Notes on an excellent book

Reading Thomas Ferguson’s Chomsky-recommended Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems (1995). In an interview on Youtube he repeats an excellent point made by Jesse Jackson in his 1988 campaign: the U.S. subsidizes and sells arms to authoritarian regimes in Third World countries that destroy labor unions (with the help of U.S. wealth and technology), which results in persistent low wages in those countries. This, in turn, causes American companies to relocate their operations to those countries or to use that prospect as a bludgeon against unions, which then leads to lower wages and the destruction of unions in America too. You see the implications. A global decline in wages and workers’ power occurs, and “society increasingly takes on the appearance of two opposed classes,” or whatever the quotation is from Marx. In the age of globalization, power-structures are able to transfer capital and military technology to wherever they have to in order to extract high profits and suppress labor movements. If you looked at the world from the standpoint of a Martian you would see a mass of wealth and armaments constantly circulating globally among a small group of elites, traveling to wherever it was needed at the moment, wherever discontent was threatening to get out of hand and/or money could be made quickly. Fortunately the situation is too volatile to last forever.


Anyway, the obvious implication that struck me is that if the U.S. government had a real interest in raising American workers’ incomes, it would stop supporting the suppression of labor movements elsewhere in the world.


The investment theory of parties is opposed to the more conventional “critical realignment theory,” which “understands political change primarily in terms of changing patterns of mass voting behavior.”


Most American elections, it considers, are contests within comparatively stable and coherent ‘party systems.’ While any number of short-term forces may momentarily alter the balance of power within a particular party system, and cumulative, long-run secular changes may also be at work, the identity of individual party systems rests on durable voting coalitions within the electorate. So long as these voting blocs (which in different party systems may be defined variously along ethnic, class, religious, racial, sexual, or a plurality of other lines) persist, only marginal changes are likely when administrations turn over. Characteristic patterns of voter turnout, party competition, political symbols, public policies, and other institutional expressions of the distribution of power survive from election to election.

‘Normal politics,’[1] of course, is not the only kind of politics that occurs in the United States. The ‘critical realignments’ of critical realignment theory refer to a handful of exceptional elections -- those associated with the New Deal and the Great Depression of the 1930s, the Populist insurrection of the 1890s, the Civil War, and the Jacksonian era are most frequently mentioned, though other dates have also been proposed -- in which extraordinary political pressures find expression. Associated with the rise of new political issues, intense social stress, sharp factional infighting within existing parties, and the rise of strong party movements, these ‘critical’ or ‘realigning’ elections sweep away the old party system. Triggering a burst of new legislation and setting off or facilitating other institutional changes that may take years to complete, such elections establish the framework of a new pattern of politics that characterizes the next party system.


This theory emphasizes popular control of public policy; sweeping changes are ascribed to voter sentiment. Unfortunately, a lot of evidence has recently been collected that suggests that “the durable voter coalitions which are supposed to underlie party systems never existed, and that so-called critical realignments are not only very difficult to define, but simply have not witnessed major, lasting shifts in voter sentiment.” Three researchers sympathetic to the theory argue that, contrary to its predictions, “indications of substantial continuity of the alignment of electoral forces across virtually the whole sweep of American electoral history can be observed.... Electoral patterns do not, by themselves, clearly and unequivocally point to the occurrence of partisan realignment.” In other words, partisan realignments, which have indisputably occurred periodically, can apparently not be explained by (massive changes in) electoral behavior. So we need another explanation. Ferguson provides one: in his theory, business elites, not voters, play the leading part. Parties are not what they have typically been conceived of, as machines to get out the vote. Instead, their real market consists of major ‘investors.’ (The word ‘investor’ is to be understood in a broader sense than the ordinary ‘investor of capital.’) “Blocs of major investors define the core of political parties and are responsible for most of the signals the party sends to the electorate.”


During realignments, I shall argue, basic changes take place in the core investment blocs which constitute parties. More specifically, realignments occur when cumulative long-run changes in industrial structures (commonly interacting with a variety of short-run factors, notably steep economic downturns) polarize the business community, thus bringing together a new and powerful bloc of investors with durable interests. As this process begins, party competition heats up and at least some differences between the parties emerge more clearly.... Assuming that the system crisis eventually eases....the fresh ‘hegemonic bloc’ that has come to power enjoys excellent prospects as long as it can hold itself together. Benefiting from incumbency advantage and the chance to implement its program, the new bloc’s major problem is to manage the tensions among its various parts, while of course making certain that large groups of voters do not become highly mobilized against it -- either by making positive appeals to some or by minimizing voter turnout, or both.


Ordinarily most voters can have almost no influence on public policy because they don’t sufficiently invest themselves in it. They have other priorities, e.g. living their lives. Hence, it will be major investors who set the political agenda. One predictive consequence of this theory is that “on all issues affecting the vital interests that major investors have in common, no party competition will take place.” This is clearly borne out by the evidence. Certain issues, namely the most important ones to voters, rarely show up in campaigns; and when something like healthcare reform does, it’s because one bloc of major investors no longer has an interest in ignoring it. If you look at polls you’ll see that voters’ attitudes on healthcare reform haven’t changed much in decades -- they’ve wanted national health insurance. But major investors haven’t, so it hasn’t happened.


Interesting point Ferguson makes in a footnote: “In regard to the progress of the movement for women’s rights, it surely mattered a great deal that two of the biggest and fastest-growing sectors in the early stages of industrialization -- textiles, and the brewing and liquor sectors -- were dead set against women’s suffrage. One was opposed because initially women’s suffrage would likely have led to a stronger political position for its own workforce (which included many women and children); the other because of the leading roles women played in the Temperance campaign. Nor was it accidental that the final successful campaign for women’s voting rights coincided with World War I, when public hysteria and official investigations had virtually immobilized the heavily German-oriented brewers.”


Ferguson briefly analyzes the successive party systems of American history: Federalists vs. Jeffersonian Republicans, the Jacksonian system, the Civil War system, the system of 1896, and the New Deal system. I would add that the most recent system has been the one that began in the 1980s, as the New Deal system finally collapsed. Even Ferguson’s short sketch of that system in the first chapter is very interesting. He thinks that the most important segment of Roosevelt’s political coalition was not workers, blacks and the poor but “a new ‘historical bloc’ of high-technology industries, investment banks, and internationally oriented commercial banks.” Nonetheless, masses of ordinary voters did succeed for the first time in organizing themselves and “pooling resources to become major independent investors in a party system. Their success in this decade contrasts vividly with their failures during previous party systems, and vividly underscores the investment theory of political parties’ strictures on the importance of distinguishing between simple rises in voter turnout, such as characterized the Jacksonian Party System, [and which are emphasized by conventional electoral theories of politics] and the real growth in the political power of mass voters that came with their effective organization.” Mere high levels of voting aren’t enough; organization is necessary, because unless you invest enormous resources in politics you won’t achieve anything.


Ferguson attributes the rise of right-wing nationalist sentiment in the Republican party during the 1950s and 1960s to the revival of world economic competition, which “sharpened protectionist tendencies in industries like steel, textiles, and shoes.” These and other industries were probably more important to Goldwater’s 1964 campaign than conservative grassroots movements, which, after all, would have gotten nowhere without funding.


Enlightening thoughts on business and politics in the early 20th century. Investment and commercial bankers had been in the Democratic party in the 1880s and part of the 1890s because it stood for free trade and I don’t know why else (I suppose it was also a little more pro-labor than the Republicans, and banks had no particular reason to be rabidly anti-labor); the Republican was the party of industrialists -- high tariffs, anti-labor, etc. But banks went over to the Republican party in the late 1890s when Free Silver and Populist advocates briefly captured the Democrats. (Banks favored the gold standard, I suppose because it meant a lower money supply and thus lower inflation.) Financiers stayed with the Republicans because their massive investments in the late ’90s and after in huge trusts that gave them a controlling stake in industry caused them to have largely the same interests as industry -- protectionism, etc. So Republicans, being, on the whole, the party of both finance and industry, dominated the era. World War I upset this situation. Many industrial firms became even more ardent economic nationalists because the worldwide industrial expansion had “left them face to face with vigorous foreign competitors.” The labor-intensive ones also remained viciously anti-union. On the other hand, capital-intensive firms like Standard Oil and General Electric, which had grown disproportionately during the war, preferred to be more conciliatory with their workforce, and the really strong ones favored lower tariffs, “both to stimulate world commerce and to open up other countries to them.” International banks shared these interests, because the war had turned the U.S. from a net debtor to a net creditor country, which meant that American banks wanted Europe to recover economically so as to pay off its debts. And in order to do that, European countries had to run export surpluses. “They needed to sell around the world, and they, or at least someone they traded with in a multilateral trading system, urgently needed to earn dollars by selling into the United States.” American banks therefore opposed the high tariffs that protected much American industry. –The conflict between, on the one hand, banks and capital-intensive, internationally oriented firms and, on the other hand, labor-intensive, protectionist industries like steel, textiles and coal, “runs through all the major foreign policy disputes of the 1920s: the League of Nations, the World Court, the great battles over tariffs,” and so on. Initially the protectionist forces had the upper hand: “they defeated the Leagues, kept the U.S. out of the World Court, and raised the tariff to ionospheric levels. But most trends in the world economy were against them. Throughout the 1920s the ranks of the largely Eastern internationalist bloc swelled.” The largest firms of the multinational bloc “also dominated major American foundations, which were coming to exercise major influence not only on the climate of opinion but on the specific content of American public policy.”


Incidentally, a number of businessmen in the capital-intensive, multinational bloc “played important roles in virtually all major developments in labor policy across the 1920s. These included the campaign that forced the steel industry to accept the eight-hour day; the milestone Railway Labor Act; and the increasing criticism of the use of injunctions in labor disputes....that eventually led to the Norris-La Guardia Act” of 1932.


“Under all these accumulating tensions the elite core of the Republican Party began to disintegrate.” (Another interesting side-note is that the fact that a lot of leading bankers were Jewish fomented the era’s anti-Semitism among industrialists like Henry Ford, who propagated the prejudice.) Many major businesses went over to the Democrats. But things got complicated in the late 1920s and especially with the onset of the Great Depression. Herbert Hoover was in thrall to big banks, which caused him to keep America on the gold standard (even after England had gone off it) and oppose expansionary monetary policies as well as deficit-financed government expenditures. Industrialists and farmers also wanted even higher tariffs, but Hoover wasn’t sympathetic. “Hoover’s commitment to gold began driving inflationist, usually protectionist businessmen out of the GOP to the Democrats.” Even some powerful bankers came to support Roosevelt -- and bank reform as eventually embodied in the Glass-Steagall Act, which completely separated investment from commercial banking -- as they saw that workers, farmers and many industrialists were “up in arms against finance in general.” Under pressure from almost everyone but banks, Roosevelt took the country off the gold standard in 1933, which helped the economy. His NRA, too, was good for industrialists and farmers, was in fact a coalition built around them. Thus, by the miracles of political alchemy, the formerly free-trade (and even more formerly bank-representing) Democratic party had temporarily become the party of protectionists and industrialists. The capital-intensive, multinational bloc discussed above was still (I think) loyal to the Democratic party, but for the moment its interest in free trade, insofar as it still existed in the depths of the Great Depression, was subordinated to the country’s need for the NRA-administered “national recovery.”


But not for long. The NRA was only a modest success, and Roosevelt turned toward freer trade and away from proposals for more inflation. That is, he embraced the banks and the capital-intensive industries that had good long-term prospects in the world economy. And so was born, as Ferguson says, “the first successful capital-intensive-led political coalition in history,” in 1935 or ’36, with the Second New Deal. This is when the party system of 1896, which had been defined by the hegemonic unity of (labor-intensive, protectionist) industry and finance in the Republican party, finally passed away into a new hegemony of capital-intensive, internationally oriented industries and (most) banks. (Hence “multinational liberalism.”) Unlike labor-intensive industries, they could afford to support, indeed to help write, the Wagner Act and the Social Security Act. In the election of 1936, when he was inveighing to the public against “economic royalists,” Roosevelt was being supported and funded by a galaxy of bankers and executives from oil, GE, IBM, tobacco, ITT, Sears Roebuck, etc. etc.


Ferguson’s investment theory of politics is so obvious, especially after you’ve read all his empirical substantiations of it, that you can’t help but be....unsurprised it has been attacked by mainstream political scientists, including Theda Skocpol. Obviously it isn’t the only way to understand political dynamics, as though no other approach has any value, but it’s clearly central to a full understanding. Contrary to Skocpol’s criticisms, I doubt that Ferguson significantly overestimates the role of business in American politics.


In another essay Ferguson starts out by noting that, despite all the propaganda, no ‘right turn’ occurred in the 1980s among the public. Polls prove this. As one author says, “the policy right turn of the Reagan years cannot be accounted for as a response to public demands.”


[1] That reminds me of Kuhnian ‘normal science.’ The whole theory is reminiscent of Kuhn’s work on scientific revolutions.


© 2014-2019 by Chris Wright