Following the conclusion of the Philadelphia convention of 1787 that created the US federal Constitution, according to Maryland delegate James McHenry: “A lady asked Dr. Franklin, Well Doctor what have we got a republic or a monarchy. A republic replied the Doctor if you can keep it.”1
Since the late nineteenth century, many Americans have believed that the rise of big business is a threat to the American republic. As we have seen in earlier chapters, the antimonopoly school is actually a combination of two different traditions.
One strand, associated with the legacy of Thomas Jefferson, William Jennings Bryan, and Louis Brandeis, is producer republicanism—the deliberate protection and promotion of an economy dominated by small producers for its alleged social and political benefits, by means of government obstruction of market forces if necessary. In this variant of the antimonopoly tradition, markets characterized by monopoly and oligopoly, perhaps even productivity growth itself, are bad because they tend to replace the majority of self-employed proprietors, on whom republican government is alleged to depend, with a new majority of wage earners or “wage slaves,” dependent on the tender mercies of large employers, the welfare state or charity. As the contemporary admirers of Brandeis Barry Lynn and Phillip Longman admit, “In this tradition, breaking up monopoly has little to do with promoting efficiency or better deals for consumers, and everything to do with protecting political equality, self-government, and democratic institutions.”2 Brandeis himself argued, “The doctrine of the separation of powers was adopted … not to promote efficiency but to preclude the exercise of arbitrary power.” The way to “save the people from autocracy,” he said, is precisely by building “friction” into the system.3 He continued: “There cannot be liberty without industrial independence and the greatest danger to the people of the United States today is in becoming, as they are gradually more and more, a class of employees.”4
The other strand of the antimonopoly tradition, associated first with Adam Smith’s classical economics and now with today’s neoclassical economics, claims to defend the interests of consumers, not producers, large or small. But in crude versions of neoclassical economics, all industries are assumed to be atomistic industries, with no economies of scale or network effects, made up of many small firms, which are “price-takers” rather than “price-makers.” In this variant of the antimonopoly tradition, monopoly and oligopoly are bad because they are threats to the interest of the consumer in purchasing goods from producers with the lowest possible profit.
While the producer republican tradition was willing to sacrifice consumer welfare to the alleged interest of the republic in maintaining a large number of small producer-citizens, most in the market fundamentalist wing of the antimonopoly tradition have claimed there is no need to choose between consumer welfare and producer independence. In a free market undistorted by political favoritism toward particular firms, most firms should be small and the competition among them should lead to lower prices for consumers.
In one respect, the distance between market fundamentalists and producer republicans is narrow: they both are willing to sacrifice improvements in material well-being for “freedom.” Brandeis spoke for many civic republicans when he argued that with an economy of large firms, “We may have all these things and have a nation of slaves.”5 Friedrich Hayek, the patron saint of market fundamentalists, agreed, writing, “Personally, I should much prefer to have to put up with some such inefficiency than have organized monopoly control my ways of life.”6 So for both, “freedom” trumped prosperity. Brandeis feared that big business would take away freedom, Hayek, big government.7
Producer republicans and market fundamentalists, then, both worry that the growth of big business will undermine democracy. But producer republicans worry that democracy is undermined when most citizens work for other people rather than for themselves as small farmers, artisans, or shop owners. Market fundamentalists have no objection to wage labor. Their focus is on the citizen, not as a producer but as a consumer and a taxpayer who is threatened by “crony capitalist” collusion among businesses and governments, which can lead to both higher prices and higher taxes. Minimizing opportunities for political corruption for private benefit, not maximizing the numbers of the self-employed, is the objective of the market fundamentalist wing of the small-is-beautiful school.
In this chapter we address both arguments about the relationship between the scale of business and the health of democracy. In our view, producer republicanism has been anachronistic for generations. If gig workers and other part-time workers along with contract workers are defined as wage earners, then the overwhelming number of adult citizens in the United States and similar advanced industrial democracies are and will remain “wage slaves” from the perspective of producer republicanism. There is not the slightest chance that a majority of Americans, Canadians, Germans, Britons, French, Japanese, and South Koreans will once again be self-employed owners of small, independent enterprises, barring a global cataclysm that causes a reversion to preindustrial conditions. What is more, it is likely that the ratio of the truly self-employed in advanced economies will continue to decline as productivity advances and technology enables large firms to continue to invade remaining pockets of small-scale, labor-intensive jobs, such as those of travel agents, taxi drivers, and real estate agents. Either twenty-first-century democracies are democracies in name only or the claim of producer republicans that democracy requires a self-employed majority must be rejected.
With the market fundamentalist strand in the small-is-beautiful antimonopoly tradition, we share concern about the illegitimate capture of government by businesses for their own private ends. But we differ with the conventional wisdom about “crony capitalism” in two ways.
To begin with, corruption is corruption, whether it is caused by big firms or small firms. A republic can be killed by army ants as well as by elephants. Breaking up big corporations into lots of smaller units does not eliminate the threat of political corruption by special interests as long as trade associations and lobbies representing the selfish and antisocial goals of many small producers can intimidate or bribe politician and officials. If political corruption is the concern, it should be dealt with directly, by campaign finance reforms and other measures that reduce the illegitimate influence of all special interests—including small businesses and nonprofit advocacy groups.
Furthermore, market fundamentalists of the political right, sometimes joined by anticorporate progressives, often mistakenly denounce as “crony capitalist” policies of government support for innovation and industry that are legitimate and necessary in dynamic, advanced industrial economies embroiled in intense competition with other nations and that are taken for granted by most of the nations with which the United States competes for global markets.
The ideology of producer republicanism has its roots in Enlightenment ideas about “republican liberty,” inspired by ancient Greek and Roman political thought. Many Anglo-American republican theorists in the seventeenth and eighteenth centuries defined “liberty” not as “license,” or the absence of interference, but as “nondomination,” or independence from arbitrary power.8 In this view, the citizens of a republic had to have a minimum of economic independence, to reduce the possibility that they could be intimidated by tyrannical individuals or factions.
According to Aristotle, “The real difference between democracy and oligarchy is poverty and wealth. Wherever men rule by reason of their wealth, whether they be few or many, that is an oligarchy, and where the poor rule, that is a democracy.”9 He preferred a mixed constitution with a large propertied middle class rather than a property-less rabble. In the ancient Roman republic, the “proletarians” were the lowest class of citizens. Unable to support themselves as independent farmers or small business owners, proletarians were forced to labor for others in return for wages. Their lack of property and their poverty, it was thought, made them susceptible to ambitious demagogues like Sulla and Caesar. The decline of small proprietors and the rise of a large, wage-earning proletariat, therefore, was simultaneously seen as a disaster for individual proletarians and a danger to the constitutional republic.
American republicans inherited the classically inspired European republican tradition’s contempt for “wage slavery” or “wages slavery.” Working-class “labor republicans” in the nineteenth-century United States sometimes quoted the seventeenth-century English republican Algernon Sidney’s Discourses Concerning Government:
The weight of chains, number of stripes, hardness of labor, and other effects of a master’s cruelty, may make one servitude more miserable than another; but he is a slave who serves the gentlest man in the world, as well as he who serves the worst; and he does serve him if he must obey his commands and depend upon his will.10
In his political tract “Commonwealth of Oceana” (1656), the English republican theorist James Harrington argued that a constitutional and accountable “commonwealth” could be created and sustained only in a society in which farmland was widely distributed among citizen-farmers: “Equality of estates causeth equality of power and equality of power is the liberty not only of the commonwealth, but of every man.”11 Harrington credited an act of Henry VII that prevented landowners from evicting tenants who held twenty or more acres with creating “the yeomanry, or middle people” on whom British liberty depended.
The British colonists who rebelled and created the United States were deeply influenced by this tradition of agrarian republicanism. In 1776 John Adams wrote, “Harrington has shown that power always follows property. … The only possible way, then, of preserving the balance of power on the side of equal liberty and public virtue, is to make the acquisition of land easy to every member of society; to make a division of land into small quantities, so that the multitude may be possessed of landed estates.”12
In an 1859 address before the Wisconsin Agricultural Society in Milwaukee in which he defended free labor against slave labor, Abraham Lincoln took it for granted that for most Americans, wage work would continue to be merely a youthful stage, to be followed by ownership of a farm or small business:
The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him. … If any continue through life in the condition of the hired laborer, it is not the fault of the system, but because of either a dependent nature which prefers it, or improvidence, folly, or singular misfortune.13
In the same speech, however, Lincoln looked forward to the progressive mechanization of agriculture, perhaps without realizing that, by allowing a few individuals to grow more than enough food for the whole society, technology would eventually render most family farms obsolete: “It is to be hoped that the steam plow will be finally successful, and if it shall be, ‘thorough cultivation’—putting the soil to the top of its capacity—producing the largest crop possible from a given quantity of ground—will be most favorable to it.”14
More than a century ago in the United States and similar nations the industrialization of agriculture, by leading to larger, more productive farms and creating a wage-earning majority, caused a crisis for producer republicanism. For those in the producer republican tradition, higher prices were worth the guarantee of a “yeomanry” of many self-employed Americans, who underpinned the democratic experiment. Indeed, Alexis de Tocqueville warned that the growth of manufacturing industry and wage labor could undermine American democracy: “For if ever permanent inequality of conditions and aristocracy are introduced anew into the world, one can predict that they will enter by this door.”15
In our view, this theory of democracy (or, to use the older term, republicanism) was indeed relevant in the agrarian era. But in an advanced technological economy, the link between collective self-government and individual economic independence is necessarily severed because most citizens are not self-employed small producers. This does not mean that concerns about the effects on democratic government of high inequality and wealth and lack of economic independence on the part of most citizens are unjustified. But these challenges cannot be addressed in the modern world by the classical republican solution of making most citizens small yeoman farmers, artisans, or shopkeepers.
During the millennia that preceded the industrial era that began in the nineteenth century, most people, apart from a remnant of hunter-gatherers, were farmers, often unfree farmers bound to an employer or an estate as slaves or serfs. Rulers derived revenue from agriculture, either directly, in the form of tributary payments of crops or livestock, or indirectly, in the form of taxes. Long-distance trade was minor and dominated by luxury goods such as spices and silk, which were taxed by rulers through whose territories or sea-lanes traders had to cross. Technological innovations were so few and far between that a citizen of Cicero’s Rome transplanted to George Washington’s Virginia would have been surprised by little other than muskets and wind-up watches and clocks.
In the agrarian era, given the limited importance of trade and innovation, the surest way to enrichment was conquest of arable land and the farm laborers attached to it. The more acres and the more peasants you controlled, the more revenues you obtained—and also the more soldiers you could afford. More soldiers allowed you to conquer more farmland, and so on. For this reason, premodern empires—usually controlled by monarchs but sometimes by city-states, such as Athens and republican Rome—tended to expand, amoeba-like, absorbing ever more acreage and ever larger populations, until they met a stronger military force or ran into the natural barriers of mountains or oceans.
In that system, most people were pawns of parasitic warlords. Here and there, in the ocean of agrarian despotism, were sometimes to be found islands of collective self-government. Usually these were in territories in which natural defenses made it difficult for foreigners to conquer them—the mountains of Greece and Switzerland and northern Italy, the marshes of Venice and the Netherlands. The natural defenses also made it unnecessary for the communities—usually city-states with contiguous or nearby farmland—to maintain standing armies of professional soldiers who might decide to overthrow the government and install one of their own as tyrant.
In these small agrarian city-states the idea of the republic was born. An idealized image of the classical Greco-Roman polis or city-republic was passed on to America’s founders by Renaissance and early modern humanists. The republic rested on the self-reliant, armed citizen, the adult male head of a household. Because he was economically independent, deriving his family’s income from a farm he owned (possibly worked by slaves or serfs) or a small business, the citizen-proprietor could not be bribed to support corrupt politicians or would-be military dictators. And because he belonged to the citizen militia, which substituted for a professional military, he was ready at any moment to take up arms to defeat invaders or internal tyrants.
In the United States, Thomas Jefferson and the school of political economy of which he was the patron saint were guided by agrarian republican ideology. For them, the American experiment was a test of whether agrarian republicanism was possible in what Montesquieu called “an extended republic,” not just an isolated city-state. Although Jefferson himself was a rich slave plantation owner, he hoped to create a society of yeoman farmers. Jefferson’s grand scheme for agrarian America involved the Northwest Ordinances, which banned slavery from the region of the present-day Midwest; the purchase of the Louisiana Territory, which he hoped would provide farmland for new small family farms for generations; the abolition of primogeniture and entail laws, which would forbid feudal estates of the British aristocratic kind in the United States; and the delay, as long as possible, of large-scale American industrialization and urbanization. Jefferson’s yeoman republic would be limited to whites. Jefferson hoped that black Americans could be “colonized” or repatriated to Africa.
The United States never realized the Jeffersonian ideal of the yeoman republic. Regional upper classes, from southern plantation owners to New England traders and merchants, dominated the politics of the early American republic. The plantation South, lorded over by an oligarchy of slave owners with large plantations, made a mockery of Jeffersonian agrarian republicanism. The citizen-soldier was something of a myth as well. George Washington depended on European mercenaries and allies for his victory over the British, and professional soldiers frequently outperformed volunteers in subsequent American wars.
Nevertheless, something like the Jeffersonian agrarian utopia was realized in the Midwest and a few other areas in the late nineteenth and early twentieth centuries. Producer republicanism in America was doomed not by political factors but by technology-driven productivity growth, which led to the eclipse of small producers in agriculture and manufacturing by large, well-capitalized firms.
Many thinkers in the small-is-beautiful antimonopoly tradition have resisted this conclusion. At every stage of industrial development, including the present, some idealists have hoped that the new technology—if not the old—would not only be compatible with a decentralized society based on small-scale production but would actively bring about its reemergence.
In 1812, former president Jefferson wrote to a Polish acquaintance, Tadeusz Kosciuszko: “We have reduced the large and expensive machinery for most things to the compass of a private family; and every family of any size is now getting machines on a small scale for their household purposes.”16 But the age of iron and steam produced colossal railroad companies, steam-powered factories, and expensive agricultural combines.
In the early twentieth century, the progressive intellectual Lewis Mumford hoped that what Mumford called the “neotechnic” era—the second industrial era, based on electricity, radio, telephony, and the internal combustion engine—would witness the withering away of large-scale production and a flourishing of high-tech village life. As he wrote in his jeremiad, The Pentagon of Power:
There was no reason whatever to make a wholesale choice between handicraft and machine production: between a single contemporary part of the technological pool and all the other past accumulations. But there was a genuine reason to maintain as many diverse units in this pool as possible, in order to increase the range of both human choices and technological inventiveness.17
Instead, electric conveyor belts plus trucking made possible the construction of even larger factories on greenfield sites. The geographic scope of centralized corporations expanded as passenger air travel allowed trips from headquarters to facilities hundreds or thousands of miles away in a day. And vast shopping malls and suburbs sprang up at the intersection of interstate highways, to the horror of Mumford and other proponents of small, walkable, human-scale “garden cities.”
In the late 1960s, Stewart Brand and his Whole Earth Catalog followers envisioned a similar blossoming. He wrote that “personal power is developing power of the individual to conduct his own education, find his own aspiration, shape his own environment and share his adventure with whoever is interested.”18 Armed with new tools, catalog readers could reestablish themselves as independent artisans and farmers.
The failure of Mumford’s electric cottage society and Brand’s intentional communities to evolve did not prevent the futurist Alvin Toffler from predicting that the third industrial revolution, based on information and communications technology (ICT), would produce “the electronic cottage” in his 1980 book The Third Wave.19 Technology would liberate workers from vast, faceless corporations, allowing them to be connected “entrepreneurs.” While telecommuting has risen slightly, the global trend, as we have seen in earlier chapters, has been toward even larger continental and global corporations and far-flung supply chains united by container shipping and the Internet, with ever-greater concentrations of wealth and income among entrepreneurs, executives, and professionals clustered in a small number of immense “world cities.”
To those developments, adherents of the antimonopoly tradition may reply that, while technological innovation may have permitted the growth first of national and then of transnational firms, technology in itself did not require it. Society, driven by corporate interests supposedly, crafted this result.
While it is true that technology does not directly determine any legal or political outcome, this view fails to take into account the transformative effects on society and the economy of technology-driven productivity growth. A simple thought experiment illustrates this point.
Suppose that, in the twentieth-century, antimonopolists had achieved all of their legislative goals for the American economy. Suppose that the Justice Department had wielded antitrust laws far more aggressively to break up all large and medium-sized companies. Suppose that small companies had received even greater subsidies and protections than they have received to date.
Would most Americans still be small farmers or small craftsmen? The answer is no—as long as the victorious antimonopolist regime permitted labor-saving technology. In our imaginary America run by the intellectual disciples of Brandeis and Mumford, technological productivity would not have manifested itself in larger, more efficient enterprises, thanks to the constant smashing of companies larger than a certain size by the all-powerful antitrust division of the Justice Department. But the mechanization of agriculture and manufacturing still would have led those sectors to shed labor, even if those sectors were artificially divided among numerous small, less efficient firms rather than a few large efficient companies. Tractors still would have replaced field hands; robots still would have replaced assembly-line workers.
The neo-Jeffersonians might have achieved their goal of ensuring that most or all companies were small—but productivity would have doomed their goal of ensuring that most citizens were small farmers or manufacturers. Even in the alternative universe in which the antimonopoly tradition had prevailed in law and politics, by the twenty-first century only a minority of Americans would have been needed to produce most or all food and manufactured goods. Even if corporate agribusiness had been outlawed, a relatively small number of highly productive family farms would have been able to produce more than enough food for the entire US population, driving most other farm families out of business.
The only way to avert this outcome would have been to go beyond mandating size limits for farms and companies and to ban the use of labor-saving modern technology altogether. The entire United States would have had to freeze its technology and standard of living at the early industrial level while the rest of the world moved on. Tiny religious subcultures like the Amish and the Hasidim could have managed to do this. But the consequences for a continental nation-state that chose to arrest productivity growth, in an age of cold wars and world wars, would have been much more severe. Among other things, there would have been no American arsenal of democracy to help defeat the Axis powers and enable the democracies to prevail in the world wars and the Cold War.
A related way to avoid the problem of productivity-driven gluts would have been to abandon production for sale entirely. Perhaps most Americans could have become subsistence farmers, growing food only for their own use and using high-tech craft machinery in a garage or barn to make their own furniture, clothing, and appliances. But even if a subsistence economy began with the highest technology available, technological stagnation would soon set in, because self-sufficient family compounds would lack both the incentives and the resources to invest in further technological development.
If technology-driven productivity growth had not been frozen or abandoned to gradual decay, then what would become of the majority of Americans no longer needed to grow food, make things, or mine energy and raw materials? A universal basic income would not have been an option. The Jeffersonian utopia is not socialist, and taxing the minority of highly productive yeomen to let everyone else lead lives of leisure goes against the logic of small-producer republicanism.
Perhaps most workers outside the high-tech, low-employment production sector would become self-employed providers of services to their fellow citizens—nannies, home health aides, caterers, tutors, and so on. But from a strict classical republican viewpoint, these individuals would still be proletarians dependent on wage income and thus unfit for civic life. This would be true even if they incorporated themselves as small businesses, called themselves “entrepreneurs,” and reclassified the skills they sold in the labor market as “human capital.” The nightmare of classical republican theorists—an insecure wage-earning majority instead of a small-producer majority that owns productive assets—could not be escaped by the mere semantic trick of reclassifying insecure wage earners as small producers.
Our conclusion is that small-producer republicanism is an intellectual, economic, and political dead end. In a modern society, most citizens will not be owners of their own farms or businesses. Most citizens will be wage earners who derive most or all of their income from selling their labor in exchange for employment, and most soldiers will be highly trained professionals who make up a small percentage of the population.
Because agrarian republicanism is irrelevant in an industrial or service economy, we must either abandon the term “republicanism” or redefine it to give it a meaning other than that which agrarians like Thomas Jefferson and his intellectual predecessors and successors gave it. And we must focus on ways to increase the economic security and independence of wage earners other than helping them to exit the wage labor market to become small business owners. In practice in the United States, as in similar societies, we have done both things in the nineteenth and twentieth centuries. We have redefined the term “republic” to include nation-states like the United States whose populations dwarf those not only of the republican city-states of antiquity but also those of most premodern kingdoms and empires.
And there is widespread support, across the political spectrum in Western democracies, for policies that bolster the security of wage earners who remain wage earners all of their lives. The social democratic left supports policies to increase the bargaining power of workers in negotiations with employers over wages and working conditions—policies including a high minimum wage, universal social benefits instead of employer-based benefits, making it easy to form and maintain labor unions, and macroeconomic policies that privilege full employment. On the right there are proposals to lessen the burden of taxation on workers and to increase household savings as a financial cushion. Proposals to limit immigration to create tight labor markets and raise wages have traditionally been associated with the labor left and the populist right. While they disagree, sometimes vehemently, over the means, most mainstream conservatives, centrists, and progressives share the goal of converting a low-income, insecure “precariat” into a numerous and contented “middle class” (the term used in the United States for a wage-earning proletariat with adequate incomes and opportunities for home ownership and savings).
To the conversation about how to ensure that the wage-earning majority in modern industrial democracies has adequate incomes and benefits, antimonopolists of the small-is-beautiful school have nothing to offer other than hoping that more people will start their own small businesses. As we have seen earlier in this book, large corporations pay better and provide better benefits than small, undercapitalized firms. Encouraging individuals to quit working for others and go into business for themselves is a prescription for failure for the majority of small business founders. It is also a formula for insecurity and disappointment for small business workers, who earn less and enjoy more precarious attachment to their employers.
If we do not count wage earners in the gig economy who are reclassified as “independent contractors,” then no more than about one in ten Americans at most will be self-employed, either now or in the foreseeable future. Preventing the wage-earning majority from being underpaid and insecure “wage slaves” is important. But it cannot be done by multiplying the numbers of small farmers, craft workers, and shopkeepers. In a modern, high-tech economy, the theory of small-producer republicanism is anachronistic and the policies it inspires are irrelevant.
While producer republicans fear that big business will turn formerly self-reliant republican citizens into wage slaves at the mercy of employers, market fundamentalists are more concerned that big businesses will enter into an unholy alliance with big government and in the process succeed in enriching themselves at the cost of the freedom of citizens and the pocketbooks of taxpayers.
The claim that “the corporations” control government at all levels is commonly made in the United States. The case would seem to be undeniable, if corporate spending on lobbying and campaign donations is considered in isolation from other political spending and if it is assumed that lobbyists and donors usually get their way. But these assumptions are unrealistic. When all sources of financial influence on politics are considered, it is clear that big business competes for influence with individual wealthy donors, nonprofit organizations, and trade associations representing small business. Nor is it the case that big business always gets its way. Indeed, on many issues, from corporate tax reform to infrastructure investment and immigration reform, the corporate sector has experienced repeated defeat in American politics.
Let us begin with campaign finance and lobbying. In 1907 Congress banned corporations from donating to federal political campaigns. In 1947 Congress then prohibited both unions and corporations from making independent political expenditures to help federal political candidates indirectly. But in 2010, in Citizens United v. Federal Election Commission, the Supreme Court ruled that both unions and corporations could spend unlimited amounts to help candidates as long as their expenditures were “independent” of parties and candidates.
The biggest winners of the campaign spending arms race begun by Citizens United have been not corporations but rich individuals. By February 2016, nearly half of the money that went into Super PACs—41 percent—came from only fifty “megadonors” and their relatives, led by Tom Steyer, a former hedge fund manager who contributes to environmentalist organizations and Democrats.20
Megadonors are an elite within an elite. According to Open Secrets, in the 2016 election only 0.52 percent of the US population made political contributions large enough to be itemized—$200 or over. This one-half of 1 percent of the population was responsible for 70.4 percent of all individual contributions to federal candidates, parties, and PACs.21 Some of these megadonors made their money in the corporate sector, as founders of startups or in some cases as CEOs; others come from finance or real estate; a substantial number inherited their money. It is hard to make a case that their motive for massive political spending is to win benefits for particular industries, much less particular companies or banks. On the contrary, studies show that many of them are motivated by ideology and partisanship, and in most cases they are motived by a desire to improve society.
The partisan preferences of individual megadonors are not typical of the US population. The politics of the American donor class skews in a libertarian direction—liberal on social issues, libertarian in economics. The average megadonor is far more likely than the average American voter to oppose higher taxes on the rich, support high levels of immigration, and favor cutting middle-class entitlements including Social Security and Medicare.22 But the self-interest of the rich, as a class, in policies like abolishing estate taxes and lowering capital gains and income tax rates is different from the particular objectives of particular corporations and particular industries, which typically involve matters of industry-specific regulation and business-related tax breaks.
What about lobbying by corporations and other economic interest groups, rather than individuals? According to Maplight, most of the top ten spenders on lobbying from 2008 to 2016 were not individual corporations at all but trade associations, with the US Chamber of Commerce at the top, followed by the National Association of Realtors, the US Chamber of Commerce Institute for Legal Reform, and Apparel for All. Two corporations—General Electric and Boeing—came in fourth and ninth place, respectively. But the rest are trade or professional associations, including the Pharmaceutical Research & Manufacturers of America, the American Medical Association, the American Hospitals Association, and the National Cable & Telecommunications Association.23 Of the top sixteen business PACs, five represent small business (National Association of Realtors, National Beer Wholesalers, National Auto Dealers Association, National Association of Insurance and Financial Advisors, and Credit Union National Association).24
Some of the industries represented by trade associations with deep pockets are dominated by large firms because they are increasing-returns industries, like pharmaceuticals and cable and broadband. But the top spender, the US Chamber of Commerce, represents many small firms, and the number two lobbying spender, the National Association of Realtors, represents a highly fragmented industry in which the typical realtor’s office is local and employs only a few people. For its part, the American Medical Association has long represented the interests of physicians working alone or in small partnerships, who until recently accounted for most doctors.
Lobbying expenditures, like campaign donations, probably exaggerate the influence of large companies and minimize the actual influence of small businesses. Much of the influence of small business arises from geography. In every congressional district and every state there are family farmers, franchise owners, automobile dealers, realtors, and others whose support politicians cannot ignore. In contrast, the headquarters and production facilities of major national and global corporations are found in a relatively small number of places. Every American state has family farmers and realtors; far fewer have automobile or aerospace manufacturers. Local businesses and their employees and suppliers provide the small business lobby with an unpaid auxiliary army whose influence is exercised through the ballot box rather than by means of campaign contributions. As Charles Brown, James Hamilton, and James Medoff write, “As a lobbyist for the National Federation of Independent Business (NFIB) put it in assessing the impact of these political resources: ‘Small business is a terrifically effective lobbying force. There are more of us. Our members are personally involved in their businesses; they aren’t managers. Our people make up the vast majority of the moderate-to-conservative, politically active people back home.’”25
Moreover, while large firms sometimes lobby for what economists call rent-seeking activities, which divide the economic pie rather than grow it, so too do small firms. For example, the National Federation of Independent Business’s lobbying agenda features three main rent-seeking issues: cutting the tax rates of the wealthy (e.g., cutting the top marginal tax rate and repealing the estate tax), repealing the Affordable Care Act, and eliminating regulations.26
To imagine that if the economy was made up just of small “yeoman” businesses, they would not lobby for programs to protect their economic interests, is to ignore political realty. Small car dealers would still lobby to prohibit large car manufacturers from selling directly to consumers. Small dairy farmers would still lobby for subsidies and trade protection. Organic food growers would still lobby to raise food prices by limiting the use of biotechnology-based crops.
In contrast, a not insignificant share of big companies’ political lobbying is for actions to benefit not only them but also society, such as more spending on infrastructure, education, and scientific research, where all too often average voters don’t care or resist such spending as they don’t want to pay more in taxes. On these kinds of issues corporations’ interests and society’s overlap. An example is the lobbying agenda of the Business Roundtable (BRT), the leading trade association of large corporations in America. To be sure, it calls for lower taxes and regulatory reform (using more cost-benefit analysis), but it also pushes for policies to rebuild infrastructure, improve education and training, support clean energy and fight climate change, and strengthen cybersecurity.27 And while action in these policy areas would help BRT members, it would also help the republic.
How effective are expenditures on campaign contributions and finance? According to a recent academic study, resources account for less than five percent of the difference between lobbying efforts that succeed and those that fail.28 Major changes in public policy, such as the Affordable Care Act, tend to occur only when a president or party makes the reform a signature issue for political reasons. The political scientist Frank Baumgartner, one of the study’s coauthors, explains: “Sixty percent of the time, nothing happens. … We see a pattern of no change, no change and no change—and then some huge reform.”29 As a general rule, special interests are most likely to succeed in influencing small, technical issues of little interest to the general public—a regulation here, a tax credit there—and are least influential when it comes to major issues of concern to voters. This rule can be illustrated in one area of public policy after another.
The American corporate sector, for example, has long supported “comprehensive immigration reform” that would include an amnesty for the roughly 11 million illegal immigrants already resident in the United States, in addition to increases in the number of legal immigrants. Notwithstanding the consensus in favor of these policies by corporate America, attempts at comprehensive immigration reform in 2006–2007 and again in 2013–2014 were doomed by grassroots voter opposition. For example, an obscure college professor, David Brat, defeated Republican House majority leader Eric Cantor in the 2014 Republican primary for Virginia’s seventh congressional district. Brat was unknown and Cantor was one of the most powerful, best-funded members of Congress. But Brat rode populist conservative opposition to Cantor’s pro-employer immigration policies to victory, in an election in which a sitting House majority leader was defeated by a primary challenger for the first time since 1899.
Corporate tax reform is another area in which policies favored by a broad spectrum of the business community have repeatedly failed to gain support in Congress. Most economists agree that corporate taxes are inefficient, causing the “deadweight loss” associated with elaborate schemes for tax avoidance. Because they are ultimately paid by individuals—shareholders, corporate employees, or consumers—corporate taxes should be reduced and made up for by increased direct taxes on individuals that do not incentivize wasteful tax-avoiding behavior by firms. Despite support from the business establishment and most academic economists, attempts to lower or eliminate corporate taxation have been successfully opposed to date not only by progressives and populists animated by anticorporate sentiment but also by the small business lobby, which holds corporate tax reform hostage to cutting individual taxes on high earners.30
If there is an exhibit A in the case that corporations are not all-powerful in Washington, D.C., it is provided by the controversy over the Ex-Im Bank (Export-Import Bank). Most leading industrial nations support their manufacturers’ efforts to export by providing low-interest loans, loan guarantees, and other forms of aid to the purchasers of manufactured exports in other nations, including foreign governments and foreign firms. America’s Ex-Im Bank dates back to the New Deal era of the 1930s and has long enjoyed the support of both parties in Congress and has been reauthorized every few years.
In 2015, populist conservatives and libertarians in Congress, who demonized the Ex-Im Bank as a form of illegitimate “crony capitalist” welfare for corporations, prevented its reauthorization. Nearly half a year passed before Congress finally reauthorized the institution. Whatever one’s view of this particular institution—we believe it is effective and needed—the controversy over the Ex-Im Bank makes it clear that business does not automatically get its way in Washington, D.C., or even within the Republican Party, traditionally known as the pro-business party.
It is not our purpose to argue that special-interest spending does not influence public policy, sometimes to the detriment of the public interest. But large firms are simply one of many kinds of special interests, in addition to small producers represented by powerful national trade and professional associations, nonprofit organizations such as universities and single-issue advocacy groups, and individual megadonors. If the goal is to get money out of politics, then the focus should be on comprehensive and direct campaign finance and lobbying reform, not on breaking up large firms.
Our purpose in this chapter has not been to minimize the very real tensions between big business and democratic government but to direct attention to practical rather than irrelevant ways to deal with them. Whether the evil is the warping of public policy by special interests or the need to strengthen the economic security of ordinary citizens, the answers do not include antitrust, punitive restrictions on large businesses or small business subsidies and other favors.
Blaming outcomes in American politics on special interests—be they large corporations or small businesses—diverts attention from the very real ideological and class divisions within the American body politic. It is comforting to believe that all ordinary Americans are in fundamental agreement about what government should do, and only the behind-the-scenes machinations of special interests motivated by greed can explain the failure to act in the public interest.
But Americans do not agree on the public interest and never have. That is why there are two major parties instead of a single uncontested party that wins every election by unanimous acclamation. The great debates over US foreign policy and the size and structure of the welfare state and taxation and immigration are debates that divide Americans along ideological and class lines. Corporations and trade associations have no particular influence on these great debates; when they do intervene, as they have done in the cases of corporate taxation and immigration policy, they have often been defeated. The greatest successes of economic lobbies tend to be in specialized areas of public policy of little broad interest to voters. This kind of limited “corruption” is a nuisance, but it is not an out-of-control cancer that will destroy the American republic.
The talk of special interests subverting the will of a unified people seems even more irrelevant in light of the class conflict that is reshaping politics on both sides of the Atlantic and manifested in such phenomena as Brexit and the election of Donald Trump. The gap is growing between college-educated professional and business elites in national establishments, on one side, and working-class majorities on the other. Compared to the tumultuous class war being waged through the ballot box, the question of whether this firm gets that tax credit is minor indeed, on the grand scale of things. Needless to say, if business really were all-powerful, nothing like this kind of class war politics would exist, because the all-powerful, business-friendly establishment would have suppressed it.
In time, the outcome of today’s trans-Atlantic political upheaval is likely to be some sort of “settlement” that answers the legitimate demands of populists while maintaining a high degree of autonomy for productive business. The newer deal of the twenty-first century will not resemble the New Deal of the twentieth in its details. But like that earlier settlement, the next social contract within the United States and similar societies will aim to provide adequate income and economic security to the wage-earning majority, not to radically shrink the number of wage earners while expanding the number of self-employed small producers. Some small businesses will have important roles to play as suppliers, among other things, in the dynamic economies of the future. But democracies in which most citizens are self-employed small proprietors have passed into history along with the agrarian republic, never to return.