An Impotent Republic

We need to be careful not to conflate a failed state with capitalism’s normal cruelties. Capitalists in America seek to limit social welfare benefits, break unions, and force workers into unsafe jobs at low wages — but so do capitalists in every other country. While all capitalists benefit by minimizing their taxes and making workers as vulnerable to exploitation as possible, they also have an interest in suppressing pandemics, winning wars, fostering technological innovation, and building infrastructure. The American state today is quickly losing the capacity to achieve all of those goals.

Through much of the twentieth century, the US state successfully accommodated capitalists’ interests while creating conditions that allowed for growing profits and capital accumulation over the long term. With the exception of the New Deal and World War II eras, the United States was never a world leader in offering social benefits. But neither has it ever been as dysfunctional as it is now.

Since its inception, the American state has fostered economic growth and technological innovation, built a national infrastructure, increased the educational level of much of its population, and constructed a public health and hospital system that advanced life expectancy throughout the twentieth century. It was also able to build and maintain a world empire with military and diplomatic corps that cost a declining percentage of GDP.

With the exception of imperialism, all of these accomplishments benefited ordinary people as well as capitalists.

So how do we explain the American state’s declining ability to yield concrete results from its enormous expenditures? Why is the US state failing at tasks it was able to successfully accomplish in the past? After all, the American state turned a collection of small colonies into first a regional and then a world power, before finally achieving global hegemony in the middle of the last century. Despite high levels of inequality and the enormous toll of slavery and institutional racism, it delivered a rising standard of living for much of its population, who became, for a time, the most prosperous people in the world.

Where did all that money go? And how were powerful state capacities lost?

From a Capitalist Class to Autarkic Elites

Most of the time, individual capitalists don’t act as a single class. They are unwilling to sacrifice their particular interests and their immediate profits for the good of their class, let alone their nation. Instead, they identify and conceive their personal interests in terms of the firms or organizations that they control.

Capitalists in America, in fact, rip off the public and even one another in uniquely egregious and consequential ways. Pharmaceutical corporations and their managers realize outsize profits through their virtuosic ability to enforce patents and bribe physicians to prescribe overpriced drugs rather than cheaper generics. Hospitals and other providers get rich by overcharging and mistreating patients, forcing the companies that pay for their employees’ health insurance to bear the cost. Enron used its connections to politicians to enrich itself by manipulating state energy markets, defrauding large industrial firms as well as ordinary consumers. Most fatefully, financial firms manipulate markets and engage in self-dealing and outright fraud to siphon profits from homeowners, local banks, and even corporate clients. Executives at big corporations and banks reward themselves with cartoonishly large pay packages and stock options, thereby robbing the shareholders for whom they supposedly work.

It does not have to work this way. Effective states are able to enforce discipline on elites — limiting their competition with one another while preventing them from looting both taxpayers and their own organizations. The New Deal created an architecture of regulations that divided industries and markets between national and local banks and firms, protecting smaller, locally based businesses from being crushed by large corporations. National firms were linked together by interlocking directorates centered on the largest banks. Those ties allowed large corporations to devise joint positions on government policy. However, the biggest firms’ power was limited and balanced by local firms that exercised influence on congressional members, who are elected locally, and in state governments.

From the 1930s through the 1960s, American elites were constrained thanks to unions and other mass organizations. It was this worker strength that limited capitalists’ ability to reduce their own taxes, demand subsidies, engage in unproductive speculation, evade regulation, and impose their particular interests on US foreign policy. This created space for the state to raise enough revenues and allocate those funds to projects of economic development and social investment that improved life for millions.

It’s true that workers’ gains here were limited in comparison to European social democracies, especially for oppressed groups. Nevertheless, the American state was successful in pursuing policies over decades that created global hegemony, tamed economic fluctuations, and produced a skilled and productive working class. The US state had a depth of expertise and capacity that allowed it to respond to geopolitical and economic challenges. It was this state that was able to exploit opportunities to dominate emerging industries and technologies and to subordinate rivals, above all the Soviet bloc.

But when the federal government, beginning with the Nixon administration, stopped enforcing antitrust laws, this capacity began to unravel. These policies, followed by Democrats as well as Republicans, upset the New Deal–designed balance between national and local firms. From the 1970s to the present, each merger eliminated a firm that had an interest, and a degree of political sway, in blocking further mergers and regulatory changes.

The banking and telecommunications reform acts of the 1990s had failed to pass Congress in earlier decades due to counteractive lobbying by sectors of those industries with opposed interests. Mergers resolved those disagreements by simply absorbing secondary sectors into larger firms, resulting in enterprises that came to share the most general interest of their industries. Deregulation then opened the way to further waves of mergers and acquisitions, intensifying elite consolidation within major industries at the expense of the public.

Consolidation within sectors facilitated the capture of government agencies and powers by elites, narrowing the room for state officials to initiate new programs or expand the scope of existing ones. That, in turn, reduced opportunities for politicians to offer benefits that could build alliances among non-elites, demobilizing workers and other mass groups.

Facing such weak state and class actors, elites are able to block new social programs that threaten both their hold over existing budget items and their capacity to profit by providing services such as health care, education, credit, and retirement benefits. These are services that could be offered directly through the government but that instead are left to the private sector, with the government often paying inflated prices for them, either directly or through tax subsidies.

Elites’ leverage over the state has been strengthened further as business leaders have formulated and lobbied for NAFTA and other free trade treaties, deregulation, and tax cuts.

US fiscal policy and budget priorities are increasingly set by such deals, which reflect the power of consolidated corporate elites over politics and policy. This is different from the unified national elites of the 1945–68 period. Contemporary elites do not use their financial and organizational muscle to push for broad national policies, with the exceptions of anti-labor legislation and trade agreements. Rather, they use their leverage over legislators and regulators to win privileges that can best be described as autarkic.

The goal of an autarkic elite is different from that of a capitalist. They’re not interested in shaping the overall economy or formulating programs and policies with national reach. Instead, they seek to appropriate resources from the federal, state, and local governments — and to secure laws and regulations that protect their particular, narrow interests and profit opportunities from competitors, both foreign and domestic, while undermining the rights of their customers, clients, and employees.

How Elite Looting Creates State Failure

A growing portion of the federal budget is now allocated to the long-standing financial claims of existing elites that also enjoy the right to shelter portions of their income and assets from taxation. By locking up public resources and paralyzing the state’s regulatory power, these elites create state failure in a variety of arenas. Current examples include:

1. Subsidies, water rights, and access to federal lands for the overproduction of agricultural commodities that can then be sold abroad, thanks to provisions that US negotiators have placed in trade treaties. This results in pollution of the land, monocultures that are highly vulnerable to disease, and poor diets for Americans, while impoverished farmers elsewhere in the world are bankrupted by imports of US commodities.
2. Federal lands that are opened to oil, gas, and coal extraction, contributing to global warming while undercutting green energy. The holders of these underpriced leases are joined by loggers and ranchers, who have no obligation to pay for the environmental effects of their exploitation of public lands, which are then borne by public funds and health.
3. The commitment of a sector of the federal budget to a Medicare drug plan that pays prices significantly higher than anywhere else in the world for drugs developed mainly in government and university labs, or for copycat drugs designed to extend patents that have no medical advantage over older generic drugs through “product hopping” — small, clinically insignificant changes in drug formulations.
4. Federal tax and direct subsidies for the export of technology and capital to foreign subsidiaries and customers, which reduces US tax revenues, exports jobs, and makes it impossible to pursue the sort of industrial policies that propelled American economic growth in the century between the Civil War and the 1970s, and that are today followed by successful governments throughout the world.
5. The growing share of federal student loans that are channeled to for-profit colleges and trade schools, even as they charge much more than state schools, fail to graduate most of their students, and account for almost half of all student loan defaults, despite enrolling less than one-tenth of post-secondary students.

Together, these financial claims and immunities ensure either growing deficits or, even in times of fiscal stability such as the late 1990s, an inability to finance new public projects for infrastructure and the development of human capital.

Elite Power and Political Paralysis

In theory, electoral politics can provide a mechanism both to challenge elite power and for capitalists collectively to rein in predatory autarkic elites who threaten the entire system. American elections served that purpose in both the 1860s and 1930s and, to a lesser degree, in other eras.

However, in the twenty-first century, US voters are unable to challenge the elites that have created a permanent state fiscal crisis and that perpetuate their privileges in the tax code, in the federal budget, and in biased regulations, laws, and court decisions.

Democratic failure sustains and deepens this unraveling. Voters’ waning influence builds on itself, leading to justified cynicism and declining participation, which only deepens elite control over the state. Most of the techniques that work to undermine electoral democracy have been pioneered by the Republican Party, but mainstream Democrats have reacted in ways that fortify rather than challenge Republican subversions of democracy, thereby stymieing possibilities for reform.

The twenty-first-century Republican Party, like the southern Democratic Party from Reconstruction until the 1965 Voting Rights Act, has sought to overcome the unpopularity of its policies with a strategy of ensuring its opponents are simply unable to vote. The Supreme Court and lower federal courts have been essential to these voter suppression strategies. Judges allow a broadening array of methods that make it difficult for the young and poor to vote. People are needlessly required to show identification when they vote, and Republicans in Texas recently passed a law that accepts a concealed handgun permit but not a university ID as proof of identity.

Even more egregious is the fact that a growing number of states now purge their voter rolls. The Supreme Court’s 2013 decision in Shelby County v. Holder eliminated the section of the Voting Rights Act that required states and localities with histories of racial discrimination to receive preclearance from the Department of Justice before making any changes in voting laws. This opened the floodgates, as Republican-controlled states rushed to enact provisions that make it even harder to vote. Polling sites in African American neighborhoods were swiftly closed, and early voting was severely restricted.

State legislatures now engage in ever more extreme forms of gerrymandering, drawing congressional and state legislative district lines in ways that favor one party, a strategy that until recently aided conservative Democrats as well as Republicans. However, recent victories by leftists in Democratic primaries, most notably Alexandria Ocasio-Cortez, show how gerrymandering can backfire.

People vote in hopes that, if their candidates are successful, they will be able to implement their electoral promises. But the elite stranglehold over much of government policy blocks reform, making elections seem meaningless and further discouraging political mobilization.

Political campaigns are privately financed in the United States, giving capitalists enormous leverage over candidates and then elected officials. The volume of money the rich can invest in campaigns has been magnified by Supreme Court decisions that have done away with most limits on contributions and spending. The flood of money from corporations and the rich has overwhelmed the lesser amounts that labor unions can afford to spend on campaigns.

Privately financed campaigns offer an inherent advantage for Republicans, the party that openly adopts pro-rich policies. Democrats face a choice of either aping Republican positions in the hopes of getting campaign contributions from the rich — thereby disillusioning their working-class base — or championing social-democratic policies. The latter was the New Deal strategy adopted by FDR and continued, to a lesser extent, from Harry S. Truman’s administration through Lyndon B. Johnson’s.

Such a strategy was feasible when Democrats could count on campaign financing and volunteers from labor unions, which included more than a quarter of the US labor force until the mid-1970s. Democrats could also count on receiving money from capitalists who adopted the pragmatic strategy of donating to incumbents, which benefited Democrats while they remained in the majority in Congress until 1980. Since then, almost all Democrats have adopted policies designed to elicit contributions from the rich while pivoting to cultural issues.

This leads the poor to question why they should go to the trouble of obtaining an approved form of identification and waiting in long lines on Election Day if all they will receive, should the Democrats win, is access to complex programs that provide only limited assistance of the sort that Biden offers now, Hillary Clinton promised in 2016, and Obama delivered in 2009–10.

The Road From Failure

Labor strikes and mass protest have long created openings to challenge capitalists.

Autarkic elites are particularly vulnerable to popular pressure, because their special privileges do not necessarily benefit other elites. This means that, if push comes to shove, they can more easily be sacrificed than the interests of a unified capitalist class.

Elites first undermined popular political agency by robbing the US state of the resources and thus the ability to deliver social benefits. As strikers and protesters increase the frequency and intensity of their actions and widen the scope of their demands, they can counter this by building a virtuous political cycle.

Each success in changing government policies and redirecting spending creates a picture of political efficacy and shows the benefits of electing socialists and progressives who can enact programs — and block elite demands — without having to wait for people to mount yet another protest. Such victories can rebuild the US state’s capacity as it undermines elite autarky, converting a failing state into one that can become a viable instrument for delivering a decent life to all people.

It’s no doubt a gargantuan task that lies ahead. But after the last few decades, we have no other choice but to kick-start what Bernie Sanders called a “political revolution” — because as brutal as a functioning capitalist state can be, a failed one only holds new nightmares for us all.