A DEBATE AMONG POLITICAL THEORISTS

Conceptions of the sources of political power in the United States were dominated by two broad perspectives in the middle of the twentieth century. On one side was a view, held largely by political scientists but also by some sociologists, that came to be known as pluralism. In this perspective, government was seen as a reflection of the broad array of interests in the larger society, any one of which might attain prominence at a particular point, but no one of which dominated consistently over time. The public exercised its influence through organized interest groups, as well as through the ballot box. Although certain forces, including business, often got their way, they were often stymied as well. This view, expressed by scholars such as Robert Dahl, David Truman, and Arnold Rose, dominated the field of political science through at least the 1960s.Footnote ⁵ An alternative to pluralism, known as elite theory, advanced primarily by sociologists, was based on the assumption that a relatively small group of powerful actors, sitting at the head of major societal institutions, was able to exercise disproportionate and consistent influence over time, even when their interests ran counter to those of the larger population. In a study of a large city in the South, Floyd Hunter argued that the leaders of major community organizations, especially bankers and industrialists, held the greatest influence on the city's political life. In a study focusing on the national level, C. Wright Mills argued that a group he termed the “power elite”—consisting of the heads of large corporations, government (especially in the executive branch), and the military—made the major decisions in American political life, irrespective of the interests of the majority.Footnote ⁶ Both Hunter and Mills dismissed the idea that politicians involved in the day-to-day activities of governing were at the primary centers of influence. Congress, where much of the daily life of American politics occurs, was a component of what Mills called the “middle levels of power.” The real power, according to Mills, rested with those who made the “big” decisions, such as the order to drop the atomic bomb in World War II.

Hunter and Mills were subjected to a ferocious set of criticisms, by political scientists as well as sociologists.Footnote ⁷ A major problem with the work of the elite theorists, especially Mills, was a failure to consider a series of political decisions. Beyond his example of the decision to drop the bomb, Mills provided virtually no evidence of what the power elite actually did. Instead, he focused primarily on demonstrating that the heads of major American institutions hailed disproportionately from privileged backgrounds and that they tended to run in the same circles.Footnote ⁸ A decade after the publication of The Power Elite, G. William Domhoff published the first of many books in which he attempted to demonstrate the existence and persistence of what he termed the “governing class.” Moving beyond Mills, Domhoff offered an explicit model of the policymaking process, along with several historical illustrations.Footnote ⁹

One criticism of the elite theory approach, offered by Marxist critics as well as pluralists, is the nonfalsifiability of its model.Footnote ¹⁰ If the elite consistently dominates the society and operates only in its self-interest, unaccountable to the general public, then how do we account for situations in which outcomes appear to run contrary to the elite's interests? How, for example, do we explain the passage of workers’ compensation legislation in the early 1900s, or policies such as Social Security and the Wagner Act (which gave workers the right to form unions) in the 1930s? Pluralists can explain these working class victories by assuming that they were put in place by elected officials who were responding to the needs of their constituents. But if members of Congress are mere functionaries at the middle levels of power, and members of the executive branch are acting primarily in the interests of the elite rather than the general public, then why would the elites have agreed to support policies that benefited disadvantaged members of the society, especially if they appeared to run counter to elite interests?

As Swenson notes, elite theorists have tended to respond to this criticism by arguing that the elites created the policies in order to forestall even more radical legislation. In this view, moderates within the business community were willing to support a certain amount of government amelioration of social problems because they feared that without such accommodations, the workers would revolt. This was the case in the first decade of the twentieth century, when socialist ideas were taking root among American workers, and in the 1930s, when the Great Depression raised questions for a large segment of the population about the viability of capitalism. Although the idea that these policies resulted from public pressure is consistent with pluralism, elite theorists argue that it was neither electoral politics nor conventional interest group pressure that produced the reforms, but rather the threat of disruption of the system. A third group of scholars, originally within the Marxist tradition but later including a group of non-Marxist political scientists, have argued that policies such as Social Security were the result of class conflicts between business and labor.Footnote ¹¹ Interestingly, as Swenson notes (p. 2), some of the more recent proponents of this position, including Jacob Hacker and Paul Pierson, also adopted the view, consistent with the earlier elite theorists, that the capitalists who supported the Social Security Act did so for strategic reasons, to prevent more radical alternatives.

What all of these scholars share, according to Swenson, is the view that businesspeople are opposed to government policies that benefit either workers in particular or the larger population in general. The reasons for this opposition are straightforward: Social programs are expensive and are usually funded through taxes, the cost of which in a progressive tax system falls largely on wealthy organizations and individuals. By providing a certain degree of security, they may reduce the degree of desperation that workers experience, thus rendering them less pliant as employees. The programs may cut into the profit opportunities of private firms, such as, for example, when the government provides insurance that might otherwise be available through for-profit corporations. And many members of the American business community may genuinely believe that government intervention is inefficient and creates a drag on the dynamism of the economy.

On the other hand, as Swenson points out, few contemporary scholars have considered an alternative possibility: Perhaps some welfare state programs are actually consistent with business economic interests. Businesses may indeed have supported such programs, and their support might have been not merely a defensive measure—a proactive, anticipatory effort to forestall more radical legislation—but rather a genuine reflection of their own costs and benefits. As Kolko and Weinstein suggested with regard to the rise of regulation in the early twentieth century, perhaps business saw the state as an ally rather than an adversary.Footnote ¹² Consider the case of Social Security. From approximately 1910 well into the 1920s, many large corporations adopted benefit programs for their workers, among them a series of pension programs.Footnote ¹³ After the onset of the Great Depression, it became increasingly difficult for these companies to maintain their payments. The Social Security Program promised to offload the responsibility for pension expenditures onto the federal government, thus significantly reducing the costs for business. In fact, as Quadagno has noted, some companies even reduced the amount of their pension payments by the exact amount that their retired workers were receiving from Social Security.Footnote ¹⁴

Swenson's primary focus is on Medicare, the single-payer health insurance program for the elderly that was passed in 1965, with the overwhelming support of Congress, including more than half of the Republicans in the House of Representatives and nearly half in the Senate. The dominant view among political scientists is that Medicare was passed despite virtually unanimous opposition from the business community as well as the American Medical Association. As Swenson points out, however, most accounts have focused on the two largest national organizations of businesses, the U.S. Chamber of Commerce and the National Association of Manufacturers (NAM), both of which were strongly opposed to Medicare. The problem, Swenson notes, is that the leaders of these organizations did not necessarily reflect the views of their rank-and-file members, nor did the organizations necessarily reflect the views of business as a whole. Although these organizations promulgated extremely conservative ideas—several leaders of the NAM were even involved with the ultra-right-wing John Birch Society—and were opposed to virtually any attempts by the government to provide social benefits for the general population, journalists who were covering the debates over Medicare in the early 1960s presented a very different picture. As Swenson shows, Business Week was advocating a federal plan akin to Medicare as early as the spring of 1960. Lyndon Johnson's widespread support among big business did not appear to suffer after the passage of the bill in 1965. John W. Byrnes, the ranking Republican on the House Ways and Means Committee noted that corporations such as General Motors and General Electric did not oppose the plan (p. 7). And a survey conducted by the Eastern division of the NAM itself indicated that barely one-third of the group's members were opposed to government coverage of those over 65.

Why might big business, or at least certain segments of the group, have not opposed Medicare? Similar to the earlier issues involving Social Security, the vast majority of the largest American corporations provided health coverage for their employees, and most of those provided coverage for their retirees as well. Health care costs for the elderly were becoming increasingly expensive, and companies stood to save millions of dollars if the government were to assume those costs. Even the insurance companies were not necessarily opposed, since health insurance for the elderly was not necessarily a clear profit maker. Although some industries, most notably restaurants, hotels, and especially pharmaceuticals, did oppose Medicare, most apparently did not.

Swenson's evidence is more convincing on some issues than on others. He makes a strong case that the NAM and the Chamber, however strongly opposed they were to Medicare, were not representative of business opinion in general, especially of large corporations. His suggestion that members of Congress were unconcerned about NAM and the Chamber, viewing them as extremists, is also persuasive. The fact that President Johnson was more likely to solicit the views of corporate presidents than those of the business associations (p. 15) provides further support for the latter's relative weakness. And Swenson makes a plausible case for why Medicare might have been in the economic interests of a wide range of businesses.

Swenson does a better job of demonstrating business neutrality on the program than outright support, however. Although he presents some evidence of the latter—several insurance company executives actually testified before Congress in favor of the plan (p. 13)—most of his examples indicate that corporations did not actively oppose the bill. This lack of opposition is no small fact. Business opposition has certainly sunk the prospects of many attempts at reform, often preventing an issue from even arising in the first place, and the fact that big business allowed the plan to go forward largely without a fight is of considerable significance.Footnote ¹⁵ It is not the same as active support, however.

Let us assume, for the sake of discussion, that big business generally did support Medicare (an assumption, based on Swenson's argument, that I am willing to accept). What, then, are the implications of this support for Swenson's more general point—that business is not necessarily opposed to government social policies? Here I see not so much a problem with Swenson's argument as a limitation of scope, one I would like to extend. For if Swenson is correct that government can be as much an ally as an opponent of business, as I believe he is, it does raise the question of under what conditions each is likely to occur. This phenomenon, I shall argue, is historically contingent, the variation of which can be accounted for by the changing nature of American big business over the past several decades. Swenson's argument, I suggest, is considerably more persuasive in the case of Medicare than it is for the Clinton and Obama health care plans.

THE LARGER HISTORICAL CONTEXT

To understand the passage of Medicare, it is worthwhile to consider the political context of the period in which it emerged. In the three decades after World War II, American big business exhibited a set of attitudes and actions that differ significantly from those of its counterparts today. Regardless of the extent to which the leaders of the NAM and the Chamber of Commerce faithfully reflected the views of their members, it is undoubtedly accurate to say that most American businesspeople have traditionally expressed conservative views on most economic issues. These views include widespread support for free markets (notwithstanding a willingness to accept government subsidies where available), opposition to taxes and government social spending, and (especially) opposition to organized labor. At various points in American history, however, including the early 1900s, the 1930s, and from the end of World War II into the mid-1970s, there was a relatively small group of large corporations whose leaders exhibited a more accommodating view toward government and unions.

This group, which I refer to as the American corporate elite, was epitomized by the Committee for Economic Development (CED), an organization formed in the early 1940s.Footnote ¹⁶ Massive government spending for the buildup for World War II had brought the American economy out of the Great Depression, but many business leaders remained concerned that once the war ended, the economy would return to its earlier state. The CED's original goal was to develop a plan for the postwar economy. Consisting of the leaders of several major corporations as well as a handful of academics, the CED, in sharp contrast to the Chamber of Commerce and the NAM, adopted a relatively moderate stance on economic and social issues. The group was especially critical of the laissez-faire economic views that prevailed among most businesspeople at the time, advocating instead the Keynesian economics that had become prominent among academics and liberal politicians. As its founders, William Benton and Paul Hoffman, put it, one important goal of the group was to “rescue the businessman from his own intellectual neanderthalism, to wash the clichés of an outworn ideology from his mind.”Footnote ¹⁷ The members of the CED were not liberals, nor were they altruists, and the vast majority were Republicans. They believed in a perspective that they later termed “enlightened self-interest,” a view that their own privileges as members of the society's elite depended to a great extent on ensuring that the society rested on a strong foundation. This meant, consistent with their Keynesian economic beliefs, support for relatively high wages for workers, to ensure sufficient purchasing power that the group viewed as necessary for a strong economy. It also meant support for a social safety net, as well as cautious support for civil rights and other social measures.

Whereas the extreme conservatism of the NAM and the Chamber left them outside the boundaries of what was considered the acceptable political discourse of the age, thus rendering them politically weak, the CED, although it was designed as a research organization, played a major role in policymaking. The group was instrumental in devising and persuading government officials to accept what became known as the Marshall Plan, the postwar economic reconstruction project for Western Europe. It was behind the Employment Act of 1946, which created the Council of Economic Advisers. Its proposal to tax defense contractors that were profiting from the Korean War was adopted by the Eisenhower administration. And the group's members played a major role in the cabinets of both Democratic and Republican administrations. Importantly, several members of the CED had served in the government during the war, and according to Marion Folsom, an officer of Eastman Kodak and the group's first vice president, this experience led the businesspeople to “appreciate [how difficult it was to run a] government and [thus] not be so critical of it.”Footnote ¹⁸ This provides one explanation for Swenson's argument that big business and government were as much allies as opponents.

Given the strong differences between the CED, on one hand, and the NAM and Chamber, on the other, Swenson is also correct to note the absence of unity within American business. This masks an important point, however. Unlike the two older organizations, the CED came to represent the elite within the corporate world, and the group was intimately involved in the politics of the era. And within the CED itself, as well as at the top of the corporate community in general, there was a relatively high degree of unity during that period. In fact, part of the CED's goal was to mediate potential disputes between different sectors of business. Although conflicts continued to exist, between the auto and steel industries, for example, the corporate elite of the period was far more successful in acting collectively in support of agreed-upon policies than their counterparts of today.Footnote ¹⁹

The CED continued its influence through the 1960s and into the early 1970s. The group was instrumental, for example, in the increased federal support for education, science, and space exploration in response to the Soviet Union's launching of the Sputnik satellite in 1957. The organization also played a prominent role in President Kennedy's 1963 tax cut, one of the American government's first examples of deliberate deficit spending to spur the economy.Footnote ²⁰ There is little indication that the CED played a role in the development of Medicare, but neither is there any evidence of opposition from the group. The CED did introduce a comprehensive health care plan in 1973, which closely mirrored the plan proposed by President Richard Nixon in 1974, although it is not clear who influenced whom.Footnote ²¹ This plan, which was considerably more sweeping than the proposals introduced decades later by Presidents Bill Clinton and Barack Obama, was derailed by the Watergate Scandal, and health care largely disappeared as a political issue until the late 1980s. By that point, however, a series of events had significantly altered the ability of big business to accomplish its political goals. These developments led to an environment very different from the one in which Medicare was enacted, and thus they have important implications for Swenson's narrative involving the Clinton and Obama plans.

THE CHANGING POLITICAL ENVIRONMENT FOR BUSINESS

Although the American corporate elite maintained its generally moderate and pragmatic orientation into the 1970s, the group experienced a series of crises during that decade that led to a rightward shift in its politics, as well as a gradual but ultimately dramatic decline in its ability to engage in effective collective action. The United States had emerged from World War II as the world's dominant economic power. The American economy prospered during the following quarter century, experiencing high growth, low unemployment and inflation, and an average standard of living that more than doubled between 1946 and 1970. By the early 1970s things had changed, however. Countries in Europe and East Asia, especially Germany and Japan, had recovered from the war and their firms were becoming increasingly serious competitors with American companies, in many cases producing superior products at lower cost. The ambitious social programs of the 1960s combined with the escalation of the Vietnam War created inflationary pressure on the American economy. An energy crisis, precipitated by a sharp increase in the global price of oil, exacerbated what was already a difficult situation, leading to a simultaneous presence of high inflation and unemployment. These events led American business leaders to begin to question the Keynesian economic orthodoxy that had prevailed in recent decades. Meanwhile, American society was also experiencing significant social turmoil, a consequence of the controversy over the Vietnam War and the Watergate Scandal, which led to a decline in the legitimacy of major societal institutions, including business. Corporations were also facing increasing regulation as a result of two major agencies that had been created during the Nixon administration: the Environmental Protection Agency and the Occupational Safety and Health Administration. The confluence of these factors led a number of major business figures to see themselves as under siege, leading to a reassessment of the moderate approach they had adopted in the postwar period. Members of the CED began to increasingly question the organization's mission.

In response to this perceived crisis, the leaders of American big business began a gradual turn to the right. One consequence of this was an increasing willingness to ally themselves with traditional conservatives, a group that big business had previously shunned as outside the realm of acceptable political discourse. A new organization of Fortune 500 chief executives, the Business Roundtable, founded in 1973, began to replace the CED as the primary organ of big business opinion and collective action. Although it was less conservative than the NAM and the Chamber, the Business Roundtable rejected the CED's notion of “above the fray” balance, instead viewing itself as a lobbying group for the interests of large corporations. The American business community, large and small alike, experienced a historically unprecedented (and ultimately temporary) period of political unity during the 1970s. Working together, business mounted an assault on government regulation, organized labor, and what it viewed as excessively high taxes. Despite a Democratic president and Congress in the late 1970s, the business community was able to accomplish virtually all of its goals, as well as thwarting efforts by its adversaries to enact labor law reform and establish a consumer protection agency. Ronald Reagan's election in 1980 proved to be the icing on the cake, as Reagan appointed heads of regulatory agencies whose sympathies were much closer to those of business than to workers or environmentalists. By the early 1980s, the corporate elite had succeeded in defeating the forces that in earlier decades had kept it in check. In particular, the concept of government as a source of social good had been completely delegitimized, and organized labor had been severely weakened. The corporate elite had reestablished its preeminence.

An ironic thing occurred as a result of these victories, however. Having achieved virtually everything they had sought, large corporations no longer had the urgency to be organized that they had experienced in the 1970s, or even earlier. As we moved into the 1980s, the big business community became increasingly fragmented as well as ineffective. This first became evident in 1982, as different sectors haggled over whose taxes were to be increased to reduce the deficit that had occurred as a result of President Reagan's 1981 tax cuts. It became more evident in the tax reform bill of 1986, which included tax increases for business that the Business Roundtable was unable to prevent. Richard Darman, a Reagan administration official, suggested, in noting the business defeat on this issue, that “they were brought down by the narrowness of their vision. Precisely because they defined themselves as single special interests, they failed to notice their collective power,” Darman argued.Footnote ²²

It was on health care that the increasing fragmentation and weakness of the American corporate elite became most evident. The late 1980s witnessed an acquisition wave of unprecedented proportions. Nearly one-third of the Fortune 500 disappeared during the decade, and more than 20 percent were subjected to hostile takeovers.Footnote ²³ By the time the dust had settled, the leaders of large American corporations were operating under very different conditions from what their peers in earlier years had experienced. Under increasing pressure from the capital market to maximize shareholder value, corporate CEOs no longer had the luxury of thinking in terms of long-term goals. Executive tenure declined sharply during the period, and CEOs, under constant threat, focused on their firms’ short-term stock price.

While the CEOs faced continually increasing scrutiny, their firms’ costs for health insurance were rising rapidly, and by the late 1980s the crisis had become so severe that substantial numbers of leading company officials were calling for the government to step in. As Swenson points out, the evidence for business support of a significant overhaul was, if not overwhelming, quite substantial. A 1991 survey of Fortune 1000 executives found that 53 percent were willing to consider mandates that employers provide health care for their employees, more than 50 percent believed that government intervention was necessary to control costs, and 32 percent were willing to replace the existing system with a public health insurance system.Footnote ²⁴ A Dun & Bradstreet survey of small businesses, which both Swenson (p. 18) and I cited, found that 38 percent supported a national health insurance program, with 39 percent opposed and 23 percent uncertain—in other words, a virtual tie, even among small businesspeople, between those who did and did not support such a systemFootnote ²⁵ Perhaps even more shocking was the fact that both the NAM and the Chamber were initially supportive of the Clinton health plan.Footnote ²⁶

Ultimately, the Clinton plan failed, but the process by which this occurred, alluded to in passing by Swenson, was crucial: Big business in effect backed down in response to threats from congressional Republicans. Swenson (p. 19) describes it as “a dramatic episode of ‘reverse lobbying,’” in which Republican leaders in Congress “browbeat the Chamber, the NAM, and the Business Roundtable” (p. 19), causing them to withdraw their support for the plan. Congressional Republicans even threated to slap additional regulations on Ameritech if the company refused to cancel a planned speech by President Clinton.Footnote ²⁷ Republican members of Congress also encouraged rank-and-file members of the Chamber of Commerce to protest the organization's leadership's support of the Clinton plan, which led many to resign their membership in the Chamber and instead join a small business lobbying group, the National Federation of Independent Business.

Swenson's story here again rings true, but I would take issue with one point: Although there is plenty of evidence for business support of the Clinton health care plan and a noticeable lack of opposition to the later Obama plan (which passed), if business officials have been willing to make their peace with the welfare state, then why have they not taken a further step that would appear to be in their economic self-interest, by supporting a single-payer system?

In 2009, according to a calculation I made, the 500 largest American corporations spent approximately $375 billion on health care for their employees, or an average of three-quarters of a billion dollars per firm.Footnote ²⁸ Based on reported annual increases in health care costs, this figure would have increased to approximately $481 billion by 2015.Footnote ²⁹ If we assume similar levels of increase in the following two years, the Fortune 500 spent approximately $530 billion in 2017, or more than $1 billion per firm. A report by the RAND Corporation indicated that employers in Indiana paid 3.5 times what Medicare paid for the same outpatient services between 2013 and 2016.Footnote ³⁰ We know that Canada, with a single-payer system, has health care costs that are barely half of those in the United States, with better outcomes.

Corporations’ health care costs, even in a single-payer system in which they were relieved of the obligation to cover their employees, would of course be far from zero. The funds to pay for the plan would have to be generated somewhere, either through a payroll tax (to which employers would presumably have to contribute) or a general tax increase that employers would have to pay. Nevertheless, these costs, as the examples of Medicare and the Canadian system suggest, would be considerably lower per capita under such a system, with its far lower overhead costs and the ability of the government to negotiate prices, and they would be spread across the entire population. Why, then, has the American business community failed to propose or support such a system?

One possible answer is that there is some support. In interviews that Maria Farkas and I conducted, we found at least some CEO support for a single-payer system, although unanimous opposition among company human resources officers.Footnote ³¹ I would argue, however, that there are two factors that have prevented the elite from introducing such a plan. First, the group's current fragmentation has made it nearly impossible for it to act collectively on virtually any issue on which it might otherwise have an interest. Consider the many recent issues on which the big business community has failed to achieve success, including immigration reform, infrastructure repair, the deficit, enacting a gasoline tax to support the Highway Trust Fund, preventing the recurrence of government shutdowns, and now perhaps even trade (one issue on which the elite did manage to have success, at least in the 1990s). It is not even clear that the tax reform bill enacted in December 2017 was supported by large corporations, despite the significant decrease in the corporate tax rate. And virtually no large corporations supported Donald Trump for president.Footnote ³²

Beyond the question of whether big business is capable of acting collectively in pursuit of its interests is whether it is blinded by ideology from even considering them. One CEO whom Farkas and I interviewed, who himself was sympathetic to a European-style system, noted that many of his peers simply have an aversion to the government getting involved in a major policy initiative. “One [view] inside the business community,” he told us, “is a belief that anything the government touches is bad. There is a strong libertarian component … within the business community. … So there are many who, regardless of any pragmatic benefit to their company, are opposed in any way to government run programs. … It just doesn't sit well with their philosophy.”Footnote ³³ Is this CEO correct about the views of his colleagues? Consider that in a 1971 survey of ninety-five Fortune 800 executives, Allen Barton found that nearly 80 percent of them supported at least some level of Keynesian economics (only 10 percent fell into the category of “anti-Keynesian conservatives).Footnote ³⁴ He also found that 60 percent of these executives agreed with the statement that “the federal government should support the creation of jobs in the public sector for those for whom the private sector does not provide employment.”Footnote ³⁵ These views are certainly consistent with either support for or an absence of opposition to a program such as Medicare that Swenson shows existed in the 1960s. Although corresponding data for the present do not exist, does anyone believe that more than a small minority of today's leading corporate executives would exhibit such positions? Assuming that today's executives would find such views hopelessly radical, we can infer that their views on the welfare state are unlikely to be as conciliatory as the executives during the Medicare period half a century ago. Although Swenson is therefore absolutely correct to point out that there is no necessary basis for business hostility to the welfare state, the extent to which corporations will support welfare state measures is likely to be highly variable across different historical periods.