Many companies, as they cut hourly labor costs, also sought to increase productivity and improve product quality. Belatedly, they began studying the practices of their foreign competitors. Abandoning a long-standing parochial hauteur that took for granted American superiority, executives, business consultants, and economics writers adopted a newfound respect for foreign corporate cultures and expertise, particularly Japanese business, around which a cultlike obeisance developed.
The automobile industry took the lead in adopting and publicizing Japanese-style “lean production,” a program of mechanical and social engineering designed to squeeze waste from the production process and boost productivity and quality. Companies made greater use of robotic devices, trained workers in more than one job, rotated assignments, had production workers also do some maintenance and quality control, and used monitoring systems to keep them working more constantly. “Just in time” inventory, also copied from the Japanese, eliminated the cost of maintaining stockpiles of parts and raw materials by having them delivered only as they were needed, an approach made possible by more efficient shipping methods and computerized tracking.
Companies also took aim at what they saw as bloat in the ranks of white-collar staff and middle management. A hierarchical, adversarial system of labor management had led companies to keep adding supervisors, managers, and administrators, as did the growing importance of marketing and accounting functions. During the years when companies faced little competition from firms in Europe and Japan (where managerial and administrative employees made up a much smaller percentage of the workforce), they could afford ever larger fleets of managers, whose very number made planning, decision making, and new initiatives ponderous. Jack Welch, who became the head of General Electric in 1981, complained that “we were hiring people [just] to read reports of people who had been hired to write reports.” The economic troubles and falling profits of the 1970s and early 1980s led to corporate rethinking. Companies began laying off large numbers of middle managers, something previously unheard of at many firms. Laid-off managers suffered psychological as well as economic trauma, having been raised with the expectation that a job in corporate management meant lifetime employment and upward mobility. Companies also began contracting out functions like data processing and communications that they had formerly performed themselves. Some large firms specialized in providing such services, but the effort by corporations to be leaner and more flexible also created entrepreneurial opportunities for consultants, technical experts, and subcontractors, some of whom had been forced into self-employment by corporate downsizing, a new stratum of small businesspeople tied economically, and often politically, to big business.
The Financialization of Capital
A wave of company takeovers by investors seeking to extract cash and increase shareholder value accelerated corporate downsizing. The late 1960s had seen a flurry of corporate acquisitions, as companies, facing declining profits or limited growth opportunities in their traditional lines of business, sought to diversify. Many of the resulting conglomerates proved inefficient, arbitrary collections of divisions, poorly managed by executives who possessed only dim knowledge of the businesses they had bought. Some investors realized that the separate parts of these assemblages would be worth more if broken apart than if kept together. They also eyed the cash reserves that corporations had built up during the years of high interest rates as protection against unforeseen contingencies. A sharp drop in stock prices during the second half of the 1970s—the Dow Jones Industrial Average fell by over a quarter and did not begin a sustained rise until 1982—created an opportunity for corporate raiders to gain control of companies they believed undervalued, strip them of their cash, cut their costs, and reorganize them or break them up.
The corporate takeovers and reorganizations in the 1980s entailed a revolution in the finance industry and corporate culture. Companies came to be seen as virtual commodities, which could be bought, reorganized, and sold, generating huge profits for those who got in on the action. Investors began moving massive amounts of capital into the financial sector, seeing greater opportunities for making big money there than in the more mundane activities of producing products, transporting goods, or providing personal services. A group of self-styled financial rebels, including Ivan Boesky, Carl Icahn, Saul Steinberg, Ronald Perelman, and Michael Milken, led the charge. Decrying corporate executives for failing to maximize shareholder gains through their ineptitude, passivity, or self-serving priorities, they used borrowed money and alliances with large shareholders to gain control of companies or extract “greenmail” payments for abandoning their efforts.
Structural changes promoted financial maneuvering. The 1975 decision by the Securities and Exchange Commission to end fixed fees for stock transactions led to declining brokerage house profits from trading. Firms began looking to hostile takeovers, leveraged buyouts, and taking companies private to boost their bottom lines. The increasing concentration of stock ownership and the large pools of capital in mutual and pension funds, college endowments, and other large institutional holdings made such maneuvers easier than when stock shares had been largely owned by individuals and money could be borrowed only from banks. (The involvement of these institutions spread the gains of the frantic round of acquisitions, mergers, and divestments to a broader public than the Wall Street insiders of earlier years.)
Once raiders got control of companies, they had to quickly extract cash and cut costs to pay back the loans they used to finance the takeovers. In an often slapdash manner, divisions and factories were sold, workers and managers laid off, and wage rates lowered. New corporate owners and the executives they hired did not hesitate to break long-standing company bonds with communities, workers, managers, and suppliers in the name of increasing shareholder value, while paying themselves vast sums of money.
The new corporate ethos quickly spread. At GE, Jack Welch reduced the workforce from 411,000 in 1980 to 299,000 in 1985, selling units that did not hold a dominant position in their businesses and slashing payrolls in those he retained, winning praise from stockholders who saw the value of the company soar. For their efforts, CEOs like Welch were very well rewarded. Over the course of the 1980s, the annual salaries of CEOs, after taxes and adjusted for inflation, rose by two-thirds, while the real hourly pay for production workers declined. In 1981, the top-paid executive in the country, the vice president of an oil industry service company, received $5.7 million in salary, bonus, and long-term compensation. Six years later, the best-paid executive, the head of the Walt Disney Company, took home $40.1 million. Top executives also received ever more opulent perks, from access to corporate jets to company-paid housing to extraordinarily generous retirement plans. The financiers who engineered corporate takeovers did even better. In 1987, Michael Milken, who sold junk bonds to finance start-up companies, corporate expansions, and takeovers (and who would eventually go to jail for securities law violations), was paid an astounding $550 million by the brokerage house he worked for, surpassing—adjusted for inflation—even the income of John D. Rockefeller during his peak earning years before World War I.
By the end of the 1980s, the corporate world had been thoroughly transformed. Compared to other eras, not much money had been invested in plant, equipment, or research and development. Instead, it had gone into the elaborate and often highly profitable financial maneuvers that characterized the decade. The process of constant reorganization resulted in layoffs and plant closings that cost millions of workers their jobs and decimated whole communities. Some companies failed to survive the turmoil, but others, by shedding noncore businesses, closing inefficient plants, and reducing payrolls, became more efficient producers and more effective competitors in international markets. The stagnation of wages, cuts in corporate taxes, and the fall in the value of the dollar after 1985, which boosted exports, buoyed corporate profits. Shrewd executives, investors, and financiers had found a way out of the deep econ
omic troubles of the 1970s and early 1980s that benefited themselves, if not necessarily the nation as a whole.
Business Politics
The corporate transformation that boosted profits involved political action as much as economic change. The shifts in labor policies and investment strategies that occurred in the late 1970s and 1980s required a congenial legal and political atmosphere. To create it, businesses, their leaders, and their owners mobilized politically to an extent that had few precedents in the recent history of the country, resulting in a major change in the national political trajectory.
Business had long tried to shape federal legislation and policy but generally did so on a parochial basis, promoting the interests of specific companies, industries, and regions. The political and economic challenges of the 1970s led business to organize on something like a class basis, subsuming particular needs to a broad offensive aimed at stopping labor advances, checking regulation, and lowering taxes on companies and their owners.
Long-established national business organizations, like the U.S. Chamber of Commerce and the National Association of Manufacturers (NAM), became far more oriented toward political lobbying than in the past, recruiting more members, building up their budgets, and hiring fleets of Washington operatives. Some openly identified with the political right, with the Chamber taking conservative stands not only on economic issues but on social and foreign policy ones as well. These broad-based groups helped bridge the gap between the major national corporations and smaller, local businesses that could exert pressure on members of Congress in their home districts. New groups formed too, most important, the Business Roundtable, a group of CEOs from the nation’s largest companies who committed themselves to personally lobbying Congress and the White House on key issues.
Individual companies and trade associations also ramped up their involvement in politics. Ironically, their increased influence was facilitated by the 1971 Federal Election Campaign Act, which the labor movement had pushed, authorizing political action committees (PACs). By 1978, more than eight hundred corporate PACs had been set up, becoming a significant force in Washington politics. So were lobbyists hired by companies and trade associations. Over the course of the 1970s, the number of businesses with registered Washington lobbyists increased tenfold. Businesses used lobbyists to influence not only Congress and the White House but also the many new regulatory agencies that could have significant impact on their day-to-day operations.
Some companies and wealthy individuals, looking beyond particular measures, sought to shift the national climate of opinion about business in general and about the market, social policy, and the role of government, much as some conservatives had tried to do in the late 1940s and early 1950s. Washington-based think tanks became a favorite vehicle for doing so. Through them, scholars, journalists, and once-and-future government officials could develop policies and promote them with at least a veneer of objectivity. The American Enterprise Institute, a long-established conservative think tank devoted to promoting free-market ideas, expanded with an influx of contributions from corporations and conservative foundations. The Heritage Foundation, founded in 1973 with money from beer magnate Joseph Coors and Mellon family heir Richard Mellon Scaife, flooded the media and Congress with conservative press releases, speakers, and position papers. Businesses and foundations also funded institutes and professorships on college campuses, designed to chip away at what conservatives believed—with some truth, but not as much as they thought—was a liberal hegemony at leading institutions of higher education.
The business lobby first fully mobilized in a series of fights over proposed changes in labor law. Preliminary skirmishes occurred over bargaining rights for state and local government workers. A measure introduced into Congress in 1971 would have established a federal law governing public-sector labor, at a time when many states either did not have a legal framework governing public employee unionism or banned or restricted it. Labor leaders also hoped to repeal the 1939 Hatch Act, which severely restricted the right of federal employees to engage in political activities. A business/conservative offensive helped kill both measures. (The labor movement proved more successful on issues not directly related to its own organizational power, such as getting Congress to raise the minimum wage in 1974 and, over sharp business opposition, institute federal regulation of private pensions.)
The next fight occurred over so-called common situs picketing. For years, construction unions had sought an exemption from the Taft-Hartley ban on secondary boycotts and strikes, to allow them to use picket lines to keep employees of all contractors out of a construction site, not just those of a contractor with whom they had a dispute. This would have given labor a powerful weapon to fight the increasing use of nonunion construction workers. In 1975, Secretary of Labor John T. Dunlop came out in support of a common situs bill. In spite of opposition from the Business Roundtable and the Chamber of Commerce, Congress passed the measure, but President Ford, under pressure from business groups, vetoed it, leading Dunlop to resign. In a measure of the declining influence of labor, in 1977, after Carter pledged to support the bill, the House of Representatives narrowly failed to pass the reintroduced bill in the face of intensive business lobbying.
The climactic battle came over a bill amending the National Labor Relations Act. Over time, businesses had become increasingly aggressive and effective in fighting unionization efforts. Advised by lawyers and consultants specializing in defeating unions, they delayed representation elections, pressured workers to vote against unionization, fired activists, and threatened to close their plants rather than accept collective bargaining. The penalties for violating labor law were so modest that many companies made the calculation that breaking it made business sense. In 1946, unions won 80 percent of representation elections; in 1967, over 60 percent; by 1977, fewer than half.
A bill introduced to Congress in 1978 would have speeded up the representation election process and the resolution of claims of unfair practices. It also would have given unions a right, already held by managers, to address the workers scheduled to vote for or against having a union; increased penalties for violating the right of workers to freely choose representatives; and in cases of “willful” violators disqualify them from holding federal contracts. Business launched an all-out offensive to defeat the bill, led by the Chamber of Commerce, NAM, construction industry groups, and the Business Roundtable, outspending labor almost three to one. In the end, though the bill won majority support in both houses of Congress, it fell short of the sixty votes needed to break a Senate filibuster. Even with the Democrats controlling the White House and Congress, business bested labor on the issue both sides saw as paramount.
The victories over labor convinced business leaders of the efficacy of aggressive political action. After labor, they most worried about federal regulation. Though many of the more radical movements of the late 1960s and early 1970s had short half-lives, environmental groups and consumer activists remained influential. Common Cause, Public Citizen, the Sierra Club, Friends of the Earth, and consumer advocate Ralph Nader’s organizations used direct-mail solicitations to raise money from the public, allowing them to develop substantial research operations and professional staffs. Court rulings that broadened who had legal standing to challenge regulatory decisions gave these groups the ability to get involved in the nuts and bolts of federal rulemaking. Their expertise about regulatory rules and procedures often equaled or surpassed that of affected industries. Partially as a result of their pressure, new federal regulatory agencies were created, including the National Highway Safety Commission, the Consumer Product Safety Commission, the Mine Safety and Enforcement Administration, the Occupational Safety and Health Administration, the Commodity Futures Trading Commission, and the Nuclear Regulatory Commission.
Business had put up little resistance to the initial creation of some of the new agencies, including OSHA, but by the end of the 1970s they were
working to limit their impact. A barrage of business criticism of regulatory agencies dealing with environmental, consumer, and occupational safety issues for being intrusive, ineffective, and driving up costs undermined their public and political support. Business opposition killed a proposed Consumer Protection Agency, undercut a Federal Trade Commission effort to restrict advertising aimed at children, and led OSHA to become less aggressive in its standards and enforcement (abetted by a 1980 Supreme Court decision blocking a newly promulgated benzene standard, which raised the bar for imposing regulations).
Decreased regulation of the financial industry facilitated its transformation. In 1978, the Supreme Court ruled that states could not regulate the interest charged on credit cards issued by national banks based in another state. Big credit-card-issuing banks, like Citibank, moved their credit card operations to states like South Dakota and Delaware that agreed to repeal or revise their anti-usury laws. By charging high interest rates, the banks turned credit cards into a very profitable business. Then, in 1982, Congress allowed savings and loan banks to offer money market accounts and to loan money outside their traditional residential mortgage markets. They also were permitted to purchase the risky “junk” bonds that were increasingly being used to finance company takeovers. The easing of government restrictions on multiple branches and operating across state lines led to a wave of bank mergers.
Business did not effect a complete counterrevolution. Basic labor law remained the same (though practically it became less and less useful to unions), and regulatory agencies remained in place (if somewhat defanged). But the balance of power had changed. Corporations and their allies had built institutions to counter and delegitimize unionism, consumerism, environmentalism, and government regulation that proved to be powerful mechanisms to advance the interests of business, the upper class, and the political right for years to come.
American Empire Page 50
