Interesting article that seems to reflect on the public mood of the times.
DYNASTIES!
by KEVIN PHILLIPS
Maybe it's time for a new set of Fourth of July orations. Only at
first blush is there silliness to the idea of the United States--the
nation of the Minutemen, John and Samuel Adams and Thomas
Jefferson--becoming a hereditary economic aristocracy. When you think
about it, there is evidence for serious concern.
More than a decade ago, the United States passed France to have the
highest inequality ratios of any major Western nation. More and more
of the country's richest clans have been setting up family offices,
captive trust companies and other devices to manage and entrench their
swelling fortunes. The elimination of the inheritance tax being sought
by the Bush Administration will only make that entrenchment easier.
Politically, we already have a dynasty at 1600 Pennsylvania Avenue:
the first son ever to take the presidency just eight years after it
was held by his father, with the same party label. This dynasticism
also has its economic side: both Bushes, p?re et fils, having been
closely involved with the rise of Enron, another first for a
presidential family, more on which shortly.
If we lack an official House of Lords, there are Bushes, Tafts,
Simons, Rockefellers, Gores, Kennedys and Bayhs out to create a
kindred phenomenon. Laura Bush is the only wife of a 1996 or 2000
major-party presidential nominee who has not yet entertained seeking a
US Senate seat in her own right. The duchesses of Clinton, Dole and
Gore have already considered (or acted).
A soft, blurry kind of cultural corruption has all but muted
discussion. Dynasty is no longer a bad word, and in the wake of this
semantic revision, the inheritance tax supported by Presidents from
Lincoln to FDR has been renamed the "death tax" by George II and may
be heading toward extinction. Small-business men from Maine to San
Diego are already dreaming of founding personal dynasties, built on
lobsters-by-mail or Buick dealerships.
Progressive taxation--only a memory for most--died in the 1980s as
regressive FICA taxes replaced income levies as the heaviest tax paid
by a majority of American families. The First Amendment to the US
Constitution, in turn, is not far from being twisted by the courts to
include fat-cat political donations within the protection of free
speech. Cynics might suggest that George Orwell set his book 1984 two
decades too early.
But democracy is being eroded more by money and its power than by
skilled semantics. For want of insights and data often unobtainable
from the corporate media, the public opinion vital to US democracy has
trouble remaining vigorous and informed. Many politicians are
themselves part of the national economic elite, and others depend on
that elite for campaign funding. History tells us that America
overcame kindred problems in the Progressive era a century ago. The
national will to do so again, however, is hardly clear.
The menace of economic and political dynastization is that it flies
under the radar of the Americans who grew up believing that the
democratic values of World War II and Franklin D. Roosevelt, carried
by another leadership generation into the 1960s, would last forever.
Instead, the 1980s and '90s ambulanced many of those values to an
ideological emergency ward. But much of the liberal and progressive
community--caught up in older micro-issues--has found the changing
?ber-philosophy difficult to grasp.
A similar thing happened in the mid-to-late-nineteenth century, when
aging Jeffersonians and Jacksonians remained lulled by the egalitarian
implant of those earlier days, as well as by the post-1783 elimination
of the British system of entail and primogeniture, which kept estates
intact at death. Finally, in the 1880s, it became clear that the
advent of large corporations, enjoying a long legal existence and
constitutional rights equivalent to persons, had provided the
framework for the rise of a new aristocracy. Hundred-year-old reforms
and shibboleths had become irrelevant.
By this point, the average American had stopped believing the old
Fourth of July speeches about how the forefathers had anticipated
every danger. From Maine to California, citizens saw railroads taking
control of state politics. Muckraking journalists began to employ a
new descriptive term: plutocracy. As the trusts and monopolies
flourished while America's largest fortunes grew tenfold and
twentyfold between 1861 and 1901 thanks to stock values, it became
clear that some critical safeguards were missing. Luckily, the need to
bridle railroads, trusts and monopolies, and to tax the incomes and
inheritances of the rich, voiced with increasing clarity by Theodore
Roosevelt, Woodrow Wilson and the Progressives, brought significant
results by 1914. FDR added further reforms during the New Deal years.
As of 2002, alas, old New Deal memories and 60 cents will get you a
candy bar. The transformation of the US economy and its supporting
politics since the 1960s has been staggering; and especially so since
the 1980s, with the growth of financialization, wealth concentration,
economic elitism and dynastization. Millionaires' income tax rates
dropped so fast in the 1980s, for example, while those of people in
the middle rose with FICA increases, that in 1985 the two almost met.
Back in 1937, an economics writer named Ferdinand Lundberg wrote about
how "America's Sixty Families" (and another hundred lesser clans)
owned a huge chunk of US business through their corporate stock
holdings. Six decades later, the current "overclass" probably begins
with the largely overlapping quarter-million "deca-millionaires" ($10
million and up) and the quarter-million Americans with incomes in
excess of $1 million a year. But for sticklers, the 2000 equivalent of
the rich families of 1937 could be the roughly 5,000 clans having
assets of $100 million or more.
Today, following the havoc of the biggest two-year major market
debacle since 1929, many of the Internet fortunes are gone, while the
established rich are very much with us and, by and large, sleeker than
ever. This was also true in 1937, parenthetically, when researcher
Lundberg's discourse paid hardly any attention to the nouveau-riche
aviation, radio, motion picture and electric gadget fortunes of the
Roaring Twenties. Most had shriveled or vanished between 1929 and
1932. The old money was back on top.
So it is again, although a third of the tech billionaires of 1999 have
kept billionaire status, a much better ratio than in 1929-32.
Nevertheless, what is striking in the current lists is the
entrenchment of established families through the good offices of the
Dow Jones and the S&P 500. The top 1 percent of Americans own about 40
percent of the individually owned exchange-traded stock in the United
States, and own an even higher ratio of other financial and corporate
instruments.
The median US family, depending on the calculus, has only $6,000 or
$9,000 of stock, a benefit overshadowed during the 1990s because its
debt level rose by a good deal more. The financialization of America
since the 1980s--by which I mean the shift of onetime savings deposits
into mutual funds, the focus on financial instruments, the
giantization of the financial industry and the galloping preoccupation
of corporate CEOs with stock options instead of production lines--has
been a major force for economic polarization. This is because of its
disproportionate favoritism to the top income and wealth brackets. The
never-ending stream of 1980s and '90s bailouts of banks, S&Ls, hedge
funds, foreign currencies and (arguably) stock markets by the Federal
Reserve has been another prop.
The upper-tier hogging of the economic benefits of the 1990s can be
approached from a number of directions, but hardly anyone controverts
that the top 1 percent made out like bandits. The New York Times, for
example, reported that 90 percent of the income gain going to the top
fifth of Americans went to the top 1 percent, who are only a twentieth
of that top fifth. Some scholars bluntly contend that attention should
focus on the top one-tenth of 1 percent, because these are the raw
capitalists and money-handlers, not the high-salaried doctors, lawyers
and Cadillac dealers.
In 1935, Franklin Roosevelt proclaimed that "the transmission from
generation to generation of vast fortunes by will, inheritance or gift
is not consistent with the ideals and sentiments of the American
people," but politics became friendlier to wealth in the 1960s and
'70s, and positively effusive in its courtship during the 1980s and
'90s. Over the past two decades, the same soaring costs of seeking
office that drove middle-class office-seekers to sell their souls to
big contributors also made dynastic heirs appealing to political
parties that were looking for self-funding nominees or those whose
famous names gave them a built-in fundraising edge. Two billionaires,
Ross Perot and Donald Trump, actually sought the presidency or talked
about it during the 1990s.
The number of US senators with serious multimillion-dollar fortunes,
in the meantime, has begun to approach the high set back in the early
1900s, when senators were appointed by state legislatures to whom
money spoke easily and powerfully. This ended in 1913, when the
Seventeenth Amendment to the Constitution provided for popular
election of senators, although the submergence of politics in today's
money culture has accomplished somewhat the same thing, despite
popular election.
As for Presidents, nineteenth- and twentieth-century White House
service was not much of a pathway to getting rich. Most had government
pensions and some other income, but few who didn't come to Washington
rich left that way unless they inherited. What seems to have happened
over the past twenty years, however, is that several
Presidents--George H.W. Bush and the Hamptons-craving Bill
Clinton--have decided to swim with the money culture. While Clinton
was governor of Arkansas, wife Hillary held a number of corporate
directorships. Now Clinton's post-White House speechmaking and
deal-seeking looks perfectly normal in an ethically loose sort of way.
The first Bush Administration probably represents the critical
transition, both in the grabby behavior of family members and in the
gravitation of top officeholders toward political investment banking,
scarcely camouflaged lobbying and defense contract involvement. These
practices, indeed, were vaguely reminiscent of the Whig grandees who
ruled eighteenth-century England under the first George I and the
first George II. One even gets the sense that the Bushes and their
entourage came to see this kind of profiteering as their due, much
like the families and associates of Walpole, Pelham and Newcastle.
George H.W. Bush's father and grandfather, investment bankers at old
white-shoe firms, both had high reputations, but erosion soon set in.
Even as the senior Bush was seeking a second term in 1992, the
newspapers buzzed with the financial and deal-making escapades of his
brothers and sons.
The most interesting Bush family involvement is with Enron. Over the
twentieth-century emergence of modern government ethics, no
presidential family has had a parallel relationship. As a senator,
Lyndon Johnson buddied with Texas companies like Brown & Root, but its
fingerprints on his presidency weren't all that notable. Georgia's
Jimmy Carter was close to his home-state corporate giant, Coca-Cola,
and Richard Nixon brought the Pepsi-Cola account to his law firm
during the 1960s.
Episode by episode, none of the Bushes' Enron involvement seems to be
illegal. Before 2000-01, moreover, the ties weren't overwhelming in
any one national administration. However, the only way that a
chronicler can seriously weigh the Enron-Bush tie is by a yardstick
the American press has never really employed: the unseemliness of a
sixteen- or seventeen-year interaction by the members of an American
political dynasty in promoting and being rewarded by a single US
corporation based in its home state.
Enron was organized in 1985, and within a year or two, Vice President
Bush was chairing the Reagan Administration's energy deregulation task
force and his son George W., through one of his succession of minor
energy companies, had an oil-well deal with Enron Oil & Gas. The first
Bush Administration saw passage of the Energy Policy Act of 1992,
which obliged utility companies to transmit energy shipped by Enron
and other marketers, while the Bush-appointed Commodity Futures
Trading Commission created a legal exemption allowing Enron to begin
trading energy derivatives. Enron chief Ken Lay, one of Bush Senior's
top election contributors, was made chair of the President's Export
Council.
Several years later, when George W. became governor of Texas, Lay
asked him to receive visiting dignitaries from places Enron hoped to
do business with, and by the time Bush got to the White House, Enron
was his biggest contributor. Former Enron officials, advisers and
consultants wound up getting several dozen positions in the new
Administration, including White House economic adviser, Secretary of
the Army and US Trade Representative. These were important to Enron on
issues ranging from energy policy to its ambition to open up foreign
markets by bringing exports of energy and water services under the WTO
trade framework.
Had Bush tried to bail out Enron in November or December of 2001, his
personal and dynastic ties to the company would have come under
intense scrutiny. Without that bailout, most of the Washington press
corps has been content to leave alone the much larger story--the
apparent seventeen-year connection between the Bush dynasty and Enron.
Even without such information, it seems clear, counting campaign
contributions, consultancies, joint investments, deals, presidential
library and inaugural contributions, speech fees and the like, that
the Bush family and entourage collected some $8 million to $10 million
from Enron over the years, which is more than changed hands in
Harding's Teapot Dome scandal. Depending on some still-unclear
relationships, it could be as high as $25 million.
Obviously, this sort of dynastic financial outreach is not confined to
Republicans. When Bill Clinton left the White House in a glare of
unfavorable publicity over his last-minute pardons, especially that of
fugitive financier Marc Rich, some of the focus was on money paid to
or arrangements made by his wife's two brothers. Nor is it confined to
Presidents. Texas Senator Phil Gramm and his wife, Wendy, got
themselves referred to in Barron's Financial Weekly as "Mr. and Mrs.
Enron" for his legislative work on the company's behalf at the same
time that she was taking home money and company stock as an Enron
director.
Because the dynastic aspect of American wealth and politics has been
growing much faster than public (and press) appreciation of its
ballooning significance, much of this record has received little
attention. The neglect, however, is something that American democracy
cannot afford. If Americans still believe in what Franklin Roosevelt
said back in 1935 about the unacceptability of inherited wealth and
power--and frankly, even if few have thought about it--a whole new
political, ethical and economic agenda calls out for immediate and
vocal embrace.
It's easy to limn broad outlines--further reform of campaign finance
(perhaps including a constitutional amendment), federal tax changes,
maintenance of the federal inheritance tax (certainly on estates over
$3 million or so) and regulatory overhauls to curb the widespread
corporate abuses pushed into the spotlight by Enron, Tyco and the
accounting and brokerage firms. Still, a century ago, and then again
in the early 1930s, the critical impetus for Americans' insistence on
reform came from stock-market crashes and deep economic downturns. In
2002, we have had the first but not yet the second--and since 9/11,
antiterrorism has been a rallying point, with patriotism offered to
the electorate in lieu of economic concern.
As for economic and political dynastization, the United States is not
the first republic to tilt in this direction. Rome did, and in the
eighteenth century even the once proudly middle-class Dutch Republic
let many of its offices become hereditary. Let's hope Americans do not
also allow political and economic inheritance to displace democracy.
"If a man really wants to make a million dollars, the best way would be to start his own religion"
L. Ron Hubbard
