GOODBYE, MIDDLE CLASS, Part 8: The Powell Memorandum: Profits over People

Continued from Part 7: Slashed and Spent

“We have always known that heedless self-interest was bad morals; we know now that it is bad economics.” –Franklin D. Roosevelt

The Powell Memorandum “sparked a business and corporate rebellion that would forever change the landscape of power in Washington and would influence our policies and economy,” writes Hedrick Smith in Who Stole the American Dream? It “was a business manifesto, a call to arms to Corporate America, and it triggered a powerful response… It ignited a long period of sweeping transformations in Washington’s policies and in the mind-set and practices of American business leaders – transformations that reversed the politics and policies of the postwar era…that had created the broad prosperity of America’s middle class… Lewis Powell’s political manifesto…[was intended] to spark a full-scale political rebellion by America’s corporate leaders…and to put the nation on a new track, a track more favorable to business.” ​​

“To be more precise, what had become very apparent to the business community was that it was getting its clock cleaned,” explain Jacob S. Hacker and Paul Pierson in Winner-Take-All Politics: How Washington Made the Rich Richer and turned its back on the Middle Class.​​

Used to having broad sway, employers faced a series of surprising defeats in the 1960s and early 1970s. As we have seen, these defeats continued unabated when Richard Nixon won the White House. Despite electoral setbacks, the liberalism of the Great Society had surprising political momentum. 'From 1969 to 1972,' as the political scientist David Vogel summarizes in one of the best books on the political role of business, 'virtually the entire American business community experienced a series of political setbacks without parallel in the postwar period.' In particular, Washington undertook a vast expansion of its regulatory power, introducing tough and extensive restrictions and requirements on business in areas from the environment to occupational safety to consumer protection.”

To read the entire Powell Memo, click on the image below:

The Powell Memo was written on the heels of Nixon’s regulatory initiatives and new tax laws. Powell, who was chair of the Education Committee of the Chamber of Commerce, postured that the government had reached a dangerous precipice that would destroy free enterprise.

“Business was being victimized, he said, by government regulations, consumer activism, and politically powerful trade unions.” He argued that the business executive had become a forgotten man. It was a call to arms for a more “aggressive attitude” to change Washington’s policies through “confrontation politics.”

In essence, he was encouraging political mutiny with an ardent anti-union, anti-government ideology.

“Powell’s memorandum condemned assaults on business by the predictable rabble:

‘Communists, New Leftists, and other revolutionaries who would destroy the entire system, both political and economic,’" writes Ian Haney Lopez in Dog Whistle Politics. “Rallying his team with a last-down pep talk, Powell proposed vigorous and concerted corporate mobilization to fund and support an army of national organizations capable of generative conservative ideas and also of inserting them into the national conversation… He urged the creation of new front groups… Powell advised…penetrating the major idea-generating sectors of American society: higher education, especially the social sciences; the media, especially television; and the court system.

Enter the rise of the corporate think tanks.


According to Lopez, in the early 1970s, think tanks once offered non-partisan venues for research. However, looking for new ways to produce and package conservative ideas, particularly that of the pro-business nature, the think tank concocted their own research and staged debates. Instead of fostering wide-ranging inquiry, “these new institutions were designed to pump out consistent messages supporting the priorities of their financial backers.” This includes the Heritage Foundation, the Manhattan Institute, the American Enterprise Institute, and the Cato Institute. “They would concoct their own research and stage their own debates under the umbrella of ‘think tanks’… As one critic quipped… ‘they don’t think; they justify.’

By the end of the 70s, "The new hyper-partisan think tanks had impact far beyond Washington. They introduced doubt into areas of settled academic and scientific scholarship, undermined genuinely unbiased experts, and gave politicians a menu of conflicting statistics and arguments from which to choose… The hazard was that partisan shills would create balance based on fraudulent research and deceive the public about pressing issues in which their sponsors had financial interests,” writes Jane Mayer in Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right.

Former Republican, founder of a nonprofit media watchdog organization, and author of The Republican Noise Machine, David Brock describes the rise of the think tanks as "a colossal new network of multi-issue advocacy groups that technically do no lobbying and provide no services other than the production, marketing, and promotion of conservative ideology to lawmakers, opinion leaders, the media, and the general public. Because the think tanks were multi-issued, their names were popping up routinely in the press across a broad range of subjects. Several groups pushing the same issues and reinforcing them through repetition of the same jargon created an appearance of validity and a popular consensus that the right suddenly was bursting with new ideas.

"President of the Cato Institute described the Republican Right's goal this way: 'As we grow I don't want us to shift toward the mainstream. I want the mainstream to shift toward us. And that's our challenge.' Three decades later, conservatives were crowing openly about the political influence they derived from their think tanks."

These business interests needed a leader - one they could not only manipulate, but convince their best interest was his best interest.

Enter Ronald Reagan. Former actor, and G.E. pitchman.

So how did Reagan get into politics? He was recruited by corporate interests who realized his ready-made sales potential.

Reagan was born to Democratic parents employed by FDR’s New Deal programs. But once Reagan started earning Hollywood bucks, he quickly changed his tune, especially after becoming spokesperson for GE and regretting how much of his easy money went to taxes. This disgruntlement only grew as he began to fraternize with other conservative businessmen who shared the same sentiment. These wealthy tycoons were dubbed “The Millionaire Backers” by the press and became Reagan’s first unofficial cabinet, promoting their tailored message through Reagan’s celebrity.

William Kleinknecht writes in The Man Who Sold the World, “the image of Reagan as a man who never wavered from the small-town values that he absorbed during a simpler, more wholesome period in American history is far off the mark. His values were actually quite malleable. He shifted his core beliefs depending on what he became convinced was in his own self-interest at the moment. He was a leftist until he felt duped by Hollywood communists and became an FBI informant. He was a committed labor leader until his own interest required self-serving deals with management. He was a New Dealer while the philosophy was benefiting him personally, but switched to Republicanism when the social welfare tab was coming out of his taxes. Since his mind disdained nuance and complexity, he could believe passionately in whatever one-dimensional viewpoint he held at any given time, and his boyish enthusiasm and disarming manners had a way of winning over doubters. The man who saw big business as an unalloyed evil and government as the savior of the people could believe the complete opposite a few years later without ever entertaining the possibility that the truth might lie somewhere in the middle.”


His Millionaire Backers “were not the executives of Wall Street and the Fortune 500 companies, the eastern stalwarts who for most of the century had held the reins of power in the Republican Party. They were the ranchers, oilmen, and developers of the West and the South whose fortunes had been made in the postwar period. They had not come to their riches through family ties or Ivy League educations or by slowly climbing the management ranks in major corporations. Most had built their businesses from the ground up in the booming communities of the Sun Belt, which left them with a raw notion of free enterprise that would not have been out of place in the Gilded Age. The wealthy families that had made up the eastern Republican establishment may have cherished their tradition of noblesse oblige, but this class of capitalist has little time for such altruism. They believed the best way to help the masses was to set an example of thrift and hard work, not to endow the arts and education or establish foundations for the poor… No longer was the power base of the Republican Party going to be…the old-money industrialist of the East and the Midwest, [the Sun Belt] would be the financial backbone of the Reagan campaign and a new force in GOP politics.”

Which brings us to the beginning of the unraveling of campaign finance.

Kleinknecht explains, “His campaign effectively undid the campaign finance reform that had been put into place after the Watergate scandal…a blatant contravention of the effort by Congress to insulate American democracy from the illicit influence of wealthy donors [that] eventually paved the way for the fund-raising scandals of the 1990s and the widespread sense among the public that Washington was for sale…The campaign accomplished this by ferreting out a loophole in campaign finance law…as a way to get around the legal limits on contributions, setting up an operation to pour money into the states…Corporate money had been banned from federal elections for decades, but now donors could achieve the same result by giving money to local parties, which in many states had no such limitations.”

“The organizational counterattack of business in the 1970s was swift and sweeping — a domestic version of Shock and Awe. The number of corporations with public affairs offices in Washington grew from 100 in 1968 to over 500 in 1978. In 1971, only 175 firms had registered lobbyists in Washington, but by 1982, nearly 2,500 did. The number of corporate PACs increased from under 300 in 1976 to over 1,200 by the middle of 1980. On every dimension of corporate political activity, the numbers reveal a dramatic, rapid mobilization of business resources in the mid-1970s,” writes Jacob S. Hacker and Paul Pierson in Winner-Take-All Politics.​​

“The newly mobilized business groups understood that Democrats and Republicans could play distinct but complementary roles. As the party with a seemingly permanent lock on Congress, Democrats needed to be pried away from their traditional alliance with organized labor. Money was key here: From the late 1970s to the late 1980s, corporate PACs increased their expenditures in congressional races nearly fivefold. Labor PAC spending only rose about half as fast. In the early 1970s, business PACs contributed less to congressional races overall than labor PACs did. By the mid-1970s, the two were at rough parity, and by the end of the decade, business PACs were way ahead. By 1980, unions accounted for less than a quarter of all PAC contributions — down from half six years earlier. The shift was largest among Democrats, who were of course the most reliant on labor money: Nearly half of Senate incumbents’ campaign funds came from labor PACs in the mid-1970s. A decade later, the share was below one-fifth,” writes Jacob S. Hacker and Paul Pierson in Winner-Take-All Politics.

“By this time, however, business PACs were shifting away from their traditional focus on buttering up (mostly Democratic) incumbents toward a strategy that mixed donations to those in power with support for conservative political challengers. Such a pattern was evident in the critical election year of 1978. Through September of the election season, nearly half of corporate campaign contributions flowed into Democrats’ coffers. In the crucial weeks before the 1978 election, however, only 29% did. By the end of the 1978 campaign, more than 60% of corporate contributions had gone to Republicans, both GOP challengers and Republican incumbents fighting off liberal Democrats. A new era of campaign finance was born: Not only were corporate contributions growing ever bigger, Democrats had to work harder for them. More and more, to receive business largesse, they had to do more than hold power; they had to wield it in ways that business liked.

As former Louisiana Senator John Breaux famously said, "My vote can't be bought, but it can be rented."

As a result, few Americans have a voice when it comes to political representation in modern America.

Professors at Princeton and Northwestern University studied 20 years of data to determine that the opinions of the bottom 90% of income earners in America has essentially NO impact whatsoever on Congress – a near zero, statistically non-significant impact upon public policy.

However, the 1% carry MAJOR influence (economic elites, business interests, and people who can afford to buy lobbyists). “In the last 5 years alone, the 200 most politically active companies in the U.S. spent 5.8 billion influencing our government, and got 4.4 trillion in return from tax payers.

Jacob S. Hacker confirms in Winner-Take-All Politics, "When opinions of the poor diverge from those of the well off, the opinions of the poor cease to have any influence."

The takeaway: No, Virginia, Congress doesn’t care what you think. Unless you have a trust fund.

The truly affluent use their funds through campaign contributions. "The entire political system, the money, the attention, the fawning, turns to targeted voters like a flower following the sun," writes scientist Cathy O'Neil in Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy.

"The rest of us are virtually ignored, except for fundraising come-ons. The programs have already predicted our voting behavior, and any attempt to change it is not worth the investment. At the federal level, this problem could be greatly alleviated by abolishing the Electoral College system. It’s the winner-take-all mathematics from state to state that delivers so much power to a relative handful of voters. It’s as if in politics, as in economics, we’ve a privileged 1%, and the money from the financial 1% underwrites the micro-targeting to secure the votes of the political 1%. Without the Electoral College by contrast, every vote would be worth the same. That would be a step toward democracy."

See the entire video by clicking on the image below:

Instead, disregarded voters grow disenchanted.

For 200 years, corporations giving money to government officials was called bribery.

Now it’s called lobbying.

Even John McCain admitted that lobbying and the flow of money into election campaigns is “nothing less than an elaborate influence-peddling scheme in which both parties conspire to stay in office by selling the country to the highest bidder.”

As Andrew J. Bacevich confirms in The Limits of Power: The End of American Exceptionalism, “conviction follows self-interest.”

According to Who Stole the American Dream? Hedrick Smith explains that “In the past decade, business has employed 30 times as many lobbyists as labor, consumer, and public interest lobbyists combined. Spending has been even more lopsided in favor of Corporate America. From 1998 through 2010, business interest and trade groups spent $28.6 billion on lobbying compared with $492 million for labor, nearly a 60-to-1 business advantage.”

Christopher Hayes writes in Twilight of the Elites, “Nearly half of all members of Congress have a net worth north of a million dollars, compared to just one in 22 households nationwide. Between 1984 and 2009, while the median net worth of American households remained essentially unchanged, the median net worth of members of the House of Representatives rose by 260%. Not only did the rich get richer, so did Congress.”

Hayes continues, “While money can get you access to networks and political power, those who have lots of power and influence but not much money can, when the time is right, sell their networks, influence, and access for a very high price. This is such a common occurrence in Washington, DC, that it has its own name: ‘moving downtown.’ That’s what happens when a relatively modestly paid Capitol Hill staffer leaves his job working for a legislator to join a lobbying firm where he can make two to three times his salary. More than 1/3 of congressional staffers turn to a career in lobbying after leaving Capitol Hill…In 2010, 37% of the newly-out-of-office members of Congress went to work for lobbying firms or clients… The point is this: The 1% and the nation’s governing class are more or less one and the same.”

Out of the pharmaceutical industry's 623 registered lobbyists, more than half are former members of Congress or former government employees. These number of lobbyists outnumber members of Congress by 623 to 535. And there are 38 lobbyists for each member of Congress.

“And the business interest that filled Reagan’s campaign coffers got what they paid for. More than any president before him, Reagan reached into the boardrooms of America’s corporations to fill top positions in his administration… But it was in the government regulatory apparatus that Reagan’s tutelage of business interests was the most egregious. The people newly entrusted to prevent corporate law-breaking were in many cases representative of the worst and most avaricious elements of their respective industries. Their mission was clear: reduce the number of regulations, slash the budgets, and weed out the most aggressive and effective staff members; in short, eviscerate the regulatory agencies that had been a thorn in their sides when they were in the private sector,” writes William Kleinknacht in The Man Who Sold the World.

“It is true that Congress deregulated more industries during the presidencies of Carter and Clinton than it did in the Reagan-Bush years. But that hardly tells the whole story. Reagan achieved deregulation merely by ordering the bureaucracy to stop enforcing the regulations that already existed and by filling the government’s ranks with people who had little inclination to interfere with the private sector. Why fight costly legislative battles when the same result could be achieved through executive inertia? Reagan changed the role of government from that of watchdog to lapdog without even bothering to consult Congress,” explains Kleinknacht.

"In addition, the middle class suffered from economic deregulation, particularly in the banking industry, which led to massive fraud in and the collapse of the savings and loan sector. In a harbinger of financial deregulation’s effects following 2008, the ensuring economic meltdown slowed the economy and led to widespread unemployment that endured for years. Beyond economic deregulation, the Reagan administration also began a sustained campaign against environmental regulation, freeing large polluters from government oversight. Justifying this hands-off approach, Reagan infamously belittled the whole idea of controlling pollution by quipping that trees cause more pollution than automobiles,” writes Ian Haney Lopez in Dog Whistle Politics.

What does deregulation, defunding, understaffing, and inertia look like?​​

It looks like safety violations and cozying up to big business, as in the BP oil spill and Virginia coal mine explosions.

It looks like FEMA’s response in the aftermath of Hurricane Katrina.

It looks like the steroid use of major league baseball after President Clinton signed into law the Dietary Supplement Health and Education Act of 1994, which created an unregulated carve-out of the FDA’s jurisdiction for nutritional supplements.

It looks like Enron, the California electricity crisis, and rolling blackouts.

But most famously, it looks like the credit-default swaps and predatory lending of the financial sector.

As David Cay Johnston reminds us in The Fine Print, “The harsh truth is that there’s really no such thing [as deregulation]. Everything has rules. Deregulation is just a disingenuous name for new regulation, too often under rules that favor corporations over their customers.”

That deregulation solves anything is one more great American myth of our modern economy, which brings us to:

Part 9, Trickle-Down, Voodoo, Reaganomics; Or B.S. by Any Other Name