Defining the State in 2016: America’s Financial Oligarchy

-- By LaurenRoemke - 11 June 2016

America’s state in 2016 most reflects a financial oligarchy. Even though Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread franchise, a few wealthy citizens and interest groups disproportionately control U.S. policymaking compared to median-income citizens. Over half the money given to presidential candidates in the first part of the 2016 campaign cycle came from just 158 families, and in 2012, lobbyists and interest groups spent $6.7 billion to influence Congress. As a result, people have lost faith in our political institutions; Americans’ trust in Congress declined from 42% in 1973 to just 7% in 2014. There is a widespread and accurate belief that our political institutions have lost all remnants of legitimacy and can no longer be used to effectuate change, as reflected by the Occupy Wall Street movement of 2008 and citizen rage in the 2016 election. In order to dismantle the oligarchic structure and create a participatory democracy, it will help to first understand the financial oligarchy’s origins and consequences.

Origins of America’s Oligarchy

Income inequality in the United States is largely due to the extremely high pay packages of top managers, also referred to as “supermanagers,” of large firms in the nonfinancial as well as financial sectors (Piketty, p.303). Changes in income taxes during the 1980s spurred the dramatic increase in salaries among corporate managers; “specifically, the very large decrease in the top marginal income tax rate in the English-speaking countries after 1980 seems to have totally transformed the way executive pay is set, since top executives now had much stronger incentives than in the past to seek large raises.” (Piketty, p.335). Although other countries similarly decreased top marginal income tax rates, social norms capped high pay packages, limiting the amount inequality from labor. Executive compensation of several million dollars a year is still more shocking today in Sweden, Germany, France, Japan, and Italy than in the United States (Piketty, p.333). Beneficiaries of the tax cuts and compensation packages could now use their accumulated wealth to finance political parties, pressure groups, and think tanks to achieve policies that tilted the playing field ever more steeply in their favor. The U.S. Supreme Court’s decision, Citizens United v. FEC (2010), allowed the wealthy few to gain an even stronger foothold in influencing U.S. policy by allowing unlimited funds to be spent in U.S. elections. America’s financial oligarchy has its origins in both the 1980’s tax cuts for the wealthy and skyrocketing compensation packages of senior managers of large firms. The shift in taxes and corporate governance attitudes not only enabled the concentration of wealth, but also of power through the use of the lobbying, revolving door policies, and campaign finance reforms.

Consequences of America’s Oligarchy

Holmes suggests that in order to understand something, we must look at what it does, or its consequences. In order to fully understand America’s financial oligarchy, we must look at what it does. First, it is not surprising that under a financial oligarchy, wealth inequality continues to grow. Today, the richest 10 percent of Americans own 72 percent of America’s wealth, while the bottom half claim just 2 percent (Piketty, p. 257). Second, laws in the U.S. disproportionately favor employers over employees. Of developed countries, the U.S. has the smallest percentage of women receiving paid maternity leave. U.S. employers also have greater freedom than their European counterparts when it comes to terminating employees. Lastly, unions in the U.S. have become more passive in the face of declining membership and aggressive management. Today, unions represent just 7.4% of private-sector workers and many are reluctant to strike for fear of repercussions. In 2008, American unions engaged in 159 work stoppages, down from 1,352 in 1981. These absences of employee protections impede the ability of workers to bargain for higher wages and salaries, creating a wider gulf between the haves and the have-nots. As a result, very few families have enough wealth to sustain a job loss or high medical bill. In fact, 44% of households have less than three months of savings to live above the poverty level. Considering the consequences of America’s financial oligarchy, it is clear that the wealthy elites are engaged in class-based, self-interested advocacy that tilts the playing field ever more steeply in their favor to the disadvantage of ordinary citizens.

Moving Forward

Recent events show that both democratic and republican voters distrust corporate financing of political campaigns. Donald Trump asserts that he has self-financed most of his campaign, while Bernie Sanders relied on the individual contributions of American citizens and Hillary Clinton asserted that she would appoint Supreme Court Justices who oppose the Citizens United decision. While the sincerity of these statements is uncertain, they were made to appeal to voters. Given the strong public sentiment against corporate influence in politics, there is hope that we can dismantle, or at least temporarily reform, America’s financial oligarchy. Steps to achieve this goal include enforcing existing campaign finance rules, increasing voting access for American citizens, appointing Supreme Court justices who disagree with the Citizens United and Buckley v. Valeo decisions, passing legislation that requires wealthy individuals and corporations who make large campaign contributions to disclose where their money is going, and amplifying the effect of small donations through a small-donor matching system. The founders of our country fought to create a participatory democracy, free from the kind of corruption and tyranny in England. The Women’s Suffrage and Civil Rights movement fought to expand democracy by including the voices of women and African Americans. It is our civic duty to honor this sacrifice of our forefathers by restoring power to the many, rather than the few.

• Oliver Wendell Holmes, Jr., The Path of the Law, 10 Harvard Law Review 457 (1897)
• Piketty, Thomas (2014). Capital in the Twenty-First Century. Cambridge, Massachusetts; London, England: The Belknap Press of Harvard University Press.