Fluctuating Fortunes: The Political Power of Business in America
Honest Graft: Big Money and the American Political Process
Two decades ago, Congress swept aside the concerns of the big three auto companies, the major oil and steel companies, the powerful mining and construction industriesâ€”in effect, the most powerful economic interests in the country. The Congress did so when it set price controls on oil, enacted tough restrictions on air and water pollution, created a Consumer Product Safety Commission, and established the Occupational Health and Safety Administration.
Within the next ten years, however, the House and Senate took an entirely different direction. In 1980, just before the election of Ronald Reagan and a Republican Senate, both branches of the Democratic Congress competed to pass amendments exempting from federal regulation the funeral home industry, used car dealers, the insurance business, and agricultural cooperatives. That year, a group of corporate lobbyists known as the Carlton Group (for the Sheraton Carlton Hotel, where breakfast sessions were held) met every week to formulate what would become the corporate provisions of Reagan’s 1981 tax bill. Both the Congress and the administration had, in effect, ceded legislative authority to an alliance made up of the leading lobbies of big and small business, including the US Chamber of Commerce, the Business Roundtable, the National Federation of Independent Business, and the American Business Conference.
For the Democratic party, the shifting political influence of the business lobbies has created a major dilemma: the party wants to portray itself as the advocate of working men and women, while the costs of elections put the party under growing pressures to raise campaign contributions from business people who want their own interests protected. The larger circumstances surrounding the forced resignations of Jim Wright, the House Speaker, and Tony Coelho, the House majority whip, suggest how destructive this conflict can become.
Both Wright and Coelho were involved in the intrigues over the collapse and subsequent rescue of the savings and loan industry. George Mallick, the Fort Worth developer whose payments to Wright and to Wright’s wife were central to the charges filed last April by the House Ethics Committee, was an active promoter of the Texas savings and loan industry. Thomas Spiegel, who arranged for Coelho to buy a $100,000 junk bond under questionable conditions, is chairman of the Columbia Savings and Loan of California, a firm whose dealings with Michael Milken of Drexel Burnham are under investigation by federal prosecutors in New York. The collapse of the S&L industry will cost taxpayers upward of $100 billion and will, as the scope of the accompanying corruption, profiteering, and damage to the economy becomes apparent, have lasting political repercussions.
Democratic leaders contend that the party will quickly recover from the crisis provoked by the resignations of Coelho and Wright. But the resignations can be taken as more evidence of the continuing deterioration of the Democratic party from serving as the voice of most American voters to a party identified as the representative of “special interests.” Private Republican and Democratic polls show that during the past twenty years the Democrats have lost ground to the Republicans on such questions as which party better represents the interests of working men and women, which party is more likely to produce a strong economy, and which party can be expected to provide for better education.
Polls conducted by Market Opinion Research for the Republican National Committee show that when voters are asked, for example, which party is better able to handle the problem of unemployment, the Democrats and Republicans are now in a virtual tie. This is an issue on which the Democrats had a forty-point advantage in 1974 and even a twenty-two-point advantage at the height of stagflation during the Carter administration in 1979. As recently as 1984, the Democrats had a twenty-point advantage in a poll asking which party was best equipped to improve the quality of education. That advantage has fallen to no more than six points. At the same time, the GOP’s advantage as the party more likely to control inflation and keep down taxes has risen sharply from eight points at the start of the decade to a decisive thirty-five-point lead in 1989. In 1984, the Democrats held a twelve-point edge as the party more likely to win nuclear arms control agreements: the GOP now holds an advantage of more than thirty points in foreign affairs.
A major reason for the continuing deterioration of the Democratic party derives from the tactics the party used to respond to the emergence, during the late 1970s and early 1980s, of an increasingly unified coalition of American business that was prepared to back the Republican party in its drive to achieve a national majority. Two recent books, David Vogel’s Fluctuating Fortunes and Brooks Jackson’s Honest Graft, illuminate the powerful business forces at work on both parties. Vogel, professor of business and public policy at the University of California, Berkeley, provides in Fluctuating Fortunes a historical and scholarly account of the resurgence of the political influence of business from the low point between 1969 and 1972, when “virtually the entire American business community experienced a series of political setbacks without parallel in the postwar period.” Congress then
enacted the most progressive tax bill in the postwar period, reduced the oil-depletion allowance, imposed price controls on oil, transferred the primary authority for the regulation of both pollution and occupational health and safety from the states to the federal government, established the Consumer Product Safety Commission, and banned the advertising of cigarettes from radio and television.
Corporations and trade associations as diverse as Atlantic Richfield, the Realtors, Sears Roebuck, Philip Morris, Tenneco, Pfizer, the American Medical Association, CitiCorp, and E.F. Hutton decided to retaliate. They persuaded other businesses to become politically active, formed political action committees (PACs), and turned executive, middle-level managers, shareholders, and members into an army of “grass-roots” lobbyists. They bombarded Congress with letters attacking regulations and favoring tax cuts, and they formed committees of home-town, probusiness advocates in the districts of key members of Congress across the country.
Many corporations in 1980 abandoned the cautious strategy of backing incumbent senators or congressmen, Democrat or Republican, and they invested heavily in defeating liberal Democratic incumbents. One third of all corporate PAC money that year, Vogel writes, “went to support conservative Republicans who were challenging incumbent liberal Democrats.” The corporations involved in politics could take much of the credit for the election of Ronald Reagan, of a Republican Senate, and of enough Republicans in the House of Representatives to establish a conservative majority that, for a year and a half, could thumb its collective nose at Speaker Tip O’Neill. This victory was the closest the country had come since the 1930s to a broad political realignment.
Brooks Jackson, a member of The Wall Street Journal‘s Washington bureau and a specialist in campaign finance, describes in Honest Graft the Democrats’ desperate, and largely successful, drive to halt the business-financed resurgence of the GOP and to restore Democratic dominance in Congress. Central to Jackson’s book is the story of how Tony Coelho, the forty-six-year-old California congressman serving as chairman of the Democratic Congressional Campaign Committee, set out to break the loyalty of business to the GOP. By his own account, Coelho went to the leaders of corporate PACs and told them, in effect: “You people are determined to get rid of the Democratic Party. The records show it. I just want you to know we [the Democrats] are going to be in the majority [in Congress] for many, many years and I don’t think it makes good business sense for you to try to destroy us.” His executive director at the campaign committee was more direct in describing Coelho’s tactics:
He delivered the following message: “The Democrats are in the majority, and you might want to think about what is in your best business interestâ€Ś. Democratic committee chairmen might not be happy to know you are trying to make them the ranking minority member.” Is that extortion? I don’t think so. Is that hardball? You bet.1
Coelho’s schemes for fund raising had few limits. At one point he sought to unite pro-Israel PAC leaders and independent oilmen from the southwest to support legislation increasing the tax incentives for oil drilling on the theory that the more oil produced in the US, the less the dependence on Arab states, and consequently, there would be less economic pressure to weaken ties to Israel. Similarly, Coelho persuaded a considerable number of Armenian-Americans to become donors to the Congressional Campaign Committee by sponsoring legislation commemorating April 24 as the anniversary of the 1915 Turkish massacre of Armenians.
Honest Graft is much more than a tale of fund raising. Although the last chapter of Jackson’s book was written well before the ethics committee findings about Wright were announced and before Coelho’s junk-bond dealings were made public, he still provides the basic outlines of Wright’s financial manipulations, and sets the stage for the downfall of the two Democrats. While Vogel’s Fluctuating Fortunes places the events described in Jackson’s book in a larger setting, Jackson’s dogged reporting makes it possible to understand how two of the most powerful members of the House of Representatives could become enmeshed in the struggles of one troubled industry, savings and loans.
Unlike the drug and chemical industries, which faced broad environmental, health, and safety regulation, and therefore have been more inclined to support the GOP as the party opposed to government regulatory intervention, the savings and loan industry had come to treat government as an ally. Lax federal supervision and beneficial congressional legislation combined to create opportunities for extraordinary profiteering. The savings and loan industry was in a perfect position to take advantage of both the Reagan administration’s hostility to regulation and the willingness of powerful Democratic leaders to bend over backward to help an industry that was ready to pour cash into congressional campaigns.
“Years of unwise decisions by Congress had made it possible for unscrupulous operators to achieve enormous profits,” Jackson writes.
In 1980, for example [Rhode Island Democrat and House Banking Committee Chairman Fernand] St. Germain pulled off a coup that increased to $100,000, from $40,000, the amount of any single S&L savings deposit insured by the federal governmentâ€Ś. With their deposits insured up to $100,000, the associations no longer had to rely on the savings of citizens in their own communities. A huge, unregulated national market in brokered deposits developed. Corporations and wealthy individuals found they could split up their spare millions into convenient $100,000 bundles and park them as federally insured certificates of deposit in S&Ls all over the country.
Thomas Gaubert, a Dallas entrepreneur, was particularly bold in exploiting the opportunities for profit and political manipulation offered by this federally subsidized industry. Gaubert, by Jackson’s account, bought a
tiny S&L in Grand Prairie, Texas, for $1 million cash. In the reckless and permissive atmosphere that Congress had created in the industry, Gaubert was able to increase the S&L’s assets from $40 million to $223 million in less than a year, attracting short-term deposits by paying exceptionally high interest rates.
See The Washington Post (May 28, 1989).↩
See The Washington Post (May 28, 1989).↩