Political Parties Are Basically Bank Accounts

The flood of Wall Street money to campaigns is a threat to democracy, says one political science professor.

Sebastian Meyer

In 2008, Wall Street backed Barack Obama, preventing real financial reform, says Ferguson. (Photo via Flickr Creative Commons)

The battle for the president is also a battle for big money. So far, Barack Obama and Mitt Romney have collected almost $2 billion, more than any campaign before. At the moment Obama has collected slightly more ($1.06 billion versus Romney’s $954 million, and that doesn’t include dollars spent by Super PACs, political nonprofits and other outside groups). In recent U.S. history, the candidate who raised more money has always won, with the exception of Bill Clinton in 1996 and Ronald Reagan in 1980. Critics like Thomas Ferguson, a political science professor at University of Massachusetts, Boston, regard the current system of campaign finance and the influence of big money as a threat to democracy.

Think tanks exercise significant influence on both policy and public opinion, and they are virtually all coin-operated slot machines anxious to please donors.

Professor Ferguson, you’ve been researching the influence of money on U.S. politics for years. According to your investment theory of party competition, it’s not voters that influence policy results. It’s the interests of competing blocs of investors; Wall Street instead of Main Street. Could you elaborate on that and relate it to the actual campaign.

I’m a little behind, because the actual amount of money coming into the election campaign is just enormous. It’s like trying to catch Niagara Falls with a bucket. But my approach to politics is that the costs facing ordinary voters when they try to control the parties is very high. Power passes, largely by default, into the hands of blocs of investors. These guys organize to control the state. Since we have an open and decentralized party system, it’s a match made in heaven.

So there are enormous sums of money that plainly overwhelm the influence of voters on nearly everything. There’s just been a study by Martin Gilens, a politics professor at Princeton University, that shows that upper-income public opinion predicts policy outcomes pretty well, but there’s absolutely no impact for middle-class and lower-class voters’ public opinion. If they disagree with the rich, they can’t get anything. I do think that result is historically conditioned, though. So if you get a popular movement, you get results. I mean, the New Deal did happen. But in a situation like you’ve got right now, political parties are basically bank accounts. This argument used to be received with skepticism. Now, everybody’s getting it from the Super PAC phenomenon.

You mean the political action committees that give corporations, unions, associations and individuals the opportunity to raise and spend unlimited sums of money for or against political candidates?

Yes, they effectively allow folks to go outside the party system and just spend as much as they want. And the numbers are staggering. They are just in the hundreds of millions. It seems pretty plain to me that Romney, for example, largely bought the Republican nomination with those Super PACs. You could see that in the primaries, when he went into a state down 8 or 9 points then spent $200 to $300 million in Super PAC money, and then he usually steals the lead from whoever he’s running against — Santorum, Gingrich. He didn’t win them all, but most. That was a money story. When you get to the general election, the Democrats have a lot of money too. So what you get is two money blocs and a fair amount of common ground between the two candidates. You could see it in the TV debates.

But there are differences. Romney, a very rich businessman, is insulting the freeloading 47 percent” of the population and wants to keep the tax cuts for the rich. Obama, on the other hand, presents himself as the one who fights for the American middle class.

The Obama position is: The super-rich have to pay a little more. The Romney position is: They don’t have to pay anything. That’s it, folks, that’s the party difference in American politics. Now, there are also some differences on the budget. I was quite struck that Medicare and Social Security were quite muted issues in all three debates. Obama could attract ordinary voters on those issues. But if you look closely, the White House is very clearly signaling that they are going to trim those programs after the elections. When Biden gave a speech saying we won’t touch Social Security, the White House called him back and kind of re-phrased that. The Medicare group is plainly preparing to do some kind of a budget deal after the election. Now, if I may step out as a pure analyst: I think it is just ridiculous to be chopping Social Security. And Medicare has to be treated principally as a cartel problem, meaning you’ve got to get controls on medical costs. It’s not a question of just cutting off people’s access. It’s an oligopoly in its strongest form, but that’s not the way this problem is being presented.

And where is the big difference between the two parties regarding their campaign contributions and main donors?

In 2008 the financial community was overwhelmingly for Obama. That’s why I said in spring 2008, long before he got the nomination, you can forget financial reform. This year Obama still got substantial Wall Street support, but the main contributions have shifted around to the Republicans. The oil, coal, chemical and related industries are gigantically for the Republicans, something like 80 percent. If you take apart the famous stimulus plan, which was half-sized in my opinion, the Obama administration did put a lot of alternative energy in that stimulus. Even in the last TV debate, the president was quite straightforward about his interest in alternative forms of energy. The Republican Party simply hates that. So all the fools who try to deny that climate change is real — they are heavily biased for Republicans. That’s an enormous split. Then you have the usual bloc of folks supporting the Republicans who want basically no regulation of wages and hours, who simply hate the idea of unions or enforcement of fair labor regulation. One thing the administration has done in the last year or two, without many people noticing, is that they brought on a lot of cases on behalf of workers who were not able to collect their wages. That’s an endemic problem.

Is it still the old distinction that labor intensive industries support the Republicans and capital-intensive industries the Democrats?

I wrote that in the 1990s and I’m in the process of revisiting that. The American economy has changed in the last decades. For Wall Street, for example, labor costs weren’t a direct issue, but now there are more companies in the business of private equity. Private equity means you manage those firms — it’s not just investing, you actually have to run them. So you get a much more anti-labor climate even on Wall Street. I’m not trying to tell you that Wall Street in the 1940s loved labor unions. It didn’t. But it’s not like back then people thought they were going to lose money if they had to pay all the wages they owed to their workforce.

Is that also the reason why the financial industry shifted its support to the Republicans?

No. I think that basically boils down to the effort to implement mild regulation. It all traces to one event. The Senate election here in Massachusetts that was lost by the Democrats, that happened the week after Goldman Sachs and a string of other firms reported their bonuses. That drove a lot of voters crazy. Scott Brown, the Republican candidate, was at that time talking Wall-Street-critical Tea Party rhetoric, even though he was supported by a huge bloc of Wall Street firms. Now he is actually talking as a moderate Republican, a huge shift within two years. Well, that defeat shocked the White House: They thought they were on the verge of an electoral revolt. So they immediately rolled in [economist] Paul Volcker and tried to do some kind of more serious reform. I think the Dodd-Frank Act, which was to reform Wall Street and passed in 2010, is not much of a bill — a very mild reform. But of course it’s going to cost Wall Street money and that’s what divorced them from the Democrats.

Are there other examples of where you could observe the influence of money in the first Obama term?

Of course. There’s been an awful lot of lobbying on intellectual property rights. The biggest single decision was to not keep the promises on the so-called card-check bill that would have established a system to enable employees to more easily join labor unions. If you had wanted to do something about income distribution in the United States, that would have been the bill to push.

Are campaign contributions the main way big money exercises influence over politics?

Political money’s influence is felt in many ways. More money is spent on lobbying than direct political contributions. Think tanks exercise significant influence on both policy and public opinion, and they are virtually all coin-operated slot machines anxious to please donors. Political consultants are everywhere to be found in Washington, and almost every White House political appointee comes from that world no matter who is in power. There is also strong evidence that politicians receive stock tips and special investment advantages, along with their spouses, in many instances. In addition, there are solid studies indicating that corporate philanthropy targets political objectives. Perhaps the biggest influence, though, is the revolving door”: politicians, congressional aides and regulators all know that they can eventually leave their current positions for lucrative positions in the private sector — if they are seen as friendly to big money interests.

In 2008 Obama claimed that he wanted to reduce the influence of special-interest givers by attracting millions of small contributions.

Sure, they got some small money. But if you look closely, you see that the money was much more concentrated than anybody has suspected so far. The same thing is true this year. I mean, you’re not raising $2 billion from $2 contributions.

Let’s look at trade policy towards China. Both candidates said they want to get tough on China.

Well, for the last 15 years, U.S. policy towards China had been guided by investors’ rights, harming the interests of U.S. workers. Now, Romney named China a currency manipulator. And the implication is that he’ll immediately put up penalties if they don’t raise the value of their currency. But I don’t take that very seriously. In fact, the Chinese currency has already been going up. Also, the overwhelming majority of American multinationals still want to export from China, and that makes it a politically hot topic.

Who do you think is going to win the election?

That’s difficult to say — we’ve never had that volume of spending before. But my shaky bet is that Obama will win.

And looking at his contributions: what predictions can you make about which policies he will set?

What the money is telling me is that Obama has vast business support. He’s not a labor party candidate. And right after the election all the talk about protecting Social Security and Medicare is going to go down in favor of a budget deal.

Correction: This interview was not published in Tagesspiegel, as previously stated.

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Democratic Rep. Summer Lee, who at the time was a candidate for the state House, at a demonstration in Pittsburgh for Antwon Rose, who was killed by police, in 2018. Lee recently defeated her 2024 primary challenger.
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