Focus On the Family?

Focus On the Family?

The return of the dynastic firm isn’t enough to explain the radicalization of the GOP.

The following is a response to “Family Capitalism and the Small Business Insurrection,” an essay by Melinda Cooper in our Winter 2022 issue.

Cooper’s analysis has a great deal to recommend it. In addition to forcefully bringing political economy into discussions of party politics, her argument raises issues in corporate governance that are shockingly under-analyzed in contemporary left thought. However, for all its virtues, I am not sure Cooper’s analysis of the relationship between the family firm and the party of family values is convincing. Three issues stand out: first, I believe Cooper understates the role of traditional big business in pushing the party right; second, I think she overstates the shift toward family firms; and third, I think she overlooks the role of private firms on the other side of the political spectrum. In what follows, I will review Cooper’s argument, explain my reservations, and finally sketch out why I believe the combination of weak parties and disorganized capitalists offers a more promising explanation of the GOP from the Tea Party to Trump.

Big Brothers and the Holding Company

Cooper’s argument begins with the oft-noted role of small business owners in the Tea Party. Yet as she shows, while small business has been crucial to Tea Party rhetoric, changes in American capitalism have rendered that category rather more porous than it once was. As the business offensive that began in the 1970s gathered steam, corporations began restructuring themselves in various ways to weaken labor unions and evade regulation. One way was outsourcing operations to subcontractors, turning firms from bureaucratic behemoths into hierarchical networks of companies. As Cooper notes, these relations between firms contained within them the same relations of dominance and submission encoded into the private family.

At the same time, changes to the tax code created incentives for firms to reorganize as pass-through businesses. A pass-through firm is one whose income is reported on its owners’ personal tax returns and is thus taxed at the personal income rate, rather than the corporate tax rate. The result was a significant shift in the American business financial landscape. In the 1980s, the bulk of all business income was from C corporations, which pay taxes as corporations. Now, a slight majority of business income goes to corporations organized as partnerships, LLCs, or S corporations. Crucially, as Cooper emphasizes, this doesn’t mean that there are a higher proportion of small businesses. The vast majority of this income is concentrated among a tiny number of gargantuan firms that have, for tax advantages, simply reorganized themselves into a legal form that was once more typical of the mom-and-pop corner store.

Cooper, drawing on work by the historian Steve Fraser, argues that this shift has coincided with the rise of massive conglomerates that elect not to sell stock publicly and remain privately owned, often by a single family. Koch Industries is only the most famous such firm, but others, like Cargill and Mars, Incorporated, are prominent features of the American corporate landscape. All of this has bolstered the forces of reaction within the American business community, as the private relations of power suffusing the family have become ever more intertwined with and prominent within the public world of the economy. As Cooper puts it, “what is at stake here is less an alliance of the small against the big than it is an insurrection of one form of capitalism against another: the private, unincorporated, and family-based versus the corporate, publicly traded, and shareholder-owned.”

The Managerial Revolution Betrayed?

As perspicacious as Cooper is in noticing these subterranean movements in the economy, there are a few problems with her account. Briefly, traditional big business has played a larger role in the Republican Party’s derangement than she allows, and the rise of the family firm appears far more politically and economically ambiguous than she suggests.

At the heart of Cooper’s argument is the contention that there has been “a shift in the center of gravity of American capitalism, which has elevated the once marginal figure of the family-owned business to a central place in economic life at every scale.” In this, Cooper is resurrecting a prominent debate among students of American political economy that has unfortunately been neglected of late.

The debate stretches back to the 1930s, when the New Deal intellectuals Adolf Berle and Gardiner Means wrote their classic The Modern Corporation and Private Property. Berle and Means argued that the rise of huge, publicly traded corporations, whose stock was dispersed among thousands if not millions of owners, had transferred control from owners to managers. Imperious titans like J.P. Morgan no longer called the shots in the American economy. Instead, control had passed to the faceless bureaucrats, who had their own agendas quite separate from the pursuit of profit. For the next fifty years, debate raged over this theory, culminating in the 1980s when leftist scholars like Edward S. Herman, Michael Schwartz, and Beth Mintz conducted detailed quantitative studies to try and ascertain who, exactly, was in charge of American capitalism.

Since the 1980s, the question of who really controls the corporation has received far less attention from left intellectuals. Cooper thus deserves significant credit for redirecting attention to this crucial question with a new and provocative argument. At the same time, I am not sure her case for the rise of the family firm ultimately convinces. The best evidence we have suggests that the family-controlled firm is, in fact, the standard form of the capitalist firm. In the late 1960s and early 1970s—at what should have been the height of impersonal, managerial capitalism—Fortune magazine editor Robert Sheehan and political scientist Philip H. Burch estimated that 30 and 42 percent, respectively, of large publicly traded firms were, in fact, controlled by a single family. Similarly, a recent cross-national study found that, in the twenty-seven richest economies, between 30 and 50 percent of the twenty largest publicly traded firms in each country are actually under family control. As a review of the literature on this question recently began, “Most companies around the world are under the control or significant influence of an individual shareholder (typically the founder) and/or his or her family.” Though this evidence is not dispositive, it does seem that family capitalism has in fact been typical.

Cooper is surely right that small business owners played an outsize role at the Tea Party grassroots. As Theda Skocpol and Vanessa Williamson put it in their authoritative study of the movement, “the plurality [of Tea Party activists] seemed to be small business owners, often in fields like construction, remodeling, or repair.” Yet at the macro level, big business was a major driver of the insurgency against the Obama administration that developed in 2009–2010.

Take Dick Armey, a former House Majority Leader who became a key Tea Party organizer. As Cooper notes, Armey often spoke as if he were a representative of small business. But in reality he was anything but. Armey headed FreedomWorks, an organization descended from the Koch brothers’ Citizens for a Sound Economy (CSE). FreedomWorks and Armey split from the Kochs because Armey had a habit of using the organization to advance the interests of clients who hired him in his capacity as a lobbyist for the law firm DLA Piper. When BP hired Armey as a lobbyist, FreedomWorks got to work on offshore drilling. When the American Council of Life Insurers hired him, FreedomWorks became very concerned with insurance deregulation. In 2009, DLA Piper itself got tired of Armey’s antics and let him go. Soon afterward, FreedomWorks became one of the central organizations coordinating Tea Party protests and ensuring their smooth integration into conservative media. Both when he was working for DLA Piper and when he wasn’t, Armey’s ideology was the same; in fact, he had organized an abortive Tea Party movement in 2001 when still with CSE. Dick Armey was hardly choosy when it came to the sectors of capital from which he got paid.

Cooper notes, quite rightly, that the traditional organizations of American big business—the Business Roundtable and the U.S. Chamber of Commerce—quickly found themselves in conflict with the Tea Party over issues like government shutdowns. But it’s crucial not to overlook their role in the surge of reaction out of which the Tea Party was born. The battle against Obamacare is a case in point. As Lawrence Rosenthal has noted, “Obamacare has been the bête-noire of the Tea Party movement since its founding.” The campaign against Obamacare, however, was spearheaded by the Chamber of Commerce, which received over $100 million from AHIP (formerly America’s Health Insurance Plans), an insurance industry lobbying group, to derail healthcare reform. The television spots attacking Obamacare that blanketed the airwaves in 2009 and 2010, fueling the animosity on display at Tea Party rallies, were largely courtesy of the more than $60 million the Chamber paid to the National Media and Public Affairs firm for the campaign. 

The story of the Obama administration’s financial reform efforts, which culminated in the Dodd–Frank Wall Street Reform and Consumer Protection Act, is similar. Despite all the noise from the Tea Party about hating Wall Street, the campaign to repeal Dodd–Frank was led by Michele Bachmann, founder of the Tea Party Caucus in the House, and later assisted by Tea Party favorites Mike Lee, Ted Cruz, and Rand Paul. They were joined by the Business Roundtable, which campaigned hard against Dodd–Frank before it passed and fought a multifront war against its various provisions after. In 2010, the Roundtable’s president told reporters that the battle against a shareholder empowerment provision in Dodd–Frank was “our highest priority. . . . Literally all of our members have called about this.” Though the Tea Party and the Roundtable were clashing over issues like the Export–Import Bank and the government shutdown to repeal Obamacare, they spoke the same language on financial reform. None of this is to say that family firms like Koch Industries didn’t play a crucial role in the Tea Party. The issue is that their agenda cannot be neatly distinguished from that of the big, publicly traded corporations. Both groups cultivated an insurgency against the Obama administration’s tepid first-term reforms. The Roundtable and the Chamber of Commerce, however, found themselves in the position of Dr. Frankenstein, watching as what they helped create acquired a will and power of its own.

Finally, it is not clear that privately held family firms are particularly likely to push politics in a reactionary direction. Consider Donald Trump and Hillary Clinton’s top five donors in 2016. Of Trump’s biggest donors, only two were from privately held firms—a hedge fund and a real estate partnership. The other three—Sheldon and Miriam Adelson, Vince and Linda McMahon, and Isaac and Laura Perlmutter—all built their fortunes in the kinds of publicly traded companies that typify managerial capitalism. At the same time, four of Clinton’s biggest donors come from private companies—a newspaper conglomerate and three hedge funds. In fact, two of Clinton’s and Trump’s biggest donors came from the same hedge fund, Renaissance Technologies.

(Source: opensecrets.org)

This evidence is hardly systematic, of course, and a final verdict must be withheld until more rigorous results are forthcoming. But it is certainly suggestive and seems to undermine the view that private family firms played a unique role in the Trumpist investor coalition. Indeed, the prominence of FIRE (finance, insurance, and real estate) industries on both sides of the ledger may indicate that the rise of privately held firms is itself part of the larger story of the financialization of the American economy. The effects of this transformation are complex, but it is clear that finance as a sector is at least as important to the Democratic Party today as it is to the Republicans. The spectacular rise of private pass-through companies in the American economy may well turn out to be a thoroughly bipartisan affair.

I am skeptical that the cluster of issues Cooper raises, undoubtedly important as many of them are, provides a central explanation for the derangement of the Republican Party. Managerial capitalism always ran on a familial foundation, and as such, it shouldn’t be surprising that the politics of private companies and traditional big business seem to resemble one another more closely than Cooper suggests.

Debilitated Parties, Disorganized Elites

In my view, the key cause of the Republican Party’s rightward march is the uniquely American combination of hollow political parties and a fractured corporate elite. This combination has allowed right-wing political entrepreneurs to progressively pull the party farther right, resulting in cycles of conflict between party insurgents and establishments that have played out since the 1990s. American political parties, always inchoate, have become increasingly hollowed out over the last half-century. Institutions like party primaries, mandated by law in many states, disempower the party as an organization, outsourcing its key function of deciding which candidates to run. Since the 1970s, primaries have gained in importance in the parties, while a host of other changes have further relegated the party as organization to a bit player. Campaign finance reform laws in the 1970s and early 2000s both solidified the candidate, rather than the party, as the key legal and organizational nexus of fundraising and starved the parties of funds by closing the soft money loophole. Finally, changes to congressional rules in the 1970s removed seniority as the key criterion for committee placement. In its stead, members of Congress now compete with one another over who can fundraise and redistribute the most campaign cash in order to acquire favorable committee assignments. Today, party leadership is epitomized by Nancy Pelosi, who has remained secure in her leadership of House Democrats despite crushing electoral defeats for her caucus, all because she has raised and passed around over half a billion dollars for the party since becoming leader. Parties no longer decide; instead, they exist primarily as channels through which political money runs on its way from source to destination.

At the same time, the primary source of money in American politics, the American business community, has undergone profound changes since the 1970s. In that decade, American corporations achieved a hitherto unseen level of political unity, as economic crisis provided them with motive and opportunity to finally strike at the foundations of the New Deal order. The Business Roundtable was formed in 1972 for precisely this purpose, and the Chamber of Commerce quintupled its size. When the Reagan administration began giving them everything they wanted, however, the unity of the American corporate elite fractured. The Chamber and the Roundtable went into decline as corporations became less interested in far-sighted, class-wide forms of political action, and instead concentrated more on protecting their own provincial interests from encroachment by competitors, the state, or unions. The Chamber, at least, reinvented itself to meet this new challenge, abandoning the classic business organization function of forging consensus out of diverse firm interests and instead simply auctioning off its considerable lobbying abilities to the highest bidder. Its president from 1997 to 2019, Thomas J. Donohue, was quite explicit about the role the Chamber now played, accepting undisclosed donations from corporations and their trade associations to lobby for their interests when their doing so directly might cause some bad press. “I want to give them all the deniability they need,” he boasted.

By the time the Tea Party got into office, there were clear divisions among American business over not the goals of their political action, but rather the means. The Chamber of Commerce fought on behalf of its donors against Obamacare, but once the law was passed, those donors learned to live with it and looked askance at the uncertainty attempting to repeal it promised. The Koch brothers’ Americans for Prosperity (AFP), however, kept up the fight, convinced that an all-out war against the regulatory state, with no ceasefires, was the best way to contain liberalism. Since its founding two decades ago, AFP has grown into a fundraising titan. In 2015, it raised more money than the Republican National Committee, the National Republican Congressional Committee, and National Republican Senatorial Committee combined. Raised through seminars where the minimum pledge is $100,000, Americans for Prosperity has clearly become a new vehicle for the sections of big business impatient with the more transactional conservatism of the Business Roundtable and the Chamber of Commerce.

In other words, Cooper is quite right that the roots of the Republican Party’s radicalization are to be found in the divisions that exist within corporate America. But what changed in American capitalism does not seem to be which side of the public/private or family/bureaucrat divide the balance of firms falls on, but rather the overall level of integration and unity among American corporations. The trend toward the most provincial and short-sighted articulations of the interests of American business has crucially enabled the Republican Party’s increasingly reactionary posture. At the same time, the fragmentation of the corporate community, and the absence of any kind of peak-level business organization that can forge consensus among corporations, has allowed one section of the class to coalesce around a militant and uncompromising political strategy that brings them into direct conflict with other sectors of American business.

The result of this combination of party weakness and corporate disorganization has been cycles of radicalization in the Republican Party. The rise of Newt Gingrich and Tom DeLay in the 1990s was fueled by their largess in redistributing money to their colleagues, which allowed them to overcome opposition from establishment Republicans and pioneer a new style of congressional hardball politics. When their signature endeavors, the government shutdowns of 1995 and 1996 and the Clinton impeachment, both failed, momentum swung back to the party establishment, which delivered George W. Bush, son of the Republican establishment personified, into the White House. When his administration collapsed in the wreckage of the Iraq War, the party was rudderless, and in desperate need of rebranding. This is where the Tea Party came in, beginning a new cycle of party insurgency. 

Though Trump is often identified with the cycle of reaction that began with the Tea Party, he was not, as Cooper notes, their first choice. The Tea Party supported Scott Walker and Ted Cruz, while the establishment bet the house on Jeb Bush. These conflicting signals from party elites canceled each other out, like destructive interference between two opposed sound waves, resulting in silence. The voice of Donald Trump, however, was loud and clear, and the party’s base rallied to him in light of conflict between its main power blocs. In other words, Trump the candidate was sui generis, coming from a trajectory orthogonal to the lines of conflict that had emerged in the party since 2010.

Finding the Right Fault Lines

As the above account makes clear, my view overlaps considerably with Cooper’s. Both of us see the divisions that exist in corporate America as crucial for understanding the recent history of right-wing politics in the United States. Where we differ is over the nature of that divide. Cooper emphasizes particular changes in the organizational forms of American corporations. My own account is more agnostic about which kinds of firms fall on which side of the partisan divide, and emphasizes instead the general disorganization of the American corporate elite. 

I am wary, in other words, of locating the fount of reaction in one particular sector of capital. Doing so risks missing the changes that have affected the class as a whole. It also holds out promise for false allies. If there were an insurrection of family capital against the managerial firm, it might be reasonable to expect the managerial firm to fight back. Glimpses of this came in the aftermath of the Capitol riots, when the Chamber of Commerce and other groups announced an intention to boycott Republicans who supported the attempt to overturn the elections. That boycott quickly fell apart, however, and companies resumed their normal political expenditures. This speaks to the overall disorganization of the American corporate rich, who are, apparently, unable to discipline a party that increasingly threatens the political legitimacy of democratic capitalism. Resisting the right today requires more than a focus on the family.

Paul Heideman teaches high school in New York City. He is the editor of Class Struggle and the Color Line: American Socialism and the Race Question, 1900-1930.