FOR FDR, meeting the youthful and charismatic Eric Johnston in September 1942 came as a jolt. The new head of the US Chamber of Commerce, the nation’s largest and most prestigious business association, was not what the president expected. After all, Roosevelt had been feuding with most of the business community for almost a decade. Taking office in the darkest days of the Depression, Roosevelt had received initial support from some big companies and the moderate leadership of the Chamber, especially as he fashioned the big-business-friendly National Industrial Recovery Act. But that had been years ago, before the NIRA fizzled (and then was terminated by a hostile Supreme Court), and before the New Deal expanded beyond its initial emergency measures to incorporate Social Security, more progressive taxation, expanded organizing rights for unions, intensive regulation of the financial sector, and a host of other ambitious federal initiatives.
As the nation crawled out of the Depression and Roosevelt’s reformist ambitions grew, the business community reverted to its antigovernment traditions. In 1935, business conservatives staged something akin to a coup at the Chamber of Commerce, until then the bastion of moderation within the corporate community. The year before, the fiercely antigovernment du Pont brothers (Pierre, Irenee, and Lammot) had used the proceeds of their vast trust to bankroll the archconservative American Liberty League, which portrayed the New Deal as an enemy of freedom. The league made defense of the Constitution its rallying cry, but the alternative names it considered—the Association Asserting the Rights of Property, the National Property League, and the American Federation of Business—indicated its main priorities.
One of the Liberty League’s founders, former General Motors chair John Raskob, identified the du Ponts as the cornerstone of their efforts: “No group, including the Rockefellers, the Morgans, or anyone else . . . begins to control and be responsible for as much industrially as is the DuPont company.”1 In addition to the du Ponts, the Liberty League’s leadership included Alfred P. Sloan, president of General Motors; Edward F. Hutton, the founder of General Foods; and J. Howard Pew, president of Sun Oil. The league’s financial and organizational resources soon rivaled those of the Republican Party, and rhetorical fireworks between corporate America and the New Dealers intensified. Liberty League pamphlets attacked New Deal initiatives as fascist, socialist, and un-American, and compared FDR to Hitler, Mussolini, and Stalin.2
Roosevelt reciprocated. At the opening of his 1936 campaign, before a crowd of more than a hundred thousand at Franklin Field in Philadelphia, he attacked the “economic royalists” who took “other people’s money” and used it to impose “a new industrial dictatorship.” At the campaign’s close four months later, he told a raucous crowd at Madison Square Garden that “organized money” was “unanimous in their hate for me—and I welcome their hatred. I should like to have it said of my first administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second administration that in it these forces met their master.”3
Hence the unexpected jolt six years later when Johnston sat down with FDR. The Chamber’s new president was eager to change the tone and update the reputation of the association he led. He recognized that the world had changed, and that with these changes came the need for a “new capitalism.” Capitalism, Johnston insisted, was “a human institution, vibrant and evolutionary, capable constantly of adjusting itself to new conditions.” As he was to tell the Chamber membership the next year, “Only the willfully blind can fail to see that the old-style capitalism of a primitive, free-shooting period is gone forever.”4
Johnston was a Republican, not a New Dealer. But while he opposed “superstatism,” that didn’t mean he was opposed to the state. “The role of government must keep pace with change,” he said. “The game has become so complicated that government in its legitimate character of umpire has vastly more to do.”5 And it was not just the state’s expanded role that needed to be acknowledged. Organized labor, too, was here to stay. Johnston insisted he wanted to move corporate views beyond their “primitive stage” of “illogical prejudices and blind opposition.” Collective bargaining needed to be accepted as “an established and useful reality.” FDR reportedly exclaimed at their first meeting, “My God, Eric, how did they ever elect you president of the Chamber!”6
Johnston did not just talk a good game. He accepted Roosevelt’s invitation to serve as one of two business representatives on the administration’s new Economic Stabilization Agency. He supported the development of policy expertise within the Chamber, which would facilitate a more vigorous and informed engagement in complex deliberations over modern governance. In time, the influx of economic experts would encourage the Chamber to embrace a cautious version of Keynesianism, the ascendant economic doctrine that acknowledged government’s vital role in preventing crashes and promoting growth.
More broadly, Johnston accepted the “established and useful reality” that business could be a central, but not controlling, participant in shaping economic policy. In 1945 he joined with the heads of the American Federation of Labor (AFL) and the Congress of Industrial Organizations (CIO) in signing a labor-management charter that recognized “the fundamental right of labor to organize and engage in collective bargaining” and to “employment at wages assuring a steadily advancing standard of living.” As Ralph Bradford, the Chamber of Commerce’s general manager, put it, under Johnston’s leadership “the Chamber has become a part of what goes on in Washington. . . . We can no more remain aloof from government than from any other element of society.”7 Other business leaders had reached the same conclusion. George Romney, who headed the Automobile Manufacturers Association at the time, used the association to broker production deals with the federal government to aid the war effort.
Johnston’s reign was brief. The Chamber of Commerce was a membership-based organization, and at the end of the war, conservatives within the organization regrouped and gained strength. Sensing the shifting winds, Johnston announced that when his term expired in 1946 he would accept a position as head of the Motion Picture Association of America (MPAA), where he was to play a central role in developing the blacklists of the 1950s. Johnston went out in style, continuing to preach moderation in his final address to the Chamber: “We in business must liberalize or face the threat of economic liquidation.” Moderation, he emphasized, was a necessity, but it was also an opportunity. It opened a path to sustained prosperity—if, that is, business approached the reality of the new capitalism “stripped of the ancient prejudices against organized labor, government activity, and community planning.”8
With Johnston’s departure, the Chamber of Commerce took a step back toward conservatism. Yet it did not retreat to the staunchly hostile approach to government that had characterized much of its previous history. It accepted grudgingly, for instance, the Keynesian argument that running occasional deficits could help moderate the business cycle.
What was even more striking was that the Chamber’s limited step back turned out to be a step away from political relevance. Less intransigent elements of the business community moved to the fore. Within a few years, the Chamber would be scrambling again, with limited success, to find a foothold in politics and a voice in policy making. In the dawning postwar era, it was not progressive figures such as Johnston who were marginalized, but the more conservative elements of the business community.
The period from the early 1940s to the mid-1970s was the heyday of the mixed economy. Not coincidentally, this period also marked the high point of the business community’s acceptance of a consensus politics that included organized labor and government officials, and recognized that government, in Johnston’s words, “had vastly more to do.” Reform elements of the business community had played a significant role in building the mixed economy in earlier decades, especially during the long Progressive Era. But business support for government involvement in the economy now reached new heights. By the 1950s, there were many Eric Johnstons engaging in politics and policy making at the highest levels.
Not all was sweetness and light. Republicans (often backed by southern Democrats) waged battles with northern Democrats over the scope of the federal government. Truman’s proposals for national health insurance, for instance, met fierce and successful resistance. Even more significant were conflicts over labor law. The Taft-Hartley Act, passed over Truman’s veto with the overwhelming support of southern Democrats, rolled back some, but not all, of the legal gains unions had achieved during the New Deal and World War II.
Crucially, however, the area of consensus during the three decades that followed the end of World War II was broader, and more supportive of a mixed economy, than ever before or since. For roughly thirty years, from the early 1940s to the mid-1970s, the mixed economy of American capitalism was a model of unprecedented achievement, nurturing innovation, sustaining stability, and generating opportunity and prosperity. This successful model rested on a series of social and political understandings, compromises, and accommodations. Given their power in American society, leading business figures were necessarily key participants in this success.
Hence the ascendance of the new breed of business progressives such as Johnston represents a crucial historical puzzle. How did they come to play such a vital and constructive role? Why did they decide that the mixed economy was an established and useful reality?
America’s corporate elites, as the great scholar of business David Vogel puts it, “distrust ‘their’ state.”9 Even though business interests have long played a leading role in shaping what government does, the political attitudes of business leaders have generally reflected a profound suspicion and skepticism of government.
Some of this distrust flows from deep currents in American political culture that prize individual initiative and question public authority. But, according to Vogel, an even more critical factor is that American business became a formidable, organized national force a generation or more before the modern role of Washington, DC, emerged in domestic affairs. In most of the countries embarking on the road to advanced democratic capitalism, extensive national governments that taxed and spent on a large scale either predated the rise of large corporations or grew alongside them. In the United States, the opposite was true: Large corporations—nurtured and enabled by government, to be sure, but often overshadowing it—arrived first. This sequence led business elites to position themselves inaccurately but effectively as the proud owners of American capitalism. Notwithstanding occasional accommodations, especially during the long Progressive Era, it also made them fiercer guardians of their autonomy and harsher critics of government than business elites in any other industrialized nation.
The period stretching from the Depression through World War II fundamentally challenged this traditional orientation. Not since the Founding had there been such an opportunity to expand Washington’s role. Two of the biggest sources of resistance, the business establishment and state and local governments, watched their power dissipate. Business, discredited by the economic cataclysm and the evident failure of traditional nostrums of market discipline, saw its influence ebb. The Depression also cost business another long-standing advantage: the capacity to play one state off against another within what had been a decentralized federal system. States and localities had long been jealous guardians of their prerogatives, but they were now desperate for federal help.
In Washington, business faced yet another challenge. Not only did the Depression devastate the credibility of the business community; its strongest ally, the Republican Party, had been routed. The winds grew even stronger after FDR followed up his landslide victory of 1932 with a stunning triumph in the midterm elections of 1934.
Still, business stood firm. One can find scattered instances of corporate support for the New Deal, but the overwhelming reaction was one of opposition and hostility. Business anger was especially evident following the “second hundred days” of 1935. In an extraordinary burst of activity, Congress passed much of the foundational legislation of the modern mixed economy: the Social Security Act, the Wagner Act, and progressive tax legislation that hit top earners especially hard, along with other major enactments such as the Public Utility Holding Company Act, rural electrification, and the Public Works Administration. Business leaders seethed. The traditionally powerful but now marginalized National Association of Manufacturers feared that Social Security would usher in “ultimate socialistic control of life and industry.”10 Beginning in 1934, its hard-line president, Robert Lund, positioned the NAM as a fierce opponent of the New Deal: A survey of thirty-eight major laws passed between 1933 and 1941 indicated that the association had opposed all but seven. Businessmen rallied to the call, and the NAM’s membership grew from 1,469 firms in 1933, to 3,008 in 1937, and to 9,418 in 1943.11
The Chamber, too, came to staunchly oppose the New Deal. On January 17, 1935, FDR asked Congress to enact a comprehensive social security program. The next day, the Chamber’s board of directors authorized a committee “to determine whether such legislation may be demonstrated as leading definitely to the complete socialization of the United States.” With the moderate Henry Harriman ending his term as Chamber president, enraged conservatives rebelled. By mid-1935, the Chamber of Commerce had retreated (in the words of economic historian Robert Collins) to “unquestioned opposition to government and adherence to the verities of the classical laissez-faire business creed.”12
As Roosevelt’s record suggests, however, this seething occurred mostly from the sidelines. The New Dealers reached out to business interests when they could and drew support from a handful of business progressives. But power had shifted away from the business community, and government reformers drew on broad reservoirs of public support.
Even before the 1940s, elements of the business community began to adjust. There had always been pockets of dissent to the laissez-faire orthodoxy that dominated business circles. Over the course of the late 1930s, those pockets began to expand. The viewpoints that Eric Johnston brought to the Chamber’s leadership after the outbreak of World War II were becoming more widespread.
The emerging posture of moderation within the business community reflected a reassessment of both economics and politics. Marion Folsom, treasurer of Eastman Kodak and head of the Rochester Chamber of Commerce, was one of the earliest and most prominent members of the liberal business vanguard. As Johnston would do later, Folsom emphasized two points: A more active state was coming whether businessmen liked it or not, and this wasn’t a bad thing—again, an established and useful reality. In a 1937 address to other business leaders, he argued that as “our civilization becomes more complex, it is only natural the government will have a little more to do with it than it had in the past.” Folsom implored his colleagues to be realistic, observing that the “influence of business organizations has been somewhat discredited, and we have not had nearly as much to do with the writing of this legislation as we should have had. . . . we must adjust ourselves to changed conditions.”13
As much as the New Deal did to change the relationships between government and business, World War II did more. The federal government’s capacity—legal, administrative, and financial—increased spectacularly. It emerged from an existential challenge not simply more powerful but also more respected. Citizens accepted more government and expected more from it. Business leaders were brought into increasingly intensive engagement with policy makers and faced further pressure to adapt to the new realities.
The shift to a war footing brought a swift end to the Depression.14 Not coincidentally, it also swiftly expanded government. The most obvious, visible measure was public expenditure. Federal spending jumped from just under $9 billion in 1939 to just under $100 billion in 1945. In just five years, the federal government spent twice as much on defense spending alone as it had for all purposes over the entire prior history of the republic.15
This astonishing transformation required a revolution in public finance—actually two revolutions. The first was an unprecedented willingness to tolerate public debt. By the summer of 1940, John Maynard Keynes had concluded that it was “politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to prove my case—except under war conditions.”16 Events proved him right. With the onset of war, the federal government borrowed like never before; in 1946 public debt reached 129 percent of GDP.17 When this surge of deficit spending coincided with the rapid disappearance of unemployment, it forced a broad reconsideration of the potential utility of government borrowing during periods of economic slump.
The second financial revolution was, if anything, even more durable. As we saw in the last chapter, war brought unprecedented federal taxation. Indeed, even with all the new borrowing, Washington funded a greater share of the costs of World War II out of current receipts than it had in World War I. For the first time, most adult Americans financed the federal government directly. Most also contributed to war finance through the purchase of bonds, often organized through joint labor-management committees that added automatic withholding of bond purchases to the income taxes collected in American factories.
As the historian James Sparrow observes, war finance “embedded the federal government more deeply within American society.” Yet far from provoking revolt, heightened taxation in the context of a clear and immediate threat produced the opposite effect. “Of all the years of the twentieth century,” Sparrow writes, “federal legitimacy grew most dramatically during World War II, just when expanding state capacity most burdened the nation’s citizenry.”18 The challenge of global war linked support for the federal government to patriotism and the defense of freedom. The new attitude was exemplified by the popular purveyor of gossip Walter Winchell, whose column reached fifty million readers. In a radio address shortly before tax filing day in 1943, Winchell drew a blunt connection between taxation and citizenship: “Attention Mr. and Mrs. United States. . . . Your income tax blank is not a bill from your government. It is your share in America. Our nation is composed of one hundred and thirty million shareholders—shareholders in civilization. . . . Civilization, like money, must be earned. . . . To those who complain that the tax is a heavy burden, remind them that a soldier’s pack on his back weighs sixty pounds.”19
Most Americans agreed. The fledgling Gallup poll began asking respondents whether the income taxes they paid were fair. Fully 85 percent to 90 percent said yes.20 This new, popularly supported level of finance would permanently lock in vastly higher levels of federal spending. Having peaked in the prewar period at 10.5 percent of GDP in 1936, federal spending would average 17.3 percent in the period from 1947 to 1960.21
Of course, spending, along with the taxes and borrowing to finance it, represented just the most easily quantified measure of the government’s expanded reach. Federal nonmilitary employment grew dramatically as well, and it would remain at levels far higher than those reached in the New Deal and vastly higher than pre-Depression levels (higher, it turned out, than it would ever be again). The extraordinary growth of production during the war—by 1943, the American armaments industry was producing twice the output of Germany and Japan combined—required an unprecedented extension of government involvement through the economy.22 Washington introduced controls on vital materials, handed out billions in war contracts, and built factories itself when the imperative for immediate production appeared to outstrip the capacities of the private sector. Formulations such as Winchell’s, describing “your government” or “our government,” seemed more than rhetorical. Citizens could see what Washington was doing and providing.
It wasn’t just average citizens who were coming to see the federal government in a new way. As Washington’s reach and visibility grew, business leaders were brought into much more direct and extensive collaboration with public officials, whether as “dollar-a-year men,” who aided the war effort with no public salary, or through deepening public-private partnerships. Kodak’s Folsom, one of the chief architects of the business elite’s new, more constructive relationship with government, described the war’s impact: “The war did an awful lot to business people. Many of the top business advisory people had government jobs during the war, you see, and realized what a tough job it is to run a government. So the businessmen got to appreciate the government and not be so critical of it.”23 Businessmen were learning to trust their state.
By the early 1940s, many business leaders had come to recognize how much the world had changed. Not only had government grown dramatically and come to interact much more intensively with business leaders, but also business itself had changed. Manufacturing was now the heart of the economy. War contracts flooded to the largest firms, which experienced spectacular growth. In 1939, firms employing ten thousand or more workers accounted for 13 percent of the manufacturing workforce; by 1944, they accounted for 31 percent.24 The scale of these burgeoning industrial enterprises brought them into frequent interaction with government and gave them a greater capacity to cope with its increasing role.
Moreover, most of these large manufacturing firms were now unionized. After the takeoff in union organizing in the second half of the 1930s, union membership doubled again in the decade of the 1940s. In a cycle of mutual accommodation, big firms got contracts, the federal government supported labor organizing, and unions (at least until the end of the war) agreed to wage restraint and avoided strikes.
The durable organizational embodiment of this reorientation of the business elite was the Committee for Economic Development. Built to advance big business priorities, the CED was simultaneously business friendly and cognizant of new economic and political realities.25 The CED grew in part out of earlier government-business networks, particularly the Business Advisory Council of the US Department of Commerce, established by FDR to drum up corporate support for New Deal measures. Yet the group had a social base, organizational autonomy, and a depth of sustained engagement with government at the highest level that the mostly ignored BAC never approached.
The CED would play an important role in the postwar period, but its development is also important because of what it says about the shift under way in business-government relations. In contrast to associations such as the Chamber of Commerce and the National Association of Manufacturers, the CED was not a lobbying organization. Indeed, its leaders insisted that while business leaders would be prominent in its ranks, it was not even a business organization. Its internal structure and public pronouncements emphasized the need to find common solutions rather than advance the interests of any particular group. The CED was thus an unusual hybrid: a social network of establishment figures, heavily weighted toward prominent members of the business community, as well as a proto–think tank with a major role for academics. Each side of this symbiotic partnership was committed to spreading the new gospel of the mixed economy, while developing new ideas about how that emerging economy could be managed effectively.
Symbolic of that hybrid structure were the backgrounds of the CED’s cofounders: Paul Hoffman, the CEO of Studebaker, and William Benton, a former advertising executive and vice president of the University of Chicago. They surrounded themselves with a leadership roster that was an impressive expression of the midcentury establishment. Among the members of the board of trustees in the late 1940s were the Chamber’s Eric Johnston and Charles Wilson (CEO of General Motors). Other prominent figures included Ralph Flanders, the president of the Federal Reserve Bank of Boston; Robert Sproul, president of the University of California; and Milton Eisenhower, another university president and brother of the future president (who also served for a time on the CED board).
Most CED members had direct experience with government. Many were carryovers from the earlier Business Advisory Council established by FDR. Ralph Flanders stressed that the BAC members were “trained in the knowledge of government operations. They were trained in their insight as to working with and in government. They were trained in patience. They were trained in mutual cooperation and understanding with each other.”26
The orienting ideas of the CED, as the historian Collins puts it, included “a thoroughly modern view of the state.”27 CED leaders embraced Keynesianism, but with a cautious bent. In a sharp break with traditional business thinking, they endorsed the government’s central role in macroeconomic policy. Unlike most New Dealers, however, they favored the use of tax cuts and automatic stabilizers such as unemployment insurance during economic downturns, rather than discretionary government spending. Despite this caution, they acknowledged that public spending could play an important role in bolstering the economy.
CED leaders also accepted the role of unions and resisted the push of more conservative business leaders to repeal the Wagner Act. Hoffman, for instance, claimed that moderate views on such issues constituted “enlightened self-interest.” The manager would do best who “deals frankly with his employees, pays the highest wages, and promotes the self-interest of the workingman.” He accepted that the “personal dignity of the workman and his individual right to plan his own life certainly encompass the privilege of belonging to a union and dealing collectively with an employer.”28 Hoffman also recognized that “our government’s” role extended beyond taming the business cycle. “The major emphasis which capitalism places on the individual does not preclude collective activity,” he insisted. “As a matter of fact, the interests of the individual can be advanced only through a wide range of collective actions, both governmental and private.”29
All of these policy positions, as well as Hoffman’s rhetoric, reflected a broad embrace of the core principles of the mixed economy. Far from representing “socialism,” Hoffman insisted, the mixed economy was distinct from both traditional capitalism and socialism, and represented a superior alternative to either one. CED cofounder William Benton’s 1949 speech described the new attitude: “Philosophically, business was [traditionally] committed to the doctrine that, ‘that government is best which governs least.’ The emerging CED attitude has been that ‘government has a positive and permanent role in achieving the common objectives of high employment and production and high and rising standards of living for people in all walks of life.’ . . . The greatest single achievement of CED . . . may turn out to be the clarification it has been developing on the role of government in the economy.”30
The CED’s unusual combination of a sophisticated shop for policy analysis and an elite network made it a powerful incubator of both men (they were all men) and ideas. It also created an astonishing flow of CED personnel into the highest levels of economic policy making. All told, according to Collins, “in the first fifteen years of the organization’s existence, thirty-eight CED trustees held public office.”31 Of the cofounders, Republican Paul Hoffman became the administrator of the Marshall Plan, the crucial program to support economic recovery in war-shattered Europe. Democrat Benton went to the US Senate. In Connecticut, in 1950, he defeated Republican Prescott Bush, father and grandfather of the future presidents, and became a leading voice against McCarthyism. Beardsley Ruml, whose 1943 “Ruml Plan” had introduced the system of automatic payroll withholding, served as president of the New York Federal Reserve. Republican Ralph Flanders became president of the Boston Federal Reserve and later represented Vermont in the Senate, where he would introduce a resolution to censure Senator Joseph McCarthy.
Given the presence of not one but two Eisenhower brothers on the CED board, it is not surprising that the organization’s imprint on the Eisenhower administration was deep. Both of Eisenhower’s secretaries of the Treasury, George Humphrey and Robert Anderson, had been board members. Marion Folsom, former chair of the CED, resigned to join the Eisenhower team. He served first as the undersecretary of the Treasury and later as secretary of Health, Education and Welfare. In the latter position, to the consternation of conservatives and the Chamber of Commerce, he helped steer the administration toward a posture of support for Social Security, including its expansion to include disability protection in 1956. Board member “Engine Charlie” Wilson, CEO of GM, became Eisenhower’s secretary of defense. Wilson is perhaps most famous for a misquote of his testimony at his nomination hearing. He did not say “What’s good for GM is good for the country.” He said, “I thought what was good for the country was good for GM, and vice versa”—a neat encapsulation of much of the CED’s thinking.
How do we make sense of this fundamental transformation in the behavior of business leaders? Remember, the norms of the business community had long been—and would be again—that government was a hindrance, not a help. Yet three sorts of calculations came together in the 1940s to shift the balance in favor of the mixed economy: advantage, opportunity, and constraint.
Advantage is what it sounds like: business leaders coming to regard aspects of the mixed economy as providing a direct, tangible benefit to their companies. As we have seen, there are many, many ways in which government can contribute favorably to the bottom line. Governments provide essential public goods, correct externalities, combat monopolies, reduce the intensity of boom-and-bust cycles in the economy, expand economic opportunity, and promote social stability and the legitimacy of the market economy. As the statements of various corporate leaders in the postwar period suggest, there was growing appreciation of all of these factors—an acknowledgment that government and market could be complementary factors in promoting prosperity.
Advantage can also come from a less cheery source. Sometimes it is not overall gains but relative position that matters most. As a business leader, you may see government as a way to gain an edge over competitors. Perhaps you can afford regulations more than your competitors can because your firm is larger and thus will find it easier to handle the needed administration. Or perhaps your firm is already unionized, so you see an advantage in new government rules that make it easier for unions to organize the workforces of your competitors. Government action may create, or restore, a company’s competitive edge.
Advantage isn’t the only force that can shift the posture of business leaders. A second possible factor is the presence of slack in an economic setting that allows room for considerations other than profit maximization. Call this opportunity. Businesses may find it easier to accept government restrictions and requirements under some circumstances than others. Market enthusiasts typically emphasize that what makes companies push relentlessly toward ever greater efficiency is the Darwinian pressure of competition. This incentive is, indeed, a crucial feature of markets, but it is also the case that the intensity and sources of this pressure vary. In certain times and places, important companies may be sheltered to a considerable degree from competitive pressures, whether because of the inherent nature of their markets (as in the monopoly capitalism seen in the last chapter) or the political and organizational relationships among firms. During important periods of American economic development, major markets (such as the auto industry after World War II) have been divided among a small number of firms, often engaging in implicit or explicit coordination of prices.
Another source of opportunity comes from managerial autonomy: Those who run companies may have more or less leeway to pursue their own goals, depending on how their incentives are structured. As we shall explore in the next chapter, demands to provide “shareholder value” beginning in the late 1970s have intensified pressure on corporate executives to fixate on their share price. During other periods, including the immediate decades after World War II, managers have had more slack to pursue other priorities—slack that could be, and was, used to support compromises with other “stakeholders,” including workers, local communities, and public officials. During the Progressive Era as well as the postwar period, as the pioneering studies of historian James Weinstein and sociologist Mark Mizruchi show, companies that faced less intense competition were less likely to take sharply conservative views on economic issues, especially with respect to labor unions.32
Of even greater significance than advantage and opportunity in generating business support for the mixed economy is a third consideration. Call it constraint. More than anything else, business leaders bargain and compromise when they have to. This constraint is what Eric Johnston meant when he implored employers to recognize labor unions as an “established reality.” Compromise happens when a posture of rejection is unsustainable.
The central political story of the New Deal, World War II, and the postwar period is the emergence of genuine constraint—a system of countervailing power. That the postwar era is often described as a “settlement” or “treaty” is revealing. One makes treaties or settlements only when there are other groups with different views and some power to press their case. Most notable, of course, were organized labor and government officials. Unions emerged from World War II with a new level of legitimacy and an unprecedented organizational grasp on the American workforce. Government, too, was a partly independent force, boasting a string of accomplishments that generated new credibility and high expectations. Business leaders found themselves compelled to negotiate and seek mutually acceptable solutions within a system where other voices would be heard.
The constraints on business leaders associated with these formidable rivals for authority were extensive. Examining the private and semiprivate ruminations of business leaders, one sees the same pragmatic assessment. Marion Folsom, the business leader so often at the center of efforts to bring corporate leaders into a posture of constructive engagement, reflected on the process in a 1965 interview: “The people in the large companies have got to keep up with the times. They’ve got to adjust themselves to social conditions whether they like it or not. . . . I’ve found a great majority [of business people] to be pretty realistic. They might not like some of these things, but they adjust to it and they don’t kick. And then they eventually come around to thinking: ‘Well, maybe we were wrong. Maybe this is the right way to do things.’ ”33 Whatever the merits of laissez-faire traditionalism, more and more business leaders were concluding that this philosophy was a political nonstarter.
“The times” that Folsom spoke of featured newly effective pressure from labor and the left. Yet perhaps even more significant, because it cut off business’s traditional escape route from moderation, was another potent constraint: liberal Republicans. It is hard for Americans watching the Republican Party of today to grasp just how moderate much of the leadership of the GOP was between the early 1950s and the mid-1970s. Of course, there were prominent conservatives. And the GOP as a whole often fought hard to roll back aspects of the New Deal and, especially, to contest the role of organized labor. The far right, however, was marginalized in domestic policy and treated as outside the mainstream in political debate. Even the traditionally right-wing National Association of Manufacturers took the step of purging far-right John Birch Society members from its leadership.
The economic moderation of the GOP was a key foundation of the midcentury mixed economy. Then, as now, Republicans not only responded to the business community; they also shaped what corporate leaders believed was politically possible. After all, if you are a business leader, it is much easier to adopt a fiercely hostile stance on regulation, taxes, and other elements of the mixed economy when you can count on the broad support of the business-friendly party in government. It is even easier, of course, if your political allies are winning. By the time of Eisenhower’s election, however, the Republican Party had largely made peace with the mixed economy; when it pushed back, it generally lost; and that meant corporate America faced strong pressures to accommodate as well.
Writing of the Republican Party at the time of the 1960 election, historian Geoffrey Kabaservice portrays it as consisting of four factions: progressives, moderates, “stalwarts” (traditionalists associated with the legacy of the late Ohio senator Robert A. Taft), and the conservatives who would rally behind Barry Goldwater four years later. Of the four groups, the conservatives were the smallest.34 The stalwarts were the largest. Yet the moderate and progressive factions were substantial as well. Crucially, they were the source of many of the party’s most successful national figures. Whether one looks at the two Republicans who won presidential elections during the 1950s and 1960s, or the other leading contenders for the party’s nominations, or congressional leaders, or successful governors of major states, the GOP leadership was full of moderates. Goldwater’s 1964 nomination looked to observers at the time like an aberration rather than a portent. In 1968, for instance, Ronald Reagan stood out as the only visible conservative presidential candidate (and a marginal one at that) within a field of contenders that included centrists such as George Romney, Nelson Rockefeller, Charles Percy, and John Lindsay. Richard Nixon, too, was viewed as a moderate on economic and social welfare issues. So were most of the vice presidential hopefuls.35
As was true for business leaders, GOP moderation stemmed from changing perceptions of what was “established” and what was “useful.” Like moderate figures in the business community, many leading Republicans had revised their views in reaction to the experiences of the 1930s and 1940s. They expressed a growing appreciation for government’s role in promoting prosperity. Increased enthusiasm for the mixed economy was even more evident within the rising postwar generation of Republican leaders. Dan Evans, a GOP leader in the Washington State House of Representatives and later the state’s governor, sought to address modern, mixed-economy concerns: congestion, sprawl, water pollution, and the creation of improved infrastructure to promote Seattle’s participation in growing trade with Asia. He had no trouble calling these efforts “progressive,” a label he considered appropriate for those, himself included, who “saw a problem and an effective way to handle it, and the idea of a somewhat larger government for a very limited purpose didn’t frighten them.”36
Indeed, by today’s standards, many of the GOP’s leading postwar figures would be seen as clearly on the left on most issues related to the governance of the mixed economy. Critical once again, however, was their recognition of constraint—in this case, political constraint. Many New Deal programs were popular, and opposition would lead to repeated defeat. The moderation of the postwar GOP emerged not just from idealistic conversions but also from years of electoral pummeling. In 1952, on the eve of Eisenhower’s election, the political journalist Samuel Lubell noted that American politics was not then (or much of the time) a contest between two equal parties “of two equally competing suns, but a sun and a moon. It is within the majority party that the issues of the day are fought out, while the minority party shines in the reflected radiance of the heat thus generated.”37 Eisenhower might have been a full moon, but Democrats remained the sun.
Republicans got the first of many political lessons when their 1936 presidential nominee, Alf Landon, called for the repeal of Social Security, declaring that it was a “cruel hoax”: “unjust, unworkable, stupidly drafted, and wastefully financed.”38 Crushed by FDR—no Republican candidate has ever won fewer electoral votes—Landon was the last GOP nominee for almost seventy years to challenge Social Security directly.
For good reason: In 1936, Republicans came about as close as a major American party can come to extinction without, in fact, expiring. It was not just Landon’s epic defeat. The Republicans lost six seats in the Senate and fifteen in the House. In each chamber, it was the fourth consecutive election in which the GOP had lost ground. The result was the most lopsided Congress, and the smallest opposition party, since Reconstruction. Republicans held just sixteen seats in the Senate and eighty-eight in the House.
The GOP would skirt the political abyss. At the precise moment when Roosevelt seemed unstoppable, the president suffered stinging defeats on his court-packing proposals and plans to overhaul the federal bureaucracy. The New Deal stalled in 1937. Beginning with major victories in the House and Senate elections of 1938 (fueled in part by “Roosevelt’s recession,” when he made a premature turn toward austerity), the GOP reestablished itself gradually as a viable national party.
More fundamentally, as Ira Katznelson has recently reminded us in his magisterial history of the New Deal, Fear Itself, Republicans would soon build an effective “conservative coalition” with southern Democrats. Segregationists increasingly saw the New Dealers as a threat to the “southern way of life”—which is to say, to Jim Crow. This emerging conservative coalition would stymie Roosevelt from 1937 on, especially with respect to labor issues and administrative centralization. Even in the midst of electoral struggle, the GOP’s ability to build a coalition with conservative Democrats allowed it to play a critical role in shaping the policy contours of the mixed economy in the postwar period.39
Still, the GOP’s partial rehabilitation in 1938 was exactly that: partial. Republicans would hold the presidency for just eight of the next thirty years; they would hold the majority in the House and Senate for just four. Like business leaders, Republicans moderated because they had little choice.
The most famous adherent to the emerging GOP view that the mixed economy was an “established and useful reality” was the general-turned-politician Dwight Eisenhower. He understood that the Republican Party needed to make its peace with most of the policy achievements of the previous two decades. In 1954 Eisenhower ridiculed privately the desire of conservatives to roll back the New Deal: “Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.”40
Eisenhower’s point was that the mixed economy was an established reality. There was no going back. Despite his own electoral success, he and other Republicans had to accept the new status quo.
An established reality but a useful one, too. Eisenhower’s stance was not just a matter of political expediency. He wrote his letter dismissing those who dreamt of rolling back the New Deal to his oldest brother Edgar—who, by all accounts, shared the dreams of the Texas oil millionaires whom Eisenhower ridiculed. But while Edgar sniped from the sidelines, Eisenhower kept him at a distance. (“Edgar has been criticizing me since I was five years old.”) He took counsel instead from his younger brother Milton (whom he once described as the smartest one in the family).41
Intelligent, pragmatic, and above all moderate, Milton was a prototypical can-do mandarin of the bipartisan era of countervailing power: He worked for the federal government before and during much of the New Deal (including as head of the War Relocation Authority that oversaw the internment of Japanese Americans), was the first chairman of the US National Commission for UNESCO (United Nations Educational, Scientific, and Cultural Organization), and served as president of three universities (Kansas State, Penn State, and Johns Hopkins). His commitment to bipartisan moderation continued in the 1960s. In 1964—in a move seen to signal Ike’s tacit support—Milton nominated the moderate William Scranton (governor of Pennsylvania, and a late challenger to Goldwater) at the Republican Convention in San Francisco. In 1968, responding to the urban unrest roiling the country, President Lyndon Johnson selected him as chairman of the US National Commission on the Causes and Prevention of Violence.
It was Milton who personified Dwight Eisenhower’s nuanced views of the nation’s political economy. There is little doubt that the first Republican president in two decades was deeply suspicious of statism, focused on the dangers of drift in that direction, and sympathetic to the concerns of the business community.42 Yet President Eisenhower, along with other leading Republicans, embraced the mixed economy. He insisted that “unions have a secure place in our industrial life. Only a handful of unreconstructed reactionaries harbor the ugly thought of breaking unions. Only a fool would try to deprive working men and women of the right to join the union of their choice.”43 It wasn’t just rhetoric. Eisenhower surrounded himself with CED men. More important, while maintaining a stance of fiscal conservatism, he pursued a vigorous agenda of mixed-economy initiatives that relied on the federal government. In his 1953 economic address to Congress, he insisted that “the demands of modern life and the unsettled status of the world require a more important role for government than it played in earlier and quieter times.”44
Eisenhower’s domestic policy agenda focused on economic growth. Democrats would criticize him later for his reluctance to rely on Keynesian policy to prime the economy. Yet his administration devoted substantial energy to policies designed to improve the country’s long-term economic performance. As the political scientist David Mayhew summarizes the record of Eisenhower (as well as that of his Democratic successor, John F. Kennedy), at its core were “the aims of growth, development, efficiency and productivity”—themes that “pervade the president’s autobiographical account of his first term.”45
Eisenhower’s perspective echoed that of Vannevar Bush. Ike saw virtue in decentralization and private-sector decision making, and worked to strip away vestiges of planning that remained from the New Deal and World War II. Yet just as Bush wanted the federal government to spend much, much more to promote science through these decentralized structures, Eisenhower promoted federal action on a number of fronts: the economic development of public lands; a massive expansion of the federal role in the development of science and technology (including the National Defense Education Act and the creation of NASA in 1958); and, most dramatically, giant public infrastructure projects, such as the interstate highway system, the Saint Lawrence Seaway, and the Colorado River Storage Project.
“Growthsmanship,” as the historian Robert Collins calls it, sidestepped some of the polarizing dynamics of the late New Deal period. Eisenhower concentrated legislative energy on areas where agreement was possible.46 The president’s focus on using government power to generate “more” produced a striking run of bipartisan legislation, releasing a host of economic development initiatives that had been stalemated. Almost all of the elements of this pro-growth agenda passed by sizable or overwhelming majorities. Most commanded majority support of both parties in both chambers of Congress.
On economic issues, the moderate consensus continued after Eisenhower left office. Although Kennedy famously adopted a more Keynesian stance on the budget (built around business-friendly tax cuts), in most respects his economic policies followed the tracks laid down in the 1950s. When the GOP veered right with Goldwater’s candidacy, and LBJ tacked left with the inclusionary policies of the Civil Rights Act and the War on Poverty, much of the business establishment went with LBJ. His campaign established Republican Businessmen for Johnson, and succeeded in organizing more than three thousand CEOs who supported the president. The relatively apolitical Business Council, made up of CEOs from large companies, responded similarly. In 1960 seventy-three of eighty who contributed to candidates gave their money to Republicans; in 1964 that share dropped to thirty-six of sixty-nine.47 All told, three-fourths of LBJ’s campaign war chest came from the business community.48
Indeed, business leaders actually endorsed some of the major Great Society and War on Poverty programs, including the Housing and Urban Development Act and the Model Cities Program. Again, their motivations were a mix of advantage and constraint, self-interest and prudent accommodation. Many of LBJ’s programs were designed to appeal to the private sector, providing important investment opportunities. In general, however, business acquiescence reflected an understanding that its clout was limited. When necessary, Johnson was not shy about using his legendary political skills to remind them. In a phone call to Vice President Hubert Humphrey in 1965, he counseled Humphrey on how to deal with the prospect of NAM and Chamber opposition to elements of his Great Society initiative. Johnson told Humphrey bluntly to issue a threat: “[C]ut the guts out of my program . . . I’ll cut the guts out of yours.”49
A clear case of the constrained influence of business was the enactment of, in 1965, Medicare and Medicaid, the biggest expansion of US social policy since Social Security. The goal of covering the aged had consistently evoked opposition from the organized business community from the time Democrats first started pushing for it after the demise of Truman’s proposal for national health insurance. Before the 1964 election, the Chamber of Commerce and the NAM were “strong and unequivocal in opposing Medicare.” After 1964 that opposition softened. The evidence is clear, however, that this shift reflected a change in circumstances rather than a change of heart—specifically, LBJ’s landslide and the huge Democratic majorities that made the passage of Medicare inevitable.50
Richard Nixon was one of the last Republican leaders to embrace the mixed economy—and embrace it he did. Nixon’s efforts to fashion a new majority involved positioning himself to the right of Democrats on issues of race and crime, but on matters related to the economy, he adopted a moderate, often activist stance. He supported major extensions of the regulatory state, including big new initiatives for environmental and consumer protection. He favored a guaranteed annual income, a huge expansion of Social Security, and health care reforms way to the left of the Clinton or Obama health plans.
As was true of the overall GOP shift, political calculation drove Nixon’s moderation. Encouraged by Daniel Patrick Moynihan, one of his leading advisers on domestic policy, he took nineteenth-century British prime minister Benjamin Disraeli’s “liberal Tory” stance as a model, and sought to appeal to working-class and middle-class whites with support for social insurance and cautious backing for many of the new regulatory measures coming out of a Democratic Congress.51 Nixon showed no interest in the antiunion agenda that would soon spread within the GOP. Instead, he pursued support from union leaders such as George Meany. In the assessment of Allen Matusow, the leading historian of Nixon’s economic policies, “Meany loomed as the pivotal figure in Nixon’s scheme for [political] realignment. . . . Nixon courted no businessman, or even all of them together, as assiduously as he courted the crusty Democrat who headed organized labor.”52 Indeed, administration officials were disparaging of the political clout of business groups, confident in their support because Nixon believed they had no place to go.
No less than Eisenhower, Nixon was comfortable with the mixed economy. He accepted the notion that in a large and complex society, government had a fundamental role to play in fostering economic growth and social prosperity. Nixon never said the line generally attributed to him: “We are all Keynesians now.” He said “I am now a Keynesian in economics”—which, while less poetic, better captured the constrained evolution of the GOP.53 The embrace extended far beyond the macroeconomic management of boom and bust. It incorporated support for collective bargaining, extensive social insurance and a reasonable social safety net, the provision of crucial public goods, and interventions tackling thorny market failures. He—like all nationally successful Republicans of his era and most business leaders as well—was mindful of the balance of political forces that sustained the mixed economy.
In March 1969 the recently elected Nixon spoke before the National Alliance of Businessmen, a nonprofit organization established by the Johnson administration to tackle the problem of long-term joblessness. After thanking the chairman of the group, Donald Kendall, CEO of Pepsi-Cola, as well as its former head, Henry Ford II, he praised the three hundred company heads who were part of the effort for the hundred thousand private-sector jobs they had provided to disadvantaged Americans. Concluding his remarks, he signaled that he would soon propose changes in benefits for the poor.
In August the Nixon administration unveiled the Moynihan-designed Family Assistance Plan: the president’s ill-fated proposal for a guaranteed minimum income, which would ultimately fail to gain sufficient support from either conservatives or liberals. On Labor Day Nixon issued a special statement touting his new plan, as well as his proposals for expanded job training, subsidized child care, and an occupational health and safety agency. “As we renew our commitment to the general well-being of the working man,” he declared, “we also reaffirm our faith in sound collective bargaining. In an increasingly complex society, one in which so many elements depend so heavily on one another, the process of collective bargaining must be strong and effective and exercised with self-restraint on all sides.”54
Forty years later almost to the day, President Obama delivered his own speech to prominent business leaders. The occasion was a special gathering of the Business Roundtable (BRT) at the St. Regis Hotel on K Street, the avenue that has become synonymous with Washington’s vast lobbying empire. Founded in 1972 amid a wave of corporate political organizing, the Roundtable is unique among business lobbies.55 Its two hundred or so members are not companies but CEOs—the highly paid executives who run the nation’s largest corporations. And its stated mission is to work with both parties to improve the health not of individual sectors of the economy but of American capitalism as a whole. In an increasingly polarized and fragmented lobbying world, the Roundtable is the closest approximation to the corporate establishment in Washington these days.
Flanked by the chairman of the Roundtable, Terry McGraw, and the new secretary of education, Arne Duncan, the president praised the assembled CEOs for “taking a broader view of your responsibilities as chief executives. You’ve looked beyond the bottom line and the next quarter to the long-term health of your company. You’ve not only served as accomplished leaders, but as engaged citizens—citizens who understand that it is in the interest of both your companies and your country to have a workforce that’s highly educated, healthy, and prosperous; to have a market that is free, but also fair; and to live in a nation that’s willing to invest in its own future. You understand the public responsibility of private enterprise.”56
Obama’s emphasis on “the long term” and “the public responsibility” of private enterprise was the opening for his big message. The Roundtable had backed the president when he had sought to rescue the financial sector and stabilize the economy; now he wanted the CEOs to stand behind him as he pursued a larger program of reform that would address what he saw as the underlying problem: a generation of shortsighted actions by public and private leaders who had neglected the long-term foundations of economic growth.57
This was a novel pitch. On K Street, Main Street, and Wall Street, the outlook had become increasingly cramped. Politicians locked in a permanent campaign had little opportunity to look down the road. The spectacular increase in lobbying had ramped up pressures to respond to the most mobilized and self-interested. CEOs, naturally attentive to the immediate needs of their own companies, had become ever more narrowly focused.58 The mounting emphasis on “shareholder value”—backed by omnipresent threats of retribution for subpar performance—encouraged a relentless preoccupation with the next quarterly report.59 On Wall Street, massive risk taking and self-dealing masked by a fog of complexity had brought the economy to the brink of ruin. The vernacular of texting captured the new mind-set of self-dealing: IBG/YBG. “I’ll be gone, you’ll be gone.”60
To the assembled CEOs, Obama called for a different approach: “a prosperity that no longer rests on a bubble but on a firm foundation that will make this country strong and competitive.”61 A firm foundation, according to the president, required new regulations on Wall Street, health care reforms to cover more Americans and address the explosive growth of costs, and serious efforts to rein in greenhouse gas emissions that threatened the planet. A month later, in a major economic address at Georgetown University, the president attached a slogan to this vision: “the New Foundation.” Now forgotten, this was the slogan he hoped would brand his administration’s efforts, akin to FDR’s New Deal or LBJ’s Great Society. In making his case, he drew on the Sermon on the Mount:
Now, there’s a parable at the end of the Sermon on the Mount that tells the story of two men. The first built his house on a pile of sand, and it was soon destroyed when a storm hit. But the second is known as the wise man, for when “the rain descended, and the floods came, and the winds blew, and beat upon that house, it fell not: for it was founded upon a rock.” . . . We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity.62
This New Foundation was what he called on the CEOs to support.
By all accounts, the president’s remarks were received with enthusiasm. Chairman McGraw responded with praise: “There’s a misperception, I think, in some people’s minds that the relationship between business and the Obama administration is like, well, oil and vinegar. . . . [F]rom our standpoint, that couldn’t be farther from the truth.”63 In the months that followed, the president continued to press his agenda with business leaders, mixing appeals to long-term thinking with reminders that popular outcry demanded reform.64 In April he met with thirteen of the nation’s top bankers and urged them to back his financial reform agenda. “My administration,” the president warned coolly, “is the only thing standing between you and pitchforks.”65
Within a short time, however, it was business leaders and their Republican allies carrying the pitchforks. Over the course of 2009 and 2010, business lobbies spent never-before-seen amounts to defeat or defang the Obama agenda, with Wall Street, the energy industry, and business groups leading the charge. Under its combative head, Tom Donohue, the US Chamber of Commerce launched the largest legislative campaign in its history, spending more than $270 million between 2009 and 2010 on registered lobbying.66 Business groups and corporate leaders bitterly denounced President Obama’s “vilification,” “betrayal,” and “demonization” of the country’s economic elite. Stephen Schwarzman—cofounder of the private equity giant Blackstone Group, and a member of the Business Roundtable—railed that the president had declared “war” by seeking to close a notorious tax loophole allowing some of the nation’s wealthiest financiers to pay just 15 percent federal taxes on much of their incomes.67 In Forbes, an astonishingly vitriolic cover story called Obama the “most antibusiness president in a generation, perhaps in American history.”68
Republican national leaders also went on the warpath. Whether Obama truly believed in the postpartisan vision of his campaign (“[T]here are no red states or blue states, just the United States”), he found scant evidence of it among congressional Republicans. To the contrary, GOP leaders plotted his defeat even before his inauguration, developing a strategy of all-out opposition: no bargains, no compromises, no alliances.69 At a December retreat of House Republicans, the new minority whip, Eric Cantor, was emphatic: “We’re not here to cut deals and get crumbs and stay in the minority for another forty years. We’re not rolling over. We’re going to fight these guys.”70 Senate Minority Leader Mitch McConnell rallied Senate Republicans with similar words and a similar directive. Ohio Republican George Voinovich, one of the last relatively moderate Republicans in a chamber where they once were decisive, summed up McConnell’s message: “If Obama was for it, we had to be against it.”71
And against it they were. The president’s first legislative priority was a major stimulus bill to rescue the free-falling economy. It received not a single Republican vote in the House and just three in the Senate (though not Voinovich’s).72 These three votes that helped stave off economic collapse proved to be the high-water mark of Republican cooperation. For the first two years of the Obama presidency, Republicans presented a virtually unbroken wall of opposition (with a few tiny cracks forming on financial reform as public disgust with Wall Street mounted). Even in the Senate, McConnell was able to “hold the fort,” as Voinovich put it: “All he cared about was making sure Obama could never have a clean victory.”73 Obama did have victories, but all of them were ugly—drawn out, convoluted, savaged by Republicans—and it was Democrats who had the mud on them.
As the 2010 midterm elections approached, business organizations and Republican-allied groups spent unprecedented sums to defeat vulnerable Democrats. The Chamber alone devoted in excess of $75 million—an unprecedented amount for an outside group in a single campaign. Americans for Prosperity, the advocacy organization created by the ultrawealthy conservative businessmen Charles and David Koch, spent at least $45 million.74 In sector after sector, but especially from the deep war chests of Wall Street, business funds that had flowed to Democrats in 2008 headed to Republicans, helping to administer the “shellacking” (as Obama put it memorably) Democrats received in 2010.75 That November, as Republicans retook the House and moved within striking distance in the Senate, the window of opportunity for building the president’s New Foundation slammed shut.
President Obama found himself a very long way from the world of business statesmen and moderate Republicans that Eisenhower, Kennedy, Johnson, and Nixon had faced. The business and GOP elite of this earlier era had been to the right of (northern) Democrats, but each engaged with them in addressing major social problems and recognized, if sometimes grudgingly, the “established and useful reality” of government’s expanded role.76 In 2009 and 2010, not so much. The most narrow corporate groups attacked relentlessly, the most resourceful business organizations backed them up, and even ostensibly moderate corporate groups such as the Business Roundtable largely sat on the sidelines, eclipsed by the Chamber and the growing network of nonprofits backed by the Kochs and others on the hard right.
To the president’s opponents, the cause of all this was obvious: The president had embarked on an unprecedented left-wing campaign. Yet the president’s agenda, though ambitious, was hardly the leftist project caricatured by his critics. His first-term economic advisers, for instance, were all highly credentialed mainstream thinkers—Larry Summers, Timothy Geithner, Peter Orszag—establishment mandarins who could hardly be described as scourges of American capitalism. Nor, considering Wall Street’s role in a catastrophic financial crisis, was the president’s rhetoric particularly strident. Calling bankers “fat cats” in one interview or speaking critically about “millionaires and billionaires” in another is not Huey Long populism, or even the vastly more combative rhetoric of FDR.77 What’s more, the president’s most controversial proposals—health care and financial reform and the defeated “cap-and-trade” bill to lower carbon emissions—all sidestepped more liberal alternatives and embodied elements of prior Republican plans. To be sure, they were more sweeping and more liberal than Republicans wanted. But it takes serious exaggeration to describe them as “breathtaking expansions of state power in huge swaths of the economy,” as the head of the conservative think tank the American Enterprise Institute (AEI) charged in the run-up to the 2010 midterm election.78
The intense backlash against Obama’s New Foundation does say something about the president’s agenda: for one, that it challenged many of the most powerful rent seekers in the American economy. But it says far more about how the business and political worlds have changed over the decades separating the political careers of George Romney and his more conservative son. Indeed, it is a measure of how much has been forgotten that so many observers see these events as indicators of the president’s temperament or ideology or negotiating skills, rather than of the collapse of the political coalition that once supported the mixed economy. In our contemporary climate, it is hard to even remember the bipartisan corporate establishment and moderate Republican wing of the postwar years. It is harder still to recall the terms of debate that prevailed when these dinosaur-like creatures walked the earth. So fundamentally has the American political-economic order changed since the 1970s, that we suffer from a kind of mass historical forgetting—a distinctively American Amnesia.
To see what’s changed, then, we have to look anew at the rupture and what it has wrought. We need to perceive with fresh eyes the interwoven transformation of American capitalism and American politics that has played out since a Republican president stood before American businessmen and called forthrightly for an expanded safety net. In the second part of our historical and intellectual journey, we will discover that our present predicament is a legacy of fundamental changes—in the economy, in the beliefs that guide our leaders, in the associations representing American business, and in the Republican Party. And we will learn that these changes have not only depleted the political support needed to sustain the mixed economy but have also undermined effective governance precisely where it’s most needed to secure American prosperity.