An elite deserving of the name
This book review originally appeared in Democracy: A Journal of Ideas, and is reprinted with permission.
As the twenty-first-century American middle class gets squeezed, with little relief in sight, liberals are wistfully remembering something about the postwar era that they had energetically forgotten. That age of suburban conformity and institutionalized sexism and racism was also a time when big business believed in government and worried about the common good, and was willing to pay for both.
Reminding us of that era, and documenting the engagement between the corporate class and the state during the 1940s, ’50s, and ’60s, is the most valuable contribution of The Fracturing of the American Corporate Elite by Mark Mizruchi. The University of Michigan business school professor, who has written three previous books about the practices and culture of the American corporation, offers a compelling history of how the American corporate elite reconciled itself to the New Deal, and then, in the aftermath of World War II, signed on to a vision of America in which government played a muscular and essential role in steering the economy and underwriting the well-being of the middle class.
The business heroes in this narrative are the leaders of the “moderate, pragmatic corporate elite [that] had emerged, based primarily in the largest American corporations” by the end of World War II. This elite and its views were “epitomized” by the organization whose history forms the backbone of Mizruchi’s narrative, the Committee for Economic Development (CED). Formally incorporated in 1942, the CED brought together engaged, moderate businessmen from across the country and advanced their views in the major national debates of the subsequent decades. They were an illustrious group: As of July 1945, the CED’s trustees included a senior partner at Goldman Sachs, the chairman of Coca-Cola, the president of General Electric, and the presidents of the Federal Reserve Banks of Boston and St. Louis.
The CED, in Mizruchi’s telling, thought the days of untrammeled free-market capitalism were gone, and that both private and government-led economic management would be necessary for a market economy to survive. In order to maintain the system from which their privileges derived, they believed it would be necessary to attend to the welfare of the broader population. This meant supporting a high level of employment, the alleviation of poverty, the amelioration of racial disadvantage, and the provision of sufficient purchasing power in the population to consume the goods that American business was so proficient at producing.
This was the creed of the nation’s most influential corporate leaders, a group that supplied Cabinet secretaries to both Republican and Democratic Administrations. Today, with so much of the national economic conversation consumed by the budget deficit and which middle-class entitlements need to be cut to reduce it, that platform would place you on the left wing of the Democratic Party, and no leading business organization would advocate it.
Mizruchi openly admires this postwar elite and argues that its decline “has played a major role in the crisis of twenty-first century American democracy.” That argument is a nice antidote to this country’s historical amnesia, particularly when it comes to relations between the private sector and the state. What is less clear is whether, as Mizruchi hopes, that productive postwar relationship among business, government, and society can be recreated today. One reason to be pessimistic is that the current arrangement, notwithstanding the author’s protestations to the contrary, is serving America’s business elites remarkably well.
We live in the era of Grover Norquist’s tax pledge, and an age when respected financiers casually describe President Obama’s unsuccessful effort to close private equity’s favorite loophole, the carried-interest provision, as comparable to Hitler’s invasion of Poland. It is thus bracing to be reminded that once upon a time, business actually advocated tax increases to fund things like infrastructure and war. Mizruchi’s account of the public debate over how to pay for the Korean War is particularly instructive. The CED advocated a $10 billion tax hike, including an increase in the tax on dividends, a charge squarely aimed at the share-owning class. After the truce in Korea, the U.S. treasury did not immediately recover. To refill the national coffers, President Eisenhower sought a six-month extension of the excess profits tax, a levy charged on the “excess profits” companies made as a result of increased defense spending. Inevitably, the excess profits tax was one of business’s least favorite measures—but even so, the CED backed Eisenhower’s proposal. As late as 1989, big business aggressively lobbied for higher taxes at critical moments. It sounds inconceivable today, but Fortune magazine welcomed George H.W. Bush to the White House with a cover story a few days before his inauguration that declared, “CEOs to Bush: Raise Taxes Now.”
Another forgotten chapter in the history of blue-chip America that Mizruchi highlights involves health-care reform. Fox News and Tea Party adherents would probably be surprised to learn that in the past half-century, America has had one President whose health-care ambitions were more radical than anything Bill Clinton proposed or Barack Obama achieved. His name was Richard Nixon, and his plan “closely mirrored” an earlier proposal advanced by the CED. Nixon’s blueprint “included a mandate that all employers provide health insurance for their employees and pay at least three-quarters of the cost, as well as a government-run system for everyone not covered by employer-based insurance.” Nixon wanted to cover dental care for children and cap the out-of-pocket cost per family at $1,500 each year, regardless of the total cost of care received.
Nixon’s plan, of course, was stillborn, and U.S. health care remained a mess. Mizruchi argues that during the 1980s, reform became an even greater priority for the business elite. That makes sense, he believes, because of the costs America’s inefficient health-care system imposed on the employers who often had to provide it. After all, state-supplied health care could be the businessman’s friend, as Chrysler and Caterpillar executives were quoted as saying in a front-page New York Times story from 1991. Shouldn’t American CEOs resent having to supply their workers with something their European and Canadian competitors can count on the government to provide? And shouldn’t they have energetically applauded an effort to shift that burden to Uncle Sam?
So why was big business unable to support either the Clinton or the Obama health-care reform efforts? One reason, according to a Fortune 500 CEO Mizruchi quotes, is an ideological conviction so deep it trumps the bottom line. “One [view] inside the business community is a belief that anything the government touches is bad,” the executive said. “There are many who, regardless of any pragmatic benefit to their company, are opposed in any way to government run programs, government mandated programs. It just doesn’t sit well with their philosophy.” That’s a powerful admission. One reason we give weight to the political recommendations of business leaders is their economic expertise. Just as climate scientists have special authority when it comes to the environment, businesspeople have special authority on economic policy. But if, as Mizruchi’s anonymous CEO says, they are actually just advocating their personal beliefs, one wonders whether they merit a privileged place in the national conversation.
Even more interesting is Mizruchi’s argument that CEOs’ failure to support health-care reform was driven by the perverse incentives inside the bureaucracies over which they themselves preside. Mizruchi found that CEOs were ambivalent about health-care reform. But their human-resources executives were unanimous in opposing it, and they were sometimes willing to admit openly that their hostility grew out of the fear that reform would make their own jobs as administrators of corporate health-care plans redundant. If you get the joke in any Dilbert cartoon, this scenario will instantly make sense—anyone who has actually worked inside a big company knows that bureaucratic dysfunction is not the sole province of the state.
Mizruchi’s secret history of a time when corporate America believed in government and in paying taxes—and the riffs he adds to the more familiar tune of how business became more conservative—are assembled here in the service of a larger argument: This right-hand turn by the country’s corporate elite has been bad for business and bad for America. Mizruchi describes a business elite that has become fragmented, irrelevant, and powerless to solve the problems—like mounting national debt, decaying infrastructure, and failing schools—that, in the long-term, will hurt the vested interests of corporate America.
As Mizruchi knows, most liberals worry business is becoming too powerful in politics; his contrarian argument is that America suffers from the opposite problem—the absence of a pragmatic, united business elite at the top of national politics has left us ill-equipped to handle our pressing public concerns. It’s an iconoclastic thesis that both excites and scares him. “It is ironic that I would be writing about the postwar American corporate elite as a model for responsible leadership,” he admits. “I spent the early part of my career characterizing these people as the ‘bad guys,’ and there certainly was plenty about which to complain.”
But he doesn’t pursue the truly unexpected and uncomfortable paradox his historical study reveals. When America’s postwar corporate elites were sexist, racist company men who prized conformity above originality and were intolerant of outsiders, they were also more willing to sacrifice their immediate gain for the greater good. The postwar America of declining income inequality and a corporate elite that put the community’s interest above its own was also a closed-minded, restrictive world that the left rebelled against—hence, the 1960s. It is unpleasant to consider the possibility that the personal liberation the left fought for also liberated corporate elites to become more selfish, ultimately to the detriment of us all—but that may be part of what happened. The book sidles up to but doesn’t confront head-on the vexing notion that as the business elite became more open and meritocratic, it also became more selfish and short-termist.
This disquieting correlation is apparent in Mizruchi’s discussion of what he calls “the new chief executive officer.” He appreciates one of the realities of the lives of America’s corporate chieftains that is sometimes lost when we look only at their paychecks. Since the early 1980s—not coincidentally, the period when the book shows the corporate elite became more conservative and more skeptical of the state—CEO compensation has soared. But Mizruchi understands that these surging financial rewards came with strings attached—in this case, a loss of control over their domain, what Mizruchi calls decreased “autonomy.”
In the immediate postwar era, corporate managers held a tight grip over their firms and their own careers. Then, in the 1970s and ’80s, the capital markets began to assert themselves. Investors mounted, and won, hostile takeover bids against managers who were underperforming. Even CEOs who avoided that fate faced more assertive shareholders. Chief executives who were once kings now had bosses who could fire them. In 1982, the average CEO tenure was 9.7 years; by 2002, it had dropped to 6.8 years. But chief executives were amply compensated for their loss of autonomy; between 1978 and 2011, CEO compensation increased more than 725 percent. To understand how extraordinary that leap was, consider the fact that worker compensation grew by just 5.7 percent over those same three decades.
The rise of this new, celebrity CEO represented a profound change in corporate America—and one that was supposed to make things better. After all, those “faceless,” statesmanlike bureaucrats of the postwar era who presided over their firms with such autonomy didn’t actually own them. The rise of more active shareholders was meant to improve the performance of CEOs—and by some financial measures it did. I wish Mizruchi had made even more of his important finding that shareholder-value-driven CEOs became less civic-minded.
One reason that he doesn’t pursue these contradictions in the behavior of “the new chief executive officer” may have to do with one of the core conceits of his book, and its biggest weakness. Mizruchi insists on framing the changed relationship between U.S. business and the state as one of the declining power of the corporate elite. This is a group, he writes, that has lost its unity, its efficacy, and even its ability “to provide collective solutions to issues of concern to the business community.” Here, he is unconvincing. It is not at all clear that a business elite that has lost the ability to speak with one voice is necessarily less powerful—it is just less united and less conscientious.
Mizruchi is obliged to perform such excruciating mental gymnastics to present today’s corporate elite as losing out because of the way he ends his book—with a stirring call to action for the C-suite. He wants today’s CEOs to be inspired by the example of their postwar predecessors and to shoulder the burdens, including the tax burden, of a responsible business elite. “Although the window is closing, sufficient time remains for the American corporate community to assume a position of leadership and responsibility,” he concludes. “Some will claim that this plea is as utopian as Émile Durkheim’s dream of an orderly society or Karl Marx’s yearning for a communist nirvana. But the American corporate elite has provided leadership in the past. It is long past time for its members to exercise some enlightened self-interest in the present.”
Here’s the rub: What if the lack of efficacy and the fracturing of the American corporate elite that Mizruchi describes suits those elites perfectly well? In social encounters, I have never met an American corporate titan who didn’t describe himself as intensely conscious of, and intensely frustrated by, the fragmentation and the collective disempowerment Mizruchi describes. This is a group of hard-working meritocrats who all feel they could solve America’s problems in a week if given the authority, and each one is astonished and angered that the President doesn’t spend more time seeking his—there are very few hers—personal opinion.
But when it comes to his day job, every American CEO is laser-focused on his own paycheck, on his company’s share price, and on whatever financial measure his investors care about. He may worry about the deficit or the state of public education over cocktails at dusk, but by day he is working hard to minimize his company’s tax bill; he may serve on presidential commissions to create American jobs, but his own job is to make his own company more efficient, which means using machines instead of people and outsourcing to reduce labor costs.
Mizruchi lauds those he sees as exceptional CEOs, like Starbucks chief Howard Schultz, for swimming against the self-interested tide with socially responsible practices. Yet, as an investigation by Reuters revealed, virtuous Starbucks so adroitly arbitraged the European tax system that over 14 years it paid less than £9 million in taxes in the UK. The point is not that Schultz is a hypocrite. It is that, in an age of global markets, global labor, and global capital, even the most socially minded CEO can’t afford to indulge in the enlightened behavior of the greatest generation.
Mizruchi hopes America will be saved by “a group of corporate officials, speaking with one voice, able to bring together politicians from both major parties.” For a boomer, asking business leaders to be more civic-minded may feel like a thrillingly rebellious idea. And it is not a bad start. But as in our last great economic transformation, the Industrial Revolution, it is naive to expect business to come to heel voluntarily.
Just like the rest of us, CEOs want to be good. But all too often, the way global capitalism works requires them—if they are to serve their shareholders, keep their jobs, and, not incidentally, earn their vast paychecks—to do things that are bad for the rest of society, or at least part of it. We cannot rely on a change of heart. What we need is a change in incentives for corporate elites—new, stricter rules, more firmly imposed, for the game that they play. And putting that system in place is a job not for the elites but for the state and society—which means all of us.