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When Capitalists Go on Strike
It’s not just “money in politics” — capitalists get what they want through structural power over the economy.
Shawn Kelley / Flickr
by Kevin Young, Tarun Banerjee, & Michael Schwartz
A manufacturer refuses to invest in the United States until the government cuts taxes and loosens “environmental regulations and hiring rules.” The CEO of a top technology firm flatly states that the $181 billion stored in an overseas tax haven won’t come “back until there’s a fair rate.” Despite several trillion dollars in reserves, banks and corporations collectively refuse to make loans or hire new employees.
In response, politicians from both parties seek to encourage investment by enacting pro-business reforms. The president begs business to add jobs while aggressively pushing pro-corporate trade deals, cutting corporate taxes, and scrapping regulations. Meanwhile, his administration floods financial institutions with low-cost public cash in the form of bailouts, careful not to infringe on banks’ power. To lure capital back from offshore tax shelters, presidential candidates from both parties propose cutting corporate taxes and reject punitive or coercive measures.
Capitalists routinely exert leverage over governments by withholding the resources — jobs, credit, goods, and services — upon which society depends. The “capital strike” might take the form of layoffs, offshoring jobs and money, denying loans, or just a credible threat to do those things, along with a promise to relent once government delivers the desired policy changes.
Government officials know this power well, and invest great energy and public resources in staving off fits by malcontent capitalists. The profoundly rotten campaign finance system is just one manifestation of business’s domination over government policy. The real power resides in the corporate world’s monopoly over the flow of capital.
Recent investigations into Donald Trump’s past unearthed a telling example. In the late 1970s, the real-estate magnate used a hotel project in Manhattan to extract millions in tax breaks from the city. The bankrupt government granted Trump an unprecedented forty-year waiver on all real-estate taxes for his 42nd Street Grand Hyatt hotel in return for his investment in its construction.
The backdrop was the 1970s New York City financial crisis, during which virtually all investment had come to a halt. City and state leaders rationalized the subsidy by arguing that Trump and Hyatt would break the capital strike. The hoped-for flood of new development, however, did not materialize until the Municipal Assistance Corporation — a committee dominated by Wall Street bankers empowered to do whatever it took to bring investment back — imposed a buffet of business-friendly “spending decisions.”
Some might argue that Donald Trump represents a particularly noxious breed of capitalist, making this example atypical. But Obama’s presidency shows just how routine these practices are. While capital strikes are common to all capitalist countries, they were especially important in the Obama era. Despite strong voter support for progressive changes, his administration did little to challenge corporate power, inequality, militarism, and the growing climate catastrophe. Even the most timid efforts at reform were either defeated or watered down to appease entrenched interests.
For example, Obama was elected with a clear mandate for strong financial reform, yet his administration did not prosecute even one person responsible for the crisis and took only weak measures to prevent the next one. Commentators often cite campaign donations, lobbying, Republican obstructionism, or Obama’s own conservative inclinations to explain this record. But private control over investment is the root of the problem: the banks’ decision to sustain disinvestment after the 2008 crash gave them the power to shape any legislation that sought to rein them in.
The Corporate Choice
During Obama’s first year in office, the United States experienced the most damaging episode of disinvestment since World War II: nonfinancial businesses were sitting on $2 trillion in capital, while banks kept another $1 trillion. Companies were holding cash at rates not seen in half a century. A Bloomberg report found that “companies that are spending . . . have largely chosen to increase dividends and buy back stock” rather than hire more workers, increase wages, or invest.
This was not simply an automatic market response to low demand. Obama himself recognized that businesses were making a discretionary choice. His February 2011 speech at the Chamber of Commerce, according to the Wall Street Journal, offered “tax breaks and other government support for exports and innovation” in return for domestic investment.
Three initiatives to “repair relations with corporate America” represented Obama’s side of the bargain: first, he renewed the Bush tax cuts on the wealthy and lowered corporate tax rates; second, he continued his predecessors’ deregulatory agenda, contrary to his campaign promises; and, finally, he enhanced export opportunities and investment privileges through new trade agreements with South Korea, Colombia, and Panama, and later pursued the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP).
These policies did little to address unemployment and low consumer demand, and were not meant to do so. They were instead a response to unrelated corporate demands. Obama’s promotion of trade/investment treaties — presented as a means to “make sure” business was “hiring” — makes this apparent. Trade agreements can only produce new hires if they increase production, if that production takes place in the United States, and if it requires expanding the workforce. In practice, neoliberal trade agreements tend to reduceemployment.
The fact that these policies did not directly address disinvestment demonstrates the power of capital strikes: policies unrelated to a crisis’s initial cause can be pushed through if the relevant corporations make these unrelated policies a condition for ending their strike.
Preventing Unfavorable Legislation
The capital strike threat prevents policymakers from seriously considering many popular and sensible reforms. Many such provisions never even appeared in drafts of the Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). As bailouts continued, the Obama administration ruled out any legislative option that would either force banks to absorb their losses or place them under government control.
The administration carefully calibrated its public language to avoid even the suggestion that it might pursue such options. In his 2014 memoir, Treasury Secretary Timothy Geithner asserted that “loose language stoking fears about haircuts [i.e., forcing creditors to take losses] or temporary nationalization [involving direct government administration] could be instantly destabilizing” — to the flow of investment capital, that is.
The administration also refused to consider size limitations or restructuring policies, despite regulators’ and economists’ conviction that too-big-to-fail financial institutions cause chronic destabilization. A 2013 bill that would have imposed higher capital reserves requirements on larger banks and the oft-discussed restoration of Glass-Steagall — which would have separated commercial banking from riskier investment activity — also disappeared.
Again, the administration crafted its language to avoid scaring business. In 2014, when Obama made an extemporaneous remark about potentially “restructuring the banks themselves,” White House spokespersons moved quickly to reassure bankers that no such initiatives were being discussed.
These cases are not exceptional. In her 2012 memoir, Sheila Bair, chair of the Federal Deposit Insurance Corporation (FDIC) from 2006–2011, recounted constant warnings from industry representatives that “our regulatory initiatives would hurt lending.” She went on:
"Throughout my tenure at the FDIC, that was the standard refrain from industry lobbyists virtually anytime we tried to rein in risky practices or ask the industry to pay for the costs of bank failures."
Such threats would shape the Dodd-Frank Act, eliminating or watering down various other proposed regulations.
While the threats’ specifics varied, they shared a basic message: we will withhold investment in the real economy if certain reform measures are even considered. Disinvestment from Main Street — and the threat that the strike might spread to new areas — wielded tremendous power, ensuring that certain proposals were taken off the table from the start.
You fail to see whose fault it really is.......Only state sponsored and protected crony capitalists can afford to strike......
