How Gilded Ages End

Economy

How Gilded Ages End

Protecting democracy from oligarchic dominance is, once again, a central imperative of American politics.

April 29, 2015

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This article appears in the Spring 2015 issue of The American Prospect magazine. Subscribe here.

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Rising inequality seems to pose an insurmountable political problem. If the underlying causes are technological change and globalization, the forces appear to be unstoppable. Alternatively, if the causes are primarily political and involve the power of corporate and financial interests, the forces driving inequality may also appear to be overwhelming. Some people may conclude in despair that, for all practical purposes, nothing can be done.

That conclusion, however, is unjustified for two reasons—first, because things have been and can be done to check increased inequality even in the short term; and second, because limiting the political power of concentrated wealth is a cause with deep American roots and wide support that is a difficult but achievable long-term goal.

While economic inequality has risen since 1980, the trend has not been steady. As in previous decades, Democratic administrations have had a better record on equality as well as growth than Republican administrations. Moreover, Democratic presidents have been able to advance a wide range of liberal and egalitarian objectives during this period, and the support for stronger measures is growing. It would be a colossal error of judgment to believe that Democratic policies (and judicial appointments) make no difference.

The historical record in the United States is consistent with comparative evidence on other wealthy democracies, which also shows that public policies can limit inequality while promoting growth, even under the pressures of technological change and globalization. The most visible of those methods involve taxes, spending programs, and monetary policy, but just as important are all the ways in which government sets the rules of the market and thereby affects the incomes that people derive from it. These are the rules that shape labor relations, credit and debt, financial institutions, corporate structure, antitrust, international trade, intellectual property rights, liability, and other aspects of economic life. As Robert Reich argues elsewhere in this issue, changes in those rules during recent decades in the United States have been primary causes of rising inequality, and any hope of reversing that process depends on redressing the imbalance in political power that lies behind it.

Fifty years ago, to talk about inequality was to talk about the persistence of poverty in an affluent society. Now, inequality raises an additional challenge: stagnant incomes in the middle class and runaway gains among a small elite. Reducing poverty is an inherently tougher political problem because it involves asking the majority to agree to policies, including taxes, that benefit the poor and minorities. Rallying the majority of Americans on behalf of their own economic interests should, in principle, be easier.

Many critics have taken to calling our time a second Gilded Age, recalling Mark Twain’s term for the late 19th-century era when a veneer of refinement covered the brutal realities of industrial capitalism. The analogy should actually be encouraging. As daunting as the political challenges were at the time, the Gilded Age came to an end with the reforms of the Progressive era and the New Deal. Those years saw countless changes in the rules of economic life as well as new taxes and social spending that gave the great majority of Americans a better life. But behind the myriad of specific reforms was a common recognition—a collective revulsion against the privileges of great wealth allied with great power. The challenge now is to mobilize that kind of moral sentiment on behalf of a new age of reform.

Victor Juhasz

America’s Slide Back Toward Oligarchy

Wealth and power often go together, but being observed in each other’s company has sometimes been a scandal. During the final week of the 1884 election campaign, the Republican presidential candidate James G. Blaine attended a lavish fundraising dinner with 200 of the nation’s economic elite at Delmonico’s Steakhouse in New York City. Among Blaine’s dinner companions was Jay Gould, the financier who controlled the Union Pacific Railroad, Western Union, and other companies. The next day, Joseph Pulitzer’s New York World carried a cartoon across the entire front page, titled “Royal Feast of Belshazzar Blaine and the Money Kings,” showing the candidate and the tycoons dining on such dishes as “lobby pudding,” “navy contract,” “monopoly soup,” and “patronage cake.” The New York Times commented, “Blaine’s political sagacity is impeached by his willingness to be seen in the company of these people and to take their money openly at Delmonico’s.” The explosion of disgust at the banquet, according to some historians, may have cost Blaine the election, which he lost to Grover Cleveland by a narrow margin.

Today, fundraising events like the one at Delmonico’s have become routine, and any sense of embarrassment about them seems to have vanished, at least among Republicans. (Democrats also take the money when they can get it, though they may be more sensitive about appearances.) In the “wealth primary” that has become the first step to national office, Republican candidates openly make pilgrimages to Sheldon Adelson, the Koch brothers, and other billionaires. No one is the least startled to read stories like the one that appeared in The New York Times on February 28, “G.O.P. Race Starts in Lavish Haunts of Rich Donors”:

In one resort town after another—Rancho Mirage, Calif.; Sea Island, Ga.; Las Vegas—the candidates are making their cases to exclusive gatherings of donors whose wealth, fully unleashed by the Supreme Court’s 2010 Citizens United decision, has granted them the kind of influence and convening power once held by urban political bosses and party chairmen.

The reference to “urban political bosses and party chairmen” in the Times makes it sound as though one unrepresentative group has merely followed another. But by assembling coalitions and candidates capable of winning majority support, party leaders perform work that’s essential in a democracy. There is no comparable democratic function performed by billionaires, even though they may sincerely believe their interests are no different from the majority’s.

The screening of presidential candidates by the super-rich is only one aspect of the heightened role of big money in politics that has provoked some political scientists to adopt an old word to characterize the new realities of power. That word is oligarchy, conceived as the political domination by the wealthy few and roughly similar to the term “plutocracy” (but with a deeper theoretical tradition, reaching back to Aristotle). Oligarchy aptly describes the direction of change in America during the past four decades. The idea is not that oligarchy has replaced democracy; rather, the two have become fused in a system where those at the pinnacle of the economy are able to tilt politics and law sharply in their own favor.

This is the argument developed by Jeffrey A. Winters in his 2011 book Oligarchy, which analyzes material wealth as a source of political domination in a wide range of societies from ancient Greece and Rome to the modern world. The United States, according to this analysis, is a “civil oligarchy,” where those in command of great wealth use it to shape policy but do not rule directly. On many issues such as abortion, gun rights, or the environment, the wealthy come down on different sides. They are far less likely to cancel each other out, however, on questions such as taxes that bear directly on their shared economic interests. In this interpretation, oligarchic dominance is specific to redistributive issues, and rather than being inherent in capitalism, depends on laws and policies that affect the concentration of wealth and the conversion of wealth into power.

This understanding of American politics is different from the view that capitalism always means control by a ruling class or that all societies are run by unrepresentative elites. During the past century, popular movements in the advanced democracies, including unions and political parties allied with them, enabled ordinary people to share in the gains of economic growth and to enjoy both more security and more freedom. Changes in legal doctrines subordinating property rights to the general welfare allowed for stronger regulation of the economy. These developments bore fruit in the three decades after World War II, when both prosperity and political power were widely shared in Western Europe and North America.

In the United States, the relatively balanced pluralism of the postwar decades has increasingly given way to a more polarized political economy. The long decline of unions has probably been the single most important factor in the slide toward greater inequality in power and economic rewards. Beginning in the 1970s, while business interests mobilized, the engagement of ordinary citizens in civic and political life atrophied. Rather than relying on local volunteers going door to door, political campaigns became increasingly dependent on paid media and consequently on financial donors. And since money is distributed less equally than time, the pursuit of office has increasingly sent candidates in pursuit of patronage by the affluent.

A series of empirical studies have demonstrated the consequences of these changes for political participation and government responsiveness. Union members accounted for 25 percent of political activity in 1967 but only 11 percent in 2006, according to an estimate by Kay Lehman Schlozman, Sidney Verba, and Henry E. Brady in The Unheavenly Chorus, a 2012 study of trends in participation. (The title is an allusion to a well-known line by E.E. Schattschneider: “The flaw in the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent.”) Surveying the representation of group interests in Washington as of the early 2000s, Schlozman and her colleagues find those interests to be overwhelmingly weighted in favor of business.

An “upper-class accent” is an understatement of the bias of policy. In Affluence and Influence, also published in 2012, Martin Gilens uses data from nearly 2,000 questions in public opinion surveys about proposed policies from 1981 to 2002 to measure the government’s responsiveness to people at different income levels. The policies adopted, Gilens finds, were strongly related to the views of upper-income people, but not at all to the preferences of poor or even middle-income Americans. Expanding the analysis to include interest groups, Gilens and Benjamin I. Page find the same pattern of elite domination. Whether individually or through groups, average citizens had no independent effect on what government actually did.

This research, it should be stressed, concerns a period—1981 to 2002—when Republicans dominated national policy-making; Democrats had control of both the presidency and Congress for only two years (1993–1994). Even in regard to the “age of Reagan,” the findings do not prove Winters’s argument about oligarchy, which is about the influence of the .001 percent on policies that impinge on their fortunes. A recent study of the wealthy elite in the Chicago area confirms, however, that the truly wealthy are highly active in politics (often in direct touch with their senators and other political leaders) and that their views on key economic questions diverge markedly from those of the public at large.

As campaigns have made candidates increasingly hungry for contributions, the views of those who can satisfy that hunger gain importance. This is an era when not only the practical demands of politics but the rules of the game have changed. If the degree of oligarchical power depends on the concentration of wealth and rules governing the conversion of wealth into power, two developments in recent decades have pushed American politics in that direction: The gains from growth have gone overwhelmingly to the top, and the Supreme Court has effectively eliminated legal barriers to the use of money in political campaigns.

The resulting realities of campaign finance affect Democrats as well as Republicans. All politicians have to be what Schlozman and her co-authors call “rational prospectors” and go hunting where the ducks (and the bucks) are. But that does not mean their choices about policy are the same.

Checking Inequality in the Short Run

Despite the trends in power and inequality, it has made a difference in the United States which party is in power. The consistent pattern, even in recent decades, is that middle- and low-income people have fared better under Democratic administrations, and high-income people have fared better under Republicans. But the effects have not canceled out. Democrats have reduced inequality a little, while Republicans have increased it a lot.

The best evidence on the partisan effects on inequality comes from the work of Larry Bartels. In his 2008 book Unequal Democracy: The Political Economy of the New Gilded Age, Bartels estimates the effects on inequality of the administrations of the five Democratic and five Republican presidents from 1948 to 2005. Under the Democrats, incomes grew slightly faster for poor than for rich families, modestly reducing inequality. Under the Republicans, incomes grew much faster for the rich than for the poor, greatly increasing inequality. Families at the 95th percentile did equally well no matter which party was in office, but those at the 20th percentile saw their incomes grow three times faster under Democrats.

These findings are especially striking because they concern pre-tax income. For the entire period from 1948 to 2005, Bartels finds that the partisan differences in pre-tax income growth resulted chiefly from substantial differences in unemployment rates (30 percent lower on average under Democrats) and in GDP growth (60 percent higher under Democrats). Lower unemployment and higher growth rates under Democrats raised incomes far more for people near the bottom of the income distribution than for people near the top.

The period from 1980 to 2005, however, was significantly different from the period from 1948 to 1980 because rates of economic growth were lower. According to Bartels, the differences between Democratic and Republican administrations in inequality in pre-tax income growth disappeared, but the differences continued to show up in post-tax income growth. Low- and middle-income people again did better under Democrats. These were the years when taxes on the top income brackets were cut sharply under Ronald Reagan and raised modestly under Bill Clinton. 

Even with the unrelenting increase in inequality in recent years, Bartels has continued to find significant partisan differences in the effects of presidential administrations. Updating his analysis for the post-1980 period through 2012, Bartels acknowledges that the middle class and the poor “experienced somewhat lower growth rates” than the affluent, even under Democratic presidents. But, he finds, “they clearly fared much better under Democrats (Clinton and Obama) than under Republicans (Reagan, Bush, and Bush). The difference amounts to about 1.5 percent per year for poor families and 0.8 percent per year for middle-class families—substantial sums when they are compounded over decades.”

These statistics understate the differences between Democratic and Republican government because measures of income, even post-tax income, don’t capture all the distributive consequences of public policy. For example, they don’t include the value of non-cash benefits for low-income people, such as the value of Medicaid coverage, which, if taken into account, would show Democrats to have done more to reduce inequality at both the federal and state levels. The difference between red and blue states in expanding Medicaid under the Affordable Care Act is a perfect example of that pattern. Indeed, the ACA generally illustrates how Democrats have sought to advance egalitarian goals against Republican resistance.

The same pattern applies to other policies on which Democrats and Republicans typically differ, such as support for the public sector. When government provides public services to all—public schools, public parks, public libraries—it reduces economic inequalities even though the free access to those services does not show up in data on income. In addition, measures combating discrimination on the basis of race, gender, sexual orientation, and other characteristics diminish economic inequality since people who encounter discrimination tend to be worse off than those who do not.

Still, these policies have failed to reverse the distinctive pattern of income inequality—surging incomes at the top, lagging incomes for the middle and below—that began in the 1980s. To broaden the gains from growth, Democrats increasingly recognize that they have to do more than recent Democratic administrations have done. Policies aimed at strengthening the education and skills of workers, for example, are not going to close the widening gap between the one percent and everyone else. The rising support for stronger measures is apparent in the changed views of centrist Democrats such as Lawrence Summers, the former secretary of the Treasury. In January, a committee co-chaired by Summers at the Center for American Progress released a report calling for more sharply progressive taxes and more government spending to create a “high-pressure, high-productivity economy” that would raise wages by increasing the demand for labor and investing in infrastructure and other public needs. A tight labor market was a crucial factor in the steady increase in earnings in the three decades after World War II.

“If we had the same income distribution in the United States that we did in 1979,” Summers said recently, “the top 1 percent would have $1 trillion less today [in annual income], and the bottom 80 percent would have $1 trillion more. That works out to about $700,000 [a year less] for a family in the top 1 percent, and … about $11,000 a year [more] for a family in the bottom 80 percent.”

Returning to the income distribution of 1979 would be an astonishing achievement for the vast majority of Americans. The challenge is especially daunting in light of the special historical circumstances that made possible the reduction of inequality in the mid-20th century. As Thomas Piketty argues in Capital in the Twenty-First Century, the “shocks” of two world wars and the Great Depression devastated inherited wealth and enabled labor to claim a larger share of national income in both Western Europe and the United States. War and depression didn’t inherently have these equalizing effects. As Piketty recognizes, the reduction in inequality depended on the responses that governments made to the shocks through taxes, labor laws, and other measures. What Piketty doesn’t emphasize, however, is that even before the shocks hit, political changes in the late 19th and early 20th century prepared the ground for greater equality. In Europe, those changes took the form of growing labor unions and socialist parties and the adoption of social insurance and other reforms by both liberal and conservative governments. In the United States, the corresponding political changes took place through the reforms of the Progressive era that began to bring down the curtain on the Gilded Age.

Overturning Oligarchic Power

There was no single solution, no silver bullet, for the economic and political inequality of the Gilded Age—although silver was exactly what some reformers believed the bullet should be made of at a time when the gold standard and “hard money” were the targets of populist wrath. The steps that ultimately mattered took place in two phases during the Progressive era and New Deal and fell into three areas: taxation, the rules of the market, and the rules of politics. Behind them lay a common sentiment that democracy was at risk from unacceptable combinations of wealth and power.

The changes in taxes in the Progressive era illustrate more clearly than anything else how that period created the instruments that the New Deal would use more decisively. In 1913, the 16th Amendment was ratified, giving Congress the power to tax income “from whatever source derived, without apportionment among the several states,” thereby nullifying an 1895 Supreme Court decision that had declared an income tax unconstitutional.

The approval of an amendment for a new federal tax by three-fourths of the states—actually 42 of 48 in the case of the income tax—seems inconceivable today. It may seem even more unimaginable that the core support for the amendment would come from the South and West. A hundred years ago, however, these were the areas of the country that opposed high tariffs and saw a graduated income tax as an alternative that would fall mainly on the Northeast, where wealth was concentrated. The temperance movement also favored an income tax as a way to wean the federal government off taxes on alcohol and prepare the way for Prohibition.

But the 16th Amendment would have never been so widely approved—even New York ratified it—without a general shift in sentiment against the extreme inequalities of the time. Only the top 3 percent of the income distribution were subject to the income tax originally enacted after the amendment’s ratification in 1913. Three years later, with World War I under way in Europe, Congress established the federal estate tax and also applied it initially only to the wealthy few. Republicans cut both taxes in 1926, but under Franklin Roosevelt in the 1930s and especially during World War II, Congress made the taxes highly progressive. (In 1940, estates were taxed at a rate of 70 percent, except for a $40,000 exemption; the next year, Congress raised the rate to 77 percent.) As Piketty points out, the United States was a pioneer in redistributive taxation. Maintained at relatively high levels until the 1980s, those taxes helped to produce the “great compression” of incomes in mid-20th-century America.

(Illustration: Victor Juhasz)

The same general pattern of political breakthroughs in the Progressive era culminating in more thorough change in the New Deal also applies to the rules of the market. The idea that America went from a free market in the 19th century to a regulated economy in the 20th is misconceived. Government at both the state and federal levels set the economic rules even in the 19th century, especially through the courts.

But the interests represented in the rules began to change. With the adoption of workers’ compensation, for example, employers were forced to share in the costs of injuries on the job. The states began curbing the exploitation of child labor. The development of antitrust law and regulation of “natural monopolies” limited concentrations of economic power. In these and other areas, the changes in the Progressive era also began to shift regulatory powers from the states to the federal government to correspond to the increasingly national scope of business. With the establishment of the Federal Reserve in 1913, the idea began to take root that the national government had responsibility for the condition of the national economy. Again, the Progressive era prepared the institutional ground for measures in the 1930s—Social Security, collective-bargaining rights, financial regulation, the minimum wage, and eventually the adoption of Keynesian economic policies—that put liberal ideas into practice more effectively.

The Progressive era also inaugurated changes in the rules of politics that are especially relevant to the history of efforts to limit oligarchical power in America. Up through the 1892 election, both parties raised funds for national campaigns almost entirely from the moneyed elite of the Northeast. As the dinner at Delmonico’s in 1884 illustrated, Republicans usually dominated that fundraising. They solidified their financial advantage in 1896, when the Democrats nominated the candidate of their populist wing, William Jennings Bryan.

But as corporate contributions increased in importance, they became a matter of concern even among Republicans. During the year after the 1904 election, a New York investigation of financial abuses in the life insurance industry uncovered evidence that the big insurance companies had dipped into their enormous assets to make large, secret donations to the presidential campaign of Theodore Roosevelt. These exposures led to the bipartisan passage in 1907 of the Tillman Act, which banned corporate political contributions. Roosevelt signed the legislation, although his role in its passage is often exaggerated. The following year, to match a pledge by Bryan (running for the third time), the Republican presidential nominee William Howard Taft agreed to release the list of his campaign donors. Two years later, Congress passed the Publicity Act, requiring disclosure of contributions.

Since these regulations of official party finances did not close all possible loopholes (such as what are now called “independent expenditures”), they might have had no effect. But in his superb recent history of campaign finance, Buying the Vote, Robert Mutch shows that the Progressive-era reforms did have an impact: “Elite donors resigned themselves to the fact that their names would be made public and made smaller contributions, and party committees began searching for new donors whose much smaller contributions would look good on their reports.” The changes weren’t “transformative,” Mutch adds. The GOP continued to enjoy a financial advantage in most elections because of the party’s deep support among the affluent as well as the truly wealthy. But the reforms checked oligarchic dominance and led both parties to look more widely for contributions as well as votes.

The 1908 election prefigured another change. The American Federation of Labor had generally avoided involvement in elections, but that year it gave Bryan its full support because of his backing for pro-labor legislation. Although the AFL later again withdrew from an active role in electoral politics, the political mobilization of labor became critical for the Democrats in 1936, when the Republicans raised an unprecedented campaign fund from the country’s richest families in an attempt to defeat Franklin Roosevelt. From that point on, the unions assumed a key role in providing the money and foot soldiers that helped Democrats keep up with the Republicans’ greater support from the wealthy—that is, until recently, when the decline of unions and a string of Supreme Court decisions striking down the Tillman Act and effectively allowing unlimited “dark money” brought back the specter of oligarchy to American politics.

Overturning Oligarchy Again

The “shocks” of war and depression were crucial for the transition to greater economic and political equality in the mid-20th century. But they weren’t sufficient in and of themselves. War doesn’t always produce more progressive taxes; during the Iraq War, George W. Bush persisted with regressive tax cuts. The breakthroughs on taxation in the early 20th century, however, laid the basis for progressive finance through the two world wars and the Cold War. A depression doesn’t necessarily strengthen labor organization. But by the 1930s, progressive labor laws were already percolating up from the states. And because the Great Depression brought the Democrats to power nationally, they were able to enact federal legislation that facilitated union organizing, and labor reciprocated with crucial political support.

There was no inevitability to this process, and no one should expect the United States to roll back inequality in the 21st century the same way it did in the 20th. Certainly, no one wants a repeat of the shocks of war and depression. But shocks will come, and the question then will be whether liberals and progressives have prepared the ground to achieve lasting change. To paraphrase a warning from 2009 not sufficiently heeded at the time of the financial crisis, a shock is a terrible thing to waste. Although we have no way of knowing whether America will restore greater economic and political equality, we can be clear about what it will take.

As in the 20th century, the three critical domains for curbing oligarchic dominance in the 21st will be taxation, the rules of the market, and the rules of politics. Every idea about changing policy is also a choice of political strategy. Rolling back oligarchy will first of all mean focusing on tax privileges—the various ways in which the wealthy have escaped taxation. A prime example is the “carried interest” provision that allows hedge-fund and private-equity partners to pay a tax rate of only 20 percent on their income. Another example is the provision that allows unrealized capital gains to escape taxation when assets are passed on to heirs—the so-called “trust fund loophole” that President Obama has targeted in his budget proposal this year. According to a Federal Reserve study, unrealized capital gains account for 55 percent of estates worth more than $100 million. The Congressional Budget Office estimates that the current loophole (the “step up in basis” for inherited assets) will cost the Treasury $644 billion over ten years.

The bigger issue is the preferential lower tax rates for dividends and capital gains enacted under Republicans. The top income-tax rate for capital is 20 percent; the top rate for labor, 39.6 percent. Historically, the taxes supporting Social Security and Medicare have fallen entirely on labor. As part of the ACA, however, Congress broke with that tradition, extending the Medicare tax of 3.8 percent to dividends and capital gains for individuals with incomes over $200,000. That measure set an important precedent for resolving the long-term fiscal problems of Social Security on a progressive basis.

Today, no effort to make the wealthy pay their fair share of taxes can ignore the means by which many of them use offshore tax havens to hide assets and income. According to a 2014 report from the U.S. Senate Permanent Subcommittee on Investigations, the United States loses about $150 billion a year in tax revenue because of assets hidden abroad. (To put that loss in perspective, it is more than a quarter of this year’s projected federal deficit.) Although Americans are required to report income from outside the United States, the evidence is overwhelming that voluntary reporting is ineffective.

To deal with the massive levels of tax evasion, Congress in 2010 passed the Foreign Account Tax Compliance Act. Under FATCA, as the law is so suggestively abbreviated, taxpayers must report accounts held abroad worth more than $50,000, and foreign financial institutions are required to report on the accounts of their U.S. clients. Implementation has been slow, however, in part because of the need for new treaties with some countries to obtain the sought-after financial data. Senator Rand Paul has single-handedly blocked ratification of a treaty with Switzerland on the grounds that disclosure of foreign bank accounts violates the privacy rights of American citizens. The Republican National Committee has called for FATCA to be repealed.

Multinational corporations also avoid paying U.S. taxes through a variety of legal subterfuges, such as shifting debt from low-tax jurisdictions to their American subsidiaries and by indefinitely deferring repatriation of profits earned abroad. Many U.S. companies pay no tax at all on their foreign profits. A report by the Congressional Research Service released in January says that the revenue losses “may approach, or even exceed, $100 billion per year.”

An army of lawyers, accountants, and lobbyists—Winters calls them the “wealth defense industry”—work assiduously to develop methods of evading and avoiding taxes and to convince Americans that nothing can or should be done to stanch the losses. After September 11, when the United States wanted to block financial transactions of suspected terrorists, it obtained international agreements for that purpose. Offshore tax havens undermine the solvency of all the world’s economic powers. As of 2010, according to an estimate by the Tax Justice Network—an international agency fighting tax evasion—offshore assets reached between $21 trillion and $32 trillion. Many governments could help reduce their fiscal woes and achieve a more just distribution of tax burdens through international agreements that controlled the use of tax havens. This has to be an imperative for progressive diplomacy in the 21st century.

In focusing on tax privileges, preferential tax rates, and the use of offshore tax havens, I am, of course, not just talking about policy ideas. Each of these is as much a message about justice as a practical way of raising revenue and rolling back inequality. Some liberals and progressives have called for entirely new taxes, such as a carbon tax, a value-added tax, or a tax on financial transactions. While there is a rational case for each of these, they would generate more broadly based opposition. Historically, the introduction of an entirely new tax on a mass basis is a rare event. Equitable rules for existing taxes and enforcing the laws against tax cheats are a better means of both reducing inequality and communicating that purpose.

As the latest example of tax evasion illustrates, many aspects of rulemaking for markets in the 21st century will need to move from the national to the international level, just as rulemaking in the Progressive era began moving from the states to the federal government. This is especially important if the interests represented in the rules are to include those of workers and the wider public. In a world where capital moves in a keystroke across borders, economic regulation at the national level has lost some of its effectiveness. The rules have to catch up with the realities, whether in dealing with climate change, taxes, or the rights of labor and consumers.

Rolling back oligarchic dominance will also require rethinking the relaxation of antitrust law and other changes in recent decades that have fostered the concentration of economic and political power. The narrowed conception of antitrust as being only about price competition and narrowed criteria for enforcement doesn’t take into account the harm by companies that have the power to impose their terms arbitrarily on consumers and to steamroll opponents in the public sphere. We will also need to rethink the rules of corporate governance that have allowed top corporate officials to pay themselves staggering salaries while denying their employees any share in productivity gains. The old norms that used to maintain a semblance of equity have completely broken down. Without the countervailing power of unions, corporations are like private governments with no effective checks and balances, nothing to check self-enrichment at the top, and nothing to balance the interests of the executives and shareholders with those of other stakeholders. German “co-determination” provides an instructive alternative model; corporate boards in Germany represent workers as well as owners, and its companies not only have been enormously successful but have also distributed the gains from higher productivity more equitably.

Without changes in the rules of politics, however, none of this is going to be feasible. In its decisions about campaign finance, the Supreme Court has, in effect, made it a constitutional requirement for elected officials to depend on wealthy donors for their political survival. In Citizens United, the five conservative justices ruled that corporations—actually, top corporate officers—could use their treasuries to finance candidates because money is speech and corporations have unlimited free-speech rights; in McCutcheon, the Court eliminated limits on a donor’s total contributions to all candidates in an election cycle. These were oligarchy-empowering decisions.

From the standpoint of effective reform, the most discouraging of the Roberts Court rulings may have been its 2011 decision striking down Arizona’s “clean money” public financing law. Under the law, which had been passed by a voter initiative, candidates for statewide office could qualify for public funds by collecting a minimum number of $5 contributions. A distinctive feature of the Arizona program was that if outspent by a privately funded opponent, a participating candidate could get additional, matching funds, up to twice the initial amount. To the conservative majority on the Court, however, the Arizona law substantially burdened the privately funded candidate’s right of free speech by balancing that candidate’s resources. Political equality, in the majority’s view, is not a permissible justification of campaign finance law, even though, in this case, the government didn’t limit money or speech—it provided more money for more speech.

The Arizona case shows just how difficult it will be to overcome the Court’s oligarchy-empowering decisions with policies that empower ordinary citizens. I am not optimistic about the chances of a constitutional amendment to allow the regulation of campaign finance or about legal strategies for challenging the Court’s reasoning in these cases (though the latter could become relevant if a new liberal justice replaces a conservative one). Ultimately, this is a question about the fate of democracy that will need to be fought out politically as well as legally. A country that recognizes the principle of one-man, one-vote and expects time to be fairly allocated to opposing sides in legislative debates and courtrooms should constitutionally be able to create an institutional framework for the fair distribution of resources in election campaigns.

What democracy requires in the financing of elections are methods that provide sufficient grassroots and public funds to free candidates and officials from dependence on concentrated wealth. The proposal of Bruce Ackerman and Ian Ayres for “democracy vouchers”—government-funded vouchers that individuals could contribute to the party or candidate of their choice—would be a step in that direction. Another possibility is to refashion the existing, voluntary $3 check-off on the income tax for presidential campaigns. Although the check-off doesn’t increase an individual’s taxes, the proportion of people agreeing to it has declined precipitously. Reformers could try to rebuild support for the idea and expand the options to include $50 and $100 contributions to a fund that would be for both presidential and congressional campaigns. The power of money cannot be abolished, but it can be attenuated, and that can be enough.

In these as in other areas, we cannot let the perfect be the enemy of the good and expect that progress on equality must wait for the distant day when new popular movements have arisen and opened the door to a new era. As the past two Democratic administrations have shown, liberal and egalitarian goals are achievable even within present constraints. There is also no alternative to policies that advance those goals incrementally. Without delivering material gains in the short term, there will be no way of getting to long-term progress.

I said earlier that, in principle, rallying the majority on behalf of its own interests should be easier than winning support for policies that benefit the poor and minorities. But by taking the side of the poor and minorities in the 1960s, liberals made what ought to be the easier task more difficult. This was the right choice, but it has had a cost. Ever since, working- and middle-class whites, particularly men, have been suspicious of liberal government as no longer working for them, and consequently building broad, bottom-up majorities for progressive politics has become more difficult. The backlash against the changes in racial and gender relations has provided the votes for the revival of the right, while business and the wealthy have provided the money. Now the hope for fundamental change depends on the backlash petering out as the generations turn over, demographic patterns shift, and some of the difficult social changes of the past half-century are integrated into the fabric of American life.

For many liberals, equal rights for all, regardless of race, gender, and sexual orientation, have been the great moral and political causes of the past half-century. It is too soon, and perhaps it will always be too soon, to declare victory in those struggles. But if the effort to roll back oligarchic dominance is to succeed, we must invest in it the same degree of passion and commitment. Democracy is not only a form of government. It is also a renewable political faith. Reformers have awakened that faith in the past to win victories against enormous odds, and we must do it again. 

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