Economic disruption on a grand scale. The biggest wealth grab in history. Bitter partisanship in D.C. And an inequality gap that grows wider every year as corporations and the wealthiest Americans continue to pay less in taxes, send jobs overseas and earn unprecedented profits on Wall Street.
Hedrick Smith, an author and former New York Times reporter, will give a talk on Tuesday at the University of Vermont about how America has become a nation bitterly divided by money and power.
In his 2012 book “Who Stole the American Dream?” Smith tells the history of growing inequality over the past four decades. He details in this precise journalistic account just how businesses abandoned their commitment to employees in the race for profits, and how politicians, in the thrall of corporate interests, undermined consumer protections, deregulated industries and drastically cut taxes for the wealthy.
In the New Economy, Smith says, two Americas have emerged: the super-rich and everybody else. The wealthiest 1 percent have amassed new, unprecedented wealth, he says, at the expense of many lower- and middle-class Americans who have lost good-paying jobs, retirement security, adequate health care, access to college education and the dream of owning a home.
The primary cause of the inequity? Predatory business practices that led to millions of job losses and government policies that paved the way for the demise of the middle class, he says.
Recessions come and go, Wall Street booms and busts, but the long-term, downhill slide of the middle class is inexorable in the current political climate, according to data from the book.
Smith quotes conservatives and liberals, free marketeers and Keynesians, and he doesn’t just barrage readers with the stunning facts he’s dredged up through his relentlessly thorough reporting. He also tells stories about people who have been directly affected by economic upheaval. Smith poignantly depicts the predicaments faced by a former mechanic and an airline stewardess, both of whom lost their pensions when United Airlines went bankrupt. Both will continue to work long past retirement. He also tells how two line workers at a Rubbermaid factory in Ohio were downsized when their jobs were outsourced to China. The employees sought work for months before they found part-time jobs.
Technology workers are not immune to offshoring. Smith estimates that in 2006 IBM employed 46,000 workers in India, meanwhile layoffs have become routine at the company’s locations in the United States (including a plant in Essex Junction, Vt.). American workers are often told they must train their counterparts overseas or risk losing their severance packages, according to Smith.
The root cause of the nation’s economic malaise, he says, started before the Great Recession and the last election. And it even predates Reagonomics.
“The timeline to our modern national quagmire lies embedded in the longer arc of our history,” as Smith puts it.
Smith’s book begins with a spotlight on what he calls a “hidden beginning,” a letter written in 1971 by Lewis Powell, a corporate attorney who shortly afterward became a U.S. Supreme Court justice. The memo served as a “blueprint” for galvanizing business interests against critics (namely environmentalists and consumer advocates).
The “Powell Memorandum” was “a call to arms to Corporate America” that set in motion a seismic shift in the power balance in Washington, Smith says. It was directed at the U.S. Chamber of Commerce, but soon became a “manifesto” for the “Gang of Six,” the Chamber, the Business Roundtable, the National Federation of Independent Businesses, the National Association of Manufacturers, the National Association of Wholesaler-Distributors and the National Restaurant Association.
In the mid-1970s the “Gang” began to hire thousands of lobbyists to pressure newly elected Democrats in Republican congressional districts who were elected in the aftermath of Watergate. Centrist Dems who were politically vulnerable caved in to the Gang’s demands in 1978 and created policies that continue to have an impact on the middle class and the nation’s economy.
Through intensive lobbying, the Gang of Six rolled back Ralph Nader’s quest for the creation of a consumer protection agency; curbed labor reforms that included automatic increases in the minimum wage; gave banks first dibs on repayment in bankruptcy cases (ahead of employees and pensioners); and introduced the 401(k) which would eventually replace most pensions.
In addition, the Gang replaced Democrat President Jimmy Carter’s proposal to end tax breaks for the rich and cut taxes for low-income Americans with a bill that reduced the capital gains tax rate from 49 percent to 28 percent.
“The tax victory was one of those pivotal moments in politics, just as in sports, when the lead changes hands and the dynamics of the game change — not just in terms of power, but substantively, as well,” Smith writes. “For the victories that business won in the Carter Congress dramatically shifted the thrust and direction of America’s economic policies to suit the agenda of the business elite. Those victories set a pattern pursued to this day.”
The Gang continued to gain power through the Reagan era, Smith says. And now businesses and trade associations in D.C. have 2,445 offices, 50,000 staffers, 9,000 lobbyists and 8,000 public relations specialists, he writes. Business lobbyists outnumber members of Congress by a ratio of 130 to 1.
The 1978 Congress laid the groundwork for Reagonmics, and the changes that followed — more tax cuts, mass layoffs, deregulation, enormous payouts for CEOs, offshoring and Wall Street excesses.
It was a stark departure from the tacit “social contract” in which companies shared profits with employees.
Today, Washington “highly favors rich, corporate America,” and, as a result, the 1 percent has seen gains of $3 trillion over the last three decades, Smith writes.
Meanwhile, middle class people have seen wages stagnate and the values of their homes disappear as a result of the mortgage crisis in 2008.
“People want the same college education, health care and homes they would have wanted earlier, but now they have to go into debt,” Smith said in an interview.
The spirit of bipartisan cooperation that was the hallmark of 1960s Washington politics melted away with the onset of economic polarization. The divide between political parties on Capitol Hill is as extreme as the economic gulf between the super rich and the middle class, Smith writes. Gridlock over tax cuts, the budget, minimum wage increases is worse than ever.
The good/bad news, Smith says, is that the income inequality gap that has weakened the nation’s economy and helped to cement bitter political partisanship were completely avoidable.
Smith believes that if Americans, who successfully pressed for civil rights, the end of the Vietnam War, environmental causes, feminism and consumer protections in the 1950s and 1960s, had balked at the way in which Big Business avariciously pursued profits in the 1970s and 1980s, the story would be different.
In “Who Stole the American Dream?” Smith explains how we got here. But in two chapters at the end of the book he explores solutions. How businesses, politicians and citizens might find a way to bring back the middle class — by re-establishing the “virtuous circle” of the 1950s and 1960s (in which businesses share profits with workers), raising taxes and curbing job losses caused by offshoring.
“But for the long-term effort to level the economic playing field and to reclaim the American Dream, what is needed is a modern political crusade by average Americans on the model of the civil rights and environmental movements of the 1960s and ‘70s,” Smith writes.
In order for that to happen, he says Americans must overcome their cynicism about the political process and take action.
