Government’s domestic spending shows a continuous upward trend. This trend started to reverse with Jimmy Carter, who was also the first President to increase the social security tax, reduce the capital gains tax, and started the process of deregulation. The dismantling of the New Deal became an increasingly important priority in the successive administrations of Ronald Reagan, George H. W. Bush, and Bill Clinton. Since the mid 1970s, both the Republicans and the Democrats have played an active role in this dismantling.

Many of the financial regulations put in place by President Roosevelt under the New Deal were intended to prevent risky behavior on Wall Street, and these regulations functioned well in preventing financial bubbles and crashes.The most of famous of these was the Glass–Steagall legislation (named after Senators Carter Glass and Henry Steagall), also known as the Banking Act of 1933 (revised in 1935). Among other financial reforms, the Glass–Steagall Act established a firm separation between commercial and investment banking. Commercial banks could issue short-term loans but were prohibited from speculating with depositors’ money, while investment banks could invest in equity and long-term loans but were not allowed to take deposits. These provisions of the Glass–Steagall Act were repealed under Bill Clinton as part of his drive towards deregulating the financial sector.

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President Franklin Roosevelt at the signing of the Banking Act in 1933.

 

The role of the United States Congress in the dismantling of the Glass-Steagall Act is especially instructive. Since the mid 70s, no fewer than 25 attempts were made to repeal that law. In 1991, the George H. W. Bush administration tried to amend the law so that commercial banks could participate in investment activities. The House voted 216–200 against the proposed amendment. Seven years later, in 1998, the House passed a very similar legislation 214–213. However, these numbers don’t tell the full story.

As Roslyn Fuller explains in her book Beasts and Gods: How Democracy Changed its Meaning and Lost its Purpose (2015), there was a critical difference between the two pieces of legislation. The 1991 reform effort favored banking interests while the one in 1998 favored insurance and investment interests. The latter were against the 1991 reform, and so they gave substantial donations to Congressional Democrats, who were in the majority, in order to prevent the law from being passed. Their spending paid off, as 74% of Democrats opposed the amendment, as compared to only 22% of Republicans. The same interests then supported the 1998 version of the legislation and, to ensure success, significantly increased their financial contributions to Congressional Republicans, who were now in the majority. As a result, this time 77% of Republicans supported the amendment, as compared to only 38% of Democrats.

Out of the 182 representatives who voted in both 1991 and 1998, two-thirds switched their votes depending on which way the wind was blowing. In 1991, Democrats voted in favor of the insurance and investment companies from whom they were receiving substantial sums of money, but by 1998 the money supply had shifted in favor of the Republicans, which made it rational for the Democrats to start favoring their more reliable donors from the banking industry. On the other hand, the Republicans supported the banking interests in 1991, but changed their votes seven years later in response to the increased generosity of the insurance and investment interests.

Finally, in 1999, the Congress passed the Financial Services Modernization Act with bipartisan support, putting the final nail in the coffin of the Glass-Steagall Act. By this time, the interests of both banking and investment companies had converged, and this was reflected in how the House voted: 362–57 in favor.

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President Bill Clinton signing the Gramm–Leach–Bliley Act in 1999.

As the New York Times reported at the time, Treasury Secretary Larry Summers was ecstatic when the Congress passed  the Financial Services Modernization Act (also known as the Gramm–Leach–Bliley Act) : “This historic legislation will better enable American companies to compete in the new economy.” Senator Charles E. Schumer (D-New York) praised the new legislation: “There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive.” In contrast to these optimistic assessments, Senator Byron L. Dorgan (D-North Dakota) made the following prescient comment: “I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010.” Today, President Clinton’s repeal of the Glass-Steagall Act is widely believed to have paved the way for conditions that made the financial meltdown of 2008 much worse than what it might have been; others believe that the meltdown would not have happened if that New Deal legislation were still in place.

As already mentioned, however, the trend toward financial deregulation had started much earlier—specifically, during the Carter administration. The landmark event was a 1978 decision by the US Supreme Court that practically ended all limits on interest rates. In Marquette National Bank v. First of Omaha Service Corp., the Supreme Court ruled that national banks did not have to follow the interest rate regulations of the borrower’s state but only those of their own home states. This decision provided a powerful incentive for financial companies to relocate to the states with the least onerous regulations, thereby encouraging states to do abolish anti-usury laws and end interest rate ceilings. Two years later, the U.S. Congress passed the Depository Institutions Deregulation and Monetary Control Act, which included a provision exempting federally chartered savings banks, installment plan sellers, and chartered loan companies from state mandated anti-usury laws. As a result, both the federal judiciary and the legislature effectively ended the age-old practice of capping interest rates. The resulting competitive pressure led to an explosion of financial services, since a lot more money could now be made through lending than through investing in the real economy.

Writing in Harper’s, Thomas Geoghegan explained “how the dismantling of usury laws” produced such as results as “the loss of our industrial base” and “the loss of our best middle-class jobs.”

First, thanks to the uncapping of interest rates, we shifted capital into the financial sector, with its relatively high returns. Second, as we shifted capital out of globally competitive manufacturing, we ran bigger trade deficits. Third, as we ran bigger trade deficits, we required bigger inflows of foreign capital. We had “cheap money” flooding in from China, Saudi Arabia, and even the Fourth World. May God forgive us — we even had capital coming in from Honduras. Fourth, the banks got even more money, and they didn’t even consider putting it back into manufacturing. They stuffed it into derivatives and other forms of gambling, because that’s the kind of thing that got the “normal” big return; that is, not five percent but 35 percent or even more.

As the financial sector became more profitable than manufacturing, it started to bloat up in unprecedented ways. In the documentary, Noam Chomsky describes the results of financialization as follows:

You started getting that huge increase in the flows of speculative capital—just astronomically increase—enormous changes in the financial sector from traditional banks to risky investments, complex financial instruments, money manipulation, and so on. Increasingly, the business of the country isn’t production, at least not here. The primary business here is business. … By the 1970s, [U.S. corporations], say General Electric, could make more profit playing games with money than you could by producing in the United States. You have to remember that General Electric is substantially a financial institution today. It makes half its profits just by moving money around in complicated ways. And it’s very unclear that they are doing anything that’s of value to the economy.

The following graphs tell the story of how the decline of American manufacturing has been accompanied by the rise of American finance.

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Finance & Manufacturing share of domestic corporate profits.

Offshoring of Production

The second factor in how the economy was redesigned to suite the wealthy was the offshoring of production. This consists of two basic components: (1) lobbying governments to deregulate the movement of goods and capital across national borders; (2) moving factories out of countries that have strong labor and environmental protection laws to countries were workers can be made to work longer hours and at lower wages.

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Chomsky explains:

The trade system was reconstructed with a very explicit design of putting working people in competition with each other all over the world. And what it’s led to is a reduction in the share of income on the part of working people. It’s been particularly striking in the United States, but it’s happening worldwide. It means an American worker is in competition with the super-exploited worker in China. Meanwhile, highly paid professionals are protected. They are not placed in competition with the rest of the world—far from it. And, of course, the capital is free to move. Workers aren’t free to move; labor can’t move, but capital can. Well, again, going back to the classics like Adam Smith, as he pointed out, the free circulation of labor is the foundation of any free trade system. But workers are pretty much stuck. The wealthy and the privileged are protected, so you get obvious consequences.

As the world is increasingly integrated into the global economy, large business corporations are able to lower their labor costs by manufacturing their products in relatively poor countries. This allows them to bypass the rights that working people have won in more developed countries, as well as avoid the various environmental regulations. Exploitation of labor goes on in places like India, China, Bangladesh, and Mexico, while unemployment rises in the United States. Capital can move anywhere in the world in search of higher profits, but workers aren’t allowed to go from one country to another in search of higher wages or better working conditions.

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Workers in a Chinese iPhone factory.

Globalization protects the owners of capital while further degrading those who have nothing to sell but their labor. The consequences include increasing wealth for the already wealthy and diminishing prospects for the working class. Chomsky notes that such consequences are not accidental; they are the intended goals for which offshoring of production is pursued in the first place. Indeed, it is not uncommon for economic policy-makers to proudly take credit for institutionalizing policies that intensify the financial insecurity of the lower and middle classes. Such insecurity helps maintain obedience on the part of the population.

Alan Greenspan, when he testified to Congress [in 1997], he explained his success in running the economy as based on what he called “greater worker insecurity.” Keep workers insecure, they’re going to be under control; they’re not going to ask for, say, decent wages or decent working conditions, or the opportunity of free association, meaning unionize. Now, for the “masters of mankind,” that’s fine—they make their profits, but for the population it’s devastating.

The Greenspan quotation that Chomsky is referring to is from “Monetary Policy Report to the Congress,” dated February 26, 1997. Greenspan, who was chairman of the Federal Reserve from 1987 to 2006, had made the following comment: “Atypical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity.”

buckley_chomskyAt this point in the narrative, the film digresses a bit from the main discussion to provide an introduction of Noam Chomsky himself. We learn about Chomsky as a groundbreaking intellectual who transformed the field of linguistics in the 1950s before becoming famous for his public opposition to the Vietnam war during the mid 1960s. We watch a short clip from William F. Buckley’s interview of (and/or debate with) a much younger Noam Chomsky that took place in New York on April 3, 1969, as part of the TV show “Firing Line.” The video of the debate is available here, while a complete transcript can be found here. In “Requiem,” Buckley is seen introducing a younger Chomsky as follows:

Professor Noam Chomsky is listed in anybody’s catalog as one of the half-dozen top heroes of the New Left. This standing he achieved by adopting over the past two or three years a series of adamant positions rejecting at least American foreign policy, at most America itself.

The older Chomsky then responds to the charge of “anti-Americanism,” which is fun to watch. He points out that in all societies anyone who criticizes the status quo usually becomes a target of various types of attacks, but it is only under totalitarian rule that the critics of concentrated wealth and power are accused of being enemies of their own countries—as in “anti-Soviet” or “anti-American.” The very existence of such forms of verbal abuse in a “democratic” society is rather revealing.

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Throughout the history of the United States, there has been a constant struggle between two tendencies: On the one hand, we have “a democratizing tendency that’s mostly coming from the population—a pressure from below.” On the other hand, there is the tendency coming from the elite to maintain the status quo, and to reverse any concessions that may have been given in response to popular demands—a pressure from the top. As a result of these two tendencies acting and reacting in relation to each other, we see in our history alternating “periods of progress” and “periods of regression.” Thus, the 1960s constituted a period of “significant democratization,” and so the rights and freedoms won during that time brought about a powerful backlash from the elite, resulting in decades of regression and the reversal of those victories.

According to Chomsky:

[In the 1960s] sectors of the population that were usually passive and apathetic became organized, active, started pressing their demands.And they became more and more involved in decision-making, activism, and so on.It just changed the consciousness in a lot of ways: minority rights, women’s rights, concern for the environment, opposition to aggression, concern for other people. These are all civilizing effect. And that caused great fear. . . . I should have, but I didn’t anticipate the power of the reaction to these civilizing effects of the 60s—the backlash!

principle 2

Chomsky continues: “There has been an enormous, concentrated, coordinated business offensive beginning in the 70s, to try to beat back the egalitarian efforts that went right through the Nixon years.” Chomsky suggests two key documents from the early 1970s as excellent sources for understanding what the elite were thinking at that time and how they decided to respond to the challenge of democracy: (1) the Powell Memorandum from the conservative side of the political spectrum and, (2) from the liberal side, the first major report of the Trilateral Commission, titled The Crisis of Democracy. Both documents reveal the American elite’s alarm at the fact that the population is becoming too informed, too conscious, and too assertive in demanding its rights, as well as their recognition of the urgent need to influence the institutions that shape public opinion.

Chomsky views the Powell Memo and the Trilateral Commission’s report as representing the two ends of the extremely narrow range of thinking that goes on among the American elite. Despite their apparent differences in ideology, both the conservative and the liberal camps agree on doing everything possible to expand capitalism and keep the population in its place by subverting the democratic impulse.

The Powell Memo: “Attack on American Free Enterprise System”

In the late 60s and early 70s, the U.S. federal government responded to popular pressure by expanding its regulatory control over big business. This included legislation meant to ensure environmental protection, occupational safety, and the safeguarding of consumer rights. The new regulatory regime was seen by the business elite as an attack on their profits, leading them to the conclusion that they must organize politically in order to maintain their economic power.

PowellOne of the most important documents that we must study to understand the elite reaction is the famous “Powell Memorandum.” Titled “Attack on American Free Enterprise System,” the memo was submitted to the U.S. Chamber of Commerce on August 23, 1971. It was written by a corporate lawyer named Lewis Powell, at the request of his friend and neighbor Eugene Sydnor Jr., who at the time was chair of the Education Committee of the Chamber of Commerce. Powell himself was appointed by Richard Nixon to the U.S. Supreme Court only a couple of months after he wrote his famous memo. The document was originally intended to be confidential, but it was soon leaked to the press and subsequently published in the newsletter of the Chamber of Commerce.

The key point of the Powell Memo was that business must use its financial power for political purposes; it was vital for the business elite to gain influence over the government and the legislature in order to ensure the survival and empowerment of the “free enterprise system.” Powell argued that “Business must learn the lesson … that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination—without embarrassment and without the reluctance which has been so characteristic of American business.” To achieve greater influence over the political sphere, business must organize itself and plan for the long-term. “Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.”

An important part of Powell’s prescription was the necessity of changing public opinion in favor of the “free enterprise system” through influencing the media and the education system. He wrote:

Reaching the campus and the secondary schools is vital for the long-term. Reaching the public generally may be more important for the shorter term. The first essential is to establish the staffs of eminent scholars, writers and speakers, who will do the thinking, the analysis, the writing and the speaking. It will also be essential to have staff personnel who are thoroughly familiar with the media, and know how to most effectively communicate with the public. The national television networks should be monitored in the same way that textbooks should be kept under constant surveillance. This applies not merely to so-called educational programs (such as ‘Selling of the Pentagon’), but to the daily ‘news analysis’ which so often includes the most insidious type of criticism of the enterprise system.

While changing public opinion was a slow and gradual process, Powell emphasized that business must maintain an uncompromising focus on gaining political power.

But one should not postpone more direct political action, while awaiting the gradual change in public opinion to be effected through education and information. Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination —without embarrassment and without the reluctance which has been so characteristic of American business.

The Powell Memo is available here, along with other primary sources that provide additional background. Commentaries are found herehere, here, here, and here.

Report of the Trilateral Commission: The Crisis of Democracy

crisisThe Trilateral Commission was created in July 1973 under the initiative of David Rockefeller. According to the Commission’s website, it was formed “by private citizens of Japan, Europe (European Union countries), and North America (United States and Canada) to foster closer cooperation among these core industrialized areas of the world with shared leadership responsibilities in the wider international system.” The American members of the Trilateral Commission included, among others, Henry D. Owen (Brookings Institution), George S. Franklin (Council on Foreign Relations), Robert R. Bowie (Harvard Center for International Affairs), William Scranton (former Governor of Pennsylvania), as well as Alan Greenspan and Paul Volcker (later heads of the Federal Reserve). Members of the Trilateral Commission were heavily represented in the Carter Administration, including Walter Mondale (Vice President), Zbigniew Brezinski (National Security Adviser), Cyrus R. Vance (Secretary of State), W. Michael Blumenthal (Secretary of the Treasury), Harold Brown (Secretary of Defense), and Andrew Young (Ambassador to the United Nations). Jimmy Carter himself is a member, so are Henry Kissinger and Bill Clinton. It is interesting to note that President Obama has appointed several members of the Trilateral Commission to important positions in his own administration, including Tim Geithner (Secretary of the Treasury), Susan Rice (Ambassador to the United Nations), and James L. Jones (National Security Adviser), among others.

The first report of the Trilateral Commission was published in 1975 under the title The Crisis of Democracy. The chapter on the United States was written by Samuel P. Huntington, who is now known mostly s for his “clash of civilization” thesis. Huntington begins by identifying the democratizing tendency that has become unleashed in the previous decade:

The 1960s witnessed a dramatic renewal of the democratic spirit in America. The predominant trends of that decade involved the challenging of the authority of established political, social, and economic institutions, increased popular participation in and control over those institutions, a reaction against the concentration of power in the executive branch of the federal government and in favor of the reassertion of the power of Congress and of state and local government, renewed commitment to the idea of equality on the part of intellectuals and other elites, the emergence of the “public interest” lobbying groups, increased concern for the rights of and provisions of opportunities for minorities and women to participate in the polity and economy, and a pervasive criticism of those who possessed or were even thought to possess excessive power or wealth. The spirit of protest, the spirit of equality, the impulse to expose and correct inequities were abroad in the land. … It was a decade of democratic surge and of the reassertion of democratic egalitarianism.

Huntington then goes on to explain what he believes to be the heart of the problem, the inverse relationship between the “vitality” of a society and its “governability.” Too much vitality in the general population leads to the erosion of authority, making the society less governable from the viewpoint of the elite.

The essence of the democratic surge of the 1960s was a general challenge to existing systems of authority, public and private. In one form or another, this challenge manifested itself in the family, the university, business, public and private associations, politics, the governmental bureaucracy and the military services. People no longer felt the same compulsion to obey those whom they had previously considered superior to themselves in age, rank, status, expertise, character, or talents. Within most organizations, discipline eased and differences in status became blurred. Each group claimed its right to participate equally —and perhaps more than equally—in the decisions which affected itself.

Huntington attributes the erosion of older forms of authority to the fact that the population has become too assertive in demanding equal rights, including the right to participate in both private and public decision-making. It is this change in popular ideology that poses the greatest danger to the ruling class. For Huntington, it is perfectly fine to believe in egalitarian and democratic values so long as it is understood that they cannot be fully established in the real world. Motivated by a new egalitarian ideology, the population is seen as demanding large-scale changes that will effectively turn the structure of society upside down.

American society is characterized by a broad consensus on democratic, liberal, egalitarian values. For much of the time, the commitment to these values is neither passionate nor intense. During periods of rapid social change, however, these democratic and egalitarian values of the American creed are reaffirmed. The intensity of belief during such creedal passion periods leads to the challenging of established authority and to major efforts to change governmental structure to accord more fully with those values.

Huntington predicts that the democratizing tendency of the 1960s, being part of a normal political cycle, will gradually lose steam with the passage of time. Moreover, he argues that it is important that this tendency loses steam, otherwise it would become difficult for the elite to continue their task of governing the masses.

Predictively, the implication of this analysis is that in due course the democratic surge and its resulting dual distemper in government will moderate. Prescriptively, the implication is that these developments ought to take place in order to avoid the deleterious consequences of the surge and to restore balance between vitality and governability in the democratic system.

Democracy is a good thing, according to Huntington, but only in moderation. American population has recently become too passionate in demanding greater participation in shaping the nation’s political and economic system. This democratizing tendency is giving birth to an “excess of democracy,” and must therefore be restricted within limits determined by the ruling elite.

Al Smith [former Governor of New York] once remarked that “the only cure for the evils of democracy is more democracy.” Our analysis suggests that applying that cure at the present time could well be adding fuel to the flames. Instead, some of the problems of the governance in the United States today stem from an excess of democracy — an “excess of democracy” in much the same sense in which David Donald used the term to refer to the consequences of the Jacksonian revolution which helped to precipitate the Civil War. Needed instead is a greater degree of moderation in democracy.

Huntington identifies two areas in which he would like to see this “moderation in democracy” implemented. First, he insists that “democracy is only one way of constituting authority, and it is not necessarily a universally applicable one.” In fact, democracy is not desirable in most spheres of social life, and the “arenas where democratic procedures are appropriate are … limited.” Secondly, a well-informed and politically active population poses a serious threat to the maintenance of a democratic system of government, and “the effective operation of a democratic political system usually requires some measure of apathy and noninvolvement on the part of some individuals and groups.” This is evidenced by the fact that “every democratic society has had a marginal population, of greater or lesser size, which has not actively participated in government.” Huntington admits that the marginalization of some groups “is inherently undemocratic,” but then immediately claims that it “has also been one of the factors which has enabled democracy to function effectively.” For Huntington, we can either have a society in which some groups are severely marginalized or one in which all groups are moderately marginalized; what we cannot have is a society in which all groups have equal access to resources and political power. To help stabilize the American democracy, Huntington wants to see greater apathy and less political involvement on the part of the population; group clamoring for more rights should accepts some reduction in its egalitarian agenda and agree settles for whatever they’ve already achieved: “Less marginality on the part of some groups thus needs to be replaced by more self-restraint on the part of all groups.”

Insofar as The Crisis of Democracy reflects the views of the Trilateral Commission, it reveals the mindset of the liberal wing of the American elite and its similarity to the mindset of the Framers of the U.S. Constitutions. In both cases, there is a clear desire to prevent an “excess of democracy.” In both cases, a small group of people decides that it represents the rational and enlightened element of society, and then arrogates to itself the right to rule in a way that bypasses the demands and opinions of the majority. The only difference is that the Framers never claimed that they were establishing a democracy, while the contemporary elite are far more cynical in their use of the English language.

The complete text of The Crisis of Democracy is available here. Commentaries can be found herehere, here, and here.

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What follows is my interpretation of Noam Chomsky’s words, as presented in the film “Requiem for the American Dream.” My aim in these blog posts is not to provide a full and faithful representation of Chomsky’s thinking; he is perfectly capable of doing that on his own. Instead, I will emphasize those of his points that I think are worth emphasizing, ignore or downplay the ones that I don’t find important or interesting, and add my own elaborations whenever I feel the urge to do so. Moreover, I won’t try very hard to distinguish my own sense of what Chomsky means from what he actually says in the film; I leave that task to the readers.

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Chomsky often points out the difference between “professed values” and “operative values,” i.e., the difference between what people say (or even believe) and what they actually live by. This is a critical distinction. If you want to know what someone wants you to believe about their commitments, you should listen to their words; but if you want to know what values or principles someone is actually committed to, you have to watch their actions. Actions speak louder than words. This rule holds even when a person is convinced that their professed values are the same as their operative values. Sometimes people lie in order to deceive others, but at other times they may have been lying to themselves as well as others for such a long time that they can no longer tell they are lying. As a result, there may be a huge gap between someone’s professed values and their operative values, yet they’re virtually incapable of seeing that gap.

This point is easy to understand in theory but difficult to apply in practice, especially when it comes to our own party or nation. The power of education, mass media, and socialization is not to be underestimated. Any American kid with a high school diploma—with rare exceptions—will tell you that the United States is a democratic society where the government acts in accordance with the wishes of the people, for that’s what the teachers and the textbooks say. We take pride in our democratic institutions and look with pity at other nations who haven’t reached the milestone that we reached more than two centuries ago. As a result, when someone talks about “exporting democracy” to the Middle East or Latin America as a quasi-religious obligation of the American nation—our “calling” in the world, as it were—the idea makes perfect sense to most people.

There is a lot here that we fail to see simply because we have been trained to not see it, or because we have never been trained to see it. In order to discern what has been made invisible to us, we have to be brave enough to view ourselves more objectively, i.e., from the eyes of an outsider who has no particular stake in the matter.

Discussing the first principle of concentration of wealth and power, Chomsky says:

Imagine yourself in an outside position, looking from Mars. What do you see?  In the United States, there are professed values, like democracy. In a democracy, public opinion is gonna have some influence on policy. And, then, the government carries out actions determined by the population. That’s what democracy means.

The word “democracy” refers to an ideal, but we often use the word in the sense of an actual political system; the distinction is important to keep in mind. Since the word has acquired positive connotations, we tend to describe what we like in politics as “democratic” and what we don’t like as “undemocratic,” and we usually make such pronouncements because of our prejudices rather than on the basis of good reasons. Since democracy is an ideal, any actual political system is best evaluated in terms of how closely the reality of the system approximates that ideal. Furthermore, the degree to which a political system embodies the ideal of democracy cannot be something that we assume a priori but something that we must judge based on our observation of the actual performance of the system.

Thus, it would not be very helpful to ask whether or not the American political system is democratic; we ought to ask, instead, exactly how democratic is it? To answer this question, we have to judge the empirical reality of the American political system against some given standard of ideal democracy. It turns out that there are two such standards at our disposal, viz., what we have been told already exists, and what we think it ought to be. Consequently, our question regarding the American political system bifurcates as follows: (1) Is it as democratic as it wants us to believe? (2) Is it as democratic as it ought to be?

Noam Chomsky would respond to both of the above questions with a resounding “no.” He would then go on to present what can be accurately described as an overwhelming amount evidence in his support.The evidence Chomsky has presented over the last half-century is at least ten times as much as any court or tribunal could possibly require for reaching a guilty verdict. For anyone who is objective enough to look dispassionately at the evidence, the conclusion is unavoidable: The United States not only falls considerably short of how democratic it should—and definitely could—become, it is light years away from how democratic it claims to be, or, indeed, what most of its citizens have been led to believe that it already is.

Consider the following premises:

  1. A political system is democratic insofar as it provides effective ways for the public to influence and shape government policy.
  2. In a society with gross inequality of wealth and power, a small minority gains most of the advantages while depriving the vast majority of its rightful share of resources.

I believe that these premises are uncontroversial, and I invite you to examine them carefully before deciding for yourself. If you agree that they are true, it follows that democracy and inequality are mutually exclusive states of affairs. If a given population is able to influence and shape government policy, which is the very definition of democracy, it would never allow a small minority to enjoy most of the wealth and power at the expense of the vast majority. If the majority of a population is deprived while a minority flourishes, such an arrangement cannot possibly exist with the consent and willing acquiescence of the majority; it can only exist through imposition from the outside. Inequality and democracy, in other words, are inversely related. As a society becomes more democratic, we would expect it to also become more egalitarian. Conversely, to the extent that a society allows wealth and power to concentrate in the hands of a small number of people, we would be correct in attributing this to a relative lack of democracy.

Most Americans tend to view the rising inequality and declining democracy in their society as unfortunate deviations from the ideas and ideals of the Founding Fathers, as violations of the spirit of the Constitution if not its letter, and as corruptions of what was originally a state of democratic perfection. Due to their reverence for the mythic past that has been instilled through years of socialization, it is hard for them to recognize that the American political system was never intended to maximize democracy or minimize inequality; in fact, the exact opposite is true.

System

Chomsky has repeatedly pointed out that the incompatibility between democracy and inequality is not a new discovery; Aristotle had identified this problem as far back as the fourth century BCE. The solution, in his view, was to reduce inequality. Writing in Politics, Aristotle proposed:

… the truly democratic statesman must study how the multitude may be saved from extreme poverty; for this is what causes democracy to be corrupt. Measures must therefore be contrived that may bring about lasting prosperity. And since this is advantageous also for the well-to-do, the proper course is to collect all the proceeds of the revenues into a fund and distribute this in lump sums to the needy, best of all, if one can, in sums large enough for acquiring a small estate, or, failing this, to serve as capital for trade or husbandry, and if this is not possible for all, at all events to distribute the money by tribes or some other division of the population in turn … (6.1320a-b).

The Founding Fathers—or, more specifically, the Framers of the Constitution—were fully cognizant of this tension between inequality and democracy, but they chose a solution diametrically opposite to the one proposed by Aristotle. They decided to keep democracy at a bare minimum so that inequality could be maintained. The Framers were land-owning elite who viewed their own class as representing the rational and enlightened element of the nascent American society, inherently superior to the rest of the population. As such, they were no fans of participatory democracy or proponents of a fair distribution of wealth. They feared democracy because, in their minds, it represented the anti-social tendencies of debt resistance, peasant uprising, breakdown of established authority, redistribution of wealth, and the danger of states printing their own paper money. John Adams famously said: “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.” John Jay, the President of the Continental Congress and the first Chief Justice of the Supreme Court, expressed the conventional wisdom of his peers in this pithy dictum: “The people who own the country ought to govern it.”

In the eighteenth century, the term “democracy” was used almost exclusively in a negative sense—it suggested such horrors as social chaos, mob rule, and lack of government. Charles and Mary Beard, pioneering historian couple, observed the following in their book America in Midpassage (vol. 2), published in 1939:

At no time, at no place, in solemn convention assembled, through no chosen agents, had the American people officially proclaimed the United States to be a democracy. The Constitution did not contain the word or any word lending countenance to it, except possibly the mention of “We, the people” in the preamble. … When the Constitution was framed, no respectable person called himself or herself a democrat.

It took almost fifty years before “democracy” acquired the positive but very limited sense of popular representation. 

James Madison, the main author of the Constitution, was a big defender of the rights of the minority against the tyranny of the majority; what is often forgotten, however, is that by “minority” he meant the rich land-owners, whose property rights he wanted to safeguard against the egalitarian demands of the “majority,” the masses of ordinary people. During one of the debates of the Constitutional Convention in the summer of 1787, Madison said:

The man who is possessed of wealth, who lolls on his sofa or rolls in his carriage, cannot judge the wants or feelings of the day-laborer. The government we mean to erect is intended to last for ages. The landed interest, at present, is prevalent; but in process of time, when we approximate to the states and kingdoms of Europe, —when the number of landholders shall be comparatively small, through the various means of trade and manufactures, will not the landed interest be overbalanced in future elections, and unless wisely provided against, what will become of your government? In England, at this day, if elections were open to all classes of people, the property of landed proprietors would be insecure. An agrarian law would soon take place. If these observations be just, our government ought to secure the permanent interests of the country against innovation.Landholders ought to have a share in the government, to support these invaluable interests, and to balance and check the other. They ought to be so constituted as to protect the minority of the opulent against the majority. The senate, therefore, ought to be this body; and to answer these purposes, they ought to have permanency and stability.

Madison foresaw that the land-owning minority of his time was going to further shrink while the numbers of the working class will increase due to the growth of trade and manufacturing. If genuine democracy were established, it would only empower the poor majority to eventually demand—and in all likelihood achieve—a greater share in both wealth and political influence. He argued, therefore, that the Constitution of the American republic ought to be designed in such a way as to permanently limit democracy and to ensure that wealth and power remains concentrated in the hands of the rational and enlightened elites. One of the main mechanisms through which this was to be achieved was the Senate. Madison argued that “the Senate ought to come from, and represent, the wealth of the nation.” The U.S. Senate was modeled after the aristocratic British institution, the “House of Lords,” and, unlike the House of Representatives, the members of the Senate were to be chosen by State governments. The Senate was given greater power than the House, so it could play its assigned role of safeguarding the interests of the establishment by acting as a check on the aspirations of the popularly elected House of Representatives. It was only in 1913, during the Progressive Era, that an amendment to the Constitution allowed direct election of the Senators, though the amendment did not touch the other undemocratic features of the Senate.

Convention

The American political system was designed to create and maintain a constitutional republic, i.e., a state that is run according to the rule of law and not by the arbitrary whims of a monarch—hence the system of checks and balance. Government by representation was one element in the architecture of the republic, but there was no room for allowing or encouraging direct participation; the ideal before the Framers was the Roman Republic, not Athenian democracy. Elsewhere, Chomsky quotes Gordon S. Wood, a leading authority on early American history, who reached the following conclusion in his book The Creation of the American Republic, 1776–1787: “The Constitution was intrinsically an aristocratic document designed to check the democratic tendencies of the period ….” In the late eighteenth century, the goal of the American political elite was to make sure that rational and enlightened elements would remain in charge of the republic—though only land-owning white men were believed to be rational and enlightened enough for this purpose. The ideal of a representative government was therefore conceived in rather narrow and limited terms. Over the next two centuries, the center of concentrated wealth gradually shifted away from traditional land-owners, first to the entrepreneur class and then to banks and large corporations. Not surprisingly, this migration of concentrated wealth was accompanied by an identical migration of concentrated power.

In contemporary United States, the mutually reinforcing relationship between the concentration of power and the concentration of wealth is worth examining. According to Chomsky:

Concentration of wealth yields concentration of power, particularly so as the cost of elections skyrockets, which kind of forces the political parties into the pockets of major corporations.And this political power quickly translates into legislation that increases the concentration of wealth.So, fiscal policy, like tax policy, deregulation, rules for corporate governance, a whole variety of measures, political measures designed to increase the concentration of wealth and power, which in turn yields more political power do the same thing. And that’s what we’ve been seeing. So we have this kind of vicious cycle in progress.

Consider the steps in the positive feedback loop that’s built into the system:

  1. To successfully run for public office, candidates require extensive publicity, which requires money; the cost of running a campaign increases every year.
  2. Wealthy individuals can contribute a lot more money to election campaigns than ordinary constituents.
  3. Candidates (and political parties) ask for, and receive, the required sums of money from the wealthy, which allows the candidates to win elections.
  4. In return for their financial contributions, the wealthy donors ask that government policy, including laws, be made favorable to their interests.
  5. The public officials and lawmakers do the bidding of their donors so they can continue receiving the donations they need to run in the next election.
  6. With business-friendly policies and laws in place, the rich are able to become increasingly richer.
  7. As wealth accumulates in the hands of the already rich, they are able to buy even more influence in the government.

money and legislation

Once again, Chomsky notes that the close relationship between the concentration of wealth and the concentration of power is not a new discovery. In the eighteenth century, Adam Smith pointed out that the economic policies in England were designed to serve the interests of the “merchants and manufacturers,” whom he saw as the “principal architects” of the economic system. In his book An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith wrote:

It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not the consumers, we may believe, whose interest has been entirely neglected; but the producers, whose interest has been so carefully attended to; and among this latter class our merchants and manufacturers have been by far the principal architects. In the mercantile regulations . . . the interest of our manufacturers has been most peculiarly attended to; and the interest, not so much of the consumers, as that of some other sets of producers, has been sacrificed to it.

Elsewhere in the same book, Smith noted that the business leaders of his time, the merchants and manufacturers, had no inclination to share any of their wealth with the rest of their country’s population. Their actions were aimed at increasing their own wealth at the expense of everyone else. For “the silent and insensible operation of foreign commerce and manufactures” had

gradually furnished the great proprietors with something for which they could exchange the whole surplus produce of their lands, and which they could consume themselves without sharing it either with tenants or retainers. All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons.

In Smith’s time, the merchants and manufacturers constituted the selfish minority that acted as “masters of mankind.” Today, as Chomsky notes, “it’s the financial institutions and the multinational corporations” that are playing the same role. “And they are following the vile maxim:  all for ourselves and nothing for anyone else. They’re just going to pursue policies that benefit them and harm everyone else.”

The history of the United States, therefore, is the history of a constant struggle between the “masters of mankind” and the rest of us. Much of the democracy that does exist has not been the free gift bestowed by the system but rather the outcome of popular pressures,  in some cases of long and arduous struggles carried out by mass movements. Most Constitutional amendments and several changes in political institutions and processes fall in this category. In Chomsky’s words, “there’s been an ongoing clash between pressure for more freedom and democracy coming from below and efforts at elite control and domination coming from above.” Since the struggle is ongoing, it follows that as the masses win a few victories here and there, the elite would try to reverse those victories as much as possible. Democracy is not something we achieve once and for all; it has to be gained over and over again because we are constantly losing it to reactionary forces. The lesson here is that the masses cannot afford to become complacent once they’ve acquired some rights and freedoms, for those rights and freedoms are always under attack by the elite—and so the struggle continues.

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