The Corporate Threat to American Democracy

Although recently much anger has been rightfully directed at Wall St. and the banking industry, the 2007-08 financial crisis and the bailouts that ensued were only one phase in an ongoing process of wealth redistribution to the richest and most powerful Americans. This process is larger than the criminal activities of greedy bankers, and its other symptoms include increasing wealth and income and inequality, high levels of personal and household debt, and cuts to vital public services. Together, these trends reveal that the unchecked private accumulation of wealth is a driving force of current economic inequality and injustice. The socially reckless practices of a few pose a grave danger to what remains of America’s democratic institutions.

Over the last 25 years, wealth and income inequality in America have reached unprecedented levels. Between 1982 and 2006, the top 1% of earners increased their share of income by 8.5%, taking away 21.3% of income in 2006. To put this number in perspective, the bottom 80% of earners took away just 38.6% of total income. And when it comes to wealth inequality, the figures are even more stark. In 2007, the top 1% was in possession of 34.6% of all privately held wealth, leaving the bottom 80% – the vast majority of the country – with a mere 15% of net worth.

The causes of such skewed wealth and income distribution are complex, but two important factors are stagnating wages and a decreasing tax burden on those most capable of paying. As the International Labor Office reports, real wage growth in the United States was flat between 1995 and 2007. Meanwhile, executive compensation has soared,with the ratio of CEO to employee compensation reaching 531:1 in 2000 and settling into a comfortable 344:1 as of 2007. At the same time that executives have seen their pay increase, the richest 1% has seen its share of taxes decline. As the Institute for Policy Studies’ Executive Excess report demonstrates, CEOs have received lavish compensation for drastically decreasing their companies’ tax obligations. Such strategies of corporate tax avoidance have been massively successful as corporate profits and CEO salaries have skyrocketed while many large corporations have actually received a tax refund from the federal government!

Tax dodging by the wealthiest has been abetted by legislators in Washington. Many politicians on both sides of the aisle support renewing the tax cuts introduced by President George W. Bush in 2001. Not only did these cuts help destroy the budget surplus that Bush inherited from Clinton, their extension would continue to disproportionately favor the rich. As a report on extending the Bush Tax cuts through 2013 by Citizens for Tax Justice reveals, 31.3% of the cuts would go to the top 1% while the bottom 80% would receive only 27.5%. Put another way, extending the Bush tax cuts would, on average, give the top 1% a 4.6% tax cut while it would give the bottom 20% a paltry 0.9% cut.

As wages have stagnated and greater amounts of income and wealth have flowed to the richest Americans, individuals and households have increasingly taken on debt in order to make ends meet. As John Bellamy Foster and Fred Magdoff report in their book, The Great Financial Crisis, families in the median-income percentiles have seen their debt burdens increase significantly between 1995 and 2004. As a percentage of disposable income, these families’ debt service payments have increased from 4% in 1995 to a whopping 20% in 2004. In 2005, U.S. debt was over three times larger than the country’s GDP. As personal and household debt has exploded, the richest Americans,who hold the vast majority of the country’s financial wealth, have not missed an opportunity to turn a profit. Rather than recognizing that increasing debt is a symptom of working Americans’ declining incomes, they have invested in debt by transforming it into complex financial instruments that can be traded on the open market. It was these instruments and the overwhelming risk they entailed that precipitated the 2007-08 crisis and the massive bail outs it required.

As national governments have rushed to the aid of banks, they have simultaneously called upon average citizens to make painful sacrifices. As David McNally observes, in the wake of the financial crisis governments have taken on an increasing amount of debt in order to save the wealthiest from their own reckless activities, engaging in bail outs and stimulus spending designed to prop up a failing economic system. Always attentive to their real constituency, the wealthy, governments have sought to place the financial burden of such intervention on taxpayers, a ploy plainly visible in the United States’ recent debt-ceiling tragicomedy. Across the globe, developed countries have implemented so-called austerity measures designed to decrease government debt. These measures have slashed the budgets of vital public services, in turn deepening an already dire economic crisis.

Such growing economic disparities represent an existential threat to American democracy. The unprecedented concentration of wealth and income in the hands of a few inevitably skews the distribution of political power in our society. As private wealth displaces public ownership, the unaccountable decisions of those who own that wealth increasingly affect us all. Meanwhile, the influence of private wealth on the electoral and legislative processes has left average Americans without a voice. With the 2012 presidential election expected to be the most expensive yet, it is now patently obvious that the financial threshold required to run an effective campaign prevents any but the richest and best-connected from gaining political office. Moreover, the influence of private money on public elections means that, once elected, politicians are beholden to the entrenched corporate interests that funded their campaigns. This fact is reflected in the incredible influence wielded by lobbyists on Capitol Hill. With legislation drafted by and for the wealthy, average Americans have nearly no control over the laws that rule them, a state of exception fundamentally incompatible with spirit of democratic governance. This process is not irreversible, however, and the concerted efforts of conscientious citizens can make a difference. By educating ourselves and others about the forces that have created such a situation, we can better hold those responsible accountable and work together to build a social, political, and economic system that works for everyone.