CONTRIBUTORS

The real grand bargain is coming undone

Posted Aug. 26, 2011, at 6:23 p.m.

Despite all the recent talk of “grand bargains,” little attention has been paid to the unraveling of a truly grand bargain that has been at the center of public policy in the United States for more than a century.

That bargain — which emerged in stages between the 1890s and 1930s — established an institutional framework to balance the needs of the American people with the vast inequalities of wealth and power wrought by the triumph of industrial capitalism. It originated in the widespread apprehension that the rapidly growing power of robber barons, national corporations and banks (like J.P. Morgan’s) was undermining fundamental American values and threatening democracy.

Such apprehensions were famously expressed in novelist Frank Norris’s characterization of the nation’s largest corporations — the railroads — as an “octopus” strangling farmers and small businesses. With a Christian rhetorical flourish, William Jennings Bryan denounced bankers’ insistence on a deflationary gold standard as an attempt to “crucify mankind upon a cross of gold.” A more programmatic, and radical, stance was taken by American Federation of Labor convention delegates who in 1894 advocated nationalizing all major industries and financial corporations. Hundreds of socialists were elected to office between 1880 and 1920.

Indeed, a century ago many, if not most, Americans were convinced that capitalism had to be replaced with some form of “cooperative commonwealth” — or that large corporate enterprises should be broken up or strictly regulated to ensure competition, limit the concentration of power and prevent private interests from overwhelming the public good. In the presidential election of 1912, 75 percent of the vote went to candidates who called themselves “progressive” or “socialist.”

Such views, of course, were vehemently, sometimes violently, opposed by more conservative political forces. But the political pressure from anti-capitalists, anti-monopolists, populists, progressives, working-class activists and socialists led, over time, to a truly grand bargain.

The terms were straightforward if not systematically articulated. Capitalism would endure, as would almost all large corporations. Huge railroads, banks and other enterprises — with a few exceptions — would cease to be threatened with nationalization or breakup. Moreover, the state would service and promote private business.

In exchange, the federal government adopted a series of far-reaching reforms to shield and empower citizens, safeguarding society’s democratic character. First came the regulation of business and banking to protect consumers, limit the power of individual corporations and prevent anti-competitive practices. The principle underlying measures such as the Sherman Antitrust Act (1890), the Pure Food and Drug Act (1906) and the Glass-Steagall Act (1933) — which insured bank deposits and separated investment from commercial banking — was that government was responsible for protecting society against the shortcomings of a market economy. The profit motive could not always be counted on to serve the public’s welfare.

The second prong of reform was guaranteeing workers’ right to form unions and engage in collective bargaining. The core premise of the 1914 Clayton Act and the National Labor Relations Act of 1935 — born of decades of experience — was that individual workers lacked the power to protect their interests when dealing with large employers. For the most poorly paid, the federal government mandated a minimum wage and maximum hours.

The third ingredient was social insurance. Unemployment insurance (1935), Social Security (1935), and, later, Medicaid and Medicare (1965) were grounded in the recognition that citizens could not always be self-sufficient and that it was the role of government to aid those unable to fend for themselves. The unemployment-insurance program left unrestrained employers’ ability to lay off workers but recognized that those who were jobless through no fault of their own (a common occurrence in a market economy) ought to receive public support.

These measures shaped the contours of U.S. political and economic life between 1940 and 2000: They amounted to a social contract that, however imperfect, preserved the dynamism of capitalism while guarding citizens against the power imbalances and uncertainties that a competitive economy produces. Yet that bargain — with its vision of balance between private interests and public welfare, workers and employers, the wealthy and the poor — has been under attack by conservatives for decades. And the attacks have been escalating.

The regulation of business is decried now, as it was in 1880, as unwarranted interference in the workings of the market: Regulatory laws (including antitrust laws) are weakly enforced or vitiated through administrative rule-making; regulatory agencies are starved through budget cuts; Glass-Steagall was repealed, with consequences that are all too well known; and the financial institutions that spawned today’s economic crisis — by acting in the reckless manner predicted by early 20th-century reformers — are fighting further regulation tooth and nail. Private-sector employers’ fierce attacks on unions since the 1970s contributed significantly to the sharp decline in the number of unionized workers, and many state governments are seeking to delegitimize and weaken public-sector unions. Meanwhile, the social safety net has frayed: Unemployment benefits are meager in many states and are not being extended to match the length of the downturn; Republicans are taking aim at Medicaid, Medicare, Social Security and Obamacare. The real value of the minimum wage is lower than it was in the 1970s.

These changes have happened piecemeal. But viewed collectively, it’s difficult not to see a determined campaign to dismantle a broad societal bargain that served much of the nation well for decades. To a historian, the agenda of today’s conservatives looks like a bizarre effort to return to the Gilded Age, an era with little regulation of business, no social insurance and no legal protections for workers. This agenda, moreover, calls for the destruction or weakening of institutions without acknowledging (or perhaps understanding) why they came into being.

In a democracy, of course, the ultimate check on such campaigns is the electoral system. Titans of industry may wield far more power in the economic arena than average citizens, but if all votes count equally, the citizenry can protect its core interests — and policies — through the political arena. This makes all the more worrisome recent conservative efforts to alter electoral practices and institutions. Republicans across the nation have sponsored ID requirements for voting that are far more likely to disenfranchise legitimate (and relatively unprivileged) voters than they are to prevent fraud. Last year, the Supreme Court, reversing a century of precedent, ruled that corporate funds can be used in support of political campaigns. Some tea partyers even want to do away with the direct election of senators, adopted in 1913. These proposals, too, seem to have roots in the Gilded Age — a period when many of the nation’s more prosperous citizens publicly proclaimed their loss of faith in universal suffrage and democracy.

Alexander Keyssar is the Stirling professor of history and social policy at Harvard’s Kennedy School and the author of “The Right to Vote: the Contested History of Democracy in the United States.”

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